Ladies and gentlemen, good day and welcome to the TCS Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali. Thank you, and over to you, sir.
Thank you, Margaret. Good evening, and welcome, everyone. Thank you for joining us today to discuss CTS' financial results for the third quarter of fiscal year twenty twenty ending December 3139. This call is being webcast through our website and an archive including the transcript will be available on the site for the duration of this quarter. The financial statements, quarterly fact sheet and press releases are also available on our website.
Our leadership team is present on this call to discuss our results. We have with us today Mr. Rajesh Gopinathan, Chief Executive Officer and Managing Director.
Hi, good evening, everyone, and very happy new year to all of you.
Mr. Angi Subramanian, Chief Operating Officer.
Good evening to you.
Savi Ramakrishnan, Chief Financial Officer.
Hello, everyone.
Mr. Milan Lucker, Global Head, Human Resources.
Yes, hi, good evening.
Rajesh and Ramke will give a brief overview of the company's performance followed by a Q and A session. As you are aware, we don't provide specific revenue or earnings guidance and anything said on this call which reflects our outlook for the future or which could be construed as a forward looking statement must be reviewed in conjunction with the risks that the company faces. We have outlined these risks in the second slide of the quarterly fact sheet available on our website and emailed out to those who have subscribed to our mailing list. With that, I would like to turn the call over to Rajesh. Thank you, Kedar.
The
December is a seasonally weak quarter for us, and we saw the sectoral trends of the first half of the year continue to play out in Q3 with the revenue growth of 6.8% year on year in constant currency and 6.7 in rupee terms and 6.4% in dollar terms. We focused on execution this quarter as we've spoken about the weak demand environment at the start of the quarter also. And expanding our operating margin to 25%, continuing to support all our investments for future growth has been the key highlight of our performance this quarter. Our net margin was 20.4%. I'll ask Ramke to go over the financial numbers and segmental performance and I'll step in again later to talk about the demand trends that we're seeing.
Over to you, Ramke. Yes. Thank you, Rajesh. Let me first go through the headline numbers. In the third quarter FY twenty twenty, our revenues grew 6.8% Y on Y on a constant currency basis.
Reported revenue in INR was hundred and 98,540,000,000.00, which is Y and Y growth of 6.7%. In USD terms, revenue was $5,586,000,000 which is a Y and Y growth of 6.4%. Let me now go over the segmental performance during the quarter. As a reminder, all these growth numbers are year on year and in constant currency terms. In BFSI, as Rajesh mentioned, trends from the first half of the year continued into Q3.
Demand trends were mixed. We continued to see tightening of spend among the large banks in North America and UK. Furloughs in some of these accounts further affected growth this quarter. On the other hand, we did well in Europe and our insurance sub vertical continues to grow well. Growth during the quarter overall was 5.3% in BFSI.
In the retail sector, this is traditionally a subdued quarter in terms of technology investments. Growth in Q3 was 5.1%. Life Sciences and Healthcare had a very strong quarter with growth accelerating to 17.1%. Our strong domain knowledge, intellectual property and ability to bring to bear the power of digital technologies across the entire value chain in both these domains has won us many transformational engagements. Communications and Media continue to do well, growing 9.5%.
Demand drivers have mainly been digital investments in analytics and customer experience. Manufacturing grew 9.2% this quarter, while technology and services at 3.3. Geography wise, Europe continued to outperform growing by 15.9%. UK, on the other hand, decelerated to 7.5% sharply due to the Brexit anxieties. The BFSI and retail headwinds also caused North America to decelerate further to 4.1%.
Among the emerging markets, MES stood out with 10.8% growth. India, Latin America and Asia Pacific all grew in a tight range around 6%. Coming to products and platforms, they performed very well in Q3. Igneo, our cognitive automation software had 10 new wins and seven go lives. It has become the centerpiece of the new operating model that many customers are adopting to make their IT operations lighter and more responsive and their technology stacks more resilient.
With its ability to diagnose and resolve system failures autonomously, Immuneo is imbuing their technology stack with a self healing capability and reducing the business impact of outages. This is particularly appreciated by retailers who'd rate the system outages during their all important holiday shopping season. Ignio's channel partner program is also progressing well with two new partners on boarded this quarter bringing the total number to six. TCS Bank, our flagship product suite in the financial services domain, had six new wins and eight go lives in Q3. It is worth noting that two of the wins are for the new asset servicing platform that we launched recently.
The other four wins are in the areas of core banking, securities trading and securities processing. The Quartz Blockchain solution had one new win in Q3. It entails building a Blockchain based system for a leading stock exchange to facilitate real time reporting of trade status to multiple participants within its ecosystem, including other exchanges, depositories, custodians and brokers. We also launched the Quartz DevKit in Q3 to accelerate enterprise adoption of blockchain technology. The DevKit abstracts out the complexity of blockchain programming and provides enterprises with a low code means to quickly and easily build blockchain based applications on popular platforms like Hyperledger Fabric, Ethereum and R3 Corda.
We had two wins for the DevKit in Q3. In the Algo retailing space, we had one win each for Optumira and OmniStore. In Life Sciences, our award winning Advanced Drug Development Suite had one new win in Q3, this time for the Regulatory Insights platform to help the customer provide high quality and faster responses to regulators' queries on product submissions. Lastly, our HOBs, SaaS platform for communication service providers had three new wins and two goalies. Coming to client metrics, as you are aware, we report every quarter providing insights into our customer centric business model that continually broadens and deepens our customer relationships, driving in a constant movement of customers up the revenue bucket.
In Q3, we had very good client additions across all the revenue buckets. We added two more clients in the $100,000,000 plus band, bringing the total to forty seven three more clients in the $50,000,000 plus band, bringing the total to one hundred and two twenty one clients in the $20,000,000 band, taking the total to two thirty two twenty five clients in the $10,000,000 band, totaled to $395 30 8 clients in the $5,000,000 band and 57 clients in the $1,000,000 plan taking the total to $10.53 dollars Let me add other financial highlights. Our focus this quarter was on execution By working on utilization and other operating levers and with some support from currency, we have been able to expand our operating margin by 1% sequentially to 25%. Net income margin was 20.4%. Effective tax rate for the quarter was 22.9%.
Our accounts receivable was at sixty eight days DSO in dollar terms. Net cash flow from operations was INR 94,510,000,000.00, which is 116% of our net income. Free cash flow was INR 87,340,000,000.00. Invested funds as of thirty one December stood at INR 431,360,000,000.00. This quarter, the Board has recommended an interim dividend of INR 5 per share, taking the total dividend year to date at INR 55.
This translates into over INR $240,000,000,000 return to shareholders in the first nine months of this year. Moving on to the people front, after the highest ever additions in Q2, our hiring moderated in Q3. Our total headcount now stands at $446,675 is a young, vibrant and diverse workforce with representation from 146 nationalities and with women making up 36% of the bill. You might recall that in our departure from the past, we had front loaded a pressure program, onboarding all 30,000 freshers selected from through the PCS national qualifier test in the first half of this year itself and significantly compressing their initial training duration. This was an unprecedented achievement in itself.
I'm also happy to report a further achievement. Our resource management teams have successfully deployed 93% of these trainees on projects in Q3, setting a new benchmark in scale and speed of deployment. We'll continue to expand the base with more pressures in the medium term to reengineer cost structure and hasten our return to our preferred operating margin. At the same time, we continue to invest heavily in upscaling the middle levels and empowering InduGen at all levels to pursue learning and developing path that are best aligned to their career aspirations. As of thirty one December, we have trained over 327,000 employees on emerging technologies and over 404,000 employees on agile methodologies.
Additionally, we are creating fast track carrier options to attract as well as retain the best and brightest digital talent. The opportunities to learn, collaborate and grow, the vibrant workplace we have created and progressive HR policies have all made this as a global benchmark in talent retention. LTE, Matrician and IT services in Q3 was 12.2%. I turn it over to Rajesh for the demand drivers and other trends. Thank you, Ramkeem.
Our decelerating growth trajectory this year means that our growth for the full year will be lower than the 11.4% revenue growth that we had in FY 2019. However, we view this deceleration in BFSI and retail as a short term phenomena and continue to see strong secular demand for our services in the medium and long term. Let me provide you a little more of color on what we're seeing in these areas. So first coming to BFSI. We have been closely monitoring the banking and financial services vertical from the time we first started noticing some tightening of spend at the start of this financial year.
Let me share with you some of the trends that began then and which have continued over the last three quarters. From time to time, we started from the time we started reporting our order book value, we have had very strong deal closures across BFSI. The deals have been well distributed across the verticals and geographies and the new deals are ramping up on time and delivering the expected revenue. This quarter, we closed 1,800,000,000 in BFSI TCV, which brings the total TCV in the first three quarters of this year to $6,000,000,000 across in BFSI. We've also been winning new customers across all subverticals and across geographies.
Year to date, we have added 20 new logos in BFSI. In terms of subverticals, our insurance business has been growing very well across all regions throughout these three quarters. And after some initial softness, the BFS in Continental Europe has recovered quite strongly and in the current quarter grown double digit on a year on year basis powered by transformational deals that we are winning. Similarly our BFS revenues in Australia and other regional markets are also growing well and so are revenues from smaller banks and market infrastructure providers in North America. So the headwinds continue in about few of the large banks across North America and UK.
They responded to their need to optimize their under business spend by transforming their operations with our machine first delivery model and large scale automation. This is delivering tremendous value to these customers in line with our less is more philosophy and helping us gain wallet share. However, in the short term, the resultant deflation is pulling down our growth in DFSI. Stepping back a little, I'm happy to share with you that over the seven quarter period starting Q1 FY twenty nineteen, our market share in BFSI, which is all organic, has grown materially vis a vis our global peers. We have expanded close to 200 percentage points in terms of relative market share when you look at the top five, six providers in this space.
And that's something that we need to which gives us a lot of confidence in our relative competitiveness and our positioning in terms of participating in the demand going forward in this vertical. Our market leadership is also being validated in qualitative terms also. In Q3, we were featured in nine competitive assessments by industry analyst firms covering areas such as applications and digital services, capital market operations, financial crime, compliance, life and pensions, insurance, property and casualty insurance, etcetera. In all nine assessments, we were ranked the leader and in five of the nine, we were ranked as the absolute number one. So overall, both from a deal closure perspective, the share volume of new deal closures, our ability to win new customers, our ability to both defend and expand our market share and our relative competitiveness as assessed by third parties.
In all of these areas, our leadership in BFSI continues and that is where I believe that we are well positioned in term in this industry and to participate in the turnaround that is likely as we look forward into the medium and long term. Similarly, when we look at the retail vertical, we are growing very strongly in UK and in Europe. And within the within this space of retail, sub verticals like CPG, consumer products and travel, transportation, hospitality, etcetera, are growing extremely well. Headwinds are coming from, once again, large retailers in The U. S, some of which are going through financial stress.
We are confident that these will bottom out soon, if they have not already done so. As I mentioned earlier, we are confident in our secular growth trajectory. The confidence comes from three sources, the structural changes and the manner in which these enterprises across multiple industries consume technology today. Secondly, the resultant expansion of our addressable market and our own preparedness to participate in that fast expanding opportunity. We have spoken about this in the past and this is a space that we are extremely focused on and quite confident about.
Customers are seeing us as strategic partners for their growth and transformation initiatives, engaging us to design bespoke multi technology solutions, leveraging our contextual knowledge and deep digital expertise to tailor it to their unique business context and IT landscape. These solutions help them reimagine their business models, innovate faster or pursue new revenue lines or engage better with their customers. This is also showing up in the sheer volume and quality of transformational leads that we have been signing over the last couple of years. In the past, I have spoken of our investments in reskilling the workforce in agile workspaces and research and innovation, etcetera, and our unmatched portfolio of intellectual property and innovation centers as well as our contextual knowledge and ability to stitch together the capabilities from across CCS have helped us win these deals. I want to spend a couple of minutes to dwell on that in more detail.
Partnering our customers in a large transformation begins with identifying an opportunity in the customer's business landscape and then coming up with a solution blueprint by orchestrating all the relevant components from across different parts of TCS. Then comes the actual execution. This entails program managing multiple distributed teams across the world using a location independent agile model, while addressing the change management needs of the customer organization. All this is done by a very accomplished team using the consulting and service integration unit that we set up a few years ago. Senior transformation experts from this unit work closely with our account teams in establishing strong executive connects with the customer, the Exos, and using their strategic analysis and problem solving capabilities to design impactful solutions.
By engaging with heads of corporate functions and lines of business, we are broadening and deepening our customer relationships and expanding the funding pool in which we participate. This quarter, we estimate that the total order book out of that deals worth nearly $1,000,000,000 resulted from our full stakeholder engagement strategy. And in addition to playing a key role in the larger transformation deals that are often initiated by the account teams and domain experts from within the industry verticals, the consulting unit also has primed several showcase transformational engagements of its own. And backed by a full slate of transformational services catering to a very functional need within the corporate landscape. This unit has focused on issues like M and A, digital strategy or enterprise agility and one of some of the largest integration and divestiture engagement.
We've been publishing this and you can see more details of it in the key highlights section of our fact sheet and the earnings press release. And overall, I think what sets us apart is the manner in which we have tightly integrated this unit into our presales and delivery organization and continuously invested in it in an organic way, so that it has been built to ground up, allowing the right mix of domain, functional and technical expertise to be brought to bear at the right time in the service delivery value chain. Second, in keeping with our heritage, we are very value driven, relentlessly engineering client benefits from the very first discussion, so customers can clearly see the financial impact of our work. Every proposal increasingly outsourced is based on a shared value hypothesis that governs all aspects of the engagement. With this model, we believe we are very well positioned to capture more than our current share of growth and transformation and to use this as a lever for growth in the years to come.
For now, we had a good set of wins from a seasonally weak quarter. The overall order book for the quarter, as I mentioned earlier, was at about $6,000,000,000 Of this, North America accounted for $3,300,000,000 and BFSI was at $1,800,000,000 while the retail order book was $860,000,000 Our deal pipeline continues to be very strong and very nicely distributed by vertical and geographical markets. With that, I would like to open the line for questions.
Thank you very much. We will now begin the question and answer session. The first question is from the line of Sandeep Agarwal from Edelweiss. Please go ahead.
Yes. Hi. Thanks for taking my question and happy new year to the management team. One small question, Rajesh, you amply explained everything in detail on the little bit of deceleration we are seeing in the BFS and detail. Just wanted to know even are you seeing some kind of softness in the order book of the BFS, please, although you mentioned 1,800,000,000 But do you think that order book is growing as fast as the order book of other vertical or segment?
And is this primarily the shortage, whatever is there is currently in growth, will you assign most of it to the deflationary or cost or more efficiency with which we are delivering services to client? Because if that is the case, then obviously, the client will finally have more money to spend at least in future and that eventually will come to the person who has definitely saved it for them. So will it be fair assumption on that part?
Certainly Sandeep. In fact, that is the very thesis on which we are betting on. So I mentioned this in the press conference also earlier that I don't think that aggregate budgets are necessarily being not shrinking. A few years back, there were much more aggressive shrinkage of budgets in the BFSI space. Now we are not seeing that as a trend, but there is a significant focus on getting more bang for the buck and to significantly increase the output for the money that is being spent.
And that is the space that we are very aggressively participating in. We are engaged in liberating a full plethora of technologies, both from our machine first delivery model framework, MFBM solution set that we have, automation, as well as in using areas like digital twin and taking some of these concepts to places like trade settlement, etcetera, to significantly see how can the throughput of trade settlement process be improved or how can defect be detected early on in the process, so that that can be fixed and the yield rates improved. So there is a full spectrum of participation that we see and that is as we said, we believe that strategically that is the right thing to do, though it has its own impact from a short term perspective. The order book, I think actually the order book continues to be quite strong. For end of the year, this is still fairly risky.
And typically and we are still only in the second year of these publishing these numbers, so we'll have to wait to see the seasonality. But intuitively, order picking happens somewhere at the end of second quarter and beginning of the third quarter. So within that context, I think we are quite happy with the overall order book that we see. The total order book in BFSA for the three quarters is at about $6,000,000,000 which is in line with our overall expectation of order to revenue kind of ratios. So net net, I think, we're quite happy with where we are.
And it is getting I think the proof of it is the relative market share part where that shows us relative competitiveness also on our participation.
Okay. That's very helpful. Just one small piece, Rajesh. Will it be fair to assume that this pockets of disappointment are at least in the BFS space are at the fag end of the pain and probably maybe one quarter maximum or two quarter we will start seeing some kind of recovery or you would not like to assign any timeline to it?
Difficult to assign timelines. For example, something like the weakness that we've seen in UK, we reasonably feel that we reasonably feel that in a few quarters it should improve because it is coming from specific events, whereas some others are more there in deeper structural challenges. So very difficult to be able to make a call on how this will play out. But overall, looking at the vibrancy in the sector and the fact that there is an intention to invest, while even in a budget constrained situation, it is not about reducing the money, it is about increasing the output. I think that's a positive stance and therefore that gives us hope for a turnaround and better even stronger demand environment in the medium term.
Thanks and best wishes for the current quarter.
Thank you.
Thank you. The next question is from the line of Mokul Gug from Haitong Securities. Please go ahead.
Yes. Thanks for the opportunity. Rajesh, the comments both in the media interview and earlier on the call felt more optimistic than what we have heard in last two quarters. What would you attribute this optimism to? Is it mainly coming in from probably a greater order flow from new larger new smaller banks?
Or are you seeing both in BFSI and retail, your larger accounts kind of bottoming out?
Combination of both, because definitely the nature of deal wins, if you look at it, these are all quite transformative. And both in BFSI as well as in retail, significant amount of new projects being launched and good work being initiated. So there is that as well as the new customer acquisition in terms of new logo wins as well as large program wins. So all of this I think we are also reconciling ourselves to the Twin impact that this focus on significantly enhanced productivity on the existing book of business. I believe the technology exists and I think we have a better understanding of how to make it work.
Earlier only the concept was there. Now we have a better understanding of how to make it work. So that will play out, but that has a finite trajectory. And therefore, the overall growth will be the focus area. And the other verticals like Life Sciences, CMI, these are areas health care, etcetera, These are areas where significant growth and momentum is continuing.
So that's where the overall confidence is coming from.
Understood. Before taking my question, I'll get back into the queue.
Thank you. The next question is from the line of Divya Nagarajan from UBS. Please go ahead.
Thanks for taking my question and congrats on growth execution in a difficult quarter. Just a clarification on your earlier commentary around banking and retail. Retail, I'm trying to kind of wear the optimism in the medium term to some of the comments you've made around productivity and how long that could go on? How does that really play in the next three to four quarters? Are you saying that in the near term, this is likely to give some pressure and but in the medium term, it's going to pick up or are you already beginning to see some activity levels pick up in the January?
More of the formal, Indira, that we believe that there will be a pick up in the medium term. And in the near term, it is more the nature of the demand that is coming and kind of like I said, the projects that we are talking about, the nature of it is more predicated on an optimistic scenario rather than a pessimistic view of the world. So it's not just about cost cutting, it is about greater efficiency, which is, I believe, a space that we are quite comfortable with. So as long as the intent is greater leverage of tech, we believe that we are relatively much more competitive and our suite of integrated services and our domain expertise will stand us in good stead in terms of gaining constraint in this environment.
Fair enough. I think in the last quarter, I know we've stopped reporting the digital number, but there was a bit of a slowdown that you highlighted specifically in sectors like retail, which slowed down the digital growth as well. Could you qualitatively tell us how that has trended in Q3? Has there been further slowdown in the digital momentum or has that recovered after the lull that we had in the last quarter?
I don't have that number, but let me go back to the last quarter. We are not set about slowdown in digital. What we had said is that some of the product deals that we were expecting and some of the product wins that we were expecting did not materialize and there was some slowdown in that. That was the commentary that was given last time on retail. Digital per se, as I said, it is becoming difficult to existing.
And that boundary has become a very nebulous boundary, which is why we are discontinuing reporting from this quarter onwards. But logically, if you ask most of the projects that we have announced today would all qualify under the flag of digital. But how this gets reported and how that boundary gets defined, I think it's a non value adding exercise now and results in more stress than value. Therefore, we're There was a few There was a few years ago skepticism whether this is going to suddenly result in us missing the growth momentum and not being able to participate in where the new technology is going and all kinds of commentary along those lines were there. So we were sharing those numbers to address those concerns.
I think we are well past that point now and therefore, no further value in sharing this.
Okay. Last quick question. Anything to call out on involuntary attrition this quarter? Your headcount dropped around 400,000 plus people.
We don't typically break it up by this space. We look at attrition on an integrated way. And any form of it, whether voluntary or involuntary, is something that we are not very happy with. As you know that we have a very strong focus on investing and growing our own talent and we don't look at attrition as a management tool. So we approach attrition as a single number and are quite focused on managing it within acceptable limits.
Thanks for taking my questions and have a good day.
Thank you. The next question is from the line of Pankaj Kapoor from JM Financials. Please go ahead.
Yes. Hi. Thanks for the opportunity. Rajesh, on the comments that you made around SolSource deal wins, if I heard you right, you mentioned about $1,000,000,000 of order book this quarter was from such deals. So if you can clarify that if I heard it right.
And if possible, if you can put it in context like how has would have been the number be for the nine months of this year and how does it compare say with FY 2019?
I don't have those numbers offhand, but let me so that we are uniquely positioned with that, I didn't necessarily mean it being a sole sourced. What we said is that the integrated nature of these deals and our ability to stitch it together, that's the kind of deal wins that we are talking of where both consulting as well as implementation is tightly integrated. Some of them are single source, but not all of them or not even the majority of them are sole sourced. And we don't have I don't have an offhand immediate comparison of that.
Okay. And in the single source deal, is there any pattern like are they more for platform or managed services or for example, in terms of verticals, is there any kind of a pattern to such deals?
Again, on the consulting side, it was not about simple sourcing and there are no fixed patterns to it. It has when the problem is being defined in an integrated manner, I think the competitive set narrows down significantly and there are very few players who have that kind of a capability. When it comes to platforms, on the other hand, that's an even more specialized area. So there many of the times, while the initial conversation might have a wider set of participation, very early on in the deal cycle, the competitive set narrows down dramatically and quite frequently it goes down to a single source kind of single point a single vendor discussion. But two different things, the consulting led one and the platform led one, two different scenarios.
Got it. Thank you and all the best.
Thank you. The next question is from the line of Shashi Bhushan from Access Capital. Please go ahead.
Thanks for taking my question and congrats on good margin. So these new logo wins in BFSI, can you provide more color on the nature of the deal and type of clients that we are engaging with? And are these project based engagement or transformation deals, transformation deals? And whom are we replacing in these deals?
So many of these are typically fairly specialized and I wouldn't call them startups, but relatively newer organizations or newer organizations that have achieved scale in recent times. So they are the deals are of all natures. Some of them are operating model based deal, where they're used to a more, what should we say, fragmented operating model because some of them have grown. Many of them have grown through incremental acquisition and have a very heterogeneous operating model. And there is a fair amount of opportunity to just clean this up and to migrate it into a pure play ground up built, clean set of operating environment, both processes and systems.
I wouldn't they are transformative to the companies involved, not necessarily significantly different from what we would have done in many other such engagements. So the nature of the engagements
are characterized by
full portfolio leverage, so that you can actually do a combination of some amount of consulting design, development where required and operations. So that is they're getting an end to end solution. And I think that is what characterizes it most, the nature of that end to end opportunity. And given the size of it, they typically tend to choose one strategic partner and stay with them rather than spread it out among multiple vendors. So that would be the way I would characterize these.
So if my understanding is right, the way you explained, were these fintech companies that have grown in size over the last half a decade, is my assessment right? Or these are some of the smaller bank that has grown inorganically, the traditional smaller banks?
All kinds of participants in that. As I said, it is characterized by the fact that the Universal Bank portfolio is getting fragmented and many specialists best of breed for individual product categories are emerging. And some of them are of the nature of index, some of them are the nature of smaller players who are choosing to specialize in one area and gaining scale in it. Some of them have even come through divestitures of existing areas like mortgage processing of some large bank, which have got divested and have got formed into standalone businesses, right. So all forms of lineage exist.
And in retail CPG vertical, we did reasonably well in this quarter. Did I hear you right that the growth was driven by CPG or was there a retail deal ramp up as well and how sustainable is this growth momentum?
We accept that retail has grown in Europe and UK and that other sub vertical sites, EPGA, travel, hospitality, etcetera, has also grown strongly. In all of these areas, I believe that the growth visibility is quite strong and therefore the momentum should be sustainable.
So thanks and all the best for this, sir.
Thank you.
Thank you. The next question is from the line of Sudhir Guntapani from Motala Lasswal Securities. Please go ahead.
Yes. Good evening, gentlemen. Thanks for giving me this opportunity. What are the headwinds and tailwinds on margins we expect going forward both in the near term and long term?
Yes, this is Ramkhi here. I think headwind from a perspective, I think would be only currency. I think from from the benefits, one of the areas definitely which we are looking at is to expand our the base at the pyramid to sort of moderate intake at the middle level and expand more at the freshers. So this on an ongoing basis will help not only to keep it very refreshed, but also to with the margins. Other than that, I think higher growth from where we are will also be a significant benefit.
So I think these are the some of the areas which we are looking
at. Sure, sir. So earlier, we used to talk about an aspirational margin band of 26% to 28%. So any update on that trend? I mean, I'm not asking for any specific year, but in general.
No, from an aspirational perspective, we don't we are not moving away from that. We certainly and we have also said that structurally, we believe that what we are doing can put us into that, but we will it has to fire on different cylinders. So growth is one and also some the currency not just as a factor of a benefit, but currency depreciation is intrinsic to our model. So these are two factors. And as I also talked about some of the other areas on from an employee cost perspective, some of the things which you are taking will also help in that perspective.
Sure, sir. And just one clarification. So will there be any potential need to move our employees between UK and EU or vice versa based on how Brexit is going to shape up, if there's any meaningful one off impact on cost that we expect?
We'll have to wait and watch because how this all pans out because even if some by end of this month, if there is a one step, we believe that it will take until the end of this calendar year for things to be clear on that on the Brexit front. So we'll have to wait and watch.
Sure, sir. Thank you so much and all the rest for the rest of
Thank you. The next question is from the line of Rishit Barak from Nomura. Please go ahead.
Hi, thanks for taking my question. So two questions from my side, right. One from a utilization perspective. So while you guys don't report actually utilization levels, but given that you guys have invested in bringing the tenies to more to the billability level a little more quickly, right. How should we think about the utilization levels from a qualitative perspective?
So that's one. And second, from a BFSI perspective, so headwinds are largely what we what I recognize is from the large banks, right? When do we sort of expect that to bottom out going into the next couple is it in the next couple of quarters phenomenon or is it going to be a little more longer than that? Thank you.
Utilization is by nature volatile given the business strategies that we are employing. So it would be fair for you to assume that when we accelerate our employee addition, in those quarters, utilizations will be lower. And in quarters where we are actually leveraging that investment, the utilization will sequentially improve. I believe that at the scale and size that we are operating, a lever like this is an ongoing thing rather than something that could be commented upon on a Q on Q basis. So in line with our decision not to share that, I don't think anything further would be, we should, our discussion is warranted.
On SSA demand, NGS do you want to?
Hi, this is NGS here. Overall, I think on the BFSI front, as I said, the order book that we have is good. We are participating in all the key opportunities driven by market changes as well as I think some time back as I mentioned, we are actively participating in disrupting ourselves, I'll put it this way, because we feel that that's the right thing to do to create the right machine first delivery approach to everything that we do specifically for large banks where we have to actively work with them to see whether tech can eat ops or how ops can further be optimized and improved upon, right? So overall, as Rajesh articulated earlier, over the last three, four quarters, we have actually gained market share while we are on the pursuit of disrupting ourselves. In my opinion, while we disrupt ourselves, why do you do that while it actually is going to be resulting in a reduction in your revenue.
But over my industry experience, what I've seen is what goes out comes back many times over. So from my perspective, I think BFSI is continuing to be positive. And as Rajesh earlier articulated, the aggregate budgets really are not shrinking. And we are happy that we are participating in growth, transformation, efficiency, innovation and all the four aspects of what they are doing. And as long as we continue to gain market share and continue to remain as the largest financial technology services provider, I think we are happy.
Fair enough. And just one last follow-up, right. From a geo perspective, right, I mean, are there any areas that are present in sort of low, let's say some of the markets in APAC, maybe China and Japan and what are we doing to invest there? And from a Europe perspective, are there any sort of key pockets where we want to invest and grow in size? Thank you.
I think there are no specific strategies per se. All these growth markets, whether it is Japan, China, Eastern Europe, and I think we have put together a strategy where how do you how do we service our global customers in these locations? How do we continue to be relevant to our global customers in accelerating ourselves and to be of international action and support? Wherever they want us to sell, we would like to sell them, especially for large global Fortune 1,000 kind of customers, we will do that. Our Eastern European delivery center, Hungary is an important lever in our strategy and that continues to grow, continues to be relevant and as we support most about 30 plus languages are being utilized to provide such services out of Hungary.
Extremely proud of the team that is there in Hungary. Whether we should go beyond Hungary to open up development centers in other geographies, something that we are we took we are continuously monitoring that. But at this point in time, we feel that Hungary is good enough for us and it satisfies all of our demands in terms of these opportunities. Other growth markets, Japan continues to do well. Latin America this quarter has done exceedingly well.
In Latin America, I think we have a local team and I think we have best of capabilities in Latin America, whether it is Colombia, whether it is Peru, whether it is Brazil, whether it is Chile or Mexico, I think in all these markets, we continue to grow, continue to add local capabilities, continue to add customers. So overall, I think our strategy for new growth markets, as we call it, is very good. And I think ASEAN and overall APAC, we expect that it will grow in the coming years.
Thank you.
Thank you. The next question is from the line of Madhu Babu from Centrum Broking. Please go ahead.
So Life Sciences has been showing a very strong growth over the last few quarters. Could you explain how the platforms we have developed has helped us leverage in this growth? And would it be enough to become a sizable vertical in the next two years perspective?
Growth has come from our differentiated positioning and participation across the full full spectrum of this industry. I think when you look at the global top 10 pharma majors, we are very strongly present across almost all of them. And part of it is also coming from our investments in the product portfolio and the platform that we have developed, but that is not the sole reason for the performance. So it also comes from a combination of the main capabilities that we have built, which is also deployed in our operations and areas like drug discovery and other KPU areas that we are participating in. So it's a very integrated full services kind of a strategy that is at play.
And it is already a sizable portion of our business with more than 8% of our revenue. In fact, I think slightly 8.3% or 8.4% of our revenue coming from this vertical this quarter and growing as the fastest growing vertical. So we are very, very confident and optimistic about the life sciences phase.
And second one, we have talked about adding more channel partners for IG Neo. So would we do a similar strategy for the other platforms which we have and maybe carve out a much bigger product ambition for the company overall?
Yes, we will constantly analyzing what is the right approach for any of these products or platforms and engaging with the full ecosystem out there. So you can reasonably assume that we will do that. But there is no one cookie cutter kind of strategy for all product or platform groups.
So just one, are there any Indian service providers who are the channel partners for Ignio? Let us any mid size vendor of India who is promoting Ignio or even a larger vendor?
I would like to you can watch that space on the Digitase webpage and they keep announcing the new partners there and why not. I'm sure there will be a few or there will soon be a few.
Yes. Thanks a lot, sir.
Thank you. The next question is from the line of Sandeep Shah from CJS CIMB. Please go ahead.
Yes. Thanks for the
opportunity. Just wanted to understand in terms of the cycle about where are we in terms of the new operating model, which we are foreseeing, especially in the banking financial services? Is it been across many large clients or it has just started? Where are we in that cycle as a whole?
There are definitely a lot of work happening across multiple customers, but each of them are at different levels. Mostly, it is still project led and specific area led rather than integrated transformation. However, in verticals like retail, there are much more enterprise wide operating model transformation kind of engagements that are currently ongoing. So both the appetite and willingness and the speed of execution of this transformation is a lot more visible in the retail space. But I think it is inevitable in BFSI and moving in that same direction.
Okay, okay. So this machine first delivery model, can we say that it's in the initial part, especially looking at our legacy or annuity business where the implementation has just started in that fashion?
Yes, you could say that. But I want to clarify that it is not just about Machine First. The operating model transformation also leverages location independent agile as a methodology. It integrates platforms and more end to end scope based management. It also entails areas, especially in areas like retail, where as I said, where we have done enterprise wide transformation, product centric organization and design.
So all of these levers are at play.
If I can add there, the NGS here, I think the lifecycle overall, first of all, the first point is, are they adopted as well? I think most of them are on an agile journey. And they are achieving reasonable maturity, adopting location independent Agile and other techniques. Cloud, I think all of them have a huge cloud strategy and building architectures and systems, which are in a modern cloud native architectures. That's I think is very much there.
Third is the automation lever. Automation is they have all come to realize that productivity is one, but innovation is surpassing productivity. I think that is the lifecycle that they are at, okay? And when you see innovation is surpassing productivity, there are many levers come into play, right? That is one of the reasons when we say that everything that we do willy nilly involves a digital technology today, right?
So in that innovation surpassing productivity life cycle, machine first is absolutely relevant and we are actively disrupting the portfolio that we have. It's not just run. Run and change becomes one, right? It's our ability to get to a stage where I am in a position to make changes and deliver code into production multiple times a day. Do I get there?
When do I get there? For example, people like the retailers, they are in a position to do that today, right? BFSI, they are actively working towards getting there, And I think that's the way that we should see it. And then in that whole journey, as I mentioned, we are very happy with our participation with all these banks who are trying to convert themselves into, let's say, a technology firm, if you will. And by technology firm, they are trying to emulate actively behave like a retailer on one side and integrating fintechs and creating ecosystems in this whole process, right.
And that's where our machine first strategy, business four point zero, business pillars, all of that come in handy and we are happy that we are gaining market share in this whole aspect.
Okay. Just on the wallet share commentary, when we have said from 1Q of FY twenty nineteen to 3Q FY twenty twenty, it's improved by 200 bps. So it is fair to say it would be equal in banking capital markets as well as insurance?
Across the BFSI segment that we report. I think all peers report BFSI as a common one single segment.
Okay. So even in banking capital markets, we can say that there is a wallet share improvement which has happened?
I can't break it up by individual subsegments because we don't have the market data by the subsegment level. So at the integrated BFSI level, we're quite confident. But beyond that, we don't have the data to tell you.
Okay. And just few things. Last time, Rajesh, you said in the Q2 conference call that the visibility for H2 is bleak. With the Q3 results out, any change in that outlook?
No. Q4 continues to be soft. So that will keep H2 soft.
Okay, okay, okay. Thanks and all the best.
Thank you. Thank you.
The next question is from the line of Ruchi Vohti from Bank of Baroda. Please go ahead.
Thank you for the opportunity. I have two questions. The first one is regarding the hiring process. Seems like at TCS, the pressure hiring process have undergone significant transformation this financial year. Could you please summarize for us what is this transformation and how pressure hiding would shape up in the coming years after this transformation?
Yes, this is Malen. So we have
onboarded 30,000 people in the first two quarters of this financial year and 93% of these people are now on the job. It is an extremely agile model for us where people started learning even before they come and join and they become productive very quickly. It has worked very well for us and we continue to use this model in the coming year. In the coming year, we already have offered close to 39,000 offers this year. And we'll look into how do we deploy these people in the coming year and we'll decide it in about a month or so.
So the model is working well. Model is working well and we will continue to refine this as we go along.
Follow-up on this, do you think would it increase the skewness of the fresher onboarding or you think now this equipped TCS to do just in time hiring as and when the demand shapes up?
Yes. I think the answer is the second part is the answer is yes. We are able to hire people quickly. The people who are not qualified, we actually did not qualify the test. We actually know what are their gaps.
We connect with them. We build a community with them, bridge the gaps once they have and then bring them in again. So it definitely increases our speed to get them on board, that is one. And more importantly, we also strengthen our middle level so that we can continue to bring in more and more solar departments.
Understood. The second question that I had was on the core transformation opportunity that you guys have talked sometime in the past. Can you update us what are the client conversation on the core transformation opportunities?
Core transformation.
Yes, I think core transformation is continues to be there, specifically in small and medium sized banks, whether it is in Europe, whether it is in port transport,
data transmission, port transport.
The overall application modernization itself is a journey that is I would say that it is linked to two, three things, right? Customers are looking at cloud, then, millionily, cloud drives that core systems transformation, right? Today, I think that is one of the main drivers. And as they move applications into the cloud, there are three or four important things as comes out as an architecture levers. Number one is APIs and microservices.
Number two is, what kind of partnerships and alliances that they would like to do so that they are in a position to move from vertical integration to horizontal collaboration and create ecosystems. And the third one is clearly the level of analytics and automation that they would like to build, right? So that will in a leap puts the, what we call as the cloud native modern core systems architecture, right? The such an architecture means that people don't really put everything as a core is just a system of records, right? And the bulk of the processing, analytics and value adding processes, why it takes place outside of the core, right?
So I think that works well. We have proven in many situations such architectures are highly scaling and highly performing and highly relevant to improve or increase your own organizational capabilities and even be more relevant to our customers.
Understood. Do you see more of such conversation coming to cable or do you think clients are going slow on this given the geopolitical tensions that you deeply mentioned?
No, absolutely. I think there are many such opportunities. I think the overall positioning in terms of our capabilities is extremely relevant. If you really look at it, one is that our existing customer portfolio, I think we have the best of client relationships, best of execution track record when it comes to the question of implementing such larger scale transformation projects. And we have the most complete set of offerings and huge international action and support as required for the large customers.
Even the I think large in the press conference, Rajesh articulated about the logistic transmission deal that we won in the retail segment for Walgreens, where we are completely transforming their pharma completely pharmacy portfolio systems in a modern cloud architecture as I outlined below sometime back. So overall, we see that such a growth and transformation opportunities are there and it is stable to continue to grow. And we do hope that a significant share of our revenue will eventually come from such core and transformation projects.
Understood. Thank you. All the best.
Thank you. Ladies and gentlemen, that was the last question for today. I'll now hand the conference over to the management for closing comments.
Thank you. So to sum up, as we said, we are quite happy about our performance in the quarter, considering the overall operating environment. The market steadily is moving into a space which demands integrated solutioning capabilities and full suite of capabilities and services to address the technology transformation agenda that customers have. This agenda has multiple dimensions. There is both the optimization and cost transformation agenda.
And also as NGS said, it doesn't stop there, but innovation trumps efficiency any day. And they're looking at significant amount of innovation leverage to help them use that change to actually transform themselves into some kind of a new age capability side. And that requires a unique blend of capabilities, which is the sweet spot that we have been investing into for many years now and which has been the focus of us in creating an organically developed highly integrated solution set spanning consulting to products to platforms to full scale solution and keeping all of it together in a very highly integrated solution delivery package. So I believe the demand is steadily converging into that kind of service capability, which positions us strongly to continue to gain market share in this expanding market. The environment and the challenges being faced by our customers earlier.
And we see ourselves as equal partners to them in their journey and will continue to stay invested irrespective of the short term nature of the point that they are in their individual transformation agenda. But overall, we believe that, that longer term and we see ourselves being even more relevant to our customers and participating even more aggressively in this unfolding opportunity. So with that, thank you once again for joining us and wish you all a great year ahead. Thank you.
Thank you, members of the management. On behalf of TCS, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.