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, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali, Global Head, Investor Relations at TCS. Thank you, and over to you, sir.
Thank you, Margaret. Good evening and welcome, everyone. Thank you for joining us today to discuss TCS's financial results for the third quarter of fiscal year 2021 that ended December 31st, 2020. 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.
Good evening, everyone.
Mr. N. G. Subramaniam, Chief Operating Officer.
Good evening, everyone.
Mr. V Ramakrishnan, Chief Financial Officer.
Hello, everyone.
Mr. Milind Lakkad, Chief HR Officer.
Hi, everyone.
Rajesh and Ramki will give a brief overview of the company's performance, followed by a Q&A session. As you're 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'd like to turn the call over to Rajesh.
Thank you, Kedar. Good morning, good afternoon, and good evening to all of you. I hope all of you had a good year-end break, and I wish you and your dear ones a very happy new year. I'm delighted with our performance this quarter. The strong demand for core transformation services, market share gains, and quick revenue conversion from all the deals we won earlier helped us build up a robust momentum that overcome seasonal weaknesses and post one of our strongest sequential growth figures for a December quarter. Our revenue grew 4.1% quarter-on-quarter in constant currency, and 5.1% in USD terms, and 4.7% in INR terms.
The growth momentum of the last two quarters also helped us get back to growth on a year-on-year basis, one quarter up ahead of what we had originally expected in April at the start of the pandemic. On a year-on-year basis, we grew 0.4% in constant currency terms, 2.1% in USD terms, and 5.4% in INR terms. The strong top-line performance was matched by our various operating metrics, reflecting the power, flexibility, and responsiveness of the SBWS operating model that we have spoken about many times in the past. Our operating margin for the quarter was 26.6%, an expansion of 0.4% quarter-on-quarter, and 1.6% year-on-year. Our net margin was at 20.7%.
I'll now ask Ramki to go over all the headline numbers and the financial and segmental performance, and I'll come back later to talk about the demand trends. Over to you, Ramki.
Yeah. Thank you, Rajesh. I'll now go through the headline numbers. In the third quarter FY 2021, our revenue grew 4.1% sequentially on a constant currency basis. This is the strongest December quarter growth we have had in nine years. Reported revenue in INR was INR 420.15 billion, a quarter-on-quarter growth of 4.7%. In USD terms, revenue was $5.702 billion, which is quarter-on-quarter growth of 5.1%. To come to the segmental details for the quarter, as a reminder, I'll be sharing quarter-on-quarter growth numbers in constant currency terms. Our largest two business verticals, BFSI and retail, showed good sequential growth in a seasonally weak quarter. BFSI grew 2% quarter-on-quarter, one of its best December quarters in the recent past.
Adjusted for seasonal headwinds, a performance on par with Q2. Growth was well-rounded across all geographies, except APAC and subverticals. The business themes that drove customer spending during the quarter included customer experience enhancement, new product initiatives, regulatory work, and ESG initiatives. From a technology perspective, this translated into investments in call center modernization, analytics and insights, workplace transformation, cloud adoption, core modernization, and cybersecurity. One last point on BFSI, of the two large deals we signed in Q3, the Prudential Financial deal was closed in mid-December, but very little to the revenue was added in this quarter. The Postbank Systems deal was closed actually on January 1st. The retail cluster grew 3.1% despite the seasonal softness of the holiday season and continued weakness in discretionary retail, CPG, and the travel and hospitality subverticals. U.S. retail showed good recovery, followed by Europe and U.K.
Retailers continued to spend on initiatives to enhance customer experience, reimagine customer journeys by providing a seamless experience across channels, optimize fulfillment costs, and find ways to leverage the physical store to provide value-added services and experiences. The life sciences and healthcare vertical continued to outperform, growing 5.2% sequentially and 18.2% on a year-on-year basis. Other verticals also showed good growth. Manufacturing grew 7.1%, communications and media 5.5%, and technology services 0.8%. On a year-on-year constant currency basis, life sciences and healthcare continued to grow in double digits at 18.2%. BFSI and technology and services both moved into the positive territory, growing 2.4% each, while others continued to be below the December 2019 levels. By geography, sequential growth was led by North America, +3.3%, India +18.1%, U.K. +4.5%, and Continental Europe +2.5%.
Other markets grew as well, with Asia Pacific growing 2.6%, MEA 6.7%, and Latin America 3.1%, all positive. Coming to products and platforms, our portfolio of award-winning products and platforms continued to grow well. Ignio, our suite of cognitive automation software acquired eight new logos in Q3 and saw seven customers go live on the product. During the quarter, the product won three more awards and was granted two more patents, bringing the total to 27 patents granted to date. As customers embark on their cloud transformation journeys and look to redeploy their talent from business as usual tasks to transformational projects, they are deploying ignio's various solutions in very creative use cases to proactively monitor their infrastructure, automate routine maintenance activities, create self-healing capabilities, and build operational resilience.
A European multinational chemical company is using ignio's health check dashboard to proactively monitor SAP operations around Basis, ABAP, and the core ECC technical stack. Ignio provides start-of-day business checks around a range of transactions, looking out for system unavailability, performance analysis, license expiry, et cetera. Such proactive monitoring helps preempt issues before they arise and avoid business disruptions due to system outages. An American life sciences multinational is using ignio to manage its Azure, AWS, and GCP-based cloud operations. Over 5,500 virtual machines and 100% of incidents are currently being managed by ignio with a 36% automation index within weeks of implementation. Another North American utility is using ignio for user group management, cloud waste, cloud infrastructure migration, drive space administration, and patch management.
Ignio helps detect, qualify, and report wasteful resources on the cloud using its contextual knowledge of operations, helping the customer reap the full economic benefits of its cloud usage. Coming to TCS BaNCS, our flagship product suite in the financial services domain, it had five new wins and six go-lives in Q3. We had two new wins for our digital banking product, two for our wealth management solution, and one for payments. This includes one of the largest deals wins ever when TCS BaNCS was selected as a preferred cloud-based platform for its wealth management business in the U.S. by a global investment bank. The Quartz smart ledger solution had four new wins and one go-live in Q3.
Tier 2 customers are discovering all kinds of areas in their businesses where Quartz can transform their operations and are deploying it in an ever-expanding set of unique use cases, often the first of their kind in the world. A global investment bank has selected Quartz Surveillance, a next-generation blockchain plus AI solution for trade surveillance for U.S. wealth management operations. A leading energy and urban development corporation in Singapore has used the Quartz DevK it solution to build a blockchain-based system for buying, selling, and transferring of renewable energy certificates. In a first of its kind, one of the largest global custodian banks in the U.S. has deployed Quartz Announcements as part of modernizing its asset servicing offering and replacing in-house legacy systems.
The new system has resulted in higher straight-through processing, world-class corporate actions announcements processing standards, and helped the bank deliver superior customer experience and drive growth in its prime services book of business. Our TCS HOBS SaaS suite of solutions for communication service providers had three new wins and four go-lives during the quarter. WinX, our AI-based digital twin solution, also had three wins. TCS MasterCraft, our suite of intelligent automation products for end-to-end enterprise application modernization, had eight new wins in Q3. Coming to client metrics. Our client metrics stayed more or less flattish in Q3 versus the prior quarter. The revenue contribution by customers is calculated on a LTM basis.
We expect these metrics to remain soft for another couple of quarters until we fully cycle out the revenue declines of the June quarter. At the end of Q3, we had 48 clients in the $100 million+ band, 97 clients in the $50 million+ band, 229 clients in the $20 million+ band, 386 clients in the $10 million+ band, 565 clients in the $5 million band, and 1,077 clients in the $1 million+ band. Coming to margins or moving on to our cost, we had our annual salary increase going into effect from October 1st this year. Our Q3 operating margin saw the full impact of that amounting to 160 basis points.
I am happy to point out that the operating efficiencies brought about by our SBWS operating model, aided by operating leverage from growth and a little bit of currency support, helped us mitigate the impact of the salary increase and still expand our EBIT margin sequentially by 0.4% quarter-on-quarter to 26.6%. Our net income margin was at 20.7%. Effective tax rate for the quarter was 25.4%. Our DSO was 69 in USD terms. Net cash flow from operations was INR 119.52 billion, which is 137.4% of net income, our all-time high in cash conversion. Free cash flow was INR 112.3 billion, up 28.5% year-on-year. Invested funds as of December 31st stood at INR 653.77 billion. The board has recommended an interim dividend of INR 6 per share. Coming to the people front, our HR organization has shifted focus to supporting growth.
In Q3, we had a net addition of 15,721, our highest ever in a quarter, resulting in a total headcount of 469,261. This includes around 1,500 employees joining our new delivery center in Ireland from Pramerica Systems Ireland Limited. Our workforce continues to be a very diverse one, with women making 36.4% of the base and with 147 nationalities represented. We have reimagined our HR value chain to enhance employee experience and increase throughput. Last quarter, we had mentioned the early training and 100% virtual onboarding of project-ready trainees. In Q3, we onboarded 12,000 trainees. Our TCS National Qualifier Test re-established its pioneer status by pivoting completely to a virtual mode, evaluating over 225,000 fresher candidates in the safety of their homes, leveraging advanced digital assessment methods. Including laterals, over 130,000 candidates were remotely interviewed, giving them a seamless experience and giving us access to the best available talent.
At the end of Q3, we had trained 366,000 employees on new technologies and over 444,000 employees on agile methodologies. By prioritizing qualified internal candidates for open positions requiring digital skills, we have increased role mobility and career growth opportunities for employees while improving our velocity of project ramp-ups and utilization. As you are aware, TCS has been a global industry benchmark for talent retention. In Q3, our LTM attrition in IT services, which includes all departures, voluntary and involuntary, was at 7.6%, an all-time low, even by our own standards. As growth returns across the industry, we expect to see attrition inch up from these very low levels. I now turn it over to Rajesh for the demand drivers and trends.
Thank you, Ramki. Coming to the demand side of it, I had spoken earlier about how cloud adoption is driving a multi-year technology spending cycle, and that this will remain a secular growth driver for us over the next three to five years, with the transformation playing out over multiple horizons. The trends we spoke about in October around cloud transformation are continuing very strongly, and much of our order book and pipeline reflect that spending. Last quarter, I'd also spoken about how we have created new dedicated business units focused on the three leading hyperscaler platforms, and the idea was to make sure that we have focus on each of these individual ones separately. These units have hit the ground running in Q3, and we have been winning cloud engagements and across almost more than 200 customers in this quarter itself.
During the quarter, we are also very happy to share that we have been ranked as a leader by leading industry analysts for the public cloud system integrator space in each of these platforms, apart from this cloud infrastructure, brokerage, orchestration services, et cetera. It's a full-court press across the entire partnership and ecosystem front, and the initial traction and pipeline visibility, et cetera, is very strong. Today, I also want to discuss the opportunity from the two lenses that we are looking at it. One is what we call growth and transformation, where enterprises leverage the power of new technologies to embrace new business models, pursue new revenue lines, or to deliver superior customer experience or engage with new segments of customers.
The second one is the more traditional use of technology to drive efficiency and greater productivity. We believe that from a demand perspective, we will see traction on both these aspects. I want to spend a few minutes looking at demand from this perspective and giving you a flavor for the kind of engagements that we won in Q3 along both of these areas.
Coming to this growth and transformation front, a great example is the work that we're doing for a leading insurance provider in the North American market, where we're using our contextual knowledge of this customer and the insurance domain knowledge and combining that with our location-independent agile to operate in this challenging environment, and our expertise on cloud and API-fication to implement a new platform that has significantly changed the way the insurance provider integrates with an ecosystem of third-party providers that are critical to its customer servicing. If you consider an area like an auto loan, there are more than 10 outside providers or outside enterprises that they need to link to be able to either generate a quote or to do an efficient claim processing.
If it comes to a home loan area, there are almost more than 15 ecosystem partners that are involved in this whole value chain transaction. By leveraging cloud, by leveraging API, by leveraging and exposing core functionalities into a manner in which it can be seamlessly consumed, we've been able to reduce their quote time by 41%. Similarly, we've been able to help them bring products faster to market. We are able to achieve 40% lesser time in markets where they're already present in, and their ability to enter new states with new products, we've been able to help them deliver a 50% faster time to market on it. That's the kind of impact and transformation that this combination of contextual knowledge and our ability for an end-to-end solution can deliver to our customer.
All of this translates into being able to get into new markets, deliver new products, and in this specific case, the net promoter score also went up by 10 points. Similarly, for another leading pharmacy player in North America. We have been able to deliver a business benefit that is significantly impactful for their customers by being able to de-link the individual customer from a specific pharmacy and allowing the customer the ability to actually get his or her prescription filled from any pharmacy in that chain. Underlying this is, of course, the transformation of the pharmacy system, migration of that into a cloud-based infrastructure, and ability to ensure that data analytics, security, audit, all of that is able to be done in a node-independent manner and be able to deliver that to the customer.
The flip side for a solution like this from the pharmacy perspective is that if an individual pharmacy node starts becoming a bottleneck with more customers than originally expected, they can actually farm out part of the work and leverage pharmacists available in other nodes which are currently free, and part of the work can be actually farmed out. Similarly, we are also able to use advanced AI ML techniques to actually predict the nature of that load. In certain cases, some of the formulations are very time-sensitive, and therefore being able to predict that and predict when that customer will come in which node, significantly reduces wastage and improves customer experience. These are examples of how cloud transformation goes beyond pure infrastructure and talking about how we leverage these native capabilities and also how those ecosystem kind of transformation helps.
We have similarly worked with a leading airline group, one of the airline conglomerations, where we have transformed. Typically, these groups have been able to deliver end-to-end reservations, but we have been able to extend that to end-to-end inter-airline baggage checking, baggage verification, travel document verification, so that security standards, underlying validation are being transferred airline to airline. They can meet their individual regulatory requirements. Once again, by exposing it onto the cloud, by actually delivering on that borderless enterprise promise, we can significantly improve both efficiency and customer experience. That's one area around cloud-based transformations. Another big area that we are seeing, which is also linked in some way to this idea of borderless organizations, is this increased volume of corporate restructuring, M&A, mergers and divestitures, et cetera, that we are seeing.
We see this as accelerating part of our customer strategy as they realign themselves to the new industry norms. This is a space that we have been investing in significantly and enhancing our capability to participate across the value chain. We have been setting up capabilities on both integration as well as divestiture planning, day one readiness, running the integration management office. Being able to ensure that this whole idea of a TSA is removed, and we can get to seamless operations in the least possible manner. For one of the leading health insurance providers, we have been able to carve out their group insurance business with around 3,000 people and deliver that in a manner in which that carve out was fully functional across all its operational parameters from day one of the separation, so that there is no lag in that whole activity.
This space, we believe, will both accelerate because of the business realities around us, as well as this idea of borderless organization allows for logical separation and logical integration of businesses, both inside enterprises and across multiple enterprises. The other big area that we are seeing is in the area of supply chain. For example, for one of the leading cement manufacturers in India, we have been able to transform the way they do supply chain optimization. They need to do one-day demand fulfillment in an environment with very highly fluctuating demand outlooks and a very noisy environment in terms of data points across almost 2,000 distribution nodes.
Again, being able to integrate the data, clean up the data structure in a manner in which learning algorithms can be deployed, and integrating that with our platform solution allows for providing that kind of high certainty and reduced stock-outs and reduced outages across their entire distribution network. We are also participating significantly in customer experience side. Leveraging these kind of combination of mobile and cloud applications for one of the leading European postal operators. We are helping them transform and deal with the e-commerce era and the email era, where they're moving away from delivering letters to delivering packages and moving to a customer-oriented delivery schedule. We have helped them actually enable their customers to select delivery windows in a two-hour window rather than eight-hour or a one-day kind of a scenario that they were used to.
This one has resulted in more than half a million downloads of that app for them and customer NPS improving by five points. They are expecting in their country to be the leading provider on the package and courier side of it. These are the kind of transformation opportunities and the transformation engagements which give us the confidence and the excitement on the long-term prospects that we have been speaking about. The story is equally powerful on the operations transformation side. We have been significantly investing in integrating our multiple solutions across operations and automation as part of our MFDM journey. We have now integrated our solution suites into what we call the Cognix platform. That is an AI, ML-enabled human-machine collaboration platform that is reimagining the way cognitive business operations will be delivered to customers.
I want to give you a very classical example of how we have been able to use it in a B2B scenario for one of our leading customers in the workforce management space, one of the largest ones in the world. We have been able to deliver a solution which allows them central procurement, but a localized fulfillment by a large ecosystem of vendors across a large ecosystem of business users. While the contracting and optimization happens at a central level, what the solution allows is for reduced reconciliation errors and reduced friction, which while providers are able to actually satisfy local demand and provide local invoicing and local reconciliation and ensuring that this entire track and trace of it is done in a manner in which both speed and efficiency as well as overall business experience is enhanced.
This scenario is in an abstracted form, very similar to any B2B procurement in a multi-node kind of scenario where both the purchase organization or rather the user organization and the supplier organization is going to do a multi-point to multi-point fulfillment. These are examples of the kind of work that is getting enabled by the logical transformation that is currently going on and in which our teams are participating. That's the nature of demand that makes us so excited about the opportunity looking forward. Let me summarize by saying that our total contract value signed this quarter is INR 6.8 billion. When you compare that against INR 8.9 or INR 6.1 rather, outside of the large deal that we did last quarter, is a significant growth on both sequential basis and on an annual basis.
If you look at its components also, BFSI has delivered $2.6 billion TCV in this quarter. Only one of the two deals that is spoken about in the past is counted here. The other deal closure happened early January, that's not counted in this. BFSI demand is also very strong and we're very positive about it. Similarly, retail at close to a billion, $0.98 billion, and North America at $4 billion. The TCV spread across our segments is also very strong. With that, let me close and open it up for questions. Yeah, go ahead.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Yogesh Aggarwal from HSBC. Please go ahead.
Yeah. Hi. Good evening, everyone. Great quarter. Just have couple of questions. Firstly, Rajesh, if you look at from a macro standpoint, almost every vertical was impacted differently. Some verticals actually got benefited from pandemic as well. Your growth is broadly great across all the verticals. What is happening? Are the customers behaving the same manner even if their business is getting impacted versus benefiting? The type of services are different, but the net result is same for you? Related to that, did you see any kind of budget flush this time as most CIOs won't have been able to spend their budget last year through the year?
Thanks, Yogesh. Yogesh, I think the common factor across industries is that technology is the solution irrespective of what the problem is. Whether it is how to grow or it is how to find the efficiency or how to secure. In all of these cases, technology leverage is at the core of whatever they are doing. Some common themes were all pervasive, especially in the early part of the pandemic. Digital collaboration suites, those rollouts and security were very common themes. In the recent quarter, it's a more heterogeneous spread of both growth-oriented investments as well as efficiency-oriented investments. There is no common theme other than technology leverage as being a theme. We have not seen it as a budget flush, but rather as strengthening of the investment mandate that they were receiving through the second half of the calendar year.
We are seeing steady strengthening of that. I had shared earlier, last quarter, that while our TCV was strong, there were smaller deals that were closing, though the pipeline had quite a few large deals. Actually, this quarter, many large deals have closed, not just the two mega ones that we called out. In the $ 50 million-$ 100 million range, the number of deals that have closed is significantly high. We kind of made up for that, this thing in the last quarter that I spoke about. I would say it is strengthening of that trend that we saw rather than a flush per se in terms of where the demand is going.
Okay. Just secondly, Rajesh, every technology initial few years the pricing is better and as it scales up and there is a learning curve it normalizes. Going forward, do you think with cloud ramping up, on a net basis will pricing improve from here and can it help margins? You think it'll remain stable as things scale up?
Yogesh, our pricing strategy is more broad-based and relationship-led rather than a specific service or product led. We are not a product company, our approach is more long-term strategic partnerships where we are investing in creating the technology capability and making that available to the customer on an on-demand basis. There are small variations, but you don't see significant volatility in our pricing across individual technology sets. That's not our strategy.
Very helpful, Rajesh. Thank you so much.
Thank you. The next question is from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.
Great. Thanks. Congratulations on an excellent quarter. I had two questions for Rajesh and Ramki. Rajesh, very good detail qualitatively on cloud. Is it possible to quantify some of the areas where spending is going to happen on operations or if you can comment about the top three cloud partners verticals which you have created? What's the addressable market you have? Are you seeing any early bump in spend on cloud as people are kind of migrating and which should stabilize, or do you expect it to accelerate?
Very difficult to quantify. Significant shift will happen. How it happens is difficult to predict and quantify right now. The addressable market is so large that it merits that organizational changes that we have spoken about.
The-
The arc structure. What verticals have you created? Could you repeat what was the second part of your question?
Yeah. The second part of question was you definitely have seen two quarters of very strong growth. Would you attribute partially to increased pickup in cloud spending, which should settle down as clients kind of move more into the maturity phase, or do you expect cloud to accelerate further?
Sorry. We are keeping on saying difficult to quantify. Think about it this way, that as I said, the lens to see it is what we have shared with you as the multi-horizon strategy. The first value proposition is the migration of the infrastructure to the cloud. Second, after that, comes this actual rollout of programs that capitalize on that native capability and use it. Some of the examples that I told you, for example, the ecosystem integration or rather the pharmacy one that I told. These are all, when you think about it logically, they come easier when you are onto a common fabric of cloud. The other one, the insurance one, the ecosystem integration. Once again, those are business model changes and enabled by the fact that you are onto some kind of a common discovery-based infrastructure.
A is the first, is about the immediate basic demand from cloud. The second and the third horizons are, you could classify it as cloud or you could classify it as any other standard application development activity. That is why we characterize cloud as the new ERP, because the incremental functionality and the incremental differentiation will happen on these platforms. That we can classify whichever way, but that will definitely be a big driver of future demand.
Got it. Ramki, just quickly on margins. This quarter margin performance was quite commendable. If I look at the INR employee expenses per employee, that has come down a bit versus Q2. What would you characterize besides lower attrition or maybe some currency impact? Is there some benefit from variable pay or what is leading to the lower increase in employee cost?
I think, see, one of the things which is, I see we talked about this new hiring of people in Ireland, for instance. The employees have just come at the end of the quarter, right? When you do the arithmetic, so your denominator is higher, but the revenue from that will come into the subsequent quarter. Other than that, there is no other structurally or anything to explain this.
To your question, our variable pay has been 100% in both last quarter as well as the quarter before that. We have gone through the year promotions. We continued the cycle as normal. The volumes were more based on what the actual business volumes were. Salary increases also, we have rolled out from H2 onwards, which is fully reflected in it. To your question, this is inclusive of everything. No one-offs.
Okay. Thank you. Thanks for taking my questions.
Thank you. The next question is from the line of Ankur Rudra from J.P. Morgan. Please go ahead.
Thank you. Congrats on steady execution. On the demand side, Rajesh, thanks for the detailed commentary. I was curious whether the nature of the incremental demand you were seeing, especially the lenses you mentioned on growth versus efficiency. Wouldn't the volume of that be higher on the cost takeout efficiency side maybe supported by the cloudification you're doing rather than the growth side given the state of the economy?
Depends on a client-to-client situation. In aggregate, I think there is enough. Especially when you think about it in terms of incremental money, there is almost equal size opportunity on both sides of it. Our participation has traditionally been more on the efficiency side, and the investments that we have done and the capabilities that we have created are designed to increase our participation on the growth and transformation side. The net money spent, especially when you, as you said, think from an incremental perspective of what is out there as demand, is almost equal.
Understand. The follow-up question I had was, clearly very strong growth and unseasonal strength. I was curious if there's been any impact on the supply side. Have there been instances where you might have faced or you anticipate supply issues with certain skill sets given the growth you're seeing is not typically of this part of the cycle as projects are ramping up?
We had shared with you earlier about our commitment to completely on board or honor our outstanding hiring offers that we had made, and we had hired and made offers assuming a much stronger demand scenario. We have that inventory of almost 40,000 trainees that we are committed to bring on board. That is a big part of it. Some amount of it, we have also been practical in using subcontractors. As you see, that remains a fairly sticky element and it has marginally trended up also this quarter. We are both strategically on the hiring side, practically on the subcontractor side and even more structurally on the entire training and re-skilling side, which I'll ask Milind to talk about a bit. We have actually executed on all three. Milind, would you like to elaborate a bit on the re-skilling and fulfillment from that?
Yeah, sure, Rajesh. I think there are a couple of dimensions here. The linkage between the organic investment in our talent through skilling and business growth has emerged actually stronger than ever. For example, what we did in Q1 and what we did now, there is 100% increase in that. Basically, very contextual talent development, looking into short-term needs in the two quarters from now and building on top of that has really working for us very well. Our contextual master pool is growing by 25% in this quarter. This is helping continuously to strengthen our pool of growth and transformation leaders capable of engaging with CXOs of our customers and their transformation agenda. We have reached a number of 15,000 contextual masters.
Contextual masters are basically, just to explain to those who don't know, people who are working with our customers for quite some time and have a deep contextual knowledge of that customer, whether it is industry domain, whether it's technology, whether it is the nature of the relationships and what will work, what will not work, all of that. From all angles, building the contextual knowledge, building technology understanding, building domain understanding and bringing it all together on time and when it's needed the most is actually our key talent strategy.
In addition to that, we're also basically building very strategic talent development programs internally at all levels, whether it is at a lowest level from zero to three years experienced people, whether it is in the middle level, where we think of building specialists, and then nine years plus onwards, we are starting to build growth and transformation leaders of the company. That is overall. Talent development has been a significant aspect of our growth, direct correlation to that and a long-term strategy as well.
Thank you. If I could squeeze a last one. Any thoughts on investing the near-term gains on margin from travel and G&A we benefited from in FY 2020 to gain market share as clients open up to captive sales consolidation, et cetera, and also helping them fund transformations? Thank you.
We are closing with INR 65,000 crores. I don't need travel savings for investment. As you know, we have a very structured investment plan and very long-term commitment to investing in capabilities to drive strategic growth. That agenda continues, and we are hardly capital constrained to be able to fund it.
Thank you very much.
Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.
Hi, good evening to the management team, and thanks for allowing me to ask a question. Congratulations on excellent execution, Rajesh and whole team. Rajesh, I have a couple of questions. One on the hyperscaler side. You have given lot of details in past also and now also you have given lot of details. If you can give us some more detail, particularly on what we are going to do specifically. Our approach will be to target each hyperscaler and build a unique or something-
Sorry to interrupt you, Mr. Agarwal. This is the operator here. Your voice is breaking up. I would request you to please check. It is not very clear.
Can you hear me now?
No, sir. It is not very clear. I would request you to rejoin the queue, sir, and check on the line.
Yeah, sure.
Thank you. In the meanwhile, we'll move to the next question, which is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Yeah. Congrats on the quarter, Rajesh and team, and best wishes for the new year. While the performance has been fairly consistent with, I think, what you said in the first quarter, it will be interesting to know which are the areas that perform better than your anticipation versus at the beginning of the quarter. Be it in terms of any verticals or sub-verticals or in terms of maybe stronger deal transition or faster conversion. Is there anything which is more structural in it which I think can probably prolong? You did mention the heterogeneous nature in this quarter. Any comments around that will be really helpful, Rajesh.
Actually, quite frankly, no. There are no standout individual industry or market segments that actually performed. U.K., if anything, if you specifically push it, U.K. is difficult to call. As we have always maintained over the last many years on U.K., we stay very positive and are staying very close to our customers and helping them deal with the extremely volatile environment. Yes, that's a market that is extremely difficult to assess, and we are very happy with how it has turned out. We hope that it will continue to remain equally strong. It is a difficult market to talk about. Others are trend-wise, I wouldn't say that any major surprises or turnarounds or significant changes. Obviously, there is acceleration, broad-based acceleration, and beyond that, I don't see anything to talk about.
Okay. Rajesh, this is also tied to your earlier comments of more mid-size earlier versus now more large size and a better mix. Do you see more vendor consolidation opportunities getting bigger by volume or value as budgets are probably going to unlock more and for the end-to-end transformation, versus more piecemeal transformation which is happening earlier and thereby larger end-to-end service providers benefiting disproportionately? Anything around that?
I think it was more a timing issue last quarter. Also, of course, the fact that the pandemic had changed the decision cycles and all. The smaller deals were obviously happening faster. Last time also when we said that our Q2 TCV was more weight to smaller ones. I'd also shared that but our pipeline is more reflective of a traditional one. I think it's just a timing issue between quarters. This quarter, our large deals are back to normal, and in fact, some amount of catch-up on the last quarter has also happened. I don't see a significant shift in the distribution or the deal structures.
Got it. Thanks and all the best.
Thank you. The next question is from the line of Sudheer Guntupalli from ICICI Securities. Please go ahead.
Good evening, gentlemen. Thanks for giving me this opportunity, and congrats on a good set of numbers. My first question is to Ramki, sir. You indicated that the margin expansion is driven by higher utilization and productivity levels. I want to know your thoughts on the sustainability of these higher utilization levels and margins. Can they correct as we come out of the recovery mode and start chasing growth? Do you see a case for structurally higher utilizations and margins going forward compared to FY 2019-2020 levels?
I think growth will be one factor. We continue to maintain the momentum. I think the margin resilience will also be there. From other drivers like whether it is utilization or productivity or leverage, et cetera, we'll continue to see where there are opportunities, and we'll continue to improve because large organization with more than 470,000 people, there will always be areas where we can work on some of those aspects. We continue to stay focused on where we think the businesses can deliver, and so nothing's more specific to call out on that.
Sure, sir. Rajesh, we understand that continental Europe is a geography where the presence and competitive positioning of TCS has been a notch ahead of its closest competitors. However, in the recent past, we noticed a trend of aggressive large captive takeovers by competition in this geography. Given the current situation and the fact that more such captives may be up for sale, do you see the possibility of heightened competition for us in the future in this particular area?
We see that as an indication of the market becoming closer to global norms, and our relative competitiveness continues to be strong. Beyond that, I think it's a normal progression that you would expect as that market converges with other markets.
Sure, sir. That's it from my side. Thanks and all the best.
Thank you. The next question is from the line of Diviya Nagarajan from UBS Securities. Please go ahead.
Thanks for taking my question. Congrats on the strong quarter and wish you all a very happy New Year. Probably this has been answered before. You have spoken about how next year you're looking at getting back to a double-digit run rate, and we have seen a fair amount of margin upside as well. How should we think about your 26%-28% aspirations going into next year? Will the revenue lift then help you kind of get firmly back into that range? You're already there, but from a full-year basis, do you think that's a sustainable number even if some of your costs like hiring and further wage hikes should look up?
Yeah. Diviya, you're asking about revenue or margin?
Margin. The 26%-28% range that we've been talking for a while.
The margin-
How do you think about this for the next year?
The way we look at margin is as a strategic lever. It is two things for us. It is a validation of our strategic positioning and our relevance and our relative competitiveness within the market. Secondly, from a tactical perspective, it is a strategic lever for us because it gives us the headroom required to participate in more complex and longer-term kind of deal structures when the right opportunities come about. I would say that coming back to that range is more a reaffirmation, validation of what we have always maintained. As I maintained earlier also, we are not wedded to any given range, and we will chase opportunities aggressively when we find the right opportunities and in areas that are of long-term interest to us.
Period to period, what happens to the margin, it will be a combination of that, plus the environment in terms of where the currency is and also some of the other elements like attrition, et cetera. We are not that worried about that. We are very interested that over a cycle, we are able to bring it back and then be able to use that as a lever to feed our growth.
Got that. The second point was something you just alluded to, attrition. We've seen attrition come down to a very healthy number right now. Is this sustainable, or should we think about this as a new level where things are likely to be in a shorter range or a narrower range going forward? As the industry starts to hire more meaningfully into the next 12-18 months, do you expect this to start inching up a bit towards where you used to be a few quarters ago?
Milind, would you like to take that please?
Yeah, I take that. I think this number of 7.6% is the last 12 months attrition, and it reflects that number. Going forward, we expect the number to obviously go up a bit. Whether it will come to original levels or not, we don't know yet. The point is, this is something which is last 12 months attrition, and we expect that marginally it will increase over quarters.
Okay. You've just finished a round of wage hikes. Going into the next year, what are you thinking about the cycle and timing of wage hikes?
This year was an exception for us, right? Instead of giving the raises in April, we gave it in October. We expect the next year to be a normal year, and thereby we'll decide by the end of this quarter, by March, on the increments and timing and all of that. We expect that to be a normal year.
Copy. Thanks. Wish you all the best for the rest of the year.
Thank you.
Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.
Yeah, hi. Thanks for the opportunity and congratulations to the whole management team for excellent execution. Rajesh, I have just two small questions. First is on the BFSI side. We have not seen BFSI spending very aggressively for now, like more than 10, 11 years. With the kind of movement in the online traffic, do you see that banking sector will once again start big CapEx and upgrade their core infrastructure? If that happens, will it not move up the growth rate very substantially? That is part one. Part two is on the hyperscaler side. I just wanted to know a little more on that side that how are we taking the hyperscaler approach?
Is it one business, basically we are targeting the whole hyperscaler as a one objective or one type of business, or you are breaking it down and individually targeting each hyperscaler through one kind of unit? Just some light on that. Finally, in the last few years, we have seen our subcon cost tripling. Now with this work from home and other things, will it recede to a substantially lower level? What I mean by tripling is that few of the players in the industry have tripled. Some have seen substantial increase. Will it recede significantly from here, or you think there is a limited room there?
The BFSI demand there are multiple levers that we think will drive long-term BFSI demand. One is related to the whole public cloud space. Almost all our customers in the BFSI space either already have some kind of a public cloud strategy or are currently experimenting with it. Substantial workloads have not shifted, and there are still lingering issues being sorted out both from a redundancy perspective, security perspective, validation, et cetera. Also there is acceptance, but not complete large-scale adoption yet across the client universe. Which means that there is significant headroom because almost everybody is now conceptually aligned that that is the right way to go, and that is the only way to go, in fact, and with the multi-cloud hybrid kind of a structure.
That will be a fairly long-term demand driver, and it is linked to the overall plan that we have spoken about. Similarly, from a product perspective, wealth management is a huge aspect of realignment that many of our customers are doing, and there is a significant amount of investment going into that space. Given our very strong domain capabilities and both product and platform capabilities, we are participating very well in that space. Other elements like customer experience, et cetera, continue to be. Insurance is another one that is significantly leveraging cloud to change its operating parameters and the way it is structured in terms of its complex operations. We see fairly robust long-term demand drivers in this space. As the largest service provider to the BFSI industry globally, we are very well-positioned to participate in this upside.
The question that you had about hyperscalers, the units that we have set up are dedicated units by each of these large platforms. We believe that when you take a slightly longer-term, five-year-plus kind of a view, each of them will evolve in their own unique ways, and therefore it is important that we invest and create those kind of differentiated capabilities, which will drive long-term value creation for customers. On the subcontractor side, Milind, would you like to take that? Maybe rather, NGS, you want to address that? I think the question was about our long-term strategy towards subcontractors and how SBWS and work from home, does it impact our subcontractor strategy?
Yeah. Thanks, Rajesh. I think you answered that the earlier question also. I think we have been proactively investing in building the skills organically. That is our strategic priority, and that's something that has paid us rich dividends, which we'll continue to do. On the subcontracting side, we have always been tactical about it and where it is absolutely required for market skills or fulfilling immediate opportunities. I think we've always used it, and we will continue to use that. We have a phenomenal ecosystem of partners that we have built over time in both the emerging as well as established markets that help us in terms of bringing in the necessary skills on an immediate basis. As well as typical market skills or regulatory skills that we keep looking for. That will continue to be practiced.
Yeah. Thanks a lot. Best of luck and happy New Year to the whole management team. Thank you.
Thank you. Same to you.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you, operator. As we said, strong demand for our services and momentum from the strong deal wins of the last few months have given us a strong momentum, helping us clock 4.1% growth in constant currency sequentially, and 0.4% on a year-on-year basis. We also grew on a year-on-year basis in constant currency terms, something which we were expecting to accomplish only in March, but we've done it a quarter earlier. Very happy to draw a line under this year, as it were, and look forward to the future. Our operating margin expanded by 0.4 basis points to 26.6, our highest in the last five years, even after absorbing the impact of the salary hike that we did in this quarter.
Our strong growth momentum and order book of $ 6.8 billion, which includes all-time high order book in BFSI and North America, positions us very well in the new year. On the people front, we, in keeping with our strong demand expectations and growth expectations, we have had all-time high net addition of 15,721 people. Our retention continues to be a industry benchmark at an all-time low of 7.6 from the IT services attrition perspective. Looking ahead, both in business as well as in our personal lives, there's every reason to be optimistic, but also to stay cautious. We are definitely not out of the woods yet, and we maintain a positive but cautious stance.
That caution aside, the medium and long-term business opportunity is fairly substantial, and our scale, as well as our sustained investments, positions us very well to participate in that. Once again, thank you all for joining us on this call today, and wishing you all a happy and healthy 2021. Good night and stay safe, everyone.
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.