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. Please note that this conference is being recorded. I now hand the conference over to Mr. Kedashir Ali, 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' financial results for the Q3 of fiscal year 2021 that ended December 31, 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.
And Mr. Milan Larkar, Chief HR Officer. Hi, everyone. 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 statements 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 the December quarter. Our revenue grew 4.1% quarter on quarter in constant currency And 5.1% in dollar terms and 4.7% in rupee terms. The growth momentum of the last two quarters also helped us get back to growth on a year on year basis, 1 quarter of 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 dollar terms and 5.4% in rupee terms.
The strong top line performance was matched by our various operating metrics, reflecting the power, flexibility and responsiveness of the SBW US operating Models that we have spoken about many times in
the past. Our operating margin for
the quarter was 26.6%, an expansion of 0.4% Q on Q And 1.6% year on year. Our net margin was at 20.7%. I'll now ask Ramke 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, Rakesh.
Yes.
Thank you, Rajesh. I'll now go through the headline numbers. In the Q3 FY 2021, our revenue grew 4.1% sequentially on a constant currency basis. This is the strongest December quarter growth we have had in 9 years. Reported revenue in INR was INR 420,150,000,000, Quarter on growth growth of 4.7 percent.
In USD terms, revenue was 5.70 2,000,000,000 which is quarter on quarter growth of 5.1%. To come to the segmented details for the quarter, As a reminder, I'll be sharing quarter on quarter growth numbers in constant currency terms. Our largest 2 business verticals, BFSI and Retail, Showed good sequential growth in a seasonally weak quarter. BFSI grew 2.2% quarter on quarter, One of its best December quarters in the recent past and adjusted for seasonal headwinds, our performance on par with Q2. Growth was well rounded across all geographies except APAC and sub verticals.
Business teams 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 2 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. And the Postbank Systems deal was closed actually on January 1.
The retail cluster grew 3.1 percent despite the seasonal softness of the holiday season and continued weakness Discretionary retail, CPG and the travel and hospitality sub verticals. U. S. Retail showed good recovery followed by Europe and UK. 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 basis On a near 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 continue to be below the December 2019 levels.
By geography, sequential growth was led by North America Europe, +2.5 percent. Other markets grew as well with and Asia Pacific growing 2 0.7% and Latin America 3.1%, all positive. Coming to products and platforms, our portfolio of award winning products and platforms continue to grow well. Igneo, our suite of cognitive automation software, acquired 8 new logos in Q3 and saw 7 customers go live on the product. During the quarter, the product won 3 more awards and was granted 2 more patents, bringing the total to 27 patents granted till 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 Igneo's various solutions in very creative use cases and build operational resilience. European Multinational Chemical Company is using Ignio's Health Check dashboard To proactively monitor SAP operations around basis, EVAP and the core ECC technical stack, Ignio provides startup day business checks around a range of transactions, looking out for system unavailability, Performance analysis, license expiry, etcetera. Such proactive monitoring helps preempt issues before they arise and avoid business disruptions Due to system outages, an American life sciences multinational is using Aegneo to manage its Azure, AWS and GCP based cloud operations, over 5,500 virtual machines And 100% of incidents are currently being managed by Igneo with a 36% automation index within weeks of implementation. Another North American utility is using Ignio for user group management, cloud based, cloud infrastructure migration, Drive space administration and patch management. Igneo 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 Banks, our flagship product suite in the financial services domain, it had 5 new wins and 6 go lives in Q3. We had 2 new wins for our digital banking product, 2 for our wealth management solution and 1 for payments. This includes one of the largest deal wins ever when TCS Banks was selected as a preferred cloud based platform For its wealth management business in the U. S. By a global investment bank, the Quad Smart Sledger solution had 4 new wins And one go live in Q3.
ClearDew 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 Quad 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 I have used the Quartz Dev Kit solution to build a blockchain based system for buying, selling and transferring of Renewable Energy Certificates. In our 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 announcements, processing standards and help the bank deliver superior customer experience and drive growth in its prime services book of business. Our HOB's SaaS suite of solutions for communication service providers had 3 new wins and 4 go live during the quarter. WinX, our AI based digital twin solution also had a grievance. TCS MasterCraft, Our suite of intelligent automation products for end to end enterprise application modernization had 8 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. So we expect these metrics to remain soft for another couple of quarters Until we fully cycle out to the revenue declines of the June quarter. At the end of Q3, we had 48 clients in the 100 $1,000,000 plus band, 97 clients in the $50,000,000 plus band, 229 clients in the $20,000,000 plus band, 386 clients in the $10,000,000 plus brand, 565 clients in the $5,000,000 brand and 1077 clients the $1,000,000 plus bank.
Coming to margins or moving on to our costs, We had our annual salary increase going into effect from October 1st this year. So our Q3 operating margin saw the full impact of that amounting to 160 basis points. I'm happy to point out that the operating efficiencies brought about by our SBW's operating model aided by operating leverage from growth and a little bit of currency support helped us mitigate the impact increase and still expand our EBIT margin sequentially by 0.4% Q on Q to 26.6 percent. Our net income margin was at 20.7%. Effective tax rate for the quarter was 25.4%.
Our DSO was 69 in dollar terms. Net cash flow from operations was INR 119,520,000,000 which is 137.4 percent of net income, our all time high in cash conversion. Free cash flow was INR 112,300,000,000 up 28.5 percent year on year. Invested Funds has December 31st stood at INR653.77 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 1500 employees joining our new delivery center in Ireland from Primerica 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 percent virtual onboarding of Project Ready trainees. In Q3, we onboarded 12,000 Our TCS National Qualified Test reestablished 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 carrier 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. However, as growth returns across the industry, we expect to see attrition inches up from these very low levels. I'll now turn it over to Rajesh for the demand drivers and trends.
Thank you, Ramke. Coming to the demand side of it, I had spoken earlier about how cloud adoption is driving a multiyear technology spending cycle and that this will remain a secular growth driver for us Over the next 3 to 5 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 had also spoken about how we have created new Business units focused on the 3 leading hyper scaler 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. And 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 In each of these platforms, apart from this cloud infrastructure, brokerage, orchestration services, etcetera, So it's a full court press across the entire partnership and ecosystem. And the initial traction And pipeline visibility, etcetera, 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 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 We believe that from a demand perspective, we will see traction on both these aspects.
And 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 1, in Q3 along either of both of these areas. Coming to this growth and transformation first, Great example is the work that we're doing for a leading insurance provider in the North American market, Where we are 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 APIification, to implement a new platform that has significantly changed the way the insurance provider integrates With an ecosystem of 3rd party providers that are critical to its customer servicing. So 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 port Or to do an efficient claim processing. Similarly, 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 port time by 41%.
And similarly, we've been able to Help them bring products faster to market. And we are able to achieve 40% lesser time So 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. And 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. So similarly, for another pharmacy, 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 sales from any pharmacy in that chain. And underlying this is, of course, the transformation of the pharmacy system, migration of that into a cloud based infrastructure and Our 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 found out. Similarly, we are also able to use advanced AIML techniques To actually predict the nature of that load and 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 and which node significantly reduces wastage And improves customer experience. So these are examples of how cloud transformation goes beyond Your infrastructure and talking about how we leverage these native capabilities and also how those ecosystem kind of transformation helps. We have similarly worked with 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 By exposing it onto the cloud, by actually delivering on that borderless enterprise promise, We can significantly improve both efficiency and customer experience.
So that's one Area around the cloud based transformation. Another big area that we are seeing, which is also linked in some way to this idea of borderless organization, Is this increased volume of corporate restructuring, M and A mergers and divestitures, etcetera, that we are seeing. And we see this as accelerating part of our customer strategy as they realign themselves to the new industry norms. And this is a space that we have been investing in significantly and enhancing our capability to participate across the value chain. So we have been setting up capabilities on both integration as well as the diverse feature planning, Day 1, readiness, running the integration management office and 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 1 of the session, so that there is no lag in that whole activity. So 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 separations and logical integration Of businesses, both inside enterprises and across multiple enterprises. The other big area that we are seeing 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 outlook and a very noisy environment 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 this 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 e mail are aware. They're moving away from delivering letters to delivering packages and moving to a customer oriented delivery schedule. So we have helped them actually enable their customers to select delivery windows In a 2 hour window rather than 8 hour or a one day kind of scenario that they were used to, this one Has resulted in more than 500,000 downloads of that app for them and customer NPS improving by 5 points. And they are expecting in their country to be the leading provider on the package and courier side of it.
So 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 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 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 localized fulfillment By a large ecosystem of vendors across a large ecosystem of business users.
So while the contracting and Optimization happens at a central level. What the solution allows is for reduced reconciliation errors and reduced friction, 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 the overall business experience Enhanced. And 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. So These are examples of the kind of work that is getting enabled By the large scale transformation that is currently going on, and then our teams are participating. And 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 win total contract value signed this quarter is 6,800,000,000. And this when you compare that against 8.9 or 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. And if you look at this components also, BFSI has delivered 2.6 1,000,000,000 TCV in this quarter. Only one of the 2 deals that we spoken about in the past is counted here. The other deal Closure happened early Jan, so that's not counted in this.
So BFSI demand is also very strong, and we're Very positive about it. Similarly, retail at close to $1,000,000,000, 9.98 1,000,000,000 and North America at 4,000,000,000. So the TCV spread across our segments is also very strong. With that, let me close and open it up for questions. But yes, go ahead.
Thank you very much. We will now begin the question and answer session. 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 Agarwal from HSBC.
Please go ahead.
Yes. Hi. Good evening, everyone. Great quarter. Just have a 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. But your growth is broadly great across all the verticals. So what is happening? Are the customers behaving the same manner even if their Business is getting impacted versus benefiting or the type of services are different, but the net result is same for you.
And related to that, did you see any kind of budget flush this time as most CIOs won't
Thanks, Yogesh. Yupesh, 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. I mean, all of these cases, technology leverage is at the core of whatever they are Some common themes were all pervasive, especially in the early part of the pandemic. Digital Collaboration Suite, Those rollouts and security were very common themes. But in the recent quarter, It's a more heterogeneous spread of both growth oriented investments as well as efficiency oriented investments.
So I don't there is no common theme other than technology leverage as being a theme. And I don't we have not seen it as a budget flush, but rather as strengthening of The investment mandates that they were receiving through the second half of the calendar year. So we are seeing steady strengthening of that. And 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 2 mega ones that we called out.
In the $50,000,000 $100,000,000 range, The number of deals that are closed is significantly high. So we kind of made up for that this thing in the last quarter that I spoke about. So I would say it is strengthening of that trend that we saw rather than a flush, let's say, Yes, in terms of where the demand is coming.
Okay, okay. And just secondly, Rajesh, so Every technology initial few years, the pricing is better. And as it scales up and there is a learning curve, It normalizes. So going forward, do you think on a with cloud ramping up, on a net basis, will pricing improve From here and can it help margins or you think it will remain stable as things scale up?
Yes, our Pricing strategy is more broad based and relationship led rather than specific service or product led. We are not a product company. So our approach is more long term strategic partnerships where we are investing in creating that capability and making that available to the customer on an on demand basis. So there are small variations, But you don't see significant volatility in our pricing across individual technology sites. That's not our strategy.
Very helpful, Rajesh. Thank you so much.
Thank you. The next question is from the line of Mukul Ghar from Motala Lutsoil Financial Services. Please go ahead.
Great. Thanks and congratulations on an excellent quarter. I had two questions for Rajesh and Ramke. 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 3 cloud partners, verticals which you have created, what's the addressable market You have.
And 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, it will happen. How it happens is difficult to predict and quantify right now. But the addressable market is so large that it merits that organizational changes that we have spoken about. Could you repeat what was the second part of your question?
Yes. So, second part of Question was, you definitely have seen 2 quarters of very strong growth. Would you attribute a Partially to increased pickup in cloud spending, which should settle down as we as Clients kind of move more into the maturity phase or do you expect cloud to accelerate further?
Again, sorry, we are keeping on saying difficult look, can't be said. But 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. And enterprise will the first value proposition is the migration of the infrastructure And second after that comes this actual rollout of programs that capitalize on that native capability And the usage, so 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 on to a common fabric of cloud. And the other one, the insurance one, the ecosystem integration, once again, those are business model changes And enabled by the fact that you are on to some kind of a common discovery based So A is the first is about the immediate basic Demand from cloud. But the second and the third horizons are you could classify it as cloud or you could classify it as any other standard But that is why we characterize cloud as a new ERP because The incremental functionality and the incremental differentiation will happen on these platforms and that we can classify whichever way, but That will definitely be a big driver of future demand.
Got it. Ramke, Just quickly on margins, this quarter margin performance was quite commendable. But if I look at the INR 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 one of the things which is we talked about this new Adding up people in Ireland, for instance, the employees have just come at the end of the quarter, right? So when you do the arithmetic, so your denominator is higher, but the revenue from that will come into the subsequent quarter. So other than that, there is no other structurally or anything to explain this.
And to your question, our variable pay has been 100% in both last quarter as well as the quarter before that. And we have gone through the year promotions. We've continued the cycle as normal. The volumes were more based on what the Actual business volumes, sir. And salary increases also we have rolled out from H2 onwards, which is fully reflected in it.
So None of that thing is so your question, this is inclusive of everything. No one else.
Okay. Thank you. Thanks for taking my questions.
Thank you. The next question is from the line of Ankur Rudra from JPMorgan. Please go ahead.
Thank you and congrats on set 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?
It depends on a client to client situation. But in aggregate, I think there is enough. So especially when you think about it in terms of incremental money, there is almost equal sized opportunity On both sides of it, our participation has traditionally been more on the efficiency side And the investments that we have done, the capabilities that we have created are designed to increase our participation on the growth and transformation side. But 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 Palitiranthika.
We had shared with you earlier about our commitment to completely onboard or honor our outstanding Hiring offers that we had made and we had hired and made offers assuming a much stronger demand scenario. So 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 tactical In using subcontractors, as you see, that remains fairly sticky element and it has marginally trended up also this So
we are both
strategically on the hiring side, tactically on the Subcontractor side and even more structurally on the entire training and reskilling side, which ask Milind to talk about a bit. We have actually executed on all 3. Milind, would you like to elaborate a bit on the reskilling and fulfillment from that?
Yes, sure, Rajesh. I think there are a couple of dimensions here. The linkage between The organic investment in our talent through cost scaling and business growth has emerged actually stronger than ever. For example, what we did in Q1 and what we did now, there is a 100% increase in that. Basically very contextual talent development looking into short term needs in the 2 quarters from now And building on top of that, it has really working for us very, very well.
Our contextual master pool Is Guru growing by 25% in this quarter? This is helping continuously strengthen our pool of growth and transformation leaders Capable of engaging with CXOs for customers and their transformation agenda. We have reached a number of 15,000 contextual masters. Basically, I just would 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 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. So 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 It is actually our key talent strategy.
And in addition to that, we are also basically building Very strategic talent development programs internally where we are at all levels, whether it is at the lowest level from 0 to 3 years People, whether it is in the middle level where we think of building specialists and then 9 years plus onwards, we are starting to build growth and transformation leaders of the company. So that is overall, current development has been a significant aspect of our growth, Direct correlation to that and the long term strategy as well.
Thank you. If I could just squeeze the last one, Any thoughts on investing the near term gains on margin from travel and G and A benefited from in CY 2020 To gain market share as clients open up to captive sales consolidation, etcetera, and also helping them fund transformations? Thank you.
We are closing with INR 65,000 crores. So I don't need travel savings for investment. As you know, we have a very, Very structured investment plan and very long term commitment to investing in capabilities to drive strategic growth. And that agenda continues and we are hardly capital constrained to be able to fund it.
Thank you, Mr. Mahindra.
Thank you. The next question is from the line of Sandeep Agarwal from Edelweiss. Please go ahead.
Yes. Hi. Good evening to the management team and thanks for allowing me to ask the question. Congratulations on excellent execution, Rajesh and whole team. So, Rajesh, I have a couple of questions.
1 on the hyperscaler side, you have given lot of details in past also and now also you have given lot of details. But 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 Bill, are you muted?
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's not very clear. I would request you to rejoin the queue, sir, and check on the line.
Yes, sure.
Thank you. In the meanwhile, we'll move to the next question, which is from the line of Apoorva Prasad from HDFC Securities. Please go ahead.
Yes. Congrats on the quarter. Rajesh and team have best wishes for the New Year. So while I mean the performance has been fairly consistent with I think what you said in the Q1, it will be interesting to know which are the areas that performed better than your anticipation versus at the beginning of the quarter. So 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 Can probably prolong.
And you did mention the heterogeneous nature in this quarter. So any comments around that will be really helpful, Rajesh?
Actually, quite frankly, no. There are no standout individual 3 are market segments that actually performed the thing. UK, if anything, if you specifically push it, UK is difficult to call. So we are as we have always maintained over the last many years on UK, we stay very, very positive and are staying very close to our customers And helping them deal with extremely volatile environment. But yes, that's a market that is extremely difficult to assess And we are very happy with what how it has turned out.
And we hope that it will continue to remain equally Strong, but it is a difficult market to talk about. Others are trend wise, I couldn'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. And Rajesh, this is also tied to your earlier So, do you see more vendor consolidation opportunities Getting bigger by volume or value, assets, budgets are probably going to unlock more. And for the end to end transformation Versus more peaceful transformation, 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 and also, of course, the fact that the pandemic had changed the decision cycles and all. So the smaller deals were obviously happening faster. But last time also when we said that our Q2 TCV was more weight to smaller one. I'd also shared that, but our pipeline is more reflective of our So I don't I think it's just a timing issue between quarters. And this quarter, our large deals are back Normal and in fact some amount of catch up on the last quarter has also happened.
So I don't see a significant shift in The distribution or the deal structure.
Got it. Thanks and all the best.
Thank you. The next question is from the line of Sudhir Poontipalli from ICIC Securities. Please go ahead.
Yes. Good evening, everyone. Thanks for giving me this opportunity and congrats on a good set of numbers. My first question is to Ramkisir. 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 Can we correct as we come out of the recovery mode and start chasing growth? Or do you see a case for structurally higher utilizations and margins going forward Compared to FY 'nineteen, 'twenty levels.
I think, see, 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 Our productivity or leverage, etcetera, 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 So we continue to stay focused on where we think the businesses Can deliver. And so nothing more specific to call out on that.
Sure, sir. And Rajesh, we understand that Continental Europe is a geography where the presence and competitive positioning of TCS Has been 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. That's it from my side. Thanks and all the best.
Thank you. The next question is from the line of Divya 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. Pardon me if 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 credit fixed rate between aspirations going into next year? Will the revenue mix 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 health should look up.
Yes, Jeev, you're asking about revenue or Margins.
Margins, the 26% to 28% range that the business projects provide.
The margins are where The 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 structure when the right opportunities come about. So this is I would say that coming back to that range is more a reaffirmation, validation What we have always maintained, but we have, 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. So 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, etcetera. So we're not that worried about that, but we are very interested that over Cycle, we are able to bring it back and then be able to use that as a lever to feed our growth.
Got that. And the second point was something you just alluded to attrition. It seems attrition come down to a very, very healthy number right now. Is this a 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 or As the industry starts to hire more meaningfully into the next 12 to 18 months, do you expect this to start in tune up a bit towards where you used to be a few quarters ago?
Milan, would you like to take
that thing?
Yes, I'll take that. I think our this number of 7.6% is the last 12 month Trishan, it reflects that number. Going forward, we expect the number to actually will obviously go up A bit, but where it will come to original levels or not, we don't know yet. But the point is this is something which is last 12 months attrition, And we expect that some margin in it will increase over quarters.
And we've just finished a round of wage hikes. Going into the next year, what are we thinking about the cycle and timing of wage hikes? Yes.
So this year was an exception for us, right? Instead of giving the release in April, we gave it in October. We expect the next year to be normal year and thereby we will decide by the end of this quarter, by March On the increments and timing and all of that, but we expect that to be normal, yes.
Got it. Thanks and wish you all the best for the rest of the year.
Thank you.
Thank you. The next Question is from the line of Sandeep Agarwal from Eagle Rice. Please go ahead.
Yes, hi. Thanks for the opportunity and congratulations to the whole management team for excellent So 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. But with the kind of movement in the online traffic, do you see that Banking sector will again once again start big CapEx and upgrade their core infrastructure.
And if that happens, will it not You know move up the growth rate very, very substantially that is part 1. And part 2 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 to one kind of unit?
So just some light on that. And finally, in last few years, we have seen our subcon costs tripling. So 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 from a substantial increase. Will it recede significantly from here or you think there is a limited room there?
Yes. See 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 are either already have some kind of a public cloud Currently, I'll experimenting with it. But substantial workloads have not shifted And there are still lingering issues being sorted out, both from redundancy perspective, security perspective, validation, etcetera.
And 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 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. So 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 significant amount of investment going into that space.
And 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, etcetera, Continue to be. So 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. So we see fairly robust long term demand drivers in the And as the largest service provider to the BFSI industry globally, we are very well positioned to participate in this The question that you had about hyperscalers, the units that you have set up are dedicated units by each of these large platforms. And we believe that when you take a slightly Longer term, 5 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. And on the subcontractor side, Milind, would you like to take that? Or 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?
Yes. Thanks, Rajesh. I think you answered that in the earlier question also. We have been proactively investing in building the skills organically. And that is our strategic priority and that's something that has paid us this dividend, which we will continue to do.
The subcontracting side, we have always been tactical about it and where it is absolutely required for market Skills are fulfilling immediate opportunities and I think we've always used it and we will continue to use that. We have A phenomenal ecosystem of partners that have been that we have built over time in both Emerging as well as established markets that help us in terms of bringing in the necessary skills on immediate basis, As well as typical market skills or regulatory skills that we keep looking for, that will continue to be Practiced.
Yes. Thanks a lot and best of luck and Happy New Year to the whole management team. Thank you.
Thank you, SMT.
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. So 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. So 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 5 years.
Even after absorbing the impact of the salary hike that we did in this quarter. And our strong growth momentum and order book of $6,800,000,000 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 Keeping with our strong demand expectation and growth expectations, we have had all time high net addition of 15,721 people and our retention continues to be an 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 personalized, there's 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. But that caution aside, the medium and long term business opportunity It's 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.