Ladies and gentlemen, good day and welcome to the TCS Q4 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali. Thank you, and over to you, sir.
Thank you, Margaret. First of all, my apologies for the delayed start. Good evening. Welcome everyone. Thank you for joining us today to discuss TCS's financial results for the fourth quarter and full year of fiscal year 2020, ending March 31st, 2020. This call is being webcast through our website. 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, Kedar, and good evening everyone.
Mr. N. G. Subramaniam, Chief Operating Officer.
Good evening to all of you.
Mr. V. Ramakrishnan, Chief Financial Officer.
Hello everyone.
Mr. Milind Lakkad, Global Head, Human Resources.
Hi, everyone.
Rajesh and Ramki will give a brief overview of the company's performance, followed by a Q&A session. As you are aware, we do not 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, which is available on our website, and which has been 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. Once again, good evening to all of you. I hope that all of you and your families are safe and continue to be staying healthy. Over the last few weeks, our priority has been to safeguard the health and wellbeing of our employees while continuing to support our customers' mission-critical activities globally. I hope that the same extends to all of you. The lockdowns across the world in response to this pandemic have tested the agility, resilience, and adaptability of our delivery model, and it is immensely satisfying to say that we have come out stronger and more proven than ever before. From a highly centralized model consisting of workspaces set in large delivery campuses capable of accommodating thousands of employees, we had to switch to an extreme form of distributed delivery in a matter of days.
To do that across an organization of 448,000 is, as you will all appreciate, not a trivial challenge. The most important aspect of it is, it is not just moving the person from inside the office to outside, but being able to actually extend all the elements of our delivery model to be able to work seamlessly with this kind of a distributed pool. Our IT support teams analyzed the various connectivity options and came up with an extension of what we call our open, agile delivery model concept into a next-generation secure borderless workspaces or the SBWS model. It is not just a matter of enabling remote access to hundreds of thousands of employees.
We rejigged our cybersecurity posture and all our project management practices and systems to ensure that proper work allocation, work monitoring, and reporting continued, so that the delivery quality and the delivery certainty that our customers expect from us was never compromised. The logistical challenges of physical enablement were formidable, and in the final push, our admin, IT support, and HR teams worked very hard and in the true spirit of TCS and did a magnificent job. Close to 90% of our employees have now been enabled to work in the SBWS model.
The other area where our model truly shone was in the manner in which our global team stepped in to seamlessly take up the load, and the flex with which work moved between teams was both very encouraging in terms of what it means from an organizational perspective, and also from the perspective of the underlying technology architecture that holds together our talent pool into one seamless delivery organization. The fungibility across teams ensured that there was no slippage in support levels to our customers' mission-critical operations and systems, and this has been something that has been widely noticed and appreciated by many stakeholders. Our SBWS experience over the last few weeks has been, I would say, amazing.
The cloud-based monitoring system is tracking the progress of all our engagements and covering more than 23,000 projects across the organization on a real-time basis and ensuring that customers continue to experience the same quality of delivery that I spoke about. Associates are also, in many ways, actually enjoying the luxury of not having to commute. In fact, some of that is showing through in increased energy levels and engagement that we're seeing across the organization. TCS HR, and Milind will speak a lot more about it, but has been also very proactive in making sure that employee engagement across multiple dimensions, whether it be emotional wellbeing or even addressing areas of common interest, continue to remain high on the priority and as we actually transition to this kind of a distributed one.
Clients are comfortable with what we have done, and they want us to take more work. In fact, from other providers who might not have the kind of flex and seamless options that we have been able to demonstrate. We received more than 500 customer appreciations and accolades in the last two, three weeks appreciating how seamlessly we managed this switch. Coming to our Q4 performance, even though the actual disruption took place only in the last couple of weeks of the quarter, the pandemic completely reversed the positive momentum that we had been seeing building up in some of our biggest verticals in the first two months of the quarter. Our Q4 revenue growth was 3% year-on-year in a constant currency basis, and 5.1% in INR terms, and translated to 0.9% in USD terms.
On the full year, we crossed the 22 billion mark, growing at 7.1% in constant currency and 7.2% in rupee terms. Our operating margin for the quarter was flat Y-on-Y at 25.1%, and net margins in Q4 was at 20.2%. Our cash conversion continues to be strong, and our full-year EBITDA margin was at 24.6%, while the net margin was at 20.6%. I'll ask Ramki to go over all the headline numbers, financials and segment performance, and I'll again step in later to talk about the demand trends that we are seeing and where we are modeling the next few quarters ahead.
Thank you, Rajesh. I'll go over the headline numbers. In the fourth quarter FY 2020, our revenues grew 3% year-on-year on a constant currency basis. The reported revenue in INR was INR 399.46 billion, which is a year-on-year growth of 5.1%. In USD terms, revenue was $5.44 billion, which is a year-on-year growth of 0.9%. For the full year, our revenues grew 7.1% in constant currency. In INR terms, it was INR 1.569 trillion, which is year-on-year growth of 7.2%. In USD terms, revenue was $22.03 billion, which is year-on-year growth of 5.3%. Going over the segmental performance. As a reminder, all these growth numbers are year-on-year and in constant currency terms. BFSI revenue declined this quarter by 1.3%. Much of the revenue leakage was due to the supply-side impact arising out of delays or inability to activate remote access for some of the offshore teams due to regulatory concerns.
Retail grew 4.2% despite a sharp hit in the travel, transportation, and hospitality subvertical. Life sciences and healthcare continued to grow strongly, growing 16.2%. Likewise, our communications and media business continued to do well, growing 9.3%. Manufacturing grew 7% this quarter, while technology and services grew 3.5%. Geography-wise, Europe continued to outperform, growing 11.9%, while U.K. grew 5.4%. North America was flattish at 0.2%. Among the emerging markets, Latin America and APAC grew 3.9% and 3.5% respectively, while MEA grew 1.3% and India declined by 1.9%. Coming to our portfolio of products and platforms. They performed quite well in Q4. ignio, our cognitive automation software had 11 new wins and 13 go lives. The product suite continues to expand into newer areas and with newer features and capabilities. Our channel partner program continues to expand, onboarding five new partners this quarter, including three value-added resellers and two technology partners.
ignio is now available on the Microsoft Azure marketplace. TCS BaNCS, our flagship product suite in the financial services domain, had nine new wins, of which three were in the core banking, two in insurance, two in securities processing, one in lending, and one in payment. We also had five go lives in Q4. The Quartz blockchain solution had three new wins in Q4, of which two were for the Quartz DevKit launched in Q3. In the Algo retailing space, we had one go live each for Optumera and OmniStore. In life sciences, our award-winning advanced drug development suite had three go lives, including a new innovative AI-based solution for pharmacovigilance implemented for a U.K.-based global pharma company. The GxP compliance solution uses TCS Decision Fabric AI engine to transform case intake and triaging by converting natural language to structured clinical data.
Lastly, our HOBS SaaS platform for communication service providers had two new wins and one go live. Coming to the client metrics. We report our client metrics every quarter because these are an important measure of the strength and success of our customer-centric strategy of continually investing and building new capabilities and launching newer services and products to steadily broaden and deepen our customer relationships. In Q4, we had very good client additions across all revenue buckets. To give you some of the details, we added five more clients in the INR 100 million-plus band, bringing the total to 49. Six more in the INR 50 million-plus band, bringing the total to 105. 25 in the INR 20 million band, bringing the total to 240. 20 clients in the INR 10 million-plus band, bringing the total to 391.
33 clients in the INR 5 million band, bringing the total to 565, and 64 clients in the INR 1 million band, taking the total to 1,072. Going over the financials, margins in Q4 were impacted by the slower growth and also by the lower utilization in projects where customer approvals for work from home were not yet received or were delayed. Currency support mitigated these headwinds, resulting in an operating margin of 25.1% and net income margin of 20.2%. For the full year, our operating margin was 24.6% and the net income margin was 20.6%. Effective tax rate for the quarter was 23%. Our DSO was 67 days in dollar terms. Net cash flow from operations was INR 88.09 billion, which is 109.4% of the net income. Free cash flow was INR 80.68 billion. For the full year, it was INR 323.03 billion, which was 9.4% year-on-year growth.
Invested funds as at March 31st stood at INR 443.11 billion. The board has recommended a final dividend of INR 6 per share, taking the total dividend for the year to INR 73. This translates to over INR 318.9 billion return to shareholders this year. On the people front, we ended the year with a total headcount of 448,000-plus, a net addition of 24,179 in the course of the year. It continues to be a young and diverse workforce with 144 nationalities represented and with women making up 36.2% of the base. This is organic talent development initiatives continue to deliver industry-leading outcomes. Employees logged 37.7 million learning hours in FY 2020, resulting in over 335,000 employees getting trained on multiple new technologies and over 417,000 trained on agile methods. The LTM attrition IT services in FY 2020 was 12.1%.
I hand it over to Rajesh now for the demand drivers and other trends.
Thank you, Ramki. The pandemic has introduced an unprecedented level of uncertainty in an already unstable global economy. All major economies have virtually ground to a halt. It's difficult to predict when and how the recovery might commence. What's clear, though, is that individuals as well as organizations have to mentally prepare themselves for a prolonged period of uncertainty and a new normal. Now that we have stabilized from the initial shock of the lockdowns, our focus is on helping our customers navigating to that new normal and building in these three elements of resilience, adaptability, and agility into their organizational structures. One of the biggest learnings for organizations on the four weeks has been the importance of investing in these capabilities as horizontal organizational capabilities.
These are attributes that an organization needs to survive shocks like what we've just gone through, and also to pivot into new business models or launch new offerings and thrive even during periods of economic uncertainty. These attributes don't come from adopting any one management practice or technology or toolset, but are the aggregate outcome of a customer-centric, forward-looking worldview and an empowering culture which motivates people and enabling processes and robust technologies. Several of the core themes that we have been speaking about for the last couple of years and which have been our strongest growth drivers and where we have invested significantly have all become all the more relevant in the current situation because they directly address the pressing need to build resilience and agility. Let me go over a few of them.
First of all, the Location-Independent Agile and its evolution into what we are calling the SBWS model or the Secure Borderless Workspaces. I've spoken in the past on how we have innovated to break out of the constraints of co-location that were limiting the use of agile methods and methodologies and pioneered the Location-Independent Agile model. We have been systematically transforming our development centers to what we call agile operating centers and encouraging our clients to move to open agile collaborative workspaces and away from the ODC model that permeated the earlier period. This promotes an open office environment. It promotes co-working with people working for clients of different verticals and organizations, and all of this without compromising on security features available in the more constrained work environments. Today, it has become the default model for transformational programs at large organizations whose business users are distributed across the world.
In FY 2020, we executed over 15,000 agile projects for 912 of our customers using this model. The disruptions caused by COVID-19 only highlighted the thought leadership in our Location-Independent Agile approach and gives a clearly differentiated positioning. We are not stopping with that. Our Secured Borderless Workspaces model, which we rolled out in response to COVID-19 disruption, is an extension and a next-generational evolution of the open agile collaborative workspaces thinking, but makes it further location-agnostic. It leverages all the investments that we have made and incorporates all the learnings and best practices around network management, operating the internal securities operations center, and benchmark to the best in the industry, deploying a standard service delivery environment, digitizing delivery governance processes and adopting collaborative and cloud-based technologies, including things like Microsoft Teams and Office 365. This is our new operating model and represents the future of work.
It helps our employees enjoy a better quality of life, and it helps organizations become more resilient because the fully distributed nature of this model is inherently less risky and better suited for business continuity and agility. That's on Location-Independent Agile and its migration to, as I said, the Secure Borderless Workspaces model that we believe will define the delivery model of the future. The second key element of it has been what we have always been speaking about as the Machine First Delivery Model. This is another thought leadership framework, which I've spoken about in these calls before, and which has, again, proved its mettle during the current crisis. The MFDM model is basically a way of integrating technology deep within the enterprise to redefine how humans and machines can work together more effectively.
It combines the human ingenuity, empathy, and judgment with machine-driven speed and scale, and delivers vastly improved outcomes and at scale. It, most importantly, marries the here-and-now benefits of automation and provides a framework for a move to continuously increase the leverage of both automation and AI technologies at an enterprise scale. Over the last couple of years, we have executed many large core transformation engagements where we helped customers reimagine their IT operating model, incorporating the cognitive power of ignio™ to preempt issues and autonomously resolve a lot of those, essentially making the technology stack self-healing and thereby adding to the resilience. This resilience has been particularly appreciated by our customers in sectors like retail, where they've been able to handle holiday peak volume level traffic in the panic buying that came along with this transition to the lockdowns that we saw across multiple countries and their economies.
The pandemic has put the spotlight on these models. We have some early indicators in our deal wins of customers who are increasingly willing to adopt this as the new operating model going forward. In terms of order book, we had the highest TCV in signed deals this quarter from the time we have started reporting this. The overall order book signed in the quarter was at 8.9 billion, and BFSI stood at about INR 2.4 billion, while retail was INR 3.1 billion, which includes the INR 1.7 billion of the Walgreens deal that we had announced earlier. In both cases, these are the highest ever figures, and TCVs from deals signed in North America as a region stood at INR 5.3 billion. Several of the large deals are core transformation engagements incorporating agility or our Machine First approach for enhancing operational resilience.
Going forward, I expect more and more customers to think seriously of ways to incorporate these into their operating model or the ones that have not already done so. Let me conclude by saying that when you're looking ahead, we're going to have to deal with a lot of near-term uncertainty. I mentioned it in my press conference that we believe that the peak negative impact from the current situation would be comparable to the peak impact of GFC, which happened 10 years back, and it would be in that ballpark, plus or minus a few percentage points.
The way we are modeling it is to look at it across four dimensions, and the first being operational, which I have taken a lot of time to talk about how we are ensuring that what we are known for in terms of delivery quality, in terms of delivery certainty, execution quality, we continue to deliver on those promises, even with this highly distributed model. More importantly, we are once again providing the thought leadership in terms of migrating to the operating model of the future. We are very happy that many of the investments that we have been making over the last few years are actually proving to be very pertinent in this current scheme, and we believe that this will only accelerate this movement to that. The second big component of it is our interactions and the feedback that we're getting from our customers.
Our customers' confidence in us has actually gone up, and many of them have been very open in sharing their association with us and expressing what they have experienced very profusely. We are confident that our customer relationships will continue to strengthen and will come out even stronger post this crisis. We continue to stay focused on doubling down on those relationships. Thirdly, our talent model and our continuous investment in reskilling has prepared our employee base for fungibility and rapid shift and self-learning. These traits and these principles and values are even more reemphasized by the current situation that we see in us. The strong commitment that we have to our employee base is being reflected and repaid in the kind of phenomenal effort that each and every one of TCSers has put to transition the company into this new operating model.
The last aspect of it is, of course, our financial model that Ramki spoke about, and which we'll be happy to take any more questions on. Overall, it is likely to be a challenging few quarters. We are looking forward and modeling as to three quarters forward or four quarters forward by the time we can get back to the same revenue and profitability levels that we are currently at, so that we can continue our journey forward from there. With that, I want to turn this over for any of your questions, and we'll try to answer as to the best possible.
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 touch-tone 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. Anyone who would like to ask a question, please press star and one at this time. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sudheer Guntupalli from Motilal Oswal Financial Services. Please go ahead.
Good evening, gentlemen. Thanks for giving me this opportunity. Some of the deals we have already won and about to be ramped up may need end-to-end virtual processes, be it onboarding, so on and so forth. How prepared are we on this front? Those deals which we might have won during the first half of the quarter, are the expected ramp-up timelines on track, especially post the shock in the last two weeks of the quarter?
As you can imagine, this is not a scenario that had been modeled for. I'm happy to report that anecdotally, there is quite a lot of positive action happening in that. In fact, one of the deals that we have announced in the North America space in mortgages and insurance. The initial transition kickoff and the town hall with many of the employees involved has entirely been conducted on an online manner and has been very positively received with bulk of the impacted people actually giving us very positive feedback on it and deciding to switch over to the new model that we were suggesting. Good, strong anecdotal evidence, but structurally, we are rapidly working to see how to create digital spaces that are rich and engaging to be able to do something of this nature.
We are using our learning from the Location-Independent Agile and our distributed work teams that we have had to actually push that into this new norm of doing transition in a location-independent manner. There have also been past examples of this, but the speed and scale at which we are trying to achieve that now is unprecedented.
Sure, sir. In terms of the expected ramp-up timelines, is there any change post the shock or as of now there is none?
Early days yet because some of the ramp-ups are going on as normal, but the actual impact of it will be better felt and better quantifiable through this quarter. You should, and we are expecting impact from it and building that into our models.
Sure, sir. My second question is on the fixed-price contracts. In those cases where there might be slippages in terms of timelines or SLAs due to the lockdown situation across the globe, how are clients responding to it? Do we have some kind of protection embedded in all the contracts given it's an act of God kind of a situation or can there be any possibility of some penalties being imposed in such cases?
Not a single one of our fixed-price projects have actually seen either an SLA slippage or a schedule slippage. Actually, that is something that we are phenomenally happy with and proud about. NGS, maybe you can add to it in terms of what you have been seeing.
Sure, Rajesh. I think as we moved from the employee safety situation to enable them to work remotely, the first and foremost that came into very handy for us is the digitized operating model that we have, a digitized delivery processes that we have. Overall that helped us to track at any point in time more than 25,000 projects that we execute on a pretty much on a real-time basis. Our project managers and our client partners have constantly been polled to ensure that any red flags that they see are tracked to closure. Overall, the rigor in operations that we brought in using the digital framework that we established came into hand. As Rajesh reported, we are proud to see that each and every project is on track and we are not seeing milestones being slipped at this point in time, specifically on the fixed-price projects.
Yes. One last question. In the near term, we understand that our ability to predict anything is very limited. If you take a slightly longer-term or medium-term view, what would be the major technology shifts in the IT world that you anticipate in a post-COVID world, and how are we preparing ourselves to build leadership even in the new paradigm as well? That's it from my side. Thanks.
NG, if you want to continue on that.
Yeah. I think from a technology shift perspective, I think there are two or three things that are emerging. One is how do you build more resiliency into operations? I think the whole business continuity planning will get further strengthened, further rigor will be brought into that. Second is that respecting every technology in which we are operating. Staying fundamentally committed to that is going to be very important because as we spoke now, there are customers of ours and there are others who are not customers of ours, they are seeking help for working on mainframe technologies and COBOL and a few other older technologies that we have been able to systematically support as well.
I think, as we see it, biggest technology shift is going to be on areas like collaboration tools, and we invest more on digital technologies. The acceleration that we are seeing in migration to cloud will be even faster, even more rapidly it will take place. I think the whole intelligence analytics around it and the self-healing part of the infrastructure that will provide you that resiliency will all be accelerated.
Super. Thank you and all the rest. Stay safe.
Thank you.
Thank you. The next question is from the line of Divya Nagarajan from UBS. Please go ahead.
Thanks for taking my question. I appreciate the color in detail. Rajesh, my first question is to you. Could you kind of clarify what you mean when you say the peak impact which you expect in Q1 is going to be as severe as what you saw in the global financial crisis? Are you talking about revenue on a year-over-year basis dropping by a similar proportion, or how should we think about that? That's my first question.
Divya, that's right. Not just the best way. What we mean is the impact on the demand side, the revenue impact on a sequential basis that we are expecting.
Got it. Just to your other point of getting back to the previous revenue and margin base in a few quarters. Again, are we talking growth rates here? Are we talking absolute numbers?
No, we're talking absolute numbers. We were on a certain trajectory. We already had a sequential negative in this quarter from Q3. The first target is to get back to Q3 levels, and the next target is to set we are at 25% this quarter. There is no way this is going to get defended in the near term, but the intent is to get back to this level and which we think that our current modeling is to able to get back there by Q4 of FY 2021 so that we can start off where we left off.
Perfect. My second question is on the margin front. Perhaps Ramki could add some color here. What are going to be your key cost levers here? You already spoke about honoring the campus offers that you've already done. Could you kind of talk about what's happening on the hiring side? Specifically, are you considering any cost control measures such as furloughs or possibly looking at an accelerated involuntary program compared to what you've done in the past?
Let me take that, Divya, and I'll let Ramki add further color to it. The immediate term levers that we are looking at, unlike what happened in the GFC time. In GFC, we actually significantly changed our operating model and moved offshore in a significant way. That's not on the table right now given the current situation that we are in. What we have done is we have put a complete freeze to new hiring except for all existing offers that are out there. From the lateral offer side, in the next few weeks, I think all our existing offers will run out, and we don't expect any further lateral hiring till we have very strong visibility on what is going on. We have more than 30,000 offers outstanding on new trainee recruits, on-campus recruits, and we are going to honor that.
We expect that given the impact that the current crisis has had on the university system, that we are looking at probably that their exams might get delayed to June, July, or sometime. Immediately after that, we'll start bringing them on board. Q2, Q3, we should be bringing them on board. It comes below into Q4, which is the typical path that we used to have till about a year back. Last year, we had done an accelerated program. This year, that won't be possible. Your question on retrenchment or involuntary separation. We want to be very clear that is not in our model, and we are not planning on any of that as a response to this current crisis.
We are going to be significantly looking at driving the secure borderless workspaces model to change the overall utilization paradigm and to try and continuously upskill and move our people into higher value-add roles with a very aggressive online training program that we have already commenced upon, which we call Wings 1 and 2, and there are multiple ones of that coming and planned. The focus on getting back will be to actually get that demand back to the levels that I told about and to maintain the cost structure in a manner in which we are able to get to that whenever we first secure on the demand side. I hope that answers.
Got it. Any consideration on furloughs for employees, either in India or abroad? India, I'm sure there are legal issues with.
As of now, no. Let me put it this way, that our focus will be to protect jobs and at the cost of salaries. We will see what would be the options available on that.
Got it. Thanks. I'll come for follow-up if there is time. Thank you.
Thank you. The next question is from the line of Sandeep Shah from CGS-CIMB. Please go ahead. Sandeep Shah from CGS-CIMB, your line is in the talk mode. Please go ahead with your question. I would request you to please unmute yourself from your handset. If no response, we will move to the next question, which is from the line of Ankur Rudra from JPMorgan. Please go ahead.
Hi. Thank you, thanks for the comment on how you see the shape of the business going forward. Could you perhaps elaborate in terms of how you said you're modeling the business in terms of revenue levels for Q2 and FY 2021? You seem to be saying that you think the peak negative in 1Q. Maybe you can elaborate why you think it's in June. What's your thought process about getting back in Q2 and for the full year? Is this supply-led? Is there some demand-led recovery based on the conversations you've had with your clients? Just some more color there will help.
Ankur, a lot of it is also coming from the pipeline that we have had so far and the order book that we have. We believe that we have the order book that can be executed on, and we are turning to see how we can accelerate some of that and use the capacity that comes free to try and accelerate some of those kind of transformation programs that we have. We believe that if you look at the impact that is currently playing out, as and when we actually start seeing manufacturing activity coming back, that should have a cascading positive impact. If you look at from the GFC learnings that we had, after the first one or two quarters of the peak, actually, we were able to get back to a steady demand growth curve.
That came not just because there was net new demand creation in the market, but it also came through market share gains and the reliance of our customers on the quality of work that we do, as well as the quality of the franchise that we represent. We do believe that a combination of market share gains, a combination of acceleration of the order book that we currently have, and the ability to actually participate more thoroughly in various digital transformation that we think will get accelerated. All of that is what we are actually using to model this, getting back to the absolute levels.
Sure. In the near-term bottom you see, how much of that is because of continued supply issues as opposed to demand issues?
Our impact in Q4 was about two-third supply and one-third demand. As we circle forward into Q1, the first week or 10 days, we continued to have supply-side challenges, especially in sectors like BFSI, where there was initially quite a lot of reluctance to adopt this kind of a distributed model, partially because they also required a more structured approval process given their regulatory and risk frameworks. Many of that we are systematically working on, both dependency of infrastructure availability at our end as well as customer approval so that we can actually get out of that supply-side problem. We think that net-net, the total impact in the first two weeks in absolute terms is similar to the last two weeks. The next two weeks' impact will be about half of it.
Beyond that, we still think there'll be a residual impact on the supply side because we will not be able to shift everything to 100% remote model. The peak negativity that I was talking about in Q1 is primarily coming from demand side. Our Q1 expectation is that about 80% of the revenue impact is going to come from demand impact rather than supply side. That is the one that we, as that repair on that starts, is where the trajectory upwards will start.
Sure. Thank you. That's very helpful. Just lastly, given the learnings you mentioned from the GFC crisis, how are you this time thinking about balancing the need to stay relevant with clients, competitive with a motivated workforce as we come out of this crisis, or the resource actions you have to take in this period to balance the tactical and the strategic parts?
From a motivated workforce perspective, we are actually increasing our investment into that. As I said, our engagement levels with our distributed workforce is very high, and we are, in fact, rolling out very unique and innovative ways to stay engaged and with the distributed workforce. Workforce motivation is quite high, and that's one of the reasons why we are also reiterating our commitment to the workforce from the medium-term and long-term perspective. From the customer side, we have always maintained that our business has been built on long-term relationships with customers, and we enjoy a healthy respect with our customer base. We stand shoulder to shoulder with them, and as long as we are clear about where the ask is coming from and what both the immediate as well as the medium-term trajectory of that is we are very proactive in participating in those.
Yes. Thank you very much.
Thank you. The next question is from the line of Parag Gupta from Morgan Stanley. Please go ahead.
Hi, Rajesh. Thank you very much for your detailed comments, and hope all is well at TCS. I have two questions. Firstly, could you give us a sense of what you think is happening between consulting kind of projects and outsourcing projects? Is there a significant divergence in trends there? I can understand there might be in the immediate or short term, but do you see those trends kind of playing out through most of this year? The second question was, while again, I guess it's early days, but do you see any of your clients who are significantly challenged, which can potentially create permanent impact on revenues rather than just being temporary in nature? Thank you.
The first one, I think always in situations like this, customers value execution over advice and actual work over PowerPoints. That's been something that we have always focused on, and I think that'll continue to play out. Typically, consulting is the most volatile while there is, of course, opportunities to participate in the newer areas. In aggregate, we think the impact on consulting will be negative. There will be specific areas like security, like cloud migration, like rolling out these new-age what we call distributed digital workspaces. All of that which requires a very strong binding between consulting and execution. Those are the nature of consulting work that will be in demand. That is where the focus of our consulting and SI practice is. We are rapidly cycling into those services.
We're creating a catalog of many of these execution-cum advice-led services, which we believe will be very valuable and will be in demand in the near future. On your question about client-specific, I don't want to comment about that. You know what our client universe is, and it is fair to assume that some of them might have extreme impact. In aggregate, let me say that our client franchise is very good, and therefore our net impact will be lesser than any competitive landscape.
Got it. Could you just comment, do you think that there could potentially be any interesting vendor consolidation and on a separate note, M&A opportunities that could probably come up which you could potentially be interested in?
Both of those are opportunities that we are always very open to. Our stance that the right asset at the right price is we are always game for it. If this current market throws up those opportunities we would definitely snap them up. Again like you know that our largest M&A to date was actually executed at the peak of the GFC. We are not shy of M&A, and we believe that the best time to execute it is when nobody else is buying.
Got it. Thanks, Rajesh.
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Yeah. Hi, Rajesh. Thanks for the opportunity. I had a question on the vertical side. We've seen life sciences and communication media being defensive for you and doing pretty well. Do you think even during this era that defensiveness can possibly continue? Secondly, on banking and the insurance platform, BPO side of your business, how are things panning out there? Because some of the other players seem to have suggested more disruption on the BPO side of business.
Yep. The question was life sciences and communication. Yeah. Life sciences and communication are relatively the lesser impacted, but there are pockets of weakness. For example, in life sciences, the whole cancellation of elective surgery is having quite a lot of impact on many subsegments like medical devices. And even certain specialty hospitals and facilities like that. It is not that life sciences is completely immune to it, but if you were to pick one sector, they are the most resilient and likely to be the most in the near term in this current crisis. Communication is even more mixed bag. While there is strong demand drivers with this whole shift to a digital operating model, and which will be a long-term shift and will continue to benefit all forms of capacity providers. On the media side, there is significant impact.
Cancellation of large sporting events, Olympics and other sporting events, is having significant both subscription as well as advertising revenue impact. Closure of amusement parks and other such facilities is also having a lot of impact on it. Closure of studios and the lack of new content will have downstream impact. Communications and media is a more mixed one. The biggest differentiator of this pandemic or this impact to GFC is that the GFC started in the financial services world and then slowly moved into the real economy. Here, the impact has been across most sectors very rapidly. The hope is that the recovery will also be equally widespread given the nature of the impact that has happened.
Rajesh, the second question was on the banking and the insurance platform BPO side of your business. How has that held up in terms of, especially the insurance platform BPO side of business, in this whole work-from-home environment?
Actually, our own insurance BPS part of it has been quite protected because a lot of it is SLA and output-based, and we have been able to switch the model impact, but lesser so. Larger banking operations business has been the one that is most impacted, like I answered when I think Ankur or somebody else asked in the beginning. Banking operations, their security processes, their regulatory and compliance processes are quite complex and involved, and getting the sign-off into a new operating model is time-consuming. It is heartening that many of them are coming through. They have been the longest in coming through. The supply side impact that I spoke about when I said that in Q4 as well as the supply side impact of Q1. Bulk of the supply side impact is a disproportionate amount of it is coming from the BFSI BPS space.
Thanks a lot and all the best for the year ahead. Stay safe.
Thank you.
Thank you. The next question is from the line of Pankaj Kapoor from JM Financial. Please go ahead.
Yeah, hi. Thanks for the opportunity. Rajesh, is it possible to get some color on how the impact of the pandemic has been on your order pipeline? Are clients approaching the decisions on new deals signing in a similar manner, or you think some elongation is going to happen on that? Related to that, do you also expect the profile or the sizing of such deals will undergo a shift or possibly come down as people start looking at more cost savings?
Let me ask NGS to answer that. NGS, could you take it, please?
I'm sorry, I didn't hear the question properly. Could you repeat, Pankaj?
Yeah. My question was on the impact of the current situation on the order pipeline and deal conversion. It is expected that clients might be taking a bit longer in terms of deal decision-making. Is that something which you are seeing? When we are looking at next two, three quarters, do you expect both in terms of the velocity of deal wins as well as in terms of the size of deal wins, do you expect some contraction because people might be looking at a much smaller scale of deals for cost savings here?
I think overall our pipeline continues to be strong both the overall pipeline and the qualified pipeline. The deal closure value of about $8.4 billion that we have announced this quarter is one of the highest in recent times. We are fairly confident about the qualified pipeline that we have. We continue to stay engaged in each one of this. As we see even in the last two weeks, we are seeing the presentations and the propositions are being worked upon. Having said that, in these kind of situations there are two types of organizations that we come across. One that says that I'm sure that you probably have also got that WhatsApp forward. It talked about who accelerated your digital agenda.
Is it CEO, CDO or COVID-19? In that context, I think many who are pushing ahead saying that this is the time, then let's go ahead, and then can you do this faster? Can you do this differently? Do you have a readymade solution for all of this? Those kind of inquiries which are coming up. There are others who are taking a much more cautious approach and saying that, "Look, resilience is the key, and I want to step back and then think about resilience, think about what is absolutely core to me," and things like that. We are seeing a mixed bag in both of these situations. I think from where I see and what I think Rajesh articulated earlier, the migration to cloud and approach to resilience in terms of self-healing and self-learning, these are key and then they'll continue to-
Right
Overall, I think from where we stand and see things, I think we have a good pipeline. We continue to engage with our customers. At this point in time, our associates are on the ground working hand in glove with our customers, listening to them, giving them what they're asking for, what they're looking for, and at the same time, sharing with them what we are doing with others and how we have our own learnings and best practices in terms of enabling, let's say, such a dispersed model of work and so on.
Got it. That's helpful. My second question is on the pricing demands. Is there any vertical flavor to which you're seeing in terms of the demands for pricing cuts or rate cuts?
No, not really. I think the life sciences and communication media and information sciences, they continue to do well, and there are significant opportunities that are emerging. M&A and then the carve-outs have been one of the strong portfolio that we have. We have seen that playing out well for us in the last four or five quarters. In the current situation, I do believe that M&A and carve-out kind of opportunities will keep coming a lot more across verticals. I think as I said, at this point in time, staying with every one of our customers and listening to them and working with them on their short-term and the long-term opportunities. At the same time see how the situation pans out in the future.
Sorry, my question actually was on the demands for pricing cuts, which we have probably, as many clients are asking for. Is there any vertical flavor to that? Or are you seeing that across the board?
Not really. I think, here is a situation, Pankaj, that every individual is affected, every enterprise, every vertical, every client segment is affected. Right? Each one has a different approach to deal with it. The larger theme is one of staying safe and keeping the operations going and see how they can move their products and services to their customers in as shorter time as possible, and see if they can get into new business opportunities, and so on. Customers who have invested in digital and adopted Business 4.0 paradigms and created the ecosystems, naturally they are able to move faster. Things like people are getting into the manufacturing companies, seeing how they can diversify themselves into medical device manufacturing, and so on. There are several things that are happening, but overall, I think still digitization is key to the whole thing. Yeah.
Sure. Thank you and all the best from you.
Thank you.
Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.
Yeah. Hi. Thanks for taking my question and for a good execution in spite of all the challenges because of the pandemic, and I wish everyone stays safe. My question, Rajesh and team, is that while this crisis is much more severe and it involves life, cannot be probably compared with GFC. Since GFC has been pulled up so many times in today's call, I just wanted to know that if I see it little differently, when GFC happened, probably Indian IT was not core to the business of the clients like what it is today. With digital removing the interfaces and becoming so critical to the businesses, don't you see that this is a very big opportunity which will get accelerated because now people will realize the way Amazon is doing, the way Walmart is performing.
The enterprises will have urgency to accelerate the tech spend much more aggressively. Maybe there could be challenges for two, three months or six months. We don't know till when the peak of this disease is. On the other side, doesn't this accelerate the process of spending in a very big way to be more technology-savvy to avoid disruptions in future? I'm too optimistic?
Yeah. Hi, this is Milind. I will answer this question. See, I think you are absolutely right. I think the first, like NGS said, resilience I think is tested through this model, and every customer in every industry would like to basically ensure that resilience is there in situations like this, and that is point number 1. Second is all the things which you're talking about, whether it is Machine First Delivery Model or whether it is Agile or whether it is basically, specifically very vertical specific challenges which people have. They would get addressed even more quickly now than ever considering the uncertainty this can bring in the next two years.
I think resilience definitely will drive a lot of thought process in many, many CEOs of the companies, and also the fact that some of the additional models we talked about will also basically drive some of those aspects of bringing in more stability to their business.
Yeah. Thanks. That's very helpful. That's all from my side.
Thank you. The next question is from the line of Shashi Bhushan from Axis Capital. Please go ahead.
Thanks for taking my question. Rajesh, your comment of the cut as steep as GFC in terms of year-on-year growth and then reaching to Q3 level implies that if we go something like 4%-5% year-on-year decline in Q1 and then see sharp turnaround from Q2 reaching to Q3 FY 2020 level would be something quantitative that is 2%, 1.5%-2% kind of TCGR, which is pretty steep. Are we expecting the sharp turnaround from Q3, and what is driving that comfort?
First of all, as I said, this is not a guidance and we are not saying that X will happen. The mathematical models, you can model it yourself and see. We are looking at it in terms of the operating model with which we are currently going about planning. The sharp turnarounds, if you go back to the similar kind of situations in the past, these are typically followed by that. Where are the avenues for that? As I said, it's a combination of execution on what we have in the order book. It's about gaining market share and it's about positioning new services which are relevant to customers in this current scenario. All three will be elements that we play on. Beyond that, I don't want to comment about the specific numbers.
We just wanted to share with you the kind of financial and operating model that we are currently working with.
Sure, sir. Very helpful. Any outlook on DSO, how things are shaping up there? Are we seeing some divergence over the last few days from the client asking for longer credit and all this?
Far nothing material, but we'll continue to watch that space because it is important. Our track record has been very good on the collections and it's been demonstrated in significant reduction in DSO over the years. We want to stay that way. This is a definite area of focus, but so far nothing material to call out.
Thanks and all the very best for the year, sir.
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah. Hi, good evening. Thanks for taking my question. Rajesh, just a clarification on what you said on TCV, and I think it was asked in the previous question as well. Did you specifically mean that you would achieve Q3 FY 2020 revenue in Q3 FY 2021? That was the first question. It looks extremely steep and requires a very quick recovery post Q1.
Got you. Manish, the question is, as said, that is the model that we are working with currently.
Sure. Does this build any acquisition the way you had CDSL in the fourth quarter of FY 2009?
I wouldn't like to comment on-
It's all organic? That's the alternative question actually.
I'm not into giving that, you see. As I said, it's a combination of our expectations in terms of where the order book is and where the market opportunities are. I think somebody else also asked it. If the right opportunities come about, we are absolutely game.
Right. Sure, Rajesh. The reason this question is coming is because as analysts when we sit back and look at a lot of global companies, we see all of them sort of disbanding guidance and basically suggesting that they have very limited visibility. In that context, our heightened visibility is really commendable.
Don't put words into my mouth. Let's be clear. This is not a guidance. I'm not taking away your job. Okay. You guys have to do what you have to do. Our stance of not providing guidance continues. In normal business as usual, we believe it is your role to model the ebbs and flows of business and to make the short-term predictions in which your business works on. Our business works on a longer timescale. In the current highly volatile scenario, we believe that it is important for all our stakeholders to have clarity on what are the underlying assumptions with which we are modeling our work, so that you can make informed decisions on what your stance vis-a-vis us is. Let's be very clear about what this is and what this is not. You're much better positioned to do your job.
I have no intention to take that over today or in the future.
Sure. Fair enough. Thank you and all the best.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question. I now hand the conference over to the management for closing comments.
Thank you. To sum up, over the last few weeks, our priority has been to safeguard the health and well-being of our employees while continuing to support our customers' mission-critical activities globally. In the face of disruptions caused by the lockdowns, our delivery model demonstrated its agility, resilience, and adaptability, and has now evolved into what we are calling the Secure Borderless Workspaces Model, which we believe will define the operating model of the future. Clients are comfortable with what we have done, and we have received over 500 customer accolades in the last two, three weeks, and has resulted in some enhanced work as well. We closed FY 2020 with a growth of 7.1%, which is all organic, and an industry-leading operating margin of 24.6%, and an all-time high order book of $8.9 billion in Q4.
While that is definitely comforting, we are already seeing the economic impact of the pandemic ripple across all our industry verticals and major markets. This has created significant uncertainty, which we have spoken about, and the kind of demand impact that we are talking about. We stay confident vis-a-vis our relative competitiveness and our ability to get back to the industry-leading growth and profitability positions that we enjoy over the long term. With that, I want to thank all of you for joining us today, and once again, wishing you safety and health. Good night to all.
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.