Hello, a very warm welcome to the First Quarter FY 2024 earnings press conference of TCS. Thank you so much for everyone just joining in on all our stream channels. We are live and streaming on social media channels, and of course, we have friends from media in person over here. Without further a do, I would like to introduce the management first. We have K. Krithivasan, MD and CEO, NGS, COO, Samir Seksaria, CFO, and our CHRO, Milind Lakkad. Without further ado, we'll start with the opening remarks from the CEO, K. Krithivasan. The floor is yours, Krithi.
Thank you, Kritika. Good evening, everyone, and thank you for joining us today. We had a good quarter, given current market uncertainties. I'll quickly walk you through the numbers. Our revenue grew by 7% on a constant currency basis. Our rupee revenue grew by 12.6%, crossing INR 59,300 crore. Our operating margin stands at 23.2%, which is on top of a healthy annual increment effective April 1st. This translates to INR 13,755 crores of operating profit. Our net profit for the quarter has come in at 18.6%, translating to INR 11,074 crore and an EPS of 30.26. Our cash conversion of net profit continues to be very strong.
Our cash from operations stands at 102.5% of net profit, which is almost INR 11,353 crore. The board has declared an interim dividend of INR 9, amounting to about INR 3,300 crore. Reflecting our sustained focus on building deep customer relationships, the number of customers from whom we make more than $100 million, rose by one, to 60 customers on a year-on-year basis. There has been a strong customer movement across all the brands also. In addition, our customer base of 1 million-plus customers, that is our smaller ones, like, but who we acquired recently, stands at 12,268 customers, which is an increase of 72 over last year. Moving on to segmental commentary. U.K. bucked the trend of global demand softness and grew by 16.1%.
North America and Europe grew by 4.6% and 3.4%. Our growth markets like India, LATAM, and Middle East and Africa, all had a strong double-digit growth. Among the verticals, life sciences and healthcare, manufacturing and regional markets and platforms had a strong growth. Life sciences and healthcare grew by 10.1% and manufacturing by 9.4%. Regional markets and platform grew by 16.9%. Among other verticals, BFSI grew by 3%, retail and CPG grew by 5.3%, technology and services grew by 4.4%, and communications and media by 0.5%. Our deal wins continue to be very strong, supporting our belief that investments in technology will remain strong over a long period of time.
Our order book closed at $10.2 billion this quarter, marginally higher than last quarter and almost 24% higher than same period last year. We had deal closures worth $5.2 billion in North America, $3 billion in BFSI. Both North America and BFSI being 15% higher than Q1 of last year, and $1.2 billion in retail and CPG. Our attrition continues to improve. On a LTM basis, our IT attrition has reduced to 17.8% from 20.1% in Q4. There's been a lot of interest in GenAI. I thought we will also give you a quick update on what we are doing in GenAI. Generative AI promises to transform most knowledge work by assisting and augmenting people and improving their efficiency and effectiveness.
We are currently engaged in over 50 proof of concepts and pilots on GenAI, and we have more than 100 opportunities in the pipeline. Our experience in building several GenAI-powered use cases has shown that full potential of GenAI is better realized through an enterprise-wide initiative, rather than isolated use cases, requiring deep partnership between business, legal, risk, and compliance, and as well as data and technology teams. We are starting to engage with many of our customers in helping them, one, define their GenAI transformation strategy. Two, to define appropriate data strategy and platforms. Three, to define and enforce the guardrails to leverage and implement GenAI. Four, become effective in driving DevSecOps cycles for purpose of the GenAI agent. We are looking at it holistically and at the enterprise level.
To drive such holistic engagements, we are also leveraging our deep domain and contextual expertise, available in the form of about 65,000 contextual masters and domain experts in TCS in different industries, as well as a pool of about 20,000 technology solution and enterprise architects. Our GenAI strategy leverages and builds upon our significant AI research and innovation capability present in our corporate R&D units. This group has already filed over 710 patents for AI inventions in the just past five years, and 282 of these patents have been granted already. TCS already has a pool of 50,000 associates trained in AI- ML solutions, AI- ML solution building skills with over 9,000 with top external certifications. Just in FY 2023, TCS Associates invested 1.4 million hours of learning on AI- ML or related skills.
We have started large-scale internet, I'm sorry, internal talent development across multiple GenAI solutions, so solution suites. We are also partnering with all the hyperscalers. We plan to create a talent pool of over 100,000 GenAI-trained associates. Our focus on innovation continues to be strong. To date, we have filed for 7,447 patents, which is an increase of 695 over last year. Our total patents granted has crossed a milestone of 3,000 and stands at 3,004 at the end of Q1. Just in Q1 FY 2024, we have applied for 142 patents, and we have been awarded 126 patents, which is almost two per working day. Also, we are very proud of the fact that out of the 3,440 patent holders, 753 are women.
On that positive note, I hand it back to Kritika. We'll open for question. Back to you, Kritika. Thank you.
Thank you so much, Kirthi. We'll throw the floor open for questions. A request to all journalists, to stick to two questions so that we can accommodate all questions. It is the quarter press conference, I would request everyone to stick to the earnings-specific questions. We're gonna start this time with Ashish Agashe from PTI.
Thanks. This was, like, there has been commentary that, okay, the near term would be a bit difficult for the entire sector. How far would this near term really last? How do we define what is near and what is medium and what is long term, basically? Sir, linked to that, you are reporting some softness in the growth in BFSI as well as in North America, which are the key markets for TCS. Like, you're definitely, that is the TCV there on both the sides, but how does the pipeline look on both these things? I'll just squeeze in a second question.
Third question.
The, like, not strictly linked to the earnings, but still, I guess everybody would be interested. About the entire vendor appointments, probe, is there any update on the same, sir? Like, these six, associates, what level are they from? Like, have they been... Like, when we say banned, so have they been dismissed, suspended? Like, what, and there were three others against whom some probe was on. Is there some, something more to it, basically? Thank you.
Okay. See, on how long the near term or short term, your guess is or our guess is as good as your guess, right? We'll not be able to predict when the economic recovery will be there. I think you guys probably know it better. Our going in position is, we always said that the technology spend in the long term is likely to be strong, and that's validated by the TCV that we have in multiple verticals and geographies. Our pipeline has also remained very strong. In fact, despite the fact that we had a strong conversion of the pipeline into TCV, our pipeline has remained strong. That gives us the confidence that our clients are continuing to look for investing in technology.
There is a near-term softness because of the uncertainty, and we find some of the, how do you put it? Like, low ROI or not-so-business-critical programs getting paused or deferred or reprioritized. That's what is causing the softness in terms of revenue or conversion. I think I answered your first two question. Our third question on the topic of you mentioned vendor or OEMs, like, whatever we need to say has already been said, and at this time, we have nothing to add. Okay. If there is something to add, we'll come back.
Thank you, Kirti. next question from Dhwani, from Reuters.
Sir, mainly on a demand environment, again, I had that question for next quarter, what kind of total contract value you are expecting? I mean, this quarter.
I don't think we have answered that kind of question in the past. I know that I'm going to start a trend now.
Thank you. next question from Romita Majumdar, from The Economic Times. Romita, if you can direct who your question is to.
Sure. My first question for Kriti would be around the demand outlook. Since you said there is a near-term softness, if you could help quantify, you know, what kind of softness, what are the, you know, signs that you see in terms of the softness? Also, you know, since Ashish has already asked this, in terms of specifically BFSI and CMT verticals as well, there seems to be a slight dip in that space. For Milind, I have a few queries. One is, of course, in terms of the variable payout for this quarter, what can we expect? There are also some concerns that onboarding has been delayed for a certain number of candidates. I wanted to understand what is happening on that front.
Finally, Because the number this time, it's around 523, which is generally much higher for Q1. We wanted to understand what does the hiring outlook look like, and if you can also share the fresher intake this quarter.
Okay, I'll first take that. Once again, as I explained, the softness comes because some of the programs which are not very business critical or where the ROI is not very high, those programs are getting paused or delayed, or sometimes they run on a lower capacity, which is causing this softness. Probably, if you can go into further details, like we looked at the start of the pandemic or during the pandemic, a lot of technology investment happened. Once people start thinking, "Now, can we get more efficiency out of it?" Every one of those projects, they are scanned and the people look at or revalidate or reassess those programs. Whenever the ROI is not very clear, those programs are getting paused. It doesn't mean that that's the reason we are seeing the new programs.
People, our clients are still very confident of investing long-term, that's the reason the TCV is continuing to go. Some of the older programs where the ROI is not strong. See, if sometimes you'll have a release one already complete, do they do a release two or can they pause the release two? If they don't do a release two, it you end up having a reduction in demand for or reduction in deployment for such kind of projects. Coming into the sector, BFSI, like, largely we found our banking to be okay, like, most of the large universal banks are doing okay, because lending as a business is doing quite okay. From mortgages is as expected, weak. Capital markets are weak.
Amongst the insurance, we find P&C to be weaker, but general life insurance to be stronger. In terms of CMT, similar thing, like many of the telcos invested in 5G quite a bit. Now, as they don't see the revenues commensurate the investment they made, they are looking at moving into efficiency cycle and seeing how do they conserve cost. Yeah. Over to you, Milind.
Okay, Amita. Variable pay, we are going to basically pay, you know, 100% of variable pay for 70% of the people, our people, and the rest 30% will get paid based on the business unit performance. Regarding your question on onboarding delay, you know, for many years, we always honor all the offers, and that would continue. There are certain delays based because of the environment we are in, because of the project delays. Kriti just talked about release one, release two, and how things are not getting progressed. As a result of that, the onboarding of those associates also gets delayed. In certain cases, that is getting delayed, yes.
You know, that is purely based on the project situation, but I commit to today that we are going to honor all the offers. Regarding your question on the freshers intake, we don't give out numbers for a quarterly fresher intake numbers, but, you know, we will continue to onboard freshers.
Thank you. Next question from Shivani Shinde from Business Standard.
Hi, gentlemen. Kriti, you've already spoken on the BFSI, but of course, we last quarter, we did hear a lot of big deals coming in. If you could just elaborate more on it. When you say the environment, do we assume? That's what the company has said, that the cost and optimization deals are back on table, so do we assume that large deals are also back? What's happening on the cloud scenario as well, if you could elaborate on that? NGS, hi. On the BSNL deal, is that a part of this quarter? What's happening, if you can update on that? Samir-
Mm.
Hi. Hiring numbers are significantly low. Even last quarter was low, the margins does have a huge wage impact. Do we see that coming down? Milind, to you, the number that you shared last year, last quarter for the hiring, is that the same even now? I think it was 40,000, if I'm not mistaken.
Okay. The large deals we did announce the one, right? The NEST is a very important deal that we announced, also a deal that we had lost and we got back. That's a large deal that we announced, and it also re-emphasizes the strength of our solution. It's been validated by the market as well. That's a large deal. Otherwise, also, the number of large deals that we have this quarter is similar to what we. We don't announce the number, but it's similar to what we saw in last quarter. Also, trend-wise, it is same. The question on cost and optimization, it is again, I won't say the large deals or small deals, but it happens in multiple ways, right?
Like, you can have a vendor consolidation deal which could be large, but there could be a application rationalization deal where somebody is trying to merge multiple core banking systems into one. Okay? Some of them could be small or big, but overall, to be expected, there are more C&O deals than transformation deals at this time.
On the BSNL, this $10.2 billion overall deal value does not include the BSNL opportunity, right? I can confirm that we have got the advanced purchase order for the BSNL deal. We are working with the BSNL management to actually get the confirmed purchase orders at a zonal level and circle level, and that work is on. Certain events will have to be concluded so that we can actually put it into the converted bucket. Yeah.
On your question on margins, like it happens in.
We take the annual increment headwind upfront, and then we claw back on the margins as we go through the year. You would have seen that happening in the last year itself, and that is what we'll target through this year as well.
The number of 40,000, I would still say yes, but, you know, how it gets spread out over the year, how it will, you know, eventually will depend on the situation, market situation. For now, I think the number stands, but the spread is still uncertain.
Yeah.
We said 40,000. We normally hire 40,000. How they will get spread out over the year is something which we are working on.
Reema Tendulkar from CNBC-TV18.
Gentlemen, congratulations. Krithi, the first question is on BFSI, high tech, North America, communication, these are all verticals which, you know, you all have flagged off in the past as being a bit stressed. You've cautioned about it. When can we expect a recovery? Do you think it's possible in H2, there is a possibility demand picks up? Are there any signs from your conversation that, you know, clients are getting more comfortable to start spending now from here on, maybe three months down the line? NGS, do you think this $10 billion TCV that you've clocked in for 2 consecutive quarters now is sustainable? Also on the, you know, I think this, you know, $50 million deal, last time you said it's at a record high in Q4. Is that something which has been there?
If you could talk about that $50 million deal. Samir, on margins, do you think that 25% is achievable by Q4 of FY 2024, an aspiration that you had last year? Do you think this time it's achievable? Thank you.
We might be too difficult for me to call on when this recovery will happen or start. We are working closely with our customers. We are trying to see what issues they have, how to resolve them. When the demand will be back, I think depends a lot on how the macroeconomic parameters turn out to be and whether there is a recession, not a recession, and when there is a certainties. Essentially, you'll see more spend happening when there is a certainty. When there is uncertainty, you will see this.
No green shoots as of now? I mean, how would you compare the demand today versus 60 months back or any-
I say, like-
Mm-hmm.
We had the same very similar TCV like last year, which is a indication that clients are confident about long term, but uncertain about short term. I don't know where. Like I was telling him, I have also no clue on when the-
Demand is similar to.
Demand is similar, yeah.
There's no signs that in H2 also.
Reema, you have three more questions now.
It will be too difficult for me to call that, yeah.
I think, you know, we are pleased that in a continuous quarter, we have clocked upwards of $10 billion in overall contract values. What's important is it's come from $5 billion have come from U.S., about $3.2 billion from BFSI. The rest of it, retail, is about $1.2 billion, and that has come from broad-based markets, right? I must acknowledge, though, that the deal conversion in Europe is taking a little longer than what we typically are used to, right? I think, you know, $10 billion is good to aspire for continuously. We always in the earlier occasions, we have said that $8 billion-$10 billion is a good benchmark, a good band to be operating in for us, right?
Overall, you know, we are pleased with the kind of deals that we have signed, a good combination, and the pipeline looks strong. It's, we see opportunities for vendor consolidation. We see opportunities for transformation deals. We see opportunities for cloud, AI-led, transformations. Many of these things are in the pipeline, which looks pretty good. If you take even the $10 billion, barring that one mega deal in Nest, that we announced, the rest of the things are all combination of 50, 60, 70, you know, those kind of deals. I think, you know, people will be more comfortable signing such smaller deals because it gives them that flexibility.
And then they are also able to, given the recessionary trends and things like that, they also want to sign up more short-term deals where, you know, the return on investments, as Krithi pointed out, is seen and something that, you know, they can be very agile about decision-making and getting some of the things quickly done. Generative AI, you know, as the, you know, now every project, okay, are you including generative AI within the scope or not? Is a conversation that we typically have, right? In that context, that every project that we do, what is the intelligence layer that we have built in the architecture? Is it something that we need to go and validate? Can we add, instead of merely AI- ML, can we add a generative AI piece to it?
Those kind of checks and balances and controls are being also thought through. Overall, I think we have a fantastic pipeline. We are happy that we have done two consecutive quarters, $10 billion plus. North America doing $5 billion, BFSI doing $3.2 billion. I think we are happy.
Reema, on the margins front, 26%-28% remains the aspiration band, which we all collectively believe we should operate in, and we have all signed up to it. Last time, the 25%, given the current macro uncertainty and the lack of visibility, it would be difficult to put a number through in terms of where we'll exit at, but we'll try to claw back and creep up as soon as possible.
Thank you. Anisha Jain from ET Now.
Hi, good evening, gentlemen. Thank you so much for the opportunity. Quickly, the question to you talked about the reprioritization that the clients are doing certain delays, etc. . Is that ramp down also converting into deal cancellations? Are clients looking at more insourcing? There was one instance that happened in the quarter gone by as well. Is that a genetic trend? Question to you, NGS, is just a follow-up to what Reema was pointing to. Are you getting out of that $7 billion-$9 billion range that you'd given us earlier, maybe looking at more aspirational number of $10 billion on an ongoing basis? Last time we spoke with you did say that you're still aspiring for the double-digit growth in FY 20`24. Is that on track?
Samir, the question to you is with respect to the pricing. NGS pointed out how clients are looking at the generative AI element into the projects as well. How are you looking at pricing that? Overall, with respect to the deal pricing, is there any pressure on account of the competitiveness, etc. ? Milind, the question to you is with respect to attrition. Yes, the trend has been coming down, but what's the comfortable band that you are targeting? Will it be back to those pre-COVID norms, or that's something which will take a long time to come by? Just one more question, Krithi, if I can add. The generative AI, you're already doing 50 pilot projects, 100 other projects that you talked about. When does it actually convert into the revenue?
When do you actually see those projects hitting the top line as well?
Okay. Well, I'll tell, I'll probably answer the question first on ramp down or cancellation. Like, we don't see much of large-scale ramp down or cancellation. There could be one-off instances here and there, but that is not driving the softness or slowness in the revenue. I think, as I explained, it's some of the reprioritization that is causing the softness. I'll on the GenAIs, again, we started talking about it in the yearly power. Last quarter is when we started talking about it. We are seeing pilot. Maybe I would say, like, it, I'm just making a guess, maybe couple of quarters down the line, you will see more, some more significant numbers that we'll be able to announce.
I think it's going to take some amount of time for everyone to sort out the issues and understand what are the challenges, what are the benefits, and then ramp it up big time. Give it a couple of quarters.
Anisha, that's already five questions.
Go ahead, go ahead.
Thank you for correcting me, Anisha. We're absolutely thrilled to be in $7 billion-$9 billion.
I was hoping you would say no, we're happy. What about the double-digit growth?
Double-digit growth, I think, you know, given what we have ended up with the Q1, you know, I think, it appears a bit, tall order to achieve for, this year. Having said that, look, you know, as a management team, we are always focused on maximizing opportunities, and, there's no point in going and saying that we are not going to aspire for a double-digit growth, right?
But we-
We'll continue to be focused on that. You know, we'll see where we end up in Q2, you know, we'll take a call on that.
Overall, pricing is stable, and in fact, we have seen a year-over-year increase in realization. On the GenAI part, the assignments and the pricing is a combination. It could be outcome-based, it could be fixed price assignments also, turnkey engagements.
Anisha, we expect our industry-leading retention levels to come back in the second half of the year, this financial year.
Is there any number in mind in terms of what.
Yeah, you look at the previous numbers, and you will see that, and we expect that, at that levels.
Thank you.
Harshada Sawant, CNBC Awaaz. Hashida, two questions, please.
Good evening, gentlemen. I, NGS, if you could throw some light on the domestic deals, while Kriti said, you know, the growth markets, India and LATAM, have seen strength. What is the kind of texture of these deals? Of course, we understand BSNL, what is the other work that you are likely to bag in the future from a market like India, and how is pricing in these growth markets? Kriti, you could just shed some light on when you say there is softness because of reprioritization, are clients also urging you to perhaps negotiate on the pricing? Samir mentions pricing is stable, is that something that you would be prepared for in the future if the macro environment stays just as it is?
Last quarter, you were a little confident that you could bounce back by H2, but now you say you wouldn't want to foretell anything.
Yeah. I think as far as the India market is concerned, even overall, our new growth markets, Asia Pacific and Middle East, we had a fantastic quarter. You know, I think we continue to win deals, we continue to participate in small to medium-sized deals. It's good thing about this market is it's a lot of system integration work and a lot of product-based opportunities, which we integrate for a variety of energy resources, utilities. This segment is a very popular segment. Banking, of course, continue to participate in it. I think public services or government-related deals in India beyond what we announced earlier. This quarter, I think, you know, we have been selected for this GeM for opportunity as well.
We continue to engage in a variety of things, and all the large banks, private sector banks as well as public sector bank, they offer opportunities in which, you know, we participate in it. I think, you know, in all these opportunities in one market, the AI, if you really look at India as a market, it's largely driven by integration. Then I think our digital stack, India digital stack is extremely popular, very widely used. Every bank continues to look at opportunities to integrate new FinTech's, new startups into the solution so that the experience is better, so that the volumes... You know, it's a market where if you really look at it, whatever is the transaction volumes this quarter, the peak becomes the average next quarter, right? That's the kind of volume growth that we see.
There are enough work that we are doing in the financial services sector to de-risk this, continue to improve the scalability of the solutions that we have delivered and so on and so on. During this quarter, we have also made this Gift City, you know, the Singapore's, the nifty dollar-denominated thing is completely moved to this thing. There's enough work that's going on. Of course, MCX is in the market, right? Now, you all know about it. I think we are doing enough, you know, in terms of this. There are these markets who give us enormous opportunities, and these markets, you know, are not tested so much of AI- ML yet, right? If you really look at it.
It's a time is right in these markets for almost all segments to embrace AI and ML in a big way. you know, we are well positioned to participate in each one of this.
See, fortunately for us, we don't see any pricing pressure at this time. Like, as I said, there is no major panic in the market for clients to talk about, pricing pressure or discounts. Like, there is a reprioritization happening, and we believe growth will resume sometime, but, we have not come across any pricing issue.
What makes you not as confident as last quarter about H2?
We have not grown this quarter.
That's your level scale growth.
Yeah.
Thanks, Harshada. Ekta Suri from Zee Business.
Good evening, gentlemen. sir, "... " NGS sir, "..." generative AI, "...," talk about deal cross, commit, "....". This is one of the important factors they discuss. "..." cybersecurity, you know, expect, "..." demand?
Cybersecurity is a very important service line for us. We have built very strong capabilities, both from a product perspective as well as services perspective. That's something that is a cause of worry for every organization, every government, because no amount of investments, no amount of tools that you have put in place, you can never conclude that this is sufficient, because there are always new things that keep coming up in the area of cybersecurity. We have continued to build capabilities and go through a lot of certifications for our people as well as for our services. Many of these things are not published, right? Because clients also want to keep what we are doing, what in this area is to be confidential for the right reasons and reasons.
Cybersecurity is an important area of growth. I think, there's enough thing that we are doing, including a shared service that we have set it up for cybersecurity, in which, you know, we are multiple organizations, we are monitoring their securities operating center centrally out of India for us, right? Generative AI, of course, is the talk of the town. One good thing is that people like you and me seem to trust it more than the enterprises do at this point in time, right? It's only a question of time before the enterprises will also do it. I'm hopeful that, you know, we will. We really see this because, you know, we are the one of the very first one to call it.
Almost three, four years ago, when we announced the Machine First Delivery Model, we said that, "Look, up to 40%, 50% of what we are doing today need not be done by us," right? That was a generic thing that we stated at that time, looking at what we saw and recognized that AI is for real. In that context, I think generative AI is an important element of the future. Cybersecurity will not have the, all the, you know, the jazziness and the flair that you see for generative AI in the market, but that's equally an important critical aspect.
Data security, OpenAI, questions are, is it like, you know, the clients are also kind of concerned about that, or do you actually educate them on the same?
No, it's, I think, you know, clients are a lot more educated on data privacy, data security, no doubt about it, because there are regulations across the world. GDPR led the regulations. I think, the aspect of how do you protect data, how do you protect privacy, confidentiality information, how do you anonymize data if you want to share data, and what should be the responsibilities of organizations being a data controller or a data processor perspective, they're fairly well-defined, well-articulated.
Enough projects have been done, enough case studies have been done to solve these problems, right? I mean, because it's a regulation and compliance, almost every organizations have complied with it, right? In some form or the other. Newer tools are emerging, newer products are coming, on which, you know, people will definitely take it and improve whatever is already in place, right?
Thank you. We'll take this later. Tushar Deep Singh from BQ Prime.
Good evening, gentlemen. The first clarification I just wanted, you mentioned that the constant currency revenue growth was 7% in YOY. What was in sequential terms, the first one? To NGS, just if you can give us a breakup of the order book of $10.2 billion in terms of the discretionary deal, spending, as well as on the efficiency side. To Kriti, you said that there is growth fear after Q1 because Q1 was flat. How do you look to maintain, say, you have operating margin of 23.2% right now, would you look to maintain that much, or do you think there'll be a further weakness on that?
Like I said, the sequential growth is flat. That's what you say, right? You also say it's flat. I know, what was your question on that one?
Constant currency. Constant currency growth was 7% and sequentially flat.
Flat, okay.
Yeah. Okay. on the margin, like Samir explained, our aspiration band would be still 26%-28%. We see there are multiple levers for looking at the margin. We'll continue to exercise each one of those levers, and Our aspiration, as I said, our aspiration is always to reach 26%-28%. We'll take every steps towards that.
Do you expect to achieve that this year?
No, I don't want to give a timeline on when we will get there, but we want to get there.
Thank you. Debangana Ghosh, Moneycontrol.
Yeah, hello. Hi. I guess most of it has been asked. My question to Krithi. Krithi, you have just finished one month as TCS CEO. You have been speaking to clients. Wanted to understand what has been your learnings around it, and what kind of feedback are you getting from the clients? Based on that, pertaining to that, do we expect some strategy changes around that and given the current business environment? Have a question for Samir. What's your view on the subcontracting costs? Are they going to go down in FY 2024?
Okay. Thanks, Debangana. Like, I've been meeting a number of clients in the last six to eight weeks, but one thing that stands out is the deep relationship that our teams have built with our clients in all these geographies. In every one of those meetings, we could see that client would want to do more with us, want us to also come back to them with more opportunities for growth and more opportunities for cost saving. The depth of the relationship and the value they put on the contextual knowledge we bring is really gratifying and makes us really happy and confident on the long term. On which, because, like I multiple times I said, our growth is always based on customer centricity.
What I learned from all these meetings is whatever is the core strategy, that is intact, and we would continue to build on customer centricity. Learning-wise, definitely we will, the question, what the customers are investing in is something that we get to know more, right? They are continuing to invest in cloud. They're trying to see how to leverage the value. Cloud 2.0 is gaining momentum. GenAI is a new topic, so that overshadows everything else. I won't think there will be a strategic change. If at all, there will be a double down on deepening the relationship with our customers and ensuring that we strengthen the technical capability, engineering culture within the teams even further, and ensure that our associates develop the contextual mastery, as we call it, with our customers.
Those key areas will continue to remain. I don't think we are going to change the strategy in this respect.
I just have a follow-up here. What is your outlook for, I think North America market for everything?
See, as I said, we are not be giving a guidance at the market level. The other thing, that from a overall demand perspective, we said what we have been seeing, and we talked about the TCV, which is looking good. Long term, I would say long term is good, short term, we cannot call.
Contractor costs have been at 7.4% this quarter, and as you would have noticed, it has been down significantly from its peak, which was about 9.7%. That's a combination of one, the overall attrition scenario itself easing down, and also efficiencies, which we have been driving through the last. It has been sequentially coming down. Once the attrition peaked in Q2, this cost is coming down. It's in fact back in the range we used to, pre-pandemic, operate between 7%-7.5%. It's in that range now. If you look at it, your question in terms of, will it further come down?
Difficult to say. The key thing is, if macro environment continues, demand softness is there, then this becomes the primary lever in terms of further optimizing it. It's a lever which is available.
Thank you. Varun Sood from Mint.
Hi, gentlemen. Three questions. The first question is on the TCV and the revenue. Two consecutive quarters where you said over $10 billion TCV, but when we look at the revenue, that growth has not been very impressive. Is it because certain projects are getting deferred or delayed because of global uncertainty? I just want to understand that, how do we make sense of the TCV and the revenue? It's not really translating into the revenue growth. That's the first question. The second question is, NG has said that enterprises are not very trustful of generative AI. A decade back, perhaps when cloud took over, and we've seen what cloud has done to enterprises overall. Are you suggesting the rise and embrace of generative AI may not be akin to how it happened in the cloud in the past?
What will be the impact of generative AI, say, on the revenue and on profitability over the next 18-24 months? The last question is, sir, I understand RMG, the probe is ongoing, and the management has said, "We will not talk about it." Just a question, the chairman at the AGM had said that we will fix all the weaknesses related to this ecosystem. Can TCS please clarify if it has already, and I'm sure you must have already started doing, but what are some of these weaknesses, what you are trying to fix? Any comments will be very helpful. Thank you.
Varun, on TCV and revenue, I think we commented, like, yes, TCV has been quite good in the last 2 quarters, and revenue, like you said, is not strong. That is precisely because of some of the programs getting paused or some programs getting delayed, or in some cases, capacity is reduced for these programs. Number of our clients are also into efficiency cycle. Sometimes they are in growth cycle, where the spend is, they spend on technology more. This is a time where they are reassessing whether every investment they have made. There is a pause, right? Your assessment is right, like we are TCV is good. There are projects getting delayed, once the projects come back, I said, there's release one is done.
If release two doesn't start, okay, that has to be backfilled something that's almost equivalent to you have to get that revenue from somewhere else, it's going to impact your growth, right? Your, your understanding is quite right there.
Yeah. See, on the generative AI, you know, I think, I didn't say that enterprises, trust quotient is not there at all. I think what I said is, consumers like mine, you know, they seem to have adopted it faster, right? Enterprises, there is a lot of learning that they have, because they've gone through cloud, they have gone through AI- ML. They all went through a different hype cycle, likewise, you know, I think generative AI promises a lot of things, they will be very calibrative about it. They need to also take some strategic decisions with respect to how that need to be they need to be embraced this, you know, this particular technology. While ensuring that the competitive edge that they have is not publicized, right?
There are some people feel that it's like putting something in open source, right? Some of us believe that I can put it in open source, and it doesn't matter to me. Some of us feel that, "No, no, I don't want this to go into open source," right? There are a lot of these discussions they will have to go through, introspect, and then engage with the technology in some non-strategic areas, and then identify and figure out which is the area where I want to make the best impact, right? That process will go through, and then it'll take time, is my opinion. You know, some may actually jump in and quickly want to take that, but some might say that, "Look, I want to go a little slow." It's like any other technology.
Some segments will actually go and embrace this first. Some organizations may be, take the, in the second wave of adoption, allow it to mature, allow it to see how things emerge, what kind of AI startups coming in, and then they have all the time in the world, right, to react to it, is what I feel at this point in time, right? Regarding your question on the RMG topic, I think Kriti has already said that, "Look, you know, we do not want to say anything more than what has already been published." Naturally, as an organization, we are. We always improve our processes, we always improve our control mechanisms. Sufficient to state that, look, we are at it, and it's not appropriate for us to comment anything more than what we already said.
Thank you. Ayushi Kar from Hindu Business Line, and just a request to everybody, to accommodate everyone, just to stick to earnings question, please.
Good evening, gentlemen. I have three questions. First for NGS, sir. Given the success with the BSNL deal, will TCS be repeating similar deals across countries with other potential operators and other geographies? Just one question on the deference of onboarding. NITIE has issued a complaint with the Ministry of Labor, where they have demanded that these employees who have delayed job or onboarding, be fully compensated for three years or three months, or potentially get help from TCS to look for other jobs. Is this something that TCS will be potentially honoring, or is it something that is in discussions?
On GenAI, I, in particular, as NGS has repeatedly pointed out, that enterprises are still a bit leery of potential, potentially onboarding into GenAI, part related to privacy concerns and potentially supplying their kind of capabilities on an open source interface. Is TCS doing anything on the innovation side, particularly because you are collaborating with entities like Google, et cetera, and reports have come out that they have also cited privacy concerns, and they have internally warned people from sort of, onboarding confidential information on these kind of LLM and, AI models. Are you doing anything on the innovation side to alleviate that? Of the 100 projects that you have in pipeline, are any going to be sort of materialized over the subsequent quarters? Yeah.
I think the first question, BSNL, let's hope that we are able to repeat it, right? I think we have built enormous capacity, capability, knowledge on the telecom stack. What does it mean to roll out a telecom stack? How do you plan optimization of a network, and how do you improve the capacity, coverage, experience? I think enormous capability has been built by TCS. Of course, you know, we are not the equipment manufacturers. The OEMs are different. OEMs, we integrate those products, and then, you know, we deliver this network. I think, you know, it gives us an opportunity to play in a field which we are not playing that aggressively, you know, in integrating and rolling out and optimizing the network or getting the network right first time for various telcos.
It gives us an opportunity to position ourselves appropriately, both in India as well as abroad, for the telcos as well as the enterprise private network segment. Okay. Second question on NITIE, I would refrain from commenting at this juncture. Third one, Generative AI, I think, you know, as I said, look, we are doing about 50 odd proof of values, proof of concepts. The results are promising. Some of the initial things that we have had, results are promising. It's still work in progress, the pipeline looks stronger because, you know, the newer areas are emerging, right? People want to see whether I can use the capabilities of Generative AI in managing my risks better, in providing customer experience and customer servicing better. How do I improve my...
You know, for example, if there is one thing, if I can get it right as a parameter or, so that, you know, I can make my next year's revenue better, right? For example, in the area of containers, right, shipping. If one can predict the value of or the cost of the container or pricing for that two quarters ahead or three quarters ahead, the shipping industry can do much better, right? There are problems of these natures that we'll have to look at and see where generative AI capability can be productively deployed, right? That will determine the success of generative AI and also the faster adoption of generative AI to real-life problems, real-life cases, right? Of course, it has improved the search capability, superior to a different level, no doubt about it.
For an enterprise-level business sense, how much of integration is needed, how much of prompt engineering capability needed? They're all things that are work in progress, and, you know, it makes me feel happy as a software engineer that I still have a lot of things to learn.
Just a follow-up on the. Aishu will take this separately. I think we have one more question from The Hindu Business Line to Hindu, Lalatendu Mishra.
Good evening, gentlemen. My question is to Mr. Krithivasan. What are the headwinds and the tailwinds you are experiencing right now? You, as a leader, have just taken over, how differently you want to run this company? I can see the change in this setup. If you can please comment.
It seems like the headwinds, as we spoke about, Lalatendu, like current immediate market uncertainty is the biggest headwind for us. Otherwise, like from a tailwind perspective, enough of them, like every time there's a new technology that comes into the play, it creates many more opportunities. Now, we talk of generative AI. Generative usually creates more opportunities. Cloud is still not done. There is so much to be done. If you have to really leverage generative AI, there's so much work that has to happen on the data platform itself. Unless the data estate is clean and ready to be used, generative AI is not going to yield results within the organization. Every time a new technology comes into picture, it creates more opportunity.
We believe, like, he was asking about cybersecurity. All those things are still remaining in place, so there is a lot to be done and a lot of tailwinds, but short-term headwinds on things that we cannot control, on the macroeconomy, we cannot control on that. That's the headwind here. From a change, as I said, from a change in strategy or change in, we continue to look at what tweaks that we have to do, okay? I've met many customers and learned how they perceive TCS, what opportunities they see with us. Like, at the appropriate time, we'll make necessary changes. This is the easiest change to make, so we will do it.
Thank you. Our final question from Vivek Kumar, from Informist.
Hi. You spoke about the deal pipeline, that it is strong. I wanted to understand from small deals perspective, how is that looking in the pipeline? One of your peers said that they are seeing pressure in smaller deals. These, in a way, provide visibility for the near-term growth. How is that compared to previous quarter?
We don't see particularly compared to Q4, we don't see a major change in profile of the deal size. Like last quarter also, we had some big deals, and number of large deals are similar than like last quarter. There's no major change in that, so not much to read from there.
Just one more thing. What was the average salary hike given this year? You have said 12%- 15%, I believe, for some employees.
Correct.
Average salary hike, if you could.
No, I think, I said, 12%-15% for the top performers, around 8%-10% for our high performers, and on an average, we would normally give about 6%, so it's about that.
Thank you. That brings us to the end of the earnings press conference. Thank you to the journalists joining in. A big thank you to the management as well, and all the TCSers. And all our stakeholders that have been watching, please join us for high tea. Goodbye. Have a good evening.
Thank you.