Good afternoon, everyone. There's plenty of seats if anyone wants to sit down. Welcome to our second quarter results press conference. I'm Lars Garcia, our CEO, and Rajesh Gopinathan will get up in a few minutes. I just want to remind everyone, we'll have some brief remarks from our CEO, then we'll go to Q&A. Again, please keep your questions initially to three, move on to the next, and then we'll have time at the end to come back to additional questions. With that, please take the stage, Rajesh.
Thanks, Ben, and welcome everyone to TCS's Q2 results announcement. We have had a relatively moderate quarter, ending with revenue growth of 8.4% in constant currency terms and a stable margin of 24%, with a net profit of INR 8,042 crores, which represents 20.6% in net profitability terms. We have had strong cash conversion, converting 108% of our net profit into cash from operations, generating close to INR 8,700 crores in cash. Our disciplined capital allocation policy continues, and we are pleased to inform that the board has decided to give a second interim dividend of INR 5.00 and in addition, a special dividend of INR 40 per share to shareholders. Our growth was driven once again by outperformance in Europe and U.K., with U.K. coming in at more than 13% year-on-year growth and Europe continuing strongly at more than 16% growth, with growth fairly broad-based across is there.
North America grew at 5.3% year-on-year. We are now at close to $2.8 billion in North America revenue. From a vertical industry perspective, once again, our industry verticals like life sciences, healthcare, travel grew significantly. Life sciences and healthcare grew more than 16%. We are happy to note that communications and media, which has been improving over the last couple of quarters, have broken into double-digit growth trajectory this quarter, growing at 11.8%. BFSI continued to slow down. We have had BFSI grow at 8% year-on-year. Retail volatility continues, with growth at slightly more than 4% on a year-on-year basis. When we look at it from a deal flow and TCV perspective, we have had a fairly strong quarter once again. Our TCV this quarter is at $6.4 billion, which is the highest in the last six quarters that we have been reporting over.
The growth and the deal flow also shows up in our client metrics. Our largest customers from whom we make more than INR 100 million a year, the number grew from by three to 47 customers from whom we make INR 100 million or more over the last 12 months. Digital revenues continues to be growing well ahead of industry average, growing at more than 28%. Now we make more than 33% of our revenue from digital. We continue to add headcount in anticipation of the strong order book that we see and the possibilities in the medium to long term, Our strategy of relying on internal talent. Our net additions this quarter has been highest ever at more than 14,000 associates added during these three months. With that, we have crossed another big milestone in our talent journey with more than 450,000 employees now on board.
Finally, I want to touch upon patents, which we had started talking about last quarter. I'm happy to say that our total patents applied has now crossed 4,800. 4,874 patents applied for, which is an increase of 689 on a year-on-year basis. Our actual patents granted is at 1,121, an increase of 339 on a year-on-year basis. Overall, quite pleased with where it has finally ended up. It is definitely lower than what we had originally thought at the start of the year. Given the overall circumstances, we are quite happy with where we are. The strong deal flow and participation across both deal flow and deal closure in all geographies gives us confidence in our participation in the emerging opportunities, which sets us up nicely from a medium- to long-term perspective.
With that, I want to welcome you all once again, and we'll open it up for questions.
First of all, turn to Kritika from CNBC.
Thank you, Vinay. Rajesh, last quarter you indicated, of course, that Q2 was a defining point to see if you will be able to reach the double-digit growth. Otherwise, if there is any kind of modesty in growth, the bonus is on the second half. Keeping that in mind, would double-digit growth still be the target and would that be achievable? The order book that you have won, the deal pipe, the order book of this fiscal year of $6.4 billion, will we see that immediately kick in and will that help you to fast-track that growth in 2023/2024?
Let me touch upon the order book. The order book, despite many commentaries in the rest of the industry, we have seen actually both increase in deal size as well as in deal duration. Overall, that is good from a structural perspective, because neither are we seeing fragmentation nor are we premature collapsing. The flip side of it is obviously that it will take time for this deal pipe and the order book to convert. We have been steadily talking at more than 1.1.2 times, which over a longer term sets it up nicely for a double-digit growth. I don't expect any acceleration into Q3, Q4. As we had said that Q2 would be a defining quarter. It has come in as wherever it is. We would need to be delivering H2 much higher than H1 to get to double-digit.
We'll have to wait and see how that folds out. Today, we don't have visibility. As visibility strengthens, we will talk about it.
Rajesh, you also, of course, spoke about BFSI in detail. The volatility seems to be lasting longer than one had anticipated. You were expecting or hoping for retail recovery probably by Q2. Will that be pushed to Q3 or Q4? From BFSI, last time you had said that U.S. capital markets, European banks are seeing pressure. There seems to be some sense that European capital markets could also see some pressure. Can you throw out some more color on which are the areas within BFSI that are under pressure and by when can they recover?
In BFSI, let's talk about the areas that are doing well. Insurance continues to be an area of strength, and we are participating very well in that space. Regional banks in Europe are also doing well. Smaller banks in North America is also doing well. If you look at the large banks across Europe or U.K. and even Wall Street, almost all of them are continuing to be under pressure, and there is a softness across the board on that. That's the spread from a BFSI perspective. The retail we are seeing our expected deals, basically deals getting pushed out.
Yeah.
They're still not canceled. The hope is still there. It has got pushed out a lot more than what we were thinking when we spoke last quarter.
by Q3, Q4, would that be?
We'll have to wait and see how this thing comes through. The pipeline is still there.
Yeah.
Closure, we'll have to see.
Okay. Rajesh, if you could give us a breakup of margins. Margins, you had indicated in the presentation that you've worked in reinvesting into the business. Still, if I look at the numbers, margins are at a nine quarter low. What is the reason for that? Are there any headwinds that you are seeing over and above the macroeconomic volatility?
I think two elements when we look at the margins, especially in the current time frame. One, of course, we had definitely expected growth to be higher. As Rajesh just said, retail, of course, we expected it to pick up from where we were about three, four quarters back. The trend was trending up, but there seems to be a slowdown there. BFSI again has quite been called out, from a growth perspective, these have been lower. Whereas if you look at additions of people, we have added about 12,000 last quarter, 14,000 this quarter. Definitely, and also the deal pipeline, which has been very strong. The overall capacity and the investments in that have taken place, which is geared for higher growth. Second aspect is there is a perception that there's a currency depreciation in this quarter.
If you really look at the breakdown of the currencies, U.S. dollar actually within the quarter, while there were variations, overall it's a 0.7% INR appreciation. The other currencies, especially EUR and the GBP, has been in INR appreciation, and the EUR has been more or less flat. Other currencies also, there has been a INR appreciation. If you look at our growth, the significant growth has been in U.K. and Continental Europe. Those currencies have been actually where we have a INR appreciation rather than a depreciation. The effect of currency is really not there. We have always said that that is one of the factors, including currency into our margins. This is where I think one should look at it in a holistic manner where we are.
Thank you, Rakesh.
Okay. We have Sudeep from Bloomberg. Great.
Rajesh, you've been adding more than $5 billion in DC per quarter, and this quarter more than $6 billion. You mentioned something about longer time for conversion of deals into revenues also. Why is it taking time to convert those deals into? These are digital, most of the part of incremental deals which are coming in are in digital space. Why is it taking time for you to convert these deals? Can you give us some idea of why, as compared to the traditional one where you can essentially according to ramp it up, digital shouldn't be taking that much of time.
We specifically spoke about that the nature of digital deals that you're participating in is much more transformative and much more end-to-end and touching the core, and that's where the volume is coming from, and that's the nature of the deals that we are actually seeing. That doesn't lend itself to an immediate conversion. As I said, INR 5 billion plus, it's been in the range of about 1.1x revenue, which is pretty much the stable replacement rate for the kind of growth that we are seeing. There is a steady uptick. There is steady participation. It's an important thing that we are participating well in the opportunities, but it is not very different from what you would expect looking at the revenue versus TCV ratio.
You mentioned call out basically on BFSI space. As we see this outlook for BFSI, especially Europe and Continental, and some part of Wall Street is very slow growth which is coming there. Considering all these things, BFSI being a big one for you, do you foresee missing out on the double-digit growth in revenue? You mentioned that you have to do hard work harder and in the second half as compared to first, that also means quarter-on-quarter higher growth coming in. If you can also shed some light on constant currency growth quarter-on-quarter from Q1 to Q2 in revenue and profitability terms.
Sure. Growth definitely is as we have laid out. If you look at the positive side, verticals like life sciences have continued to grow at 16%. Telecom has been steadily improving, and it has now crossed over to double-digit growth. Manufacturing, you see, a steady improvement over the last few quarters, and it has good momentum. It is now at more than 7% growth. On the back of deals like WBA, we believe that it should break into double digits soon, in the next couple of quarters or so. There are various other verticals which are actually picking up the growth slack. You are right that BFSI is the largest vertical, and the news flow is what the news flow is. We are focused on trying to increase our participation in the opportunities that we see. There are deals out there.
The deal pipeline, BFSI deal closure this quarter actually has been higher than ever in the last. Just like I said, overall TCS TCV is the highest ever in the last six quarters. BFSI TCV is also the highest ever in the last six quarters. There is good demand capture happening. Of course, the team and everybody is focused on looking at individual opportunities and converting it.
Ramakrishnan, one question on the EBIT margins. If you look at the EBIT margin on a half yearly basis, it's fallen down maybe 171 basis, and on a half yearly to half yearly basis, it's at 24.1% or so. Do you see EBIT margin bottoming out at 24%, or do you see further pressure coming in? You mentioned about the fact that you're going to do further investments, hire more, because you have a good deal pipeline coming in. Is there any pressure on the margins to breach the 24% mark going into the second half?
I think the first part of your question on half year. Half year had almost at a revenue about a 2.6% impact because of currency. It has been an area where currency has not really helped. That is one of the factors. We'll definitely continue to optimize. We built in, we hired, we had given campus offers, et cetera. People have joined. Plus, the growth has been slower than in at least these two major sectors compared to what we planned. We'll continue to be focused on margins. There's absolutely no moment away from that. We'll continue to optimize. I can't give you an answer whether this is a bottom out, et cetera, because our goal and expectation is that it should be higher than where it is.
You still maintain that pressure on the EBIT margin?
Rather than getting into that aspect, definitely our expectation and goal is to be much higher than where it is.
One question on patents. You said your patents have been increasing. What is the company doing to monetize those phased-in patents, and when do we see some kind of revenues? Is there a metrics which we can bring in in terms of how it's contributing to revenues or EBIT or margins?
I don't think we'll be able to make a direct correlation between patents and revenues, but you'll see it's reflected in higher value-add business that we are doing, like the products and platforms business that we speak about, the extensive work that is going on across the board, across the whole spectrum of IT, if you look at it. We laid out very detailed in our annual report. A lot of that is where is this innovation portfolio coming. Patents is only one leg of it. Overall, our participation in the innovation ecosystem is significantly high. We are seeing ourselves more and more as a source of valuable, replicable innovation capability to our customer set. That ecosystem play is becoming very resonating very well with our customers.
We sometime back announced multiple innovation centers, one with Total, where the Refinery 4.0 innovation center has been set up for them in Pune, and similarly with a couple of customers out of Australia and other locations. You see that the pivot into the innovation space. Patents is one part of it. The Co-Innovation Network is another part of it. Our investments in areas like we call our Pace Ports, that's another part of it. Our investments in academic collaboration, that's also another part of it. It's a part of a much larger portfolio of activities that we're doing in swinging into more and more IP-led growth. You want to add some on the?
I think.
Patents is an integral part of our products and platform business. The differentiation that we want to create inherently lies in the patents, number one, and that's part and parcel of the deals that we see most. If you look at it, TCS BaNCS, in the first half of this year, we have hired something like 19 clients, and each one of them are transformation deals. It's because of the digital transformation that the product brings in and the inherent value that the patents and the portfolio of patents bring in to our customers.
Okay. We're going to move on to Pranay Jain with ET Now.
Thank you. It seems that your revenue growth has come down to 1.5% in constant currency terms quarterly. We already knew that there is stress in capital markets and also weakness in the European banks. Incrementally after that information, have we seen the malaise spread to other client groups, not just in Europe but also in North America? Because after that information which was shared in Q1, the street was still hoping for maybe 2.5% growth. Sub 2% has come as a disappointment. What would you attribute this weakness to? Because incrementally the flow of revenue has clearly slowed.
I think incremental weakness Q1 to Q2 is primarily coming from retail. We had shared at that time, we were expecting much better numbers out of retail. Incremental weakness in retail is definitely there, and that is across both U.K. and U.S. In BFSI, it is more strengthening of what the trend that we saw. There is no trend change per se. Across the regional market spectrum, there has been weakness across. India is weak, Middle East is weak, Japan is weak. APAC has had a couple of soft quarters. Those are anyway volatile markets, but we're seeing kind of synchronized weakness in those markets also. Those are the two elements that kind of incrementally more than where we were in Q1.
Half a mark when we see that your revenue has grown 7.2% in dollar terms. Given that second half is comparatively soft, you have lower number of working days. Given macro uncertainty or risks that we see around global economics, around Brexit and the US-China trade war, which may be affecting client decision-making, is 7.2% going to be really difficult to really even match up in the second half? Because it seems that you have the orders in hand, but the conversion or the execution is taking a little more time. Also in your commentary, we see that there's more confidence in terms of demand over medium long term. We don't see such kind of conviction in the short near term.
H2, we'll have to wait and see. As you said, seasonally, H2 is weaker. If we are to get to double-digit, we'll have to deliver H2, which is better than H1. As of now, it does look challenging, but we are focused on making sure that we participate in all the opportunities that are there and put our best foot forward.
Okay. The revenues this quarter were INR 6.4 billion. Could you give us some color how much came from BFSI, digital and other segments?
We started breaking this out over the last six quarters. We break it out across verticals and geographies. We have BFSI is $2.2 billion, and retail is about $800 million, and North America altogether is about $3.4 billion or so. These are overlapping numbers.
Okay. On the margins front, we want to understand what specific flexibility that we should look at realistically. I know you're looking at a higher number than the current one, but we didn't expect such a low number this time. There are efficiencies. There is perhaps currency tailwind which will help you in the next quarter to an extent. Is 25% going to be a realistic number in the second? Is it getting difficult at an industry level because of sub-contracting, lower growth and these factors to maintain margins at that level?
Structurally, not really there. Like Vinay said, I think some of them you mentioned, some of those additional costs, et cetera. There we will try and do as much optimization as possible. The only factor is currency, where we cannot say how it will turn out. If there is some rupee appreciation, it will still put more strain. If it is a depreciation, then it will take care of some of the increases which have already happened. For instance, our salary increases happened in the first quarter when we've had the hiring, et cetera. There's additional investments which have happened will get compensated by the rupee appreciation. I think the variable where we may not have direct control is on the currency. Any other factors where we can influence and where we improve, we continue to do optimization.
As I said, we were geared for higher growth in this quarter, so we'll continue to optimize and manage this.
Just the last question on the corporate tax cut. To what extent could it benefit your earnings or bottom line this year? Whatever additional savings there are, would you be using it for further buyback or dividends?
Number one, the tax cut has reduced the rates to around 25%, but the only caveat is if you want to move to that, you will have to stop taking any of the other concessions, et cetera. At this point of time, we do not believe that we will use the new regime of taxation.
We'll continue to evaluate that. To answer your question, because of the changes which have happened through the ordinance, there is no direct impact on us. There may be some minor elements here and there, but not from a tax number perspective. I think we just announced the special dividend today, which is almost close to about INR 16,000 crore in terms of our dividend plus the taxes, et cetera. We have maintained that we would give back to our shareholders mostly almost nearly 100%, between 80%-100% of our free cash flow, and this is in that direction. We don't expect changes.
Okay. We have Anitha with Business Standard.
Hi. Since you have announced the highest ever TCV this time, as well as the highest ever hiring in a quarter, I just want to understand, do you see a lot of smaller projects coming in from the faster-growing verticals where you are adding this talent?
Talent addition is part of a structured plan, which we have spoken about in the past also. If you look at our numbers, actually our subcontractor cost, we have been able to keep it steady after a long time. It has been steadily growing earlier. We have spoken about our strategy, that our strategy is to first participate and capture the demand, and then we will over time fix the cost structure. Subcontractor, getting that under control is one big component of it. Direct hiring to replace it is another part of it. Hiring, and we have spoken about acceleration of onboarding of fresh trainees to gear ourselves up from an internal talent development for the medium-term growth that we see. That's also on track. We have been able to onboard all the 30,000 that we spoke about last time. All 30,000 have been onboarded.
This is part of a much more long-term strategy, which we are executing on systematically.
Just a question here in terms of the campus hiring for this year. I know this process has changed completely, but is there any guidance on the number of freshers you intend to hire this time around?
We intend to go to similar numbers. We are going to go about 30,000 people next year. Same.
Thank you.
Built on partnership rather than investment. Our Co-Innovation Network, which has close to 2,000 startups, about 1,800-odd startups in it, is a very unique, differentiated strategy that allows us very strong participation, very high visibility, and we co-create and co-collaborate with them and our customers to develop on opportunities that we see. We have been pioneers in it, and we are far ahead in terms of actually the breadth and the depth of participation that we have, and we are doubling down on that strategy.
Right. I understand that. Unlike a lot of other conglomerates, just for understanding, you don't see investment as a part of it, whether it be taking a minority stake or just M&A in general for a lot of early-stage firms. Do you participate that way?
We invest significantly. We've been investing for long. Our investment is in terms of actually working with them.
The training that we do, the curation that we do, the joint go-to-market that we do with them, and the investment in infrastructure to do for collaboration and co-innovation. We have been investing significantly into this space. It is just that equity is not our game. We participate in partnership and collaboration with customers.
Understood. Thank you.
Okay, we have Anandi with The Economic Times.
Yeah, since everything's been covered, I just wanted to understand, using what you said at the beginning of the year and what has happened now, essentially, is it because of maybe some delay in execution of the larger contracts or just the broader scope of opportunities are lower than expected? That's something I wanted to understand. As an extension to Ronika's question, the newer talent that is being recruited, are they going to be more towards the digital side of your business?
As I said, nothing significantly has changed from it. It has been more a nuanced change. BFS is weaker than where it was at the beginning of the year. Retail has steadily weakened during the course of the year, where we had expected it to bounce back. Trend-wise, these were not very different from where we were. It is just that it's strengthened a bit. I don't have anything in terms of that side of things. On the talent you want to
Yeah. I mean, we've been hiring from the colleges regularly, always been hiring, and majority of this workforce is going for digital training today. That's our case for it. Doesn't mean that we don't bother, but majority is going in digital.
Okay, we have Ashish with PTI.
Rajesh, you spoke about H2 has to be much more faster, despite the seasonal difficulties which generally face. What are the levers which really exist both on the margins as well as on the revenue front, which can probably help you meet that aspiration of double-digit growth?
On the revenue front, we'll have to just work harder.
Areas, basically.
Yeah. Actually, as I said, the deal pipeline is still strong. Some of the deals that had got postponed, we hope to see whether that conversion comes through. Overall, we are not too worried about the demand environment. There's some amount of delay, but we're not too worried about the demand environment. On the margin front, the levers continue to be the same. It is about right-sizing our cost base. Over time, in the last few quarters, we have been speaking about that when demand was very strong, we were first focused on capturing demand. We had said that we will restructure the cost base over time.
The employee onboarding at the bottom of the pyramid, the investment in building up the talent side is all part of a cost structure rationalization program that will see us clean up our pyramid and rationalize it better. That will come through on the margin part of it. We remain hopeful that the currency will be more rational than where it is, and with that hope some of the margin tail risk will get addressed.
Okay, we'll open up the room now to some additional questions, starting with Kritika.
Thank you. Yes, I could ask you earlier. I want to understand the digital growth. Of course, the base was lesser, so you were on a run rate of 35%-40% growth. Of course, that's at 27%, higher than the industry average, yes. Are you still at a scale that you can continue to grow at a 20% plus growth figure or an up to 40% growth figure in digital? If you look at the quarter-on-quarter year-on-year scale that you are seeing in digital, how much more can we achieve now, keeping the order book in mind?
Thank you. See, as we said that, look, now, at some point in time, everything will become digital for us.
Yes.
We are very pleased with the traction that we are having. The amount of the order book that we have signed, majority of them also embeds a lot of our digital services.
Yes.
Whether it is cloud adoption, whether it is blockchain-based solutions or from the core transformations, including data analytics, machine learning, artificial intelligence, all of this, running tremendous amount of traction.
Yes.
Rajesh talked about all-time high of deal closures.
Yes
total contract values in the last six quarters. I'll also say that in terms of digital deals-
We are again seeing the highest in the last six quarters in terms of deal closures as well. We are pretty happy with the way that our digital services are all coming together.
Yes.
It's a very, very fast evolving and fast changing. What constitutes digital is really about integrating all the new things that comes up, including the fintechs or regtechs or insurtechs and all the startup firms that we do in our partnerships. We have to bring all of them together and stitch together the ecosystem for our customers and harnessing the abundance which is out there. I think we are very happy, and I don't see any slowdown in our pace. In fact, what we are looking at, the way that we have added talent addition system, we are hoping to add cylinders to our run while we are running it.
You'll be able to do 40% in this fiscal?
We hope to do it because the demand is there. Demand is there. It is only constrained by the talent pool that's available at the right time, at the right place. What we are really doing is upskilling our talent base that we have, leverage the contextual knowledge that we have, build the Business 4.0 framework that we have promoted in a much more holistic manner.
Yes
Make sure that we are there at the right time, at the right place.
If you can just add to that. I know Rajesh had indicated that there is an aspiration that at some point in time you could give a breakdown of which services or of revenues in digital services. Can you give us a sense where the analytics is coming in within digital?
It's very hard to define that the way you're trying to describe it.
Go to the limit.
Digital is not one technology, right? You can say that because large cloud transformation. Within that cloud transformation, analytics comes in.
Yes.
Within the cloud transformation, the whole data aspects come in. There is the element of blockchain that is thrown at. A lot of these technologies coming together, but data analytics is one big area.
Yes.
Cloud transformation is another big area. Automation, leveraging machine learning and artificial intelligence, building algorithms with the products. These three things are really there in every single digital deal, if I can put that.
That's right. Very quick question with respect to the attrition, of course, is if you compare to industry standards, much lower. The fact is Q3, Q4, there are furloughs. They are clearly weaker quarters. Would you expect attrition to see some kind of an increase? What is the vendor that you're working with? Also, in terms of the levers you have, I know you don't give the utilization figure, but the levers you have within utilization to be able to inch up margins, what are they?
See, first of all, our normal attritions go up a bit in Q1 and Q2 because of seasonal reasons. Q3, Q4, I don't expect anything significantly different. With respect to utilization, actually, as Rajesh and Ramkrish said earlier, all of this has been done by design. All this current acquisition of 30 product people already in never happened before. It's already done. All of this will be leveraged to fulfill the pipeline of $6.4 billion coming in. I think all of this is by design, and I expect all of this to be utilized in the next couple of quarters and it will automatically have a significant improvement of the margins from that.
Okay. We can move over to Sudeep.
Hi. If you can give us some idea of the capital utilization. I know you gave a special dividend this time. When we spoke at the end of first quarter, you said that the board will look at it because there's a buyback tax which came in at that point in time. Has the board deliberated on how to give the cash to the shareholder, or is the special dividend case the only way you have as of now?
This is the output of the board deliberation. The first is the capitalization policy that remains unchanged. We have spoken that 80%-100% of free cash flow will continue to be returned to shareholders. No change to that capitalization. It's said that the mechanisms of doing that will be optimized based on whatever is the current regulatory environment. Looking at both the kind of stakeholders that we have and the regulatory environment, the board has decided to announce a special dividend, which is in line with the overall capitalization policy.
Secondly, in terms of the retail segment, we said again some of the retail deals are getting pushed out. Have we seen any kind of retail deals which had come in but has been now junked or put on hold by your customers? Is the situation in retail so bad now? Can you please shed more light on what exactly is happening on retail?
Saying the situation being very bad per se, but some product, like we said, we have a very strong portfolio of retail products called Algo Retail, where we participate across the complete value chain of retail operations, and many of them are triggers for transformation. Some of those opportunities are taking longer to close and in some form indicating whether the appetite for it exists or not. I wouldn't characterize it very negatively. It is just that people are spending more time due diligence in actually committing to those kind of transactions.
On the BFSI piece, last year in the second quarter, we saw some kind of pickup happening in BFSI. This quarter, again, we are seeing kind of slowdown happening in BFSI. Is this more cyclical in nature or is it more to do with the kind of structuring that businesses are going through or business cycles are going through? If you look at last year and now, do you see a difference in the way the slowdown is happening and so the way to look at it is different?
The change in mode in BFSI, much more brainy minds than me have commented on it. Let me turn to inside the track on it.
No, I think Rajesh can articulate it better than me. There are large ones that we are dealing with. There are mid-size and smaller ones. Mid-size and smaller ones are growing and then there are ones who are fairly quick to change track as well. Across North America as well. The large ones, I think, by nature, they are global. They are hostage to macroeconomic indicators and what's happening. Most of them, they felt that, look, if you take Brexit, for example, they all felt that look what have been done and dusted. Interest rates will go up. Their business plan for 2019, 2020, et cetera, banking on the fact that interest rates will go up, they'll make more money. Suddenly they see that look, they need to contain this thing. There is some pressure in that front.
The uncertainty around Brexit means that their own data flows, how it's going to function for them. They're constantly under evaluation, which is kind of holding up some of this. In the neighbor markets, if you take North America, U.S. or Canada or U.K. or some parts of Europe, all the market infrastructure programs have been asked, in the sense like they want to change their payment systems. They want to see, for example, how the emerging markets, some of the markets like India, how digitized the payments infrastructure. Instant payments and all other things are being initiated.
When such things happen, people also look back and say that, "Look, should we go and do a payment transformation now or should we wait for those standards to emerge and then take them up?" Multiple instances, I think large banks, there is some holding back on how they should deal with the situation. Overall, I don't see structurally anything to call out except that, look, in India, we enjoy a fantastic relationship with all our customers. It is one of the largest verticals for us, as you rightly said. We participate in areas that they are spending and which we want to participate. I will put it this way.
Can we get the last question, please? Thank you.
I think it's on the analyst. They are saying that 2021 would be a very tough year for BFSI going forward, given the kind of headwinds they're seeing.
No.
You don't have the crystal gaze. What we see now, and as we go into the next year and the next financial year, it's going to be a tough climate and tough growth coming from that space.
We're not hearing anything like that from our customers. I can only share with you what we hear from our customers and what we see in the marketplace. We're not seeing anything. Fortunately, we believe that we are well-positioned in terms of the investment that we have made to stay relevant to our customer base, and specifically in the Banking, Financial Services, and Insurance space. Insurance is doing just great. The capital markets, there are some softnesses, it comes. As I said, look, the whole Banking and Financial Services is susceptible to indicators where the industry is going. We just have to be agile about it. I think I'm very proud to say that our team in Banking and Financial Services is more agile than anyone else.
This gentleman with the purple shirt at the back of the room.
Hi, I'm Thomas from Reuters. I'm sorry I walked in late, so I don't know if you already answered this. Have you been able to quantify the impact of Brexit now that it's just right at the corner and the impact of trade war? If not, at least can you just give us some type of a rough idea as to what you really think will be the impact?
I don't want to be trivial about it, but if I could do that, I'll get the Nobel Prize for economics.
Maybe. Let me put it this way, that times of economic stress are times that many customers participate both on the transformation side as well as on optimization side. As N.G. said, our ability to stay agile and focused on the opportunity has led to us converting this opportunity into actual revenue. Last year, U.K. grew more than 20% for us. This year, in H1, it has grown 14% or 15%.
Around 13.
13% this quarter, even higher last quarter. We are participating, and that's been our strategy, that we stay focused on the opportunity on hand and try to do it. Trying to impact-wise and look at the macro is not our cup of tea. Again, on a lighter note, I'm very enthused by the fact that analysts are very positive about BFSI at the beginning of the year. Now they are very negative over next year, so that gives a lot of hope.
We are seeing rising demand as an order book, but we actually are not only order book, they both help us concurrently. Also, are we seeing incremental engagements happening along the sales cycle, particularly in digital, where perhaps there will be more involvement of large number of clients and hence execution over a longer period? Is that why your medium- to long-term outlook is more confident than near-term next quarter?
The outlook, we said INR 6.4 billion for the quarter.
Okay. All right.
The medium to long-term is more in terms of our engagement and transformation and discussions that people are doing. Almost across the board, most industries were well on their part of investing into transformation, whether it be leveraging what we call the Business 4.0 framework, where there are multiple pillars on which the transformation was getting executed on. Leveraging digital technologies, of course, but executing on a growth and transformation agenda. We are seeing that systematically come across multiple industries. The near term is more a reflection of what has happened over the last couple of quarters. Just being more circumspect, given that it has been weaker than what we thought at the beginning of the year.
Objectively, if we just look at the margins a little bit, usually seasonality is soft. Also you're seeing that execution this quarter is also on the softer side than what you would like. In a quarter when there is some tailwind from rupee appreciation, and it is going through as of now, it's still telling that your margins came at 24% and are lower than the previous quarter when there was other wage hike, visa costs, and there were some other headwinds. How is it that it's so tough in this environment to have margins, and is that also going to be the near-term state?
I think structurally, we still don't see any significant headwinds to margin expansion. There will be always blips within different quarters. The only, as I said earlier, I think probably I'm repeating myself, but currency is the one factor which we cannot predict, and that impact will also be important. Otherwise, plus most of the hiring we have done so far, and as we go along, hiring will be more specific to what we require on projects, et cetera. That is one lever which we will definitely optimize. Which is a significant factor because in our overall cost structures. Also Rajesh talked about how, where we will shape the overall cost structure to the current dynamics.
You remain in capacity very low. That's why I ask if the trajectory is still going to take some time to bottom out and then improve.
See, there are two parts. One, there are investments which we do from both from a medium and long-term perspective. We will continue to do that, and we will not stay away from those investments because they are important for our continual growth and continual success. Tactically, in a quarter-to-quarter situation, we will make certain adjustments to our overall operating environment. Wherever we have the control on levers, we'll continue to exercise that.
Still months of remaining adjustment to your.
Certainly.
growth ambitions on margins.
Certainly.
Okay, we need to conclude the event. Thank you so much, everyone.