Ladies and gentlemen, good day and welcome to the TCS Earnings Conference Call. As a reminder, all participants lines will be in a listen only mode and there will be an opportunity for you to ask questions after the presentation Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali, Global Head Investor Relations at TCS. Thank you, and over to you, sir.
Thank you, Margaret. Good evening, and welcome, everyone. Thank you for staying dialed in, and I apologize for the delay in starting of this call. Thanks for joining us today to TCS' financial results for the Q1 of fiscal year 2022 that ended June 30, 2021. This call is being webcast through our website And an archive, including the transcript, will be available on the site for the duration of this quarter.
The financial statements, quarterly fact sheet And press releases are also available on our website and have been mailed out to those who have subscribed to our mailers. Our leadership call is present on this call to discuss our results. We have with us today Mr. Rajesh Gopinathan, Chief Executive Officer and Managing Director. Mr.
N. G. Subramaniam, Chief Operating Officer.
Good evening to you all.
Mr. Sameer Sheksarya, Chief Financial Officer And Mr. Milan Lakhkad, Chief Human Resources Officer.
Yes. Hi, everyone.
Rajesh and Sameer will give a brief overview of the company's performance followed by the Q and A session. As you are aware, we don't provide specific revenue or earnings guidance and anything said on this call reflects our outlook for the future or which could be construed as a forward looking statement, must be reviewed in conjunction with the risks that the company faces. We have outlined these risks in the second slide of the quarterly fact sheet available on our website and emailed out to those who have subscribed to our mailing list. With that, I'd like to turn the call over to Rajesh.
Thank you, Kedar, and once again, good morning, good afternoon and good evening to all of you. As we come out of the 2nd wave of the pandemic, which was Once in the generation health crisis, our thoughts and prayers are with everyone who suffered the debilitating effects of COVID and
the loss of loved ones.
Before we move on to business, I want to talk about what has been a traumatic period for most of us. As the second wave overwhelmed the country's medical infrastructure, provided hospitalization support, opened COVID care centers in our facilities in 13 cities to help affected associates and their families. But despite our best efforts, We lost a number of TCS' and their family members. Our thoughts and prayers are with them. Recognizing that vaccination was our best bet to an early return to normalcy, we undertook a pan India vaccination drive that began in May and which covered not only all TCS locations, But also smaller cities where our associates are currently remote working from.
I'm happy to say that Over 70% of our associates have been vaccinated till date at least with one shot, including the families that amounts to over 500,000 individuals covered We are on track to vaccinate all TCSOs and their families by September. Even as we speak, the national vaccination program is also proceeding well, and We are hopeful that we will never again have to go through the experience that we had over the last 90 days. Moving on to our performance in Q1. We saw continued strength in demand for core Transformation Services across all segments. But the 2nd wave disrupted technology initiatives in several of our emerging markets, especially in India.
While our industry verticals 2.4%. Sequential growth was 2.7% in dollar terms and 3.9% in rupee terms. On a year on year basis, we grew 16.4 percent in constant currency terms, 21.6% in dollar terms and 18.5% in rupee terms. Our operating margin for the quarter was 25.5%, a contraction of 1.3% sequentially And an expansion of 1.9% year on year. Net margin in Q4 was at 19.8%.
I'll now ask Navi to go over all the Headline numbers, financial and segmental performance, and I'll step in later to talk about demand trends we're seeing and the emerging opportunities in growth
Thank you, Rajesh. Let me first walk you through the headline numbers. In the Q1 of FY 'twenty two, Our revenues grew 2.4% Q o Q and 16.4% year over year on a constant currency basis. Reported revenue in INR was INR454 1,000,000,000, a sequential growth of 3.9% And our year over year growth of 18.5%. In dollar terms, revenue was CNY 6,154,000,000, Our Q o Q growth of 2.7 percent and our year over year growth of 21.6%.
Let me provide our segmented performance details for the quarter. All growth numbers are in constant currency terms. All our verticals showed good sequential as well as year on year growth. Growth continued to be led by Life Sciences and Health Care, which grew 7.3% sequentially and 25.4% year over year this quarter. BFSI grew 3.1% Sequentially and 19.3 percent, EBIT YOY, powered by increasing investments in enhancing customer experience, product innovation, Cloud transformation and optimization of core operations.
Retail and CPG bounced back to double digit growth this quarter, Growing 4.4% sequentially and 21.7% year over year. With discretionary retail as well as parts of travel and Manufacturing grew 4.8% QoQ and 18.3% YOL. Technology and Services grew 5% QoQ and 12.3% BOI. Communication and Media grew 1.7% By geography, growth was led by our major markets. North America grew 4.1% QoQ And 15.8 percent BOI.
UK grew 3.6% QoQ and 16.3% BOI. InterContinental Europe grew 1.5 percent Q o Q, 19.7 percent by OI. Among our regional markets, Latin America grew 4% sequentially and 16.1% YOY, while Middle East and Africa grew 4.2% QoQ, 25.3 percent YOY. The pandemic's 2nd wave severely impacted sequential growth in India, which declined 14.1% QoQ, It grew 25.3% year over year. Growth has been affected in Asia Pacific, where revenue grew 2.4% and 9.3% BOE.
Our products and our portfolio of products and platform performed well in Q4. Ignio, our cognitive automation software, signed up 17 new customers and had 8 co lives. TCS Banks, our flagship Product Suite for Financial Services domain had 5 new wins and 5 go live in Q1. Over half our deals are now For the SaaS version of the product, this quarter, we signed up our largest SaaS deal for TCS Bank to date With 1 of the largest financial groups in Finland for their retail consumer lending business spanning origination, Servicing of accounts and deposits, corporate SME and unsecured loans. Our Quartz blockchain platform had 2 new wins in Q1.
We also launched a new product, Quartz for Markets, which helps market infrastructure institutions offer next generation services around dopernet securities. In Q1, TCS was selected by the largest commodity exchange in India to build their new commodity derivatives platform using TCS Bank for market infrastructure, for clearing and custody and quartz. The new platform will help them achieve Their growth aspirations and meet international exchange standards with respect to business features, robustness, high performance and security. In Life Sciences, our award winning advanced drug development suite had 1 go live. We developed the TCS ADD safety platform for a U.
S.-based Global top 15 pharma company for their safety case management automation program. TCS ADV Safety will Transform the pharma company's adverse event case intake and processing using AI, thus improving efficiency and accuracy In the pharma COVID-nineteen Processes, our HOP suite of solutions for communication service providers Had one new win and one go live in Q1. TCS TwinX, our AI based digital twin solution, also had one win in quarter and one go live. TCS ION, which celebrated its 10th year this year, It's expanding its international footprint by winning its 1st country level deal in Indonesia to provide a Countrywide digital learning solution for 250,000 schools and also handle the recruitment process across ministries. It also won a customer in Malaysia for digital campus for 5,500 users.
The TCS National Qualifier Test, Which is now becoming a preferred assessment instrument for every entry level hiring by Corporate India, added 10 more logos in Bringing the total number of corporate employers to 160. Moving to our client metrics. As you are aware, these are important validations for TCS customer centric strategy for continually Expanding and deepening our engagements by investing in newer capabilities and launching newer services and products relevant to our customers. In Q1, we had a robust addition in every revenue bucket compared to the year ago. We added 2 more customers in 100,000,000 banks, bringing the total to 50.
We added 5 more Clients in 50,000,000 banks, bringing the total to 105,000,000, added 11 customers More customers to 20,000,000 plus banks, bringing the total to 241 23,000,000 in 10,000,000 plus banks, bringing the total to 405 22 more clients in 5,000,000 plus bank, bringing the total to 586 and finally, 52 more clients in 1,000,000 bank, Bringing the total to 11.18. Let me now go over the financials. Q1 is when our annual salary increase takes place. This year, we had roughly 1.7% margin impact from the wage hike. With many parts of the world on their way back to normalcy, we saw some return of discretionary expenses, including travel, offset by Currency gains.
Our operating margin was at 25.5%, down 130 basis points sequentially and an expansion of 1.9% year over year. Net income margin was at 19.8%. Our effective tax rate was 25.7%. Our accounts receivable was at 65 our DSO was at 65 days in dollar term, Down 3 days compared to Q4. Net cash flow from operations was at $103,000,000,000 which is 114 percent of net income.
Free cash flows were at JPY 97,500,000,000. Invested funds as on 30 June stood at JPY 543.6 The Board has recommended an interim dividend of INR 7 per share. On the people front, we had 9,058,000,000,058. It continues to be a very diverse workforce With 155 nationalities represented and with women making up 36.2% of the base, We continue to invest in building the next generation TNT workforce. Our investments in organic talent development Resulted in employees logging over 10,000,000 learning hours in Q1.
Over 407,000 employees are now trained on multiple new technologies, and We now have 19,000 contactional masters in the company. LTM attrition in IT Services was at 8.6%, While this is still the lowest in the industry, it is inching up. We will be monitoring this closely because we have the largest pool of the best trained Digital talent in the country and there will be attempts to poach as hiring picks up across the industry. Over to Rajesh now for the demand diversion, Krish.
Thank you, Sameer. I've spoken earlier about how customers are starting off on multi horizon Cloud Transformation Journeys. It is a fairly large program and within which there are various transformational sub teams such as customers, employee experience, Supply Chain Management, Sustainability and M and A. I want to give a quick color on some of these. If you look at Horizon 1 example, Let me begin with some examples of core transformation, which includes cloud migration, application modernization and data modernization.
We were selected by an American Investment Management Group to help them modernize their existing mainstream based advisory wealth management platform. TCS will leverage its domain knowledge and experience to create a microservices architecture on a leading hyperscaler cloud platform to enhance the retail client experience. A leading provider of high performance semiconductors and analog solutions has partnered with TCS to advise them on moving their enterprise applications to the cloud. TCS helped analyze and identify the best cloud provider for their workloads, build a business case and a 3 year roadmap for the transition to the cloud. Coming to Horizon 2 example, several of our customers are now moving on to Horizon 2 of the journey using native capabilities of the hyperscaler stack To innovate, transform customer experience and differentiate sensors.
For example, we have been engaged by Loblaw, a leading Canadian food and pharmacy retailer As a partner for modernizing their core pharmacy dispensing platform, leveraging a leading hyperscaler platform. This program is expected to deliver better customer experience, making the pharmacy operations more patient centric and one of the best in the business. Similarly, the largest hotel franchiser in the world based in the United States has selected TCS as a strategic partner to reimagine their customer interactions and loyalty And to modernize the front office and build a digital course to significantly upgrade their customer engagement. TSYS will build smart mobility solutions to improve customers' digital journey enabled by native capabilities on the cloud. This will build incremental capabilities Regions that are used in municipal industrial and other process applications to touch water quality chose TCS to Transform the business from a traditional instrument seller to providing everything as a service model, whether it be the instruments, the software and services.
The transformation which is underway is comprehensive. It touches all major business functions and IT systems and involves developing a scalable elastic IoT platform Hosted on a leading hyperscaler platform. This one is an especially great example of how When we talk about these technologies, it is not one alone that actually brings in that value, but the ability to weave together solutions across, As we said here, IoT, cloud, even their core enterprise applications are getting transformed on supply chain side, Areas like bringing in newer areas like CPQ. So bringing all that together and being able to transform the customers' business Business model is the core of what we call this growth and transformation led opportunity set that we are so focused on. The third aspect that I want to touch upon today is sustainability.
A lesser known benefit of cloud adoption, which is increasingly moving center stage on The new and Board agenda is the reduction of IT carbon footprint that the migration to cloud provides. That is because hyperscaler providers are leveraging Consequently, enterprises who migrate workloads from their own data centers to a hyperscaler are achieving significant reductions in the carbon footprint associated with these workloads. So when we help customers embrace the cloud stack, it is very fulfilling to know that we are also helping them get closer to their sustainability goals. We have articulated our own carbon reduction goals in our FY 2021 annual report, which we published in May. We are looking to bring down our absolute carbon footprint by 70% By 2025 compared to our base year of 2016 and to become net bureau MSR by 2,030.
While we work towards mitigating our own environmental footprint, we are also using our expertise to build solutions that help our customers bring down their. This quarter, we had quite a few customers engaging us for their sustainability initiatives. For example, an American pharmacy major has selected TCS to deploy TCS clever energy for more than 8,300 stores and 31 warehouses, helping them save energy and potentially reduce CO2 emissions by 70,000 tonnes. This was a solution that was originally designed and deployed by TCS within its own facilities in India As one of the largest and earliest full scale IoT deployments and which helped significantly reduce TCS' own energy consumption Across over 100 buildings and 33,000,000 square feet of office space that we had. And we have now been able to Productize and package it and take it to multiple markets, including Middle East and North America.
Japan's largest power generation company has engaged TCS to transform the power plants with autonomous operations and maintenance using the TCS IP2 solution framework and to help achieve sustainability goals through reduced emissions. Similarly, TCS has been selected by a U. S.-basedleadingelectric gas company electricity and gas company for GIS based wildfire applications development and support. This program aims at significantly improving detection and emergency response to wildfire events, Hence ensuring environmental protection and public and employee safety. A leading Australian oil and gas company has started design work to build a Carbon Capture and Sequestration Plans.
As part of its energy mix portfolio, it has also started piloting hydrogen production with green energy sources And developing value chains to export hydrogen. TCS is partnering to develop pilots, proving the efficiency of these technologies and to help them achieve their sustainability goals. While on the topic of emission reduction, one of the largest and most material shifts playing out globally The automotive industry switched to electric vehicles and alongside that autonomous and connected driving. I want to share with you The broad spectrum of activities that we are engaged in, in this industry as an example of how we are able to be Relevant across multiple industry participants in a large industry structure like that. You are aware of our investment in taking over GM's technology center in India.
For GM now, more than 20% of those workforce is involved in their electric vehicle and autonomous vehicle programs. Similarly, TCS is now partnering with over 15 startups In the EV and autonomous space, including companies like Stoneridge, Velodyne, Luminartex, etcetera, working on areas including LiDAR, Battery management systems and a full spectrum of various activities in this stack. On the Tier 1 vendor side, we are working With leading providers like ZF in areas including ADAS 2.5 Development and even more importantly, working together with them to address the significant shortage in the chipsets That is one of the biggest impacts that the automotive industry is going through. Our teams work jointly with Zerev, to put together an analytics and a procurement solution that maximized the contextual knowledge and the data in the Deref Systems and combine that with the ecosystem of partners that they have to identify both sources As well as to optimize choices of products and portfolios to maximize value and customer centricity across our ecosystem. The spread of technologies that we see and the unifying fabric of cloud is allowing us to be relevant as I said across Moving on to another theme that you've spoken a lot about in the past is mergers and acquisitions.
It's a recurring G and T theme And corporate restructuring leading to Mende or divestiture are areas where we are significantly participating. In the case of Pharma, we are helping customers integrate and harmonize the merged entity or the acquired entity's process and systems into the acquired landscape. With LATAM, we help customers plan and implement the separation of assets and processes to ensure that the divested entity is Fully operational from day 1 of its independent existence. In addition to our deep contextual knowledge and technology expertise across the spectrum, Customers have been selecting TCS for our differentiated ability to stitch together multiple services and offerings such as M and A consulting strategy, Planning, digital value identification and harnessing, change management, PSA management, day 1 readiness, Supply chain ERP implementations, rollouts, etcetera. Now I want to take a couple of examples that showcase some of this.
U. S.-based biopharmaceutical company selected TCS as a partner to design and implement integration of their acquisition of a medical aesthetics major Recently, so what we've been able to do is to liberate our deep contextual knowledge of the acquirer In designing the sequence of process integrations that need to be played out to maximize the realization of the $2,000,000,000 cost synergies that the acquisition is very strategically hinging on. Similarly, for a global pharma leader, TCS Worked very closely with them to identify integration strategy for the newly created JV a few years back, We will put in place a slightly atypical solution involving integration of technology systems on to the parent entity Even though the acquired entity continued as a joint venture, and now we are working with them to help them Spin off the technology systems to make the JV fully standalone and ready for an independent strategy of its own. Alongside this growth and transformation engagements, we are also seeing increased activity around outsourcing as customers look for pathways to Hereto, our innovative approach to deploying machine first operating model powered by AI and machine learning to reimagine business IT operations is helping us win such deals across industries.
Coming to our Q1 order book. We are seeing a strong demand for our services that I have spoken about. As you know, we have had strong deal wins every quarter in our fiscal. On the back of an all time high TCV in Q4, we once again had a very strong set of deal wins in Q1 with a TCV of 8,100,000,000. Once again, it's a very accretive mix of deals for all sizes and distributed across industry verticals and geographies.
By vertical, BSSI had a TCV of RMB2.2 billion while retail vertical again achieved its all time high order book of RMB1.5 billion the 2nd consecutive quarter, the TCV of deals signed in North America stood at $4,000,000,000 With that, we can now open the line for questions.
Thank you very much. We will now begin the question and answer session. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sandeep Agarwal from Eagle White, please go ahead.
Sorry to interrupt you, Ms. Avinwal. We cannot hear you clearly.
Yes. Hi. Can you hear me now? Can you hear me now? Yes,
we can hear you. It's not very clear. May I request
Hello. Can you hear me now?
We can, sir, but it's not very clear. I would just request you to please check your phone line and join the queue again. In the meanwhile, we'll move to the next question. The next question is from the line of Sudhir Guntupalli from ICICI Securities. Please go ahead.
Yes. Good evening, gentlemen. Thanks for giving me this opportunity. NGS, my first question is on the SPWS model.
In the
recent past, we had seen news flow about CEOs of different American banks expecting their employees packing offices by a certain time range.
We are
seeing similar trends in India as well as most of the employees are vaccinated at least once. So in that context, when the clients are expecting their own employees to be back in offices soon, Will they realistically allow the IT vendors to let their employees work in a borderless manner? Any thoughts on this will be helpful.
Thank you, Sveer. I think we are committed to SBWS As a model and a number of our customers are happy with the way that it is working. Having said that, look, if customers are demanding that people will have to be working from, If they approve the facilities, then we will have to discuss with them and align accordingly.
Thanks. Rajesh, my second question, we understand that in Indian business, there is a force majeure event. But even if we shift the focus away from India business for a minute and assume stable revenue run rate over there, probably we can add about 70, 80 basis points of growth the reported 2.4% CEC number, that takes it to roughly 3.1% sort of a sequential growth in CEC terms in June quarter, which is perhaps seasonally the strongest. Historically, the industry or TCS would have averaged growth in the north of 3.5% in June quarter. Now that we are anticipating structurally higher growth rates post COVID, How do we reconcile this expected growth in seasonally the strongest quarter?
Once the base of the fee is over in FY 2022, probably this 100 and transit free can Translating to the same 8% to 9 percent sort of a growth that we were doing even before 'forty. Any thoughts on that will be helpful.
I think seasonality and many of the growth trends that we've spoken about is better understood at the market level. And at 4.1%, most of these core markets that we've seen, I think the growth trajectory is Fairly strong and especially coming on the back of this being the 4th quarter Of sequential 4% growth. So I think the numbers are there. Even more importantly, the main growth themes that we've spoken about, we have been seeing increasing traction on that And our confidence in that is strong and in fact getting stronger as many of the examples that we said played out. The How the specific quarter or the next quarter develops is difficult for us to call.
We are hopeful for a return to strong growth on a secular basis. But irrespective of that, The business model and the business strategy is made to ensure that we are aligned to the right trends. And in that area, we are quite confident about our long term bets on the cloud transformation as well as our increasing focus On what we call the growth and transformation side. So we are quite overall happy and confident about that trajectory.
Thank you. The next question is from the line of Divya Nagarajan from UBS. Please go ahead.
Hi, thanks for taking my question. 3rd question, Rajesh, is on pricing. I think We are probably in the most conducive environment for price increases that we've been in a long time. Could you kind of throw some light on what you're seeing in terms of pricing Overhang for the company and what you're seeing for the digital side as well? That's question number 1.
The second one is to Sameer. We've started with the 25.5% kind of margin. Should we expect normal seasonality of improving margin trajectory as the year goes On travel costs not included and the corollary to that would also be that when and how do we expect travel costs to trend this
Dhivya, I want to make sure I understood your first Question, you're asking about the pricing environment in the overall cloud demand rate?
Overall and specifically with digital as well and specifically as I was going to find that further, are you able to push through price increases or cost of living increases Given that we are in an increasing demand as well as tightening supply situation.
Yes. So that, Vijay, I think they've spoken about it in the past also. As I said, our pricing strategy It's built on fairly long term relationships with customers and is not very volatile to specific Demand trends. But the second part of your question is the more relevant one. Typically, in a positive environment like what we have, Some of the contractual provisions like cola increases and all go through much more easier.
As also, We have a much more supportive environment in terms of distribution of skill sets across various price bands, etcetera. So there is definitely a small Long term support coming out of the demand environment, but headline numbers and specific pricing It's not very materially linked in our business model to short term spot demand as it were. Yes.
Hi, Devya. To your question on margins, as you have seen in the past, margins are usually lower than Q1, impacted by the normal increment cycles which we have. And Also, we have said that growth remains our biggest driver to margins. So as we see growth taking in back end, We should see the margins recovering from the Q1 impact, which we would usually have. Having said that, as you rightly asked, We are seeing uptick in many discretionary expenses.
Travel this quarter also has a slight uptick, and we expect Expenses, some of the discretionary expenses to get back to pre pandemic level by the end of this year.
So what would that mean in terms of margin ranges as we go through the rest of the year and for the full year?
We'll have to wait and watch on that, but we would be we should be able to maintain margins or sustain margins.
Got it. Thanks. I'll come back to follow-up at this time. Thanks and wish you all the best for the rest of the year.
Thank you. The next question is from the line of Sandeep Shah from Equinor Securities. Please go ahead.
Yes. Thanks for the opportunity and congrats for a good execution outside India. Just the question in terms of the order book. So Rajesh, can you share last time we said that we had only one deal which was above $500,000,000 So is it possible to share number of deals above $500,000,000 or this time also the order book has been
P. Vijay
Kumar:] And just to follow-up on that, for these smaller and medium sized deals, how is the mix of the demand? So is it sticky deals where revenue can be annuity or you have to replenish the smaller size deals each quarter? So the run on the ground could be higher, which may lead to a higher SG and A spend as a whole?
Sandeep, the Let me answer the second part of your question and then come back to the so the distribution of deals is fairly well mixed Between large and small ones. And the I would say that What you asked in terms of SG and A load, of course, that is higher on the smaller deals, but there is a fairly good distribution. So our overall SG and A load should not be any significantly different than what we have seen in the past. And this is across markets, Across all our major markets, and that's the kind of nature of deals that we see. I didn't fully follow the first half of your Question.
Is that about the same mix of deals or
Yes. Rajesh, last time, I think we said out of $9,000,000,000 order book, were only one deal above $500,000,000 So can
you share
that number
for this one? That's same. It is a similar trend this time also. In fact, We don't even have a deal above $500,000,000 in this. In fact, the largest is about 400,000,000.
We have a fairly large set of deals in that category, but overall, It's well distributed. There is no dependence on one single deal, which has been the case for the last few quarters, as you know. Okay,
[SPEAKER SRINIVASAN VENKATAKRISHNAN:] Okay. And just a couple of more, if I can squeeze. Just a follow-up to Divya's question. So, Adesh, are you saying clients are receptive to consider price increase because of the talent Crunch, even in the near to medium term? Or it may happen over a longer period of time?
And second, in terms of India business, what I understand, It's not a business which is lost. It's just the postponement. And if it's a postponement, do you expect the full recovery by 2Q itself or maybe
Yes. Sandeep, the answer to the first question is that, as I said, our business model, price volatility is fairly low on both sides. So typically, Businesses are built on long term MSA. There is some amount of practical change that happens. And the incremental deals Clementi client acquisition reflects the price environment of that time, but bulk of the business comes from existing relationships.
And there, the pricing is quite stable. We don't we are not much into what I said earlier, the spot market as it were. The incremental deal signings, I think, greater support comes from the fact that revenue leakages and pricing increase Opportunities and contract renewals and all, they are much more easier to enforce in an environment like this compared to when the demand environment is more stretched. So it gives long term lift and support, but not a very meaningful short term flow through. On the second question on India, we are very right that it is not business lost Firstly, rather than it's more of business postponed.
And if things continue the way they are in the last few weeks, We should see an equally strong bounce back in the India market as it comes back to normalcy. So but we will wait and watch and see how it Devilat, but it is a one off kind of event.
So thanks and all the best.
Thank you. The next question is from the line of Apoorva Prasad from HDFC Securities. Please go ahead.
Yes. Good evening. So Rajesh, how should we think about Continental Europe as that's been the growth driver Earlier, and it appears the deal was a bit strong, but the region decelerated last quarter. And I think you mentioned in your earlier comments that You'll probably consolidate for another 1 or 2 quarters. Is that just base impact?
Or should we read anything beyond that?
It's the current quarter has significantly impacted the sequential 1.6 percent. On the year on year basis, it's 19 Sequential 1.6% is impacted by the fact that we grew 8.5% last quarter in Europe. So There is definitely that and that will have another 1 or 2 quarters of impact as we digest that and restructure that relationship. But overall demand environment in Europe continues to be very strong. We are seeing good traction In transformative deals, Europe has also used this opportunity to embrace Offshoring in a much larger way, which is also while it is much more it is Very encouraging from a longer term business model perspective.
We are also seeing parts of manufacturing Returned significantly in Europe on the industrial side, not as much on the automotive side. Automotive U. S, we have seen very strong recovery, but industrial manufacturing, we have seen good recovery, especially greater penetration into Many segments that we were earlier not that present in. And we are also seeing retail, I think I mentioned earlier. Travel and Transportation, once again, North America is leading the recovery, but we think that, that will come through.
And we are again seeing penetration into newer segments like Rail and other areas, which were traditionally we were not presented. So overall, I'm very positive about Europe
And
both on the demand side as well as on the revenue side.
My second question is for Sameer. You mentioned the specialty spend outside travel Seeing an uptick and hitting pre pandemic in 3 to 4 quarters. What do you think are offsets here in order to hold on to margins, Especially as we see attrition looking to head towards double digit?
So we would expect so the discretionary spend up taking would definitely be there. We'll have to rely on other levers, including growth being one of the key levers and also looking at probably differential pricing To offset that, but we would look towards all the measures available to help us sustain margins.
Okay. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Gaurav Matharia from Morgan Stanley. Please go ahead.
Hi, thank you for taking my questions. So two questions. Firstly, the book to bill ratio historically used to be 1x, 1.1x. And now It has been sustainably above 1.4 times in the last few quarters. Should one read this as a better revenue visibility over the coming quarter Versus the usual year or should one read that as a change in the average tenure of the deals?
That's my first question.
With some of the cloud and large scale technology transformation deal, Definitely, tenure has increased in the recent past in the last year or so. So there is definitely some amount of that factor at play. Beyond that, it's early stages yet To say what this is because as you know, we have been reporting this only for the last 2 years. And I think the ratios you're referring to come from other business models. So we'll have to wait and see what the stable ratios for our business model are.
Okay. Secondly, just want to understand the growth and transformation DGs In which we are winning our fair share, how the deals are originated? In the sense, historically, 1 would expect the consulting companies to be advising on some of these deals, which can flow through either to the same consulting companies or to the outsourcing companies. Just trying to understand How the difference in the origination of deals have happened for these kind of opportunities, which probably we were not participating a couple of years back?
Absolutely. Again, I'll go back to a couple of the examples that I actually touched upon in my opening comments. So if you look at traditionally on the M and A side, we used to participate on the Fag end of the transformation side, the technology integration per se, though that used to be a significant part of the value driver. You look at most M and A transactions, the most definite and called out value is the synergy benefit. And bulk of this energy benefit really comes from technology integration and rationalization of processes.
And we would participate At the at only the technology level. What we are doing is we are now proactively in scenarios like that Going to customers and putting out our point of view on what that strategy ought to be. And that is allowing us a seat at the table all the way up So the actually the day 1 planning and integration management office. So An example is the one that you spoke about where a biopharma company acquired a company in what is known as cosmetic Healthcare or cosmetic drugs. So these the portfolios were quite different.
There were parts of the portfolio that could be integrated, parts of the portfolio that requires a different supply chain and a different customer front end. Because of our deep contextual knowledge of what their systems were and what parts of their systems could be exposed To be able to support the new business models, we were able to put out a very proactive pitch to them saying that We can significantly accelerate this integration by following this strategy and accelerate The realization of the €2,000,000,000 synergy value that they had shared with the market that allowed us a seat at the table In terms of designing that and thinking through the options of that integration and being part of what is known as the integration management office And designing what is called day 1 operating strategy. And so it is In many ways, us actually becoming more aware of the knowledge that we have, being able to package and articulate it better And then being able to convert that into incremental services and opportunities up that chain or in the front end of that chain. So that's a classic example of what we are trying to achieve here, that building on our trusted relationships, Building on the contextual knowledge that we have and then reaching forward and investing in those incremental consulting capabilities And skill sets that are required so that we are putting out an integrated seamless proposition, which competes Against outside in proposition that a traditional consulting model brings about.
So that's the nature of the Change that we're seeking to engineer here and early signs of success are very encouraging.
Great. Thank you for the elaborate answer. If I may just squeeze in last question for Sameer. Your comment on stable margin outlook is for the full year, right, Sustained margin at the last year level, is that correct understanding? Thank you.
Yes, absolutely. I'm talking about long term structural margins to be sustained,
Thank you. The next question is from the line of Ruchi Burdein from BOP Capital Markets. Please go ahead.
Thank you for the opportunity. My question is to Milind. Could you share your thoughts about the talent market Good situation at present and some qualitative colors regarding the talent induction now which TCS is Abeng, maybe in terms of the mix between the fresher and the experienced professionals, the locations, are we doing more Offshore or we are committed to the on-site local hiring agenda even at the current moment.
Yes. So I think our model is very strong and we have been using this for many years now And that remains the same. Basically, our like we hired close to 40,000 trainees last From the campus, we will do the same thing, even more numbers this year. The overall market demand is job market is hot. So yes, there will be some impact on attrition.
But like I said earlier, it is something which is part of our operating model We will manage that. It will I don't think it will have an impact anything specifically on any parameters, business parameters materially. So and the fact that we are continue to hire not only in India, but we actually have strengthened our Overall, local hiring across the globe and that continues. For example, a very large number of trainees of the order of Between 2000,3000 trainees will hire in U. S.
Again this year. And similar numbers They are in APAC, in LATAM and we also are building now a training base in Europe and UK. So I think from a talent standpoint and our operating model standpoint and most importantly, our own internal talent development machinery, which is Yes, cheers. Is all of these factors when they come together, we actually create a solute create an operating model which can Deal with any of these external environment parameters in a very healthy manner.
Thank you.
Thank you. The next question is from the line of Girish Fine from Nirmal Bank. Please go ahead.
Yes. Thank you for the opportunity. Rajesh, I had a couple of questions on demand. You mentioned that last couple of quarters, you've not seen very I mean, you've not clocked last deals you had. The largest deal was €400,000,000 this quarter rather in 1Q and the previous quarter it was €400,000,000 The question is, aren't there large deals in the market Any more?
Or are you walking away from large deals because they do not meet your profitability criteria?
No, no, we are not walking away from large deals. I think we continue to participate. We are quite disciplined in our approach, but we are also tactically quite competitive. It is just the nature of deal closures that we have had and the kind of pipeline that we are focusing on. It's also Impacted by our increasing focus on the G and T kind of engagements and traction that we're gaining.
But as a strategy, we are focused on the full spectrum. And we absolutely are very Keen and participating in many such ones, whether it be the last one that we spoke about last quarter. Last quarter, I said $1,000,000,000 plus rather, which was the Deutsche Bank deal in Germany, we've spoken about in the past, the quarter before About Prudential deal in Ireland,
so large
transformative, even outsourcing led deals, we are Very, very focused on it. That's a sweet spot for us.
The second question had to do Pipeline, your order inflow numbers have been growing in the teens, high teens last quarter. So is the pipeline also growing at that same rate or is it growing faster? Or is it are your growth in the order inflow largely market share gain driven?
Our pipeline numbers are growing, but we are not directly sharing that because also, as I said, we are stabilizing these metrics. Our typical target win rates are different. We are taking a more liberal view on what we want to participate. So we are seeking to participate more than what we were traditionally seeking, and that is driving a much higher Pipeline and growth. But I wouldn't directly relate that to revenue.
So it's part of the overall
Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.
Thank you, operator. To sum up, the growth and transformation themes we have been talking about are only strengthening as evidenced by the robust growth in our major markets And across industry verticals as well as strong deal wins in Q1. With growth returning, we had robust client additions across all revenue buckets this quarter, which is an important measure of depth of our customer relationships. Our margins continue to be industry leading and we believe will sustain going ahead. It also gives us the wherewithal to continue investing in building the capabilities needed to expand our footprint in the growth and transformation opportunity.
On the people front, we had an all time high net addition in Q1. Our attrition continues to be low at this point, but we're watching carefully given the strong demand for Our PAN India vaccination drive has progressed well. Over 70% of our employees are now vaccinated at least with the first shot, we expect to cover all TCSs and their families by September. Thank you all for joining us on this call today. Enjoy the rest of the evening or day at Dut.
Stay safe. Thank you.
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.