Ladies and gentlemen, good day and welcome to the TCS Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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, operator. Good evening and welcome, everyone. Thank you for joining us today to discuss TCS's financial results for the fourth quarter and full-year, FY 2023 that ended March 31, 2023. 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 statement, quarterly fact sheet, and press releases are also available on our website. Our leadership team is present on this call to discuss our results. We have with us today Mr. Rajesh Gopinathan, Chief Executive Officer and Managing Director.
Hi, good day, everyone.
Mr. K. Krithivasan, CEO Designate and President.
Hi, good day.
Mr. NG Subramaniam, Chief Operating Officer and Executive Director.
Hello, everyone.
Mr. Samir Seksaria, Chief Financial Officer.
Hi, everyone.
Mr. Milind Lakkad, Chief HR Officer.
Hi, everyone.
They will give a brief overview of the company's performance, followed by a Q&A session. As you are aware, we don't provide specific revenue or earnings guidance, and anything said on this call which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. We've outlined these risks in the second slide of the quarterly fact sheet available on our website and emailed out to those who have subscribed to our mailing list. With that, I'd like to turn the call over to Rajesh.
Thank you, Kedar. Good morning, good afternoon, and good evening to all of you. In FY 2023, our full-year revenue grew 17.6% in rupee terms, 13.7% in constant currency terms, and 8.6% in dollar terms. Our operating margin for the year came in at 24.1%, net margin was at 18.7%. As you're aware, four weeks ago, we announced a leadership transition at TCS. I'll be stepping down from TCS, stepping away from TCS in September 15th. The board has identified Krithi, who has led our largest segment, BFSI, over the last many years, as the CEO designate. Today, the board has also announced that Krithi will be taking over the role of CEO and MD as of June 1st.
We are currently going through a structured transition plan, and for the purpose of this call, I will speak about the year gone by, and you will cover the forward-looking topics. I'll first invite Samir, Milind, and NGS to go over the different aspects of our performance during the quarter. Krithi and I will step in later to provide more color on the demand trends we are seeing. Over to you, Samir.
Thank you, Rajesh. In the fourth quarter of financial year 2023, our revenue was INR 59,162 crores, which is a year-on-year growth of 6.9%. In dollar terms, revenue was $7.195 billion, a year-on-year growth of 7.4%. In constant currency, our revenue growth in Q4 was 10.7%. For the full-year, our revenue was INR 225,458 crores, which is a growth of 17.6% over the prior year. In dollar terms, the reported revenue was $27.927 billion, a growth of 8.6%. Constant currency revenue growth for the full-year was 13.7%. Let me go over our financial performance. Our operating margin in Q4 stayed flat sequentially at 24.5%.
With supply-side challenges abating, we are able to further bring down our use of subcontractors in Q4. The benefit of that, other efficiencies, and some currency gains was canceled out by higher on-site costs. Our full-year operating margin was at 24.1%, a contraction of 1.2% over the prior year. In terms of headwinds, our annual wage increase set us back by 1.6%. The supply-side challenges during the year cost us another 1.4%, and travel expenses went up by 0.3%. This was mitigated by 0.5% of realization improvement, 0.5% of flatter employee pyramid, and 1.1% of currency benefit. Net in- income margin in Q4 was 19.3%, and for the full-year was 18.7%.
Our EPS grew 11.2% during the year. Effective tax rate for the year was 25.7%. It's worth noting that this has risen steadily from about 24% in FY 2019 as more of our facilities come out of SEZ tax benefits. Our accounts receivable was at 65 DSO in dollar terms, down one day sequentially. Net cash from operations was INR 118.64 billion, which is 104% of net income. Free cash flows were at INR 110.95 billion, and invested funds for March stood at INR 498.23 billion. The board has recommended a final dividend of INR 24 per share, bringing the total dividend for the year to INR 115 per share. For the full-year, including the buyback tax paid out at the beginning of April, the company shareholder payout was INR 45,602 crores. Over to you, Milind.
Thank you, Samir. We are honoring all the job offers and had a net addition of 821 employees in Q4, and 22,600 employees for the full-year, resulting in a closing headcount of 614,795. These numbers mark the full extent to which we had ramped up our current acquisition during the year to cope up with the unprecedented churn in the first half of the year. We onboarded over 44,000 freshers and our highest ever number of experienced professionals during the year. We continue to have a very diverse workforce with 150 nationalities represented, and with women making up 35.7% of the base. Our investment in organic talent development continued to deliver exceptional outcomes. In FY 2023, TCSers has logged 48.3 million learning hours and acquired 10 competencies.
Increased rigor and focus on external certifications has resulted in 53,000 TCSers acquiring certifications on hyperscaler cloud skills during the year, bringing the total number of such certifications to over 100K and making TCS one of the top two partners of the largest cloud providers. Our cohort of Contextual Masters continue to expand and is currently over 62,000 strong. We are investing in grooming them into the future transformational leaders by collaborating with Ivy League B-schools to create tailored leadership development programs for them. We are also helping our mid-level employees gain market-relevant skills so that they can grow faster in TCS. The curated programs we have designed for them have seen massive participation of over 90% of that cohort, with over 60% receiving certifications.
As more and more employees have been returning to work in the course of the year, we have been ramping up physical training to enhance learning outcomes. Over 80,000 employees have been benefited from such in-person training in Q4. Accelerate our industry recognized talent transformation platform has seen nearly 400,000 TCS record their career aspirations, of which 100,000 are progressing towards their aspired role. Similarly, our award-winning Elevate program, which links learning to career growth, has over 407,000 employees participating in it. Our LTM attrition in IT services was at 20.1%, down 1.2% sequentially, but still very high because it reflects the unprecedented levels of churn in prior quarters.
Our quarterly annualized attrition on the other hand fell by over 4% sequentially and by close to 10% from the peak level in Q2. Over to you, NGS, for some color on segments and production platforms. Over to you.
Thank you, Milind. Let me walk you through our segmental performance details for the quarter. All growth numbers are on year-on-year constant currency basis. From an industry vertical perspective, growth in FY 2023 was led by retail and CPG 19.7% and communications and media 14%. All other verticals showed growth in a narrow band around the company average. Technology and services grew 13.7%. Life sciences and healthcare grew by 13.3%. Manufacturing grew by 13% and BFSI by 11.8%. In Q4, customer sentiment across BFSI, retail and technology services verticals, particularly in Europe and U.S., was one of caution. We saw clients deferring newer initiatives which were not critical and in some cases completely halt discretionary projects. Anxiety around the stability of the banking sector in March also added to the uncertainty.
Consequently, growth decelerated across all verticals. Q4 growth was led by retail and CPG, which grew by 13%, and life sciences and healthcare grew by 12.3%. Other verticals grew in single- digits. Technology services by 9.2%, BFSI by 9.1%, manufacturing by 9.1%, communication media by 5.3%. In terms of geography, full-year growth was led by North America 15.3%, U.K. 15%, and Continental Europe 11%. In emerging markets, Latin America grew 17.3%, India by 14.6%, Middle East and Africa by 7.8%, while Asia Pacific grew by 7.6%. The increased caution in Q4 resulted in a deceleration in many markets, but not in the United Kingdom.
Q4 growth was also led by U.K., where growth accelerated to 17%. North America grew by 9.6%, while Continental Europe grew by 8.4%. Among emerging markets, Latin America grew 15.1%, India grew by 13.4%, Middle East Africa by 11.3%, and Asia Pacific by 7.5%. Our industry-leading portfolio of products and platforms had a very good quarter. ignio, our cognitive automation software, signed up five new customers and 12 clients went live in Q4. Economic uncertainty is further driving customers to accelerate efficiency through automation and resulting in increased investment in AIOps and AI ML technologies. ignio continued to be well-positioned with an end-to-end platform and point solutions for monitoring AI ML analytics, cloud hybrid infrastructure coverage, and so on.
TCS BaNCS, our flagship product suite for financial services, had two new wins and six go-lives during the quarter. For a leading savings and investment company in U.K., we successfully completed the migration of annuity books sold by the customer to a specialist insurer onto TCS BaNCS, and also completed the first phase of migration from a heritage landscape to a public cloud. Our Quartz blockchain platform has partnered with Bitcoin Suisse to build a next-generation crypto financial technology platform supporting the latest journey of becoming a leading global crypto financial services provider. In life sciences, we launched a new solution in TCS ADD, our advanced direct development platform. TCS ADD Medical Writing is a one-stop AI-assisted solution for fast intelligent authoring and review of regulatory and scientific documents for drugs and devices. TCS OmniStore, our AI-powered universal commerce suite, had one go-live this quarter.
TCS HOBS, our suite of products for communication service providers, had one new win and four go-lives. TCS TwinX, our digital twin solution, had three wins and one go-live. TCS iON had 23 new wins and three renewals in quarter four. During this period, it served over 54 assessment customers and administered assessments of 18 million candidates. Over 1,900+ corporates leverage the TCS National Qualifier Test now as their entry-level recruitment platform. MasterCraft and Jile won 26 new clients in Q4. Let me now go over our client metrics. As you are aware, our customer-centric business model rests on our ability to continually expand and deepen our client relationships. These metrics provide a measure of our progress in that journey and a validation of the strategy. In Q4, we added two more clients year-on-year in $100 million-plus band, bringing the total to 60.
13 more clients in the $50 million band, bringing the total to 133. 23 more clients in the $20 million-plus band, bringing the total to 291. 22 more clients in the $10 million-plus band, bringing the total to 461. 27 more clients in the $5 million-plus band, totaling to 665. 59 more clients in the $1 million-plus band to a total of 1,241. Over to Rajesh to speak on demand drivers and during the quarter.
Thank you, NGS. In the segmental commentary, NGS spoke of the cautious stance that many of our clients have taken, particularly in North America and Europe. This has resulted in the dichotomy of clients hitting the pause button on ongoing discretionary projects and deferring new non-critical projects, affecting our revenue growth during the quarter across most industry verticals in North America and Europe. At the same time, we saw clients launch more new initiatives oriented towards cost optimization or strategically important projects, resulting in a very strong deal flow and pipeline replenishment. In terms of demand trends, we saw a spike in operating model transformation deals. In FY 2023, we signed 29 large operating model transformation deals, business as well as IT operations, compared to 18 in the prior year. We also continue to see vendor consolidation and multi-service deals.
TCS Cognix, our suite of over 600 pre-built automation components, is gaining traction because it significantly accelerates the operations transformation and helps clients realize their ROI much earlier. All the more relevant in the current environment. In FY 2023, Cognix helped win over $1.6 billion of TCV. Let me share two examples of operations transformation executed using Cognix. A U.S.-based multinational oil field services company engaged TCS to build a future-ready finance organization. We deployed TCS Cognix to leverage intelligent automation and solve the problem of intercompany mismatch of financial entries arising from disparate and siloed operations across 450-plus business entities and 80 countries. The program helped substantially bring down instances of unreconciled entries, improve key metrics visibility, and speeded up key processes.
Similarly, a U.K.-based telco chose TCS as its strategic partner to re-revamp its IT infrastructure backbone for resilient, always-on communication service. TCS leveraged its deep contextual knowledge, TCS Cognix, and MFDM to deliver the transformation. This resulted in a robust operating model that delivered higher levels of certainty with uninterrupted and enhanced services for its customers. The superior quality of service contributed to industry-leading customer satisfaction, improved NPS, and lower churn. In Q4, we won an all-time high number of large operations transformation deals. Here are a couple of examples. TCS was selected by IHG Hotels & Resorts, one of the world's leading hotel companies, to drive enterprise process automation across several IHG businesses and business verticals, including finance, travel agent commission, revenue compliance and audit, revenue services, sales, and HR.
The program aims to digitize and automate business processes to drive efficiencies and cost optimization across the enterprise to better enable enterprise resiliency and reliability. Similarly, Delta Air Lines has partnered with TCS on solutions around cognitive business operations and cloud management. The other driver is cloud transformation, which remains very strong focus area for our clients and key growth driver for us. During the year, clients engaged us to take up this more complex, bigger workloads and accelerate the modernization and migration to the cloud. This trend continued in Q4, and we won several new deals around this theme. Let me share a few examples of recent cloud transformation engagements. A leading global software company has partnered TCS to enable its SaaS business model and GTM strategy. TCS is helping modernize products across four lines of business and make them hyperscaler-ready.
Leveraging its thought leadership, contextual knowledge and IPs like TCS Cloud Exponence, TCS Cloud Assurance, et cetera, the ecosystem of hyperscaler partners, TCS has helped migrate 32 SaaS solutions to the cloud. This migration is helping the client make their product suite cloud vendor agnostic, thereby more attractive to their end customers. A large U.S. commercial property and casualty insurance company selected TCS for its multi-year application modernization and cloud migration journey to gain competitive advantage and business resilience. TCS has quickly modernized their critical applications and seamlessly migrated them to the cloud. This has rendered the client's application stack future-ready and ready to support new business models or product rollouts. The modernization has also improved business resiliency with 99% improvement in application availability and enhanced security.
Flight Centre Travel Group's 30-plus travel companies across the world faced varying pace of travel recovery, creating a need for flexibility and ability to scale fast. TCS thought leadership and advisory helped Flight Centre harness the power of cloud with a unified global approach. Leveraging its contextual knowledge, TCS transformed critical business functions on the new multi-cloud platform and implemented TCS Cloud Exponence to provide orchestration and 24 by 7 management. Flight Centre's new technology backbone has enhanced its resilience, improved its time to market, and gives it the ability to drive business transformation and capitalize on new opportunities. Moving on to growth and transformation, clients continue to invest in new initiatives designed to support their business growth strategy, either through innovative business models, new services, or by targeting new market segments using technology.
A large food retailer in the U.K. partnered with TCS to implement a technology initiative critical to its asset-light growth strategy of expanding through franchise stores. TCS leveraged its domain expertise and contextual knowledge of the client's application and IT landscape to design a new platform that brings franchise stores on par with owned stores through advanced automated multi-level forecast and replenishment capabilities to streamline inventory across the supply chain. It provides greater visibility of sales and stock movements, agility in introducing new products, and even flexibility to convert owned stores to franchise stores. The new platform enables rapid onboarding of new existing franchise stores and enabling the client to accelerate the expansion of its franchise network and drive growth.
In Q4, we won a new deal from Bridgestone Americas, a leading U.S.-based tire manufacturer of an existing client. They have engaged us, so transform and expand their subscription-based mobility offerings globally. TCS will help define a global template for the subscription business and catering to the different lines of business and enable new business models across different markets, driving the company's global expansion. I'll now invite Krithi to talk about demand trends in BFSI sector and our order book. Over to you, Krithi.
Thank you, Rajesh. The banking and financial services industry is the largest spender on technology, that reflects in its outside share of revenue within TCS services. While we saw some softness in BFSI in North America due to discretionary spending being put on hold, all of the demand trends that Rajesh spoke about are very visible in BFSI as well. Clients continue to push ahead with cloud migration, operations transformation and other strategic GNT initiatives. As the largest provider of IT services in the banking and financial services domain, with deep domain expertise across the end-to-end financial services value chain, TCS is deeply entrenched in the sector's GNT initiatives. Let me begin with a couple of examples of product innovation. A global information services company partnered with TCS to launch a new commercial fraud solution for banks and other financial services firms and drive new revenues for the client.
TCS leveraged its deep domain knowledge in this area to design a comprehensive commercial fraud solution that blends consumer and business datasets to provide ML-powered predictive insights on the legitimacy of businesses, their ability to repay and the likelihood of credit abuse. The solution offers a much more comprehensive set of capabilities compared to competing products, resulting in good uptake of the solution. Within the first few months since its launch, the new solution has been adopted by the top 10 banks in the US, and customers have reported a 62% improvement in fraud detection. A Swiss-headquartered global bank partnered with TCS to transform its new card launch process to gain market share and drive growth.
Leveraging our expertise in human-centered design thinking, we designed a solution with an interactive UI and automated workflows that make it easier for the bank's credit card business to create and launch new products in the market. This has enabled the bank to launch new products 70% faster. Moreover, the reimagined product design workbench is resulting in better, more competitive products and has driven a 10% increase in new-to-bank customers. A large European bank partnered with TCS to transform its enterprise-wide credit risk management. It was using multiple risk models across its different portfolios, resulting in greater complexity, slower decision-making and higher compliance risk. TCS Contextual Masters collaborate with the bank's teams to conceptualize a new centralized cloud-based risk management platform that deploys the most appropriate risk model for each portfolio, insight ingest data from across enterprise, and determines the creditworthiness of the borrower.
The simplified landscape and centralized risk control framework has enhanced regulatory compliance. Processing time for consumer credit requests is down from 10 days to two, enhancing customer satisfaction and driving growth. Instant provisioning of verified risk parameters is also helping improve certainty in credit origination process. Enhancing customer experience on digital channels continues to be a key thing. Here is one example of that. TD Bank Group is working with TCS to continue to transform the bank's public-facing digital assets. TCS will leverage its deep contextual knowledge and co-innovation model to assist TD to launch new capabilities designed to help deepen the bank's relationship with its customers, enhance the bank's self-service features, and empower its customers and advisors with easy access to insights and improved tools. This is expected to help TD enhance its agility, deliver richer customer experience, and drive greater digital adoption among its customers.
Lastly, an illustration of how large banks are embedding ESG criteria into their businesses. A Europe-headquartered global bank engaged TCS, its strategic partner, to develop an ESG data distribution platform to support its regulatory reporting and its own sustainable finance framework. Leveraging our deep domain knowledge in the area of ESG and sustainable finance, the TCS team designed a new cloud-based solution that makes high-quality ESG data available to internal stakeholders for more accurate insights on sustainability and ESG performance of their deals and products. Its sophisticated taxonomy management capability account data taxonomies of different jurisdictions, simplifying regulatory compliance and reporting. Going on to deal wins. We had a strong order book in Q4 with a TCV of $10 billion, a book-to-bill ratio of 1.4. This includes one mega deal we signed in February with The Phoenix Group.
Our Q4 order book contains an all-time high number of deals with TCV above $50 million. It is a well-distributed set of deals across all verticals and geographies. The BFSI TCV was at $3.1 billion, while the retail order book was at $1.3 billion. The TCV of deals signed in North America stood at $5 billion. For the full-year, the order book was at $34.1 billion. While this is similar to the order book at the end of FY 2022, our FY 2023 order book is less lumpy and has more deals in the $50 million-$100 million TCV range. In other words, we have been able to build up an equally large order book without as many mega deals in the mix.
This implies faster revenue conversion compared to last year's order book and gives us better visibility into growth next year. With that, we can open the lines for questions.
Thank you very much. We will now begin the question- and- answer session. Participants who wish to ask a question may press star and one on their touch-tone phone. If you're using a speakerphone, please pick up your handset while asking a question. This is required to ensure optimum audio quality on the call. Should a line have any disturbance, you may be asked to return to the question queue if you do not have a clear connection. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Ankur Rudra from JP Morgan. Please go ahead.
Thank you. Rajesh, thank you so much for your leadership and insights for over the last 40+ quarters. We will miss you. Krithi, congratulations on the innovation and best wishes, you know, for the period ahead. In terms of questions, I think the first one probably on demand. There appears to be a sharp change in demand commentary, this quarter, besides the print disappointment. Could you elaborate how much of the slowdown and change in sentiment came after the events of the last three or four weeks of March versus what was already in motion? On a related note, you obviously have the highest exposure to the banking industry and have seen several cycles. Where is the visibility on demand and revenues now for maybe the first quarter in FY 2024? If this uncertainty gets prolonged, how do you expect client priorities and behavior to change?
Thanks, Ankur. Let me take the first part. Then I'll have Krithi answer both BFSI and the demand forward. If you look at where the impact has come from, I would say that we shared with you on the last year, last quarter's commentary, beginning of this year, that while there has been softness in U.S. in Q3, our Q3, calendar Q4, we expected that it will significantly pick up in the new year, that it is just, you know, adequate caution on the client's part, which was resulting in the softness in Q3. What has happened is that expectation has not borne out. It has in fact turned incrementally even more negative. That sentiment trigger obviously was the to a large extent what happened on the banking side in U.S.
It has also been across the board. If you look at areas like manufacturing, especially on the process and industrial side, that is reflecting the weakness from a more global perspective. Whereas areas like retail in U.S., that's reflecting the sentiment of the local market and especially on the expectations on what's going on on the credit terms. Going back to your question, the change is more in terms of the U.S. market. We expected it to come back strongly in the new year. That has not happened, and that's the scenario that we are in. The weakness is not just coming out of BFSI, it is coming across sectors in North America. That Krithi want to talk about BFSI and expectation forward? Yeah.
Absolutely. Like Rajesh mentioned, there's been a weakness in BFSI because of the market uncertainty in last quarter. As we mentioned, the order book has been quite strong and in fact, one of the highest order books we have in the recent past. Like we also commented before, the order book is less lumpy and it has more smaller deals or short duration deals, which means the revenue recognition could be even higher. Having said that, like, we are not going to give up guidance for immediate quarters, because uncertainty is still there and clients are still looking at their priorities and things they want to spend. We are comfortable with the medium to long- term spend, looking at our order books. Demand still is strong and, order book quality is good. That gives us the confidence that medium to long- term things will be stronger and better.
I think one sort of re- question within also the question was, do you think, if the uncertainty gets prolonged, client priorities and behavior might change?
It's obvious. If the uncertainty continues, clients will also continue to weigh their priorities, right?
Okay. As a follow-up, maybe on the strategy, you know, TCS changes of guard have been very rare and very smooth historically. Could you comment on any change in strategy, both because of the change in guard and the change in demand sentiment at the moment?
We actually spoke in the previous press conference also. Leadership change doesn't mean a strategy change. Like all of us have been working in this organization for so many years, and all of us have a good understand. Whatever strategy Rajesh put in place was also a collective leadership decision on how we want to go forward. I don't expect a drastic strategy change. We'll be tweaking what we do based on the market situation. But our strategy is anyway based on client centricity and yeah, employee empathy. Those two are the basic pillars. We'll continue to drive home our strategy based on that.
Thank you. This is maybe the last question on technology. You know, curious to hear your thoughts as a leadership group on how generative AI changes the nature of technology consumption and if it impacts the bargaining power for clients or for TCS over the medium term?
I'll turn this over to our ChatGPT guru, Mr. NGS.
Hi, Ankur. NGS here. I think, you know, generative AI as a technology is very interesting. We have been working on it for some time, and we have done some pilots internally. I think it has the potential to live up to the expectation that every area that can be technology-driven can be technology-driven, number one. Number two is that I think, you know, it can further accelerate the adoption of technology, including those which are being at the frontier areas of innovation. Right. We are quite excited about it, and we believe that, you know, in many quarters ago, I think one of these...
These analyst calls, I mentioned that AI/ML has the potential to fundamentally change the way that we deliver software to our clients. A significant part of what we are doing today can get automated, can get generated. We fundamentally, you know, we are essentially a tools-driven organization. We have developed MasterCraft decades ago, which is a software that generates software. I think we are quite excited at the opportunity of delivering proven code. Either you can call it a low code, no code, zero code, or a generative AI kind of a software. The result is a software that generates software. I think we'll build such an expertise around that capability, around the tool set and stay relevant to our clients' expectations.
Anish, thank you so much for the call. Rajesh, best of luck for future endeavors. Thank you.
Thanks, Ankur.
Thank you. We have our next question from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management. Please go ahead.
Yeah. Krithi, firstly, congratulations and all the best in your new innings. A couple of questions from my side. The prevailing industry perception seem to be that because of macro uncertainty, deal mix is shifting towards cost optimization, which are typically large deals that may take longer timelines for revenue conversion. Your prepared remarks do suggest the contrary about the order book that got built during FY 2023. How do we read this contradiction?
I didn't get you. Sudheer. See, the cost optimization deals need not be large and very, very often because customers look at immediate opportunities. Because like in terms of uncertainty, when they want to control cost, they also want to have something quick. The deals are cooked in a way that they can also get benefits immediately. It's like we discussed before, our order book is actually very less lumpy. Like we are excepting for that one large deal or it is a very number of medium to small size deals. That gives us the confidence that there will be a greater revenue recognition faster. I don't know whether, like, we can say that always cost and optimization deals will be larger. There will be some of them will be larger, many of them need not be larger.
Got it. You made an interesting point in the press meet that many of your clients, which are the large U.S. banks, are benefiting because of the recent banking issues and the consequent deposit flight. If the banking situation doesn't materially escalate from here on and as and when the negative sentiments recede, could this be a net positive outcome for TCS over the next 12 to 18 months, given some of the key clients are actually becoming stronger with the further possibility of M&A integration-related spend?
That should be a fair assumption, Sudheer. Like, if the banking sector improves, and we have a very strong presence in the banking sector, and we would continue to work with our clients closely to bring in solutions by which they can leverage the market conditions and leverage the extra deposits they get. I would say that's a fair assumption.
Thanks, Krithi. Rajesh, all the best for your future endeavors.
Thank you.
Thank you. We have our next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Thank you. Thank you for the opportunity. Thank you, Rajesh, and all the best for your future endeavors. Congratulations, Krithi, for your new role. The first question is, just the extension to what Ankur has asked. Looking at your commentary, it seems that there could be a near-term pressure, or the caution from the client side in terms of the IT spend. In FY 2024 could be slightly different, where growth could be back-ended versus front-ended, which is seasonally the trend in most of the normal years. You believe FY 2024 may have a soft growth across all the 4 quarters?
Sandeep, I don't want to comment on the overall FY 2024. As we called out, Q4 has been soft because of the uncertainties, and the uncertainties are not fully resolved. At the same time, we are comfortable with the order book we see, and we also commented on the tenure of the order book in terms of the short duration of the project. That gives us the confidence that many of these projects will get done in short period of time, and we'll be able to realize the revenue. We cannot take away the fact that there could be some transformation projects or discretionary projects that could get canceled if there is a further deterioration of the sentiment. These are all the facts that we are working with.
We'll continue to be close to our customers. We don't want to comment on how Q1 or Q2 is going to be or how FY 2024 is going to be.
Okay, fair enough. Just a question in terms of margin. Can you explain what was the nature of the on-site cost pressure during Q4? Also question about FY 2024 margin, because FY 2023 margin has been impacted by supply side issue. With supply side issues abating, whether it is fair to say the margin management could be better in FY 2024 versus FY 2023, or it is hard to say because of the global pressure, especially on the inflation side, which can impact the on-site wage hikes?
On the current quarter, the on-site inflation mainly on the manpower side. Some part of it coming on account of replacement of the higher cost BAs into our employee pool. That's practically on it, and some part of it on increased hiring thing. Coming to FY 2024, as you rightly called out, we'll have a set of headwinds, and we'll have to look at overall set of levers which can help us suppress or address those headwinds. Given the current uncertainty, it's difficult to give a timeline. Yes, the way we are exiting on the BA cost side of it, that should be helpful in the... We should be able to further double down on some of the higher cost labor arbitrage kind of thing out there.
Okay. Thank you. Thank you and all the best.
Thank you. We have our next question from the line of Abhishek Kumar from JM Financial. Please go ahead.
Yes. Hi, good evening. I just wanted to understand what is driving the growth in the U.K. market. You know, I think Rajesh, you had mentioned in the last quarter that unlike continental Europe and U.S., U.K. there is some clarity. They had moved decisively towards the cost takeout project. Just trying to tie it up with TP's comment that cost takeout projects may not be longer gestation period projects. Is that something the clarity in terms of what they need to do reflecting in better growth in U.K.? If that is the case, would that be the template that U.S. markets also can follow once there is some sort of clarity, either way, either on the discretionary side or on the cost takeout side, things will quickly come back and the growth can resume?
Yeah. Abhishek, U.K. is exactly what you described and what you've said in the past, that the market is reconciled to the operating environment and knows that it needs to do something because externally nothing is going to change. It's not just cost takeout, transformation projects are also ongoing. Last quarter we had spoken about a very large telecom deal. That is a combination of cost takeout as well as a massive movement onto the cloud to be able to completely, you know, make their whole enterprise stack agile so that they can introduce new products faster and respond to market conditions differently. Similarly, in the utility sector, we have spoken about how the market regulator is moving to introduce greater competition and introducing greater agility there.
We worked with the Rail Delivery Group, which is another regulator on the transportation side, which is also moving massively to leverage data and introduce greater agility and in the way data is used to be able to actually improve overall efficiency of the system and to allow for newer entrants to come in and to offer services. It would be wrong to characterize U.K. market as a purely cost takeout market. U.K. market is a market where both cost takeout, structural cost basis are being reset, but significantly new competitive forces are also at play as industry structures are being actively worked on. All, we are participating very strongly across the board.
As you know, we are the largest services provider in the U.K. market by a margin, and that is playing to our advantage because our ability to shape that and to participate in is very significant. Interestingly, it is happening not just on the private side, but on the public sector and the semi-public sector side also, where also our participation is very high. U.K. is a great story about technology being part of a solution for any such scenario. Now, will that play out in U.S.? That depends on the nature of. U.S. always has been at the forefront of leveraging technology. U.S. companies, as an overall ecosystem are also much more dynamic, much more decisive in moving and much more risk-taking. The base, starting base is very different.
Does U.K. provide a playbook? No, not on a like-to-like basis, but conceptually, we have, our entire business model is predicated on the fact that exactly what we're seeing in U.K. is likely to play out in market after market, where technology leverage will only keep on increasing rather than decreasing in any scenario, both a challenging scenario or a growth scenario. What we need to do is to make sure that our service portfolio is fully, you know, able to participate on both sides of the spectrum simultaneously.
Oh, that's very insightful. Thank you and all the best.
Thank you. We have our next question from the line of Pankaj Kapoor from CLSA. Please go ahead.
Yeah, hi. Thanks for the opportunity. Rajesh, wish you the best, and Krithi, congratulations. Can you give some color on how the deal velocity panned out during the quarter? Did you see clients delaying decisions on deals that would have otherwise closed by, say, March and in the last, say, 15 odd days? If possible, can you quantify the impact of that?
Krithi, actually, deal velocity has not reduced. In fact, if anything, it has accelerated, especially in Europe, as I pointed out. We have seen significant acceleration in decision-making on deals in Europe. We had called out delays earlier. In fact, in this quarter, we have seen an acceleration. If you look at deals greater than $50 million, we have closed more deals in this quarter in Europe than what we did in the first three quarters of the year. Is that just a catch-up to things that had got delayed during the year? We'll have to wait and see. The pipeline, and that also we had shared with you in the past, that in Europe, though the decision-making is slow, the pipeline buildup has been very steady and very encouraging.
We'll have to wait and see how it translates in next two quarters. This quarter, decision-making in Europe has increased. It's very encouraging because initially we told you about how the sentiment has turned incrementally positive in Europe, both on their overall economic side, coming out of having dealt with the winter positively, receding fears on an energy crisis and also increasing optimism on the China scenario. That positive sentiment has resulted into the deal closure or rather we are seeing now deal closures increasing. We'll have to wait and see how it turns out in the rest of it. U.S. also, our TCV has been very strong and it has been strong through the quarter. Even March has been coming in very strong.
It is coming across both existing customers as well as new customers. In fact, in this year, U.S. new customer TCV has been record high. There is nothing that shows that deal flow has actually slowed down. In fact, as I said, one specific market, Europe, it is actually accelerated.
Is it fair to assume that, events of last few weeks, that actually had an impact more in terms of client just pausing the ongoing project, et cetera, which is the reason why we saw the impact on the reported revenues, but the deal decision-making has not been impacted?
Absolutely, Pankaj. Let me, narrowly answering the question, that's exactly right. The revenue impact is discretionary projects being deferred, and, you know, or project expected startups getting delayed. Large scale project cancellation. We have not seen deal flow slow down. It's a very immediate short-term kind of impact that we've seen play out over the last couple of months. But it requires close watching to see how it develops through the course of next quarter.
Of course. Thank you. Samir, my question was on the, again, on the higher on-site cost. You mentioned subcontractor replacement was a reason. I'm just wondering, wouldn't that be already baked in when you spoke of the 25% exit margin in the previous call and the currency tailwind that we saw was not anticipated? If you can just help understand what was the math there.
The on-site cost replacement, it was an answer in terms of what the on-site class, cost replacement was. It was not just the BA part, it was additional hiring also. Second, in terms of from the 25%, why we ended up here is not just the cost structure part of it's more about the macro environment and customer sentiments getting increasingly negative. More so from where we started off at the beginning of the calendar year to what we saw into February and into March. When that happens, the discretionary projects getting paused has an immediate impact on the revenues, but the cost remains steady in the short term. That's where we couldn't exit at where we targeted for.
Understood. Thank you and wish you all the best.
Thank you.
Thank you. We have our next question from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question. First question, just going back to the conversion of the order book to revenue, just to get it a little better, is it fair to say that last year you ended the order book on TCV basis, particular growth, your ACV growth would have been slower than that? This year in FY 2023, your ACV growth would have been better than the TCV growth, which gives you more confidence on your faster conversion of order book to revenue for next year? Just trying to understand, is that a correct understanding?
Gaurav, we don't comment on ACV. I don't want to drag into it, get dragged into it. From perspective of the composition of the order book this year, it is more weighed towards the medium-sized deals than the mega deals. You know, the $50 million-$100 million, that range has been a larger constituent rather than the $500 million-plus book.
Got it. Secondly, Rajesh, you mentioned that the sentiment in Europe has kind of improved and that has reflected in better velocity of the deal flows. Is it fair to say that at least for the next two quarters, the growth driver for overall revenue will be more led by Europe than the US?
I think it's a stretch because, I don't know. We'll have to wait and see how it... Europe is also complex, especially BFSI. Do you want to comment on BFSI at all?
Yeah. Gaurav, if you look at Europe, the different regions play out differently. Like, we within BFSI, if you take, we are seeing good traction, good, this quarter also we had a good run in Nordics and Benelux. We are, of course, continentally, Central Europe is slightly complex and difficult. So, to make a one generic statement that Europe would turn out to be more positive, will not be appropriate. Like, each vertical and each region is going to play out differently. And overall, like, we have to understand it's coming from a... It, it, sentiment is improving. Like, it's we are not saying that it's become strong overnight to say that that will drive our growth. It's improving is what I can say.
Got it. Last question. Rajesh mentioned about the kind of reorienting the operating model to adjust in line with the changed macro conditions from a cost structure perspective. Typically, it takes about a quarter or 2 to kind of adjust that or make that adjustment within the operating model. Is that a fair assessment from a margin perspective, in the sense that it takes about a quarter or 2 to reflect that the cost structure and the better margins, you know, from overall company standpoint? Thank you.
Gaurav, actually, let me explain what I meant. I kind of carried over from the discussion in the press conference. As you know, our reliance on contingent labor has significantly increased, mainly because of the various travel restrictions and supply side challenges in the local market. Combination of high demand, significant dislocation on the supply side had resulted in us significantly increasing our dependence on contingent labor. We are structurally, you know, and systematically moving to go back to our more preferred operating model, which is about 5%-8% of our workforce being contingent from a contingent labor perspective. This is also very important for us to ensure quality of delivery and to manage the overall experience at the customer level.
We are in that process, and we have been systematically executing that. We are about 25% lower than our peak contingent labor reliance in the North America geography. We have quite a distance to go to bring it back to our desired operating range, and we will continue to do that. That, we will, as I said, we will rely on improvement on the travel side of it to bring back that to our common level. Once we have that, we will again, you know, have a greater ability to flex up and down depending on where the demand is. That's where I was coming from. This is a multi-quarter journey, and it is not purely driven from a cost perspective.
It is as much also driven from stability and resilience of our overall operating model. We are executing on that, which positions us well. If the demand spikes, we anyway have the base load there, and we can go back to, you know, more immediate supply sources. If it reduces, we will keep on systematically bringing this down, which typically is incrementally more costly than our long-term employee base.
Got it. Thanks for the explanation, Rajesh. All the best for your future endeavors, and congratulations, Krithi. Thank you.
Thank you, Gaurav. Thank you.
Thank you. We have our next question from the line of Ravi Menon from Macquarie. Please go ahead.
Thank you. This is just similar to what Pankaj asked, you know, that, the way the deal awards have come through, you know, it shows that demand environment has not really changed, but through the quarters, revenue growth has, it has been, become pretty negative. Are you seeing this change in pipeline or delays in decision-making that suggests that this negativity is not just temporary caution? Should we think about this as something similar to furloughs, and we will see this come back in a quarter or two?
Ravi, as I said, as of now, no. We'll have to wait and see if it persists, how it will turn. We'll have to wait and see. As of now, we have not seen any significant change on the deal pipeline side of it. The actual pipeline continues, the pipeline replenishment continues to be quite strong. We'll have to carefully watch how the decision-making plays out in the next quarter or so.
You had talked last quarter of a more normalized annual gross hiring of around 125-150,000 people as attrition normalizes. Is that still the range you're working with?
See, we don't call out on gross hiring for the year. I think in general for the campus hires, we, I talked about, you know, 40,000 campus hires and the demand for the lateral hires will be dependent on the demand from the business every quarter.
Thanks. One last follow-up, if I may. You know, it looks like, you know, you could have taken up the utilization, but you didn't opt to and let the natural attrition, you know, you chose to still replace that. You know, that, why would you do that when you know you don't really have much visibility into the demand?
I think it's a mixture of both. We are doing both. We are actually developing, doing rigorous talent development of our people coming in from the campus. At the same time, we need the people from the market, and that is how it is playing out, you know. We need both.
Ravi, the BA side of it, which I explained earlier, is also part of that. We're not just replacing that attrition, we are also replacing on the BA side.
Thanks a lot. Best of luck. Thanks, Rajesh. It's been great having you. Pradeep, welcome aboard. Hopefully, you know, this should be an easier time than what Rajesh had. Thank you.
Thank you. Thank you, Ravi.
Thank you. We have our next question from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Yeah. Hi. Thanks for taking my question. Just a couple of questions from my side. Last quarter we mentioned that the growth in the retail vertical last quarter was primarily driven by the travel vertical, travel sub-vertical. Does that continue to be the case this quarter as well? How is the core non-travel part of the retail function, so let's say the FMCG and the CPG part of the business faring on an overall company basis? My second question was on the overall scenario at this point of time. I mean, I'm sure that TCS management has been through these similar kind of downturns before. We've had many of them before. It's been through them and come out of that shining as well.
Typically in these kind of economic or let's say slowdown or downturns, do clients end up asking for pricing discounts? On the contrary, do competitors resort to some pricing undercuts, which basically force us also to maybe follow them, which could impact the profitability or the growth or both in this kind of a scenario?
Sorry, I was on mute. On the retail side, we were, the TTH continues to do well, but the outperformance is not purely driven by that. Especially in this quarter, most segments have done well. Essential retail has done well. Some part of the discretionary and fashion has been challenged. North America retail has been quite weak, whereas North America travel continues to do well. Overall, most segments are doing well. Travel and hospitality doing outperforming within that, and North America retail underperforming. That's the way to understand this quarter's retail side of it.
On the pricing side, earlier also we have had this in discussion, that in our industry, unlike a product industry, discounting and price undercutting is not as easy because incremental deal is one thing, but once you offer a price, it's also very visible across your entire customer universe. The ability to do that in a very systematic manner is quite restricted. It's a much more disciplined industry in terms of pricing. We'll have to. That's what's playing out. We'll have to keep watching it. We will stay tactically responsive and, you know, in the market, and we'll deal with it as it comes.
Got it. Got it. Thank you so much, sir. Thanks for taking my questions, and wish you all the best.
Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to management for the closing comments.
Thank you. We are pleased with our FY 2023 performance, growing at 17.6% in rupee terms and 13.7% in constant currency terms. The steadily deteriorating macro environment has meant a decelerating second half. Our Q4 revenue growth was 16.9% in rupee terms and 10.7% in constant currency. However, we have had a very strong order book with all-time high number of large deals. Our operating margin in Q4 was flat sequentially at 24.5%, and our net margin was at 19.3%. On the people front, LTM attrition in IT services further fell to 20.1%. I want to thank all of you for all the positive sentiment that is in. It's been a absolute pleasure interacting with all of you and anticipating and reacting to your questions.
Thank you for that goodwill and the attention that you've given us. With that, we wrap up our call. Thank you all for joining us today and enjoy the rest of your evening, day, and 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.