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, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. 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 financial results for the first quarter of fiscal year 2024, that ended June 30th, 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 statements, quarterly fact sheet, and press releases are also available on our website. Our leadership team is present on this call to discuss our results. We have with us today Mr. K. Krithivasan, Chief Executive Officer and Managing Director.
Good evening. Good morning to everyone.
Mr. N.G. Subramaniam, Chief Operating Officer and Executive Director.
Hello, everyone.
Mr. Samir Seksaria, Chief Financial Officer.
Hello, everyone.
Mr. Milind Lakkad, Chief HR Officer.
Hi, everyone.
Our management team will give a brief overview of the company's performance, followed by a Q&A session. As you're 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 Krithi.
Thank you, Kedar. Once again, good morning, good afternoon, good evening to all of you. I would just want to start by saying how happy I am to be interacting with all of you in my new role, and hoping to meet you all in person sometime in future. From a quarterly perspective, it is very satisfying to start the new year with a string of marquee deals and a good performance, given the current circumstances. In Q1, our revenue grew 12.6% in INR terms, 7% in constant currency terms, and 6.6% in dollar terms. Our operating margin was at 23.2%, and net margin was at 18.6%. I'll now invite Samir, Milind, and N.G.S to go over different aspects of our performance during the quarter. I'll step in later to provide more color on the demand trends we are seeing. Over to you, Samir.
Thank you, Krithi. In the first quarter of 2024, our revenue was INR 59,381 crores, which is a YoY growth of 12.6%. In dollar terms, revenue was $7.226 million, a YoY growth of 6.6%. In constant currency, our revenue grew in Q1 at 7%. Let me now go over the financial performance. As in prior years, we rolled out a salary increase across the entire workforce, with effect from April 1st, resulting in a margin impact of 2 percentage points. By reducing our use of subcontractors and through other efficiencies, we were able to mitigate some of that impact and report an operating margin of 23.2%, a contraction of 1.3% sequentially, and an expansion of 10 basis points year-on-year.
Net income margin in Q1 was 18.6%. Our EPS grew 16.8% year-on-year. Effective tax rate nudged up slightly to 25.8%. Our accounts receivable was at 65 DSO in dollar terms, flat sequentially. Net cash from operations was INR 113. So that INR 2 billion. The Board has recommended an interim dividend of INR 9 per share. Over to you, Milind.
Thank you, Samir. Our workforce at the end of the first quarter was 715,318, a net addition of 523. While we are committed to honoring all the job offers we have made, our focus currently is on leveraging the capacity we had built earlier. Our workforce continues to be very diverse, with 154 nationalities represented and with women making 35.8% of the base. We remain focused on developing, retaining, and rewarding the best talents in the industry and enhancing their effectiveness by bringing them back to office to pursue our culture. Our return to office initiative is picking pace. 55% of our workforce are joining office twice a week.
Towards driving a more performance-focused work culture, we rolled out salary increases of 8%-10% for high performance and 12%-13% for exceptional performance, following our annual compensation review. Our investments in organic talent development continue to deliver exceptional outcomes. Year- to- date, TCSers logged 12.7 million learning hours and acquiring 1.3 billion competencies, including 180,000 high-demand competencies. LTM attrition in IT services was 17.88%, down 2.3% sequentially. Based on the current trend, we expect that in the second half of the year, our attrition will be back in our normal longer-term range, which has historically been an industry benchmark for talent retention. Over to you, N.G., for some color on our segments and products.
Thank you, Milind. Let me go through some of the segmental performance details for this quarter. I would like to also note that all growth numbers are on a year-on-year constant currency basis. Last quarter, we had called out the growing caution among the clients, resulting in deferment in processing the discretionary projects, particularly in North America and Europe, and that has continued in this quarter. Growth among industry verticals was led by life sciences and healthcare, which grew 10.1%, and manufacturing grew by 9.4%. Other verticals showed some softness. BFSI grew 3%, retail and CPG grew 5.3%, Tech and Services grew 4.4%, and Communications and Media grew by 50 basis points.
In terms of geographies, we see maximum caution in North America and Continental Europe, which grew 4.6% and 3.4% respectively. We continue to have good momentum in the United Kingdom, where we grew by 16.1%. Among the emerging markets, India grew by 13%, Asia Pacific grew by 4.1%, Latin America grew by 13.5%, and Middle East Africa by 15.2%. Our industry-leading portfolio of products and platforms had a very strong quarter, ignio, our cognitive automation software suite, saw 37 new deal wins. There are about 26 go-lives. We continued to strengthen our cloud offering by expanding coverage across all three major hyperscalers, launched a FinOps module to help customers analyze and optimize their cloud spend.
Digitate scientists are collaborating with TCS Research and Innovation to leverage large language models to further enhance ignio's predictive automation capabilities. TCS BaNCS, our flagship product suite for the financial services, had 7 new wins and 8 go-lives during the quarter. The deal wins were well distributed across developed and emerging markets and in banking, capital markets, and insurance. Among the go-lives, the high-profile one was the trading platform that went live successfully for trading, clearing, and settlement at NSE IFSC - SGX Connect at the International Financial Services Center in the GIFT City went live during this quarter, by which the Singaporean and Indian capital markets can work seamlessly on dollar-denominated Nifty derivative contracts. TCS BaNCS's Insurance platform also saw excellent traction in Q1, with 3 new wins and 4 go-lives during the quarter.
We already published the details of the deals with NEST, Teachers' Pension Fund, and Standard Life International. I won't repeat them here. It is worth highlighting that the Standard Life International deal marks our entry into Continental Europe, extending our platform and services footprint to meet the needs of the German and Austrian markets to begin with, and thereafter, to other markets in Europe. Quartz blockchain platform had one go-live this quarter. In life sciences, TCS ADD, our advanced drug development platform, had two go-lives this quarter. TCS ADD Safety went live at top 10 U.K.-based pharmaceutical company to read and process adverse event cases. With this, TCS ADD has successfully automated over 70,000 adverse event cases, including clinical trials as well as post-marketing cases. TCS OmniStore, our AI-powered universal commerce suite, had one new win and one go-live during the quarter.
TCS HOBS, our suite of products for communication service providers, had one new win and one go-live during the quarter. TCS TwinX, our digital twin solution, had four wins and one go-live. TCS iON had 25 new wins and 23 go-lives. In Q1, our platform administered assessments for 18.2 million candidates, 72% higher year-on-year. Over 2,400 corporates now leverage TCS iON National Qualifier Test for their entry-level recruitment. TCS MasterCraft and Jile won 30 new clients in Q1. Let me now go over client metrics. The steady increase in the number of clients in every revenue bucket is the ultimate validation of our customer-centric strategy. The superior outcomes that we deliver results in a steady stream of repeat business and invitations from clients to transform newer parts of their business.
This is the secret of the long and enduring customer relationships that we have been able to build. In Q1, we added 1 more client year-on-year in the $100 million band, bringing the total to 60. 13 more clients in the $15 million band, bringing the total to 137. 24 more clients in the $20 million+ band, bringing the total to 296. 22 more clients in the $10 billion, bringing the total to 468. 27 more clients in the $5 million+ band, bringing the total to 677. And 72 more clients in the $1 million+ band, bringing the total to 1,238. I will now request Krithi to speak on the demand drivers during the quarter.
Thank you, N.G. As N.G. has called out in his commentary, macroeconomic uncertainties have resulted in greater caution among clients. Clients are taking a month-on-month approach, resulting in very limited visibility on their future spending, even within their own organizations. On the discretionary side, while larger transformation programs like cloud migration are continuing apace, some of the smaller programs or sub-programs are coming under scrutiny. We continue to see reprioritization of projects in favor of those which are considered business critical, and where ROI realization is likely faster. This is disrupting the normal flow of work in the form of an uninterrupted series of related projects executed one after the other. Long running discretionary projects, typically CTB in nature, planned and scheduled some quarters ago under different circumstances, are now coming in with reduced scope or reduced pace.
This is what is resulting in some revenue softness across most of our industry verticals, even though our order book has been very strong in the last couple of quarters, and there will be no problem in their conversion to revenue. At an overall level, given the uncertain macroeconomic outlook, we see strong client interest in cost optimization, vendor consolidation, and integrated operations. That said, the flavor of the quarter was generative AI. In every conversation I have had with the clients over the last three months, this has unfailingly come up. GenAI promises to transform most knowledge work by assisting and augmenting people and improving their productivity. Over the last two quarters, we have engaged with multiple customers using our core innovation framework in exploring use cases for generative AI across productivity improvement, content creation, and enhancing customer interactions.
We are currently working on over 50 proof of concepts and pilots, and have more than 100 opportunities in the pipeline. Let me give you three examples. We are working with a leading European shipping and logistics company to automate their contract administration using generative AI, significantly improving productivity and enhancing business outcomes. For an energy utility on the West Coast, TCS is engaged in transforming their service desk operations using generative AI to enhance self-service, improve the quality of service, and drive customer satisfaction. This is being enabled via conversational service desk chatbots, augmented with generative AI capabilities, to provide precise, contextual, and personalized responses to user queries and issues based on knowledge articles. Generative AI is also being used to automate the call quality, audit functions for assessing and evaluating against interactions with the customers, and providing recommendations for improvement.
For a global provider of travel insurance and assistance, TCS is engaged in a pilot project to transform customer service leveraging generative AI. This will enable the customers to get highly contextualized and precise responses to any queries that they may have on travel insurance policy, especially about the terms and conditions. The solution will manifest as a self-service multilingual chatbot, to which users can pose questions about a travel policy in a natural conversational style. Unlike traditional chatbot, the GenAI bot can understand nuances in the question and respond with specificity and personalized to user context. Generative AI will be used to also respond to queries received over email. This is expected to result in reduced agent handling time, substantial productivity gains, and improved quality and consistency of responses.
The excitement around the new technology apart, our point of view is that the full potential of generative AI is best realized through a holistic enterprise-wide initiative encompassing business, legal, risk and compliance, research and innovation, rather than through multiple point solutions. We have launched an advisory offering to help customers in creating a holistic vision, strategy, and plan for enterprise-wide adoption of generative AI. Additionally, we have started talent development at scale across multiple GenAI solution suites in partnership with the hyperscalers. We plan to create a talent pool of over 100,000 GenAI-trained associates. On AI/ML, this will build on the command of depth we have in predictive AI, where predictive AI, machine learning, and advanced analytics, which we have been using in the last few years to build transformational solutions that can recognize patterns across large datasets, make recommendations, and personalize customer experience.
Today, we have over 50,000 TCSers trained in AI/ML solution building skills, with over 9,000 with top external certifications. We have market-leading products like ignio, Optumera, ADD, and TwinX, which use AI/ML, AI and ML to transform their respective domains. We have filed over 710 patents for AI inventions just past five years. 282 of them have already been granted. Two examples of recent engagements will give you a flavor of the business impact that AI-powered solutions can have. A Belgian provider of connectivity and digital services leveraged TCS consulting and advisory capability to shift from cost-plus pricing to intelligent pricing within its ICT business. TCS delivered a differentiated approach, integrating data from multiple sources to extract meaningful insights from historical data, and an AI-driven dynamic pricing mechanism on an opportunity-by-opportunity basis that also incorporated anomaly detection.
The solution has already uncovered significant money left on the table that runs into multi-million dollars, enabling revenue growth and profitability. For Cummins Incorporated in North America, TCS successfully delivered a strategic engagement to identify and reduce global warranty non-compliance. Leveraging contextual knowledge, in-depth understanding of the warranty function, and working closely with the business teams, TCS built a solution that uses pattern detection and automation through advanced analytics and AI/ML, to shift the detection mechanism early in the process. This initiative will potentially save millions of dollars per year for Cummins. A well-governed and robust data foundation is a prerequisite for enterprise adoption of AI. Consequently, as part of their Horizon one cloud transformation, many clients are also modernizing their data estates.
We have extensive experience in this area and a strong portfolio of intellectual property that has helped us to gain share in this opportunity. TCS Datom is an advisory framework to help clients assess their data maturity and define a holistic data analytics and AI strategy aligned to their business goals. We also have TCS DAEzMo, that helps clients speed up data modernization initiatives with a host of accelerators and methodologies to improve project outcomes. We have TCS Dexam, our data exchange and marketplace solution platform, to help clients democratize, monetize, and commercialize cross-functional enterprise data through private or internal data marketplaces. Let me share a few examples of recent data modernization engagements. A global leader in water, hygiene, energy technologies and services partnered with TCS to modernize and migrate its master data landscape to the cloud.
TCS uses domain and technical expertise to deliver a modern SaaS, AI/ML, and cloud-native solution that enables near real-time integration with its core ERP system to improve performance, usability, and scalability, while reducing cost of ownership and technical debt. The solution enables seamless integration, interoperability across various business systems, empowering teams to make data-driven decisions, and provide a strong foundation for future AI-based solutions. A U.S.-based provider of connected vehicle services chose TCS as its strategic partner to enable its data monetization strategy to drive growth. TCS leveraged its proprietary data framework to build a data platform on a public cloud, which served as a single source of truth for data on subscribers, vehicles, and other vehicle telematics. With real-time data ingestion and advanced analytical capabilities, the client now has a centralized repository for a very large data set that can be monetized through AI/ML.
A U.S.-based market infrastructure institution has engaged TCS to build a centralized data warehouse to house all the data generated by their cybersecurity software and appliances in the enterprise, where they can be effectively monitored, assessed, reported, and acted upon to reduce security threats and vulnerabilities. The TCS solution stitches together technologies of multiple providers to provide on-demand scalability and traceability through a centralized framework. This has resulted in reduction of security vulnerabilities by 5%-10% and enabled 2x faster onboarding of new sources. Most importantly, with all the cybersecurity data hosted centrally, it is now possible for the client to use AI/ML to sift through those vast amounts of data to help analysts prioritize the threats. moving on to cybersecurity, as we have pointed out in prior earning calls, this has been an area of fast growth for us.
Let me share a few success stories in this area. Bane NOR, a Norwegian state-owned company, responsible for owning, maintaining, operating, and developing the national railway network, selected TCS to help move to a newer and more advanced identity and access management solution. TCS facilitated an organization-wide assessment of the IAM estate and leveraged its domain and technology expertise to craft a new, a unique solution that will help Bane NOR secure its complex and critical IAM and reduce risk. A leading supplier of rail-based transportation services engaged TCS to improve the security posture and reduce cyber risk. The TCS solution stitched together firewalls, proxy services, endpoint protection, SOC, and vulnerability management to help the client achieve high cybersecurity standards. In addition, TCS is running the cybersecurity operation for the client in a managed services model.
A European technology leader in electrification and automation engaged TCS for transforming the privileged access management to protect their large server estate across hybrid cloud as part of the stringent SOC compliance mandate. TCS managed and successfully delivered the PAM transformation, helping the client clear rigorous SOC audit control checks from third-party auditors with a no significant deficiency for the first time in three years. This established a robust foundation of PAM and gave the client sufficient confidence to expand it to other critical infrastructure and applications. Moving on to growth and transformation. We continue to see clients invest in business-critical transformational programs that will drive growth. A leading U.K.-based global beverage company partnered with TCS to accelerate growth with a B2B digital commerce platform.
TCS helped design and deploy a bespoke solution that strengthens customer relationship across every touchpoint and provides world-class digital experiences for customer engagement. The new system also improves commercial execution with 360 degree views of customers and insights on customer behavior, enabling tailored content and communication for targeted customers. This 24/7 self-service has reduced dependency on the sales rep, increased net sales value, and significantly reduced the cost to serve. A U.S.-based industrial equipment rental company engaged TCS as its strategic partner to enable new services and revenue streams through equipment digitization. TCS leverage is "Bringing Life to Things", IoT transformation framework, to build a hybrid cloud-based IoT platform as a digital spine of the company's remote operation center. The platform collects field usage data, coordinates maintenance, and tracks availability of the assets that are rented out.
This data is used to provide real-time asset performance insights that can help end customers avoid work stoppages, reduce maintenance costs, and improve asset utilization. Our client not only gains incremental revenue for these value-added services, but also a competitive edge in the market. Lastly, we continue to see strong traction in model transformation. We have described in prior calls how these transformation entail redesign of all the processes embedding next-generation technologies like machine vision, AI, and machine learning to boost velocity, improve operational resilience, and drive efficiency. Another aspect of these transformations that business leaders like very much is a TCS integrated operations model with AI-powered business command center, which provides them with end-to-end visibility and holistic control across back-end, middle layer, and front-end operations, along with the underlying applications and data estates and IT infrastructure layers.
This enables better alignment with business KPI, enables faster resolution of issues and greater resilience in operations. Faced with multiple challenges in the supply chain and IT, the U.S.-based healthcare distributor engaged us as a strategic partner to transform their operating model. Their IT tool systems and processes were fragmented, and they had multiple service providers supporting their IT infrastructure and business applications. This fragmentation resulted in lack of traceability whenever there was any system failure. Any issue potentially meant some trucks somewhere in the supply chain got delayed by 4 hours-5 hours, impacting the delivery of drugs. A significant portion of the ticket resolution time was spent in just identifying the stakeholder responsible for the issue.
We integrated their different IT service management tools into one modern platform, consolidated the service desk into one integrated team, supporting all the business applications and the supporting infrastructure, and implemented persona-based solutions for better user experience. We deployed our machine-first delivery model, leveraging multiple AI, ML-based value builders from the TCS Cognix suite of solutions to transform the processes. All these have helped reduce supply chain disruption, improve the drug delivery fulfillment, and enhance their supply chain effectiveness. A large U.S.-based information management company partnered with TCS to digitally transform their CFO operation. Here, too, we deployed a new operating model that integrated the business processes and IT support operations using TCS Cognix and process mining to redesign the processes.
By integrating the support teams and monitoring performance holistically, spanning businesses operations, IT applications, and infrastructure support, we have helped the client enhance operational resilience and velocity, helping improve free cash flow and working capital. Moving on to order book. We had a strong order book in Q1 with a TCV of $10.2 billion, a book-to-bill ratio of 1.4. In rapid succession, we won two deals in the U.K. public sector from Teachers Pension Fund and Nest, and won from Standard Life DAC, reinforcing our leadership in the U.K. life and pensions market. While the details of the Nest win are already in the public domain, including in our press release, I thought it is worth sharing an interesting detail mentioned in the tender document available in public domain.
Nest commissioned a broad market assessment from PricewaterhouseCoopers to understand whether there is competition in the market capable of meeting Nest's requirements for technical experience. PwC's expert conclusion was that apart from TCS, there was no single supplier or consortium in the market, now or the short term, assessed over the next 12 months, who could meet Nest's requirements. Coming back to our Q1 order book, BFSI TCV was at $3 billion, while the retail order book was at $1.2 billion. The TCV of deals signed in North America stood at $5.2 billion. 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 touchtone phone. If you are using a speakerphone, please pick up your handset while asking a question. This is required to ensure optimum audio quality on the call. Should your 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 Sudheer Guntupalli from Kotak Mahindra. Please go ahead.
Hi, Krithi. Congrats and all the best once again, sir, on your new innings. Just a couple of questions. Last time when we announced our results, the banking crisis in America and Europe was just cooking. Is this issue still being referenced to by clients as a concern, or is this subject largely behind, based on your client conversations?
We don't hear about this topic much. I would say that that's largely behind us. In fact, the large banks who are our primary customers, we are net beneficiaries. We don't hear this as a concern anymore, Sudheer.
Got you. We understand that predicting macro six, nine months down the line may be tricky at this point. Given that this was a major panic or stress factor in the last quarter, is it fair to assume that September quarter will see a decent growth unlike June which remained flattish despite the seasonal strength? I know you don't give quarterly guidance, but directionally, is that a fair assumption?
You said we don't give quarterly guidance. I don't want to say anything on Q2, Sudheer.
Sure, sir. Just one last question. Two competitive quarters of, a strong deal booking and despite the weak market, not even including the BSNL deal. This quarter execution also largely played out in line with your expectations. We are seeing market situation improve a bit, especially, regarding this one panic factor, and you're saying pipeline is strong. How do we reconcile it with your tone in general on the demand situation? Is there a bit of conservatism you are baking in your tone, to provide the buffer for any unexpected shock, especially considering this rate in charge?
No, no. Like, we are not being conservative or optimistic here. We are telling what we are seeing in the market. As we explained earlier also, in the call itself, while the demand is still good, we are winning new deals, but the clients are reviewing the projects underway, and wherever there is a ROI is not very strong, the next phase of the project is getting paused. That's the reason that where we find that revenue is a dropage happens for revenue. Otherwise, we don't see a long-term perspective, we don't see any issue with the demand for or investment on technology.
Thank you, sir. That's it from my side. All the best.
Thank you. We have our next question from the line of Apurva Prasad from HDFC. Please go ahead.
Thanks for taking the question. After two quarters of 10 billion+ TCV, I just wanted some more understanding on your media comment earlier, when you said long term is good, short term cannot call. Is that based on more client-specific factors or deals deferred earlier have seen more cancellations in the near term? Essentially, what I'm asking is, the softness of your project prioritization that you referred to, has that become more broad-based across clients, or that has become more concentrated within the pockets?
Excepting one or two specific cases, I won't say this is concentrated. It is probably we see this trend, like, it could be varying from one account to another in terms of how much of the impact is. The fact that there is a review and reassessment of the project, I would say that trend itself is what we've got. It could be like the, how much one per given client pauses the project or delays it versus other. Could be different, could depend on their individual situation also. Like I was telling in the media interaction, for instance, if you look at the U.S. banking, like large U.S. banks are still doing good, we don't see a major problem there. It, to some extent, depends on the industry also, Apurva.
Okay. My other question, for Samir, what are some of the near-term levers that you have, especially when, operating leverage impact is lower due to softer growt h?
Sure. Actually, we'll continue to use levers like utilization. I've called out that utilization still has scope for improvement, and it continues to help. Productivity and realization becomes the other lever. Some of our discretionary spend is now at a critical mass, where we can start looking at optimizing them as well. These would be the primary levers.
Thank you.
Thank you. We have our next question from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.
Thank you. Couple of questions from my side. Krithi, first on the, you know, nature of pauses, which you guys have started seeing. What are you hearing from, you know, your clients in terms of, you know, what are the signs they are kind of looking for, which can make them change their view on these pauses or, you know, kind of push out? You know, is this something which people will still have patience for, you know, some time before they start kind of pulling back up in terms of their tech spending? Or, you know, do you think, you know, the uncertainty being where there it is, if, you know, things don't worsen materially, the demand can come back, you know, on a short-term notice?
Mukul, like as you also mentioned, it is a uncertainty, near-term uncertainty, which is causing the, for them to relook at the programs and pause them wherever they think the ROE is not strong or is going to take longer time. Once the uncertainty is lifted, like they have clarity on more long-term outlook in terms of where there will be growth or what they should be doing, we would see a certain class of projects, either co-cost and optimization or transformation projects, picking up the momentum. Obviously, we cannot say when the uncertainty will be cleared. I would believe that till the uncertainty exists, there would be a cautionary approach towards investment.
Sure. You know, Krithi, one question on the GenAI. You know, obviously, you guys spoke a lot about this, but how should we, realistically, you know, expect to see the impact of all the work which you are doing, from a 2 year-3 year, you know, window up? Is this something which will help you accelerate your revenue growth, or, should we see this more as a defensive move which will help you defend your revenues? Because, you know, there's a bit of a deflationary nature to the, you know, the GenAI deployment. Or, is this something which will play out more on the talent side, and structurally moderate the pace of employee addition?
Mukul, this is N.G.S. here. I think all of the things that you said will play out. I think we need to be looking at all these dimensions, right? I think what is interesting for us is the fact that we can deliver things faster, and the whole time to market element could be completely redefined, right? Newer benchmarks could emerge, right? In terms of predictability of the overall software quality, processes, everything can improve, right? Will it mean that, you know, we will need less people? It's something that we'll have to evaluate.
In all the technology adoptions in the past that we have seen, it has only increased the volume of work, and thereby, you know, actually, you know, we needed more expertise and more hands to do the heavy lifting that people really look for, right? From that perspective, it's a very, very interesting technology, and lot of evaluations are going on at enterprise level. The other thing is that, look, the whole cost model of it, you know, how much it's going to cost me to embrace generative AI, right? How people are going to price it, right, is a very interesting proposition that everybody is looking at. You know, currently, you know, every token is getting priced, right?
How much it's going to cost me to embrace generative AI in my overarching things that I want to accomplish across technology and operation, is also something that will be taken and played out, right. I see a lot of opportunities for us in structuring our own way of delivering, our own, you know, improvement to the value propositions that we can offer embedding generative AI. Overall, it's going to be very interesting to see how industries is going to embrace it, and given their own experience on cloud and the angst around how the cloud cost itself, in terms of consumption cost, is emerging.
Sure. Thanks a lot for taking the question, and best of luck for the remainder of the year.
Thank you. We have our next question from the line of Kumar Rakesh from BNP Paribas. Please go ahead.
Hi. Hi, good evening. Thank you for taking this question. Just an extension of the generative AI discussion we were having just now. While you definitely talked a lot about the demand opportunity for the customers, I understand you are also running multiple projects internally as well, to assess AI-augmented processes, how they are going to save cost or productivity use. Can you share some of the details on that, and is there a possibility that our own productivity benefits within TCS could start growing much ahead of the revenue opportunities from generative AI comes through eventually?
Rakesh, N.G.S. again, and difficulty to call out some of this, but sufficient to say that there are multiple teams, almost every verticals that we have. There are pilots, there are internal projects, and how do we craft the methodologies and toolkits to be meaningful to our clients in using this technology? All this is going on, as we called out earlier, there are at least about 50 projects that we are executing. Some are small, some are large. I think, you know, one of the nice things to see is that, look, if a particular organization has an ability to predict one or two parameters which will create a maximum business impact for them, if that can be focused upon using this technology, I think that will create maximum impact.
I mentioned about, for example, if someone can predict, if the technology can predict, let's say, a container trades three quarters down the line, then it could be a boon for the shipping industry. It's problems such as that, you know, and how do you improve or increase the yield per acre of agriculture commodities, some of these things, and specifically matching with the climate technologies or climate parameters that one has, which will have everyone predicting feature, key features. It will all contribute to interdisciplinary nature of the solutions that we need to deliver, right? There's a lot of work going on in the industry and within the research and innovation team of TCS. I think two quarters down the line, maybe we'll be able to give you more.
Thanks a lot, N.G.S., for that. Definitely quite exciting use cases there. Samir, on during media interaction, you talked about drawing back some of the margin in the coming quarters. How do you see the trajectory of the clawback? Will it be similar to what we saw last year, or there are higher tailwinds or headwinds this year, as we move in the coming quarters?
That's typical of how it happens in the year in a typical year for us, because we take the biggest headwind, which is the increments upfront. What I called out is we typically claw back overall through the period. As you see the macro environment and the uncertainties around it, that is where it would be difficult in terms of to put across how exactly it will play out. Our, our focus would be to incrementally get closer to the aspirational bank, which we have. Improve through the quarters and to exit at a higher rate through the year.
Got it. Thank you, Samir.
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. I have a few. Firstly, let us know if the understanding is correct. You entered, last, like, 1Q with softness owing to events that played out in the month of March, especially in the U.S. on banking side. Then you built momentum through the quarter to deliver what you delivered. Is it fair to say that you are entering now this quarter 2Q, with slightly better momentum and better visibility than you did in the last quarter?
Gaurav, that's very difficult to say. I don't want to venture into saying something like we have better visibility, better momentum at this time. I would say it's been very similar to what we saw in March. Okay? I wish I can say that we are in a much better place, but I don't want to give that optimism at this time now.
Got it. Second question, around ywo very strong quarters of TCV. Based on the deal ramp schedule, does this provide you, greater visibility of second half versus first half?
No. I'll say, like, our second half would depend on what happens in Q2 and how the momentum further builds over that. I don't know. I don't believe that we are ready to call, that second half is going to be better than first half. It's too early at this time.
Got it. Last question, any particular investments on the consulting side to leverage the demand that you kind of seeing from generative AI projects? As you talked about that a lot of organizations want to go, like, you know, to the consulting mode and not look at necessarily on a silo basis. Also investments on the delivery side, which could kind of help you to, you know, benefit from this technology. Thank you.
Gaurav, as we mentioned, we are approaching it from multiple angles. We are building our in-house capability. We have our R&D team that's working on developing patents and very unique capabilities. We are leveraging our contextual masters because we want to marry the technology capability with the domain capability delivery services. We are striking partnerships with all the hyperscalers, and then we are committed to train 100,000 of our associates to be capable of leveraging this technology. All these are investment. In terms of any other investment, we also constantly look for new partnership and other kinds of investment constantly. As something comes up, we will definitely go forward and make the investments.
At this time, our investment is more in terms of ensuring our associates and our contextual masters and domain experts work together to think of the right use cases and overall enterprise-wide solutions for our customers.
Thank you.
Thank you. We have our next question from the line of Ravi Menon from Macquarie. Please go ahead.
Hi. Thank you. In the last quarter, you spoke about an increase in onsite costs, and normally that refers to some new product starts. The current performance is that there's not been much traction with new projects. How should we think about the puts and takes in terms of new contract starts and pressure on existing business over this quarter?
The current quarter.
Can you repeat the question, Ravi?
Yeah. I mean, how should we think about the puts and takes between new product and pressure on existing business over this quarter?
We still didn't get it. Maybe we'll take it offline. Can you move to your next question?
Sure. The next one about fresher hiring. You know, like, Was there any fresher hiring this quarter, or was the recruitment mostly lateral to backfill that issue?
No, no, we continue to hire freshers, and we'll hire this quarter as well, and that will continue.
Right. Let me try one more time about the first question. I was asking about, you know, last quarter's increase in onsite costs and whether that was due to new project starts. Have you continued to see new project starts over this quarter or, you know, that kind of got offset by some pressure on the book of existing business? Or, you know, we didn't really see any new project starts, and, you know, that's why we kind of flat quarter-on-quarter in CC terms.
We call the new project starts with the deal wins, continuing to ramp up. We also have on movement incrementally in this quarter as well. The net impact which we see on revenue is on the uncertainty on the existing projects or customers with the pauses happening.
Let me ask one more follow-up on this deferral of contracts. Is this due to this whole change in model to Agile versus Waterfall? You know, is that causing people to be able to take this pause and then, you know, versus, say, earlier you would really have your deliverables, there would be months to go, so you could really halt anything mid-flight, and now it makes it a lot easier to put these pauses?
Not necessarily, like I don't think I want to actually attach it to some of methodology. It is more the business outlook, like where when they see that. One thing you can say is because in Agile methodology, we are doing smaller chunks of work at a time. To that extent, you can say that what we have delivered, that next phase of work, you can defer. Maybe to that extent, you can say, but I don't think otherwise it has got much to do with the project delivery methodology.
Thank you so much. Thanks, and best of luck.
Thank you. We have our next question from the line of Rahul Jain from Dolat Capital. Please go ahead.
Yeah, thanks for the opportunity. Firstly, on the regional market side, we have seen that 1/3 of the contribution, on a TTM basis, has come from this segment, where the profitability is lower by 400 basis points versus company average. Some of the large deals in India market that we know, like BSNL, GeM, probably may not have higher margins. You think this segment growth, faster growth, would put further pressure on profitability in coming period?
It is, something that, you know, we like to work on. I think, you know, there are fundamentally large programs, large, system integration opportunities. If you really look at the overall deals, that we have signed, one is that the $10.2 billion does not include the BSNL deal, number one. Number two is that the platform deals, it has, the potential, as long as we execute it well and, we deliver it on time and stick to the model in which we want to, continue to charge the customer, on a SaaS basis, I think the opportunity is there to grow value. It's also based on certain things like price, based on per policy or per, claim that we settled and so on and so on.
It has the potential to create a revenue structure which will increase our margins, as opposed to only diluting our margin in some of these cases. Traditionally, if you take a large system integration projects where we end up delivering some amount of hardware, yes, there could be margin, maybe less than the company average margin. Overall, you have to see there are large opportunities. Long-term value creation is there with those customers. It's a combination that we'll have to look for. Net, on a net-net basis, our approach is take some of these projects, execute it well, and see that it adds to the overall capability creation and value creation, which is consistent with our philosophy.
Just one more thing to add, Rahul. We don't publish regional market profitability separately. I think when you're looking at segmental results, they are based on industry verticals. Just a clarification. What he has said, still remains on the regional market color.
Right. Right. M&A, if you look at this one growth strategy that we have not leveraged much historically, do you see now is a good time to, you know, use either to build capability, let's say, around GenAI or maybe scale up opportunities from creative transaction as many corporations are looking for resource optimizations?
Well, our approach doesn't change, right? Like always, we look at M&A if we have to augment some capability we didn't have, and if we thought that by acquiring a company, we'll be able to further expand our services to larger set of our customers. We keep looking at it. Like, whenever we find there's a good opportunity, big or small, we go for it. Our overall strategy doesn't change, whether it's GenAI or the whole cloud. Whenever there is an opportunity, we go for it. It has to meet our criteria and the threshold.
Right. Appreciate the color. Thank you.
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. Maybe just one question from my side on the two segments that we have seen quite contrasting performance in the past few quarters. Manufacturing has held up quite well for us, and not just for us, I think for all the companies across the industry. It's been quite stable in terms of growth. Even in this quarter, we almost touched double-digit growth. What is keeping this spend up in the manufacturing segment? Are we not facing the kind of delays that we are facing in, let's say, BFSI or verticals in the manufacturing segment? Do you think that manufacturing might continue to remain stable in the coming quarters as well?
A similar kind of opinion about retail. In retail, we had seen a lot of weakness in the past couple of quarters, and again, not just for us, for the entire industry. Are there any signs segment bottoming out, if not today, maybe in a couple of quarters' time? Just a color, bit, a bit of color on both those, both these two verticals.
See, manufacturing is doing well because of the low base and the delayed pickup in demand and growth compared to other industries. As the supply chain situation also eases slowly, they are able to also see the growth and sales. Today, you see the demand is still high for many of the automakers. I think that's probably driving it. Again, I won't be able to say how long this would last because it'll eventually be a function of the overall economy. On retail, our view is, or what we see, the essential retail is doing well. If it is luxury or fashion or other specialty retail, we find that there is a softness in demand in such kind of, such in the sub-segment or the industry. That's a broad color we can provide you on this.
Got it. On the manufacturing part, just a follow-up. Is the only auto part of the manufacturing segment appearing stable at this point of time and looking to continue to spend, or are the other sub-vertical segment manufacturing also kind of stable?
No, like, I don't, we don't provide for detailed color. I think for others, excepting on, quite a few of the sub verticals are doing quite well. Okay, it may not also be, favor, overall industry. Like, we also have significant market share gain, in this segment, which is also driving our growth.
Got it. Got it. Great. Thanks a lot for taking my questions. Wish you all the best.
Thank you.
Thank you. We have our next question from the line of Ankur Rudra, from JP Morgan. Please go ahead.
Hi, thank you for taking my questions. just the first, question, a bit on the demand, maybe one more time. quickly, of course, you've seen over your, you know, long time at TCS, several demand cycles over the last 30+ years. is it possible to compare the current client behavior to any of the prior periods, such as perhaps post dotcom or GFC or taper tantrum or anything, or is it completely novel? That's question number one.
Yeah. I don't know whether I can compare with every cycle has its own nuances. I would say today, the way to look at, one, there is uncertainty because obviously they're reviewing or assessing the ongoing programs. At the same time, there is so much they realize that they have to do because there is so much of technology debt with each one of those industries. Unless they carry out those transformative programs, they'll have a competitive disadvantage. These two things are at play. For that reason, like we keep saying that while the TCV is high, we do see softness in the short-term revenue. I don't know whether we can compare, or again, I'm not sure what is the value you get in comparing also, Ankur.
Like, today the reality is the long term, this technology spend has to happen. Short term, they are navigating the uncertainty there.
Okay. No, I was looking for if there's any, you know, historical path we can compare. Fair enough. Thank you for the comment. Maybe moving to the generative AI side of the discussion. Thank you for all the color today. I'm just curious if you think GenAI would be a needle mover on revenues, either for this year or the next, and if it is showing up in contract discussions at all, maybe as a source of price aggression and cost takeout views?
It is not showing that much as being a differentiated feature in our contract discussions. You know, everybody is curious about its value, and clearly look at, you know, the investments that large enterprises are making as they move to a cloud-native architecture. Willingly, there is a intelligence layer in the overall architecture. Given the power of Generative AI or its potential, there have been efforts from everybody to see whether the architecture that has been put in place is consistent with the capabilities or potential offered by Generative AI, whether such architectures need to be tweaked, right? That kind of discussions is what we are having.
There's always a question around, explain, you know, how much of this generative AI capability need to be developed at the enterprise level in-house to keep the knowledge and the learnings in-house, and how much of it can go outside for its larger public cost, is a debate. That's consistent with the debate that people used to have earlier in terms of private cloud versus public cloud. All these discussions, I think, you know, will happen for the next at least a few quarters. There will be a, let's say, a meaningful, conditional, unconditional model that will get emerged. That will get embraced by the larger enterprises, is what I see it as evolving. It's purely my personal view.
Appreciate that. One last question on contract profitability. You know, how is that progressing? I realize that, you know, gross margins have, you know, continued to take a hit, probably due to, you know, wage hike this time. If you look over the full year in F 2024, I know you expect margins to be clawed back, but do you think there's any chance that margins on a full year basis might actually not expand in F 2024 or might even decline despite the supply easing up?
Ankur, our all our efforts collectively will be towards improving margins. Right now, given the current macro, it's difficult to give a color in terms of how it would end up exactly. With all efforts going toward improving on the margins.
Appreciated. Thank you and best of luck.
Thank you.
Thank you. 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. We have started the fiscal year with a string of marquee wins, a robust order book, and revenue growth of 12.6% in rupee terms and 7% in constant currency terms. We see strong interest in generative AI among clients. While we are helping them explore use cases with proof of concepts and pilots, we have also launched an advisory offering to help clients create a holistic vision, strategy, and plan for enterprise-wide adoption of generative AI. We are also upskilling our employees at scale. We plan to create a talent pool of over 100% generative AI-trained associates. Our operating margin in Q1 was at 23.2%, following our annual salary increases. Our net margin was at 18.6%.
On the people front, we will be honoring all the job offers we have made, but remain focused on utilizing the capacity we have already built up. Our LTM attrition in IT services fell further to 17.8%, and we should be back in our normal industry-leading range in the second half of this year. We wrap up our call today. Thank you all for joining us. Enjoy the rest of your evening or day, and stay safe.
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.