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Published: November 15, 2023
Updated: November 15, 2023

TCS Strong deal wins, robust order book

According to Mr Krithivasan, revenue during the Q2FY2024 quarter increased by 7.9% yoy to Rs 59,692 crore. In dollar terms, revenue stood at $ 7,210 million, suggesting a growth of 4.8% yoy. In constant currency terms, the growth was 2.8% yoy.

New-won deals are converting to revenues as expected, but revenue flows from new deals are getting neutralised by a reduction in the existing revenue base as transformation projects get completed or RCB projects get optimized, or in some cases projects get downsized.

By industry verticals, growth was led by the Energy, Resources and Utilities vertical which grew by 14.8% yoy, while Manufacturing grew by 5.8% yoy and Life Sciences and Healthcare grew by 5% yoy. The Consumer Business Group (CBG) grew by 1% yoy, BFSI grew by -0.5% yoy, communications & media grew by -2.1% yoy and technology & services grew by -2.2% YoY (growth was measured in constant currency terms).

U.K. BIZ UP

By markets, growth was led by the United Kingdom with 10.7% yoy growth, while North America grew by 0.1% and Continental Europe grew by 1.3%. In emerging markets, the Middle East and Africa grew by 15.9% yoy, Latin America grew by 13.1%, Asia Pacific grew by 4.1% and India grew by 3.9% yoy. The company’s products and platforms are now offered on ‘Software as a Service’, which has a healthy annual revenue run rate.

Referring to margins, the MD revealed that EBIT margins for the quarter stood at 24.3%, a growth of 110 bps sequentially. Of this, 100 bps benefit was derived from disciplined execution which resulted in improved utilisation and productivity and further optimization of sub-contract cost. Additionally, the company gained 35 bps by driving efficiency in discretionary spends. On the other hand, the company continued to invest in infrastructure.

The company will continue to focus on the existing levers, including utilization optimization as well as sub-contracting cost. Net income margin stood at 19% while the effective tax rate stood at 25.8% for the quarter. Talking about human resources, he said the total workforce stood at 608,985 with a decline of head count by 6,333 on a sequential basis. LTM attrition for IT services stood at 14.9%, down 2.9% sequentially. The decline in head count is due to attrition not being replaced by new hiring. The workforce remains diversified across 152 nationalities with 35.8% women employees.

A.I. TRAINING

TCS’ers have clocked 26.4 million learning hours and acquired 2.6 million competencies, including 350,000 highdemand competencies. The company has also completed training for over 100,000 employees in generative AI capabilities. According to Mr Seksaria, CFO, the company has added 2 clients in the $100 million+ bucket, 13 clients in the $50 million+ category, an additional 9 clients in the $20 million+ bucket, 28 clients in the $10 million+ category, 38 clients in the $ 5 million + category and 62 clients in the $ 1 million category on a yoy basis.

The company reported a strong order book of $11.2 billion for the second quarter of fiscal 2024. It won 2 large deals of $ 1 billion, of which one was from Jaguar Land Rover and one from BSNL. The contracted value from BSNL over 12-18 months is $ 1 billion. The BFSI TCV continues to be robust at $3 billion and the consumer business order book at $ 1.2 billion. The TCV of deals signed in North America stood at $ 4.5 billion.

The company won some of the largest deals in the sector this quarter, beating macroeconomic challenges and surpassing its own quarterly deal win guidance of $7-9 billion. ACV has not changed much when compared to earlier periods, and the deal tenure has not changed much. The company is also seeing strong demand coming from generative AI offerings, reporting a pipeline of over 250 generative AI opportunities.

B.S.N.L. ORDER

During the quarter, BSNL awarded the company a project to integrate and deploy a modern indigenous pan-India 4G and 5G mobile network. The company has commenced the supply, planning, design, installation and commissioning and optimization of the mobile network, satisfying a detailed set of requirements confirming to 3GPP standards. The rollout is expected to be completed in about 18 months.

Referring to the future outlook, Mr Krithivasan maintained that given client caution over the macro overhang, clients continue to prioritize business agility and cost optimization initiatives even while exploring innovative uses of Gen AI. Clients also focused on operating model transformation, vendor consolidation and Enterprise IT as a Service. The company’s clients are waiting for some definitive signs of economic recovery. Confidence will come to the market once they witness signs of economic recovery. The retail segment witnessed a tough and soft quarter. In Q2FY2024, even the essential segment of retail was weak.

CLIENT TRUST

Mr Krithivasan said, “Our clients continue to entrust us with critical new technology initiatives and large programmes to digitally transform their IT and business operating models. A strong deal momentum delivered us

a very large order book in Q2 – our second highest TCV ever in a quarter, and a good pipeline. The resilience of demand for our services, our clients’ willingness to commit to long-tenure programmes and their continued appetite for experimentation with Gen AI and other new technologies give us confidence in our longer-term growth prospects.”

N Ganapathy Subrama niam, COO and Executive Director, said, “We continue to make investments in our people and new technologies. We now have a 100,000-strong pool of Gen-AI ready consultants and prompt-engineers who are engaged in hundreds of Gen-AI projects for our clients across segments.”

He added that “during the quarter, BSNL awarded us the project to integrate and deploy a modern, indigenous pan-India 4G and 5G mobile network. This is a huge milestone for TCS, and we have commenced the supply, planning, design, installation and commissioning and optimization of this mobile network, satisfying a detailed set of requirements conforming to 3GPP standards and the roll-out will be completed in about 18 months.”

Samir Seksaria, CFO, said, “Our focus on improving employee utilization while driving productivity improvement and cost efficiency across the organization, has helped us expand our operating margin to 24.3%. We will continue to push the growth, efficiency and innovation levers to further improve our profitability. In keeping with our shareholder-friendly capital allocation policy, the board has recommended a share buyback to the tune of Rs 17,000 crore at Rs 4,150 per share.”

FRESH TALENT

Milind Lakkad, Chief HR Officer, said, “Our strategy of proactively hiring bright freshers and investing in training them with the right skills is paying off. With that talent coming on stream and with reduced attrition, we were able to recalibrate our gross additions, keeping it below the departures during the quarter, driving up productivity and enhancing project outcomes.”