Tata Consultancy Services Ltd

NSE:TCS

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, good day. And welcome to the TCS Earnings Conference Call.[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali. Thank you, and over to you, sir.

[Kedar Shirali, Head of Global Investor Relations]

Thank you, Margaret. Good evening, and welcome, everyone. Thank you for joining us today to discuss TCS' financial results for the first quarter of fiscal year 2021, ending June 30, 2020. 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 call.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. Rajesh Gopinathan, Chief Executive Officer, and Managing Director.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Good evening, everyone.

[Kedar Shirali, Head of Global Investor Relations]

Mr. NGS Subramaniam, Chief Operating Officer.

[Ganapathy Subramaniam Natarajan, COO & Executive Director]

Hello. Good evening.

[Kedar Shirali, Head of Global Investor Relations]

Mr. V. Ramakrishnan, Chief Financial Officer.

[Venkataraman Ramakrishnan, Chief Financial Officer]

Yes. Hello, everyone.

[Kedar Shirali, Head of Global Investor Relations]

Mr. Milind Lakkad, Chief HR Officer.

[Milind Lakkad]

Yes. Hi, everyone.

[Kedar Shirali, Head of Global Investor Relations]

Rajesh and Ramki will give a brief overview of the company's performance followed by the 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 e-mailed out to those who have subscribed to our mailing list. With that, I'd like to turn the call over to Rajesh.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Thank you, Kedar. And once again, a very good day to all of you. I hope all of you and your families are safe and healthy. And thank you once again for joining us on this earnings call. Q1 saw the full quarter impact of COVID on our business, and it played out broadly along the lines that we had outlined in April. You can see the hit of the demand side impact on our Q1 numbers. Revenue dipped by 6.3% year-on-year in constant currency terms and 7.8% in dollar terms. In rupee terms, we marginally grew at 0.4% on a year-on-year basis. Life Sciences & Healthcare continued to be the bright spot, and has continued to grow in double digits this quarter. However, all other business verticals suffered from revenue declines of varying degrees. The biggest impact was obviously in our retail cluster, which includes Travel, Transportation & Hospitality, but with most manufacturing activities grinding to a halt, all big sporting and entertainment activities canceled and widespread financial distress, almost every vertical got impacted across every market.Our operating margin for the quarter was at 23.6% down 55 basis points on a year-on-year basis and net margin came in at 18.3%. I'll now ask Ramki to go over all the headline numbers and the financial and segment performance, and I'll come back later, talk a bit about the demand trends that we are seeing. Over to you, Ramki.

[Venkataraman Ramakrishnan, Chief Financial Officer]

Yes. Thank you, Rajesh. Let me first go through the headline numbers. In the first quarter FY '21, our revenues degrew 6.3% Y-on-Y on a constant currency basis. Reported revenue in INR was INR 383.22 billion, which is a Y-on-Y growth of 0.4%. In USD terms, revenue was USD 5.059 billion, which is year-on-Y (sic) [year-on-year] degrowth of 7.8%.Going over the segmental performance during the quarter. As a reminder, all the growth numbers are year-on-year and in constant currency terms. With the exception of Life Sciences & Healthcare, which continued to grow at 13.8%, all our other business verticals showed revenue declines in Q1. BFSI revenue declined by 4.9%, largely due to the pandemic-related softness in U.K. and Canada, and residual supply-side issues from early April. Other than that, BFSI revenues held up relatively well in other markets. The retail cluster took the biggest hit, de-growing 12.9%, impacted by the virtual shuttering of many retail segments as well as the Travel, Transportation & Hospitality subvertical.A few subsegments like grocery and pharmacy retail and CPG performed well during the quarter. Communications & Media degrew by 3.6%, pulled on by the media sub vertical, which was impacted, as Rajesh mentioned, by the cancellation of major sporting and entertainment events and the resultant impact on advertising revenues. Manufacturing declined by 7.1% this quarter with most production grinding to halts. Technology and services degrew by 4%. Virtually, all markets declined in Q1 with the exception of Europe which grew 2.7%, and Latin America which was flattish at 0.2%.North America declined by 6.1% and U.K. by 8.5%. Among the emerging markets, APAC degrew by 3.2%, EMEA by 11.7%, and India by a significant 27.6%. But portfolio of products and platforms had a very strong Q1, defying all the fears of delays in deal closures. Ignio, our cognitive automation software, acquired 8 new logos in Q1. During the period, 13 customers went live on the product. We continued to grow the channel partnerships, adding 4 new value-added resellers and 2 technology partners. To encourage and empower customers to build their own custom extensions to ignio's out of the ignio's -- out-of-the-box capabilities, we launched ignio Studio during the quarter. This is a low-code environment that allows our customers' teams to harness ignio's context aware cognitive capabilities in new use cases, unique to their business and IT environment, and derive even greater value from their investments.In view of the strong demand for ignio skills in the market, we have ramped up the capacity of Digitate Academy, doubling the number of ignio-certified professionals trained in the last 12 months. In Q1, 682 individuals from customer as well as partner organizations were trained and certified on ignio. TCS BaNCS, our flagship product suite in the financial services domain, had 7 new wins and 5 go-lives in Q1. We had 3 new wins in insurance, 2 for the [wealth pack] risk management product, 1 for market infrastructure, and 1 for asset servicing. Interestingly, 4 of the 7 wins this quarter were for the SaaS version of the product and were top-tier banks in the U.S. and Europe. This is indicative of the increasing levels of comfort that large banks are developing with the SaaS model, even for their core systems, and bodes well for the future growth of the bank's cloud suite. Based on current trends, we expect more than 50% of the TCV for the TCS BaNCS suite this year to come from the SaaS operations. The Quartz Smart Ledgers solution had 2 new wins and 2 go-lives in Q1. One of the top 4 U.S banks as well as a leading Japanese financial institution selected it for scrubbing and refining incoming corporate event feeds and to modernize their asset servicing operations.In the Algo retailing space, we had 1 new win for OmniStore and 1 go-live each for Optumera and OmniStore. We launched 2 new products under the Optumera suite during this quarter. The first one is a TCS Optumera fashion assortment, which uses artificial intelligence and machine learning to enable apparel retailers to predict the success of a new style, set initial prices right, and harness innumerable factors, including attributes, images, trends, to determine the right mix of products, thereby driving sales and profitability.The second is TCS Optumera promotion optimization which enables retailers to harness the power of cognitive technologies to identify growth opportunities and determine the most effective promotion strategies for their merchandise across channels.Additionally, we launched the TCS OmniStore's Scan & Go, a customer app platform that enables the scanning of products anywhere across isles and self-checkouts with contactless digital payment resulting in a seamless shopping experience. Our HOBS SaaS platform for communication service providers had 4 new wins and 1 go-live. 2 of the new wins are existing customers who have realized significant business benefits from their prior implementation of HOBS and are now rolling it out to newer parts of their business. Moving on to client metrics. As you are aware, these are an important validation of TCS customer-centric strategy of continually expanding and deepening our engagements by constantly investing in newer capabilities and launching newer services and products relevant to our customers.In Q1, we added 4 more clients in the $100-plus band, bringing the total to 48; 11 clients in the $20-million band, bringing the total to 230; 13 clients in the $5-million band bringing the total to 564; and 52 clients in the $1-million band, taking the total to 1,066.Moving on to margins. The sharp decline in revenue had a proportionately large negative impact on the operating margin. In our cost management measures, we took a very supportive approach to our employers and suppliers and looked at only other efficiency levers. And these measures and some currency tailwinds helped us deliver an operating margin of 23.6% and net income margin of 18.3%. The effective tax rate for the quarter was 25.8%. Our DSO was 68 in dollar terms. Net cash flow from the operations was INR 92.9 billion, which is 132.6% of the net income. Free cash flow was INR 86.68 billion, which was up 14.8% year-on-year. Invested funds as of June 30 stood at INR 511.12 billion, and the Board has recommended an interim dividend of INR 5 per share.On the people front, we ended the quarter with a total headcount of 443,676. Women make up 36.2% of the workforce and 146 nationalities are represented in it. Our heavy focus on organic talent development initiatives has resulted in anytime, anyplace learning becoming part of the popular culture.Learning activity grew sharply in Q1 registering a 24% increase over the prior quarter despite the absence of fresher onboarding during this period.In terms of outcomes, over 353,000 employees were trained on multiple new technologies, and over 4,500 open positions were fulfilled this quarter entirely with internal candidates. We continue to be the global industry benchmark for talent retention. Our LTM attrition in IT services in Q1 was at 11.1%. With that, I turn it over to Rajesh for the demand drivers and trends.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Thank you, Ramki. Before I talk about the demand trends, I want to give you a bit of update on our operations side. The -- from an SBWS, Secure Borderless Workspaces model, which we adopted at the end of last quarter to help keep our customers' mission-critical systems and operations running, even while under lockdown, not only has this won us tremendous goodwill from customers, but it's also now a fairly significant part of our go-to-market discussions. Since we last spoke, we have successfully institutionalized SBWS and strengthening and extending it to cover a broad range of activities, including the entire customer engagement, prospecting sale, and even onboarding of new projects. During the course of this quarter, we have executed about 32 transitions entirely in a secure, contactless way.Similarly, from a HR perspective, we have significantly intensified our employee engagement initiatives. We spoke about it at some length during our press conference earlier today and would be happy to talk about it. But let me summarize by saying that HR has established a one-on-one connect with over 400,000 TCSers and is providing them with a range of resources for their physical and emotional well-being. And that includes a full spectrum of regular connect counseling services, helper resources, et cetera. We are also invested in -- within our various societies and ecosystems to ensure that we can provide quarantine centers and other -- whatever help possible to TCSers and their families. As restrictions get eased in many parts of the world, many of our employees have been waiting eagerly to return to their workplaces. However, we have taken a conservative approach and are enabling it in a very calibrated way, in line with our overall Vision 25x25 and taking all precautions to create a safe workplace and complying with the individual local regulations and advisories. It's a fairly extended, detailed exercise that is pretty much dynamically evolving on a day-to-day basis. And I want to once again call out the great work being done by our operations and HR folk in navigating through this unprecedented crisis.Currently, about a percentage of our workforce is working from our facilities. And we were -- see, we expect -- and we'll see a steady increase of it during this quarter while maintaining a very conservative and prudent stance on it. So that's the overall commentary from an operations perspective, as I said in the -- our press conference of Q4 was about an immediate agile adaptable reaction to the lockdown that happened.Q1 has -- will have been a lot more about employee engagement and ensuring that our large workforce is taken care of and enable to do the great things that they have been executing on.The -- from a demand perspective, we saw many customers react to the changed circumstances and uncertain business outlook, by reprioritizing their agendas through the quarter. But as expected, and very encouragingly so, the technology has been at the core of their immediate response to the pandemic and as well as in their preparation for the recovery ahead. We have benefited from 3 broad spending themes this quarter.First is smart secure workplaces and collaborations. With most countries implementing lockdowns and shelter-in-place restrictions in the first half of the quarter, we saw many customers investing in implementing secure about [ workplace solutions ] and collaboration tools. With the large -- many of -- for many instances where these tools had already been actually procured by customers and in its deployment, both at its scale and in its nature of deployment, that had not been leveraged to the extent that TCS had done in its own circumstances. So our experience actually helped drive many of these conversations, and we helped roll out significant amount of this kind of digital infrastructure solutions across a wide customer base.And the -- corollary to that, and once again, similar to our own experience, as you roll out something like this, the surface area from a protection security perspective increases many fold and enterprises needed to recalibrate their security postures and to shift to risk-based management versus a compliance-driven strategy. This saw a huge surge in demand and which we believe that will continue. We have been both providing our services and as also collaborating with many partners from our COIN Network, where new age perimeter-less security solutions are being put in place, multilayer solutions cutting across both data interest as well as data in motion and multifactor authentication on the -- and plus real-time dynamic monitoring of the entire estate to detect and deal with any [start-ups] that appears. So overall, we believe that these are themes that will continue in strength. And we are at the start of significant upsurge in demand for these services. And SBWS as I said, resonated very well with our customers because of its holistic nature of its construct because it goes beyond just IT and cybersecurity. And it also addresses the concerns of all CXO stakeholders when switching to a remote model. And even our HR practices and our approach to employee engagement, our approach to productivity management, motivation, all of it has been areas where customers have been very keen to engage with us and have invited us to multiple forums to address their executives to help their thinking through as to dealing with this new operating environment, which is likely to stay with us for some period of time at least.From a -- looking forward into the immediate future as workplaces and factories reopen, we now have several new solutions that enable employers to create a safe workplace, particularly even in complex industrial settings, using IoT and analytics to enable social distancing and carry out contact tracing and have better risk management. We have used solutions that we had originally developed from a Smart City perspective, and we have repurposed that very fast to enable that for this kind of use cases. And again, we have -- TCS itself has been the biggest proving ground for many of these solutions and therefore operate relevance to customers as they navigate through this.Coming to the second theme, which is customer experience. With the sharp change in customer behavior triggered by the pandemic, many businesses were forced to switch to an online mode and/or rather an online-only mode, triggering a lot of investment in front-end transformation, customer experience enhancement, and customer journey improvements. In some cases, this has driven a significant demand for services from TCS interactive as well as from our analytics and insights practice. And in other cases, the front end changes have triggered more extensive core system modernization initiatives to help enterprises adapt to the post-pandemic consumer preferences. We launched customer experiences as a multidisciplinary service offering suite that addresses the need to eliminate in-person interactions across a wide range of use cases, spanning multiple industries from curbside pickups for contactless shopping to remote valuation and claims inspection from an insurance perspective.Third big area. Again, a theme that we have spoken about in many past digital transformation side is the core transformation. The pandemic highlighted the need for operational resilience and agility within the enterprise and resulting in several transformational engagements with the objective of building a lean adaptive core, encompassing operations, applications, and underlying infrastructure and cybersecurity. There are customers who are to rejig their supply chain pretty much dynamically and using analytics and automation to identify alternate suppliers and also to be able to plug that in, into their multiple supply chain solutions so that they could look for alternative routes, alternative modes of transportation, and even more dynamically reoptimize their systems for the new environment. One of the work that we have done is for one of the largest medical supplies distributors in the United States, where the entire optimization logic had to change to take care of a very dynamically changing location, where the medicines were required, and which kept on evolving on a daily basis. So being able to do this with a combination of technology and operation support has been the hallmark of the full services suite that TCS has brought to bear in many such situations.Our CIOs are looking to optimize costs also and accelerate the adoption of public and hybrid cloud models, driving growth in cloud revenues this quarter. Our pipeline from a digital infrastructure and cloud perspective has actually been the highest in the last many quarters. And a lot of the large deals that you see is coming from an accelerated adoption of the core infrastructure and core compute fabric transformation, which is a key enabler for switching to this mode at a large-scale basis. Several of our large-scale deals also entail adopting a new lean IT operating model based on the machine-first approach, incorporating the cognitive power of ignio to preempt issues and autonomously resolve a lot of those, essentially making the technology stack self-healing and thereby adding to the resilience. Some transformation programs, which were passed in end of March or April, May, when the pandemic hit, were restarted during this quarter. Some others got deferred indefinitely and the [ dispensary opportunity ] to address more immediate imperatives. But I'm happy to say that none of this reprioritization resulted in any reduction in deal values or average deal tenure during the quarter. Our deal pipeline has been characterized by increased set of large deals in the top end and a very large population of small deals, which is in line with what we would have expected given the nature of changes that are going on.Overall, from a Q1 order book perspective, contrary to the fears of economic uncertainty and travel restrictions, et cetera, deal closures have continued at pace, and we have pretty much transitioned to a form of both closing as well as engaging and initiating contracts in a contactless way. The total contract value of deals signed in the quarter was $6.9 billion. And within BFSI, the contract value being at about $2.1 billion and the retail order book was $0.9 billion. The TCV from deals signed in North America stood at $3.3 billion, again, a healthy trend from a quarterly run rate perspective.So looking ahead, the outlook on the overall global economy looks uncertain. But while the pandemic spread shows some sign of slowing down and is continuing to be highly unpredictable, we believe that companies globally, along with governments and other institutions, are reacting better to it. And now the wheels of the economy as it were, are starting to slowly move, and we are seeing more and more traction in many of our customers who are bringing things back online and testing out the new business models to get back to business. It's also geographical. We've seen from a geography perspective, the most positive movement in Europe, and we continue to be cautiously optimistic about U.S. on an industry-by-industry perspective.So overall, from an aggregate impact perspective, we believe that we have probably bottomed out in Q1, and we had also spoken about this last quarter, that we think that the deepest cut will come in Q1 and from here, we should be on a path of growth. Our confidence comes from our strong and deep customer relationships, which have grown stronger during the course of this crisis and the absolute belief that technology is a key enabler to our customers' recovery journeys and for their growth and transformation thereafter.So post-pandemic, we believe, enterprises will depend even more on technology-led innovation to drive the differentiation. And this is a very long-term structural opportunity for us that expands our addressable market. All the investments we have been making over the years in our research and innovation, upskilling our employees, intellectual property, partnership, and et cetera positions us well to gain a big share of this opportunity and power our future growth.With this, we can open the line for questions. Kedar?

[Operator]

[Operator Instructions] The first question is from the line of Ankur Rudra from JPMorgan.

[Ankur Rudra, Research Analyst]

Thanks for the color on what you see on the demand side. Great to see healthy order book virtually, I guess, all controlled virtually, and your comments that the worst of the pandemic is -- impact is behind you. I was just wondering about how the shape of these very strong signings have been. Was there a tailwind from strong bookings you already saw in March? Or did you see a strong reopening, as you said, economies are beginning to reopen. And also, could you characterize how the incremental demand is -- I think you did characterize how demand is shaping up, but how are you retooling your offerings to participate in these opportunities beyond just cost saving and cloud migration?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Thanks, Ankur. It's a bit of all happening. Many of the large deals that we have announced this quarter are actually closures from deals that were in the pipeline from earlier periods. Some of them have been reshaped by the COVID experience. So one of them, the utility company that we have called out, that was a classic situation, where our SBWS deployment attracted a lot of attention. And we were able to quickly help them utilize shelfware that they already had and deploy that at scale across a very wide employee base. That changed the nature of the opportunity and expanded the overall scope of the opportunity so that we find a much larger engagement with them over a longer period, which also includes consolidation of the overall landscape. So some of the others, and in fact, most of the other large ones that you've spoken about are all coming from earlier periods. The -- but this quarter has been characterized by a dumbbell kind of a structure. So we have had a few large -- very large deal signings at the top. And we have had a very large number of smaller deals at the -- or at the smaller end of the spectrum. But when we look at it from a pipeline perspective, the pipeline has a good mix of all sizes of deals. There are some very large transformation programs that customers have fast-tracked. And there is a lot more willingness to talk about it, both in terms of size as well as in terms of speed, even offerings like our platform offerings have seen uptick in interest, where customers are more and more looking at holistic, all-in solutions and partners who can actually provide that for them. So the pipeline is more balanced, while the actual deal closures were more, I would say, polarized. The -- from a service perspective, the immediate opportunity upsurge is in the actual digital infrastructure rollout. Because we believe that the acceptability of the public cloud infrastructure, even if it were to be deployed in a hybrid cloud solution set has significantly gone up and the interest in that has significantly gone up, while people were mostly on an experimentation mode, and there is no willingness to commit in a much larger basis. And we see a huge uptick in that. And we think that in the near term, that will be a big backbone of the demand. The other end of it is the entire customer experience transformation aspect and rejigging core systems to be able to handle that. So whether it is the retail part of it or in areas like wealth management or insurance, mortgage underwriting, in all of these areas, front end systems are being significantly reimagined, not from -- just from a look-and-feel perspective, but in terms of actual core functionality to completely change it. Then contactless engagement is making its way into everything: insurance claims, damage assessment, underwriting. All of these are lending themselves to a very significant analytics-based solutions, which involves both image analytics as well as actual physical databased ones. So we think it's a fairly full spectrum impact led by the large infrastructure side, but with a large volume of smaller digital transformation on the core functionality of the front end or rather core functionality exposed to the front end.

[Ankur Rudra, Research Analyst]

That's very helpful. You said overall, Rajesh, that it played out as you were expecting, but I'm sure there are a few positives and negatives as you saw the quarter played out. Were there anything in particular across industries or service lines, which either surprised you positively or negatively?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Yes. From a service line perspective, actually, probably we had not fully thought this through, but in retrospect, it makes a lot of sense what I just described in terms of the upsurge in the infrastructure side of it. But that's not much of a surprise, just -- it was -- but from an industry perspective, I think banking and financial services proved to be more resilient than what we originally expected, given the experience in Q4. And especially now with the supply side getting sorted out by April and May, the demand side of it has turned out to be much more stronger than what we had originally anticipated. But it has to be seen in context of where we were. So from that trajectory, there is a uptick, and we were originally anticipating a softness given the big losses that had been reported and anticipated. On the flip side, areas like communication and media, we had not fully anticipated the kind of impact that we saw. There -- that caught us a bit by surprise. And some parts of the Life Sciences & Healthcare value chain like medical devices, like areas related to various forms of elective procedures, those resulted in some amount of weakness, which was also surprising and unanticipated. But I think within the overall context, and given the extent of change and the speed at which we have been talking about, it's all well within the realms of what you would expect in retrospect. So we are gearing ourselves up for the expected demand. And everything that I'm saying needs to be seen in context of what we clarified last time also. It is typically our nature not to give specific guidance. And I'm just sharing what we are seeing because this -- it's a fairly dynamic situation, and we want to be transparent with what we are seeing so that you guys can make your decisions accordingly.

[Operator]

The next question is from the line Sandip Agarwal from Edelweiss.

[Sandip Kumar Agarwal, Vice President]

So, I have only 1 question, Rajesh. This pandemic has quickly changed the user behavior significantly and things have moved to online very, very quickly because they have been probably forced to do that. So my question is that we always plan our workforce and train them according to some estimates, and this pandemic has been very sudden. And I know we have a very robust training and repurposing system. But I just wanted to know the demand which is coming, or which is now going to [come strong] over the next few quarters because of the behavioral change. Do you foresee that we have to repurpose or retrain some of the people into these new demand areas? Or you think we were well prepared for it?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Sandip, we were quite well prepared for it. In fact, one of the problems that we were having is, so if you look at the numbers that you are talking about in terms of number of associates trained on digital technologies, et cetera, we were well above 300,000 for quite some time. Whereas our demand, as you know, was well below 50%, or rather our total business from Digital was below that during the times we were sharing that data. So one of the key internal thing of associates has been that you got trained, now we need to be deployed. And long back in a associate town hall, I said that, at that time, we were at -- in the 25%, 28% range. And said, the -- what it means is 1 in 4 of you is working on a digital project. But what it also means is that this is growing at 40%, 50%. So the projects of future will come from there. You need to train today so that you are ready for the demand of the future. So this upsurge actually helps us meet associates' expectations and I believe that we have the talent inventory required to meet this demand. And more importantly, we believe that, relatively, we are probably the best positioned in the industry to take that kind of demand upsurge in a seamless, holistic way across multiple services. So overall, we are quite comfortable with our talent position. And the learning infrastructure that we have custom-built and deployed is also flexing beautifully into the SBWS space also. And I think Milind shared earlier that our actual total hours of engagement across many of these programs has significantly increased, and we are 20 -- more than 20% increase in learning hours. So we are well positioned.

[Sandip Kumar Agarwal, Vice President]

So if I can have a quick follow-on on that. So I just wanted to check one more thing. So you know we are so ahead, and we have trained so many people in the highest demand area. So will it also imply that probably if you exclude that pandemic effect for the time being, then there is a -- when this huge upsurge in demand is coming because of the -- on high increase in online activity, which pushes the Digital and the Cloud business significantly, then we will have a very high chance of getting market share quite substantially from mid players or small players who would not have been so well prepared on this technology or at least from the training purpose?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Sandip, our perspective on this always has been different from the overall market's. We believe that our industry has a fair amount of inertia, but that the momentum is always unstoppable. So whether it is a decline of traditional business or it is scaling up of new business, we have always told you that our experience has been that there is a fair inertia that is required for real large enterprises to adopt things at scale, that the rate of adoption will increase but it will not be a dramatic spike up or a dramatic spike down. It is much more measured when we deal with technology at an enterprise scale. So directionally and relatively, of course, there is a uptick. But I don't believe that it is an express elevator going up. That's not the way we are anticipating or preparing for it.

[Operator]

The next question is from the line of Mukul Garg from Haitong Securities.

[Mukul Garg, Research Analyst]

Rajesh, you were suggesting that, at least for you, the demand of insurance bottomed out and you will get back on growth from Q2 onwards. Given that a large part of for your client base is still de-growing compared to their pre-COVID level, does this mean that you are seeing a upset -- upward reset in technology spend, I mean already at clients? Or should we read this primarily as a market share gain story?

[Rajesh Gopinathan, CEO, MD & Executive Director]

It's a combination of both. Definitely, technology is front and square in every single client's response to COVID across industries. So definitely, there is a significant elevation of technology in their spending leak tables as it were. And as I said, there is a flight to quality and customers are looking for partners of scale and quality that they can support them in this journey. So there is market share gain, and there is inherent demand being created because of increased acceptance of technology.

[Mukul Garg, Research Analyst]

Right. So just to probe a bit in this. Historically, what we have seen is a low single-digit spend on tech as far as part of their total spend from large corporates. Where do you think the number will stabilize going forward?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Will you see?

[Mukul Garg, Research Analyst]

Where do you see that percentage of overall spend by corporates on tech in the future?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Right. I don't know that. It's for the analysts to come and turn, but definitely, if experiences in industries like retail are to go by, retail saw a significant upsurge in its technology intensity. And similar models, I'm sure we'll get drawn up. But I'm not -- I don't have that answer.

[Mukul Garg, Research Analyst]

Got it. And just a clarification. On the revenues during this quarter, was there any skew towards June in terms of business? Obviously, I'm not including the supply impact in April, but on the demand side, how was the overall trend between April to June?

[Rajesh Gopinathan, CEO, MD & Executive Director]

There has been a definite upswing, but it's more regional- and vertical-specific. So if you take something like banking in Europe, it had been most impacted in April because they were the most conservative in adopting the SBWS solution set, whereas many of those issues have been addressed, and we are seeing actual recovery of demand there. Whereas if you take something like U.K. or if you take airlines, they are yet to bottom out. So it's a mixed bag depending on geography and industry and a fairly complex environment.

[Operator]

The next question is from the line of Sudheer Guntupalli from Motilal Oswal Financial Services.

[Sudheer Guntupalli, Research Analyst]

We have been the early advocates of the work-from-home model. So from an employee standpoint, it obviously comes with more time and convenience at hand. In that backdrop, do you foresee a risk of the highly skilled talented niche technologies actually embracing the model of freelancing or simultaneous working on multiple projects with multiple companies, which can be sourced through platforms like GitHub et cetera? Because this could be more remunerative to them from a financial standpoint. Conversely, can the companies find it more difficult to retain highly skilled talent in that new paradigm we are looking forward to?

[Rajesh Gopinathan, CEO, MD & Executive Director]

I think the core to it is the difference between the way we see it and the way you articulated it. We don't see it as work from home. We see it as Secure Borderless Workspaces. And the key factor there is it is not just about connecting a laptop to the end of a network, but it is about deploying a holistic solution set across the entire operating environment. And that holistic solution set includes processes, quality management, employee engagement, learning systems, et cetera, none of which it is available when you are on a freelancing basis. But the market has space for everybody. I don't think there will be a large-scale shift, and we are very confident that our employee value proposition is the best in the industry, and it has been significantly enhanced by the experiences over the last 3 months.

[Sudheer Guntupalli, Research Analyst]

Sure, Rajesh. And one of the key concerns, 90 days back was the potential stress on working capital cycle. But that seems to have been very well-managed with collections remaining healthy. Is there any pending impact here, which may be reflected in the financials of subsequent quarters as in collections related to the execution done during this quarter? Or is it fair to assume that working capital cycles should more or less remain stable versus where they are now? And any color on what you're noting -- noticing on pricing trends will also be helpful.

[Rajesh Gopinathan, CEO, MD & Executive Director]

It's very difficult to comment on. In fact, this -- we were positively surprised by the working capital -- the collection environment, I would say, working capital management was from our side, but the collections environment. And probably it was also supported by the nature of the government and institutional response to the crisis. So primarily, the nature of the response has been to support the balance sheet of impacted companies and industries. And that has also helped everybody in the value chain as it were. As and when that balance sheet support goes away, core business dynamics will come to play. So probably the balance sheet impact has been deferred and we'll need to see how this will play out. This is not just a question from our working capital perspective, but it has key implications on the nature of the economic recovery. And quite frankly, we are interested watchers, but we don't have anything further to be able to come up with a forward-looking answer to it.

[Sudheer Guntupalli, Research Analyst]

Sure, Rajesh. And on pricing, what you are noticing over the last 1 quarter and even after that?

[Rajesh Gopinathan, CEO, MD & Executive Director]

As I said, it's a -- it has both sides of it, industries and companies that are significantly impacted, obviously, are looking for all forms of support from their partners, and we are taking a very pragmatic approach to it. And balancing it is that there is a fairly large-scale flight to quality and customers very clearly understood what the benefits of quality is and therefore there is a resurgence for that value. So we are seeing both sides of it, and we are fully participating on both ends.

[Operator]

The next question is from the line of Apurva Prasad from HDFC.

[Apurva Prasad, Research Analyst]

Thanks for detailed comments, Rajesh. So my question is more on the revenue softness that you saw. Was it more a function of the price in compression -- the overall scope and price compression or more a function of deferral of projects? And therefore, is the recovery path also premised on the fact that these temporary price cuts and deal deferrals will revert? And alternatively, you did sort of touch upon this aspect, but if you can also give maybe some additional color on the fact that is the near-term growth recovery premised more on incremental growth opportunities coming from vendor consolidation as you suggested, flight to quality versus the recovery in the enterprise tech budgets? And I have a follow-up.

[Rajesh Gopinathan, CEO, MD & Executive Director]

It is a little bit of everything this quarter. It's not a one-off kind of a thing. There definitely has been price compression in the most impacted sector. And in those sectors, the demand collapse is going to be fairly long drawn. Whereas there is upsurge in demand across many other sectors, which are, as I said, investing to retool their business models rapidly to participate in the recovery. So the -- both the impact and the recovery is going to have shades of everything in it. The current quarter also had all sorts of [ things. ] One thing that there was a bit of lingering softness in this quarter is the supply side problems that we had in the end of March and early April. That will not be there. So we should see some -- that's a onetime kind of a [quarter] that we'll see. But beyond that, it has got everything. So no specific color to be given on it.

[Apurva Prasad, Research Analyst]

Right. And Rajesh, if you can just highlight that supply aspect, which you just mentioned, how much would that have impacted? And just the second part of that is more on the operational side on that Vision 25x25. So I mean there is going to be a major overhaul with that kind of a delivery landscape that changes. So do you see any structural margin levers coming from that effort, especially because you're getting a lot more employee fungibility?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Then, let me think, the absolute impact of the supply side was similar to last time, slightly more, but in that same range. But in terms of its relative impact for the quarter, it was significantly less. We had said -- so it is about, I would say, 1/5 or so of the impact this quarter would have come from supply side, in fact. But it is on a quarter-on-quarter basis, it was almost the same with about 10% more than what it was last time. On SBWS, I'll let NGS address that question. He is the man behind the vision.

[Ganapathy Subramaniam Natarajan, COO & Executive Director]

No. I think overall, the proven-ness of SBWS is now established, and it is gaining in -- from strength to strength. And overall, employees are happy. We continue to see that productivity, velocity all that is kind of stabilizing after what we saw initially and what we announced last quarter. So there is clearly an opportunity to leverage all of this. And then that's where the Vision 25x25 comes in. We do believe that our customers also like this model. And they also like this idea of location-independent, agile the 3, 4, 5 framework, then how it contributes to talent fungibility and integrating a global workforce irrespective of where they are. So all that, I think, are quite positive takeaways for us in the last 3 months. We have institutionalized SBWS. And I think our employees are also liking the fact that look, that 25% of their time, they can spend in the office, and the remaining time, they can connect remotely and then be meaningful. So overall, I think we are quite optimistic, quite confident about this model. Our security operation center has been monitoring nearly about 400,000 endpoint devices now. So all this augurs well for the future, I should say. Yes.

[Operator]

The next question is from the line of Diviya Nagarajan from UBS.

[Diviya Nagarajan, Executive Director and Research Analyst]

Congrats on the good execution in a very tough quarter. And my question is kind of a little more simple. I think if you look at the kind of impact that you've had in the quarter, would it be able for you to separate out what was the impact of the supply disruption that happened this quarter that is likely to reverse in Q2?

[Venkataraman Ramakrishnan, Chief Financial Officer]

Yes. I can take -- on a constant currency basis, the impact that we had, about 20% of it, you can assume is coming from the supply side impact.

[Diviya Nagarajan, Executive Director and Research Analyst]

Got it. Got it. And you also spoke about some of the sectors and which sectors, specifically on banking. Banking -- could you kind of run us through what you think are the reasons banking has held up really, really well? And I think you did allude to how this is one of the sectors that has surprised you on the upside. Could you run us through what your assessment is? And why banks have held up well? And within the banking space, what are the kind of projects that you've seen accelerated or decelerated because of this downturn?

[Rajesh Gopinathan, CEO, MD & Executive Director]

I think it's all linked to the nature of the -- probably the government response that happened. Banks reacted early on to the crisis by significantly pulling -- taking on a conservative stance on their provisioning, reporting significant reduction in their profits, but these are provisions, not cash losses. So -- but the nature of the support that has come has primarily been to de-stress the entire economy and provide that balance sheet support that I spoke about. So some of that has changed this perception of the environment, whether it be overseas or even for -- so on that matter, parts of India. Even more importantly, banks have actually participated in the distribution of this funding. And that, itself, has been a demand driver for us in terms of reconfiguring their systems to actually enable this kind of a distribution because bulk of the support has gone through the banking channels itself. The nature of support is -- this is one of them. The other element of it is acceleration of various forms of remote banking, contactless banking. We have seen one of our largest customers in Europe, where they had been experimenting with video banking on the wealth side, significantly committing to it. And their CEO, speaking about the fact that it's not something that probably they will get -- go back to even after the crisis is over. And they see this now as an integral part of their overall customer engagement platform. Similarly, we have seen various other forms of changes in the insurance space.I spoke about big transformations happening on the mortgage side: mortgage underwriting, mortgage insurance, the entire -- the original evaluation. All of that is switching to contactless, and there's a lot of activity happening there. Claims underwriting, claims assessment. These are also seeing a fair amount of upsurge. So overall, there is a reduced -- immediate risk perception because of the amount of monetary support that has gone into the systems. And there is actually a willingness to experiment to ensure that these systems are scaled up so that they can deal with a similar kind of a lockdown situation if it were to persist or reappear, which is a scenario that almost all of them are planning for.

[Diviya Nagarajan, Executive Director and Research Analyst]

My last question is on margins. You have seen margins kind of get meaningful impact this quarter because of top-line impact. As you -- how is the visibility for margins coming back into, at least, last year's territory, if not your target zone look like for the rest of the year?

[Venkataraman Ramakrishnan, Chief Financial Officer]

Yes. Ramki here. So Diviya, I think the way to look at it is kind of a significant impact in the margins has been primarily because of the contraction in demand. While we have been able to claw back quite a bit of it, but if the contraction had not been there, the -- this sort of an impact wouldn't be there. So on the reverse, with the growth coming back over the next few quarters, we should see the expansion in the margin also in relatively the similar manner. Apart from that, whatever other things which we can do on discretionary spending, et cetera, we will continue to do and calibrate as it go along, depending on how the recovery happens.

[Operator]

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Thank you. So to sum up, the revenue impact of the pandemic played out broadly along the lines we had anticipated at the start of the quarter. We had revenue declines across all our business verticals with the exception of Life Sciences & Healthcare. But at an aggregate level, we believe that we have bottomed out in Q1, and we should now be on a path of growth from where we are currently. We have been innovating through the quarter and staying close to our customers, coming up with new service offerings and solutions catering to their current imperatives. This has resulted in a good number of deal wins for us. Our order book during the quarter was very healthy at $6.9 billion, driven by 3 broad spending trends on secure workspaces, remote working, front end transformations, and core transformation initiatives. We had a good set of financial metrics, despite not taking any aggressive cost containment measures on the employee or partner front. We were able to deliver an industry-leading operating margin of 23.6% with a significant cash conversion at 132.6% of net income. On the operations front, we have fully institutionalized our Secure Borderless Workspaces model and are now implementing it for many of our customers as well. On the people front, most importantly, TCS has been investing in their time in upscaling themselves. This quarter saw a surge in the learning effort. Our -- and as a corollary to all of this, our retention continues to be an industry benchmark with IT services attrition at 11.1%. So with that, I want to once again thank all of you for joining us on this call today. I wish all of you a very good day, and good night to others. Thank you, and bye.

[Operator]

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.