Tata Consultancy Services Ltd

NSE:TCS

Earnings Call Transcript 2022-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'll now hand the conference over to Mr. Kedar Shirali, Global Head of Investor Relations at TCS. 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 staying dialed in, and I apologize for the delay in starting of the -- of this call. Thanks for joining us today to discuss TCS' financial results for the first quarter of fiscal year 2022 that ended June 30, 2021. This call is being webcast through our website, and an archive, including the transcript, will be available on the site for the duration of this quarter. The financial statements, quarterly fact sheet and press releases are also available on our website and have been mailed out to those who have subscribed to our mailing list. Our leadership colleagues 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]

Hello, everyone.

[Kedar Shirali, Head of Global Investor Relations]

Mr. NG Subramaniam, Chief Operating Officer.

[Ganapathy Subramaniam Natarajan, COO & Executive Director]

Good evening to you all.

[Kedar Shirali, Head of Global Investor Relations]

Mr. Samir Seksaria, Chief Financial Officer.

[Samir Seksaria, Chief Financial Officer]

Hello, everyone.

[Kedar Shirali, Head of Global Investor Relations]

And Mr. Milind Lakkad, Chief Human Resources Officer.

[Milind Lakkad]

Yes. Hi, everyone.

[Kedar Shirali, Head of Global Investor Relations]

Rajesh and Samir 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 have outlined these risks in the second slide of the quarterly fact sheet available on our website, and emailed out to those who 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, good morning, good afternoon and good evening to all of you. As we come out of the second wave of the pandemic, which was once-in-a-generation health crisis, our thoughts and prayers are with everyone who suffered the debilitating effects of COVID and the loss of loved ones. Before we move on to business, I want to talk about what has been a dramatic period for most of us. As the second wave overburdened the country's medical infrastructure, we provided hospitalization support, opened COVID care centers in our facilities in 13 cities to help affected associates and their families. But despite our best efforts, we lost a number of TCSers and their family members. Our thoughts and prayers are with them. Recognizing that vaccination was our best bet to an early return to normalcy, we undertook a pan-India vaccination drive that began in May and which covered not only all TCS locations but also smaller cities where our associates are currently remote working from. I'm happy to say that over 70% of our associates have been vaccinated until date, at least with 1 shot, including their families that amounts to over 500,000 individuals covered so far. We are on track to vaccinate all TCSers and their families by September. Even as we speak, the national vaccination program is also proceeding well, and we are hopeful that we'll never again have to go through the experience that we had over the last 90 days. Moving on to our performance in Q1. We saw continued strength in demand for core transformation services across all segments. But the second we have disrupted technology initiatives in several of our emerging markets, especially in India. While our industry verticals collectively grew 4.1% sequentially in constant currency, headwinds in our regional market and other segment brought down overall revenue growth in constant currency to 2.4%. Sequential growth was 2.7% in dollar terms and 3.9% in rupee terms. On a year-on-year basis, we grew 16.4% in constant currency terms, 21.6% in dollar terms and 18.5% in rupee terms. Our operating margin for the quarter was 25.5%, a contraction of 1.3% sequentially and an expansion of 1.9% year-on-year. Net margin in Q4 was at 19.8%. I'll now ask Samir to go over all the headline numbers, financial and segmental performance, and I'll step in later to talk about demand trends we are seeing and the emerging opportunities into the transformation. Over to you, Samir.

[Samir Seksaria, Chief Financial Officer]

Thank you, Rajesh. Let me first talk you through the headline numbers. In the first quarter of FY '22, our revenues grew 2.4% Q-o-Q and 16.4% year-over-year on a constant currency basis. Reported revenue in INR was INR 454 billion, a sequential growth of 3.9% and a year-over-year growth of 18.5%. In dollar terms, revenue was $6.154 billion, a Q-o-Q growth of 2.7% and a year-over-year growth of 21.6%. Let me provide our segmented performance details for the quarter. All growth numbers are in constant currency terms. All our verticals showed good sequential as well as year-on-year growth. Growth continued to be led by Life Sciences & Healthcare, which grew 7.3% sequentially and 25.4% year-over-year this quarter. BFSI grew 3.1% sequentially and 19.3% Y-o-Y, powered by increasing investments in enhancing customer experience, product innovation, cloud transformation and optimization of core operations. Retail and CPG bounced back to double-digit growth this quarter, growing 4.4% sequentially and 21.7% year-over-year with discretionary retail as well as parts of Travel & Hospitality segments showing signs of recovery in major markets. Manufacturing grew 4.8% Q-o-Q and 18.3% Y-o-Y. Technology & Services grew 5% Q-o-Q and 12.3% Y-o-Y. Communications & Media grew 1.7% Q-o-Q and 6.9% Y-o-Y. By geography, growth was led by our major markets. North America grew 4.1% Q-o-Q and 15.8% Y-o-Y. U.K. grew 3.6% Q-o-Q and 16.3% Y-o-Y. And Continental Europe grew 1.5% Q-o-Q, 19.7% Y-o-Y. Among our recent markets, Latin America grew 4% sequentially and 16.1% Y-o-Y, while the Middle East and Africa grew 4.2% Q-o-Q, 25.3% Y-o-Y. The pandemic second wave severely impacted sequential growth in India, which declined 14.1% Q-o-Q but grew 25.3% year-over-year. Growth has been affected in Asia Pacific, where revenue grew 2.4% Q-o-Q and 9.3% Y-o-Y. Our products -- our portfolio of products and platform performed well in Q4. Ignio, our cognitive automation software, signed up 17 new customers and had 8 go-lives. TCS BaNCS, our flagship product suite for financial services domain had 5 new wins and 5 go-lives in Q1. Over half our deals are now for the SaaS version of the product. This quarter, we signed our largest SaaS deal for TCS BaNCS to date with one of the largest financial groups in Finland for their retail consumer lending business spanning origination, servicing of accounts and deposits, corporate, SME and unsecured loans. Our Quartz blockchain platform had 2 new wins in Q1. We also launched a new product, Quartz for Markets, which helps market infrastructure institutions offer next-generation services around tokenized securities. In Q1, TCS was selected by the largest commodity exchange in India to build a new commodity derivatives platform using TCS BaNCS for our market infrastructure for clearing and custody and Quartz. The new platform will help them achieve their growth aspirations and meet international exchange standards with respect to business features, robustness, high performance and security. In life sciences, our award-winning advanced drug development suite had 1 go-live. We developed the TCS ADD safety platform for a U.S.-based global top 15 pharma company for their safety case management automation program. TCS ADD safety will transform the pharma company's adverse event case intake and processing using AI, thus improving its efficiency and accuracy in the pharmacovigilance processes. Our HOBS suite of solutions for communication service providers had 1 new win and 1 go-live in Q1. TCS TwinX, our AI-based digital training solution also had 1 win in this quarter and 1 go-live. TCS iON, which celebrated its tenth year this year, is expanding its international footprint by winning in its first country-level deal in Indonesia to provide a countrywide digital learning solution for 250,000 schools and also handle the recruitment process across ministries. It also won a customer in Malaysia for a digital campus for 5,500 users. The TCS National Qualifier Test, which is now becoming a preferred assessment instrument for entry-level hiring by corporate India, added 10 more logos in Q1, bringing the total number of corporate employees to 160. Moving to our client metrics. As you are aware, these are important validations for TCS customer-centric strategy for continually expanding and deepening our engagement by investing in newer capabilities and launching newer services and products relevant to our customers. In Q1, we had a robust addition in every revenue bucket compared to the year ago. We added 2 new -- 2 more customers in 100 million banks, bringing the total to 50. We added 5 more clients in 50 million band, bringing the total to 105; added 11 customers -- more customers to 20 million-plus band, bringing the total to 241; 23 in 10 million-plus band, bringing the total to 405; 22 more clients in 5 million-plus band, bringing the total to 586; and finally, 52 more clients in 1 million band, bringing the total to 1,118. Let me now go over the financials. Q1 is when our annual salary increase takes place. This year, we had roughly 1.7% margin impact from the wage hikes. With many parts of the world on their way back to normalcy, we saw some return of discretionary expenses, including travel, offset by currency gains. Our operating margin was at 25.5%, down 130 basis points sequentially and an expansion of 1.9% year-over-year. Net income margin was at 19.8%. Our effective tax rate was 25.75. Our accounts receivable was at 65 -- our DSO was at 65 days in dollar terms, down 3 days compared to Q4. Net cash from operations was at 103 billion, which is 114% of net income. Free cash flows were at 97.5 billion. Invested funds as on 30th June stood at 543.6 billion. The Board has recommended an interim dividend of INR 7 per share. On the people front, we had an all-time-high net addition of 20,409 employees during the quarter, bringing the total head count to 59,058. It continues to be a very diverse workforce with 155 nationalities represented and with the women making up 36.2% of the base. We continue to invest in building the next-generation workforce. Our investment in organic talent development resulted in employees logging over 10 million learning hours in Q1. Over 407,000 employees are now trained on multiple new technologies, and we now have 19,000 contextual masters in the company. LTM attrition in IT services was at 8.6%. While this is still the lowest in the industry, it is inching up. We will be monitoring this closely because we have the largest pool of the best trained digital talent in the country, and there will be attempts to poach as hiring picks up across the industry. Over to Rajesh now for the demand drivers and trends.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Thank you, Samir. I've spoken earlier about how customers are starting off on multi-horizon cloud transformation journeys. These are fairly large programs and within which there are various transformation such as customers, employee experience, supply chain management, sustainability and M&A. I want to give a bit color on some of these. If you look at horizon 1 examples, let me begin with some examples of core transformation, which includes cloud migration, application modernization and data modernization. We were selected by an American investment management group to help them modernize their existing mainframe-based advisory wealth management platform. TCS will leverage its domain knowledge and experience to create a micro services architecture on a leading hyperscaler cloud platform to enhance the retail client experience. A leading provider of high-performance semiconductors and analog solutions has partnered with TCS to advise them on moving their enterprise applications to the cloud. TCS helped analyze and identify the best cloud provider for their workloads, built a business case and a 3-year road map for the transition to the cloud. Coming to horizon 2 example. Several of our customers are now moving on to horizon 2 of the journey using native capabilities of the hyperscaler stack to innovate, transform customer experience and differentiate. For example, we have been engaged by Loblaw, a leading Canadian food and pharmacy retailer, as a partner for modernizing their core pharmacy dispensing platform, leveraging a leading hyperscaler platform. This program is expected to deliver better customer experience, making the pharmacy operations more patient-centric and one of the best in the business. Similarly, the largest hotel franchiser in the world based in the United States has selected TCS as a strategic partner to reimagine their customer interactions and loyalty and to modernize the front office and build a digital core to significantly upgrade their customer engagement. TCS will build smart mobility solutions to improve customers' digital journey enabled by native capabilities of the cloud that will build incremental capabilities to transform franchisees, business function and reestablish the brand value. A world leader and supplier of analytical instruments that are used in municipal, industrial and other process applications to test water quality chose TCS to transform the business from a traditional instrument seller to providing everything-as-a-service model, be it the instrument, the software and services. The transformation, which is underway is comprehensive such as all major business functions and IT systems and involve developing a scalable elastic IoT platform hosted on a leading hyperscaler platform. This one is an especially -- a great example of how when we talk about these technologies, it is not alone that actually brings in that value, but the ability to weave together solutions across IoT, cloud. Even their core enterprise applications are getting transformed on the supply chain side, areas like bringing in newer areas like CPQ. So bringing all that together and being able to transform the customers' business properties -- business model is the core of what we call this growth and transformation-led opportunity set that we are so focused on. The third aspect that I want to touch upon today is sustainability. A lesser known benefit of cloud adoption, which is increasingly moving center stage on the CEO and Board agenda, is the reduction of IT carbon footprint that the migration to cloud provides. That is because hyperscaler providers are liberating scale and technology to build more energy-efficient infrastructure and using renewable energy at scale to power the server farms. Consequently, enterprises who migrate workloads from their own data centers to a hyperscaler are achieving significant reductions in the carbon footprint associated with these workloads. So when we help customers embrace the cloud stack, it is very fulfilling to know that we are also helping them get closer to their sustainability goals. We have articulated our own carbon reduction goals in our FY '21 annual report, which we published in May. We are looking to bring down our carbon footprint by 70% by 2025 compared to a base year of 2016 and to become net 0 emission by 2030. While we work towards mitigating our own environmental footprint, we are also using our expertise to build solutions that help our customers bring down theirs. This quarter, we had quite a few customers engaging us for their sustainability initiatives. For example, an American pharmacy major has selected TCS to deploy TCS Clever Energy for more than 8,300 stores and 31 warehouses, helping them save energy and potentially reduce CO2 emission by 70,000 tonnes. This was a solution that was originally designed and deployed by TCS within its own facilities in India as one of the largest and earliest full-scale IoT deployment and which helped significantly reduce TCS' own energy consumption across over 100 buildings and 33 million square feet of office space that we had. And we have now been able to productize and package it and take it to multiple markets, including Middle East and now North America. Japan's largest power generation company has engaged TCS to transform their power plants with autonomous operations and maintenance using the TCS IP2 solution framework and to help achieve sustainability goals through reduced emissions. Similarly, TCS has been selected by a U.S.-based leading electric gas company -- electricity and gas company for a GIS-based wildfire applications, development and support. This program aims at significantly improving detection and emergency response or wildfire event, hence ensuring environmental protection and public and apply safety. A leading Australian oil and gas company has started design work to build a carbon capture and sequestration plant as part of its energy mix portfolio. It has also started piloting hydrogen production with green energy sources and developing value chains to export hydrogen. TCS is partnering to develop pilots, proving the efficiency of these technologies and to help them achieve their sustainability goals.While on the topic of emission reduction, one of the largest and most material shifts playing out globally is the automotive industry switch to electric vehicle and, alongside that, autonomous and connected vehicles. I want to share with you the broad spectrum of activities that we are engaged in, in this industry as an example of how we are able to be relevant across multiple industry participants in a large industry structure like that. You are aware of our investment in taking over GM's technology center in India. For GM now, more than 20% of those workforce is involved in their electric vehicle and autonomous vehicle programs. Similarly, TCS is now partnering with over 15 start-ups in the AV and autonomous space, including companies like Stoneridge, Velodyne, Luminar, et cetera, working on areas, including LiDAR, battery management systems and a full spectrum of various activities in this stack. On the Tier 1 vendor side, we're working with a leading provider in the areas including ADAS 2.5 development and, even more importantly, working together with them to address the significant shortage in the chipset. That is one of the biggest impacts that the automotive industry is going through. Our teams work jointly with [ the dev ] to put together an analytics and a procurement solution that maximizes the contextual knowledge and the data and the data systems and combine that with the ecosystem of partners that they have to identify both sources as well as to optimize choices of products and portfolios to maximize value and customer centricity across the ecosystem. The strength of technologies that we see and the unifying fabric of cloud is allowing us to be relevant, as I said, across various customer size levels when they're brought together under common themes at across industry levels. Moving on to another thing that we've spoken a lot about in the past, it's mergers and acquisitions. It's a recurring G&T theme, and corporate restructuring leading to M&A or divestiture are areas where we are significantly participating. In the case of pharma, we are helping customers integrate and harmonize the merged entity or the acquired entity's process and systems into the acquirer's landscape. With the latter, we help customers plan and implement the separation of assets and processes to ensure that the divested entity is fully operational from day 1 of its independent existence. In addition to our deep contextual knowledge and technology expertise across the spectrum, customers have been selecting TCS for our differentiated ability to stitch together multiple services and offerings such as M&A consulting, strategy, planning, digital value identification and harnessing, change management, TSA management, day 1 readiness, supply chain ERP implementation throughout, et cetera.Now I want to take a couple of examples that showcase some of this. A U.S.-based biopharmaceutical company selected TCS as a partner to design and implement integration of their acquisition of a medical aesthetics major recently. So what we've been able to do is to leverage our deep contextual knowledge of the acquirer in designing the sequence of process integrations that need to be played out to maximize the realization of the 2 billion cost synergies that the acquisition is very strategically hinging on. Similarly for a global pharma leader, TCS worked very closely with them to identify integration strategy for the newly created JV a few years back, where we put in place a slightly -- a typical solution involving integration of technology systems on to the parent entity, even though the acquired entity continued as a joint venture. And now we are working with them to help them spin off the technology systems to make the JV fully standalone and ready for an independent strategy of its own. Alongside these growth and transformation engagements, we are also seeing increased activity around outsourcing as customers look for pathways to fund their new initiatives. Here, too, our innovative approach to deploying machine-first operating model powered by AI and machine learning to reimagine business and IT operations is helping us win such deals across industries.Coming to our Q1 order book. We are seeing a strong demand for our services, as I've spoken about. As you know, we have had strong deal wins every quarter in our fiscal. On the back of an all-time high TCV in Q4, we once again had a very strong set of deal wins in Q1 with a TCV of 8.1 billion. Once again, it's a very heterogeneous mix of deals of all sizes and distributed across industry verticals and geographies. By vertical, BFSI had a TCV of 2.2 billion, while retail vertical again achieved its all-time high order book of 1.5 billion for the second consecutive quarter. The TCV of deals signed in North America stood at 4 billion. With that, we can now open the line for questions.

[Operator]

[Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss. Sorry to interrupt you, Mr. Agarwal. We cannot hear you clearly.

[Sandip Kumar Agarwal, Vice President]

Yes. Can you hear me now?

[Operator]

Yes, we can hear you. It's not very clear. May I request you to come on the handset mode and then ask your question.

[Sandip Kumar Agarwal, Vice President]

On the handset mode, yes. Can you hear me now, please? Can you hear me now?

[Operator]

We can, sir, but it's not very clear. I would just request you to please check your phone line and join the queue again. In the meanwhile, we'll move to the next question. The next question is from the line of Sudheer Guntupalli from ICICI Securities.

[Sudheer Guntupalli, Research Analyst]

My first question is on the SBWS model. In the recent past, we have seen news flow about CEOs of the American banks expecting their employees back in offices by a certain time line. We are seeing similar trends in India as well as most of the employees are vaccinated at least once. So in that context, when the clients are expecting their own employees to be back in offices soon, will they realistically allow the IT vendors to let their employees work in a borderless manner? Any thoughts on this will be helpful.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Thank you, Sudheer. I think we have committed to SBWS as a model, and a number of our customers are happy with the way that it is working. But having said that, look, customers are demanding that people will have to be working from, let's say, approved facilities, then we will have to discuss with them and align accordingly.

[Sudheer Guntupalli, Research Analyst]

Okay. Rajesh, my second question, we understand that in Indian business, there was a force majeure event. But even if we shift the focus away from India business for a minute and assume stable revenue run rate was there, probably we can add about 70, 80 basis points of growth to the reported 2.4% number. That takes it to roughly 3.1% sort of a sequential growth in TCS terms in June quarter, which is perhaps seasonally the strongest. Historically, the industry or TCS would have average growth in the north of 3.5% in June quarter. Now that we are anticipating structurally higher growth rates post-COVID, how do we reconcile this tepid growth in seasonally the strongest quarter? What is the basis of this? Or what if in FY '22, probably this run rate can translate into the same 8% to 9% sort of a growth that we were doing even before COVID. Any thoughts on that will be helpful.

[Rajesh Gopinathan, CEO, MD & Executive Director]

I think seasonality and many of the growth trends that we've spoken about is better understood at a market level. And at 4.1%, most of these core markets that we've seen, I think the growth trajectory is fairly strong and especially coming on the back of this being the fourth quarter of sequential 4% growth. So I think the numbers are there. Even more importantly, the main growth themes that we've spoken about, we have been seeing increasing traction on that. And our confidence in that is strong and, in fact, getting stronger as many of the things that we expect played out. The -- how the specific quarter or the next quarter develops, it's difficult for us to call. We are hopeful for a return to strong growth on a secular basis. But irrespective of that, the business model and the business strategy is making sure that we are aligned to the right trends. And in that area, we are quite confident about our long-term bets on the cloud as well as our increasing focus on what we call the growth on transformation side. So we are quite, overall, happy and confident about that trajectory.

[Operator]

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

[Diviya Nagarajan, Executive Director and Research Analyst]

First question, Rajesh, just on pricing. I think we are probably in the most conducive environment for price increases that we've been in a long time. Could you kind of throw some light on what you're seeing in terms of pricing overall for the company and what you're seeing for the digital side as well? And that's question number one. The second one is just for me, we've started with the 25.5 kind of margins. Should we expect normal seasonality of improving margin trajectory as the year goes on, travel costs not included? And corona lead to that -- would also be that -- and how do we expect travel costs to trend this year?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Diviya, I want to make sure I understood your first question. You're asking about the pricing environment in the overall cloud demand rate?

[Diviya Nagarajan, Executive Director and Research Analyst]

Overall and specifically with digital as well. And specifically, if I was going to find that further, are you able to push through price increases or cost of living increases given that we are in an increasing demand as well as a tightening supply situation?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Yes. So Diviya, I think we have spoken about it in the past also. As I said, our pricing strategy is built on fairly long-term relationships with customers, and it's not very volatile to specific demand trends. But the second part of your question is the more relevant one. Typically, in a positive environment like what we have, some of the contractual provisions like COLA increases and all go through much more easier as, also, we have a much more supportive environment in terms of distribution of skill sets across various price plans, et cetera. So there is definitely a small long-term support coming out of the demand environment. But headline numbers and specific pricing is not very materially linked in our business model to short-term spot demand as it were.

[Samir Seksaria, Chief Financial Officer]

Yes. Diviya, to your question on margins, as you have seen in the past, margins are usually lower in Q1, impacted by the normal increment cycles which we have. And also, we have said that growth remains our biggest driver to margins. So as we see growth taking in back in, we should see the margins recovering from the Q1 impact, which we would usually have. Having said that, as you rightly asked, we are seeing uptick in many discretionary expenses. Travel this quarter also has a slight uptick. And we expect expenses, some of the discretionary expenses to get back to pre-pandemic level by the end of this year.

[Diviya Nagarajan, Executive Director and Research Analyst]

Sorry. So what does that mean in terms of margin ranges as we go through the rest of the year and for the full year?

[Samir Seksaria, Chief Financial Officer]

We'll have to wait and watch on that. But we would be -- we should be able to maintain margins or sustain margin.

[Operator]

The next question is from the line of Sandeep Shah from Equirus Securities.

[Sandeep Shah, Director of Research]

Congrats on the good execution outside India. Just the question in terms of the order book. So Rajesh, can you share last time you said that we had only 1 deal which was about $500 million. So is it possible to share number of deals above $500 million? Or this time also, the order book has been constituted by many small and medium-sized deals? And just to follow up on that, for these smaller and medium-sized deals, how is the mix of the demand? So is it sticky deals where revenue can be annuity? Or do you have to replan the smaller-sized deals each quarter? So the run-on-the-ground could be higher, which may be too has SG&A spend [indiscernible]?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Sandeep, let me answer the second part of your question, and I'll come back to the -- so the distribution of deals is fairly well mixed between large and small ones. And the -- I would say that what you asked in terms of SG&A load, of course, that is higher on the smaller deals, but there is a fairly good distribution. So our overall SG&A load should not be any significantly different than what we have seen in the past. And this is across markets, across all our major markets. And that's the kind of nature of deals that we're seeing. I didn't fully follow the first half of your question. Is that the same mix of deals or?

[Sandeep Shah, Director of Research]

Yes. Last time, I think you said out of $9 billion order book, there were only 1 deal above $500 million. So can you say that number for...

[Rajesh Gopinathan, CEO, MD & Executive Director]

That's same -- it is a similar trend this time also. In fact, we don't even have a deal above $500 million in this. In fact, the largest is about $400 million. But we have a fairly large set of deals in the -- in that category. But overall, it's well distributed. There is no dependence on one single deal, which has been the case for the last few quarters actually.

[Sandeep Shah, Director of Research]

Okay, okay. And just a couple of more, if I can squeeze, just a follow-up to Diviya's question. So Rajesh, are you saying clients are receptive to consider a price increase because of the talent crunch even in the near to medium term? Or it may happen over a longer period of time? And second, in terms of the India business, what I understand, it's not a business which is lost. It's just the postponement. And if it's a postponement, do you expect the full recovery by 2Q itself or maybe spread over to Q3?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Yes. So Sandeep, the answer to the first question is that, as I said, in our business model, price volatility is fairly low on both sides. So typically, businesses are built on long-term MSAs. There is some amount of tactical change that happened. And the incremental deals for incremental client acquisition reflects the price environment at that time. But bulk of the business comes from existing relationships. And there, the pricing is quite stable. We don't -- we are not much into what I said earlier, the spot market as it was. The incremental deal [indiscernible]. Greater support comes from the fact that revenue leakages and pricing increase opportunities and contract renewals and all, they are much more easier to enforce in an environment like this compared to when the demand environment is more stretched. So it gives a long-term lift and support but not a very meaningful short-term flow-through. The -- on the second question on India, we are very right that it is not business lost per se rather than more of business postponed. And if things continue the way they are in the last few weeks, we should see an equally strong bounce back in the India market as it comes back to normalcy. So -- but we will wait and watch and see how it develops. But it is a one-off kind of an event.

[Operator]

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

[Apurva Prasad, Deputy Vice President]

Yes. So Rajesh, how should we think about Continental Europe? That's been the growth driver earlier. And it appears that deal wins have been strong, but the region decelerated last quarter. And I think you mentioned in your earlier comments that you'd probably consolidate for another 1 or 2 quarters. Is that just base impact? Or should we read anything beyond that?

[Rajesh Gopinathan, CEO, MD & Executive Director]

It's -- the current quarter has significantly impacted the sequential 1.6. On the year-on-year basis, it's some 19%. Sequential 1.6 is impacted by the fact that it grew 8.5% last quarter in Europe. So there is definitely that, and that will have another 1 or 2 quarters of impact as we digest that and restructure that relationship. But the overall demand environment in Europe continues to be very strong. We are seeing good traction in transformative deals. Europe has also used this opportunity to embrace offshoring in a much larger way, which is also -- while it's much more -- it is very encouraging from a longer-term business model perspective. We are also seeing parts of manufacturing return significantly in Europe on the industrial side, not as much on the automotive side. Automotive U.S., we have seen very strong recovery. But industrial manufacturing, we have seen good recovery, especially created penetration into many segments that we were earlier not that present in. And we are also seeing retail, I think I mentioned earlier. Travel and transportation, once again, North America is leading the recovery, but we think that, that will come through. And we are again seeing penetration into newer segments like rail and other areas, which were traditionally we were not present in. So overall, I'm very positive about Europe and both on the demand side as well as on the revenue side.

[Apurva Prasad, Deputy Vice President]

Okay. My second question is for Samir. You mentioned discretionary spend outside travel seeing an uptick and hitting pre-pandemic in 3 to 4 quarters. What do you think are offsets here in order to hold on to margins, especially as we see attrition looking to get towards double-digit?

[Samir Seksaria, Chief Financial Officer]

So we would expect -- so the discretionary spend upticking would definitely be there. We'll have to rely on other levers including growth being one of the key levers and also looking at probably differential pricing to offset that. But we would look towards all the measures available to help us sustain margins.

[Operator]

The next question is from the line of Gaurav Rateria from Morgan Stanley.

[Gaurav Rateria, Research Associate]

Two questions. Firstly, the book-to-bill ratio historically used to be 1x, 1.1x. And now it has been sustainably above 1.4x in the last few quarters. Should one read that as a better revenue visibility over the coming quarter versus the usual year? Or should one read that as a change in the average tenor of the deal? That's my first question.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Some of the cloud and large-scale technology transformation deal, definitely tenor has increased in the recent past, in the last year or so. So there is definitely some amount of that factor at play. Beyond that, it's early stages yet to say what this is because, as you know, we have been reporting this only for the last 2 years. And the -- I think the ratios you are referring to come from other business models. So we'll have to wait and see what the stable ratios for our business model are.

[Gaurav Rateria, Research Associate]

Okay. Secondly, just want to understand the growth in transformation deals in which we are winning our fair share, how the deals are originated? In the sense, historically, one would expect the consulting companies to be advising on some of these deals, which can flow through either to the same consulting companies or to the outsourcing companies. Just trying to understand how the difference in the origination of deals have happened for these kind of opportunities, which probably we were not participating a couple of years back.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Absolutely. I'll go back to a couple of examples that I actually touched upon in my opening comments. So if you look at traditionally on the M&A side, we used to participate on the front end of the transformation side, the technology integration, firstly, though that used to be a significant part of the value driver. If you look at most M&A transactions, the most definite and the called-out value is the synergy benefit. And bulk of the synergy benefit really comes from technology integration and rationalization of processes. And we would participate at the -- at only the technology level. What we're doing is we are now proactively in scenarios like that going to customers and putting out our point of view on what that strategy ought to be. And that is allowing us a seat at the table all the way up to the -- actually the day 1 planning and integration management office. So an example is the one that we spoke about, where a biopharma company acquired a company in what is known as cosmetic health care or cosmetic drugs. So these -- the portfolios were quite different. There were parts of the portfolio that could be integrated, parts of the portfolio that requires a different supply chain and a different customer front end. Because of our deep contextual knowledge of what their systems were and what parts of the systems could be exposed to be able to support the new business models, we were able to put out a very proactive pitch to them saying that we can significantly accelerate this integration by following this strategy and accelerate the realization of the 2 billion synergy value that they had shared with the market. That allowed us a seat at the table in terms of designing that and thinking through the options of that integration and being part of what is known as the integration management office and designing what is called day 1 operating strategy. And so it is, in many ways, us actually becoming more aware of the knowledge that we have, being able to package and articulate it better and then being able to convert that into incremental services and opportunities of that chain or in the front end of that chain. So that's a classic example of what we are trying to achieve here at building on our trusted relationships, building on the contextual knowledge that we have and then reaching forward and investing in those incremental consulting capabilities and skill sets that are required so that we are putting out an integrated seamless proposition, which competes against outside proposition that a traditional consulting model brings about. So that's the nature of the change that we are seeking to engineer here, and early signs of success are very encouraging.

[Gaurav Rateria, Research Associate]

Great. If I may just squeeze in last question for Samir. Your comment on stable margin outlook is for the full year, right, sustained margin and the last year level. Is that correct, my understanding?

[Samir Seksaria, Chief Financial Officer]

Yes, absolutely. I'm talking about long-term structural margins to be sustained, and it's for the full year.

[Operator]

The next question is from the line of Ruchi Burde from BOB Capital Markets.

[Ruchi Burde, Research Analyst]

My question is to Milind. Could you share your thoughts about the talent market situation at present and some qualitative colors regarding the talent induction which TCS is having maybe in terms of the mix between the fresher and experienced professionals, the locations? Are we doing more offshore? Or are we committed to the on-site local hiring agenda even at the current moment?

[Milind Lakkad]

Yes. So I think our model is very strong, and we have been using this for many years now, and that remains the same. Basically, our -- like we hired close to 40,000 trainees last year from the campus. We will do the same thing, even more numbers this year. The overall market demand is -- job market is hot. So yes, there will be some impact on attrition. But like I said earlier, it is something which is part of our operating model, and we will manage that. It will -- I don't think it will have an impact anything specifically on any parameters, business parameters materially. So -- and the fact that we are continuing to hire not only in India but we actually have strengthened our overall local hiring across the globe, and that continues. For example, a very large number of trainees of the order of between 2,000 and 3,000 trainees, we'll hire in U.S. again this year. And similar numbers are there in APAC and LatAm. And we also are building now a training base in Europe and U.K. So I think from a talent standpoint and our operating model standpoint and, most importantly, our own internal talent development machinery, which is industries is all of these factors when they come together, we actually create an operating model which can deal with any of these external environment parameters in a very healthy manner.

[Operator]

The next question is from the line of Girish Pai from Nirmal Bang.

[Girish Pai, Head of Research]

Rajesh, I had a couple of questions on demand. You mentioned that last couple of quarters, you've not seen very -- I mean we've not locked large deals. You had -- the large deal was 400 million this quarter -- rather in 1Q and the previous quarter, it was 100 million. The question is, aren't there large deals in the market anymore? Or are you working away from large deals because they do not meet your profitability criteria?

[Rajesh Gopinathan, CEO, MD & Executive Director]

No, no, we are not walking away from large deals. I think we continue to participate. We are quite disciplined in our approach but are also tactically quite competitive. It is just the nature of deal closures that we have had and the kind of pipeline that we are focusing on. It's also impacted by our increasing focus on the G&T kind of engagements and traction that we're gaining. But as a strategy, we are focused on the full spectrum. And we absolutely are very keen and participating in many such ones, whether it be the large one that we spoke about last quarter. Last quarter, I said 500 million -- 500 million-plus rather, which was the Deutsche Bank deal in Germany. We have spoken about in the past -- the quarter before about Prudential deal in Ireland. So large, transformative, even outsourcing-led deals, we are very, very focused on it. It's a sweet spot for us.

[Girish Pai, Head of Research]

The second question had to do with pipeline. Your order inflow numbers have been growing in the teens, high teens last quarter. So is the pipeline also growing at that same rate? Or is it growing faster? Or is it -- are your growth in the order inflow largely market share gain-driven?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Our pipeline numbers are growing, but we are not directly sharing that because also, as I said, we are stabilizing these metrics. Our typical target win rates are different, and we are taking a more liberal view on what we want to participate. So we are seeking to participate more than what we were traditionally seeking. And that is driving a much higher pipeline growth. But I wouldn't directly relate that to revenue. So it's part of the overall transformation that we are going through.

[Operator]

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, operator. To sum up, the growth and transformation themes we have been talking about are only strengthening as evidenced by the robust growth in our major markets and across industry verticals as well as strong deal wins in Q1. With growth returning, we had robust client additions across all revenue buckets this quarter, which is an important measure of depth of our customer relationships. Our margins continue to be industry-leading and we believe will sustain going ahead. It also gives us the wherewithal to continue investing in building the capabilities needed to expand our footprint in the growth and transformation opportunity. On the people front, we had an all-time high net addition in Q1. Our attrition continues to be low at this point, but we are watching carefully given the strong demand for high-quality digital talent in the market. Our pan-India vaccination drive has progressed well. Over 70% of our employees are now vaccinated at least with the first shot, and we expect to cover all TCSers and their families by September. Thank you all for joining us on this call today. Enjoy the rest of the evening or day and do stay safe. Thank you.

[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.