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Tata Consultancy Services Ltd
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Hello and a very warm welcome to the First Quarter FY '24 Earnings Press Conference of TCS. Thank you so much for everyone just joining in on all our streamed channels. So we are live and streaming on social media channels. And of course, we have friends from media in person over here. Without further ado, I would like to introduce the management first. We have K Krithivasan, MD and CEO; NGS, COO; Samir Seksaria, CFO; and our CHRO, Milind Lakkad. Without further ado, we'll start with the opening remarks from the CEO, K Krithivasan, the floor is yours.
Thank you, Kritika. Good evening, everyone, and thank you for joining us today. So we had a good quarter given current market uncertainties. I'll quickly walk you through the numbers. Our revenue grew by 7% on a constant currency basis. Our rupee revenue grew by 12.6%, crossing INR 59,300 crores. Our operating margin stands at 23.2%, which is on top of a healthy annual increment effective April 1. This translates to 13,755 crores of operating profit. Our net profit for the quarter has come in at 18.6% translating to INR 11,074 crores and an EPS of INR 30.26. Our cash conversion of net profit continues to be very strong. Our cash from operations stands at 102.5% of net profit which is almost INR 11,353 crores. The Board has declared an interim dividend of INR 9 amounting to about INR 3,300 crores. reflecting our sustained focus on building deep customer relationships.
The number of customers from whom we make more than $100 million rose by 1 to 60 customers on a year-on-year basis. There has been strong customer movement across all the bands also. In addition, our customer base of 1 million plus customers, as that is our smaller ones like, but who we acquired recently, stands at 1,268 customers, which is an increase of 72 over last year.
Moving on to segmental commentary. U.K. bucked the trend of global demand softness and grew by 16.1%. North America and Europe grew by 4.6% and 3.4%. Our growth markets like India, LatAm and Middle East and Africa all had a strong double-digit growth.
Among the verticals, Life Sciences and Healthcare, Manufacturing and regional markets and platforms had a strong growth. Life Sciences and Healthcare grew by 10.1% and manufacturing by 9.4%. Regional Markets and platform grew by 16.9%.
Among other verticals, BFSI grew by 3%. Retail and CPG grew by 5.3%. Technology & Services grew by 4.4% and Communications and Media by 0.5%. Our deal wins continue to be very strong, supporting our belief that investments in technology will remain strong over a long period of time. Our order book closed at $10.2 billion this quarter, marginally higher than last quarter and almost 24% higher than same period last year.
We had deal closures worth of $5.2 billion in North America, $3 billion in BFSI. Both North America and BFSI being 15% higher than Q1 of last year and $1.2 billion in retail and CPG.
Our attrition continues to improve. On an LTM basis, our IT attrition reduced to 17.8% from 20.1% in Q4. There's been a lot of interest in Gen AI. I thought we will also give you a quick update on what we are doing in Gen AI. Generative AI promises to transform most knowledge work by assisting and augmenting people and improving their efficiency and effectiveness.
We are currently engaged in over 50 proof of concepts and pilots on Gen AI, And we have more than 100 opportunities in the pipeline. Our experience in building several Gen AI powered use cases as shown that full potential of Gen AI is better realized through an enterprise-wide initiative rather than isolated use cases, requiring deep partnership between business, legal, risk and compliance and as well as data and technology teams.
So we are starting to engage with many of our customers in helping them: one define their Gen AI transformation strategy; two, to define appropriate data strategy and platforms; three, to define and enforce the guardrails to leverage and implement Gen AI; and four, become effective in driving [indiscernible] cycles for purpose of the Gen AI agent.
So we are looking at it holistically and at the enterprise level. To drive such holistic engagements, we are also leveraging our deep domain and contextual expertise available in the form of about 65,000 contextual masters and domain experts in TCS in different industries as well as a pool of about 20,000 technology solution and interface architects.
Our Gen AI strategy leverages and builds upon our significant AI research, research and innovation capability present in our corporate R&I units. This group has already filed over 710 patents for AI inventions in just past 5 years and 282 of these patents have been granted already. TCS already has a pool of 50,000 associates trained in AI/ML solution building skills with over 9000 with top external certifications. Just in FY '23, TCS associates invested 1.4 million hours of learning on AI/ML or related skills.
We have started large-scale Internet -- sorry, internal talent development across multiple Gen0 AI solutions, solution suites. We are also partnering with all the hyperscalers. We plan to create a talent pool of over 100,000 Gen AI trained associates. Our focus on innovation continues to be strong. To date, we have filed for 7,447 patents, which is an increase of 695 over last year. Our total patents granted has crossed a milestone of 3,000 and stands at 3,004 at the end of Q1.
Just in Q1 FY '24, we have applied for 142 patents, and we have been awarded 126 patents, which is almost 2 per working day. And also, we are very proud of the fact that out of 3,440 patent holders, 753 are women. So on that positive note, I hand it back to Kritika. We'll open up for questions. Back to Kritika. Thank you.
Thank you so much, Krithi. We'll throw the floor open for questions. [Operator Instructions] And it is the quarter press conference, so I would request everyone to stick to the earnings-specific questions. So we're going to start this time with Ashish Aghashi from PTI.
Sir, this was -- there has been commentary that, okay, the near term would be a bit difficult for the entire sector. So how far would this near term clearly last. So how do we define the -- what is near and what is medium and what is long term, basically. And sir, linked to that, you are reporting some softness in the growth in BFSI as well as in North America, which are the key markets for TCS.
So like what is -- like your definitely that is the TCV there on both the sides. But how does the pipeline look on both these things? And I'll just squeeze in the second question.
Third question.
Sir, like not strictly linked to the earnings, but still, I guess, everybody would be interested sir, about the entire vendor appointments probe. So what is -- is there any update on the same like -- and these 6 associates? What level are they from -- like have they been -- like when we say banned so have they been dismissed, suspended like -- and there were 3 others against whom some probe was on. So is there something more to it, basically?
Okay. See the -- on how long the near term or short term, your guess is or our guess is as good as your guess, right? We are not -- we'll not be able to predict when the economic recovery will be there. I think you guys probably know it better. But our going-in position is we always said that the technology spend in the long term is likely to be strong, and that's validated by the TCV that we have in multiple verticals and geographies.
And our pipeline has also remained very strong. In fact, despite the fact that we had a strong conversion of the pipeline into TCV, our pipeline has remained strong. So that gives us the confidence that our clients are continuing to look for investing in technology. But there is a near-term softness because of the uncertainty and we find some of the, how do you put it like low ROI or not so business-critical programs, getting passed or deferred or reprioritized. That's what is causing the softness in terms of revenue or conversion.
I think I answered your first 2 questions. The third question on the topic of -- you mentioned vendor or RMG, like whatever we need to say has already been said. And at this time, we have nothing to add. Okay. If there is something to add, we'll come back.
Thank you, Krithi. Our next question from Dhwani from Reuters.
Sir, so mainly on a demand environment, again, I had that question. For next quarter, what kind of total contract value you are expecting, I mean, this quarter?
I don't think we have answered that kind of question in the past. I know that I'm going to start a trend now.
Next question from Romita Majumdar from Economic Times. Romita, if you can direct who your question is to?
Sure. So my first question for Krithi would be around the demand outlook since you said there is a near-term softness. If you could help quantify what kind of softness, what are the signs that you see in terms of the softness? And also, since Ashish has already asked this, in terms of specifically BFSI and CMT verticals as well, there seems to be a slight dip in that space.
And for Milind, I have a few queries. One is, of course, in terms of the variable payout for this quarter, what can we expect. There are also some concerns that onboarding has been delayed for a certain number of candidates. So I wanted to understand what is happening on that front. And finally, in terms of because the number this time, it's around 523, which is generally much higher for Q1. So we wanted to understand what does the hiring outlook look like? And if you can also share the fresher intake this quarter.
Okay. I'll first take that. So again, as I explained, the softness comes because some of the programs which are not very business-critical or where the ROI is not very high, those programs are getting paused or delayed or sometimes they run on a lower capacity, so which is causing the softness. And you can -- probably if you can go into further details, like we looked at, at the start of the pandemic or during the pandemic, a lot of technology investment happened.
And once people start thinking now can we get more efficiency out of it. Every one of those projects, they are scanned and the people look at, revalidate or reassess those programs. Whenever the ROI is not very clear, those programs are getting paused, but it doesn't mean that, that's the reason we are seeing. The new programs people are -- our clients are still very confident of investing long term. So that's the reason the TCV is continuing to go. Some of the older programs where the ROI is not strong. See sometimes you'll have a release 1 already complete. Do they have to do a release 2 or can they pause the release 2; if they don't do a release 2, then you end up having a reduction in demand for -- or reduction in deployment for such kind of projects.
Coming into the sector, BFSI like largely found our banking to be okay, like most of the large universal banks are doing okay because lending as a business is doing quite okay. From mortgages it is as expected, weak. Capital markets are weak. Amongst the insurance, we find P&C to be weaker, but generally life insurance to be stronger. In terms of CMT similar thing, like many of the telcos invested in 5G quite a bit. Now as they don't see the revenues commensurate the investment they made, they are looking at moving into efficiency cycle and seeing how do they conserve cost.
Variable pay, we are going to basically pay 100% of variable pay for 70% of the people, our people. and the rest 30% will get paid based on the business rated performance. Regarding your question on onboarding delay, you all -- you know for many years, we always honor all the offers, and that would continue.
There are certain delays based because of the environment we are in because of the project delays. Krithi just talked about release 1, release 2 and how things are not getting progressed. As a result of that, the onboarding of those associates also get delayed. So in certain cases, that is getting delayed, yes. But that is purely based on the project situation. But I commit today that we are going to honor all the offers. Regarding your question on the freshers' intake, we don't give out numbers for a quarterly fresher intake numbers, but we will continue to onboard freshers.
Our next question from Shivani Shinde from Business Standard.
Krithi, you've already spoken on the BFSI. But of course, last quarter, we did hear a lot of big deals coming in. If you could just elaborate more on it, When you say the environment, do we assume that's what the company has said that the cost and optimization deals are back on table. So do we assume that large deals are also back? What's happening on the cloud scenario as well, if you could elaborate on that.
NGS, on the BSNL deal, is that a part of this quarter? What's happening if you can update on that.
Samir, hiring numbers are significantly low. Even last quarter was low but the margins does have a huge wage impact? Do we see that coming down.
And Milind, to you, the number that you shared last year, last quarter for the hiring, is that the same even now? I think it was 40,000, if I'm not mistaken. Okay.
So the large deals we did announce, NEST is a very important deal that we announced. And so also deal that we had lost and we got back. It has -- that's a large deal that we announced, and it also reemphasizes the strength of our solution. It's been validated by the market as well. So that's a large deal. But otherwise, also, the number of large deals that we have this quarter is similar to what -- we don't announce the number, but it's similar to what we saw in the last quarter also, trend-wise it is same.
The question on cost and optimization. Like it is, again, like I won't say the large deals are small deals, but it happens in multiple ways, right? Like you can have a vendor consolidation deal, which could be large, but there could be an application rationalization deal where somebody is trying to merge multiple core banking systems into 1, because some of them could be small or big, but overall, to be expected, there are more C&O deals than transformation lease at this time.
On the BSNL, this $10.2 billion overall deal value does not include the BSNL opportunity, right? I can confirm that we have got the advance purchase order for the BSNL deal. We are working with the BSNL management to actually get the confirmed purchase orders at a zonal level and circle level, and that work is on. So certain events will have to be concluded so that we can actually put it into the converted bucket. Yes.
On your question on margins. Like it happens in any year, we take the annual increment headwind upfront and then we claw back on the margins as we go through the year. You would have seen that happening in last year itself, and that is what we'll target through this year as well.
The number of 40,000, I would still say, yes, but how would get spread out over the year, how it eventually will depend on the situation, market situation. So for now, I think the number stands, but the spread is still uncertain.
We said 40,000. We normally hire 40,000. How we will get spread out over the year is something which we are working on.
Reema Tendulkar from CNBC TV18.
Congratulations. Krithi, the first question is on BFSI, Hi-Tech, North America communications. These are all verticals which you all have flagged off in the past as being a bit stressed. You've cautioned about it. When can we expect a recovery? Do you think it's possible in H2, there is a possibility demand picks up? Are there any signs from your conversation that spend -- clients are getting more comfortable to start spending now from here on, maybe 3 months down the line.
And NGS, do you think this $10 billion TCV that you've clocked in for 2 consecutive quarters now is sustainable? And also on the -- I think this $50 million deal, last we said it's at a record high in Q4. Is that something which has been there, if you could talk about that $50 million deal. And Samir, on margins, do you think that 25% is achievable by Q4 of FY '24 and aspiration that you had last year? Do you think this time it's achievable.
Reema, it will be too difficult for me to call on when this recovery will happen or start. Like we are also seeing -- we are working closely with our customers. We are trying to see what issues they have, how to resolve them. But when the demand will be back, I think it depends a lot on how the macroeconomic parameters turn out to be, whether there is a recession, not a recession. And when there is certainty -- essentially you will see more spend happening when there's a certainty. When there's uncertainty, you will see this...
No [ green shoots ] as of now. And how will you compare the demand today to what is it in three months' time...
I'd say like we had the same -- very similar TCV like last year. So which is an indication that clients are confident about long term, but uncertain about short term. But I don't know when -- like I was telling him, I have also no clue on when that...
Demand is similar?
Demand is similar.
And there is no signs that...
Reema, you have 3 more questions now in queue.
It will be too difficult for me to call that, Reema.
I think we are pleased that in a continuous quarter, we have clocked upwards of $10 billion in overall contract values. And what's important is it's come from -- $5 billion have come from U.S., about $3.2 billion from BFSI. The rest of retail is about $1.2 billion. And that has come from broad-based markets, right? I must acknowledge though that the deal conversion in Europe is taking a little longer than what we typically are used to, right?
I think $10 billion is a good to aspire for continuously. But we always -- in the earlier occasions, we have said that $8 billion to $10 billion is a good benchmark, good band to be operating in for us, right?
Overall, we are pleased with the kind of deals that we have signed, a good combination and the pipeline looks strong. It's -- we see opportunities for vendor consolidation. We see opportunities for transformation deals. We see opportunities for cloud, AI-led transformations. Many of these things are in the pipeline, which looks pretty good.
And if you take even the $10 billion barring that 1 mega deal in NEST that we announced, the rest of the things are all a combination of $50 billion, $60 billion, $70 billion those kind of deals. So I think people will be more comfortable signing such smaller deals because it gives them that flexibility and then they're also able to -- given the recessionary trends and things like that, they also want to sign up more short-term deals where the return on investments, as Krithi pointed out, is seen and something that they can be very agile about decision-making and getting some of the things quickly done.
Generative AI, as the -- now every project, are you including Generative AI within the scope or not? It's a conversation that we typically have, right? So in that context, that every project that we do, what are the intelligence layer that we have built in the architecture? And is it something that we need to go and validate. So can we add -- instead of merely AI/ML, can we add a Generative AI piece to it. So those kind of checks and balances and controls are being also talked through. But overall, I think we have a fantastic pipeline. We are happy that we have done 2 consecutive quarters, $10 billion plus. North America, doing $5 billion, the other one doing, BFSI doing $3.2 billion. I think we are happy.
So Reema on the margins front, 26% to 28% remains the aspiration band, which we all collectively believe we should operate in. And we have all signed up to it. Last time, the 25%, given the current macro uncertainty and the lack of visibility, it would be difficult to put a number through in terms of where we'll exit that, but we'll try to claw back and creep up as soon as possible.
Anisha Jain from ETNow.
Krithi, the question to you. You talked about the reprioritization that the clients are doing, certain delays, et cetera. Is that ramp down also converting into deal cancellations? Are clients looking at more in-sourcing. There was 1 instance that happened in the quarter gone by as well. Is that a generic trend. Question to you, NGS is -- just a follow-up to what Reema was pointing to. Are you getting out of that $7 billion to $9 billion range that you had given us earlier, maybe looking at more aspirational number of $10 billion on an ongoing basis and last time we spoke with you, you did say that you're still aspiring for the double-digit growth in FY '24. Is that on track?
Samir, the question to you is with respect to the pricing. NGS pointed out how clients are looking at the generative AI element into the projects as well. How are you looking at pricing that? And overall, with respect to the deal pricing, is there any pressure on account of the competitiveness, et cetera?
Milind question to you is with respect to attrition, yes, the trend has been coming down, but what's the comfortable band that you are targeting? Will it be back to those pre-COVID norms? Or that's something which will take a long time to come by.
And just 1 more question Krithi if I can add. The Generative AI, you're already doing 50 pilot projects, 100 other projects that you talked about. When does it actually convert into the revenue, when you actually see those projects hitting the top line as well?
Okay. I'll probably answer the question first on ramp down or cancellation. Like we don't see much of large-scale ramp down or cancellation. There could be one-off instances here and there. But that is not driving the softness or slowness in the revenue. I think, as I explained, it's some of the reprioritization that is causing the softness.
I'll -- on the Gen AI, again, we started talking about it early -- towards the end of last quarter is when we started talking about it. We are seeing pilot, maybe I would say, like I'm just making a guess, maybe a couple of quarters down the line, you would see some more significant numbers that we believe we will be able to announce. I think it's going to take some amount of time for everyone to sort out the issues and understand what are the challenges, what are the benefits and then ramp it up big time. So give it a couple of quarters.
Anisha, that's already 5 questions.
Thank you for correcting me, Anisha. We are absolutely thrilled to be in $7 billion to $9 billion. Double-digit growth, I think, given what we have ended up with quarter 1, I think it appears a bit tall order to achieve for this year. But having said that, look, as a management team, we are always focused on maximizing opportunities. And there's no point in going and saying that we are not going to aspire for a double-digit growth, right? So we'll continue to be focused on that. And we'll see where we end up in Q2, and then we'll take a call on that.
Overall pricing is stable. And in fact, we have seen a year-on-year increase in realization. On the Gen AI part, the assignments and the pricing is a combination. It could be outcome based. It could be fixed price assignments also at turn-key engagements.
Anisha, our -- we expect our industry-leading retention levels to come back in the second half of the year, this financial year.
With any number in mind?
Yes, you look at the previous numbers and you will see that, and we expect that at that levels.
Harshada Sawant, CNBC Hours. Harshada 2 questions, please.
NGS, if you could throw some light on the domestic deals while Krithi said, the growth markets, India and LatAm have seen strength. What is the kind of texture of these deals? Of course, we understand BSNL, but what is the other work that you are likely to bag in the future from a market like India? And how is pricing in these growth markets. Also, Krithi, if you could just share some light on when you say there is softness because of reprioritization, our clients also urging you to perhaps negotiate on the pricing, though Samir mentions pricing is stable, but is that something that you should -- you would be prepared for in the future if the macro environment stays just as it is, because last quarter, you were a little confident that you could bounce back by H2, but now you say you wouldn't want to foretell anything.
Yes. So I think as far as the India market is concerned, and even overall, our new growth markets, Asia Pacific and Middle East, we had a fantastic quarter. I think we continue to win deals. We continue to participate in small- to medium-sized deals. And it's a -- good thing about this market is it's a lot of system integration work and a lot of product-based opportunities, which we integrate for variety of energy resources, utilities, these segments are very popular segment.
And then banking, of course, continue to participate in it. I think public services or government-related deals in India beyond what we announced earlier and then this quarter, I think we have been selected for this GeM opportunity as well. So we continue to engage in a variety of things and all the large banks, private sector banks as well as public sector bank, they offer opportunities in which we participate in it. I think in all these opportunities in 1 market, the AI -- if you really look at India as a market, it's largely driven by integration.
And I think they are the -- our digital stack, India digital stack is extremely popular, very widely used. Every bank continues to look at opportunities to integrate new fintechs, new start-ups into the solution so that the experience is better, so that the volumes, it's a market where we really look at it, whatever is the transaction volumes this quarter, the peak becomes the average next quarter, right? That's the kind of volume growth that we see.
So there are enough work that we are doing in the financial services sector to derisk this, continue to improve the scalability of the solutions that we have delivered and so on and so on. And during this quarter, we've also made this Gift City, Singapore, the NIFTY, dollar-denominated thing is completely moved to this thing. So there's enough work that's going on.
And of course, MCX is in the market, right? Now you all know about it. So I think we are doing enough in terms of this. There are -- these markets will give us enormous opportunities and these markets are not tested so much of AI/ML yet, right? If you really look at it. So it's -- time is right in these markets for almost all segments to embrace AI and ML in a big way. And we are well positioned to participate in each one of this.
See fortunately for us, we don't see any pricing pressure at this time, like -- as I said, there is no major panic in the market for clients to talk about the pricing pressure or discounts? Like there is a reprioritization happening, and we believe growth will resume some time, but we have not come across any pricing issue.
Then what makes you not as confident as last quarter of H2?
Because you [indiscernible] this quarter.
Thanks, Harshada. Ekta Suri from Zee Business.
[Foreign Language]
Cybersecurity is a very important service line for us. We have built very strong capabilities, both from a product perspective as well as services perspective. And that's something that is a cost for every organization, every government because no amount of investments, no amount of tools that we have put in place, you can never conclude that this is sufficient because there are always new things that keep coming up in the area of cybersecurity.
We have continued to build capabilities and go through a lot of certifications for our people as well as for our services. But many of these things are not published, right? Because clients also want to keep what we are doing, what in this area as to be confidential for the right reasons. So cybersecurity is an important area of growth. I think there's enough things that we are doing, including the shared service that we have set it up for cybersecurity in which we are multiple organizations we are monitoring their securities operating centers centrally out of India for us, right?
Generative AI, of course, is the talk of the town. And one good thing is that people like you and me seem to trust it more than the enterprises do at this point in time, right? But it's only a question of time before the enterprises will also do it. And I'm hopeful that we will we really see this because we are the one of the very first one to call out almost 3, 4 years ago when we announced the machine-first delivery model, we said that, look, up to 40%, 50% of what we are doing today need not be done by us, right? That was the generic thing that we stated at that time looking at what we saw and recognized that AI is for real.
And in that context, I think Generative AI is an important element of the future. Cybersecurity will be -- will not have all the jazziness and the flare that you see for Generative AI in the market, but that's equally an important critical aspect.
[Foreign Language] Is it like the clients are also kind of concerned about that? Or do you actually educate them on the same.
No, it's -- I think clients are a lot more educated on data privacy, data security, no doubt about it because there are regulations across the world. GDPR led the regulations. I think the aspect of how do you protect data, how do you protect privacy, confidentiality information? How do you anonymize data if you want to share data? And what should be the responsibilities of organizations being a data controller or a data processor perspective? they're fairly well defined, well articulated.
Enough projects have been done, enough case studies have been done to solve these problems, right? I mean, because it's a regulation and compliance, almost every organization has complied with it, right, in some form or the other. Newer tools are emerging, newer products are coming on which people will definitely take it and improve whatever is already in place, right?
Thank you. We'll take this later. Tushardeep Singh from BQ Prime.
The first clarification, I just wanted. You mentioned that the constant currency revenue growth was 7% in Y-o-Y. What was in sequential terms, the first one, to NGS, just if you can give us a breakup of the order book of $10.2 billion in terms of the discretionary deal pending as well as on the efficiency side. To Krithi, how do you see -- so you said that there is growth fear after Q1 because Q1 was flat -- how do you look to maintain, say, you have operating margin of 23.2% right now? If you would really look to maintain that much? Or do you think there will be a further weakness on that?
So like you said, the sequential growth is flat. That's what we say, right? You also said it's flat. May I know what was your question on that one.
Constant currency growth.
The constant currency growth was 7% and sequentially flat. Yes. Okay? On the margin, like Samir explained, our aspiration band would be still 26% to 28%? And we see there are multiple levers for looking at the margin. We'll continue to exercise each one of those levers. And we don't expect to -- or as I said, our aspiration is always to reach 26% to 28%. We will take every step towards that.
When do you expect to achieve that?
I don't want to give a time line on when we'll get there. But we want to get there.
Deepangana Ghosh, Money Control.
I guess most of it has been asked. So my question to Krithi. Krithi, you have just finished 1 month as TCS CEO, you have been speaking to clients. So I wanted to understand what has been your learnings around it? And what kind of feedback are you getting from the clients? And also based on that pertaining to that, do we expect some strategy changes around that and given the current business environment. I have a question for Samir. What's your view on the subcontracting costs? Are they going to go down in FY '24?
Okay. So thanks, Deepangana. Like I've been meeting a number of clients in the last 6 to 8 weeks. But one thing that stands out is the deep relationship that our teams have built with our clients in all these geographies. And in every one of those meetings, we could see that clients would want to do more with us, want us to also come back to them with more opportunities for growth and more opportunities for cost saving. And so the depth of the relationship and the value they put on the contextual knowledge we bring is really gratifying and makes us really happy and confident on the long term, which is because like -- multiple times I said, our growth is always based on customer centricity.
And what I learned from that -- all these meetings is whatever is a core strategy that is intact, and we would continue to build on customer centricity. So learningwise, definitely, we will question what the customers are investing in is something that we get to know more, right? They're continuing to invest in cloud. They're trying to see how to leverage the value. Cloud 2.0 is gaining momentum.
And Gen AI is a new topic. So that overshadows everything else. So the -- I won't think that will be a strategic change. If at all, there will be a [ double dome ] on deepening the relationship with our customers and ensuring that we strengthen the technical capability, engineering culture within the teams even further and ensure that our associates develop the contextual mastery as we call it with our customers. So those key areas will continue to remain. I don't think we are going to change our strategy in this respect.
As a followup, sir what is your outlook for -- with Europe and North America market?
As I said, I'm not -- we will not be giving a guidance at the market level. And the other thing that from an overall demand perspective, we said what we have been seeing and we talked about the TCV, which is looking good. And so long term -- I would say long term is good. Short term, we cannot call.
Subcontractor costs have been at 7.4% this quarter. And as you would have noticed, it has been down significantly from its peak, which was about 9.7% -- and that's a combination of one, the overall attrition scenario itself easing down. And also efficiencies, which we have been driving through the last. So it has been sequentially coming down once the attrition peaked in Q2, this cost is coming down. It's in fact, back in the range. We used to prepandemic operate between 7% to 7.5%. It's in that range now.
But if you look at it, your question in terms of will it further come down, difficult to say, but the key thing is if macro environment continues, demand softness is there, then this becomes the primary lever in terms of further optimizing it. So it's a lever which is available.
Varun Sood from [ Mint ].
Three questions. So the first question is on the TCV and the revenue. Two consecutive quarters where you said over $10 billion TCV. But when we look at the revenue, that growth has not been very impressive. Is it because certain projects are getting deferred or delayed because of global uncertainty. I just want to understand that how do we make sense of the TCV and the revenue. It's not really translating into the revenue growth? That's the first question. So the second question is, NGS said that enterprises are not very trustful of generative AI. A decade back, perhaps when cloud took over -- and we've seen what cloud has done to enterprises overall. Are you suggesting the rise and embrace of generative AI may not be akin to how it happened in the cloud in the past. What will be the impact of generative I on the revenue and on profitability over the next 18 to 24 months.
And the last question is, sir, I understand, RMG, the probe is ongoing, and the management has said we will not talk about it. But just a question, the Chairman at the AGM had said that we will fix all the weaknesses related to this ecosystem. Can TCS please clarify if it has already, and I'm sure you must have already started doing, but what are some of these weaknesses what you're trying to fix? Any comments will be very helpful.
Varun, on TCV and revenue, I think we commented TCV has been quite good in the last 2 quarters. And revenue, like you said, is not strong. And that is precisely because of some of the programs getting paused or some programs getting delayed or, in some cases, capacity is reduced for these programs. So number of -- our clients are also into efficiency cycles. Sometimes they are in growth cycle where the spend is -- they spend on technology more. This is a time where they're reassessing whether every investment they have made, so there is a pause, right?
Your assessment is right, like we are -- TCV is good. There are projects getting delayed. And once the projects come back, as I said, as release 1 is done, if release 2 doesn't start, okay? That has to be backfilled something that's almost equivalent too, we have to get that revenue from somewhere else is going to impact your growth, right? So your understanding is quite right there.
See, on the generative AI, I think I didn't say that enterprises trust quotient is not there at all. But I think what I said is, consumers like me, they seem to have adopted it faster, right? Enterprises, there is a lot of learning that they have because they've gone through cloud, they've gone through AI/ML, they all went through a different hype cycle. And likewise, I think Generative AI promises a lot of things. So they will be very [ calibrative ] about it. And they need to also take some strategic decisions with respect to how they need to embrace this particular technology while ensuring that the competitive edge that they have is not publicized. So there are -- some people feel that it's like putting something in open source, right? Some of us believe that I can put it in open source, and it doesn't matter to me. Some of us feel that no, no, no, I don't want this to go into open source, right? So there are a lot of these discussions they will have to go through, introspect and then engage with the technology in some nonstrategic areas and then identify and figure out which is the area where I want to make the best impact, right?
So that process will go through and then it will take time is my opinion. And some may actually jump in and quickly want to take that. But some might say that, look, I want to go a little slow. It's like any other technology. Some segments will actually go and embrace this first. Some organizations maybe take the -- in the second wave of adoption, allow it to mature, allow it to see how things emerge, what kind of AI start-ups coming in? And then they have all the time in the world, right, to react to it is what I feel at this point in time, right?
Regarding your question on the RMG topic, I think Krithi has already said that, look, we do not want to say anything more than what has already been published. And naturally, as an organization, we are we always improve our processes. We always improve our control mechanisms. But sufficient to state that, look, we are at it, and it's not appropriate for us to comment anything more than what we have already said.
Thank you. Ayushi Kar from Hindu Business Line, and just to request everybody to accommodate everyone just to stick to earnings question, please.
So I have 3 questions. First for NGS, given the success with the BSNL deal, will TCS be repeating similar deals across countries with other potential operators and other geographies? Just 1 question on the [ deference ] of onboarding. NITES has issued a complaint with the Ministry of Labor where they have demanded that these employees who have delayed job onboarding be fully compensated for 3 years -- 3 months or potentially get help from TCS to look for other jobs. Is it something that TCS will be potentially honoring or is it something that is in discussions?
And on Gen AI, in particular, as NGS sir has repeatedly pointed out that enterprises are still a bit leery of potentially onboarding into Gen AI related to privacy concerns and potentially supplying their kind of capabilities on an open source interface. Is TCS doing anything on the innovation side, particularly because you are collaborating with entities like Google, et cetera and reports have come out that they have also cited privacy concerns, and they have internally warned people from sort of onboarding confidential information on these kind of LLM and AI models? So are you doing anything on the innovation side to alleviate that and of the 100 projects that you have in pipeline, are any going to be sort of materialize over the subsequent quarters? Yes.
The first question, BSNL, let's hope that we are able to repeat it, right? I think we have built enormous capacity, capability, knowledge on the telecom stack. What does it mean to roll out a telecom stack? How do you plan optimization of a network? And how do you improve the capacity coverage experience. I think enormous capability has been built by TCS. Of course, we are not the equipment manufacturers. The OEMs are different. OEMs, we integrate those products and then we deliver this network. And I think it gives us an opportunity to play in a field, which we were not playing that aggressively in integrating and rolling out and optimizing the network or getting the network right first time for various telcos. So it gives us an opportunity to position ourselves appropriately both in India as well as abroad, for the telcos as well as the enterprise private network segment. Second question on NITES, I would refrain from commenting at this juncture.
Third one, Generative AI, I think, as I said, look, we are doing about 50-odd proof of values, proof of concepts. Results are promising, some of the initial things that we have had, results are promising. It's still work-in-progress and the pipeline looks stronger because the newer areas are emerging, right? People want to see whether I can use the capabilities of Generative AI in managing my risks better, in providing customer experience and customer servicing better.
How do I improve my -- for example, if there is 1 thing, if I can get it right as a parameter or so that I can make my next year's revenue better, right? For example, in the area of containers, right, shipping. If one can predict the value of or the cost of the container or pricing for that 2 quarters ahead or 3 quarters ahead, the shipping industry can do much better, right? Now there are problems of these natures that we'll have to look at and see where generative capability can be productively deployed, right?
So that will determine the success of Generative AI and also the faster adoption of Generative AI to real-life problems, real life cases, right? So of course, it has improved such capability superior to a different level, no doubt about it. But for an enterprise level business sense, how much of integration is needed, how much of prompt engineering capability needed; they are all things that are work-in-progress and it makes me feel happy as a software engineer that I still have a lot of things to learn.
Ayushi, we will take this separately? Can we have 1 more question. From Hindu Business line to Hindu, Laltendu Mishra.
My question is to Mr. Krithivasan. What are the headlines -- what are the headwinds and tailwinds you're experiencing right now? And you as a leader have just taken over, how differently you want to run this company, I can see the change in the setup. So if you can please comment.
So it seems like headwinds, as we spoke about, Laltendu, current immediate market uncertainty is the biggest headwind for us. And we don't -- otherwise, from a tailwind perspective for them, every time there's a new technology that comes into the play, it creates many more opportunities. Now we talk of Generative AI. Generative AI usually creates more opportunities. Cloud is still not done. There is so much to be done. And if you have to really leverage Generative AI, there's so much work that has to happen on the data platform itself, like unless the data estate is clean and ready to be used, generative AI is not going to yield results within the organization.
So every time a new technology comes into picture, it creates more opportunity. And we believe like, she was asking about cybersecurity, all those things are still remaining in place. So there is a lot to be done and lot of tailwinds, but short-term headwinds on things that we cannot control. On the macroeconomy, we cannot control on that. So that's a headwind here.
And from a change, as I said, from a change in strategy or change in -- we continue to look at what tweaks that we have to do -- and I met many customers and learned how they perceive TCS, what opportunities they see with us and at the appropriate time, we'll make necessary changes. This is the easiest change to make. So we'll do.
Final question from Vivek Kumar from [ Informist ] .
You spoke about the deal pipeline that it is strong. So I wanted to understand from a small deals perspective, how is that looking in the pipeline. One of your peers said that they are seeing pressure in smaller deals. So these, in a way, provide visibility for the near-term growth. So how is that compared to previous quarter?
We don't see it particularly compared to Q4. We don't see a major change in profile of the deal size, like last quarter also, we had some big deals and number of large deals are similar than late last quarter. There's no major change in that. So not much to read from there.
Just one more thing. What was the average salary hike given this year? You have said 12% to 15%, I believe, for some employees. So average salary hike if you could?
No, I think I said 12% to 15% for the top performers, around 8% to 10% for our high performance. On an average, we will normally give about 6%. So it's about that.
Thank you. That brings us to the end of the earnings press conference. Thank you to the journalist joining in. A big thank you to the management as well and all the TCSers and all our stakeholders that have been watching, please join us for IT. Goodbye. Have a good evening.