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Tata Consultancy Services Ltd
Earnings Call Analysis
Q1-2025 Analysis
Tata Consultancy Services Ltd
In the first quarter of the fiscal year 2025, Tata Consultancy Services (TCS) reported a robust year-on-year growth of 5.4% in revenue, reaching INR 62,613 crores. Notably, growth in constant currency terms was 4.4% year-on-year and 2.2% quarter-on-quarter. However, the North American market showed a slight decline of 1.1%, while the UK showed a 6% increase and Continental Europe declined by 0.9%. The Indian market exhibited an impressive growth of 61.8%, reinforcing TCS's strategic focus on diversifying revenue streams across different markets.
Despite absorbing the annual wage hike, TCS achieved an operating margin of 24.7% and an operating profit of INR 15,442 crores. The company's net profit stood at INR 12,038 crores, with a net profit margin of 19.2%. Earnings per share (EPS) increased by 9.9% year-on-year to INR 33.28. Additionally, cash from operations was robust at INR 11,168 crores, representing 92.8% of net profit conversion. This performance underscores TCS's ability to maintain strong profitability amidst market volatility.
TCS's order book for the quarter was solid at $8.3 billion, with North America contributing $4.6 billion, the Banking, Financial Services, and Insurance (BFSI) sector at $2.7 billion, and consumer business at $1.1 billion. The number of customers contributing over $100 million in revenue increased by three to a total of 63, and the customer base contributing over $1 million now stands at 1,310, an increase of 42 year-on-year.
TCS added 5,452 employees in this quarter, bringing the global headcount to 606,998. Attrition has moderated to 12.1% from 12.5% in the previous quarter. The company continues to prioritize hiring from campuses, adding 11,000 trainees this quarter. TCS remains optimistic about maintaining these trends but emphasizes the need for careful monitoring of market conditions.
TCS continues to see strong market traction for its AI offerings. The company's WisdomNext platform for Gen AI adoption has been well-received, with 270 AI projects currently in execution and the AI and Gen AI pipeline doubling to $1.5 billion this quarter. TCS applied for 154 patents and was granted 277 patents in Q1, reflecting its ongoing commitment to research and innovation.
TCS remains cautiously optimistic about sustaining its growth trajectory, projecting that FY '25 will be better than FY '24. However, the company acknowledges the ongoing market volatility and the lumpiness in deal closures as factors influencing its outlook. TCS maintains a guidance range of $7 to $9 billion in terms of total contract value (TCV) for comfort, suggesting stability and confidence in its pipeline replenishment capabilities.
The Board proposed an interim dividend of INR 10 per share, in line with the company's practice of returning 80% to 100% of free cash flows to shareholders. This move reinforces TCS's commitment to rewarding its investors while maintaining a strong balance sheet for future growth initiatives.
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Hello, and a very warm welcome to the First Quarter FY '25 Earnings Press Conference of Tata Consultancy Services. I'm Kritika Saxena, thanks to everybody that's joining in in-person as well as on all our live stream, we are virtual on all our social media platform, and we're coming to you live from the TCS headquarters in Mumbai. A big thanks to all the journalists that are here in person daring the Mumbai rains.
I'm going to begin by introducing the management. We have with us K. Krithivasan, MD and CEO. Samir Seksaria, CFO; and our CHRO, Milind Lakkad. As always, we're going to start with the opening address from our CEO. K. Krithivasan the floor is yours.
Thank you, Kritika. Good evening, everyone. So we are very happy, to announce a good start to the new financial year, supported by all round growth across markets and industry verticals. On constant currency basis, our revenue grew by 4.4% year-on-year and 2.2% quarter-on-quarter. Our rupee revenue grew by 5.4% on year-on-year to reach INR 62,613 crores. We achieved an operating margin of 24.7% after absorbing the annual wage hike. This translates to INR 15,442 crores of operating profit.
Our net profit for the quarter has come in at 19.2%, translating to INR 12,038 crores. Consequently, our EPS reached INR 33.28, up 9.9% year-on-year. Cash from operations at INR 11,168 crores represents a conversion at 92.8% of net profit. As mentioned in this quarter, almost all verticals and markets achieved positive growth on a quarter-on-quarter basis. On a year-on-year basis, U.K. grew by 6%, North America de-grew by 1.1% and Continental Europe by 0.9%.
The new growth markets of India, Asia Pacific, Middle East and Africa and LatAm continue to display strong growth supporting our diversification strategy. Especially, our revenue from India grew by 61.8% year-on-year. Among the verticals, manufacturing and energy resources and utilities continue to have strong growth. Manufacturing grew by 9.4% and Energy Resources and Utilities grew by 5.7%, and Life Sciences grew by 4%.
TCS banks had a strong quarter with a number of wins across multiple geographies. BFSI, consumer tech and services and CMI continue to have negative growth on a year-on-year basis. We had another quarter of improving customer metric. The number of customers from home, we make more than 100 million, rose by 3 to 63 customers on a year-on-year basis.
There has been strong customer movement across all other brands also in addition, our customer base of 1 million stands at 1,310, an increase of 42 over last year. Our order book closure for the quarter stands at $8.3 billion. Our order book for North America stood at $4.6 billion, BFSI at $2.7 billion and consumer business at $1.1 billion. In Q1, our net employee head count addition compared to Q4 was at 5,452. Our global employee head count at the end of Q1 is at 606,998, our attrition moderated to 12.1% from 12.5%.
The Board has proposed an interim dividend of INR 10 per share. This is in line with our practice of returning 80% to 100% of free cash flows back to our shareholders. We continue to see strong traction for our AI offerings in the market. Our WisdomNext platform that helps the enterprises in adoption of Gen AI at scale has received very strong customer reception. The number of engagements going into production is steadily increasing. We are currently executing about 270 AI projects across TCS. Our AI and Gen AI pipeline has doubled in the quarter to $1.5 billion. Our investments on research and innovation continues. In Q1, we applied for 154 patents and were granted 277 patents.
With those updates, I hand it back to Kritika and we'll open it up for questions. Back to you, Kritika.
Thank you so much, Kriti, for the opening address. We'll start with the question and answers. As always, request everyone to keep it to 2 questions so we can accommodate everyone. We also have a few journalists joining online.
We'll start with Reema Tendulkar, CNBC TV18.
Congratulations. Kriti, first question on revenues. Is this kind of revenue growth sustainable? Do you anticipate a pickup as the year progresses and your view on discretionary spending and also throw some color on the deal wins because it's lower quarter-on-quarter and on a year-on-year basis.
We understand that it's lumpy. But say, for the full year, FY '25, do you think the deal wins can be better than what we had last year, FY '24. At least you have that kind of confidence. Samir, on margins, it's a strong performance considering the wage hike. But it appears that your employee cost as a percentage of revenue has come down, which raises the question that have you given out less to your employees this time compared to the past? Or is there more increased offshoring. Subcontracting costs, we know is an element but other than that. And Milind, do you think you can continue to add to your head count in the coming quarters? Is that the confidence you have? And even on attrition, the way forward.
Thanks, Reema. First of all, as I said, we are quite happy with the all-round growth across all verticals and markets. That's the most important message for us.
Your question of whether we can sustain this growth. We are not going to call that explicitly. We still believe it's too early to call, whether the growth momentum is sustainable because the market conditions continue to remain the same as it was last quarter. So there is nothing new to add in terms of market sentiments. But we -- at the same time, last quarter, we mentioned that we believe FY '25 will be better than FY '24.
We will continue -- we continue to hold that stand, and we are looking forward to a better FY '25 compared to '24. In terms of order book, like you said, it is lumpy, like -- but at the same time, what gives us confidence is the overall pipeline. Like we look at our qualified pipeline and total pipeline, which continues to be at near all-time high. So it's more a question of timing on how much gets booked in a particular quarter. And the other point is we believe like 7 to 9 -- at our current revenue range, we are looking at about $7 billion to $9 billion TCV is a comfort range, and we are within that range. So we don't see any specific issue over there.
Reema, on the wage increments. The overall impact of increments is 170 basis points, and that has been in line with what we have given in the past, typical range has been between 150 to 200 basis points. Your question in terms of the manpower cost percentage, as you would have seen in the last 3, 4 quarters, we have been driving better productivity, improved utilization, and reduction in subcontractor costs. The first two does reflect better on the manpower cost, and that balances out some of the impact of increments in this quarter as well.
I think with regard to your question on whether we'll continue to add headcount, I think we actually have onboarded 11,000 trainees in this quarter. And trainees being, as I've been saying always, key strategy of developing talent at TCS and deploying, and that will continue in this year. What the net head count will be every quarter will be difficult to say because it depends on many other factors. With respect to attrition, we are at 12.1%, 40 basis points down from last quarter. I think I believe it will stabilize at this point, with this number.
Ankur Mishra from ET now.
While we understand that you are not calling it out and not giving explicit guidance per se, but you are maintaining that FY '25 will be better than FY '24. I want to ask you here which will be favorable parameters for you for changing the stance and vice versa, which are the risks which you are seeing? And hence, you're saying that you cannot call it out right now. On the operating margin front, there is a 1.5% increase year-on-year. Can you give guidance, at least on that part, would you be able to maintain that operating margin and on the attrition rate, while you have maintained that this is the level where you will be able to maintain yet -- near 12%.
Do you believe that from forecasting point of view, if I would say so, that attrition levels will not go anywhere from here.
Ankur, first on the parameters or what yearly indicators both from a favorable or risk perspective, I would say, what is the -- how much is the reevaluation of the ongoing projects that's going on, okay? If our customers continue to reevaluate the old discretionary programs, and some of them get passed, the rate at which it gets passed, that's probably an indication. Second is the sentiment in terms of how much they want to go towards cost optimization, how much they want to invest. These are the parameters that would also give us the confidence. And as I said, like this, in our view, remains very similar to last quarter. That's the reason we don't -- we're not ready to call out whether the growth momentum will sustain.
So Ankur, typically, the biggest headwind, which we have is what we take upfront in the financial year, and that's what has happened. And typically, we clawback and then jump in each of the going next quarters, and we'd expect that journey to continue. If you look at FY '24 we had -- after taking the initial increment impact ranged up almost 100 basis points in each of the next 3 quarters and that was driven through significant operational -- driving significant operational efficiency, and we stay focused on driving operational rigor in our operations.
With respect to attrition, 12.1% where we are at right now, and I obviously cannot predict for the future like everything else. But I think I'll say that we'll be a few basis points here and there what will be in the vicinity of this in the coming quarter.
Sajeet Manghat from NDTV Profit.
Give me a sense of -- you said you're not in a position to call out growth as of now. But can you give a sense of how North America is doing as a whole because on a Y-o-Y basis, it has fallen. If you can also give us a color on a quarter-on-quarter basis and how North America has done and in the verticals, BFSI in particular, where are you seeing some kind of recovery happening in that segment for BFSI.
Samir, 140 bps quarter-to-quarter impact on EBIT margin 3% down. You said you will inch up over the next quarter, but what is the kind of levers that you have, given the fact that we're seeing the subcontracting cost is also going up in this quarter. And if I'm not wrong, you have said that we are going to rely more on a bench to fill up those vacancies. So are we going back to a case where you're going to get back to subcontracting costs ahead, and Milind, 11,000 odd fresh trainees. But for the full year, what -- if there is some guidance on number of trainees or laterals that you look at on a net and/or gross basis?
Yes. See, first question you asked on North America and BFSI. So BFSI or North America, if you take both, the quarter-on-quarter, as we said, they have a positive growth. But for that to reflect on year-on-year, it takes -- because it's a trailing number, right? It takes probably a couple of quarters or you have to have a superior growth in single quarter to turn positive. So with the kind of growth we have, it's improving, but it will take -- it needs some more sustained growth on a Q-on-Q basis to become positive on a year-on-year basis.
Both BFSI and North America are also intertwined because we have a great exposure to BFSI in North America. So as BFSI, we start seeing growth, North America will see the vice versa is also true. From within BFSI, we had a good reasonable growth compared to Europe this quarter. We don't call out separately, but now BFSI North America grew better than Europe in this quarter, Europe and Continental U.K., which is a good sign, like it's a recovery on the North America BFSI.
Within BFSI, we saw better growth in banking, compared to previous quarter, which is, again, is a good thing. North America, other segments like manufacturing continues to do well, and we had a good growth in energy resources also. So it is having -- life sciences also had growth. So multiple segments have been -- have grown. But as I said, it's too early to call out whether that will be sustained.
I mean so one data point correction in what you said, it's 130 basis points impact, not 140 basis points. And what levers do we have to inch up, I think in the short term, pyramid, productivity and utilization will continue to be levers which we can rely upon. And in the medium to long term, I think pricing and growth acceleration should help us -- help on margins.
Subcontracting part?
Subcontracting part -- sorry, so as we called out in the previous quarter, I think we should see it staying stable around these levels. It need not be an incremental lever, but that would also depend on how demand plays out going forward.
11,000 trainees have come in. We have already gone through a national qualifying test, actually concluded the test already, and we have a significant number of people cleared those. Interviews are going on. My numbers, like I always every year say 40,000, it will be close to that. I don't -- I can't tell you exactly what that number would be, but it will be -- we're trying to actually being close to that, it depends upon various situations, what happens, but that is what we are going for.
Kriti, one question on the TCV part, $8-odd billion that you have said, you said your range is $7 billion to $9 billion. But if we look at Q-on-Q from Y-o-Y, how your TCV's have played out, this seems to be a little lower than expected. You said there are some orders which are not getting closed. Are these now -- have we seen a trend of orders now getting closed faster? Or is it still the same thing which we have seen in FY '24 where there is a push for these orders going forward.
See, there is no specific delay or get -- orders getting closed. This particular quarter, we had some major orders, projects we are expecting to close within Q1 that did not close that got moved into Q2. It need not be because of decision-making delays. It could be of various other reasons. But beyond that, there is nothing much to read in the overall TCV.
As I said, our order book is quite healthy -- I am sorry, pipeline is quite healthy as it was in the previous quarter. Previous quarter, we had $12.4 billion of TCV. We are able to replenish all that, like that's the most important thing. Our pipeline has replenished and is more or less at a high -- all-time peak level. So the TCV itself anyway tends to be lumpy. Sometimes you have a very large mega program that comes and skews the TCV also.
Next question from Debangana Ghosh, Moneycontrol.
Kriti, my first question to you. This quarter, we are seeing a lot of the growth coming from India, EMEA and regional markets, so I wanted to get a sense if this is going to be the trend going forward in the upcoming quarters, and like you also mentioned, is this where TCS is going to strategically bet next? And...
Yes and no, see, we definitely want to continue to -- we already announced last time also. Diversification of revenue has been an important strategy. And we look at these markets as very important growth levers as we go forward. But does it mean that the other geographies will not grow. We hope they do grow very well faster. And so -- but we do believe these regional geographies will become material over a period of time.
Right, and from a vertical perspective, this quarter, we saw the revenue contribution from BFSI has continued to come down. Is that also where we are going to see more diversification come in?
See, like BFSI has had only this quarter after a couple of quarters a positive growth. So when you have a couple of quarters of de-growth, the contribution overall percentage will come down. And also, you saw the revenue coming in, BSNL is 1 of the key revenue levers for us, so with BSNL is non BFSI and revenue comes from other sources, the BFSI contribution naturally comes from.
Sure. One question for Milind. I wanted to get a sense of what the lateral hiring plan is going to look like for FY '25. Are there going to be certain skill sets that you will be betting on, like looking forward rather expanding.
Like I always say, our key strategy has been to basically hire from the campus. And then during the quarter, we -- or during the year, some quarter planning that also happens we figure out what are the skill gaps we have. And based on that, we hire. And those skills are across the dimensions in various aspects. So it depends on the specific business situation, from -- I can keep on naming, but we hire everything. And from very niche skills to some generic skills also in terms of need. So very difficult to call out specific skill sets I'd say, because it is not specific, it is across the board.
Right. And what is the outlook on large deals wins and mega deals this year?
We are discussing with our customers on a number of large deals. I don't want to put a specific number, but this is very similar to what happened -- see mega deals are quite lumpy, like you may never have many of them at any point in time. But large deals, numbers are quite healthy like it used to be in previous quarters.
Next question from Himanshi Lohchab from Economic Times.
You said that your AI cloud, cybersecurity and enterprise solutions have led to growth this quarter. Can you quantify this for us?
We have not -- we are not giving that breakup, okay? What we said is that there has been a very strong pipeline in AI and the number of engagements that we are doing in AI has gone up to 270. So there is an overall good traction to our solutions in the market.
And 1 more thing. There have been aggressive acquisitions by your peers, but we've not heard anything about TCS. So what is your view on inorganic growth? And are you looking at any acquisitions?
We constantly look at opportunities to acquire. And as we have said in the past, it has to -- we don't want to look at acquisition as a revenue lever, okay? We need to -- we believe that it has to -- there should be synergy between what we acquire and what we can expand based on what we acquire, and it has to make a business case. So whenever we see such an opportunity, such an asset, we definitely will go for it. And constantly, we are -- we do continue to evaluate. But, as I said, we look for those synergies and we look for a business case in those acquisitions.
Harshada Sawant from CNBC Awaaz.
Kriti, if you could throw some light on AI, cloud, cybersecurity, because your press release specifically mentions that these 3 segments, including Enterprise Solutions, have led growth in the quarter. So what is the kind of visibility in the upcoming deals, are clients more skewed towards spending in these areas versus reluctance on other areas of spend. Also for Samir, if you could also give me an idea as to how is pricing -- how are the pricing negotiations impacting conversations per se? Are they changing at all or they stay where they are when you go and renew deals.
So Harshada, AI, cloud, cybersecurity will continue to lead growth because those are the areas our customers are very keen on and they're interested in. So most of the new investments will be, if it is not about -- the other area that you see a lot of interest is about application modernization, technology modernization. And even then, it probably will be moving from a on-prem data center to cloud or something similar.
So these 3, AI, cloud, cybersecurity will continue along with enterprise applications, will continue to drive most of the future growth. So how much of that, I don't want to quantify. But on an overall growth, these service lines will continue to attract a lot of attention.
Just to follow up, so when you say discretionary spends having tough returns or they're still where they are, they are not holding back with spends when it comes to AI, CS, and cloud. Is that correct to understand.
See, like cloud sometimes can be discretionary, sometimes customers do it from a cost optimization perspective also. They are -- if they see there's a cost optimization, they may do that immediately. Similarly, cybersecurity is not a discretionary option, cybersecurity, when they find there is a risk they have to invest on it. So to some extent, cybersec actually is a nondiscretionary spend. Whenever they see a risk situation or the vulnerability, the investment will be more.
Pricing overall has been stable, like we have been calling it out, there could be aberrations at a customer level. But at the portfolio level, there's nothing material to call out.
Ekta Suri from Zee Business.
[Foreign Language]
See as I said, the response and the reception from the customers has been very strong, because it makes it easy for many customers to evaluate multiple large language models. It evaluates -- helps them in easily rolling out templated prompts to different user segments, and it also has the ability to create catalog of prompts for multiple industry verticals. So it makes it very easy for any enterprise to roll it out and evaluate. So the reception has been very strong overseas. India, we have a few installations, but we will continue to have more.
[Foreign Language]
Actually, like we did a survey some time ago, both in India across the globe. Almost 90% of the CIOs have embarked on some program or other.
Your question here is are they seeing a business outcome, and so the question is about scaling, and everyone wants to adopt, but they have to find the right business outcome, and find a way to scale it. So interest wise, there is a phenomenal interest. But we are still in the early stages because we have not signed, in many cases we don't know how to scale, and there are cases where the business outcomes are still being worked out.
[Foreign Language]
We will, we are continuing to have like we did launch a center in Cincinnati on the Internet of Things. We have -- we started few centers, cybersecurity centers in India and overseas. So we will continue to do that.
And one last question. Any budget expectations being a key player from the IT sector.
Like we have seen over the years, it's -- I think we are anyway like Samir probably can explain more. We are moving also towards what is the tax regime.
New regime.
New regime on tax. So that's -- and we don't expect any major impact either way. So we are fine.
Varun Sood from Mint.
Gentlemen. So first, a clarification. The entire India growth, is it led by the BSNL, would that be a fair conclusion to draw almost 95%, 90% of your India business came from BSNL.
Varun, like always, we don't split out customer specific ones. You could probably do the math, but BSNL is part of India. But we don't split out how much is BSNL and non-BSNL within India.
But other than BSNL also it has been growing very well overall.
It has been growing.
We don't want to give a number. India grew very well other than BSNL also.
Right, sir. Sir, the question is, you said in your opening statements that you're very happy with the well-rounded growth at the start of the fiscal year. I would like to believe that in the business where you are, perhaps you know a little bit of directionally sense of where the business is coming -- going to come from, from the next 1 or 2 quarters.
But then you are also adding a disclaimer that we don't know whether this growth can -- this growth momentum can be maintained. Now if we look at the numbers, again, 3/4 of your incremental revenue came from India -- year-over-year, I'm talking about, Samir, can validate this, which is largely again led by BSNL.
So I'm just trying to understand what gives TCS, this confidence when perhaps you are just being a one-trick pony, so to speak, for incremental revenue growth, it's all largely dependent by BSNL.
Again without getting into the specific numbers, Varun, yes, BSNL did grow well. But is it all driven only by BSNL when you compare with -- again, you have to compare with what is the last quarter Q4 growth versus Q1 growth. I would say non-BSNL had a substantial part in this growth, okay? And BSNL, as I said, like all markets grew, okay? Last quarter -- I said sequentially, all the markets grew, all the business verticals grew.
If it is only BSNL, it's primarily India story like you would not have seen growth in other markets and multiple other verticals because the way we do see growth in -- on a sequential basis, not on a year-on-year basis, on a sequential basis, there is a strong growth outside of BSNL, and it's a strong relative compared to what we have seen in previous quarters.
So it's not a one-trick pony. But at the same time, the reason that we are hesitant to call out a sustained growth is, we do find market conditions to be quite volatile. Customers do take decisions at a very short notice based on what they perceive are the market conditions and other sentiments.
So just a last question. This customer uncertainty is it primarily because of the macroeconomic, because when I look at the markets, when I look at the performance of some of the Fortune 50 companies, it doesn't reflect in their numbers. Or is there a little bit of uncertainty being caused by the rise of Gen AI which perhaps is making clients a little circumspect on giving business to Indian IT outsourcing firms?
We have -- see I would say the first one is probably more true Varun, in terms of they themselves are not sure whether the -- while their business -- individual -- I have seen many of the interfaces, I mean some of them -- many of them, particularly the banks have posted very good results or likely to post good results. But it's more about their outlook on what they see because they are uncertain. They are preparing for a rainy day. And that is what is causing this. I don't think Gen AI related pullback is not significant.
Ashish from PTI.
Sir, you said that regional geographies, including India, will become material as we go ahead. So like generally, with integrity of examinations coming under the cloud within India, how big an opportunity is that segment? You are already present there. So how do you look at that opportunity? And do you have the necessary solutions because quite a lot of them would be specialized examinations going beyond what you already do. So on that.
Probably TCS is the biggest player in the examination market. Our technology is very, very superior in the TCS iON that assessment platform is probably one of the best platforms in terms of technology, and the market share TCS has today on a computer-based exams, so we don't participate when it's paper-based exams. On computer-based exams is very high. And we continue to strengthen it further, technology further, and we do expect to play in this market significantly.
Sir, second question, this is to Samir. Sir you mentioned that productivity and utilization are the immediate margin levers. And from a medium-term perspective, pricing and growth would help. You're saying pricing is stable broadly. So sir, given where we are, like how confident are you to close FY '25 in the aspirational band?
Okay. So I think where we have started Q1 with at 24.7% is 150 basis points higher than what we did in Q1 of last year. And as we said, we explained the levers and we stay committed to the '26 to '28 expectation bandwidth which we have been talking about.
Barry Chan from the New Indian Express.
Two clarifications. You said that what is the absolute outgo would be on the salary hike?
170 basis points is the impact that have a -- it works out to about just about absolute number of about a little more than INR 1,000 crores.
That's for the quarter?
Per quarter, yes.
Okay. And on the hiring part, you added 11,000 trainees. And what is the offer letters pending now, the offers given?
What I said is, we have a national qualifier test, which is just -- we are in the process of concluding it, and the interviews are going on, and based on the overall situation and based on the fact that we have a certain historical number we hire every year, based on it we will decide and hire in the coming quarters.
Next question from Ryosuke Hanada from Nikkei.
Since we are Japanese news agency. So I would like to ask about, what do you think about the opportunity for the Japanese clients, currently when we see the geographical portfolio, definitely North America is 1 of the major segments. What do you think of the rest of the area such as Japan, such kind of area.
We are quite focused on Japan. You know that we have a joint venture with a major business group in Japan, and our business is continuously growing. In fact, our engineering business is very, very strong in Japan. We continue to look at the -- and also, we are looking at -- while we increase our footprint in Japan, we have multiple delivery centers already, and we are also trying -- working with multiple banks and manufacturing organizations to see how we can do a certain amount of offshoring, so that we can provide more flexibility and speed to our Japanese business, but it is a focus group, focus area for us.
Second question, the Indian cabinet approved the India AI Mission, and what do you think of the impact of this AI Mission on the company, some strategy or financial performance?
So it is definitely a great opportunity to create -- bring in more start-ups into play and more innovation and more research, and from TCS perspective, we look at it in a very, very positive way because we do want more -- while there is a lot of interest in generative AI, we need more skills also. I think this will create more deeper skills available for us to create more solutions that we can take to our customers.
Ayushi Kar from Hindu BusinessLine.
So I just wanted to call out, this is the first quarter where NGS sir is not here and his presence is solely missed. I wanted to understand, given that your management is sharing his responsibilities, what has the experience been like sort of doing this quarter without him? And how have you divided the responsibilities. And on his pet BSNL, are you going to complete the network rollout in this financial year, if you can give us...
I don't know what is the right time, to say experience is good or bad. We definitely miss him. He's been a statesman amongst us who was helping us in many things, and the way -- we have shared his responsibility with the rest of the management team, and so far -- but he is -- whenever we need to seek his counsel, we do seek his counsel it's been working so far quite good.
Yes. But can you give us an idea on the BSNL deal? Will you be completing? Can you just say -- categorically say that network...
The current plan is like we had -- I think it was a 24-month load that we had worked out contractually. We are working on those 24 months period. At this time, we are quite -- we have a plan to deliver as per the contract commitment.
And will it be finished in this financial year?
That's what we are looking to do.
I also wanted to understand, you spoke about how generally a lot of your deals are shifting exclusively towards AI. Can we expect any mega deals for AI exclusively in this year?
See, like it will be very difficult to have a mega deal on AI. Probably there will be a mega deal that incorporates AI, that's the way you would see, you may not have 1 deal only on AI, like you'll probably deal -- do a large program in which AI will be a main -- significant component.
Great. One final question to Milind, sir. I know that like TCS's model largely looks at hiring freshers and training them up. But several IT leaders have called out how there is a skill set gap for lateral hires. So can you give us an outlook on that?
I think it all depends on how you plan, if you plan well, you will have a lesser gap because when you are bringing people from the campus, you actually would actually train them for some time and then eventually deploy them, and figure out what the gap is, and then hire the remaining from the market. All of that, if it is done well with the proper plan, we normally do not see an issue. If we also have a planning issue we'll also see a gap, otherwise not.
Thank you. We will now go to our journalists that have been patiently waiting online. Let's start with Sankalp from Bloomberg.
Kriti, I wanted to ask you this question. I mean you did talk about North America and whatever we have seen of earnings of some of your global rivals, Accenture, Salesforce, a lot of enthusiasm about AI, but a lot of that is not translating into good growth because clients are still not spending as much.
When you spoke about BFSI and the weakness there, of course, like the banks are doing well. But essentially, we now layer AI into all of your products and services, I wanted to ask you that will we see the enthusiasm for AI turning into good solid numbers as we get into the second half of this year, I mean -- and that is in the context of your comment that FY '25 will be better than the last year. That's question one.
Milind, I'm a bit confused. I mean, I know you said that you'll see and recalibrate as you go forward in terms of hiring, but then you also said that the numbers are likely to be around 40,000. So which one is it? And this is in terms of India needing more and more engineers, not just TCS, but all companies needing more and more engineers as you drive AI and related services higher?
Sankalp, I think we did talk about it last quarter. Any new technology that comes in, there is a -- we overestimate the impact on the short term and underestimate its longterm impact and that same thing is happening in AI, we expect significant revenue, significant impact within a few quarters. My view is, the interest will keep increasing. We will identify newer use cases. We will understand how this technology has to be deployed over a period of time, and then you will start seeing it becoming mainstreaming.
So at this time, we find many of them are still experimenting. As I said, the number of situations where a true tangible business outcome has been achieved is not very high, but -- at the same time, it doesn't mean that it will not happen because to -- for you to get the value out of Generative AI, it is not one isolated use case that you can do. You have to get your data pipeline, right? You have your data -- sometimes you may have to get the traditional AI models also, right? It has to work in combination with multiple other technologies, then that's the time you would probably start seeing a tangible business outcome.
So it is going to take some time. But till then, people will be experimenting with point use cases in such situations, the projects around programs will tend to be small. So we need to wait for this technology to mature in a way that where people know how to deploy it and what else they have to do to get the business benefit.
Regarding trainees, what I said is 11,000 we already onboarded. We -- trainee is a core strategy for TCS. I mean campus hiring is a core strategy for TCS. We normally plan for 40,000 every year. So far, we are also in the middle of a national qualifier test and a good outcome coming there. With all the things which are happening, we'll come -- I would like to go to close to that number, let's see how it goes.
Next question from Shivani Shinde from Business Standard.
Kriti, I just wanted a small clarification. So when you said AI deals doubling, you also shared a figure, which is $1.5 billion. That's correct, right?
Last quarter, we announced $900 million, that's become $1.5 billion.
Right. Is it -- just want to get some more color on this $1.5 billion, is the size of the deals continue to be small? And do you see the -- what is the time period for these deals? Are these short-term deals, are these long-term deals or there is a window for them to get it extended. That's one question for you, Kriti.
Samir, just wanted to get some sense from you for the CapEx for this fiscal considering you have most of your employees back in office. Do we see a jump in that number?
And Milind, a clarification rather back on the 11,000 trainee numbers. Last quarter, if I'm not mistaken, you did say that there has been a delay in onboarding, does this onboarding of 11,000 trainee means all that delay has now been -- all of those trainee -- freshers are also there, and onboarded, and when you say the total hiring number is around 40,000, so is there a room that it may not be 40,000 as well, that's it.
Thanks, Shivani. First on AI, many of the deals still tend to be a short-term period, maybe a quarter or 2 quarter opportunity where you implement a specific use case. But we do started seeing some of the long-term deals where for one of the clients we are creating what they call a AI office. It creates overall infrastructure methodology for implementing AI solutions, and then this office will be looking at multiple use cases and roll out those use cases. It's -- some of the customers have started establishing their AI office also, which tends to be a long-term opportunity. So to answer your question, most of them are short-term, but we have started seeing some long-term opportunities as well.
And Shivani, our CapEx in this quarter was about INR 875 crores, and we have been investing into infrastructure, both physical infrastructure in terms of offices, expansion plans are going on in about 5 metro cities and 5 more Tier 2 cities, and also, we have been investing on expansion of our technology infrastructure.
Shivani a part of that 11,000 has come from the past year, a small part, and now we do not have any backlog from the last year. So now going forward, whatever we add, we will add from the coming year. With respect to -- like I would like to repeat that this is a strategy for us, core strategy for us. So we actually want to go to that number. But we'll actually see how it goes over the year and decide as we go along.
Actually one clarification.
Sir, just take it offline.
On skill set deficit we are facing with the manpower, whether you have relied on subcontracting to...
Actually, our subcontracting has gone down significantly, right? So currently, the point is all our efforts are always to minimize that gap and minimize that gap through proper planning, proper talent development and the remaining to hire from the market. So far, we are -- it is -- the gap will always be there. So some gap will always be there, and we need to manage that always. But it is not significantly material enough to basically for us to worry because that gap can only be reduced through property planning, and that we continue to do.
Sai Ishwar from Reuters.
So just 2 quick questions. First one, I wanted to ask Kriti, you said it's too early to call, there is -- about the demand, you were saying that demand growth is not -- too early to call if growth is sustainable. So the reason for this be different markets having different [indiscernible] -- or is it probably only concentrated with North America where interest rate cuts or U.S. elections having an overhang and second point I wanted to ask was about, you called out saying Gen AI is not having a impact on demand. But do you think a lot of these global capability centers are opening in India and Southeast Asia. So is that one of the reasons where outsourcing spend is being repurposed for in-sourcing spends?
First, on the demand. The -- our major markets are North America, Western Europe and U.K., like that's where close to about 85% of our revenue comes from. Amongst those market sentiments and outlook is very similar. So the reason that there is a demand we are not able to call out is the uncertainty in those markets. From GCC perspective. See, we do see some kind of growth in GCC. But so far, we -- it is not impacting us in a major way. So I don't think we will start worrying about -- we are not worried about it at this time.
But any expectations sir with...
Sorry, Sai, you had another question?
No, no. I just wanted more clarity on the reasons, sir was saying about U.K. and U.S., right, with elections getting over in the U.K., do you think probably there will be a demand recovery?
Once the new government announces the policies and way forward, it should be bringing more clarity in U.K. definitely, and same thing should happen in U.S. once the elections are over, there would be greater certainty.
We'll go to Padmini from Financial Express now.
So have you stalled variable pay for your employees in the wage hike you just offered for who are not -- who are not working out of office? And if so, how many employees were affected. Also how much is the variable pay for the next year? Also your women workforce percentage has stagnated between 35.5% to 35.8% since FY '22. Why is that? And when I compare this quarter's figure on a Y-o-Y basis, it has dropped around 30 bps. So does this have to do with company strategy of asking employees to work from office.
I think, yes, there are implications for people who are not coming to office. We do not give out the amounts of what that impact would be. But it is something which we are doing more from basically bringing in discipline standpoint and not for any other reasons. And most of our employees now, if you look at it today, 70% of our employees are back to office.
So I'm not too much worried about the quantum of the number of people who will basically be not coming and getting affected because of this. And this number is increasing every week, I would say. So I'm not worried about that. I'm also not worried. And in fact, people are realizing the value of coming to office. Some of them have come to office for the first time because they joined TCS during the pandemic, all of that is basically creating positive energy in the system. So everybody has to look at it and looking at it very positively, and these aspects are temporary in nature from our standpoint and need to be looked at from that angle by everyone.
Rohit Chintapali from Businessworld. That's the last question from our online journalists, I believe Rohit is traveling right now.
Okay. I think we don't have his network. All right. So with that, that brings us to the end of this press conference. Thank you so much to all our stakeholders for joining us and a big thanks to everyone that's joined us. Have a great evening, and to all the journalists that are in person, please join us for refreshments. Thank you, and goodbye.