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Tata Consultancy Services Ltd
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Hello, and a very warm welcome to the Second Quarter FY '23 Earnings Press Conference of TCS. We have online streaming happening across all our social media platforms, but of course, we have the friends from media joining in right here in Mumbai.
We're going to start with introducing the management, of course, as always. We have Rajesh Gopinathan, MD and CEO; NGS, COO; Samir Seksaria, CFO; and our CHRO, Milind Lakkad. And as always, again, the first opening remarks from our CEO, and we'll open the floor for questions.
Thank you, Kritika, and welcome all of you again to our Q2 earnings conference. So we have done -- we have closed Q2 on a strong note, with constant currency earnings growth of 4.4% on a quarter-on-quarter sequential quarter basis and 15.4% on a year-on-year basis.
Most importantly, the growth has also come at good profitability. We've been able to improve our operating margin by 90 basis points, closing the quarter at an operating margin of 24%, and that has translated to our net profit also. This is a milestone quarter for us, where net profit has crossed INR 10,000 crores for the first time, ending the quarter at INR 10,431 crores. Overall, from a financial perspective, a very, very satisfying quarter, coming on the back of a series of good quarters that we have had over the last 5 quarters or so.
When you look at the segmental basis, North America continues to power the growth, as also has been the case across the global economy. North America grew on a year-on-year basis by 17.6%, ending the quarter at $3.73 billion. Coming to U.K. U.K., despite the environment in U.K. has surprised on the upside, growing at 14.8% on a Q-on-Q basis, driven by strength across BFSI and many other industry verticals also. So it's not a one-off that is driving the U.K. It's a fairly well-distributed split, with the BFSI forming a bulk of it as in line with our business mix also. Europe has also come in quite strong at 14% plus on a quarter-on-quarter basis and has seen a slight uptick on a sequential quarter basis also in Q2.
I want to take the opportunity to call out Latin America. This is -- we started our operations in Latin America 20 years ago. And as we mark the 20th anniversary, I'm very happy to say that our Latin American operations have crossed $1 billion in revenue. We are now present across 9 countries in Latin America. When we report our geographical market revenue, we report only the revenue that we do for customers inside Latin America, but we also service many of our global customers out of Latin America. So this $1.1 billion includes both what we do for customers in Latin America as well as what we do with Latin America as a delivery location for our global customers.
When you look at it from vertical industry perspective, BFSI continues to deliver strong growth. We're growing at 13% on a year-on-year basis. And all our large segments, I said North America from a geographical perspective, from a vertical perspective BFSI, Retail and CPG. In fact, we also report Travel & Hospitality inside Retail & CPG. That has also had a very strong uptick, and we see that strength across Retail as well as on the Life Sciences, Healthcare side also.
The growth momentum is also reflected in our client metrics with customers from whom we make more than $100 million revenue per year, going up by [ 59% ]. These metrics, of course, also get impacted by the strength of the U.S. dollar so that our international customers, sometimes their size is underreported when we look at it from a $100 million perspective. But even so, very healthy set of numbers on that.
In terms of talent, TCS continues to be a preferred employer and our ability to attract talent continues at pace. We added close to 10,000 net addition in this quarter, ending the quarter at 6,16,171 associates.
Our focus on research and innovation continues at pace. We now have more than 6,900 patents outstanding or applications outstanding, and in this year itself, we have filed more than 753 patents. More importantly, in terms of granted patents, we have now crossed 2,500 with 2,560 patents, which is a growth of 460 patents. So we are now getting granted patents at a rate of more than one every calendar day. So that investment in research and innovation is really starting to kick in, and you see that effect coming through as we keep on focusing on our intellectual property and the whole portfolio of solutions that we are building around it.
So net-net, a very strong quarter, a quarter characterized by good demand resilience across all our markets. We have closed a TCV of $8.1 billion in this quarter, and we see demand momentum across almost all our -- across all our operating markets. Of course, the environment is challenging, and it requires all of us to remain very vigilant. And we are -- I think we have once again demonstrated that our full services -- portfolio of services and our focus on both growth and transformation as well as cost and optimization inside our service portfolio is very relevant to different customers who are at different points of their own evolutionary journey as they deal with this volatile and challenging environment.
I think the results of this quarter underline the importance of this kind of a distributed portfolio of services that we have and our ability to stay relevant to customers across all cycles of their growth journeys and as they deal with the challenges in their businesses around them.
So with that, I will take a pause here, and we will be happy to take questions.
Thank you, Rajesh. [Operator Instructions] So let's start with Anisha Jain from ET Now.
This is Anisha Jain from ET Now. First, Rajesh, help us understand the disconnect that we are seeing in terms of the global headlines and macro indicators pointing to a recession. And not only that, even a lot of corporates are talking about cautionary headwinds versus your comment coming in that demand for your services continue to be very strong. Are you then expecting no sort of slowdown in client spends come Jan 2023?
What is important is that -- what COVID also proved was that technology is at the core of transformation, whether it be on the growth side or it be on the efficiency side or on the resilience side. So across all 3 dimensions, technology is the core. It's also important that we have built our portfolio to be relevant to customers across the full spectrum of all 3 of these challenges. So that's where the strength that we are experiencing is coming from.
But of course, the overall environment, as I said, we need to remain very vigilant and bears watching. We are, at the end of the day, very focused on a set of customers that we serve, and we try to stay very relevant to those customers and make sure that we are within them. What happens next year in terms of budgeting, we will get to know only 3 to 6 months down the line. It will be early next year.
Any indication from the client conversations that you've had?
No. We have also shared with you last quarter also that there is an increasing sense of caution that is in the discussions that we sense. But we have told you last time that it has not yet materialized into our order pipeline, and that continues to be the case now also. So there is that increasing sense of caution. There's an increasing sense that we need to be wary of uncertainties.
However, I believe there is space if we are staying close to find opportunities for growth. But will we be totally insulated? Very difficult to say. But our intent will be to stay very close to the customers and carve out a niche for ourselves, and then minimize the impact of volatility which quite possibly could come.
NGS, the deal wins this time around were quite steady at $8.1 billion. Could you specifically talk to us about how Europe is doing as a region? And even in terms of vertical, how has been the order inflow in BFSI and Retail given the kind of headlines that we have seeing from global banks or the retail corporates as well?
I think overall, the demand environment, as Rajesh mentioned, is quite good. Quite good and across geographies and as well as vertical segments. But there are some softnesses that is to be expected that, especially when it comes to the question of long-term deals, long-term decision-making, it's only natural to expect certain amount of softness given the overall macro environment. And Europe, much of the focus is right now on looking at how this winter is going to be, right?
So I think it's safer to expect certain amount of softness. But as Rajesh articulated, we have the products and services for the customer journeys in terms of whether it's a tough market environment where they'll focus on resiliency and cost optimization -- cost and optimization or investing in growth and transformation and execution.
So are you maintaining the $7 billion to $9 billion quarterly run rate sort of guidance that you had given in terms of deal wins?
We do not see any reason to change that kind of a focus, right? I think we would like to win more.
That'll be great. We are looking forward to that. But you know what, Samir, this time around, we have definitely seen the margin improvement. And you've also commented that you're on track to achieve your operating margin target of the year, which was 25% by the end of the year. What gives you that confidence because not only the second half of the year is going to be seasonally weak, but then we're also hearing that pricing negotiations are getting a bit more difficult. So what gives you that confidence?
So as you rightly said, we would focus on getting back to 25%. And I think 3 important parameters is what we'll focus on. One is focusing on operating metrics. So while we had a bunch of parameters helping us this time, I have called out in the [ quote ] as well that utilization still provides an opportunity for optimization.
We would continue to focus on realization as well. We would also focus on rigor in execution. And once the headwinds which we have been facing, specifically on the backfilling cost as well as the attrition, starts trending down, we'd expect that to also support -- give us support on margins.
Milind, on the headcount front, the obvious question is that from the quarterly run rate of 25,000 plus additions last year, it's fallen down to less than 10,000. And this is despite attrition going up to 21.5% thereabouts. Is the demand coming in from the business are less?
I think if you look at what we have done in last year and we have done in the last 2 quarters, if you look at last year, we have hired 119,000 people from the campus. This -- in the next -- last 2 quarters, we have hired 35,000 freshers from the campus. The entire last 6 to 9 months, we have actually invested in organic talent development of these people. Coupled with some additions from the market is what is -- so bringing all of that talent to product -- to make them productive talent, and whatever is the gap we bring in for the market is what is driving this quarter's growth and the future growth will also be like that.
Are you on track for that 40,000 fresh additions for the year? Or are you looking at retracing that as target?
So we have already done 35,000 in the first 2 quarters, so we will be adding another maybe 10,000 to 12,000 more at least in this coming year.
Let's please stick to 2 questions. We won't be able to take everyone otherwise. Reema Tendulkar, CNBC TV18.
Congratulations. Rajesh, first question is, Q3, will the furloughs be similar to what we've seen in the past? Or given the challenging operating environment for clients, as you outlined, could it be a little more this time?
And also one clarification on constant currency. Is it 4.4%, or is it 4% quarter-on-quarter?
4.0%, so 4%.
Okay. Okay. Sorry 4%, right? Not...
4%, yes. I think from an operating environment perspective on the furlough side, very difficult to call because those calls are taken by customers also quite late in the quarter. But I don't think it's likely to be significantly different. So it also varies by industry.
Banking -- Tech has done well this quarter. So to that extent, Tech is bouncing back, whereas Tech is typically a very high furlough industry, so we'll have to wait. And CMT has done well, that's again one of those ones. So we'll have to wait and see how it pans out. No early indication to say that furloughs will be higher or lower this quarter.
NGS, BFSI growth at 13.1% is lower than the company average. Any particular reason for that? And also on deal wins, either Rajesh or NGS, I think last time, the large deal wins were 2 in the $400 million bracket. Could you tell us that in this overall win of $8.1 billion, what's been the breakup of large as well as the others? And if you could give us some size?
And Samir, 25% by Q4. Is there any other target that you've set in mind? And if you could also give us a breakup of the currency and the utilization, realization, and even on price increases, what has been the conversation? Have you managed to get some price increases?
And Milind, one final question. I hope all of you have remembered because I've forgotten my questions. Milind, 40,000 was the target, 35,000 is done. So do you think there is -- you may need to exceed your fresher hiring target? And by how much can attrition moderate from here on? You're expecting it to come down, but any -- by how much?
Brilliant, I think as far as BFSI is concerned, I think the growth of 13.1% comes on top of a very strong quarter we had last, in Q1, right? I think that has to be factored in. We are quite happy in terms of the engagements that we have with our clients, as well as the kind of opportunities that we see in the pipeline.
There are certain segments of Banking and Financial Services that are a bit soft. And for example, the insurance side of it, especially in the property and casualty segment, right? Given that the semiconductor industry shortage, this that, et cetera, car productions are lower. In that context, the P&C firms are tightening themselves a bit.
So there are certain areas of softness that we see. But overall, the kind of opportunities that we see, the kind of engagements that we have across major markets as well as emerging markets, we are happy with the growth that we have achieved in this particular quarter for Banking and Financial Services.
Number of transformation engagements on which we are engaging and we hope to win in all of them because they are really playing to our strengths. And we believe that we can add significant value to markets as well as to our current customer segments, be it in the area of securities or payments, or even the retail banking and wealth management, they are all doing well for us.
Deal wins, not much of a difference. So we don't have any mega wins. Largest one is in that range of $400 million, and we have a few in that plus/minus range. So deal wins are of -- they are large, but nothing above $500 million per se to call out. So well distributed on a good spectrum across markets and across industries also.
So our priority is to get to 25%, and then once we get there, we'd like to get closer to our comfort win, our guiding beacon of 26% to 28%. For this quarter, the breakup of margins, so 90 basis points improvement, came in from 50 basis points from currency, and that is on account of rupee depreciating against the dollar, offset by extreme cross-currency movements in GBP and Euro.
We had an impact of 20 basis points coming in from higher discretionary expenses, mainly [indiscernible] expenses, facility expenses inching up a bit, given return back to office. And that was offset by operational efficiencies coming in mainly from pyramid, fees to external consultants starting to trend down and productivity-linked realization benefit.
Specifically on pricing, we have had a realization improvement, as I just said. On pricing, on a case-to-case basis, we are seeing increased conversation and pricing improvement, but not at a portfolio or a basket level.
So regarding trainees, 35,000 are already in, as you know. 10,000 to 12,000 pipeline is there, definitely there. Do we need more? I think we'll decide as the time goes by in Q3 and beyond.
Regarding attrition. Attrition, LTM, the way it's gets calculated, the number will not come down significantly, LTM number. Quarter's number will come down. Exactly by how much? Difficult to say at this time.
Sajeet Manghat from BQ Prime.
Rajesh, you got a good set of numbers this quarter, but your commentary speaks about environment is challenging, that's what you said. If you can elaborate when you say environment is challenging, in what sense, which geographies, and is it decision-making has become challenging, or is it execution or supply side? How is it? And then followed by a second question.
No, the supply side is easing out. So the operational challenges from our perspective is not very high. Supply side is easing out. Technology portfolio is stable, so it's not that we are investing in something new and we need to catch up with it. So our operating environment is quite stable.
I'm talking more from a customer perspective, and not very different than what you would guess. So Europe is an uncertain environment. Like NGS said, we got to wait and see how the winter pans out. Will there be production cuts? If there are production cuts that will roll across multiple industries.
U.S. is overall very strong, but supply chain disruption has resulted in insurance, especially on the P&C side having -- so the housing market, the new housing starts are low. Refinancing is low, so mortgage insurance tends to become low. New car buying is down, so that auto insurance starts to see that. So these are small, small niggling things that are coming through.
U.K., with everything that is going on there, very difficult to call. I mean, we are doing very well. Pipelines was -- order closure was very good. Growth is very good. But obviously, we need to be a bit cautious about what that medium term looks like. So that's what we meant.
But having said all of that, as I said, in any of these scenarios, technology is at the core of that solution set. So what is critical is for us to stay very close to the customer and deal with that customer-specific situation. We are not trying to take a top-down call on the market. We are taking a very balanced view. These are the customers. We have a trusted relationship with them. We enjoy a fair level of credibility, and we have the ability to see them through that whole phase. So we're quite confident about the strength of our relationships, even though the overall environment might be challenging.
NGS, you spoke about a good U.K. and Europe in Q2. At the beginning of Q2, you will clearly circumspect how Europe and U.K. would do, and they have done well. Where is this buoyancy coming from? And do you see ahead, Q3, Q4, there could be challenges coming into that market? I know one of the insurance deal which you did in U.K., that has helped you in this quarter. But going to Q3 and Q4, you see that buoyancy continuing?
And secondly, manufacturing. On a Q-to-Q basis, 1%, 1.5% jump in revenues from manufacturing. Do you see manufacturing could be a pain point, given the kind of situation which we have in Europe?
Overall, I think we are executing well in Europe as well as U.K. All the deals that we secured in the previous quarters, whether it is in the Banking, Financial Services or in Pharmaceuticals or in Manufacturing segment, we are executing well. And that's the key thing, right? The 2.3 million policies that we have migrated in a single go. And so it's all coming back to shape in terms of making sure that we deliver on time, we execute it on time with good quality, all of that, right? So that contributes to naturally revenue and everything else.
In terms of the deal pipeline, it's also broad-based. As we said, look, it's not -- but I can't say that we are winning only in Banking and Financial Services, so we are winning only in this thing. It's fairly broad-based. So this $8.1 billion of order book during this quarter is -- consists of several small deals, right? It's a medium-sized deals rather than any one single large deal, as Rajesh pointed out. It's very difficult to say where this -- that this momentum will continue for next quarter.
In terms of deal closures, I expect some softness, right, the way I see it. But in terms of the order book that we have and then we have to execute it and delivering it, I think we are confident that we'll be able to execute it and deliver it in the coming quarters. That's not the issue. But whether the large deals that we are pursuing, whether the deal buoyancy, the decision-making on that will continue. Especially in Europe, is something that we'll have to wait and see.
Next is that in terms of the budget cycle, most of our clients are getting into the budget cycle in this quarter. We have had some conversations, but then we'll have to wait and see how that pans out. And probably in coming -- come January, we will have some more visibility on how they are thinking about budgets for the next financial year, and so on and so on. And I think I'll be able to share more insights into some of this in January.
Samir, more than 110,000 recruitments last year, 35,000 in first 2 quarters. How is it going to play out for your cost of subcontracting? Will that have a -- will it come down significantly for you going into the second half?
So we have seen our subcontractor costs starting to trend downwards and we expect that to continue. Especially so when the supply side challenges, which we are talking about, they start to ease down upon, then reliance on subcontractors should also equally start to trend downwards.
Milind, you spoke about the fact that you have peaked in terms of attrition in Q2. But you also mentioned that on an LTM basis, the fall may not be significant. When do you see attrition down sub-20% on an LTM basis?
It's a big one. But the point is we are seeing a good significant change in the numbers which are coming in. And if you do mathematics, just pure mathematics for the 4 quarters, it will still not be significantly down because of the way it's calculated. So it is -- even after 4 quarters, you will see a number which may not be very close to what we are aspiring for. But it will come down significantly. It will come to 20% -- it will take at least 4 quarters to get to that point. It will because of the way it's calculated. But our overall numbers of number of people coming down every quarter will come down significantly.
Debangana from Money Control.
Congratulations, firstly, on the great set of numbers. So my first question to Rajesh sir. We have -- so I wanted to first ask about 5G has launched this month. So what are TCS's plans around that? And how do you plan to capitalize the opportunity?
I'll defer to the expert on 5G and let NGS take that.
No such pretensions, but I'll take the question anyway. But it's -- 5G is a great opportunity, no doubt about it. I think it has the potential to be leveraged by every business. In that sense, that telecom will increasingly become a horizontal on which every vertical will start to develop benefits and efficiencies, right?
In manufacturing, it could be Industry 4.0 kind of principles can actually become a reality, right? Yes, you would need the applications. Yes, you would need a private network so that you could connect internally as well as you could connect meaningfully with the ecosystem that you are building. So we are looking at all those opportunities, okay? So both on the telco side, in terms of managing a very efficient network, for example. Which is something that we have always done to many of our customers.
With 5G and -- rolling out 5G, coexistence with 4G and handoffs between 4G, 2G, 3G, 5G, all of that, and then providing the necessary finesse for the consumers, the experience that they are looking for, means that there will be a significant amount of innovation that is possible, significant amount of applications that is possible, whether it is life sciences, healthcare, education, agriculture and farming. In each one of these verticals, the opportunity to innovate is huge. We are quite focused on some of this, and digital farming is something that we have taken up in a big way.
Manufacturing efficiencies, logistics area, how do we automate, how do we really work with the robotics and 5G together. There are many such solutions that we have built. And we'll have to go and work with the corresponding industries, make sure that we leverage the private network that either they deploy or put everything together and then make a mark for ourselves in the 5G area.
Right. Another -- just had a follow-up, a separate question. Currency volatility situation is worsening right now. So in terms of talks with the clients, because clients -- client companies globally have gotten affected. So are you seeing demand increase in terms of pricing discounts on deals right now?
We don't see that. We see pricing to be stable. And on the other hand, in some of these new deals that we are winning, especially on digital technologies, on cloud transformations, et cetera, we are able to charge a premium where it is appropriate. But overall, I think we see a very stable pricing environment at this stage.
Right. Could you shed some light on the pricing difference in terms of digital deals and something like more of a traditional deals that...
It's harder to do that because we -- most of our customers, if you really look at it, we have long-term relationships with them, number one. Number 2 is that it's a certain opportunity -- the opportunity is not this or that. It's a combination of everything, right? So every deal, at some point in time, I said that, look, everything that we do will become digital because there is an element of digital technology which will always be there.
It's very hard to segregate this two, but we are happy that we are able to stitch together the overall solution, leveraging the traditional as well as digital technologies. And then make the value proposition count for TCS as well as for our clients.
Harshada Sawant, CNBC Awaaz.
Catching on the digital transformation deals. When you say you are witnessing premium pricing, so is there scope of further pricing increasing in the digital transformation deals? Also, how much of it is actually being driven by cloud ERP? Where is the growth in the services market at this point in time?
On Europe, I wanted to understand from you, Rajesh, you said, like NGS pointed out, we'll have to wait and watch as to how this winter pans out. What has led to this particular growth? Because most people who are actually anticipating that this quarter is going to be a washout for Europe and U.K., and you've shown phenomenal growth there, nearly 15%.
Finally, Milind -- I'm sorry, Samir, I have no questions, everyone asked you everything about margins. So I'll keep a couple aside for tomorrow. I want to understand, Milind, from you. Have you asked all your employees to come back to office? And I also want to comment on what all peers are talking about moonlighting. Is that a concern for TCS?
Yes. What was the first one? Digital...
Digital transformation. Are you -- is there scope for further premiumization of pricing?
We have to look at the opportunity to increase price. If it is there, definitely, we'll do it, right? There's no -- please don't think that we are not going to improve pricing, right? We're always on the lookout for increasing the pricing, and then it's a function of the value that is -- we are putting together overall.
But we'll have to be sensitive to the customer situation and the market situation and see what is the best way to structure the deal, both technically and commercially. I think that's what we are doing.
Do you want to take the...
See Harshada, the deal flow is very -- what should I say, distributed. So if you look at Europe and U.K., you have deals both on the optimization side as well as on transformation part. So some of the very interesting stuff that we are doing there, for example, utilities, is going through a massive transformation. We are doing some very good work in France for utilities to allow -- actually, for the utilities regulator to allow for rapid switching or allowing consumers the ability to switch providers, which used to take 2 weeks down to a day, and building that market infrastructure required for making that switch available.
Actually, that we did it in the U.K. market. Similarly, in the European market, we are doing some -- we are actually allowing a utility provider to move from being just a commodity supplier to actually try to offer smart home solutions, and with a longer-term view of them wanting to actually offer insurance on the appliances.
Similarly, there is corporate restructuring going on. There are companies, so one of our large customers, a very well-known brand, is divesting its domestic appliances business and standing that up. So it will become a healthcare company under domestic appliances company. We are helping them go through that separation. So there are many such targeted deals that are happening.
There are also optimization deals. One of the large banking customers in U.K. is going through a complete portfolio reset, which is leveraging cloud as a transformation fabric. But rather than look at cloud just as a CapEx to OpEx kind of a transfer, they're using this opportunity to relook at their operating model and to transfer that operating model.
Same thing for CPG customer out of Central Europe. We are actually helping them stand together what we call a vertical operating model, where technology and operations becomes very tightly linked to business so that they're able to take an end-to-end view of it.
So it's not a 0, 1 kind of a situation. There are opportunities, but opportunities are granular. And our spread across this market allows us to participate in these opportunities. But given the environment, the reason we are cautious is that you don't know, as like NGS said, whether the pipeline will translate on an ongoing basis for the next 1 or 2 quarters. That we need to be watchful.
There's a big unknown that exactly how will that energy crisis pan out? If gas becomes an issue, you could see large production shutdowns across Europe. That will have a ripple effect. It is not just one industry, because that feeds into many industries. So those things, we'll have to wait and see. But the market opportunities are there, and we have the presence, and we have the credibility. So we are able to participate selectively. How it adds up? We'll wait and see.
I have a very quick follow-up. You don't sense this kind of caution when it comes to U.S. at this point in time at all, do you?
No. U.S., as I said, other than...
Could be down -- a couple of quarters down the road?
Might be. Some amount of discretionary retail is starting to show some amount of -- froth is coming off it a bit. But regular retail is -- volumes are holding up. What you're seeing is that the -- so we'll have to wait and see whether it comes down to the -- on to regular retail.
Auto, actually, in the U.S. is doing very well. Manufacturing in U.S. is doing very well. Utilities is going through a major transformation. Airlines, travel, transportation, hospitality is zooming. I mean, they're at all-time highs. So U.S. as a market is in a very good place. Insurance is the only one, but that is actually a very odd situation. But there is a cautionary tale, as I said. Housing starts are off. So those kind of things show that some amount of -- some red flags are out there that require watching.
But again, our approach is stay close to the customer, look at individual opportunity and take a call on it. Our -- actually, we are not very good commentators on the macro because we don't have a zoomed out view. We only have a very narrow view, and that's where it...
All right, Harshada. See, all of our seniors are coming to office.
[Foreign Language]
All of our seniors are coming to office. All our -- the remaining staff is -- actually, we are rostering all of them. Every project is rostering all of them. And today, the situation is 1/3 of our workforce is coming to office at least 2 times in a week, okay? So that is about -- and this number will continue to increase. There's a lot of excitement about coming to work in a lot of people. Every day, I'm seeing a lot of pictures and videos about how people are happy coming back to work, saying I'm very excited. I'm happy about that.
Regarding your second question on moonlighting, TCS has a long-term commitment towards its employees, and employees also have a reciprocal commitment towards TCS. Moonlighting, we believe, is an ethical issue, and it's against our TCS core values and culture, in general. I'm not talking about IT industry as a whole, I'm talking about TCS here. So IT industry has adopted different models, and -- but our position today, as of today is this that is how we believe moonlighting has to be seen by our people.
Sajeet will take it...
On a lighter note, yesterday was a full moon day. Very auspicious day. I saw a number of TCSers, including me on the lawns, really enjoying the weather.
Okay. Next question from Ekta Suri, Zee Business.
[Foreign Language] So it adds more skill value to an employee's portfolio. [Foreign Language]
[Foreign Language]
Ashish from PTI.
So just to follow up on that question. So is it fair to understand that there is nothing codified right now? You are leaving it to the employee and, like, basically rather -- to self-regulate rather than pushing something from top-down?
And Sajeet's question. If it is not the case, then some -- has some action been taken?
We actually have been communicating about this that this is -- what I just told you is what I'm communicating to them, and they know it reasonably well. Action taken, there's no action taken so far. What is the other question you had?
Has it been codified? As in...
I think, the codification -- what does it mean by codification? Codification, if somebody gets another job and we come through -- now through systems, other systems, that is the only way for the organization to know if something has happened, whether it's...
It is codified in our employment contract. It is codified in our employment contract that you're not allowed to work on -- for any other organization, so to that...
And second question. Yes, sir, you mentioned about longer-term visibility being a problem for decision makers. We have been seeing that from a highs of $2 billion single deal, it coming down to $400 million, $500 million now. So is it fair to assume that okay, till the time that these difficulties continue on the macroeconomic front, you will have -- you'll have difficulties from a big deal perspective, because decision-making from a longer term sort of bigger deals becomes difficult?
No, it's hard to say that. But then what I'm saying is that in Europe, specifically, commitment on long-term deals is something that's softening, right? That's what I mentioned. But having said that, look, we're still working on large opportunities.
But the key thing is to see that, look, we have been able to score $8.1 billion in this quarter as a combination of medium, small, large. Very large deals are not there in this, but we are happy that the portfolio of opportunities that we are dealing with and the diversity that we have in our portfolio enables us to stay relevant and win those deals, right? It is very important for other -- with the book-to-bill ratio of, let's say, 1.2 on -- we are quite comfortable in terms of the pipeline that we are seeing across the globe, right?
Romita Majumdar, Economic Times.
I think since most of the questions have been asked already, if you could drill down a little on the fact that deals are smaller, is there a change in the kind of outcome, duration, delivery models that clients are discussing with you? Especially, of course, in Retail and Manufacturing where customers are beginning to see some areas of concerns, are there any kind of changes in what they expect or by when they expect from these deals?
And another thing. Just because we have previously touched upon the fact that there were improvements, pricing improvements in pockets. You already mentioned that digital deals are coming in at a better price. But just overall, if we look at renewals, are we seeing a larger share than maybe where we were at Q1 when it comes to better pricing, especially for renewals?
I think the deal size -- see, we have always maintained that the mega deals, the $0.5 billion, $1 billion deals, these are very difficult to predict. These come in a fairly uncertain frequency.
The -- what we're seeing on the deal pipeline is not very significantly different from our long-term averages. There are a few deals in the hundreds of millions. There are deals in the 50s, and then a very long tail of small deals, which is the long-term model or long-term average. So I've not seen any significant reduction in the deal size.
Like I was explaining into Harshada's question that our ability to stay engaged with customers and keep on converting small opportunities, that starts taking a greater urgency when we start seeing a market that is slightly unpredictable or softer. So it's more of how the sales behavior changes on the field, right? You will keep on picking up what you have. Because customer engagement and staying connected to the customer and picking up what's on the table becomes more important than trying to cook some major one.
But that's a fairly healthy and also that plays to our strength of having that market coverage and having the ability to actually pick up that. And so keep that in mind that it's not -- it's a very -- it's not a sign of what's happening to the demand. It's more a sign of how the behavioral change that is normal. What was your other -- second question?
Execution model.
Execution model. No. And we are -- see, we pride ourselves for having the full spectrum. Outcome-based pricing, large transformation deals delivered on an outcome basis. Even what NGS was saying earlier, platform-based models where we are taking business outcomes on a transaction basis, all the way to regular outsourcing and regular T&M-led models. And we are seeing -- I mean, that full spectrum continues to be of attraction to our customers. Many of our large customers, you will find different, different engagements executed using different contract vehicles.
[indiscernible]
Not meaningfully, not meaningfully.
[indiscernible]
Pricing, also not a meaningful shift. As these contracts are coming up for renewal, we are typically able to enforce the COLA requirement because inflation is such a major and well-understood and well-accepted phenomena. So COLA factors are being able to be enforced. We are sometimes able to offset some other discounting or some other terms that we might have agreed on in the past, we take that offsets.
So a contract renegotiation is not just price based. There are multiple commercial terms. Net-net, contract terms are becoming easier for us in the current set of renewals. And that might come through sometimes in pricing, sometimes it might come through in some other risk reduction methodologies. But terms are a full spectrum that is available.
Just to follow up, by how much has maybe the duration for Europe discussions, deal discussions and closure, how far has that changed?
That's -- I don't have a quantified answer to that. But our total pipeline is growing a lot faster than our qualified pipeline. So that's -- I mean, that's always an indicator that there is that slowing down on the -- so -- but the total pipeline is growing quite fast. As we expand our portfolio of services, as we keep on looking out for new opportunities, translating down to qualified pipe and then translating down to actual contract signings, you see that slow increase happening. Nothing dramatic, but you can see that elongation of the pipeline in play.
Shivani Shinde, Business Standard.
Congratulations on a good set of numbers. As Romita said, just drilling down on a few more points. How much -- Rajesh, this is for you? How much of this new organization structure, the impact that we are seeing in numbers, how much of that is responsible, if we were start that?
Shivani, we're just into the second quarter of the new org structure. I don't think number-wise, the new org structure is quite there today. But having said that, the numbers are good. So we'll take that here, but I don't think it's the structure that is playing down to the numbers so soon. That would be something that we would expect by next year.
But overall, the structure is going in quite smoothly. We are seeing our ability to increase our relevance to our larger customers increasing, as well as greater focus on cross-sell into our existing customer base. And the strength that we're seeing in the performance is an indicator that at least it is not going downhill. So whether it is starting to positively impact, we will get to know in a year or so.
NGS, this one is for you. So we've heard from the SaaS players, things aren't moving too well. Platform has been a big play for TCS where the model is similar to SaaS. What's the kind of picture you see there?
Overall, I think platform business is doing very well for us. This quarter especially, we have made good number of customers live. And by default, everything goes only in a SaaS model. Nobody wants a platform that will give you the product on premise and then -- those days are gone. It's only on a SaaS model-based pricing, is what is the aspect.
Almost all our platforms are operating today on a cloud. Very rarely, somebody is asking, give me this on my own data center. Everything is run on a TCS cloud or a hyperscaler cloud. I think we are happy with what we are seeing in the marketplace. And we have the tools, pricing power. And as they -- because the good thing about is that you negotiate a good transaction-based pricing, then as the business grows then we also are able to make some money. So overall, I think we are happy with where we are.
And then India, I think, about 16.7%, do we see that? Or this is happening in the next few quarters as well, or this is this quarter phenomenon?
India is -- the regional market is volatile, as we've always called out. So it's -- let's hope that this continues, right?
Okay. Final one to Samir. Milind, I will ask you something -- some questions later. Samir, so cross-currency headwinds are there, especially in the other -- GBP and other. Do we see any significant impact in terms of your hedging policy? Because though rupee-dollar is looking good, other currencies aren't?
We have a very consistent and stable hedging policy, and we continue to stick to that irrespective of volatilities. And that's what helps us in the long term. Hedging policy is to hedge 2 quarters forward.
All right. Lalatendu Mishra from The Hindu.
Almost all questions have been asked. So you said you have completed 20 years in Latin America and crossed $1 billion. Is there a comparison between the SAARC countries and Latin America, if you can throw some light? Because comparing with India is a bit unfair.
It's a good question. Actually, we are not very big in the SAARC countries. In fact, we hardly have any presence compared to what we are in Latin America. As I said, I've not thought about it from a SAARC versus LatAm. Good question. I don't answer for it.
[ Rosukai Hanida ] from [ Nikai ].
Look Latin America has -- in terms of large companies, almost in every industry. For the size of that economy, actually they have very large companies. Telecom, manufacturing, utilities, banks, a very, very large cross-market companies exist. And some of them like CEMEX and all, globally big. So the total size of that economy is quite significant. But SAARC versus LatAm, I don't think we have done that comparison.
Hanida-San, please?
Yes. I would like to ask 2 questions. And the first question is related to group synergy and collaboration. Recently, India has back into the Tata Group. And as the same group company, does TCS plan to contribute it to their reform plan?
We are very large providers. Probably among the largest, if not the largest providers in the airline industry. So we work across all major airlines globally. And to that extent, we are leveraging our domain expertise to help the multiple airlines in the group, so we are participating. But it's a much larger transformation effort that is currently on, and we hope to contribute and support it in any manner that we can.
And the second question is regarding the Russia-Ukraine war. And I understand that the TCS doesn't currently operate direct business in Russia, but are there any direct or indirect impact on the -- its some geographical portfolio of the TCS by the college education of Russia and the Ukraine?
No. We don't have any -- here we don't have direct operations. We have customers who had -- global customers who had a footprint. And as they exited, some amount of business impact was, of course, there. But I think that is well in the past, and we have not had any. So we have neither delivery presence in that country nor any local customers in that country.
So we have been thankfully, touchwood, isolated from the turmoils that happened in those markets. Indirect impact in Europe, of course, Europe is a very large market for us, and like we have been discussing here. The conflict has huge impact on Europe, and from there, we have inherited impacts.
We have 2 questions from the journalists that are watching the live stream. So for NGS, [ Jasher Mendonka ] from ET Prime has asked, given the pace of patent grants, could you give color on how TCS monitors and measures the value derived from the patents? And how is the success of the R&D program determined?
Yes, I think we are extremely focused on, let's say, filing patents. Anything that is creatively we have done, we're encouraging our employees to recognize that and then keep filing patents, okay? I think we are -- the pace at which the patents are getting filed, we are quite happy. And even during the current situation where many employees of ours are working remotely, we're happy that the pace of innovation and the pace of creativity that the kind of code that has -- or the ideas that gets patented has continued, which is, we are quite happy with it.
Many of these are coming out of the solutions that we are creating for our customers. Sometimes, these patients are also jointly filed between us as innovators and some of the customers as collaborators with that. Some of these patents are all getting embedded into our products and our solutions, which actually contributes when that such an innovation comes in. For example, if you take our Optumera product, it's a preferred choice amongst all the retailers today. If you take OmniStore, again, it's again a preferred choice amongst retailers who wants to reimagine the front side of it, the store's aspect of it. So the value that some of these patents come out is through the license fees that we are getting out of this.
We are not, at this point in time, looking at going and seeing that, look, whether this patent is something that we can leverage and then go and see who is using this kind of technology. Whether should we cross-license this, et cetera, et cetera. So that's why the -- that's not something that we are focused on at this point in time. Clearly, the organization, there's a momentum. We enjoy that momentum, and we just want to create more and more patents and keep filing it.
And a final question from Sethuraman from Reuters. That's for you, Milind, what's the hiring plan for U.S. and Europe for the company vis-a-vis India? And what's the fresher hiring outlook for next year? Is the company seeing a meaningful reduction if you compare it to the amount of freshers that were onboarded last year?
Our hiring for U.S. and Europe completely depends on the demand. Demand in that particular quarter. We definitely do hiring of trainees in the U.S. 2,000, to 2,500 trainees every year, that would continue. But experienced hires demand depends on the business demand -- hiring depends on the business demand as such. Second question was?
Second question was specific to freshers, if there's going to be a number?
Yes, freshers. We actually, have -- for FY '24, the NQT process is already on, and we have 0.5 million registrants for our National Qualifier Test for next year. So we have a significant pipeline and very excited to basically have so many kids participating and becoming part of TCS.
Thank you. Thank you, gentlemen. If anyone has further questions, please send this to us. Everyone here in person, join us for snacks. And to all those joining in the live stream, thank you so much for watching. Have a good evening.