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Tata Consultancy Services Ltd
Earnings Call Analysis
Q2-2024 Analysis
Tata Consultancy Services Ltd
The company reported an improved margin of 24.3%, marking an 110 basis points increase, attributed to disciplined execution such as productivity, utilization, and optimization of subcontractor expenses. An additional lift in margins was due to efficiency in discretionary expenses. Looking ahead, the company maintains a margin guidance of 26% to 28%, with continued investment in infrastructure expenses.
Despite strong deal wins, the company faced revenue leakage from existing deals and sectorial variability, with manufacturing declining by approximately 16.9% quarter-over-quarter. However, sectors like BFSI returned to growth, alongside strong performance in energy and resources, as well as regional success in Middle Eastern and African markets, and particularly the U.K. The company expects that as projects settle, new deals will overcompensate for any declines, though exact timing of growth resumption is uncertain.
The company is comfortable with its execution and looks forward to a revenue growth rate between 9 to 10%. The nature of projects won, which frequently involve new technologies like cloud, automation, AI, and ML, is particularly satisfying. Furthermore, strategic portfolio management balances optimizations with new opportunities and is expected to continue into the coming quarters.
Large deal wins are approached with a portfolio perspective, ensuring that overall margins meet target expectations. While individual deals might start with lower margins, the strategy aims for achieving the targeted margins over the deal lifecycle. Strategic calls may be taken on specific accounts for larger strategic benefits, guiding the portfolio towards the margin beacon of 26% to 28%.
Following the completion of the bribery probe, the company has documented measures to enforce compliance and prevent similar situations in the future. Internally, 70% of employees have started returning to the office, though specific needs based on project requirements will guide future steps in this matter. Regarding global presence, the situation in Israel is being monitored with employee safety as a priority, and discussions will take place with customers about any necessary actions.
The company has trained over 100,000 employees to be ready for generative AI, exploring various technologies. While personal experiences with generative AI have shown up to 70% time savings for some executives, broader expectations are for a 30% to 40% productivity gain across the industry. However, costs associated with large language models (LLMs) may neutralize these gains. The company will continue to assess development in this area, aiming to remain relevant to customers on their AI journey.
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Hello, and a very warm welcome. I'm Kritika Saxena and you're watching second quarter FY '24 Earnings Press Conference of Tata Consultancy Services. Thank you for everyone joining in on the live stream. We have all our stakeholders joining in on our social media live streams. And of course, as always, we have our friends from media joining in person in our Mumbai headquarters.
Without further ado, I'm going to introduce the management. We have with us MD and CEO, K Krithivasan; NGS, COO; CFO, Samir Seksaria; and our CHRO, Milind Lakkad. And as always, I'd like to invite K Krithivasan to take over for the opening address. Krithi, the floor is yours.
Thanks, Kritika. Good evening, everyone. This is a quarter where we displayed strong execution in the face of continued macroeconomic uncertainty. Our revenues grew by 2.8% on a constant currency basis. Our rupee revenue grew by 7.9% to reach INR 59,692 crores. Our disciplined execution across multiple margin levers helped us achieve an operating margin of 24.3%. This represents a sequential margin expansion of 110 basis points, translating to INR 14,483 crores of operating profit.
Our net profit for the quarter has come in at 19%, translating to INR 11,342 crores. Consequently, our EPS has reached 31 from 30.26 in Q1. Cash from operations at INR 11,821 crores is healthy conversion at 104.2% of net profit. The Board has declared an interim dividend of INR 9, amounting to about INR 3,293 crores. In addition, the Board has also recommended a share buyback of INR 17,000 crores at a price of INR 4,150. This is in line with our practice of returning 80% to 100% of free cash flows back to our shareholders.
In this quarter, despite macroeconomic uncertainties, customer metrics showed improvement across all bands. The number of customers from whom we make more than 100 million rose by 2 to 61 customers on a year-on-year basis. There has been a strong customer movement across all the other bands as well. In addition, our customer base of 1 million plus stands at 1,272 customers, an increase of 62 over last year.
Moving on to segmental commentary. United Kingdom continued its outperformance to achieve revenue growth of 10.7% year-on-year. North America grew by 0.1% and Europe grew by 1.3%. On a sequential basis, happy to report Europe returned to positive growth. Our growth markets of EMEA, Middle East and Africa and Latin America also had strong double-digit growths.
Among the verticals, manufacturing, energy resources and utilities and regional markets, essentially, our banks and by BFSI platform had strong sequential growth. On a year-on-year basis, Manufacturing grew by 5.8%. Life Sciences and Healthcare grew by 5%. Energy & Utilities by 14.8% and regional markets and platforms by 14.3%. As you can see, BFSI degrew by 0.5% and consumer business, which would be the new name for our Retail, Travel, Transport and Hospitality business grew by 1% on a year-on-year basis. However, BFSI posted a positive growth on a sequential basis.
Our deal wins continue to be very strong. Our order book closure for the quarter stands at $11.2 billion. This is the third consecutive quarter of more than $10 billion in order book. This includes 2 mega deals of JLR and BSNL, which we announced already. This represents a sequential growth of 10% and a year-on-year growth of 38% of TCV. Our order book for North America stood at $4.5 billion. For BFSI at $3.03 billion and consumer business at $1.44 billion. Our attrition continues to improve. On LTM basis, our IT attrition has reduced to 14.9% from 17.8% in Q1.
Last quarter, I talked about our investments in generative AI. During the current quarter, we launched our ai.cloud business unit by bringing in together the power of cloud data and AI/ML including generative AI. Our customers are looking to leverage cloud migration, composite data foundation, application modernization, workplace transformation and niche to cloud, coupled with AI to drive growth.
Our ai.cloud unit builds on our award-winning partnerships with hyperscalers and AI partners to deliver superior value to our customers. We also had an opportunity to validate our future-ready AI-first point of view and our 4-layered architecture for interface adoption of generative AI, in our customer summits in North America and Europe, which were very well received.
We are currently engaged in more than 250 generative AI powered engagements with our clients. We have also defined a catalog of use cases that help our customers to fast track the generative AI adoption. As mentioned in Q1, we completed the initial generative AI readiness training for 100,000 associates already. Further training is going on for next level of training.
As an update on our R&D efforts, we have filed for 218 patents in Q2, and were granted 149 patents. Both the numbers are significantly higher than Q1.
With those updates, I hand it back to Kritika, and we'll open it for questions. Back to you, Kritika. Thank you.
Thank you so much, Krithi. We'll throw the floor open for Q&A. Let's start with Anisha Jain from ET Now. Anisha, two questions overall.
I'll ask it one by one, so just that it's easier. Krithi, what explains the dip in revenue that we have seen this quarter. Is it a broad-based slowdown kind of requests from clients to slowdown the execution? Or is it more specific to a specific client, geography or vertical?
See, to some extent, it's broad-based, but we've been explaining it last quarter also, okay? The trend is same. Essentially, clients want to invest and invest in newer technologies. So technology adoption is very high. And given the macroeconomic uncertainty, there is also a lot of request towards cost optimization projects. So we are able to sign new projects. And the project that we signed, we continue to execute them and they yield their revenue as planned.
But in any given quarter, there will always be some amount of degrowth. Essentially, some projects will be complete, they come to a natural end, and some projects will get downsized. So if the degrowth is much stronger, usually in a regular good growth quarter, there'll be less of degrowth and more of new addition coming in. So net-net, you see a lot of growth.
But what's happening now is that we are not fully compensating for the degrowth, which is more normal process, but we are not fully compensating because clients are also optimizing or passing some of the ongoing projects. And so there's some deferral happening. So that's the reason why you see -- while the TCV is still strong, the revenue growth -- it is not reflecting in the revenue growth.
Okay. So let me toss it to NGS, since the ramp-ups are slower, when are you expecting those ramp-ups to actually show into the numbers? And will the bulk of it only come in FY '25? And let me just add the questions for others as well. Samir, I mean, the margins are something which has surprised us positively.
And you're talking about how the continued push for growth efficiency and innovation levers leave further improvement, room for the profitability. So are you hitting that 26% mark this year itself? And Milind, the question to you is a lot of reports around you coming back from the hybrid model to full time at work, is that true? And what impact will it have on business?
Ramp-ups, I wouldn't say they are slower. I think all the new projects that we are starting, as Krithi explained, right, those ramp-up are according to the plans that we have, we have put in place, right? But as he explained that in any quarter, for example, for TCS, there will be projects which will get completed. In this quarter also, we have 2 large transformation engagements, we delivered successfully, and they got completed, right? So to that extent, the revenue from those projects will be sharply lower in this quarter. So the revenue pull that happens from new ramp-ups, new project that we have signed is according to plan, right?
What is that plan now for the ramp-up of the other deals?
It's according to what we committed to the project and it is a project by project we go through. But I -- see I don't see any variations per se that we see now typically when we execute large projects, right? So customers are looking for cost and optimizations. So there are vendor consolidation, those kinds of projects and deals that we are winning. The large-scale transformation programs like what we announced for JLR or what we announced for BSNL, those kind of deals are really shaping up. So the -- it will have its own ramp-up plan as a multiyear contract that we signed, right?
I don't see any aberration per se in any one of those things. And we have a fairly good capacity in terms of people, and we have invested in our people, trained them. So they're all ready to be taking up some of these projects as we speak, right? I don't see anything which is an aberration to call out, right?
And no aberrations on...
Anisha, let's take this, yes.
On the margins, we delivered a margin of 24.3%, that's an 110 basis points improvement, let me walk you through to bridge before we come to FY '24. So 100 basis points we got from disciplined execution, which is primarily from productivity, utilization and further optimization of subcontractor expenses.
Another 35 basis points we could get from driving efficiency, mainly in discretionary expenses, like I called out last quarter. Some of these expenses had achieved critical mass. And on the other hand, we continue to invest on infrastructure expenses. Now coming to our guiding. So our guiding beacon does remain 26% to 28%. And with your best wishes hopefully, soon.
So not ruling it out right, this year.
Yes, I did.
All right. So let me give you some context. We have hired a large number of people in the last 3 years. And for most of the period, they were working in a hybrid/virtual mode. We strongly believe that for -- they need to come to work so that the new workforce get integrated with the larger workforce of TCS. And that is the only way they will learn and understand and internalize the TCS values and the TCS way. Having said that, -- so yes, we are asking people to come all days in a week. Having said that, we will continue to assess the work models and evolve depending on what works best for our customers and our employees.
Reema Tendulkar from CNBC TV18.
Krithi, the first question is I understand that there is a natural revenue leakage when deals come to an end, but is the revenue leakage from existing deals a little higher? And also despite seeing very strong deal wins, why is it that the fresh revenue, incremental revenue from deal wins it's not able to offset this revenue leakage? And also if you could talk about the improvement that we've seen in BFSI quarter-on-quarter that's picked up, High Tech has picked up. But on the other hand, manufacturing has fallen 17%, I think, sequentially based on some of the numbers that I see, 16.9%, is that correct Q-o-Q?
I think it is 5.8%.
Q-o-Q.
On a year-on-year basis, but manufacturing is a growth.
Q-o-Q also?
We have restructured a bit, and we have called it out. So we have carved out a few things. But manufacturing...
Just talk about sectorially what's happening, pain points and where growth is?
Yes. See, the first question you asked, right? Like we have signed a lot of new deals. They have different tenures. And there is a revenue pattern, revenue already defined. It's obvious, right? Like if the existing projects get paused or optimized more than the incoming revenue you will have -- so that's -- that's what you see here. But what we -- once things settle down, once there is a certainty, we believe that the reduction or optimization will be overcompensated by the new projects, and we should get back into growth but we won't know when, okay?
But in terms of sectoral, while BFSI returned to positive growth, it's a small positive growth, I think, I don't want to read too much into it. U.K. continues to be our -- from -- if I go through the industry verticals, manufacturing actually been performing very well, and energy resources have been doing well.
Actually, one thing of interest is all our regional and emerging markets are doing very well, Middle East, Africa, India, our banking platform, they are all doing very well. Banks and banking platform, they are all doing very well. And if you look at geographies, U.K. continues to be outperformer for us. And again, on a positive note, Europe has turned positive.
Like Europe, we have some specific, NGS was mentioning about particular projects closing, or once you complete the integration, after that the revenue drastically falls. So we had a couple of issues in Europe. In Europe, particularly Benelux region is doing very well. Nordics is okay. The issue is to some extent restricted to Germany, France kind of region. So it's a mixed bag in Europe. But I think long term, our TCV has been good. Our order book looks good in Europe for us to set us on the right platform for growth.
NGS, when do you think discretionary spend will come back? And two, on deal wins, third consecutive quarter of $10 billion plus, would you like to step up your guidance on deal wins of $7 billion to $9 billion?
I think we're pretty happy with what we are doing, right? I'll be happy if you are able to clock between 9 to 10, in that range.
So you are raising a little bit, right? 7 to 9 is now 9 to 10 on an average. Can we say?
Yes. I think a couple of quarters ago, I think somebody asked and I said that, look, I think 9 and 10 is a good number to have, given what we are doing. But the important thing is the kind of projects that we are winning, right? I think it's fantastic. And in every project, there is an element of cloud, element of automation, generative AI, ML.
So it's new technology based wins, which is very satisfying for us. That also gives an opportunity for all our associates to try all the things that they learn. And bring in that collective experience and contextual knowledge to deliver that well, right? So which is really good, right?
In terms of when the discretionary spend will come, I wish it happens from tomorrow, right? But just before coming here, I was watching, I think, on your channel or something else and one of the economists was commenting that economy is resilient to recessions and inflation, but it's limping ahead and not sprinting. And then he said that, look, growth projections are good, but it's below the...
No visibility yet.
Historical averages, right? So I don't know what to read, right? But I think as Krithi said, we have had a fantastic customer summit in U.S. and in Europe. They're all comfortable with the way that we are delivering to them. See, there's a portfolio of projects that we execute for them, which we continuously disrupt. That means that we have to keep optimizing it.
We have to adopt and adapt technologies and then give them that more for less or less is more, paradigm in which we have to execute. So that optimization takes place, which is good for us and which releases experienced people to the other pool that we have. So we are happy with where we are. Good that we are clocking some large deals. And I think we continue to execute well on them. And then hopefully, we will do well in the coming quarters.
Samir, are the large deal wins margin dilutive? That's the big fear in the market. And Milind, your headcount has fallen by more than 6,000 on a quarter-on-quarter basis. A little bit on that. And also, you had a plan to onboard 40,000 freshers this year, on track to do that? And how many have been done so far in the first half?
Reema, on the large deal wins. We look at our margins on a portfolio basis, and we try to ensure that our individual portfolios deliver the desired margins. And during the deal cycle or a life cycle of a project, it would go through various phases and might have different margins. But overall, our focus is delivering -- having the portfolio deliver the required margins.
So over the tenure of the deal the margins should be at the target, initially it will be lower.
Absolutely, we can take strategic calls, but in general, yes.
Are you taking a strategic call...
Reema, let's...
Definitely, we would take strategic calls on specific accounts.
With lowered margins to get the deals....
At a portfolio level, guiding beacon 26 to 28.
We can take this more offline.
Regarding the negative head count, I've been saying for now last 3 or 4 quarters that we have been investing heavily in our fresh talent. And that investment is now paying off. Having said that, there is a reduced attrition. We have recalibrated our hiring numbers. And as a result, our total hiring is less than our attrition this quarter and hence the negative number. It is -- that is basically the dynamics of that. Nothing more than that.
It is basically more you see as an investment paying off. That is the way to look at it. With respect to trainee hiring, trainee hiring continues to be what we have been doing all along. And we'll continue to -- we continue to onboard trainee. We on-boarded trainees last quarter. We on-boarded trainees in this quarter, and we'll continue to onboard them as we go along.
The number of -- how many we get them every quarter depends on the business situation. But what I'll tell you and I have told -- I've been telling all along that we obviously honor all the offers. So there may be some delays a quarter here and there, but they will come onboard.
Next question from Romita Majumdar from the Economic Times.
A couple of queries for Milind first, again, going back on fresher hiring. Just wanted to understand, has the company started the campus placements process. I understand it's a bit delayed this year for all companies. So the commentary on that, what is the situation with the variable pay for this quarter?
And from Krithi, I would want to understand, one is what is the outlook from customers in North America? Like what is the feedback that you're getting over there? That is one. And second is in terms of the situation that we have seen in Israel, just wanting to understand if there's any impact to the business of your company or to any of the client projects that are -- whatever is operating from the region?
Romita, campus hiring, as you know, we have discussed many times, it's a core strategy for TCS, and we would continue to hire trainees every year, and we have initiated the process this year as well. So that is on. With respect to variable pay, we are going to basically have 100% of the variable pay for 70% of our workforce, the remaining workforce will get paid based on the business unit performance.
Romita, if you look at what's happening in North America, overall economic -- macroeconomic situation is slightly confusing, right? Like your North America unemployment rate is still low, and inflation is slowly coming down, okay? But the outlook for your spend -- actually spend is still high, but what we are told is the household saving is coming down, and it's projected to slow down further in 2024. So this is the backdrop in which you need to see the discussion.
Generative AI has caught everybody's attention. When we have -- when we talked about our customer summit, almost everyone discussed about generative AI as a key theme, how they are trying to leverage it for new products and services. And given that there is an overhang of economic uncertainty. There are discussions around how do you optimize projects. Is there opportunity to consolidate operating model transformation. So these are the broad themes that you hear, like nothing very specific or specifically different from previous quarter. On Israel, I would request NGS to answer as -- all the projects, most of the projects are any way directly managed by him.
I think at the outset I want to thank and I have my salute to all the employees in Israel. They're stay put, and they are supporting our clients, and we are in touch with them, and ensure that they are safe, number one, and do their bit to support the community in which they live, right? I think that's the first thing.
Overall, in any of these kind of situations, we work very closely with our customers and listen to them in terms of what that -- what is it that they are planning to do for their own workforce. What are the priority for their applications and system support and things like that. So I think we have talked to all our customers, our employees and our business continuity plans where it needs to be executed, we are on track to execute it.
So as we speak, I can't say it's business as usual, but from our obligations perspective and our focus to support the community that we live, I think our leadership team here is in constant touch with our customers and employees to do the right thing.
Do you have significant employee base in this region?
It's about 250-plus employees and dependents that we have.
Shivani Shinde from Business Standard.
First question to Milind again. Is it fair to assume, especially with getting employees back to office for 5 days. The 25 by 25 strategy is done away with? Or is there a rethink happening within the company on that, Krithi and NGS can also add on to that. .
NGS, $11.2 billion order book, can you break this up for us in the sense, which are the geographies which are leading it, Europe? I think U.K., this is the third consecutive quarter where it's leading the growth. So if you can give some color on the $11.2 billion, also is BSNL in it. And of course, in this quarter, do we have a BSNL impact?
Krithi, you said that -- 2 questions for you, you said that your regional and smaller markets or rest of the world, whether I should put has done very well. In the current scenario that's happening, do you see some impact, Middle East, do you see because of what's happening in Israel impacting your growth story there? And also, on the RMG issue, if you can give us an update what's happened there? And to Samir, work from office, so impact on margins? Is there room for optimization.
Shivani, like I said, we have -- internally management team we have brainstormed this quite a bit. Having a large number of people coming in, in the last 3 years, we believe it is important that we get them to office. And I said this earlier, primarily to make sure that they understand, internalize our values in our way. I think with respect to 25 by 25, we will continue to assist our future work models as we go along. Whether it is 25 by 25 or something else, we will adopt based on what works for our employees and our customers.
[indiscernible]
No, I will not say that. I will not say that, it can be something else, but it can be a model which will evolve. We are all like you, we are also assessing how the market is evolving and based on that, we'll decide.
Shivani, on the order book. I don't know where you picked up the U.K. number. I know that you have some insider information. Normally, we publish only what is North America, BFSI, and consumer business. So North America is 4.5 billion, BFSI is 3.03 billion, and consumer is 1.44 billion. And BFSI has grown quite well compared to last year and compared to last quarter.
All the others have also grown very well compared to last year. Your other question on regional markets. See when we -- regional markets, when we talk about it, we talk in terms of Middle East, Africa and India, Japan. So Middle East, Africa is a smaller portion. So we don't expect any major impact to our business because of this, okay?
On the RMG issues, we have completed our investigation. We have taken action on all the people that -- appropriation action on whosoever we believe have violated our code of conduct. Actions differ based on the kind of violation and -- but all actions have been taken, and it's closed.
Are you giving the number of people impacted, where the action was taken?
You have the number with you?
Shivani, let's take it offline.
We will share it with you.
The $11.3 billion includes BSNL. So you have 2 billion plus. I can confidently say talk about BSNL now, right? I think as far as this 25 by 25 question is concerned, I just want to add 1 more thing to what Milind said. See, we always have pioneered the workplace model and workforce strategy for our business, right?
When the pandemic struck, the -- within a matter of weak or 10 days, we enabled working remotely almost 100% of our employees, right? So we have the systems, processes and tools to adapt ourselves, to do the right thing for every project, right? So it's a question of what is required at this stage, right? We had discussed it internally, and we have been advising our employees to come and work with us in the office, right? And the advantages are being realized, right? And people feel that it is better to be in the office. So we have got about 70% of our employees have started to come to office, right? That's at this stage, which is a very good thing, right?
And given that the large-scale hiring that we did and the kind of attrition that we experienced and we feel that there is a mix of people, leadership, et cetera, we have today, which we believe that it is advisable to get everybody back to office at this stage, which is the need of the hour for TCS. So that, as Milind explained, the TCS way of working, the mentorship that they experience and the kind of interactions that one typically has collectively with the customers, these things are not taught anywhere. These things are observed and learned, right? And it's better done in a collective workplace or coexisting workplace, right?
So I think we felt that, that is something that we need to emphasize at this point in time. So we are getting into that. 25 by 25, in that context, if you look at it in that context, if you say 25 by 25 is going to be defocused now? I mean, yes, that's one conjecture that you can actually have it. But we do have to say that we are going to stick to 25 by 25 or it's going to defined as 25 by 27. We'll talk about all of this, but the important thing is, do we have the systems, processes, and the agility and the diligence with which we execute projects, whatever the situation commands, right?
Now the way that we execute projects for our Israeli clients now today, very different from the way that we are executing projects for Indian clients, right? So it's -- the important thing is, do we have the right systems, processes and procedures to adapt ourselves to the needs of things. Our focus is to get everybody back to office. And for that, the people who have joined us in the last about 2 years or 3 years, get the full feel of TCS. I think that's more important.
In the office infrastructure, to begin with, we did not give away any of our office spaces. And we continue to invest into our infrastructure. So -- and if you see over the last couple of years, our infrastructure expenses, discretionary expenses also went up. And we took measures where we can optimize or we want to optimize some. So expenses might go to go up, but we don't see a substantial impact on margins.
Harshada Sawant from CNBC Awaaz. Harshada, 2 questions please.
I want to understand as to what the sentiment amongst your clients is because last quarter when we spoke, you said they're very cautious. They're not looking to spend money at all. And Krithi, you specifically mentioned that you can't comment on H2 because you hadn't grown in Q1. Has the sentiment changed?
No. I would say the sentiment has remained same, quite cautious. Because as I told last time, as I mention now, we don't have any better information like -- can anyone tell us when the economy will be back on track. If once we have a certainty, everyone will start spending. At this time, there is anticipation of slowdown, and so people behave accordingly.
So the fear -- the market is also trying to factor in or perhaps address and perhaps take a comment from you, gentlemen, is that FY '25 could also be a washout year. And two, brokerages have also said that. Is that a fear amongst your clients at this point in time? Because I see you winning deals. And should one understand that perhaps the deal conversion is going to take far longer than anticipated and it may take longer to reflect in the revenue as well, NGS?
I think it's safe to assume that the planning horizon for all of this, especially in this sector and given what's happening, probably a fortnight. Anything to look beyond to talk about FY '25 now is, I think, too premature.
But these conversions, are they going to take longer than anticipated?
I mean, I think we've got 3 successive quarters of good deal bookings. And I think what we would like to focus on is to execute them as fast and as efficiently we can.
Ekta Suri from Zee Business. .
[Foreign Language] And going ahead what kind of AI projects are you planning for your clients? Or what kind of demand is there in the market for the same?
The training process -- our alliance with NVIDIA, we started the training leg, because NVIDIA is, as you know, is more a semiconductor and chip manufacturer. So we are working with them on how we can leverage the infrastructure for training more of our associates. You'll hear the plan soon. .
Kind of projects like what you see is the complexity of the generative AI projects are increasing. Like us when we started, the projects are more about knowledge discovery. But as clients understand more on what we can do, or we go and explain to them what is out of possible, you slowly see the complexity of projects are increasing. Like for instance, now we are doing projects around -- some sort of a copilot for a financial adviser.
When the financial adviser is talking to their client, what kind of advice they can give, or when you're talking to actually like helping them -- I'm sorry, the underwriter, helping them in underwriting the policy. So the complexity of the projects that we are doing is steadily increasing. You will hear more and more interesting case studies as we go along.
And also, as we are seeing like negative growth in certain sectors like BFSI, communications and media, technology and services, is there any specific reason for it? And when do we see that this will be positive? And as you were mentioning that there are certain kind of AI projects that you're doing for like a financial sector you just mentioned. So various industries and various sectors, when they are going and talking about AI, so is it like are they genuinely prepared?
Is the tech foundation strong enough to build a building of an AI because what's happening nowadays is that the tech foundation already was haywire, and you're building an AI on that foundation. So the CRM and other services are highly impacted because a customer is also lost and also the company is also lost because they want to be part of the AI thing, but are not strong enough for the same?
Can I take it.
Go ahead.
I think you are able to articulate this better than us. So we are going to hire you, right? But be that as it may, I think NVIDIA partnership is extremely critical and important. It gives us a tremendous opportunity, right. The AI processors on which you know, lot are possible, is phenomenal, right? Across these various verticals, we have clocked as Krithi said in his opening remarks, a number of use cases, and we have cataloged all of them per vertical and we have been able to go and engage with clients and conversations, whether it is related to, as you rightly said, whether it is CRM-related processes or payments-related opportunities or wealth advisory related opportunities.
So each one of these verticals, we have defined and cataloged certain use cases, which is what we are using right now to go and engage in conversations. But having said that, look, clearly, it has captured the imagination and the tech foundation that you talked about, I think customers who have moved into a cloud-native architecture and cloud native things, it's a lot easier to implement, no doubt about it.
But people who are in their in-progress journey and then have adopted a multi-cloud strategy and things like that, there are certain enhancements to that foundation that we have to do. But overall, it's a lot of work, a lot of interesting work, lot of intellectual discussions. So very nice, actually.
Debangana Ghosh from Moneycontrol.
My first question to Milind. So the bribery probe has now been completed. So I just wanted to understand from that perspective, what kind of measures are being taken to ensure that the compliance happens? And these kind of situations don't come up? That's one question.
My second question is to NGS sir. NGS sir, you mentioned that Israel also has around more than 250 TCS employees at the moment. So are there any steps being taken to evacuate them? Or is the situation -- has the situation grown to that extent to you need an evacuation there? That's -- and I also wanted to understand, you had mentioned in the previous quarter that TCS was working on building its own LLM. So is there any update there?
Okay. I think when the investigation has happened, obviously, all the details of the investigation followed by all the suggested actions into what we need to do from a process, from technology, from people standpoint, and all those actions are actually very well documented. I probably will not get into those details right now. But I think it is -- we have to look into all these aspects, organizational aspects, people aspects, technology aspects in terms of how technology can help us prevent some of these things and some of the process-related aspects as well.
Any best practices you could mention?
Actually, too detailed for me to mention all of these things in this forum. But in general, basically along these 4 lines.
As far as Israel is concerned, we are watching the situation. And if people want to come back or people want to stay is some kind of discussions that -- we have to take it along with our customers, number one. And most flights are now put on hold or canceled. So we'll see how it evolves. But safety of our employees is a primary factor in deciding that.
And having said that, out of the 250 employees we have talked about, a good number of them are locals as well, right? So we have to worry about people from India or other countries who have gone there for projects execution. So I think we'll calibrate that as we move across. I don't think we said that, look, we will -- we are generating our own LLM, right? Now I think that's a very, very involved effort, right?
We are trying out all technologies that are available, right? We are making available to our employees, the infrastructure, the digital infrastructure that is required so that they can see the art of possible. They can learn what particular vendor is making it available. In the process, we are also creating -- for example, you take LLM then you get to train it the way that you would like to train it. So there is a significant amount of work that happens.
When we say that we have trained about 100,000-plus people in TCS who are gen-AI ready, the first level of training has been completed. So there are a lot of internal projects that are being given to them so that they are also experiencing some of this, right? Whether we will -- does it make sense to develop our own LLM or in what area, is it going to be a Mickey Mouse or a mountain, these are all big questions. But important thing is how do you be relevant to customers in their journey of generative AI. And I think we are very well prepared for it.
Right. I just have one last question for Krithi. So there has been some internal structural changes, which sort of integrates what was the structure pre-2022? And also what was there in 2022? So just wanted to get your perspective on how this new structure is going to help? How is the -- how are the clients looking at it?
See, the reason that we went for this structure is based on customer centricity, and we wanted to ensure that we are able to bring the best of TCS to each customer. So our customers have reacted very positively to the changes that we have made. We have not heard any negative comment because, in a way, it's natural thing customers understand like -- so that's been quite positively received.
So similarly, the same way for our internal organization also, we very seamlessly moved into a structure. And we announced it around July end, I think. And the last 2 months, the teams have taken to it, and we produced our Q2 numbers based on the new structure. We are starting to go on this future. So we don't see any hindrance or hiccup along the way for this.
Tushar Deep Singh from BQ Prime.
The first question is around generative AI. You want all the TCS employees to come back to work. Against that backdrop, what are the productivity gains from generative AI if among your own employees? And how do these 2 equate?
Extending the generative AI conversation. How is the deal making in generative AI? What is the deal size like? And are they materially showing in revenue at this moment? Second, a little left field, based on the JLR deal, do you think this auto software business or the auto tech business contributing significantly more as cars become more technology-driven? So do you think this will be as big as a business as, say, BFSI in the next, say, decade? Are you looking at something on those lines?
Generative AI, I think the deal sizes, if you look at it as a stand-alone generative AI, they're all small, right, because it's about trying it out, right? Yes. Multiple projects of less than 1 million kind of opportunities which comes in. But if you take the JLR deal that we signed, certainly, a part of that is related to AI/ML and those kind of opportunities will be embedded into this, right?
So overall, as I said, it's a huge opportunity, which is there, right? It's too early to comment on the productivity gains, right? I have put my own generative AI something in for helping me. So it saves 70% of my time, right? That doesn't mean that I will get 70% productivity across the board, right? So I have to go by what I read in the reports.
Everybody talks about anywhere between 30% to 40% as a productivity gain. A lot of people are talking about it. But they're also talking about it that gains are going to be offset by the cost that you have to pay for getting all the LLMs and how much you're going to pay. So it's net-net, it may actually be neutralized. So we have to see how this whole thing evolves.
But important thing is that technology is good. It has a huge potential. It has the ability to deliver something which is of superior quality and superior value. And I think how do we exploit that meaningfully for our business and for our clients is something that we have to evolve as the technology matures and more opportunities emerge.
More on the auto software business, do you think it will become as big as the BFSI. Also just a little bit additional to that. What is the kind of overlap or synergies that you may see with say [indiscernible]?
That's out of syllabus.
[indiscernible]
That's out of syllabus. I think I don't want to comment on it. But I think it does what you talked about as the more and more of the vehicle or drones or robotics or any of these things is going to be driven by software. And even the telecom equipment, the radios that you see is going to be a lot more driven by software. So that kind of technology, the engineering piece of software is going to be on the rise, right? Whether it will become bigger than BFSI? No. If I'm a banker, I will say no.
Varun Sood from Mint.
Three questions, sir. First on -- specifically on BSNL. The deal value, I believe, is 2.9 billion, and there are 3 companies. So just if you can help us understand how much would be for TCS of the BSNL deal? And what will be the profitability?
The second question, sir, up until now, TCS was the only company which managed to increase its headcount sequentially or year-over-year compared to all IT services companies. But this is the first quarter when you've really seen a kind of a big decline.
Are things getting difficult macroeconomically if we see where your headcount is slipping? And will this be the trend going forward that over the next 2 or 3 quarters, there could be some recalibration with regards to your workforce, especially because over the last 3 years, you've expanded your workforce pretty high.
The third and the last question, sir. The first 2 quarters of what is considered to be very good quarters for the Indian IT services companies, yours has been a very soft growth like some of your other peers. Q3 and Q4 also has a little bit of seasonality and furloughs. So if we have to understand from pre-COVID era, with a little bit of macroeconomic uncertainty, fears of a looming slowdown, furloughs, will Q3 and Q4 be far worse than perhaps pre-COVID? And I'm not asking about FY '25.
I think BSNL, I don't know where you got that number of 2 plus whatever it is. As I said, it's a little over $1 billion plus is what we have -- for us, we have contracted so far, right? And there will be others which will come eventually, right? But this is what we have contracted so far. And we don't give breakups in terms of what is for us, what is for somebody else at this point in time. But it's important to recognize that it's a very large complex deal.
We are responsible for establishing the modern 4G, 5G network for BSNL that includes supply of the equipment, installation, commissioning, the whole RF planning, network design and making sure that the network works efficiently across coverage, capacity, and experience parameters, right? I think we're focused on that. And I think the project, as you all know, that's been going on for quite some time.
We completed the proof of value for BSNL on top of it. We won this contract, and we are proud that we are going to be rolling out a completely indigenously designed network, network gear for BSNL. This quarter, we have started to supply -- started the supply of the equipments. As we speak a few circles in which we have started to do the design and installation commissioning. And hopefully, we will leave up to the expectations of BSNL and deliver a superior experience to customers of BSNL. Yes.
Varun, I think you answered the question yourself. We hired so many in the last 2 years. So that -- and we invested in them for a good 18 months. And that's why we don't hire as many now as otherwise we would have to. So that is the reason. I think 1 point I want to mention is we should not relate the headcount growth or headcount degrowth with business demand or business situation because all of this is happening across quarters. So these people coming in for the last 18 months are now getting leveraged over the past year in the business is what is happening today. And going forward also, you will see something similar for the next couple of quarters.
Varun on H1, H2, your observation on H2 seasonally being weaker than H1, that's factual. But whether H1 will be worse than H2 from pre-pandemic level, we wish that it's better. But am I going to make a prediction? No.
Lalatendu Mishra from The Hindu.
What I understand -- most of the questions have been asked. What I understand is the headwind is still on. Is that correct? And it is continuing?
I said, like, yes, there is uncertainty because of which clients are focused more on optimization, which results in the older projects getting optimized or some of them getting passed or reprioritized, resulting in muted or moderated revenue growth.
In the last quarter, you have had some changes in organization. Is there any more changes likely? I hope you have settled down and...
See like whatever we thought is a priority we have done. Otherwise, as an organization we will continue to evolve, if we see a need to make some changes, tweaks, we will continue to do. Nothing is cast in stone in terms of organizational structure. Like what we believe is right for organization, like TCS is fairly agile organization, and our leadership is very tenured. So folks are quite willing and available to do different jobs or different roles as required.
And from The Hindu to The Hindu Businessline, Ayushi Kar.
I have a few questions for Mr. Milind. And this is to the point that NGS also pointed out that AI is bringing at least 30% to 40% productivity to your employee base. And given that headcount...
Did you say 30% to 40%?
I didn't say that.
Okay, apologies.
He said actually least 70%.
70% for himself that he did not want to generalize. But definitely, there has been some. What I wanted to understand was given the way headcount is heading. And I mean, you have said that fresher hiring is going to remain a cornerstone for the organization.
Can you give us a date on when you will start recruiting? And again, like how much is AI going to play into just your sort of hiring kind of vociferousness shaping out in the future? For NGS sir, for BSNL, you have pointed that you've started to like get equipment and establish networks in certain circles. Can you give us a target for this quarter, what are the like -- how many -- what is the extent of the 4G network that is going to be sort of be established by the end of this month?
And also, given that you have partnerships with NVIDIA, you're also seeing telecom operators kind of build, like Jio has partnered with NVIDIA as well to set up an LLM. Can a partnership with TCS and Jio Reliance be sort of in the fray to build those kind of -- yes, like a potential LLM in the future?
Let's take these questions first.
Ayushi, if I may respond to you. You said when will you start hiring? We have not stopped hiring. We are continuing to hire large numbers, both from the campus and from the market. It just happens in this quarter that whatever we hired is less than what the people we lost. .
That is -- so hiring is continuing and in large numbers. So that is -- that will continue. Our trainee hiring definitely continues in the same pace this quarter, it will continue in the next couple of quarters as well and it will continue next year as well.
With respect to AI, I think NGS already answered the question. Too early to say anything with respect to productivity at this point in time, but we are continuously looking to all these things, working on so many POCs and projects now, we'll understand and assess in how it impacts over a period of time.
I think if AI delivers that kind of a productivity, I think the demand for consultants will be so high that we'll end up hiring a lot more is what my thinking is at this point in time, right? But it has the potential, and we'll have to see how it plays out at enterprise systems and application level. I think that's a sure thing. As far as BSNL is concerned, I don't want to give any breakup in terms of what I'm doing now, what will happen in quarter 1, quarter 2, quarter 3, but then our target is to complete the rollout in about -- between 12 and 18 months, right, the whole 4G and 5G network.
She asked about NVIDIA, Jio, LLM.
NVIDIA for sure, that I think we are looking at leveraging that a lot more. And I think NVIDIA chips and processors, the way that given that a lot more of it is going to be AI driven and then it's good to design systems that works more efficiently on NVIDIA processors. And then sort of our own, for example, in fact, most hyperscalers are also looking at AI chips and AI processors, right? So that opportunity is definitely there. And I think it will be absolutely -- I'll be delighted to have the other telcos as our customers.
Rajesh Kurup from Financial Express.
Sir, one general question. What do you see globally for the IT industry because of the macroeconomic situations. Is there a slowdown coming in? Is it a mild recession? Or are you seeing a major recession that's one, just generally for the IT industry? And from the HR front, ghosting is one of the biggest issues right now. Ghosting people, accepting offer letters, and disappearing. How -- what are you seeing on that front? Is that happening to you also? Is it -- how serious is it impacting the HR sector generally for the IT industries?
Rajesh, you are seeing what we are seeing. IT industry, like growth has moderated. And till there's uncertainty on the global economic outlook this moderation will continue because many of the customers will try to conserve cash for a difficult period ahead if they expect a difficult period. Once that certainty comes in, you would see growth also. So whether it's going to be difficult for IT company specifically, this is a function of the overall global economic situation. It is -- it cannot be separated out from the global situation, you want to...
No, I can't relate to what you are saying because...
People not taking offers he says.
Yes. No, the point is, in fact, the other way around, our conversions have gone up. The more people are -- our joining resources have gone up, good percentage points. So it's a good thing for us, good for everybody. So I can't relate to what you're saying.
And a final question from Vivek Kumar from Informist.
A couple of questions. First, to Samir. What can we expect for margins if growth remains under pressure? So where does it put margin outlook for you for the next couple of quarters? And on deal pipeline. So for the past 3 quarters, you have won deals north of $10 billion. So going ahead, is deal pipeline giving you confidence that you can continue that in the upcoming quarters?
So on the margin front, we delivered 110 basis points this quarter. And when the top line growth was sluggish, we relied on productivity utilization and subcontractor cost optimization as the levers. And we'll continue to do so. Growth can only help us accelerate this journey. .
Overall, our pipeline is quite strong still. In fact, despite a heavy conversion into order book, our pipeline continues to be strong. I cannot comment whether all of them will get realized in Q3 or the Q3 TCV will be same number. But pipeline is quite strong and it gives us the confidence that our order book will also continue to be strong.
And with that, we are at the end of this press conference. To everyone joining in person, thank you so much. Please join us for high-tea. And for all our stakeholders that have joined online, have a good day, and thank you so much for staying with us and watching.