Tata Consultancy Services Ltd
NSE:TCS
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
3 666.8
4 553.75
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Tata Consultancy Services Ltd
Earnings Call Analysis
Q3-2024 Analysis
Tata Consultancy Services Ltd
Tata Consultancy Services showcased a resilient performance amid a seasonally weak quarter by registering a 1.7% year-on-year revenue growth in constant currency terms. This translates into a 4% uptick in rupee revenue, reaching INR 68,583 crores for the quarter. A commendable focus on efficiency led to an operating margin of 25%, resulting in a noteworthy sequential margin expansion of 75 basis points and operating profit of INR 15,155 crores.
The company's earnings per share (EPS) climbed from INR 31 in Q2 to INR 32.14 in Q3. The firm's substantial cash generation ability was reflected in its cash from operations, which represented 102% of its net profit. Demonstrating shareholder-friendly practices, the company announced a substantial dividend payout including an interim dividend of INR 9 and a special dividend of INR 18, totaling approximately INR 9,800 crores.
Customer metrics improved significantly, with the tally of clients providing more than $100 million in revenue increasing by two to reach 61. Similarly, the number of $1 million-plus customers expanded by 71, totaling 1,288. These figures underscore TCS's ability to nurture and grow its client relationships even amidst unpredictable economic conditions.
The earnings call highlighted robust growth in new markets such as India, APAC, Japan, Middle East, Africa, and LATAM, underscoring the company's strategic portfolio diversification. India shone with a stellar 23.4% revenue growth year-on-year, while the UK market saw a 8.1% increase. Manufacturing, Life Sciences & Healthcare, Energy & Utilities, and Regional Markets and Platforms exhibited notable growth across various industry verticals.
Despite the overall positive performance, there were certain areas of concern, such as a 3% dip in the BFSI segment and a marginal 0.3% decline in the Consumer Business, reflecting the impact of broader market sentiments and challenges persisting in core sectors of the company.
TCS's deal wins remained strong with the order book closure for the quarter standing at $8.1 billion, reflecting a 3.4% year-on-year growth. This was achieved without the contribution of mega-deals, highlighting the company's consistent performance across its North America, BFSI, and Consumer Business segments.
There was a positive update regarding employee attrition, which continued on a downward trend, settling at 13.3% on a last twelve months (LTM) basis, an improvement from 14.9% in Q2. Additionally, the company's AI.Cloud business unit saw enhancements and increased market traction, with four Gen AI production deployments in Q3, indicating a growing focus on leveraging artificial intelligence for business solutions.
In Q3, TCS demonstrated its commitment to innovation by filing 187 patents and being granted 305. This ongoing investment in intellectual property was acknowledged with the Asia IP Elite Award 2023, showcasing the company's stature as a leader in IP value creation.
You don't have any saved screeners yet
Hello, and a very warm welcome to the Third Quarter FY '24 Earnings Press Conference of Tata Consultancy Services. Thank you so much for joining us. I'm Kritika Saxena.
We have our friends from the media joining in, in person in the TCS headquarters in Mumbai. And of course, we have several stakeholders joining in on our social media platform. We are streaming live.
I'll introduce the management first. We have MD and CEO, K. Krithivasan; COO, NGS; Samir Seksaria, our CFO; and our CHRO, Milind Lakkad.
As always, we'll first begin with the MD and CEO address. Krithi, the floor is yours.
Thank you, Kritika. Good evening, everyone. So this is a quarter where sustained growth momentum in cloud and cybersecurity practices and the emerging markets helped us deliver strong -- really strong results in seasonally weak Q3.
Our revenues grew by 1.7% year-on-year and 1% quarter-on-quarter on a constant currency basis. Our rupee revenue grew by 4% to reach INR 68,583 crores.
Our continued focus on operational excellence helped us achieve an operating margin of 25%, which represents a sequential margin expansion of 75 bps. This translates to INR 15,155 crores of operating profit.
Our net profit for the quarter has come in at 19.4%, translating to INR 11,735 crores. Again, this is an expansion of 40 bps in the net margin.
Consequently, our EPS reached INR 32.14 from INR 31 in Q2.
So margin numbers -- all the numbers actually that I mentioned that we'll be discussing exclude a onetime charge of USD 125 million towards settlement of legal claim.
Cash from operations at INR 11,277 crores is at 102% of net profit.
The Board has declared an interim dividend of INR 9 and a special dividend of INR 18, amounting to about INR 9,800 crores. This is in line with our practice of returning 80% to 100% of our free cash flows back to our shareholders.
Our customer metrics continued to improve despite seasonality and macro uncertainties. 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 good additions across all the other banks. In addition, our customer base of $1 million-plus also stands at 1,288, an increase of 71 customers over last year.
Moving on to segmental commentary. The new growth markets of India, Asia Pacific, Japan, Middle East and Africa and LATAM had very strong growth validating our approach of portfolio diversification. Especially, our revenue from India grew by 23.4% on a year-on-year basis.
Among the major markets, U.K. grew by 8.1%, led market share gains. North America had a degrowth reflecting the overall market uncertainties. Europe has continued to grow on a sequential basis and achieved a 0.05% -- sorry, 0.5% growth on a year-on-year basis. Among the verticals, Manufacturing, Life Sciences & Healthcare, Energy & Utilities and Regional Markets and Platforms had a strong sequential growth.
On a year-on-year basis, Manufacturing grew by 7%; Life Sciences & Healthcare by 3.1%; Energy, Utilities by 11.8%; Regional Markets and Platforms by 19.2%.
As you can see, impacted by market sentiments. BFSI degrew by 3% and Consumer Business degrew marginally by 0.3% on a year-on-year basis.
Our deal wins continued to be very strong. Our order book closure for the quarter stands at $8.1 billion. This has been achieved without the support of any mega deals. This represents a year-on-year growth of 3.4%. Our order book for North America stood at $4.2 billion, for BFSI at $2.6 billion and Consumer Business at $1.5 billion.
Our attrition continues to improve. On an LTM basis, our IT attrition has reduced to 13.3% 14.9% in Q2.
Subsequent to the launch of our AI.Cloud business unit, we are seeing an increased traction in the marketplace. We are now seeing Gen AI POCs pilots moving into production. In Q3, we had 4 production deployments of Gen AI engagements. We have enhanced our partnership also with all the major players in this space.
As an update on our R&D efforts, we have filed for 187 patents in Q3 and were granted 305. Our continued efforts in creating IP have been recognized the Asia IP Elite Award 2023 for being an exemplar of IP value creation.
With that, I hand it back to Kritika and we'll open it up for questions. Back to you, Kritika.
Thank you, Krithi. We'll start our Q&A with Reema Tendulkar from CNBC TV18. Reema.
Happy new year to everyone. Great quarter despite all the tenuous years external environment. Krithi, first an overview of the macro environment. Would you say situation today is better than it was 3 months ago? Qualitatively, if you can provide some color? And what are budget conversations looking like? And also, what is the growth ex of India, the BSNL deal? And when do you expect your core markets, North America, BFSI, et cetera, to recover?
NGS, for you, the question is on deal wins. I remember last time, you said that maybe the deal win run rate could be $9 billion to $10 billion. It's fallen a little short of that at $8.1 billion. And why is it that the industry itself has not seen mega deals?
And also, if you could just give us an update on Gen AI. How has it changed compared to 3 months ago?
Samir, if you could tell us, sorry, 70 basis points, what led to the margin expansion? And 3 quarters back, you had a target of hitting 25% as exit margins. You've done it this quarter. So what could exit margins for FY'24 look like?
And Milind, for you, on attrition, it's in the comfort range now. So do you see it trending lower? Is that trend continuing? And even on moderation, why is your employee head count moderated?
Thanks, Kritika. And happy new year to you. I think still we are not in a position to call whether it's -- from our perspective, situation hasn't changed much. There was a sense of optimism in the interest rates are not high, but it has not resulted in any ground level certainty or decisions being taken towards new investments. Maybe it will happen after some time. We'll get to know maybe as Q4 unfolds, but I think it's too early to call. We are not seeing any ground change.
On the budget question, we have -- again, we'll get to know, but also, increasingly, we find that, Reema, there is a limit we have -- we shouldn't be -- we're placing far too much importance on budget because we feel that quarter -- our clients take decision on a quarterly basis. And so it's more like a planning horizon on what they intend to do. But most of our clients have been very agile looking at the market situation, they keep changing. So I will not read too much into -- even if we get...
What about conversations now for the next quarter?
We will get -- like it's not in our position to be calling out that it's growing or what. I would say it's probably more stable like last year.
Status quo?
Yes.
Okay. And also on growth ex BSNL and your core markets?
You have the numbers, Samir?
We don't call that number out in terms of client-specific numbers excluding that.
Ex of India then, which is up 23.4%. Is that the number we should look at because it's [ topped up ]?
You could do the math in terms of.
I think we can go into the details after.
Core market [ incoming ]?
As I said, like the sentiments have been the same. So we -- I don't think we are ready to say that it will recover by Q4 or by Q1. We will not call that out now.
I think overall, the situation has not deteriorated from last quarter, right. Given all the things that we are all hearing from everybody, the fact that there is no deterioration itself is a very possible sign, right?
Secondly, I think with reference to the deal wins, I think, fantastic, $8.1 billion in this market situation. We're very proud of our sales teams, our account teams, the fact that it has come without any mega deal support. It has been pretty broad-based. So really happy with the deal that we have secured. Besides the qualified pipeline that we see, it's actually increased after securing the $8.1 billion, right?
So there is a demand out there and that's something that we have to go and capture it as it matures. So I would say that we are pretty happy where we are with respect to what we have accomplished in this quarter and how we see things emerge in the coming quarters, right.
I will not read too much into BFSI degrowth as well, right, because actually, if I look at the client portfolio that we have, the client portfolio actually has done well. A couple of large clients where we were executing large transformation programs, it got finished. We've delivered them successfully. So we'll have to see how that pans out with these new clients -- new projects with these clients as they go through the budgets for this coming year, et cetera. So overall, I feel that comfortable that we have secured $8.1 billion worth of deals this quarter, right?
The other question, I think, Gen AI. Gen AI, I think, as Krithi pointed out, I think it's moving into a situation where people are comfortable with it. They want to try out new things. They want to try it with very new areas across technology, operations and everywhere else. I think we have continued our focus on training majority of our workforce on using Gen AI and coming up with innovative ideas of using Gen AI to improve our own productivity and efficiency as well as deliver projects in an architecture, which can evolve on its own, right, using the Gen AI thing. The possibilities that we see for the future using Gen AI are enormous, and we only hope that it will realize its potential.
On the margins, Q3 margins at 25% have a sequential improvement of 70 basis points. The backdrop of that is in spite of headwinds of 80 basis points comprising mainly from furloughs and higher third-party expenses, we were able to more than offset that with disciplined execution and operational improvement of 60 basis points coming in from productivity and realization, for the 70 basis points coming in from reduction in subcontractor expenses and we got 25 basis point support from currency.
And as you'd know, this is -- the 70 basis points was delivered on back of 110 basis points in the previous quarter. We don't give guidance, but we hope the momentum continues.
Reema, 13.3% is our comfort range. Very, very satisfying to see these numbers. Very proud of our entire TCS team together -- come together and drive this number down to our comfort range. Whether it will come down further, I expect it to come down further. I expect it to come down further.
With respect to -- your question on employee head count moderating, the answer remains the same. Actually, what I've been saying all along that we made a significant investment, and we made so much of hiring in the past years. We are continuing to leverage that investment today and driving business that way and not needing to hire more.
Anisha Jain from ET Now. It's just a little easier if you ask your questions one by one, easier to remember.
Great if you let me ask all my questions.
Two questions, Ani, as always.
Sure. So let me start with Krithi first to you. Last quarter, when we met, you were talking about how the deal ramp-downs have been there in the sense that they weren't ramping up to that pace. Has that changed now in terms of the client billings? Has that normalized?
And about North America, NGS said that he is saying that no bad news is good news. But are you a bit disappointed that North America is not recovering because, I mean, the commentary from Fed and the businesses have improved, but the sentiment clearly has not. What's your assumption of the time line there? I'll wait by and ask rest of the questions later.
First on, see, what we talked about last quarter also is clients continued to reprioritize all their ongoing programs. And there is -- because of market sentiments, the return on investment expectations are higher. So whatever doesn't meet those expectations, those projects get passed. And I don't think there's any major change in that because, as I said, there's no major change in the sentiment, like at least there's no -- on the ground.
And am I disappointed? Yes, like we definitely want to grow and we want to grow faster. And we expect that at least in the -- our deal wins are good as NGS pointed out. We are winning deals. So we're hoping the medium to long term, it will recover.
Okay, point taken. NGS, so are you hinting at $9 billion to $11 billion going forward in quarterly TCV or $8 billion to $10 billion? And this year, of course, the double-digit growth is difficult. But are you rolling it out for FY '25 as well because at least the base is a bit more favorable. And if the pickup does happen, you'll see a potential, a realistic potential, of double-digit growth in FY'25?
Our goal is to go and win every opportunity that comes our way. So I don't want to put a number now...
Of course, everybody wants to do their best. But realistically speaking, what do you...
I think it's good. As I said, we are extremely happy with the performance of our sales team. $8.1 billion in this quarter, especially, is a great performance. The qualified pipeline looks good. And this quarter, there's no megadeals, which means that megadeals are still maturing, right? So I think we are happy where we are. And I think wait to hear from us more, right?
Any word in terms of double-digit growth possibility in FY'25?
As I said, look, this business, the opportunity is there, demand is there. There will be constraints like what we are facing today, and there are uncertainties. So we have to weigh in all of this then see whether we can improve our market share in this kind of situation. I think we are happy that we are increasing our market share wherever it presents ourselves.
And overall, compared last quarter to this quarter, I think in select areas, we have improved our market share. Our focus is going to be increasing our market share in this kind of conditions and participate in all the big, large transformation projects, win them as well as whatever we have won them, see how we can accelerate using technologies like Gen AI. If I can deliver it in 3 years rather than 4 years, then that will be Christmas, right?
Okay. Waiting for that Christmas. But Samir, the question to you, the margins have improved quite a bit despite the headwinds. It's at, what, 7-quarter high, if I have it right. Going forward, what are the more levers available for you to grow it further? And the risks are more skewed to upside or downside because you're very close to that guiding beacon of 26%, 28% now.
Okay. So yes, margins are at a 7-quarter high and we remain focused on disciplined execution and driving operational excellence. Levers remain productivity, utilization as well as realization, which we have called out and driven through the quarters. That's what has delivered.
Depending on the demand environment, you could squeeze or not on the subcontractor cost as well. And from a long-term perspective, pricing does remain a lever. So with all of it, we are committed to our guiding beacon.
Okay. So good to hear that pricing is a lever and not a pressure point. So you are gaining market share and maintaining your pricing at that.
But the question to you, Milind, the head count decline really continues. Another 5,600 head count decline this time around. Is this the run rate we should expect in near future? And by near future, I mean the next couple of quarters. The kind of bench strength that you have, should we expect this decline to be normal?
I won't be surprised if that happens, but that doesn't mean that we -- we are continuing to hire. We hired a good number of trainees, good number of people from the market even in this quarter.
So we will continue to hire, but depending on the overall situation and including our own investment we made, we continue to report on that investment and drive efficiency, as Samir said. And as a result, if the head count becomes negative as a result, then so be it.
Debangana Ghosh from Money Control.
My question to Krithi, I wanted to understand this BFSI degrowth a little better, if you could give us a breakdown of how things have shaped up within BFSI. Are you seeing pressure in certain geographies? How is it playing out?
See the -- I'd say, degrowth is there are 2 aspects like, one, we had some [ mentions of ] particularly North America, some large programs coming to NA. So the large programs, in fact, sometimes, as I was explaining, like very successfully we complete them. But then another replacement program doesn't start. So that has an impact on this one. And there is a furlough impact in some parts of Europe.
So these 2 primarily are reasons where you see a degrowth in BFSI. So -- but as I said, but we've been -- like NGS mentioned multiple times, like we've been winning very good deals in BFSI as well. And we have a very good pipeline. So we are confident in medium to long term, the grow will return there.
Right. And also, we see the growth in India stands out at like more than 23%. So do you expect this to continue in the upcoming quarters. What's driving that growth?
Obviously, like India growth has -- is driven by the positive seasonality like we do. And of course, BSNL, we started to deliver BSNL program so the revenue from BSNL also comes. So these two are important factors.
Will we be growing 23% every quarter? Like that will be a stretch. But will we continue to grow? Yes, we are very focused. We will continue it and hope to grow.
Right. I had 2 quick questions for Milind. So you had earlier mentioned that you're expecting to onboard 40,000 freshers in FY'24. So do you still stand by that number? Or is there an update?
See, I think overall for the year, I still stand by that number. How we start off with what number and eventually where we'll end up is something we'll decide as we go along.
Right. And the other thing is this is more from an industry perspective, we are seeing the fortune issue coming up within the Tier 1 IT companies. I don't think TCS has reported or seen as much of that happening. But just wanted to get your thoughts on will this lead to employee -- senior employee contracts changing? Or do you expect an impact of this?
I did not get the question, sorry.
No, I just wanted to understand like the whole thing happening that a lot of company veterans moving across rival firms...
We have not -- have you seen that in the past from TCS? The answer is no. So answer is no, so that continues.
Sajeet Manghat from NDTV Profit.
Happy New Year to you. Krithi, you spoke about that on the ground nothing has changed for you compared to the last quarter. Give us a sense of how the discretionary orders are playing out. Are they coming or still on a very slow pace, which is coming in? And do you see -- as new products from a Gen AI point of view, you rolled out 4 of them in the quarter, do you see some of the clients moving towards that instead of a normal new contract that's going to come in from your end?
See, first, on the discretionary projects, we don't see a major change, okay. Like yes, on an environment like this, clients would focus more on cost and optimization than transformation. So there is no major changes discretionary, nondiscretionary, but the project focus tends to be more on cost optimization than transformation.
So -- and the second point there is like all the projects that we won recently, all of them, we've been -- we're continuing to execute mostly as per plan. And so there is no rethink on what we signed in recent past as well.
So there is no change in what our clients signed up with us in the last 1 year. We are continuing to deliver on them and the revenue flow is along expected lines. And there's no major change discretionary or nondiscretionary.
Gen AI, I don't think that is impacting at this time. Like clients, the way we see it is clients are trying to see how -- what benefit they can gain. And they're doing multiple experimentations like I talked about some of the POCs moving into production, but they're all small projects. We are not talking about huge -- large projects here. And so that continues to happen, but it's not eating into our regular TCV.
You've been giving good amount of TCV every quarter for the last couple of quarters there. But the execution is something getting delayed because of decisions at the client level or project starts are not happening on time. Have you assessed the total TCVs that you have got over the last couple of quarters on how they are stacking up with respect to are they active, they are on a slow pace or they've been deferred by a few weeks or month or quarter?
Sajeet, just now there so I mentioned like whatever we won, we've been executing as per plan and the revenue flow has been as per plan. What is hurting us is the programs that we started maybe a year ago, 2 years ago that are getting reprioritized. I want to reiterate that the programs that we started in the last 1 year, they continue to deliver as per plan. We don't see any of the programs that started after that -- see, once uncertainty was known, we called it out, I think our last Q4. So whatever we signed after, the clients also knew the environment in which they were signing. So there's not been further rethink on those programs.
NG, when do you see BFSI orders coming -- picking up because you saw a degrowth this year. But as Krithi said, it's not a cause of worry. But from a North America point of view, when do you see orders from BFSI picking up?
I think soon, right?
What's the figure? What do you see as a figure for clients to start looking at and giving out orders?
I think this quarter, as Krithi explained, the degrowth has largely been contributed by programs that got finished, number one. And then...
Seasonal furloughs.
Furloughs, right, which is pretty much if you look at U.K., Europe and even Asia Pacific, right? So all that, I think the furlough will probably be there in Q4 also for a couple of weeks or so. But then that should bounce back, right, significantly.
And some of the deals that we have won in this $8.1 billion that we have won also include deals from BFSI. So you should see that should bottom out, and then I personally believe that we should grow in BFSI from the coming quarter itself compared to the baseline that we have got right now.
But if you really look at Life Sciences, we've grown by 1.1%; Manufacturing, 7%; Energy Resources, Utilities by 11.8%. The whole Regional Markets have grown well.
So if you look at all of this, right, there are deals, which are in these segments. In these segments, I think they all are not holding. They're all investing, right, [ and it was significant ]. If you look at technology or if you look at BFSI, there are pockets where they want to be cautious. They want to see the impact of new technologies and digital twins and other things, how do we employ them much more productively. So they're waiting and watching because BFSI always gives the faster impact, right, whether it's positive or negative. So I think we should see some of those segments show a positive sign in Q4 is what I'm hoping, while Life Sciences, Manufacturing, et cetera, should continue to be -- at least grow moderately, right.
But our India growth, 23%-odd, Krithi said it's not going to be like that for every quarter. But I know this BSNL deal is front loaded. So for how many quarters are we going to see the effect of that for India business?
The India business this quarter is basically during this -- seasonally it's the third quarter. There are, let's say, third-party software licenses, et cetera, et cetera, come in, right, during this quarter. And of course, we started to deliver BSNL. And BSNL, we have a plan to execute it during -- through the contract period. So certainly not one-off. It just started to deliver a certain number of sites, and we have a long way to go. So I should see that momentum picking up from quarter on quarter over the next at least [ 4, 6 ] quarters, yes.
Samir, good set of margins and you've been able to get 25% this quarter. Do you see some kind of impact with respect to receivables from the clients, slowing the number of days, increasing as a result of some of the headwinds, which we see in some other markets?
So our receivable days are best-in-class. And at 67 days, quite managed. On the working capital management, we keep a keen eye on it. And overall, as a portfolio level, we manage it. Yes, given higher interest rate regime, customers also look at strategy cash management, but that's part of it. Our receivable days are steady.
Milind, you said that you expect some contraction in head count going forward well, the same level as Q3. Do you have any outlook for how much of onboarding that you're going to do for FY'25? Have you had the budgeting for that?
So for experienced hires, we budget every quarter. For trainees, like I said, we actually have a number, which is similar to what we do in the past years. We may start a little -- with a lesser number, but we eventually may end up at the same number, which we would normally visit.
But is there a number for FY'25?
We don't normally -- actually, don't have a definitive number at this point in time because of the market situation. But definitely, we are the first ones now to go into the campuses and started hiring. So very, very positive energy I'm seeing in the campuses and a lot of energy there. So we will continue to hire in numbers, reasonably big numbers. But what exactly that number would be at this time, this year, it would be difficult to say.
And is there a specific skill sets that you are seeing because the market is also changing in that sense? So are you also looking at specific skill sets when you go to the campus?
When we go to campuses, we actually are looking for more learnability, the desire, the aptitude and everything else, and obviously, some coding skills. And everything else is what our learning development does. And that machinery works very well for us.
And we trained like 167,000 people now in Gen AI with 14,000 people in the next level of competency. So all that machine is working very well for us. So we're really looking for people who have desire to learn, people who are showing hunger and that's what we leverage and eventually make them productive for our business.
Romita from Economic Times.
Krithi, first query, are the deal cycles coming back to normal? Or do they continue to be extended as we have seen in the past few quarters?
Not much changed compared to -- and also you should remember, Q3 is a holiday quarter like it doesn't change much. But I don't think there's a huge change in the deal cycle.
Got it, got it. And Samir, because all of the numbers you have given are excluding provisions, I just want to understand where does the margin -- operating margins stand if we were to include the onetime provisions.
So EBIT would be -- it's a 160 basis points impact at EBIT, so 23.4.
Got it, got it. Milind, a couple of queries here. Everyone has asked a lot of hiring queries. One of the things that -- two of the things that we saw this quarter was, one, people were really putting down their foot about -- dragging their feet about returning to office. And two, is there are concerns that TCS is probably pushing a lot of its employees forcefully to change their base locations. That is also something that came up. So what is the company's commentary on this?
So return to office, actually, I am -- Romita, I'm seeing a lot of energy. Before the holidays, we actually everybody in the organization, all senior leaders, business leaders, next-level leaders are actually driving this. And we are seeing a significant energy and the numbers have gone up. After the holidays, it's -- basically, we are still seeing good numbers, 65%-plus people coming in. So that is going in the right direction.
We actually had a family day. We had a family day in 10 different locations within India. Close to 180,000 people with families came in with a lot of bonding, a lot of energy. So very, very, very satisfying outcome out of that. So I'm not at all concerned about it.
Regarding transfers, it is -- mobility is part of -- is a requirement in our business. It is something, which is there in employee contract. We have all been mobile all through our lives. So it is -- actually people need to understand that. And it will only be good for their careers if they basically get into mobile, get -- be mobile and get into good projects wherever there are and build their career.
But a lot of these people and some of these that we have also spoken actually, their concern is that they're not -- they are being moved without projects. Is that something that is normal as well?
That is -- I would not like to comment on that because -- the fact is we are moving people because there is business in that location. So that is how it is.
Got it. And just one last query on the variable pay. What do we expect this quarter?
It will be 100% for 70% of our workforce. And for the remaining 30%, it will be based on business-related performance.
Shivani Shinde, Business Standard.
Most of the questions have been answered. I'll ask a few. I have a few clarifications. Krithi, the press release says that the growth this quarter was led by cloud -- AI.Cloud. You said this quarter 4 deals, which moved from POC to actual contracts. What's the size of these deals? If it's leading the growth, can you give us some sense?
Okay. I just want to clarify, I talked about 4 Gen AI deals moving from. And did our revenue come from those 4 deals? I didn't say that. Like we say, AI.Cloud practice includes Gen AI and what we have been doing in cloud.
The growth is actually -- we've been talking about cloud for quite some time. We're seeing that cloud becoming more and more mainstream, more migrations happening, more modernization programs coming in. So I would still see the growth in terms of volume came from mainstreaming of cloud and more opportunities and more programs we do in cloud.
So the 4 programs I talked about in Gen AI is to say that things are slowly moving from POC stage to production. So these 4 Gen AI deals did not change our revenue.
When you say cloud, don't we consider that as discretionary spend? I mean, how do you look at that?
Yes, it is discretionary -- see, depending on how people look at it. Like because cloud also has an element of moving from your CapEx to OpEx. And if they do it right, they can also reduce their overall spend. So somebody can look at -- but it is discretionary in a way that it gives you more flexibility. It reduces release cycle. So it is -- it benefits the organization in multiple ways.
Whether to call it discretionary or nondiscretionary is a line we [ want ] to draw, but it's a program that they have to do. It's a transformation program. In a way, I would call it a nondiscretionary transformation program.
Great. NGS, this is the fourth straight quarter where growth has been driven by U.K. if I have to look at TCS, the kind of revenue it makes and that being driven by U.K., what's the room that you still see? I mean, assuming that, like you said in the commentary, nothing major has changed at the ground level, do you see more room -- there is room for growth in U.K.?
Yes, I think so. I think by saying no, I think I'll put the sales team to sleep if I say that, right? So I think there is a room for U.K. to grow. I think they're initiating -- many industries are investing. Public sector U.K. is investing. Europe, I think, is turning around for us and we are seeing some growth that is coming back compared to what we have done in the last 3, 4 quarters. So I think U.K. and Europe should do well in the coming quarters is my prediction.
U.S., you don't want to take a call on that?
U.S., we'll have to grow because it's -- given that it's a significant part of our portfolio. It will have a portfolio impact and it will grow. I mean, there's no reason why it should not grow barring, as I said, anything -- specifically on BFSI and retail. We are -- they will wait for certain positivity or certain what -- depending on what they read of the macro situation and in an election year where they want to invest, et cetera.
But what -- I think the cloud question that you asked is more interesting because the minute they have started a program to put things and workloads on to cloud, it's -- they have to go and complete it to realize the benefit, right? If they stop in between, then the return on that investment that they made will get deferred.
So to that extent, the typical cloud migration and cloud transformation deals initiated, they're all progressing, right? They may calibrate it a bit because, a, Gen AI thing, if I had to put in, should I do it differently? That kind of questions come. But then moving workloads into the cloud is something that we are doing it. And in fact, across hyperscalers, we probably have the best record of moving workload to the cloud.
Samir, a small clarification. So assuming the next quarter is similar to this quarter, this quarter, if you look at margins, chunk of it has come through productivity gains and cost. Do you still see room there improvement going into the next quarter?
So we have relied on the measures, which I called out: productivity, utilization, realization. This time, it was more productivity, realization and subcontractors. They definitely offer scope of the improvisation.
Okay. Milind, final one for you. So when you say you're going to the campus, this is for FY'25?
Yes, right.
So you've already done your 40,000 for this year. Have they been onboarded?
We don't give away the numbers on how many we have onboarded so far. But it's -- I'll tell you every quarter a significant number coming in, okay? But this process I talked about is for FY '25.
Right. But do we see some delay in onboarding of the campus hires that has happened for this fiscal?
Every quarter, we are getting a sizable number and it is going as per the schedule like the way it happens every year.
Kushal Gupta from Zee Business.
[Foreign Language]
So you asked about vendor consolidation. That continues to be -- I talked cost and optimization as another key lever, and within that, vendor consolidation is a major program. Like our clients try to do vendor consolidation so that they can drive more efficiency. They can also move operating model transformation. So that continues to be a key lever. In fact, even among the TCV we have, a significant portion comes from vendor consolidation.
[Foreign Language]
NGS, [Foreign Language]
Yes. The partnership with NVIDIA is progressing as we envisaged. Part and parcel of that is their training and upskilling of a lot of our employees, which is going according to plan.
And advanced training, I think beyond the minimum training that we started, and there are about 14,000 of our employees have been trained in advanced AI technologies and how do we leverage the architecture and specific features of the NVIDIA chipset and the framework that is there. We have started to go into market with some of those offerings. I think it will pick up is our [ rate ] at this moment.
[Foreign Language] All of it is basically be doing together based on a certain specific offerings we are driving.
[Foreign Language]
[Foreign Language] Everybody should know. Everybody should have a basic understanding. [Foreign Language] We'd like to do for any other technology.
Varun Sood from Mint.
Two questions, sir. One for Krithi, one for NGS. Krithi, at least over the last 3, 4 quarters, there had been a kind of a disconnect between the TCVs and your revenue growth. Our understanding was that some of the projects are getting deferred, they are not starting on time and like you said a couple of minutes back that they are getting reprioritized. So at least some of the deals, which you have won as part of the TCVs, has work started on it? Because that will be a good sign to see if anything is changing on the ground. So on your large TCV deals or does situation remains due to scope? That's the first question for you, sir.
NGS, the second question. It's nice where you said that we are very happy the state where we are. But if we look at your incremental growth of the quarter 3, outside of the BSNL deal, if you do your -- if I have done my math correctly, there's not much incremental growth. I mean 80% of your business is coming from the BSNL deal.
Now is this the nature of the business? Or is it worrying that for a company of a scale of TCS, your biggest geographies and the markets are not growing. There is an uncertainty among clients. And then there is also the risk posed by disruptive technologies like Gen AI. So only the BSNL deal, actually, if I have to say that, bailed you out.
Varun, again, I mentioned before also, whatever deals we signed or started the program since the beginning of the year, okay, those deals are progressing as planned. We don't see any -- see there could be some operational delays, but there is no delay in terms of clients reprioritizing their programs. It started from the beginning of the year.
We've been always calling that the programs -- the programs that started maybe 2 years ago or 3 years ago, those long-running programs. If you remember, at the beginning of -- or the early parts of pandemic, a lot of digital programs were kick-started, like during the growth phase. Those programs now in the changed overall economic situation, if they are not making economic sense to our customers, those programs are getting paused. We are saying the programs that we started in FY'24 or even Q4 of FY'23, those programs are progressing as planned. We are not seeing any delays in them or suspensions in them.
The delays -- revenue is not growing along, like you said, disconnect between TCV and revenue, primarily because the programs that were started during the early FY'22 or early part of FY'23, some of them are getting paused because they don't make the necessary ROI sense for the clients today in the current macroeconomic environment. That's what we are saying.
Yes, I think the other thing to -- way to answer that question in addition to what Krithi answered, programs that started in, let's say, 3 years before or 2 years before, there is a revalidation. One is from priority perspective on return on investment side. The second is to also see whether the architecture in which at that time it was current. But at this juncture, is the architecture is correct or do we need to adjust that architecture is also a question that's being asked.
But coming back to your question on -- I don't know how you did your mathematics and 80% from BSNL. And I think the way to look at it is, if we take Life Sciences, there's a growth. Manufacturing, we have grown 7.0%. And Energy, resources, 11.8% growth. India, of course, grew 23.4%; Latin America, 13.2%; Middle East, Africa, 16%; Asia Pacific, 3.9% growth. So it's not attributable only to the BSNL.
Of course, BSNL, we have started to deliver. Rightfully, it will kick off and it will go on, right? So I think that is -- to attribute saying that the entire growth has come only from BSNL is an incorrect view from my perspective.
I believe that there is a reasonable portfolio that we have, which we are executing. And some of this, especially, as I said, in BFSI, it should come back and this is seasonally a weak quarter because of the furloughs, this, that, et cetera. You should see us moving the needle from here in the next quarter.
[ Berichan from BTR ].
I missed the legal settlement one. How much was that? The settlement in the U.S.
So we have taken a charge of $125 million on the P&L and the payout was $140 million.
And the other question is about the -- are you still -- when do you see the hybrid model ending? What is the ratio now? How many of your -- how many days you are open in office? And still you have the hybrid model happening?
Hybrid, you say, how many -- what percent of people are coming?
I'm saying 65% of the people are coming to office.
65%. When do you see the 100% coming?
We will continue to work on it and we'll let you know as soon as we know.
Next is Ayushi Kar from Hindu BusinessLine.
So I have, too, many questions for Krithi, sir, and NGS, sir. Firstly, I just wanted, NGS, sir, you sort of elaborate on -- you talked about how like your overall growth is not purely attributable to BSNL, but also to other verticals that are not -- or other geographies that are not necessarily as -- do not have as high a market share for TCS. Do you see these become a significant contributor as far as revenue is concerned in the future? And when -- what do you expect that...
Sorry, I didn't get the question correct.
Just like when you talked about how emerging markets, et cetera, are contributing towards growth, do you see that becoming a significant contributor? And what would be the time line with how that happens?
I also just wanted you just speak a bit more on -- we have spoken about moderation in BFSI extensively and what are the reasons for that. But for the top 4 verticals, there has been moderation throughout. Even for Life Sciences, the growth has come down in this quarter. I just wanted to get your take on what exactly is the detail. What is happening in these verticals that are sort of creating this moderation of growth?
For Krithi, sir, you spoke about how like you have implemented projects in generative AI. Can you -- and the last time we spoke, you said that significant deals in generative AI is not going to come for a few quarters. Can you give us a time line on that? And can you talk about exactly like what is the trend going to be of getting these projects to the implementation stage? Yes.
Okay. I think overall, what we call as Regional Markets and new growth markets, especially in Asia Pacific, LATAM, it should do well is the way I will put it. Like any other -- the fact that we are calling it as Regional Markets, why we called it as Regional Market, because there is a sense of volatility in these markets. That's why we have put it in a separate bucket there.
So there will be volatility, but there are significant opportunities. If you really look at Middle East, the kind of investments that's happening in Middle East. Saudi Arabia is building a completely a new city, right? And what UAE is trying to do, what's happening in Abu Dhabi, right?
So there are a lot of opportunities out there. It's only kind of neutralized by the war over there and then see where people want to invest, how we want to invest. Otherwise, I think this particular region should have grown a lot more is my perspective on this, right.
On the -- if you take Life Sciences or Manufacturing, they're doing good. They're doing good and where we are, I think we are happy. And I think Manufacturing, I see that a lot more investments happening. People are adopting digital print technologies. And the B2B2C kind of programs are a lot more becoming reality in some of those segments.
If you take CMI, which is communications, telcos, most of them, they have made huge investments on 5G rollout, right. They are now trying to see how they can recover revenues out of those investments, especially in major markets, right?
In the emerging markets, rollout of 5G technologies, they are trying to see what mistakes the others have committed and see how we can optimize this, how we can roll it out better. What should be the focus on enterprise business as opposed to the consumer business? There are a lot of things happening in the telecom sector and the media sector in terms of -- they're also trying to see whether we can really leverage the convergence of broadcast and broadband, right?
So there are a certain amount of innovation that's happening in the CMI field. It will take some time, right? But I think, today, I think telecom is one of the stressed-out sectors in many markets because they've done the massive CapEx and they need to see return on that CapEx investment.
Energy Resources, Utilities, again, they're adopting digital technologies. They're adopting things, intelligence and digital twins. Especially the use cases that are in Manufacturing, Energy, Resources and Utilities, they are so visible in terms of putting automation, putting intelligence, moving things into cloud and prevention rather than correction. Those kind of things are happening there.
So overall, the way I see it is every vertical is trying out different things. And some are stressed because of the CapEx investment that they have gone through like in telecom and others. I don't see anything wrong with, let's say, Consumer Business, especially our retail consumer business goods and travel hospitality. Especially travel and hospitality is booming, actually. They are doing really well and then more and more projects will come, in my opinion, in these segments.
So it's a mixed bag that we have. But I think I've explained to you what I'm seeing in various segments, right? It's for you to make out from what I have said, right, where we are going to grow, where we are not going to grow.
You mentioned that across the top 4 verticals that I'm talking about, like that includes BFSI, Life Sciences, Retail, et cetera, there were some geographies where there is certain moderation, which is being reflected in the moderating of these numbers. Can you speak a bit more...
Largely, Europe has been -- if you look at it, Europe has been quite weak, right, over the last several quarters, right? I think my -- as I said, Europe, we are seeing some green shoots and we have -- actually, we have grown in Europe this quarter. I believe that Europe should grow and turn around and grow in a big way from now on.
Krithi, sir, on AI?
So on Gen AI broadly, we would classify this as kind of, for example, our projects that we win in 3 categories. What we call them as assist, augment or transform. See, that's what this technology can do. And assist is where you summarize the information from multiple sources and able to answer questions from there. Augment is where you help.
So what you see are projects that happen and assist is where we see more programs happening and moving from POC to production. So it will take some time because there is less number of projects you will see in the augment space, even less or much -- probably almost nothing happening in the transform space.
So as time progresses, you will see more and more programs like the crossing or getting to the next level of these programs happening. So I don't want to put a time line, but maybe over a period of next 2 years, maybe you will see more programs being developed at a higher level of complexity. It's a new technology. You ought to give it some time for people to become mainstream.
Vivek Kumar from Informist.
Two questions. First, Samir, what is the reason for sharp decline in subcontractor costs? And do we expect such sharp decline to continue in the next quarter as well?
And Krithi, you said completion of projects led to some decline in BFSI vertical. So in the next couple of quarters, are there any major projects scheduled for completion? And what is going to be the outlook in that scenario?
So subcontractors, we use for short-term [ match ]. And if you see for the last 3, 4 quarters we have been significantly been dragging down the subcontractor costs and it's strategically done. And as I mentioned in my earlier one as well, depending on the demand environment, it could be further [ in lever ], which can be available.
See, there will always be projects that come to an end, come to a start. I will not be able to call out what is the impact of -- what's going to happen in Q4, what kind of projects are likely to end and what is going to be the impact? We don't give guidance, and I won't be able to give you a call-out at this time on that.
Second last question from Sankalp Phartiyal from Bloomberg who is joining us from New Delhi.
My first question is for Krithi. I know, Krithi, you just said some of this, but in your own words you've told me previously that you're waiting for Gen AI to gain critical mass. I just wanted to know when do you think that kind of critical mass can be achieved so that it makes a difference to your overall sales and revenue, especially since rivals like Accenture are already growing their share of AI business. That's one.
And NGS, one question for you -- or actually anyone of you could answer that U.S. inflation is easing and interest rates are also likely peaking. How do you -- when do you to expect American clients to sort of spend big again on software projects, especially BFSI, if I could get some color or visibility on that?
[ The cycle on Gen AI ], we've been saying that we will not be able to put a time line on when it achieves a critical mass. Maybe 4 quarters, maybe 6 quarters. It's too early to call out when this will happen. We continue to stay invested, like Milind said, we have trained close to about 160,000 associates on the first level, another 15,000 on the next level of training.
So we continue to invest. We continue to create opportunities for our associates to create new products and services. We stay ready, and we help our customers in coming up with new offerings and new product services. Every vertical we look at what use cases are possible.
So we get ready, we go to our customers, work with them in creating new use cases opportunities. But definitely, it will take some time. It's not going to be 1 quarter or 2 quarter critical mass. Their lead time is going to be longer than that. But I don't want -- I won't be able to put a time line for you.
I think inflation, interest rates are really questions for the economist and I'm not an economist. But what perplexes us is really, if you take India, inflation is probably above the growth rates that India as a market achieved. And perhaps the market and the customers and different industry segments are used to it.
Whereas if you take a U.S. market, it's the other way around. Whenever the inflation goes higher than the growth rate, then they have a problem, right? They don't how to probably handle it. So immediately, they start to conserve cash and then see what best opportunities that are there. It's not something that we are observing, but it's very difficult to correlate and answer your question.
We have one final question from Sai Ishwar who was unable to join us from Reuters. Do you see mega deals coming in after budgets get refreshed from the calendar year 2024, for NGS.
We're working on a few large deals. And whether they will convert into mega deals, when they will convert is very difficult to answer. But as I said, the qualified pipeline is increased and we are working on many such opportunities.
Thank you, gentlemen. Thank you so much for -- everyone for joining in and to everyone that's been watching online to the live stream. Thank you very much from all of us at TCS. Wishing everyone a very Happy New Year. Have a good evening.