Tata Consultancy Services Ltd

NSE:TCS

Earnings Call Transcript 2018-Q4

[Kedar Shirali]

Good evening, everyone. We will now kick off our TCS Q4 FY '18 results. We will start with Rajesh with his initial comments, and then we will have the commentary from our management team and the Q&A. Rajesh, can I request you to make the initial comments.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Good evening, everyone, and thank you for joining us. Welcome to TCS's Q4 earnings. I'm very happy to report a strong set of Q4 earnings to round off turnaround year for TCS. We're glad to announce that we are back to double-digit trajectory on our dollar revenue growth as we have been speaking about for the last couple of quarters. Looking at the numbers, Q4 revenue came in at $4.97 billion, that's a growth of $185 million of incremental revenue from Q3 to Q4. To put it in perspective, this is our highest incremental dollar Q4 in our history, and it is our third highest or fourth highest in -- across all quarters in our history. So we're very happy with the dollar growth that we have seen. It's coming on the back of strong constant-currency growth of 2%, once again at the higher end of Q4 numbers. It's come through good volume growth. So volume growth in Q4 has been at 2%. We have had flat realizations, and we had currency helping us so that we went up to 3.8% on the dollar-denominated growth.Our margin defense has been fairly strong. We managed to improve our operating margin by 20 basis points. And overall, we have also, I'm glad to say, shared part of these gains back with our employee base, where we have announced 120% bonus for people on our quarterly variable pay-out basis for the margin that -- the 20 basis point margin comes after 120 basis point -- 120% bonus payout. Net margins have come in very strong. We have crossed, once again, $1 billion in net profit margin, and I will cover that in more detail in our annual coverage, but we are doing more than $4 billion of net profit for the full year. Cash from operations, it's been an outstanding quarter for cash conversion. So the profit conversion, cash difference has been very strong. We have done 122%, is our conversion from net profit. And total cash generated has been close to INR 8,400 crores for the quarter. From a segment perspective, Continental Europe continues to lead the way. We are seeing very strong sustained growth momentum in Continental Europe. More encouragingly, U.K. leading off from the strong deal wins that we have been announcing for the last couple of quarters. We're seeing strong growth in U.K. U.K. grew by 10.7% year-on-year from a constant currency for Q4, that is Q4-to-Q4, and Continental Europe has been at 19.1%. Asia-Pac has also come in fairly strong. From an IP perspective, from an industry perspective, as we have been reporting for the last few quarters, our midsized industry segments continue to drive incremental growth. Energy & Utilities growing at close to 33% and Travel & Hospitality growing at more than 25%. Digital, which is an area that we have invested very strongly and very early on in the cycle, continues to drive growth for us. Digital revenues crossed 23.8% of total revenues. We now have more than $4 billion in annualized -- in annual revenue, not annualized revenue. Annualized revenue is closer to $5 billion from an exit-rate perspective. That's driving on a Q4-to-Q4 basis at more than 40%, for the full year, it's about 35%. Client additions continue strongly. We have added clients across all revenue bands with more than $3 million -- more than 3 customers added in the $50 million revenue band. The employee metrics is also very, very encouraging. We have added net additions of more than 4,000 people in Q4, and it is the highest net addition of every quarter in this year. So we are exiting with a very strong employee net addition. Even more encouragingly, our attrition continues to tick down as our investment and our commitment for organic talent development drives industry-leading retention across all competitors. Our attrition ticked down by 10 basis points, and we are now at 11% attrition on our IT services skill pool.Looking at FY '18 as a whole, the year, as I said, has been a tough year, but a encouraging year. A year that we are happy with the way it is ending, and the way we have been able to execute on our strategies during this year. We're ending the year with rupee revenue of INR 123,000 crores. And in dollar denominated basis, I'm very glad to say that we have gone from $17.5 billion last year to $19.1 billion in FY '18, which gives us a year-on-year dollar growth of 8.6%, which is better than what we were doing last year. We were at $7.2 billion, so it gives back on the trajectory of getting back to a full listing basis. On a constant-currency basis, the picture is a little more mixed. We have reported 6.2% for the full year, coming from weakness in the early part of the year. But we are enthused by our upward growth momentum and trajectory coming over the last Q3, Q4, and we are confident about that momentum carrying through into the rest of the -- into FY '19. From an operating margin perspective, our reported margin for the year is at 24.8%. This is a 90 basis point reduction from our reported margin of 25.7% in FY '17. Of this 90 basis points, 70 basis points is due to currency appreciation and 20 basis points is coming from our overall operational elements. I would like to point out here that this 20 basis point is despite us announcing industry-leading wage hikes and doing the wage hikes from Q1 itself of last year. So its post-sustained investment, both in our own employees, in digital, in free skilling, in localization and in structuring some of the most innovative deals that this industry has seen. So I'm quite happy with where we are on our margin trajectory, and we continue to remain focused on getting it back into our preferred operating range of 26% to 28%. Cash from operations, again, it's been an outstanding year. We continue to improve our cash-conversion ratio. We have converted 109% of our net profit into cash and total cash from operations for the year is slightly above INR 28,000 crores. We have distributed INR 26,500 crores as dividend and buyback during the course of this financial year to our shareholders. We ran, as you know, the country's largest share buyback program last year, and the total payout has been approximately equal to the total free cash flow that we generated.In terms of customer metrics, it's been a phenomenal year. We have added 66 new customers in the $1 million plus range with 13 customers added in the $50 million range and 3 customers added in the $100 million plus range. We now have at least one $100 million customer across almost every vertical except Utilities and Travel, and both of those are very strong, and I'm sure we will be adding on to that soon. Digital revenues for the full year came in at 21%. As I said, we crossed $4 billion in digital revenue for the full year, and it continues to be a growth driver growing at 35% for us. From employee addition, we added about 7,800 net employees in this year with an attrition of about same 11% annualized that I spoke about.IP wise, similar trends as in the quarter. Not much to call out on and similarly for the geography, the Continental Europe being the standout performer and U.K. coming back close to the double-digit numbers that we have been targeting.Happy to report that despite a significant payout on our funds through cash distribution back to shareholders and commensurate reduction in our other income, our EPS continues to remain positive and EPS grew by INR 0.78 to INR 134.2. I want to take a few minutes now, these were the numbers. As I said, we are quite happy with the numbers, happy with the -- what should I say, the positive response that we have seen of our strategy from the market. And these numbers are not just absolute numbers; the trajectory that they are on and the steady improvement that we're seeing something that we are very happy about. I want to take the next few minutes to share with you some of the underlying elements of where this transformation and change is coming from. We have spoken about it at various points in time. I'm sure most of you are familiar with it, but I just wanted to take a couple of minutes to talk about that. Underlying TCS's transformation is its early investment in Digital, and we have gone beyond just investment in Digital from a technology perspective. And in the middle of last year, in September, we unveiled what we call our Business 4.0 framework, which is our thought leadership framework, which helps clients leverage the power of digital technologies to drive their growth and transformation agenda. And the deals that you have seen and the transformation that you see is really ratification of the fact that this is resonating very strongly with our customers. We have said that in an industry where the general perception was that large deals are something of the past, we have proved that the largest deals can be structured if you have a breadth of offerings, and you have the ability to integrate a large scope of offerings into client transformation agendas. So we are very positive about the power of this framework to drive our sustained growth, and it actually marries our core strengths, which is on the technology side and areas where we are investing in whether it would be digital, automation, cloud, Agile and takes that and marries that with key priorities with our customers on terms of the way they look at segmentation, where they are looking at mass personalization, their ability to leverage ecosystems to deliver this, their ability to operate at a significantly high or what we call exponential value to their end customers, and our ability to participate in a global supply chain to make this available. You have seen this with companies like Amazon and others, where the price points on offer are unimaginable. The question is, how do you actually enable that for your customers to happen and your ability and your will to participate in that? And finally, it is about our attitude to risk and the way we are able to embrace risk through analytics, intelligence, automation to be able to make very, very calculated calls on where that risk is and how to manage that. So overall, we are very happy with where we find ourselves. It is, as I said, to some extent, a sobering thought that it is at both times, a time of optimism as well as the fact that it's a year where our growth has actually been lower than in the recent past. But the optimism comes from the fact that we are on the right trajectory, and we are pointed in the right direction. And our deal flow, our deal wins and the market outlook that we see gives us confidence that we are well-positioned to deliver on the trajectory on double-digit growth. With that, I want to turn the floor over for questions.

[Kedar Shirali]

Thank you, Rajesh. [Operator Instructions] So we will start with Kritika from CNBC.

[Kritika Saxena]

Rajesh, my first question is to you, specifically on the segmental revenues. If you can give us a sense about the quarter-on-quarter growth that you've seen and your outlook specifically on BFS and North America, are you still seeing softness in BFS, North America? There were some -- there was a possibility of volatility around the corner in Q1 and Q2. So keeping that in mind, can you give us a perspective on when we are expecting that return? And if -- NGS can also add to that, from a larger perspective on how critical have these segmental revenues been from even the new deal-win perspective as well?

[Rajesh Gopinathan, CEO, MD & Executive Director]

So BFS North America continues to be an area that we are very focused on. I would say, incrementally, we are now more confident about BFS North America than we have been in the recent past though the revenues have still not started flowing in. But early client discussions show that there is not much of stress left in the system, and we hope that, that will translate into better spend through the course of this year. But I think Q2 will be a good quarter or Q1 -- our financial Q1 and their calendar Q2 will be a good quarter to validate that. So we remain optimistic, but we will wait for the next quarter to validate uptick that we expect in BFS North America. The rest of the segments have been fairly as expected. Retail has been something that we are very confident about. What -- we have seen minor, and I would say, transient issue there, primarily coming out from some of the growth expectations and transformation that we have. But retail, we are very confident. We have the deal wins. We have the contracts in place that we should see growth momentum in retail very strongly coming back in FY '19. BFS is -- we're optimistic, but we will wait for next quarter before we fully commit.

[Kritika Saxena]

NGS, if you can add from a segmental perspective in terms of new deal wins and the contribution there.

[N. Ganapathy Subramaniam, COO & Executive Director]

I think the tough gets going. So the full marks to our leadership team and BFSI. We're seeing some green shoots in BFSI North America, while there still some softness we see. After discussing with our clients, we believe that it's bottomed out. And then, as Rajesh mentioned, it should see growth in the coming quarters. We're seeing strong demand on digital in securities, in block chain, in analytics data, and also we are competing in some of the large core systems replacement and transformation deals. So all this gives us the confidence that BFSI should grow. And on a year-on-year basis, BFSI grew 3.4% with so much headwinds, if I can call it. So we're quite confident, but at the same time, we are approaching with some caution, right, because there is still some softness left in the North American BFSI segment.

[Kritika Saxena]

Okay. My second question to Ramki. Ramki, as far as margins are concerned, there is of course the aspirational target band that you have. Would you perhaps look at revisiting that, given the outlook that you have right now? Agree that this time around it has been on target? And if you can also give us a breakup of the current margin figure in terms of the quarter and the annual figure? How have operational efficiency contributed along with currencies and even utilization for that matter. Ajoy can add to that.

[Venkataraman Ramakrishnan, Chief Financial Officer]

Okay. The current quarter, sequentially, we had around 40 basis points. We got positive impact from the currency. We had about 20 basis points, which was more from operational areas, including we talked about we had a higher QVA in this quarter. So net effect from 25.2%, we moved to 25.4% for the quarter. On an overall full year basis, as Rajesh said, we had 24.8% for the full year. And that had an impact of about 70 basis points from the currency for the full year. So -- and maybe about another -- last year, we had our wage increases about 2%, which had the impact and the currency was 70 basis points. But against the 270 basis points, which we had the headwind, we were able to recover almost 170 basis points through operational efficiencies. So from 25.7% last year, we had 24.8% for the full year basis. Coming to the outlook on margins, I think, Rajesh touched upon a few areas. #1, we came off a year where we had slower growth in 2 major sectors and also in the major geography. So we are seeing definite signs of that turning around and with more -- the outlook improving on those, growth will automatically have that impact on our ability to drive more margins. Second is on the digital. It is continuing to scale, and we will see much more scaling. And with that scaling, we will have the opportunity to leverage all the operational advantages of scale in terms of bringing that. So with coupled with both of these, we don't -- we certainly believe that we're in the right trajectory and we'll continue to be focused on margins and we don't see any reason to revisit any of those.

[Kritika Saxena]

So that aspirations, Ajoy, if you can add to that as far as utilization impact on margin and even the attrition and how sustainable it is concerned.

[Ajoyendra Mukherjee]

From an attrition point of view, as we mentioned, it's about 11% as far as IT attrition is concerned, and we are pretty happy with it. And the primary reason is the kind of opportunity that we are giving to our people and the internal development of talent and the kind of digital deal-wins that we are getting and people are getting opportunity to work on newer technologies, the digital technologies so that's the way it is going on. And as far as the margin side is concerned, we had been very disciplined in our execution. So utilization is a number which probably we need not get into as to percentages. Because we have not been publishing it for a while, but it becomes difficult as well. So what you need to look at is the way we have been adding resources, which is about 7,700 is what we have added in this whole year, and as each and every person is actually deployed in engagements or they are getting trained, getting ready for the future assignments. So it has been run as a very disciplined ship. So that is what we are focused on.

[Kedar Shirali]

The next question is from Swati.

[Swati Khandelwal]

Swati Khandelwal from Business Television, India. First and foremost, what is the mix of higher value project segments in revenue for employee trend that you are seeing, Rajesh? That's one question. And also the strategy to mitigate impact of U.S. tax code, if you can help us understand and give your views on it?

[Rajesh Gopinathan, CEO, MD & Executive Director]

See, the one way to think about it is that digital as a percentage of revenue is 23.8%. We don't break out service lines beyond that. Typically, digital comes in at higher price per person kind of a point, and it also comes with higher on-site simplicity. But as the scale increases across some of the smaller subsegments of digital, we expect to see leverage increase over time. Beyond that, I think, it's more about -- our focus is about consolidated structures rather than individual service lines. So as I have explained, the reason we have been able to stitch together large deals is because we are looking at it as a holistic offering rather than point solutions for our website here or a mobile solution there. And it's our ability to put this holistic solution, which gets all the way from legacy back-end to absolutely modern front-end is where the deal structures are. So the deals that we are announcing are really combined -- combinatorial deals rather than individual-point solutions.

[Venkataraman Ramakrishnan, Chief Financial Officer]

We don't comment on country-specific issues, but let me give you a perspective on our overall effective tax rate, which is finally what it translates to. So last year, we had about 23.6%, that is the FY '17. FY '18, we closed at 24.1% on an effective tax rate. So going forward, we expect that to go up a little bit, and we will stay within the 24% to 25% range for the effective tax rate.

[Swati Khandelwal]

Okay. And my second question is the wage hikes that are planned in FY '19 and impact on margins, Mr. Ramakrishnan or...

[Venkataraman Ramakrishnan, Chief Financial Officer]

Yes. We have already -- we have given the wage hike. Just like last year, every year, we do it from 1st of April. And wage hike this year has been between 2% to 6%. It varies from country to country, right. Average will be at different levels, 2% to 6%. So, and individuals will get more than that. So for example, the high performers will get more than that. So like that, it goes on, and it's effective from 1st of April onwards. And in addition to that, I think, Rajesh announced in his listing that the variable payout that we're doing as far as the Q4 variable is concerned, it is at 120%. So which is over -- last few quarters, we have not been giving more than 100%, so this is for a while. I think this should go pretty well with our employees as far as the variable payout is concerned.

[Swati Khandelwal]

And the impact on margins of the same?

[Venkataraman Ramakrishnan, Chief Financial Officer]

Margin impact will be very similar to what we had last year as far as the -- on the operating margin is concerned.

[Kedar Shirali]

Ajit from [indiscernible], please.

[Unknown Attendee]

Couple of questions here. Your revenue for the full year, you grew 6.7% on constant currency terms and roughly around 8.6% on normal currency. Is this growth rate of 6.7% constant currency is the new normal growth rate for TCS going forward? The second question to -- the second one to you is about capital allocation. You had given $4.1 billion to shareholders last year. What is your plan for capital allocation for FY '19 is concerned? As for Ramki, is there -- you mentioned that you expect margins to be in a stable range, if you can define what is that range going to be? And now that you have embarked on TCS Business 4.0, where you may require to do more investment in skilling and going to market and other, does that mean that there would be a shift in the band down as far as margins are concerned?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Let me say that if it was to be 6% as the new normal, it would be a very boring job. So we are committed to going on the 10% trajectory. In Q3, we were around 6%. Q4, our year-on-year constant currency growth is 7.2%. As I said, the dollar growth is 11.7%. We are committed to try and get it up to that double-digit growth, and that's where the entire focus is, that's where the complete -- we believe that that's possible, and we are committed to doing that. What is the second question?

[Unknown Attendee]

Capital allocation.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Capital allocation, we have always said that we've been -- if you look at our history, we always believe that about 80% to 100% should be the distribution. This year, that is -- it depends on whether you look it at as a financial year or a calendar year, they distributed 100%. We generated free cash flow of over INR 26,500 crores. Between dividend and share buyback, we have distributed about INR 26,500 crores. We expect a similar kind of 100% distribution going forward also. And even more importantly, we are very committed to across multiple stakeholders in our shareholder community. The bonus on declaration also is more focused on our smaller and retail shareholders whose preference is for those kind of float-related ones. So we are very committed to it, 100% distribution is where the focus is.

[Venkataraman Ramakrishnan, Chief Financial Officer]

Yes, I think on margins, current year 24.8%, but if you take currency around 25.5%, so that is from our investments we have been always making those investments and we don't give a guidance, you are aware of that.

[Unknown Attendee]

[indiscernible] mention the [indiscernible].

[Venkataraman Ramakrishnan, Chief Financial Officer]

Yes, stable, stable. I mean, in the sense that what we have, if you look at last year, we have been in that range of around 25%. Our aspiration is to do higher than that, and I also talked about growth feeding into a higher potential plus also the scaling on the digital. But your second part of your question with regard to investments we are making into digital, we have been -- in the last 3 to 4 years, we have been making those, and we will continue to make those. And whatever the stability, et cetera, you have seen in the margins is on the back of some of those investments. So we don't see anything extraordinary about that.

[Kedar Shirali]

Neha from Moneycontrol.

[Unknown Attendee]

I just wanted to understand, you said Asia-Pacific also did well apart from Continental Europe and the U.K. Could you just talk a little bit more about what your strategy is going to look like in the year going forward in Asia-Pacific, specifically?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Asia-Pac, we have a fairly broad-based strategy in Asia-Pac participation across all key markets. We have been very strong in Australia. We continue to build out on our leadership status in Australia. As you know, we made a strategic investment in Japan, and that investment is going well. I'm glad to report that this year, Japan has also delivered double-digit growth on a stable margin front. Similarly, we participate across the ASEAN region also. ASEAN is a smaller footprint for us, but we are committed to that region. And technically, that's our -- we run our APAC operations out of the ASEAN region. So Malaysia, Singapore, we are very well established. I would say, we see very strong growth prospects coming out of APAC region, but it's a very diverse kind of market. It's between Australia, Japan and ASEAN. And we are really focused on attacking each market in its own different forms.

[Kedar Shirali]

It's [ Sushil ] from ET Now.

[Unknown Attendee]

I have just a couple of questions. Could you maybe break out if you could the kind of revenue you are getting from the new platforms, ignio, Connected Universe which was part of the Rolls-Royce deal. You could give us some clarity on kind of the growth that's coming in from there. And out of the $4 billion in digital, you had mentioned that analytics was a large piece for you, it's about $2 billion. Could you give us some color on what's contributing to the rest of digital, if you could?

[Rajesh Gopinathan, CEO, MD & Executive Director]

[ Sushil ], 2 numbers that gives you an idea about the first one, because we don't give out breakout and individual ones. But one is the digital asset percentage of revenue and the other is what we are calling the regional market and other business model. So platform deals are reported under that. And if you look at it, that has delivered 5.6% sequential growth. And you will see fairly strong traction on that line as we draw down on some of the deal wins that we announced on our platform business. But beyond that, we will not be breaking it out further. Similarly, IoT. So these are the 2 ones that gives you a good flavor for what is going on. Your -- what was your second question?

[Unknown Attendee]

Digital revenue.

[Rajesh Gopinathan, CEO, MD & Executive Director]

So it's a very fairly heterogeneous set beyond that. Ignio, we'll be making much more focused discussion on ignio in the June quarter. We will complete 3 years of ignio, and therefore, in our July release, we will have a full segment and we will talk about ignio in more detail. I don't want to steal the thunder on it. It's going well, but we will give numbers next quarter. IoT, automation, all of these are contributing incrementally. The single largest space is very easily analytics, because analytics in many way actually feeds off many of the data related work that we have been doing in the past. And therefore, that forms the basic core, but the others are much smaller in size but there is a very large set of individual service lines. So we are executing on what we call our compact and coverage strategy. We have compacted our traditional service lines into what we call the cognitive business operations as a service line, and we have introduced multiple service lines to increase coverage across the full spectrum of opportunities that we see in digital and other related areas. So very, very extensive coverage across smaller service lines. But -- and we will start talking about it as each of them mature to a size that is worth calling out.

[Kedar Shirali]

The next question is Varun from Mint.

[Unknown Attendee]

Sir, 2 questions. Firstly, what explains this kind of a demand uptick, if I can ask on a more generic basis, is it a more like a debt cap bounds? Or are you winning more perhaps at the expense of competition? Or it's a mix of you having digital offerings? Or even if I have to again -- that just because the generally the world economy is doing good, more clients are perhaps more outsourcing or ready to work with IT outsourcing companies? What explains this growth sudden uptick in demand after 3 years of little lull? That's the first broad question, sir. Second should I ask? Or should I wait?

[Rajesh Gopinathan, CEO, MD & Executive Director]

Yes, go ahead.

[Unknown Attendee]

Sir, the second question is on this operational profitability. That is perhaps one metric if I have to ask although you did explain 70 bps was because of the currency. But in this year gone by, you've also won some of the large mega deals and you also successfully renewed some of the large mega deals. I just wanted to ask on the other deals, is there a little bit of pricing pressure and perhaps the new deals which you have won has offset that to help you record a better growth? I'm asking this question because again in '18, '19, we can get a kind of a sense whether TCS has this growth momentum and operational profitability should not be under stress.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Okay. So on the first one, Varun, it's a combination of what you said. So it's a combination of us having invested in creating a market presence to participate in opportunities across the world. So you ask, is there greater outsourcing. There are segments of the market, for example, Continental Europe, where there is a significant increased activity, and we have been early investors into that geography and we have the feet on the street and the coverage across the geography to participate across. So you see very strong growth momentum coming to us from there. Similarly, as I've explained earlier in one of those questions, it's a question of having multiple services but not just having multiple services, the ability to stitch together and provide holistic solutions to the customer, which is allowing us to create these large deals where the demand uptick is coming from. So there is -- digital is no longer about experimentation and about doing small projects. Digital is about transformation and the ability to transform comes from your ability to participate from right from the back end all the way to the front end and have a full spectrum of solutions. We call these cognitorial solutions, and that's where the scope-based large deals is our sweet spot currently and Business 4.0 is an integrated framework that allows us to participate across that so that you are able to put this whole thing together and provide a business solution. So there is opportunity out there, but you need to have the breadth and the participation range to be able to actually create those solutions and to capture it. So it's a -- I would say, that we are in very exciting times. We are going through a big technology transformation. There is huge amount of churn going on in the market and the question is how do we create solutions that help customers execute on their growth and transformation agenda. So it's not a passive participation. It's a very active, very engaged solution-oriented participation that's allowing us to provide this kind of growth.The second question of yours in terms of profitability. What is important to remember is, in the last quarter, through operational efficiency, we actually gained 170 basis points. So while the 70 basis point on the currency is there, but 170 basis point is the actual operational efficiency gains that were delivered in a year where growth was much lower than our typical sweet spot. So as we go ahead, we see multiple levers that should help us. One is we expect growth momentum to increase, which should give us greater leverage. We expect overall size of these newer service lines expands, we expect that to give us greater leverage. And our operational efficiency, and our ability to focus on areas like automation and newer services will continue to provide us margin support. So it's not a one-off easy thing that I can say, this will do it, this will not do it, but we are quite confident that we have many balls in play. And together, we think that we should be able to deliver on, what should I say, our preferred range.

[Unknown Attendee]

So sir, a clarification, '18, '19 both revenue and profitability [indiscernible]'17, '18. I know you do not give guidance.

[Rajesh Gopinathan, CEO, MD & Executive Director]

Then why ask?

[Unknown Attendee]

I'm not even asking. I'm just saying as a [indiscernible] as kind of a credit.

[Rajesh Gopinathan, CEO, MD & Executive Director]

So we won't comment on that. So it's waste of time to ask that question.

[Kedar Shirali]

It was a good attempt. Romita from Business Standard.

[Romita Majumdar]

Two things. One would be for the coming year. Since you are increasing your localized hiring in U.S. and other geographies, I would like to understand if there would -- if you expect any impact on margins from this hiring? And the other would be the segments that have done well Energy & Utilities as well as even for Continental Europe, what exactly is driving client interest here, if you could just give an idea of the trends over there?

[Rajesh Gopinathan, CEO, MD & Executive Director]

On the first one, I'm not trivializing your question. But if I were to switch off this air conditioning, it will help my margin. So it's like you do business, you got to do certain things. Some things will add cost, some things will take away cost. So it's a holistic solution. There is no point in saying that will this increase margin, will that decrease margin? And that's not the way to approach it. It's a fairly large operation. And things happen, and we react to it. When it comes to be a structural issue, we will talk about it in more detail. Today, we don't think that it's a structural issue. On the elements that you said about Europe, and there are both Europe as well as small verticals. There are geographies where adoption of a global supply chain has lagged the other developed markets. And as we see more and more of that adoption, our participation is increasing. Smaller verticals, we have been later in developing these out. So if you take Travel and Hospitality or you take Energy and Resources, Utilities, these are fairly new for us. So as we expand our coverage and as we focus more and more, we are participating in these in greater extent.

[Kedar Shirali]

The next question is Abhinaba from ET Now.

[Abhinaba Das]

Rajesh, when it comes to the BFSI segment, that's been a sort of a weak link during the year. I mean, going forward, I mean, what's the kind of outlook you have for FY '19 as far as BFSI is concerned? And also for the U.S. market, and how do you see demand panning out in the new fiscal?

[Rajesh Gopinathan, CEO, MD & Executive Director]

We answered it earlier. As I said, we remain -- we are more optimistic about BFSI and U.S. in the next year as we will talk to clients and we are engaging those discussions. But beyond that, we would rather have the numbers to talk about than to make forward guidance or expectations. NGS, you want to add something?

[N. Ganapathy Subramaniam, COO & Executive Director]

I think, overall, 3.6% growth annually on BFSI. So sizable segment for us. While North America witnessed some softness. Europe, for example, it has grown significantly well for us in BFSI. Likewise, in Australia, Middle East, rest of the world, we have not seen any softness at all. And important thing is that look, we are seeing green shoots of growth in North America. We have talked to our clients. We believe that we are bottomed out and then we should grow from here.

[Abhinaba Das]

As far as the Digital business is concerned, I mean, what's the outlook going forward? Because you've seen some very healthy growth. Now given the kind of base that it's become, I mean, do you see the momentum going forward continuing?

[Rajesh Gopinathan, CEO, MD & Executive Director]

On current basis, it's growing at 35%. So from -- that growth differential is so huge that I don't see that converging any time in the near future. It will continue to drive growth into the foreseeable future.

[Abhinaba Das]

And one last question for Ajoy, I mean, going for FY '19, what's the kind of employee addition that you are targeting?

[Ajoyendra Mukherjee]

See FY '19, we have not given the full number of people that we are going to add. What we have done -- what we have announced is the number of trainee offers that we have given. Just like last year, we have given about 20,000 offers, and they will come and join. And that is what we plan much in advance. And the rest of it, as we did last year, we have been doing more and more of just-in-time kind of hiring. And based on our business demand, based on our outlook, we will hiring as the year progresses.

[Kedar Shirali]

Anurag Shah from Zee.

[Anurag Shah]

Sir, just wanted to understand the impact of automation on employee headcount or do you think it will impact going ahead because you have said you will be investing heavily on automation? And second one is have you seen any impact of global trade war happening between 2 countries?

[Rajesh Gopinathan, CEO, MD & Executive Director]

The way to think about automation is that any given service, which will -- which can leverage automation, we will leverage automation. But we believe that, that will only result in net demand going up as technology is consumed more and more and becomes more integral to the value delivery across wider industries. And you have seen this in technology time and time again. As the cost of compute power has reduced, the actual consumption of compute just keeps on increasing. So we think that's the trend that will happen. So automation will come, but automation will lead to enhanced opportunities, new opportunities, but it will be increasing of the pipe rather than reducing of the pipe. Global trade wars is beyond our scope of comments. Areas like, let's say, Brexit, obviously disrupt normal business cycles and have flow-through effects. But it's very difficult for us to quantify that this is because of Brexit or this is not because of it. But any disruption in global business cycles in some form or the other will have an impact on us. So we are vigilant, and we try to broad base our business so that we are participating across a very diversified set of markets, which is the best way to deal with these kind of risk elements.

[Anurag Shah]

Sir, moving ahead, it will impact more?

[Rajesh Gopinathan, CEO, MD & Executive Director]

As I said, any disruption will impact us. We are diversified. We are probably the most diversified. So our relative impact is likely to be lower because we will be able to participate in areas where there is no disruption.

[Kedar Shirali]

Can I call the television crews to come and take the common sound bite? And rest of you, please join us for a cup of tea. Thank you. Thank you for your patience.