Tata Consultancy Services Ltd

NSE:TCS

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the TCS Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Kedar Shirali, Global Head, Investor Relations at TCS. Thank you, and over to you, sir.

[Kedar Shirali, executive]

Thank you, Stephen. Good evening, and welcome, everyone. Thank you for joining us today to discuss TCS' financial results for the fourth quarter and full year -- fiscal year 2022 that ended March 31, 2022.

This call is being webcast through our website, and an archive, including, the transcript, will be available on the site for the duration of this call -- or throughout this quarter. The financial statements, quarterly fact sheets and press releases are also available on our website.

Our leadership team is present on this call to discuss our results. We have with us today Mr. Rajesh Gopinathan, Chief Executive Officer and Managing Director.

[Rajesh Gopinathan, executive]

Good evening, everyone.

[Kedar Shirali, executive]

Mr. N.G. Subramanian, Chief Operating Officer and Executive Director.

[N. Subramaniam, executive]

Good evening, everyone.

[Kedar Shirali, executive]

Mr. Samir Seksaria, Chief Financial Officer.

[Samir Seksaria, executive]

Hello, everyone.

[Kedar Shirali, executive]

Our Chief HR Officer, Mr. Milind Lakkad, could not join us today due to a personal emergency. But Samir will be also speaking on behalf of Milind.

Our leadership team will give a brief overview of the company's performance, followed by a Q&A session. As you are aware, we do not provide specific revenue or earnings guidance. And anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. We have outlined these risks in the second slide of the quarterly fact sheet available on our website and e-mailed out to those who subscribed to our mailing list.

With that, I'd like to turn the call over to Rajesh.

[Rajesh Gopinathan, executive]

Thank you, Kedar. Good morning, good afternoon and good evening to all of you. We are closing fiscal year 2022 on a strong note. Our full year revenue growing at 16.8% in rupee terms and 15.4% in constant currency terms and 15.9% in dollar terms. We added INR 3.533 billion in incremental revenue during the year, our highest ever.

Our operating margin for the year was at 25.3%, and net margin was at 20%. Having crossed $25 billion milestone this year, we are now focused on how much to get to the next $25 billion. Towards that, we are rolling out a new industry-focused organization structure, where I discuss our relationship stage to the existing 3 dimensions, that is the geography, industry vertical and service lines.

The new structure is more customer-centric and will enable curated experiences to our customers based on what state they are at their relationship journey with the TCS. We believe this will ease the path for us to become a growth and transformation partner for more of our customers.

I will now invite Samir, Milind and NGS to go over different aspects of our performance during the quarter. I'll step in again later to provide more color on the demand trends we are seeing. Over to you, Samir.

[Samir Seksaria, executive]

Thank you, Rajesh. Let me walk you through the headline numbers. In the fourth quarter of FY '22, our revenue crossed INR 50,000 crores mark, peaking INR 50,590 crores, which is a year-on-year growth of 15.8%. In dollar terms, revenues were $6.696 million, a Y-o-Y growth of 11.8%. And in easy terms, our revenue growth in Q4 was 14.3%.

For the full year, our revenue was INR 191,754 crores, which is a growth of 16.8%. This, in dollar terms, was a reported revenue growth of $25.707 billion, a growth of 15.9%. And in constant currency terms, this one plays to 15.4%.

Let me now go over the financial performance. Our operating margin in Q4 stayed flat sequentially at 25%. As in the previous quarter, we had headwinds of about 90 basis points from ongoing supply-side challenges, which were mitigated from operational efficiencies and 10 basis points of currency support.

For the full year, our operating margin continued to be industry-leading at 25.3%. Annual increments, practical interventions and increased subcontractor usage represented a headwind of 330 basis points, offset by some -- to some extent by operational efficiencies, improved realization and some currency support.

Net income margin in Q4 was 19.6%, and for the full year, 20%. EPS grew 16.1% during the year, excluding the provision we made towards legal payment FY '21. Effective tax rate for the year was 25.6%. Our accounts receivable was at 64 days DSO in dollar terms, down 3 days sequentially and 4 days year-on-year.

Net cash flow from operations was INR 110.51 billion, this is a cash conversion of 111% of net income. Free cash flows were INR 102.59 billion. Investor funds as of March 31 stood at INR 560.53 billion. The Board has recommended a final dividend of INR 22 per share. For the full year, this will present a share with a payout of INR 31,424 crores. And this does not include a INR 4,000 crores of buyback tax, which has an outflow in FY -- in the month of April.

Now since Milind could not join the call today, let me go over the people metrics as well. On the people front, this has been a standout quarter where we set many benchmarks. We had an all-time high net addition in the quarter as well as for the full year at INR 35,209 in Q4 and INR 103,546, respectively, for the full year, bringing the total headcount to INR 592,195. The record net addition is a reflection of the strength of our employer brand and our ability to draw talent across the world.

We received several [ extolling ] and external validations this quarter for our commitment to excellence and talent management. We were recognized by the Confederation of Indian Industry, CII, with the Role Model in HR Excellence and Prize for Leadership in HR Excellence awards at the CII HR Excellence Awards. The Role Model award has been given only twice before in the last 12 years.

TCS ranked #1 in the LinkedIn Top Companies list of the Best Workplaces for Career Growth in India, with top scores in providing the ability to advance skills growth, company stability, external opportunity, company affinity, gender diversity and spread of educational background.

Lastly, we're recognized as the top -- global top employer for the seventh year in a row by the Top Employers Institute.

Our focus on diversity and inclusion and localized hiring in all our major markets have resulted in a very diverse workforce in 153 nationalities represented and women making up 35.6% of the base. We continue to invest heavily in organic talent development. In Q4, TCSers logged 22 million learning hours. For the full year, TCSers logged 60.3 million learning hours and acquired 3.5 million digital competencies.

The number of Contextual Masters, that is individuals who have demonstrated deep contextual knowledge of their customers' business and IT landscape, hit a new milestone, crossing 50,000 in Q4.

Moving to talent retention. We have a track record of consistently maintaining the highest talent retention in the industry, even in the face of high levels of churn across the industry. Our attrition in IT services continued to rise on an LTM basis and was at 17.4%. However, the quarterly annualized attrition is plateauing. Lastly, we have announced the salary increment which effects from April 1, similar in quarter -- 2 prior years.

With that, I'll request NGS to take -- to give the segmental and product commentary.

[N. Subramaniam, executive]

Hello, again. Thank you for joining us. Let me begin by providing the segmental performance vision for the quarter. All growth numbers year-on-year constant, currency basis.

All of industry verticals grew in the mid to high teens in Q4 and for the full year. Q4 growth was led by Retail and CPG, which grew 22.1%; Manufacturing & Utilities, which grew 19%; and Communications & Media grew by 18.7%; Technology & Services grew 18%; Life Sciences and Healthcare grew 16.4%; and Financial Services grew by 12.9%.

For the full year, growth was led again by Retail and CPG, which grew by 20.6%; Manufacturing & Utilities, which grew by 19.4%; Life Sciences and Healthcare, 19.2%; Financial Services, 16.7%; Technology & Services 15.8%; and Communications & Media by 14%. On an accounting segment basis, including revenues from emerging markets and products and platforms, our BFSI segment crossed $10 billion milestone this year.

Moving on to geographic markets. Growth in Q4 was led by North America, which grew by 18.7%, U.K. grew by 13.13%, and Continental Europe by 10.1%. Among emerging markets, Latin America grew by 20.6%; Middle East & Africa grew by 7.3%; India by 7%; Asia Pacific by 5.5%.

On a full year basis, North America grew by 17.5%, Continental Europe by 15% and U.K. by 14.3%. Among emerging markets, Latin America grew 18.2%, India grew by 15%, Middle East & Africa grew by 12.9%, while Asia Pacific had 6.7% growth.

Our portfolio of products and platforms continue to do well in the market. ignio, our cognitive automation software, signed up 36 new clients in Q4, and we have 6 clients went live with ignio during the quarter. For the full year, ignio closed over 100 deals and had 27 go-lives. The Digital Academy has trained over 11,500 professionals in the marketplace and certified more than 4,100 professionals on EMEA.

ignio continues to transform operations across domains using AI and automation to enhance resilience in delivering superior business outcomes. For a leading NFT generation and distribution company in North America, ignio is managing over 100,000 incidents autonomously, with 100% successful resolution rate covering 30% of their overall IT footprint.

A global professional services provider has gone live with ignio Digital Workspace, proactively managing the health of over 11,000 laptops globally for better user experience and productivity. ignio also manages group policies, privileges and updates for improved compliance and reduced vulnerability.

TCS BaNCS, our flagship product suite for financial services domain, had 4 new wins and 3 go-lives in the current -- in Q4. In FY '22, TCS BaNCS won 122 new logos and had 16 key go-lives. One of wins there are the PaaS model, demonstrating the growth adoption of cloud and more importantly, TCS BaNCS' readiness for large administrative projects.

During the quarter, TCS BaNCS' global security platform has impacted the leading South African financial services group for their personal and business banking offerings, catering to investor services, and while -- as it includes custody and corporate actions as well. With this new deal, almost 95% of the subsidy transactions in South Africa will run our TCS BaNCS in addition to the central depository.

Quartz blockchain platform had 2 new wins in Q4. The Quartz brand has extended its presence across multiple industries, ranging from financial services to the energy sector and pharmaceuticals. The leading corporate depository in India, a selective Quartz for markets to implement a solution for corporate bond issuance and covenant monitoring.

The solution will facilitate the creation of bond instruments, while bringing together different stakeholders, including seniorities, debenture trustees, valuation firms and exchanges in blockchain-based ecosystem. The solution is designed to enable greater transparency in the issuance process by eliminating potential double-counting of underlying assets, enabling real-time information updates from various stakeholders and providing a single source of truth through the shared ledger.

TCS hub suite of products for communication services had $2 billion in Q4. TCS TwinX, our AI-based digital solution, had 6 wins and 3 go-lives during the quarter. TCS OmniStore, our AI-powered universal commerce REIT, had 3 new wins. TCS Optumera, our AI-powered merchandise optimization suite, had 2 new deal wins and 3 go-lives. TCS iON has now onboarded 300 plus corporates that enable job outcome linkage. In FY '22, TCS iON conducted 45 million in-center and 2.9 million remote assessments at national and regional scale.

Let me now spend some time on our client metrics. As you know, our customer-centric strategy extends continually investing in building newer capabilities to create value in newer parts of our client businesses so that our relationship keeps expanding and deepening over time. Measuring our customers' upward progression across various revenue buckets is the surest validation of our strategy. So we track these metrics very closely.

In Q4, we added 10 more clients for the last 12 months in the $100 million-plus band, bringing the total to 58. We added 19 more clients in the $50 million-plus band, bringing the total to 120. We added 40 more clients in $20 million band, bringing the total to 268. We added 52 more clients in the $10 million band, bringing the total to 439. We added 69 more clients in the $5 million band, bringing the total to 638. We added 86 more clients in the $1 million-plus band, bringing the total to [ 1,132 ].

With that, let me hand it over to Rajesh to add some additional color on the demand driver in our presentation.

[Rajesh Gopinathan, executive]

Thank you, NGS. We have spoken about 3 broad growth drivers this year: increased outsourcing, cloud adoption and growth and transformation. When we talk about cloud adoption, it's not a single event, but a multi-horizon transformation journey that begins with migration and other Horizon 1 activities. G&T is often the primary driver of our customers' Horizon 2 investments. And so partnering customers in the initial stages of the cloud adoption is also opening the doors to us for G&T initiatives.

Horizon -- current Horizon 1 has, in 5 quarters -- we had several new wins around Horizon 1, initiatives such as cloud migration, application and data modernization, et cetera. I'll give a few examples of such instances.

For our Coke, a leading Swedish retailer, engaged us to migrate critical logistics applications to the public cloud. This migration has future-proofed core systems and enhance its agility and scalability.

For a large upstream power utility, TCS helped execute the end-to-end transmission, including cloud discovery and assessment, foundation services, cloud migration, application modernization and operations management. Using our factory approach, we helped migrate more than 150 applications and over 1,800 servers to the cloud, helping decommission its IT infrastructure, reduced technology debt and enhanced resilience and provide a solid foundation for the company's Horizon plan.

Similarly, for a large U.K.-based communication service provider, TCS has been engaged as its strategic data and analytics transformation partner to help build their common and simplified data platform on a public cloud, enabling future use cases around hyper-personalization, micromarketing, differentiated customer experience and even new revenue streams like data monetization.

In terms of Horizon 2, whilst this initiative helped improve the organization's operational resilience, it gives greater agility and scalability to handle future growth. The real value unlocking of the cloud investment comes from Horizon 2 initiatives, which use the native capabilities of the cloud to try out new ways of working and innovations around products or business model and new customer experiences.

A few examples of what we mean when we talk about new ways of working. A leading European financial services have engaged us to transform their time-consuming and error-prone financial spreading process used for determining their creditworthiness of corporate clients. Our TCS filed the financial spreading as a service solution on a hyperscaler cloud, digitized the spreading process, extracting data from financial statements and regulatory filings using ML-based models to reduce the time by up to 7x with 99% accuracy. This enabled more accurate credit scoring, [ healthier ] lending decisions and higher throughput and business growth.

This engagement highlights how we are incubating and winning these Horizons 2 deals. The idea itself came up as a visible manifestation of contextual knowledge during an innovation day hackathon we organized for the client. The accounting then proactively pitched the idea to the client's risk management organization, eventually leading to an engagement.

For Rabobank, a leading European bank, has partnered with TCS to build a modern data warehouse platform on a public cloud for their wholesale customers' KYC business domain. The platform will ingest, curate and generate KYC reports to view customer data in a consistent way across the globe using cloud-native analytics and reporting tools and enable faster forecasting and business positioning and onboarding.

Similarly, we have been selected by a leading Swiss building materials provider as a strategic partner for its Plan of Tomorrow initiative, digital transformation and journey to net 0 goal. TCS will leverage its neural manufacturing framework to develop IoT-based digital solutions, enabling predictive operations and maintenance, intelligent automation and robotics. These are expected to improve asset and plant performance, reduce energy cost and carbon footprint.

Looking at a few examples from product innovation. The current team in Horizon 2 initiatives, its product and service innovation to enable new business models, generate new revenue streams and to drive growth. Here are a couple of examples.

For an American corporation that specializes in water treatment, purification, cleaning, hygiene and infection prevention solutions, TCS is helping develop a cloud-based connected product platform that can remotely monitor multiple equipment as well as sanitizing consumables -- and related sanitizing consumables at customer site.

Using this, the company can launch innovative products like digitally connected appliances for hand hygiene, surface sanitization and dishwashing that will enable an as-a-service business model in the facilities management area and drive new revenue streams. Actionable insights from the platform leveraging AI and collective analytics will enable timely refill, proactive maintenance and unlock the ability to cross-sell and upsell.

Similarly, we have been selected by Hartman, a leading surgical and medical instrument manufacturing company, to work on a future product line to add to their high-compression bandage products portfolio. TCS will conceptualize, design and co-develop digital health solutions for health care professionals and patients using IoT to simplify the pressure monitoring process.

TCS will develop the center product and its associated software components to detect the pressure sensor data and transmit it using NSC to the patient monitoring mobile application and cloud back end.

Coming on to customers' experience. Largely, with the idea of metaverse catching on in the enterprise world, we are seeing growing interest in providing customers and users with immersive online experiences using XR, or extended reality. Let me give you a couple of examples.

A leading U.S.-based communication service provider, faced with the challenge of driving retail sales for physical stores who are seeing lower footfall during the pandemic, partnered with TCS to provide a first live at-home experience of a retail store. TCS organized a design thinking workshop to conceptualize and design a virtual replica of a store using passive VR, which customers can enter and virtually navigate on their mobile devices.

Built using TCS' -- our presence foundry and the webware technology, the virtual store is accessible any time from any device with its virtual try on and try out features. It has integrated foremost capabilities so customers can purchase the products and accessories on display just like in a physical store.

The cloud-native framework made it easier to integrate with existing e-commerce platforms to provide real-time insights and scale the solution. The virtual store has resulted in better customer engagement, a 30% increase in sales conversion and an 80% growth in digital channel sales.

For marketing of our newly launched product, prefilled injections, a leading medical devices manufacturer engaged TCS to provide an immersive experience for its health care partners to show them how the model can be conveniently self-administered. TCS came up with various options using AR experience and recommended the best approach to the client.

[ They ] used webware when they have to create a realistic virtual 3D model of the injection, which provides users with usage instructions on use through an immersive experience of getting the need to go through lengthy user rights. The successful use of AR to market is relative to interest in building similar experiences around their other products as well.

Coming on to the Q4 order book. While these examples all contain demand trends certainty in our order book and driving strong growth over the course of the year. In Q4, we had very strong deal wins, resulting in an all-time high order book with TCV of $11.3 billion. This includes 2 mega deals of roughly $1 billion each. Even excluding these 2 mega deals, our order book TCV in Q4 is at $9.5 billion, which is also an all-time high.

By vertical, BFSI had a very strong TCV of $3.2 billion, while Retail posted an order book of $2.6 billion. The TCV of deals signed in North America stood at $6.1 billion. For the full year, our order book TCV was $34.6 billion, a growth of 9.5% over the prior year.

With that, we can open the line for questions.

[Operator]

[Operator Instructions] The first question is from the line of Kumar Rakesh from BNP Paribas.

[Kumar Rakesh, analyst]

Congratulations, especially on great deal wins during the quarter. My first question was around the margins. So we had set our aspiration band about 26%. In the current context of the supply-side constraint, especially for FY '23, how do we see that aspirational band panning out? And what are the headwinds and tailwinds we are looking at immediately in the next few quarters?

[Samir Seksaria, executive]

Yes. Kumar. So the 26% to 28% have been thought and been [ confirmed ]. And our long-term cost structures are very well placed. And we firmly believe that we can operate in the 26% to 28% band based on our long-term cost structure.

If you look at the near term, we will try to double down on our operational levers to help us get closer to this bank. While if I look at from a short and near-term perspective, given what we are seeing across -- specifically in terms of the churn, still, it plateaus down and completely goes back to our normal rates which we are looking at, we will see some volatility on margins. So that's our view. And if I look at FY '23 going forward, that would mean that at least, initially, we would be seeing some churn and pressure on margins.

[Kumar Rakesh, analyst]

And how would the on-site wage hike impacts? And how are we handling that, given that now we'd be ramping up the on-site as well with the travel resuming? How would be the wage hikes on the on-site side? And how are we looking to mitigate that impact?

[Rajesh Gopinathan, executive]

Rakesh, this is Rajesh here. So overall, we think that a healthy hike solution, learned from a, again, perspective to what was there last year, but slightly upward. While there will be pressures at individual markets or individual capability side, the hiring and the pyramidal balancing that has happened will also give us significant support. And we think that as travel opens up more and more, our optimization levers will also increase.

So there is no one specific answer to it. If you take a given variable, of course, those variables have their own unidirectional impact. But in aggregate, we believe that the portfolio can lend its report some optimization, but short-term volatility is to be expected.

[Kumar Rakesh, analyst]

One clarification. So early this month, we had announced a large material deal went from a large [ mapping ] company. So this quarter, the deal which we have announced of $11.6 billion, so that includes that? Or $11.3 billion includes that or...

[Rajesh Gopinathan, executive]

It includes that. We announced that just -- it happened just on the cost profit, but this $11.3 billion includes that deal.

[Operator]

The next question is from the line of Diviya Nagarajan from UBS.

[Diviya Nagarajan, analyst]

Congrats on a strong finish to the year. A couple of questions from my side. Indeed, Samir, on the press conference, you talked about some success of your customers stepping back and you kind of described it as backing down -- or backing up, not backing down. Could you kind of explain what that means in terms of the budget expectations for standing trends that you're seeing with some of those customers? That's question #1.

And question 2, from an overall perspective, if you were to look at your demand outlook and the confidence that you have on the outlook versus last year, how would you kind of rate that? Is it the same? Is it -- is the risk -- are you seeing all this? Or how would you characterize that?

[Samir Seksaria, executive]

Thank you, Diviya. I think I answered that in the context of the Europe performance in the current quarter compared to the previous quarters in that perspective. What we see in Europe typically across verticals is that they are the ones that most impacted by COVID, because different countries came into -- affected by COVID in different times, and they are -- having an integrated economy, number one.

Number 2 is that we are just about to also manage the Brexit, which happened during the last 18 months or so and then our Huawei situation, both situations. All of that put together, there is some thinking about what should be the investment areas. At the same time, there is an enormous focus on sustainability, whether it is across verticals, everybody in Europe is looking at sustainability as a big-time agenda.

So looking at all of this, there is kind of stepping back and see that the investors -- what should be the priorities for technology investments and so on, and so on. In that context, some readjustment and reorientation of budgets are taking place or that we explained in the press conference as well that technology is the solution for majority of the issues that they are facing. And the contracts with technology spend continues to happen. But there are some reallocation in terms of where they actually go and [ the different ] technology in this case.

To your second question, on the overall demand outlook, it looks very good. And I think the kind of tailwinds and the momentum that we have. We are clearly in a better position now compared to what we've had in the previous financial year at the same time. So that should offer value for our growth and our aspirations for FY '23.

[Operator]

The next question is from the line of Sandip Agarwal from Edelweiss.

[Sandip Agarwal, analyst]

Congrats on a good quarter. I have only one question on the manpower side. So just wanted to understand that the situation we are going through is led by high demand, and the supply is not matching it. So basically, there is kind of crutching from one another.

So the real solution probably is the supply increase. So what is your sense? How will supply increase in the next 2 quarters? Will it be completely through this fresher hiring, which has happened in past and this way we are hiring right now? Or you think that there are other ways to increase the supply, like cutting down the training time through accelerated training programs? Or there are some other options by which we can increase the supply? Because I think that is where we are right now most of time, so where demand environment remains robust. So what is your sense on supply issues pulling off? Why then you think it will happen?

[Rajesh Gopinathan, executive]

Sandip, Rajesh here. As you rightly pointed out, what you're seeing is demand-supply mismatch. And in our industry, fresher hiring and product use of freshers is a long-cycle activity. But you have seen industry-wide step-up of hiring for the last 4 quarters. And we expect that as that supply hits the -- its productive use and that we ease up a lot of what is going on over the last few quarters.

So that's why when we say that as we look forward to quarters ahead, we think that attrition will continue to taper down and at least flat line first and then start tapering. The expectation is that bulk of this hiring that has gone on is -- across the industry in the last calendar year, that will start coming in and playing a role. So it's very similar to what you are seeing with that there -- there's a bit of a lag that we think that by Q4, we should -- by middle of the year, we should see it.

[Operator]

The next question is from the line of Apurva Prasad from HDFC Securities.

[Apurva Prasad, analyst]

Just a couple of quick ones. So I mean, the changes in the operating structure that you mentioned and the participation across a wider spectrum now, how does that intersect with the hyperscaler deals? And are the results of this likely to reflect more in the $100 million client bucket? Or do you think it's probably going to reflect more than the $10 million category initially?

[Rajesh Gopinathan, executive]

Apurva, let me explain what we are doing and hopefully, it will answer the question. Because the services, our focus on cloud and hyperscalers is independent of what we're doing on the structure side.

So on the structure side, what we're doing is we are realigning our government to bring in focus in our engagement models for our customers across different points of their engagement with us. And we are creating 3 different groups. One focus on customers who are at the early stage of their relationship with us.

Typically, in that stage, our customer is very focused on assessing whether TCS can deliver the specific project given to them. As we go forward with that customer relationship, typically, the focus shifts for many of our customers to try and see will TCS be a strategic vendor and around whom they can consolidate. Typically, more customers are sure to have 1 or 2 or 3 large vendors.

And the consolidation, it's a common theme across our customer base. And at that time, the question is, do we have the full spectrum of services? Do we have an ability to deliver those services in a consolidated manner? Can we manage their relationship at a step-up level in terms of an enhanced support to them across both services as well as across geographical markets that they operate in, et cetera?

So the focus shifts to the full services model and our ability to scale up to be a strategic supplier to them. And as that phase passes through, the focus then shifts that, okay, can we step beyond being a scale strategic vendor to being a vendor who can participate well in their transformation initiatives and across a wide spectrum of their CSO initiatives?

Now I've laid it out in a very kind of a time-bound manner. Many times it might happen in different sequences, but broadly, this is the sequence in which our relationship kind of develops. So we are standing up different organizational groups that are focused on ensuring that the engagement models are aligned to these 3 stages of the customer relationship.

The specific service that we offer, the -- for example, at the early stage itself, the first project might be a product implementation or it could be a TCS IC being delivered or it could be a transmitter engagement on the G&T side. It doesn't matter what that is, if it's -- that project has to be executed because that is the proof point of the early part of the relationship.

So whether it is hyperscaler -- not hyperscaler, whether it is G&T, not -- that is not actually pre-decided based on any of these 3 structures. It is more the way the engagement is governed that is being set up. I hope that answers your question.

[Apurva Prasad, analyst]

Yes, that is -- that clarified -- I was also actually trying to understand how does that reflect in the $100 million versus $10 million. And assuming it's the latter initially, but I get the point.

My second question, Rajesh, is you did earlier mention TCV reverting to $8 billion, $8.5 billion. So I want to understand, I mean, how is the megadeal pipeline looking? And any additional color on the 2 negatives?

[Rajesh Gopinathan, executive]

Apurva, that question was -- or rather than the point was a in a context. I'll come to it. So if you look at our commentary through the last 2 quarters, we have consistently maintained that the pipeline distribution of deal sizes is fairly even and similar to earlier periods.

But when a very large megadeal closes or not is very hard to predict. I think this quarter's numbers are a validation of the fact that there is nothing -- no skew to the pipeline. It's not that the industry is shifting towards very large deals or very small deals. So the quarter's results actually validate the point that we have been emphasizing over the last few quarters.

The point about $8.5 billion was more, I was saying that a better way to think about the overall pipeline progression and demand outlook is to look at the long-term trend line of the TCV. And there, we used to be in the $6.5 billion range, let's say, 8 quarters back, whereas we are now well into the $8 billion-plus range currently. And that's the context of that $8.5 billion. It is not to say that $11.3 billion will immediately step down to $8.5 billion. But I was saying that we have seen a steady expansion of our base TCV levels, which is indication of the robust demand environment and the relevance of our services and market presence to the target customers that we have.

[Apurva Prasad, analyst]

Got it. And just the second part to that, on the 2 megadeals. And does that mean better line of sight to replicate the $3.5 billion incremental next year?

[Rajesh Gopinathan, executive]

That is a very leading question, which I shall [ exit ].

[Operator]

The next question is from the line of Mukul Garg from Motilal Oswal Financial Services.

[Mukul Garg, analyst]

Yes. Just 2 questions from my side. First one is on the pricing and impact on margins. You guys indicated -- mentioned earlier on that you are seeing some impact of pricing in part of your business. So if you can zoom down -- zoom in a little bit on that segment. Is there a way to quantify the change of pricing, which is happening at this point of time versus maybe a year or 2 prior to this?

And just moving that forward, is there something which can help you mitigate the margin pressure, which is there? And that -- can that be more of an H2 event? Or is that impact going to flow through in FY '24?

[Rajesh Gopinathan, executive]

Difficult to put a time frame to it, but let me try and give you some color on what's happening on the pricing side. Typically, renewals and other aspects of ongoing relationships, there's a slight uptick in terms of the pricing that we're seeing. It could manifest itself as [ collar ] classes being better enforceable. Non-associated in terms of renewals at a slightly increased price point with customers who -- where we have had a good relationship and also who have seen us stand by them during the pandemic period.

So that's the nature of the pricing. Whereas if you look at fresh new deals that are coming in, the competitive intensity is quite high and the price points there are reflective of the nature of the work. If it is a very wide field with lots of competition, the pricing reflects that.

So there is no one single answer to it. It is more the smaller aspects of it or where this slight uptick of pricing is happening. The cumulative impact of it will take some time to come through. For the full year, of course, gaining from the base effect of last year, we have had a net improvement in realization. But for the quarter per se, actually, the realization has been flattish. So as I said, the cumulative effect will take some time for it to become a material impact.

[Mukul Garg, analyst]

Sure. And the second question was on the net adds. You guys have done an incredible job of adding over 100,000 employees this year. How should we look at this given that you don't share broad utilization levels? How much of that adds this year was more to do with the future growth, which you have visibility on? And how much -- was there a portion which was to kind of ease out the stressed aims which are -- which we saw very strong growth last year and hence, got consumed there?

[N. Subramaniam, executive]

Mukul, NGS here. Overall, we had about 100,000 people, freshers during the financial year. We also -- initially, we thought that we will have about 40,000. But then we remained agile, and our hiring model kind of allowed us to source the required number of people at the right level through the year.

Taking that into account, we are planning to do the same thing. We will start to hire about 40,000 freshers. That is the target that we are setting out for this year. But having said that, I think there is -- our utilization level, including the freshers, has come down in this quarter. So there is an opportunity for us to improve the utilization in the coming quarter as well as probably the H1.

We're also looking at other levers, right? The whole productivity has -- will hopefully grow in the coming quarters. Combined with our approach to bringing people to work, and then I should also say that settlement of better utilization and better way of structuring the teams as we move forward as well, right?

So all this should contribute to a better utilization and better overall realization, while we continue to look for the right talent. And the majority of them will be organically shored, right?

The new organization structure and the operating model that we have put in place also means that there are additional investments that we are making. And the talent is aligned to saturate the customer journey that we are putting in place, right? So at the entry level, the focus is more on the right amount of technology still, the process orientation, making sure that the rigor in delivery takes place. And the overall quality of experience is improved at base level.

While at the top of the business transformation group, we look for talent, specifically contributing to the growth and transformation programs that we look at, partly from potential master programs that we have and partly from the local market knowledge that we'll be acquiring.

So it's a very well-rounded thinking process, by which a good amount of talent is sourced fresh, upskilled internally as hired laterally and align the right team and putting together a hard list of courses or courses for hard list as the situation demand for it.

[Operator]

The next question is from the line of Sandeep Shah from Equirus Securities.

[Sandeep Shah, analyst]

Rajesh, just first question as in terms of this new operating model. TCS is always best known in terms of client mining efforts. So whether this new operating model will take into consideration and acceleration of client mining efforts and whether the variable incentives of the sales and the delivery and the other subject matter experts will have a laser-sharp focus in terms of mining across all the buckets, so how this will provide an incremental benefit to TCS? Just -- that is what I wanted to understand.

[Rajesh Gopinathan, executive]

The model is more designed to ensure that the right talent in TCS is brought to bear at the right stage of the client relationship so that we can maximize the value that we add to our customers. So that's the main focus of it.

More than incentivization, it is about choosing the right people and also setting up their support structures appropriately and investing in that aspects of the engagement model and also the distribution of people and customers and the kind of concentration that we have of relationships. That is the focus. So more than incentive, it is about finding the right people for the right roles and structuring the roles in a more concentrated way. And b, it is about making sure that we maximize the value that we add to our customers.

[Sandeep Shah, analyst]

Okay. Okay. Okay. And just second question, NGS in his comments has also said, while entering FY '23, we are more confident versus FY '22. While what we foresee in FY '23, there could be not many macro-related issues? So is it our client discussion indicates that this time, the correlation of the IT spend versus macro issue would be -- no longer be that direct and the IT spend will not get impacted despite the macro-related issue as a whole? So just wanted to understand, any client discussion which gives you an even concern in terms of reprioritization of spend delay in terms of project starts or ramp-up overall?

[N. Subramaniam, executive]

Sandeep, I mentioned that comment in the context of -- into temporarily speaking, as we were last year, and where we were -- where we are this year. Comparatively speaking, I think from our momentum that we see, the demand environment that we see and the pipeline and the deals that we have contracted, all that, when I compare it, I think they are in a better wicket compared to what we were at the same time last financial year -- last year.

That is the context in which I made that statement. We said that, I think the macro issues, there are -- many comments are being made. Economists must have -- has made a series of comments on this, while health organization has made certain comments to vast situations out there. We are tracking all of this, and then we will have to stay agile and of course, correct ourselves as we execute our operations.

Secondly, I think we also -- what we see is that whether it is in good time or in bad time or in a stressed situation or in very nice situation, technology is the answer. And the people -- the investment buckets might change from one to the other. But then the technology spend is likely to remain robust. That's the way that we're seeing things. That's the way that we also try and measure the impact on geopolitical risks and other macroeconomic indicators.

[Sandeep Shah, analyst]

And just lastly, bookkeeping. For these 2 large megadeals, is it possible to share the tenure of these 2 deals? And also in cost of revenue line, this time the absolute travel cost has been one of the lowest in the fourth quarter of your defining, too. So will that remain in this level? Because work-from-office is starting across most of the vendors as a whole. So what is the reason for such a low cost on travel?

[Rajesh Gopinathan, executive]

I'll answer the first part, and then Samir will take the -- typically for larger deals, the deal tenures are somewhere in the 5 to 7 range. And for deals which are close to $1 billion, they're upwards of 7 years. These deals are also similar to that in the 7- to 10-year kind of range, both the deals that we have.

[Samir Seksaria, executive]

And on the travel cost, in fact, travel has been sluggish, particularly in the first 2 months of the quarter. Now so there was moderation in visa cost during the quarter. As you have called out, we expect travel, our discretionary expenses to increase. And this is -- as to that extent, an abnormality. We haven't seen the travel expenses increasing through the previous quarters, and that trend should continue.

[Operator]

The next question is from the line of Ravi Menon from Macquarie.

[Ravi Menon, analyst]

Gentlemen, congratulations on a pretty good quarter of very strong bookings and your extremely strong employee addition.

First, I want to understand, during Q4 -- typically in Q3, you have furloughs and lower number of working days with a lot of holidays and before, you really get the benefit of that despite fewer days in the quarter. And this time, I think we have not really seen that. In fact, absolute incremental revenue has declined compared to what we had in Q3. So what are the headwinds? Do we not have any furloughs in Q3, and usual seasonality, therefore, does not apply?

[Samir Seksaria, executive]

So one thing to look at in Q3, this quarter, Christmas was on holiday. So technically, there was one more working day compared to usual [ days here ]. Furloughs will continue in Q3. But I think that is one -- if you look at from a working day perspective, Q3 had one more day because of the national -- or the global holiday being on a weekend.

[Ravi Menon, analyst]

And then in Europe, we had a slight revenue decline in absolute terms. So I think you mentioned in your first comment about the deal and so post [ BaNCS ]. Is there anything else -- do you have any programs put on pause by clients because of the war situation in Ukraine? Or anything else that you see as temporary? Or is there anything that we should be concerned about?

[Rajesh Gopinathan, executive]

Ravi, I think more in terms of we got to see it in the perspective of what -- Q3 was a very strong number. It's off that, that this growth should be seen. Beyond that, there is not much of -- it's a normalization from the Q3. In Q2, we had a 6% plus growth in Europe. So it's in that perspective.

[Ravi Menon, analyst]

And last question from my side. You've got now 14.3% Y-o-Y growth in constant currency terms, but your headcount's up maybe 21.3% Y-o-Y. NGS speak about utilization, sort of training, something as that -- but the trainings you would have...

[Rajesh Gopinathan, executive]

Can you speak up a bit?

[Ravi Menon, analyst]

Yes, sorry. In the first number, FY '22, the trainees you onboarded, I would assume have been largely deployed, if not wholly deployed. Sorry, why this large gap between the employee addition and revenue growth? If you'd -- should we say that this is just capacity that's built up because of the attrition and preparing for better growth? So you're not really short of people? Are we just playing safe?

[Rajesh Gopinathan, executive]

Okay. If you're asking why is there a mismatch in terms of when the employee addition happens and where the revenue comes. That -- really, we have been long-term focused, especially on our fresher hiring. It's a programmatic hiring approach that we have taken. And we were one of the few companies that hired through the pandemic on our -- and we offer that we may continue to hire through the pandemic.

So our approach to fresher hiring has always been medium-term focused, and not directly in the -- more the EP hiring is the one that is more short-term one. But short-term side, as you can see it from our subcontractor expenses, we are anywhere running very tight on that. So the EP hiring continues. Fresher hiring is more a longer-term focused -- medium- to long-term focused.

[Operator]

The next question is from the line of Gaurav Rateria from Morgan Stanley.

[Gaurav Rateria, analyst]

The first one is just your comment around Europe. You talked about some reallocation and reorientation of technology budgets. Just trying to understand how did this manifest in the client's behavior in terms of timing of the exposures or decision-making cycle?

[Rajesh Gopinathan, executive]

No, I think relocation of budgets comment has made in the context of again, Europe, right, where there are multiple scenarios for imaging there. And in certain verticals, sustainability is important pretty much across the client base that we see. Most of them, they want to see -- they made some very strong commitments on the sustainability front and the goal front.

From that perspective, one of the things that's happening is every program that they are doing, there is a very strong alignment to the sustainability goals and how the technology that they are implementing is going to be contributing to the asset capability goals. To that extent, some amount of reallocation takes place.

The other thing is actually the last situation currently, means, should we really look at it in the context of where we should invest, how we should look. And as consciously found, the customers are asking us to see whether we could actually execute it from our Eastern European development centers, because there is skill sets that are coming and they are available.

Number 2 is that also, the least that we can do at this point in time is to be meaningful to the communities in those countries, right? So in that sense, that there is ramp, so the reallocation rethinking takes place in terms of how the technology can take pace, how the allocation of the technology are from where the trend that can take place. These are things that are being deliberated.

[Gaurav Rateria, analyst]

Okay. The second question is around margins. So you talked about volatility in margins in fiscal '23. So is there any threshold level below which you would want margins to not go? Or the focus will be largely to fulfill the demand without caring too much about the volatility in the near term?

[Rajesh Gopinathan, executive]

We don't have any specific floor or cap on the margin front. Our comment in margin has always been about where we think the overall opportunity is and where we think we can stabilize it. But per se, as we have said, we have never put margin over a given business Gaurav, and growth opportunity. But we stay very disciplined in chasing growth. We prefer profitable growth over everything else.

[Operator]

Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for the closing comments.

[Rajesh Gopinathan, executive]

Thank you. We had a strong -- as I said, we had a strong well-rounded growth in Q4, which helped us close FY '22 on a strong note, growing 16.8% in rupee terms and 15.4% in constant currency terms and 15.9% in dollar terms. Our margins continue to be industry-leading. The strong growth came from our customer-centric model, which visibly shows in our client metrics, where we have had strong addition across all revenue brands.

We are now doubling down on the customer centricity by rolling out a new organization structure that will enable curated experiences for our customers, depending on what stage they are in their relationship with TCS. The strength of demand for our services showed through in an all-time high order book during the quarter.

Even after excluding the 2 megadeals, Q1 and Q4, we have hired fresh talent in record numbers this year in India and in our major markets, while taking tactical measures to retain our best talent in the midst of an elevated churn across the industry.

Thank you all for joining us in this call today. Enjoy the rest of the evening day. Again, do stay safe. Thank you.

[Operator]

Thank you, members of the management. On behalf of TCS, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.