Tata Consultancy Services Ltd

NSE:TCS

Earnings Call Analysis

TCS Shows Resilience with Strong Deals and Margins in FY 2024

TCS reported a robust FY 2024 with a 3.4% revenue growth in constant currency and a strong Q4 deal momentum, achieving $13.2 billion TCV. The operating margin improved to 26%, driven by productivity and lower subcontractor costs. Despite macroeconomic uncertainties, sectors like insurance and manufacturing saw significant growth. Attrition in IT services dropped to 12.5%. The new fiscal year looks promising with expected improvements from large deals and continued cost optimizations. The company's strategic focus on transformative projects and AI-driven initiatives are set to drive future growth amidst a cautious market outlook.

Introduction and Overview

The earnings call for TCS highlighted the company's performance in the fourth quarter and the full financial year 2024. The management team, including the CEO K. Krithivasan, COO N. G. Subramaniam, CFO Samir Seksaria, and CHRO Milind Lakkad, participated in the call. Despite the macroeconomic uncertainties, TCS delivered robust financial results, showcasing its adaptability and deepening client relationships.

Financial Performance

TCS's revenue for FY 2024 grew by 6.8% in rupee terms, 3.4% in constant currency terms, and 4.1% in dollar terms. The company reported its highest Q4 total contract value (TCV) of $13.2 billion, reflecting strong deal momentum across markets. The operating margin reached 26% in Q4, the highest in 12 quarters, while the net margin was at 19.3% for the year. Additionally, TCS's annual earnings per share (EPS) grew by 10.9%, with a significant recommendation from the board for a final dividend of INR 28 per share.

Segment Performance

In Q4, TCS experienced varied growth across different sectors. Manufacturing saw a 9.7% rise, Energy, Resources, and Utilities grew by 7.3%, and Life Sciences & Healthcare increased by 1.1%. However, the Consumer Business Group saw a slight decline of 0.3% but showed positive sequential growth. Banking, Financial Services & Insurance (BFSI) declined by 3.2% but witnessed growth in the insurance subsector. Regional markets, particularly India, exhibited a stellar performance with a 38% growth, driven by the substantial digital transformation deals in the country.

Products and Platforms

TCS's products and platforms continued to gain traction. The cognitive automation software suite, ignio, won 32 new deals and went live 6 times. TCS BaNCS had eight new wins and seven go-lives this quarter. The company’s Quartz blockchain platform saw three wins, and the TCS Optumera AI-powered merchandising suite witnessed a successful implementation in Belgium.

Employee and Talent Management

TCS's workforce at the end of Q4 was 601,546. The company reported a decrease in the long-term attrition rate to 12.5%, which is within their comfort range. The firm emphasized its commitment to talent development, logging 51 million learning hours and equipping employees with 5 million certifications. TCS was also recognized as a Global Top Employer for the ninth consecutive year.

Challenges and Future Outlook

Despite the robust numbers, TCS remains cautious about some areas due to the macroeconomic environment and client behavior concerning discretionary spending. The company highlighted potential headwinds but expressed optimism that the previous quarters' deal wins would establish a strong foundation for FY 2025. Management expects a similar trajectory and improvement in margins with disciplined execution, utilization, and pricing enhancements.

Closing Remarks

CEO K. Krithivasan expressed satisfaction with the year’s performance and optimism about the future. The call ended by honoring the retiring COO, N. G. Subramaniam, for his impactful 42-year tenure at the company. With strategic investments in emerging technologies like AI and cloud, TCS aims to continue its growth momentum and strengthen market leadership in the coming years.

Earnings Call Transcript 2024-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 Ms. Nehal Shah from the Investor Relations team at TCS. Thank you, and over to you. .

[Nehal Shah, executive]

Thank you, operator. Good evening, and welcome, everyone. Thank you for joining us today to discuss TCS' financial results for the fourth quarter and full year financial year 2024 that ended March 31, 2024. This call is being webcast to our website and an archive, including the transcript, will be available on the site for the duration of this quarter.

The financial statements, quarterly fact sheet 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. K Krithivasan, Chief Executive Officer and Managing Director.

[K. Krithivasan, executive]

Hello, everyone.

[Nehal Shah, executive]

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

[N. Ganapathy Subramaniam, executive]

Good evening to you.

[Nehal Shah, executive]

Mr. Samir Seksaria, Chief Financial Officer.

[Samir Seksaria, executive]

Hello.

[Nehal Shah, executive]

And Mr. Milind Lakkad, Chief HR Officer.

[Milind Lakkad, executive]

Hi, everyone.

[Nehal Shah, executive]

Our management team will give a brief overview of the company's performance, followed by a Q&A session. As you are aware, we don't provide specific revenue or earnings guidance. and anything said on this call, which reflects our outlook for the future or which could be concluded 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 have subscribed on our mailing list.

With that, I would like to turn the call over to Krithi.

[K. Krithivasan, executive]

Thank you, Nehal. Good day, everyone. I am pleased to share that we are wrapping up the last quarter of financial year 2024, with the strongest sequential revenue growth in many quarters an all-time high TCV, and an operating margin of 26% for the quarter, highest in the last 12 quarters. Our financial year 2024 revenue grew at 6.8% in rupee terms, 3.4% in constant currency terms and 4.1% in dollar terms.

Our operating margin for the year came in at 24.6% and net margin was at 19.3%. Our ability to maximize market opportunities is evident in our record Q4 TCV of $13.2 billion. We are seeing solid deal momentum across markets, resulting in strong double-digit growth in our last 12 months TCV, which is a reflection of our deepening partnership with our clients.

This is going to be NGS' last quarter with all of us. I want to thank NGS with whom I have worked closely for more than 3 decades. I witnessed firsthand the tremendous impact it has made on TCS for a 42-year long career, working side-by-side with him and our entire leadership team on every aspect of our strategy and operations. NGS played a key role in developing and executing our growth strategy, especially our Products and Platform business, positioning us very well for continued market leadership. He has played a strategic role in several landmark projects that TCS undertook across geographies, most recently in BSNL being one. We'll miss him in his execute the capacity very much.

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

[Samir Seksaria, executive]

Thank you, Krithi. Good day, everyone. In the fourth quarter of FY '24, our revenue grew 2.2% year-on-year in constant currency terms at INR 61,237 crore. This translates to a growth of 3.5% in rupee terms. In dollar terms, the revenue was $7.36 million, a Y-o-Y growth of 2.3%. For the full year, our revenue grew 3.4% Y-o-Y in constant currency at INR 240,893 crores and that translates to a growth of 6.8% in rupee terms. And in dollar terms, revenue were at $29.1 billion, a Y-o-Y growth of 4.1%.

Our operating margin stood at 26%, a sequential expansion of 100 basis points. This was in spite of 90 basis points due to higher third-party costs and travel expenses, offset by 190 basis points improvement from reduced subcontractor costs, improved productivity and better utilization. Our FY '24 operating margin was at 24.6%, an expansion of 50 basis points over the prior year. During the year, we had 250 basis points headwind on account of annual wage increases and other interventions and a further 90 basis points from higher third-party expenses and discretionary expenses.

We were able to successfully mitigate those by optimizing subcontractor expenses, improving productivity realization and support from currency. Net margins in Q4 was 20.3%, and for the full year, was 19.3%. Our annual EPS grew 10.9% during the year. Our effective tax rate for the year was 25.8%. Please note that all the full year FY '24 numbers are adjusted for the settlement of legal claims, which was accounted for in Q3.

Our accounts receivable was at 67 days DSO in dollar terms, flat sequentially. Our cash conversion continues to be strong and over 100% of our net profit. Invested funds at the end of March stood at INR 46,963 crores. The Board has recommended a final dividend of INR 28 per share. The shareholders payout year till date were INR 46,223 crores, including the buyback and dividends.

Over to you, Milind.

[Milind Lakkad, executive]

Thank you, Samir. Our workforce at the end of the fourth quarter was 601,546. Our LTM attrition in IT Services kept trending down throughout the year and was at 12.5% at the end of Q4, down 80 basis points sequentially and in our comfort range of 11% to 13%. TCS has been recognized as the Global Top Employer by the Top Employers Institute [ for 9 consecutive years ]. The global certification follows a series of localized certifications with TCS being named the top employer in 32 countries and regions.

Company remains the preferred employer and one of the largest job creators in IT services in several middle markets for both [indiscernible]. We have commenced freshmen hiring from campuses and continue to recalibrate our record [indiscernible], focusing more on utilizing the capacity that we have built over the prior years. TCS organic talent development initiatives continue to deliver industry-leading outcomes. Employees logged 51 million learning hours during the year and acquired 5 million [indiscernible].

In FY '24, several key initiatives were launched to inculcate a strong engineering culture among the company associates, build deeper skills in market-relevant technologies and create an AI-ready workforce. As we have done consistently every year, we have announced a salary increment for all of our employees with effective [indiscernible] April 1, similar in quantum to barriers with top performance recipients double [indiscernible].

Over to you, NGS, for some color on our segments and production platforms.

[N. Ganapathy Subramaniam, executive]

Thank you, Milind. Good evening to all of you. As Krithi mentioned, the [indiscernible] from TCS in a few weeks. I've thoroughly enjoyed and it's been an absolute honor interacting with all you over this forum. And I always look forward to your reports, all our interactions and the reports have only made me [indiscernible]. Thank you so much.

Let me walk you through our segmental performance now. As a reminder, all growth numbers are on year-on-year constant currency terms. In Q4, growth was led by regional markets, which grew 26%. Manufacturing vertical grew by 9.7%. Energy, Resources and Utilities grew by 7.3%. Life Sciences & Healthcare grew by 1.1%. Our Consumer Business Group declined by 0.3%. However, it returned to positive sequential growth in Q4. Banking, Financial Services & Insurance declined by 3.2%, but saw a return of growth in the insurance business across all markets during the quarter.

CMI declined by 5.5%, and Technology & Services declined by 5.6%. Among major markets, the United Kingdom led with 6.2% growth, Continental Europe declined by 2.2%, North America declined 2.3%. In emerging markets, India led with 38% growth. Middle East and Africa grew by 11%. Latin America grew by 10%. And Asia Pacific grew by 5.2%.

Let me move on to our products and platform. Industry-leading portfolio of products and platforms saw good traction during the quarter. ignio, our cognitive automation software suite, saw 32 new deal wins and 6 go-lives. TCS BaNCS, our flagship product for Financial Services, had 8 new wins and 7 go-lives during the quarter. Central Bank, a leading Midwest regional bank in North America, selected our core banking and modernization platform. The solution will come pre-integrated with core banking and payments. An ISO 20022 ready solution, enabling the bank to offer FedNow services and OTPP tools by The Clearinghouse.

TCS Bank Insurance Platform continues to see strong growth in Q4 with 2 wins and 2 go-lives during the quarter. Aviva, U.K.'s leading insurance, wealth and retirement provider, expanded on the existing relationship with TCS for a 15-year deal to transform its life business and enhance customer experience, leveraging the TCS Bank's digital platform. As part of this, the end-to-end policy administration and servicing will expand to cover an additional 5.5 million policies to be managed by Diligenta, our FCA-regulated subsidiary in the U.K.

Quartz blockchain platform had 3 wins during this quarter. In Life Sciences, advanced drug development platform had 1 new win and 2 go-lives during the quarter. GenAI a potential game changer in identifying probably drug candidates, optimizing trials, harnessing vast pools of dissimilar clinical data, capturing and processing efficacy and safety data. There are many such GenAI use cases, where pharma companies are investing. TCS [indiscernible] platform is actively working on POCs and GenAI across multiple innovative use cases, including [ detector ] insights, patient insights, safety case processing and medical writing.

TCS Optumera, our AI-powered merchandising optimization suite, had 1 new win in Q4. The Dutch retail client of ours has transformed its pricing strategy in their 800 Netherlands stores for the last 7 years, with TCS Optumera fulfilling their promise of providing high quality at low price. Our product will now drive their pricing initiatives in Belgium that will help them improve usability, provide flexibility pricing and help maintain consistent pricing position.

TCS iON, our platform for digital assessment, exam administration and learning, had 22 new wins and 80+ go-lives. Our assessment platform administered examinations for 13.9 million candidates. Our platform now offers Gen AI-powered content creation and text translation in Indian regional languages, improved security and question creation with restrictions in editing, [indiscernible] writing media, images, and creating duplicate subject codes and names, audio-based marking with noise suppression and dual recording capabilities. TCS TwinX, our digital twin solution, had 2 wins and 2 go-lives. Market [ craft ] and Jile won 29 new clients in Q4.

Let me now go over the client metrics. As you are aware, our customer-centric business strategy enhances our ability to continually expand and deepen our client relationships. These metrics provide a measure of our progress in the journey and the validation of our strategy. In Q4, we added 2 more clients year-on-year in the $100 million-plus band, bringing the total to 62. Six more clients in the $50 million-plus band, bringing the total to 139. 10 more new clients in the $30 million-plus, bringing the total to 301. 26 more clients include $10 million band, bringing the total to 487. 28 more clients in the $5 million-plus band, bringing the total to 693. And 53 more clients in the $1 million-plus band, bringing the total to 1,294.

I will now request Krithi to speak on demand drivers during the quarter.

[K. Krithivasan, executive]

Thank you, NGS. As we review the last year's performance, TCS has once again proved its adaptability and relevance to customers. By working closely with them and utilizing our contextual knowledge, we proactively identified solutions to their industry-specific challenges, leading to significant deal wins and market share gains for us. Our growth remain resilient amidst macro uncertainties and geopolitical volatilities.

During Q4, customers continue to reprioritize spend in projects where return on investment was high and immediate. Several key engagement teams, which are priorities for enterprises include: operating model transformation; vendor consolidation; cloud transformation; [ AI ] enablement, that is cloud and data foundation for a customer and employee experience enhancement; business process optimization, sustainability and early-stage AI-infused transformational engagements.

We continue to see pressure on customers' discretionary spend. At the same time, transformation also remains a key ask, and customers are expecting the same to be funded through savings from operations. For the BFSI vertical, 2023 as a year of resilience, balancing the challenges due to inflation and complex geopolitics against the initial benefits from rising interest rates. In 2024, while evolving regulation, transformating technologies like generative AI, cybersecurity, embedded finance and green transition have become the constant driving change.

Business are going to be focused on innovation, driving their plans -- regulation driving their plans and building new business models for the future that will unravel tremendous growth potential. We continue to see pent-up demand in BFS, which will be a growth driver in the medium to long term. For the near term, clients continue to conserve cash and focus on business-critical projects with immediate return on investment.

Challenges such as economic lode, soft recession, high interest rates, geopolitical tensions continue to put pressure on the Consumer business group vertical through financial year 2024. However, we saw some green shoots and moderate growth during the quarter, which represented the highest sequential growth in the last 4 quarters. We expect accelerated spend in the medium term in areas such as improving customer experience, loyalty and reach, hyper personalization, scaling retail media network revenues, security services, cloud transformation, cloud ERP modernization, leveraging AI, generative AI to enhance discussions.

I'm going to talk in detail about some of the major themes driving demand for our services. We are witnessing a growing trend in deals enhancing customer and employee experience for enterprise and are actively pursuing such deals and taking proactive measures across industries. An American retailer of office supplies, partnered with TCS to reimagine and digitally transform the loyalty program. The omnichannel platform is enabling the launch of new features like real-time reward point redemption, special savings events and customers offers, and is key to improve customer retention and satisfaction.

TCS leveraged its contextual knowledge to shape the cloud-based solution and deliver a highly scalable, flexible, reliable and secure solution. TCS entered into a strategic partnership with a multinational energy management company to bring good flexibility management and energy transition for a global utility [ handling ] customer base. TCS will integrate Clever Energy into customers' energy management platform and together, go-to-market for commercial, industrial and residential end customers of global utility companies.

The joint partnership will target a potential saving of around $1 billion energy bills for over 10 target utilities and their industrial and commercial customers. It will generate a business value of $40 million to $60 million for the customer over the next 10 years.

The global supply chain is rapidly evolving and striving to stay abreast of the ever-changing environment and advancing technological innovations. Below are few examples of how TCS is helping business in modernizing processes and platforms to enhance efficiency, adaptability to market shares and boost their bottom line. [indiscernible] provider, partnered with TCS to modernize its critical logistics management platform that was constraining its growth ambitions. TCS leverages deep contextual knowledge to implement a new digital core, a command center, improved workflows, realtime data visibility and predictive analytics and insights.

This has helped the client reduce operating costs by 40%, enable timely interventions, improve user experience and reliability during peak periods. With an empowered workforce, and faster time to market, the platform has fortified the company's position in the market. A distributor and retailer of beauty products was facing several challenges across the supply chain and specifically, significant inefficiencies in purchase order management. TCS assessment form that over 50% of the POs contained an investigation are cumbersome. A control tower with an automated exception handling and shipment notification and streamlined vendor approvals was implemented.

This reduced manual increment in PO processing by up to 90%, significantly mitigating the risk of human error, improving operations and vendor relations. ESG has gained traction amongst organizations and is becoming a crucial investment. The need for emissions reporting and regulatory compliance towards Net Zero commitment is driving new business of data collection and deriving insights. Sustainable financing has emerged as a top priority and is driving the transition towards a carbon-neutral economy.

Our clients actively seek our expertise to develop innovative technology-driven solutions that leverage IOT and advanced analytics aiming to reduce energy and resource consumption; monitor and measure greenhouse gas emissions throughout the supply chain; minimizing carbon footprint; reducing waste; promoting, recycling and reporting their sustainability initiatives.

And [indiscernible] major partnered with TCS to enable ESG credit risk assessment with varied degree of automation and complexity, aligned to the sustainable financing approach for our corporate customers. With an efficient and harmonized approach, this program improved ECB regulatory compliance covering 4 of the 6 regulatory requirements. Our solution has flexibility to accommodate future regulatory requirements and supervisory expectations, and enables a risk-based approach to ESG assessment and monitoring.

Artificial intelligence is beginning to permeate our lives incrementally, through everything from the tech powering of our smartphones to autonomy saving futures on cars, to the cool applications retailers use to supply and delight consumers. As a result, its progress has been almost imperceptible.

Moving on to generative AI. Excitement word this technology is substantial. Generative AI is fastly at the forefront of the technology trend and customers are on the lookout for POCs on the efficiencies that can be enabled by generative AI in application development, application maintenance and deployment automation. The full realization of generative AI's benefits will take time, and the enterprises and society still have considerable challenges to address. These include managing the risks inherent in generative AI, reskilling and upskilling the workforce, and reimagining core business processes.

Customers are looking at scaling out POCs and pilots by implementing necessary guard rails. TCS has been making all the relevant investments required to participate in this opportunity. Last year in August, we launched our AI.Cloud business unit, bringing together the power of Cloud Data and AI, including generative AI into dedicated groups, but builds on our strategic hyperscaler partnerships and deep relationships with our other major AI players.

We launched the AI.Cloud Academy, which provides our associates with a powerful platform to train, get certified, share knowledge, accelerate deployment and play in our unique AI experience zone. We are one of the largest pools of employees trained on artificial intelligence and GenAI competencies. The type and size of opportunities are evolving with a noticeable shift towards larger, more strategic projects that encompass cloud and AI technologies. As assist use cases become augment, it will drive underlying initiatives on cloud and data. We are gradually seeing a few generating AI use cases moving to production.

Generative AI's ability to create new data and content is driving innovation across sectors. We expect wider adoption in financial year 2025, with focus on seamless integration with current workloads with a human-in-the-loop approach. TCS has partnered with a large turbine manufacturer to identify duplicate parts in the system, which are resulting in suppliers being charged different prices for the same item causing losses to the manufacturer. TCS has leveraged AI to extract defined attributes from the information stored in PDF to create a data model to identify the duplicate that resulted in $15 million annually saving for the manufacturer.

TCS is helping an enterprise in the material handling business to help service engineers with specific insights for equipment. The machine learning-based solution complemented with generative AI is directed to understand both structured and unstructured data around equipment manuals, and enterprise data and -- equipment models in enterprise data and generate targeted instructions for service personnel to improve productivity and reduce the equipment service insights.

In the past, cost and optimization benefits led to cloud adoption. Today, cloud is not merely a technology to adopt, but a strategy for business transformation and growth itself. Cloud technologies enable us to overcome existing limitations of scale and bring partners, data supply and customers together and connected. TCS has been working closely with clients and fine-tuning their cloud strategies. The following examples demonstrate this partnership.

Openreach, U.K.'s largest digital network provider and a part of the BT Group, wanted to implement a cloud-native micro services architecture. On a mission to roll out fiber connectivity across the country, Openreach realized an overall enterprise default is urgently required. TCS designed a modular and scalable orchestration engine on cloud, which streamlines the entire fulfillment journey from order to billing. It provides real-time business insights, while optimizing cost and reducing the total time to market for the customer.

United Airlines engaged TCS to revolutionize pilot pay with the intention of providing real-time gross pay information, with improved pay accuracy and transparency to its 15,000 pilots. TCS is at the forefront of this collaborative approach, leading the transformation across design, architecture and solution development. By embracing a data-driven approach, with insights from United, we have truly built a future-ready, cloud-based scalable solution that seamlessly evolves alongside the [indiscernible].

Legal & General Retirement Institutional, a leading provider in U.K.'s new pension risk transfer market, partnered with TCS to modernize its customer administration platform with the power of cloud. Leveraging the contextual knowledge of the client's application landscape, its cloud expertise and partnership with a major hyperscaler. TCS helped the client build a highly available and resilient platform. The migration to public cloud has helped the client to enhance the capacity to onboard large PRT schemes quickly and meet the demands of the growing PRT market.

The new architecture has also ensured increased availability of its customer administration platform, with the ability to recover applications within 1.5 hours. With the new platform, TCS has laid the foundation for [indiscernible] future growth, continued success and scale. [ Through these ] cloud native capabilities and data-intensive technologies like AI, GenAI and IoT, interfaces can harness insights and apply skills and knowledge to spur innovation to the benefit of all, whether it's involving solving complex societal and climate challenges or creating new markets and revenue streams. We are very optimistic about the longer-term opportunities from this strength.

Moving on to our deal wins. TCV in Q4 hit record high at $13.2 billion. This includes one mega deal we announced during the quarter. The BFSI TCV was $4.1 billion, while the TCV for our consumer business group was at $1.6 billion. The TCE [indiscernible] in North America stood at $5.7 billion. Our FY '23 TCV was at 42.7 billion, a record growth of 25.2% year-on-year.

We can now open the lines for questions.

[Operator]

[Operator Instructions] We have first question from the line of Yogesh Aggarwal from HSBC.

[Yogesh Aggarwal, analyst]

Just a couple of questions. On the TV, you guys mentioned that there is only one large mega deal in the entire TCV which is very strong but still the near-term growth outlook not very clear. So I was just a bit confused if a large part of the model in TCV showed the near-term outlook improved quite a bit. That is one. And secondly, just on the India business, Krithi, in the past, companies have regretted growing India after a while, margins, cash flows, et cetera. So you think the market has matured now and it's not a risk going forward?

[K. Krithivasan, executive]

Yes, first on the large deal, what we say is one mega deal, right, in the deal pipeline? Others are all the deals of normal size we have every quarter. So it could be a large deal, not a mega deal, okay? And from an overall deal term perspective, there is no change otherwise. And as we -- since you mentioned the TV interview, we said that like the number of deals that we've been winning in the last few quarters give us the confidence for a period of time, the growth would return, right? So I don't see there is a reason for a infusion or a conflict there.

Coming to India, we do believe that we have to participate in the India growth story. And many of the large enterprises, both in the public sector and private sector, are embarking on new programs to leverage the technology that's available today. So we are selective. We want to ensure that we enter into the right deals, but we believe there are enough right deals in the market today.

[Operator]

We have a next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC.

[Sudheer Guntupalli, analyst]

Congratulations on a good set of numbers. You reported solid deals and you're indicating that the demand visibility has improved over the previous 3 months. I think on the press meet. On the contrary, one of our consulting [indiscernible] peers has indicated that demand situations further deteriorated over the previous 3 months. So is it fair to assume that the problem of incremental deterioration over last 3 months is more pertinent to the discretionary strategy consulting kind of engagements and the rest of the portfolio remain largely resilient?

[K. Krithivasan, executive]

So definitely, in a way, so if you look at what we have been saying discretionary programs is not so exiting ROI come under pressure. So the ROE is not immediate or ROA is not meeting the threshold the customers have set for themselves. They tend to pass those programs or delay these programs. So to that extent, there could be the lack of visibility on near term. But as I said, like since the TCV, the TCV has been quite high. On the medium to long term, we are more optimistic.

[Sudheer Guntupalli, analyst]

Sir, second question is Samir. If you adjust for BSNL deal ramp-up led margin dilution over the previous 2 quarters, your EBIT margin should have already been somewhere midway of your aspirational band of 26% to 28%. So my question is, have we peaked out in terms of margins or you see further scope for a margin upside?

[Samir Seksaria, executive]

Sure, Sudheer. So first, we'll not -- we'll look at our margins at a portfolio basis and will not split our customer or geography out of it. Coming to your question on whether the margins have peaked out. In the -- as you know, first quarter, we take the impact of increments. So we would have a headwind coming up. But I think overall, during the year, we have -- in spite of strong headwinds coming through and in a challenging macro, we have been able to deliver consistent good margin improvement in the last 3 quarters, almost 100 basis points in each of the quarters.

We believe some of the levers, like the subcontractor cost, was one of the levers which are significantly in FY '24 might have bottomed out. But with our focus on disciplined execution, we believe still levers like pyramid pricing and utilization can help us. And if the macro risk recedes and growth revert back higher to its novel trajectory, then that can only help us accelerate this journey.

[Sudheer Guntupalli, analyst]

Got it. And lastly, NGS, sir, congratulations on a glorious career. So privileged listening to you and all the best for your future endeavors.

[N. Ganapathy Subramaniam, executive]

Thank you.

[Operator]

The next question is from the line of Ankur Rudra from JPMorgan.

[Ankur Rudra, analyst]

Just the first question is on the strong signings momentum you mentioned. How are you thinking about the conversion of this into revenues over the next year or so? And how does it set you up for fiscal '25, given perhaps much easier comparable business time?

[K. Krithivasan, executive]

I didn't get your second question, Ankur, can you repeat?

[Ankur Rudra, analyst]

My question was given the timing momentum has been very strong towards the end of the year...

[K. Krithivasan, executive]

I got that question. You have a second question.

[Ankur Rudra, analyst]

Second question is on how do you think about the competitors given fiscal '24 growth was not very high. Is it easier comparable this year? Does it help you significantly?

[K. Krithivasan, executive]

TCV, definitely like we've been also looking at where is the revenue coming from, Ankur. Like we are quite comfortable on the converged revenue conversion of the deals that we signed in the last 3, 4 quarters. And they've been at a similar rate that we used to convert in the past as well. So -- and like we always say, we've been saying in the last few quarters, the headwind has always been in those projects that we signed quite some time ago and which are of discretionary nature or where the clients can slow it down or pass for some time. Those are the ones providing the headwind.

What was the second question?

[Samir Seksaria, executive]

Will FY '25 -- given how FY '24 was, will FY '25 pan out better?

[Milind Lakkad, executive]

Yes. Ankur, we've been -- or last quarter also we mentioned this. Seeing the TCV of whatever we signed this quarter, we believe the FY '25 would be better than FY '24.

[Ankur Rudra, analyst]

Understood. Maybe if you can comment a bit more in terms of how do you think or where do you think clients are and where do you think the environment is in terms of spending cycle? It's been almost, I think, 2 years now, it's not slightly longer until we've seen revenue sort of decline, decline, decline. Perhaps bottom out and begin to recover. How do you feel about the spend cycle right now, especially the mix of discretionary and nondiscretionary? And also if you can touch upon financial services and [indiscernible] verticals..

[K. Krithivasan, executive]

I won't want to a look at this way, Ankur. Like clients want to do transformative work, they want to embrace new technology. We talked about cloud adoption. We talked about enterprise cloud modernization. We talked about GenAI. Clients want to do all of them. Understand also, clients want -- they want to conserve cost. So these 2 are the drivers that work -- make them choose the appropriate projects. Wherever they're trying to do on client cost and optimization, you would see programs around vendor consolidation, operating model transformation or sometimes application rationalization, those kind of engagements are started.

And I'm using the savings. The saving is used to fund the programs that I talked about. So I don't think that -- if you look at purely the TCV and look at the kind of project, you cannot say there's only 1 kind of project. You would see a fair mix. I would say maybe 55% in terms of cost and optimization of 60%. The remaining in terms of transformative engagement. That's how probably put where it [indiscernible] upper gross level.

[N. Ganapathy Subramaniam, executive]

If I can add, Ankur, to what Krithi has said. The organization wants -- yes, every organization wants to become an AI organization. So that is a huge amount of upskilling and transition that, internally, they are going through, to train their own people on the impact that AI can have in terms of every one of their internal processes and their planning process, and what are the parameters that are important for their growth. All of it. So they are going through the AI transition themselves, right?

And in addition to that, given the number of new technologies that are coming in this space, the possibilities are opening up. As I alluded to in the press conference, the first phase of defining the architecture in which they would like to develop these programs, which LLMs will be relevant for them, which one they want to keep it in-house, which one they want to keep it in the public domain. What data that they have internally, what data they need to get it externally and measure. A lot of these strategic decisions are also at play.

So I think as far as the cost and optimization efficiency, using AI for internal purposes, they're all -- there is no depth of opportunities. They're all happening today. But on the strategic transformation programs, the kind of work that they want to do, they are calibrating it. They want to solve all this internal issues, strategic issues first, assess the regulatory impacts before they want to progress further.

[Operator]

The next question is from the line of Kawaljeet Saluja from Kotak.

[Kawaljeet Saluja, analyst]

I have a couple of questions. First is on TCV and the relative lack of, what I would say, excitement about the near-term growth acceleration. Is there anything in the composition of TCV, which is leading to the state of lack of enthusiasm? Anything which you can throw some color on, the renewal component or the ACV. Anything that can help us understand the dynamic of growth and TCV a little bit better?

[K. Krithivasan, executive]

Thanks. Kawaljeet, I won't call it -- I won't call it a lack of excitement. We are quite happy with the TCV we signed. Our caution comes from also the headwinds that we face, right? Like there are -- the demand or the short-term demand still remains not very clear or volatile. So that's a cautionary stand. Like once we go through the quarter, probably we'll get a better understanding of how the gross demand, net demand.

So we are quite happy with the TCV. The TCV is -- we've been able to convert the TCV into revenue very well. But what we have not been able to predict is the headwinds that come out because customers want to conserve cash and then stop some of those ongoing large programs. So that's the reason you see the amount of caution in terms of predicting the revenue.

[Kawaljeet Saluja, analyst]

And Krithi, anything in terms of renewals versus new TCV? Because I saw a stream of announcements, but plenty of them were renewals. So how does that compare with the historical average? And if you can throw any -- if you can add any insights on the ACV number, that would be useful as well.

[K. Krithivasan, executive]

We don't publish number, Kawaljeet. But from a renewal to new revenue, actually, there is no change. Actually, if at all, I would say that our new revenue has been stronger.

[Kawaljeet Saluja, analyst]

Okay. That's hearting to hear. And the second question is for Samir. Samir, any other levers through which you can use up the margins? I understand there are some near-term headwind from comp provision. But just to understand the perspective of profitability and how it can improve. Any levers that you can highlight, because at least from the face of it, to us, it looks like the engine is running nice in a very optimized way today.

[Samir Seksaria, executive]

Yes, Kawaljeet. So the ones I called out amid pricing and utilization -- amid productivity and utilization, definitely have further scope. And we also believe that incremental margins will have to be contributed by pricing improvements.

[Kawaljeet Saluja, analyst]

Right. The final question that I have is on the BSNL deal, right? So there's $1 billion of revenues that come in at, let say, a period of 12 to 18 months. Is there subsequent work package that will flow in? Or does this create, let's say, revenue vacuum as you move into FY 2026?

[N. Ganapathy Subramaniam, executive]

This is NGS here. I think -- see, we have currently -- we are focusing on installing the network across 100,000 towers. We have achieved about 10,000 towers as of date, and there are further opportunities. For example, beyond rolling out this 100,000 towers, we also have to upgrade a good number of them to 5G. That's another revenue stream that will come. And then subsequently, the maintenance support and aspects for the next foreseeable future. That's another thing that is expected.

In addition, there are also opportunities to increase the number of towers that BSNL will deploy. Because clearly, they are focused on what they call saturation sites, which essentially means rolling out new towers in rural areas where, hit or throw, even a mobile network doesn't exist. So there are clearly some more opportunities that will come from the BSNL. But clearly, this is a mission-critical project, very complex, highly integrated and indigenously developed. The opportunities to take it to market with other operators and other things is an opportunity that we are calibrating.

[Operator]

We have our next question from the line of Surendra Goyal from Citigroup.

[Surendra Goyal, analyst]

Krithi, I'm just trying to understand your commentary better. You had sequential growth in Q4, you have said that visibility has gotten better. Do you think TCV trends are good and mostly regular-sized deals? And June and September are seasonally strong as well based on what we have seen over the years, so why are you not willing to call out growth in the coming quarters? Is there we -- [indiscernible] investing big business a concern enough to hold you back despite so many positives? Any clarity would really be helpful.

[K. Krithivasan, executive]

Surendra, 2 things. One, we have never given guidance. Two, as I -- whatever answer I gave to Kawaljeet, like there is certain amount of unpredictability in terms of our customers' willingness or readiness to cut the discretionary work that we are doing based on the return on investment, they are seeing. And it is also a factor of how they see the economy panning out or how -- what they should be ready for. So if there is a greater confidence on their overall business growth, you will see them, now at least, embarking upon more discretionary projects are not passing the projects. So it's a question of the world economic sentiments our customers are in. That's the reason that we are not sounding very optimistic.

[Surendra Goyal, analyst]

And are there...

[K. Krithivasan, executive]

We are not yet being cautious here. It's not -- I'm not -- we are being cautious in because of these reasons. Go ahead, sorry.

[Surendra Goyal, analyst]

And are there particular verticals where you see the reprioritization happening more commonly compared to the rest of the business?

[K. Krithivasan, executive]

No, it comes from like their individual perception. See, there are some programs that we have seen, a number of incremental enhancements are supposed to be done. But when they see the new enhancements not going to yield greater value, they don't do those enhancements, they stop at wherever, whatever -- after the initial set of modernization. So that we have seen programs where they have signed up to initially a very high SLA. But they realize that given the current environment, that kind of SLA is not required. So then you have a lesser number of associates handling the same program with a reduced SLA.

So you will see a mix of -- and there was one instance where the customer sold off a further business to somebody else or they got out of the business. So they run down the people in that program. So some of these decisions happen on a very short notice. So this is broadly the spectrum we are seeing.

[Surendra Goyal, analyst]

And just a housekeeping question. Are -- which get canceled either because of customers selling of a business or any other reason? What do you report is that a net number or just a gross?

[K. Krithivasan, executive]

No, like what is the net number or what...

[Surendra Goyal, analyst]

No, what I'm saying -- see, if you had signed a deal 6 months back and then the deal got canceled. Would this quarter be net of that cancellation or the cancellations are not accounted for?

[K. Krithivasan, executive]

Our TCV is only what we signed new in a given quarter.

[Surendra Goyal, analyst]

Understood. NGS, thank you for all your insights over the years and all the best.

[N. Ganapathy Subramaniam, executive]

Thank you so much.

[Operator]

We have our next question from the line of Gaurav Rateria from Morgan Stanley.

[Gaurav Rateria, analyst]

Just wanted to get a little bit better trends on BFSI. You did you talk about insurance vertical growing during the quarter across geographies. If you could lay out in terms of outlook within BFSI of subsectors, what's going to grow and where the visibility is higher, where visibility is still not there, that will be very helpful.

[N. Ganapathy Subramaniam, executive]

Gaurav, this is NGS here. I think, see, overall, our engagement with our customers in the BFSI segment has been terrific and very good partnership that led to about $4.5 billion worth of TCV during the quarter. Insurance is doing well. Capital markets is just -- almost every stock market is doing well. So they are increasing opportunities that are coming. But largely in putting control risk and safety measures, as opposed to trading in terms of sailing settlement systems because they're all working, they're all scaling, and they don't want to touch it and they have invested a lot and they'll go trading everything.

On the retail banking side. Clearly, payments and wealth management are 2 significant areas where we are -- customers wanting to try out new technologies and especially portfolio management, portfolio amortization and using GenAI to rebalance and then reducing in a way that increasing their own productivity and giving that ability to their customers is something that we are seeing and identifying arbitrage opportunities on the fly. These are all cases that people are trying it out. And there are opportunities in payments specifically and wealth management on the retail segment.

Market infrastructure side. Yes, there are a good number of programs are in that pipeline. As you know, we signed up the deal with the ASX, Australian Stock Exchange, and we implemented one of the most complex commodity systems for MCX. And we continue to engage with customers of ours, like London Clearinghouse and other firms. Large market infrastructure programs in payments and payments modernizations, and almost every market, they are considering to implement something like a UPI, faster payments, instant payments. They are all discussions that are going on, but these are all long-term projects. So deal cycles are expected to be longer. I hope that gives you a respective.

[Gaurav Rateria, analyst]

Just a follow-up on this, where are you seeing the unexpected ramp downs or behavior of client decision-making within these segments? And any likelihood of that kind of continuing? I mean are you expecting this to continue in the current quarter as well?

[N. Ganapathy Subramaniam, executive]

I think I can't really pinpoint something that, look, if you take our BFSI segment, for example, most of our customers, they are all long-term big customers for us. We have enjoyed a phenomenal relationship and partnership with all of them. So we signed deals and they commit deals to work with us. But then at the same time, they come back and then say that, look, yes, I signed this deal and then I want to defer this for about a quarter. Even though contractually, they may not have the adoption, we remain flexible with them. And then we have to accommodate them in the interest of a long-term relationship. And culturally, we are like that, right?

So from that perspective, we see some volatility in decisions because, for example, if they face a headwind, come back and then talk to us and then say that, "Look, can you execute this program? In terms of 12 months, can you do it over 18 months or 24 months?" And such things happen, then it's an unplanned, let's say, distribution of work that we need to manage. And customers love us for that, so I think we will continue to operate in that fashion. And it is that volatility, which we are not able to predict.

And at the same time today, there are so many start-ups coming in AI. Some of them, they say that, look, maybe I want to invest in that startup rather than building it myself. Why I wanted to build it? But today, I want to see what the conceptually what they are coming up which is interesting, maybe I will invest in them and then accelerate their journey and adopt that technology. So these are all the volatility that we see in the marketplace. For which we will like to be respectful of their thoughts and decisions, and accordingly, align ourselves to this. And that's the volatility which I'm not able to predict, and I'm not able to communicate it. We only echo what we see and what we hear from our customers to all of you.

[Gaurav Rateria, analyst]

Last question for Samir on the [ confirmed band ] of 26% to 28%. You did talk about pricing to be one of the levers that will be required to sustain the margin in that. In the current environment, do you expect this to play out in the coming quarters based on the kind of deals that you have signed? Or is it more of a factor that could be at play only in the discretionary spend were to return back?

[Samir Seksaria, executive]

No. So we believe that incremental margins will have to be contributed by pricing improvement. That need not be through an immediate pricing increase, but will need to be structured -- it will need to work out structurally. And towards that, it would be a combination of various factors. Overall, portfolio-based pricing increasing, renewals getting priced in at a higher price, or when the renewals happen asking for a price increase. Or the overall new deals which come in get factored at a higher price. So I wouldn't expect it in 1 quarter or we go and ask for a price increase to our customers and we would get it.

[Operator]

We have a next question from the line of Kumar Rakesh from BNP Paribas.

[Kumar Rakesh, analyst]

My first question was for Samir. So we are exiting this year closer to 26% on the margin side. So through the next year, FY '25 through the quarter, should we expect the quarterly movement of margins similar to what we saw this year? Or there was some difference in the trajectory, which we saw and we should build accordingly?

[Samir Seksaria, executive]

I think one thing for sure is like it happens in every year, we will take the impact of increments or the headwinds, largest headwinds coming in, and that we claw back on the margins as we go through the year, and we would expect a similar trajectory to happen.

[Kumar Rakesh, analyst]

Got it. And there has already been a lot of question around the bill TCV, ACV and the revenue conversion. Additionally, Krithi, you also spoke about in the last quarter about the pent-up demand in the retail segment this quarter. You have spoken about pent-up demand to be there in BFS. How do you see that panning out in the context where you have caution in the near term while you are also talking about [indiscernible] demand? Or do you think that would be the catalyst that you would be looking at where these pent-up demand eventually starts translating into revenue and gives you more better visibility on demand and comfort as well?

[K. Krithivasan, executive]

Kumar, like, to me, once the customers are comfortable about their demand environment, about their market. For instance, like see insurance today, they look at their long-term growth to be, say, for manufacturing, we find there is a lot of activity. So those sectors we find there is an investment happening. So it is a factor of those individual businesses. Like capital markets has done reasonably well this quarter. Like we found that's been happening in the regulatory sector, the risk and compliance.

So it depends on the individual customer. And whenever they see that there is a greater confidence of their business, you would see the pent-up demand also being satisfied. And as long again, it also is a factor of what is the return on investment or that particular investment will give us. So it's more a factor of the individual business and the clients' outlook [indiscernible] customer.

[Kumar Rakesh, analyst]

Got it. So in any of the verticals or pockets, have you already started seeing this pent-up demand starting to translate?

[K. Krithivasan, executive]

I wouldn't call it pent-up demand, but as I spoke in my original commentary. Consumer business, for now we started seeing green shoots in pockets. Like even this quarter, we found airlines, transportation, doing very well. So you will see pockets in each of these verticals. I won't say any given vertical, you may not have all subverticals return to growth. But there will be some subverticals that would return to growth. But as I said, this quarter, insurance grew well. Airlines and transportation grew well. Manufacturing, by and large, most of the segments in manufacturing grew well. So this is what we are seeing.

[Operator]

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

[K. Krithivasan, executive]

Okay. Thank you, operator. We are very pleased with our financial year 2024 performance, growing at 3.4% in constant currency amidst the macro uncertainty prevailing in the major markets. Our Q4 revenue grew 3.5% in rupee terms and 2.2% in constant currency terms. Deal momentum continued to be very strong in Q4, with our order book at $13.2 billion for the quarter and $42.7 billion for the full year.

Our Q4 operating margins improved to 26%, an expansion of 100 bps sequentially. Our net margin in Q4 stood at 20.3%. Our LTM attrition in IT services fell further to 12.5%. We continue to deliver resilient results, winning market share and balancing growth with profitability. We have an except leadership team and an extremely dedicated workforce. It has been every TCS-er's hard work during the year, which fueled our collective achievements, and I would like to thank each one of them for their contribution to the company's success.

With that, we wrap up our call for today. Thank you all for joining.

[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.