Tata Consultancy Services Ltd

NSE:TCS

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.

Thank you, operator. Good evening, and welcome to TCS' earnings call for Q3 FY '25. This call is being webcast through our website, and an archive, including the transcript, will be available on the website 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.

Hi, good evening. Happy New Year to all of you.

Mr. Samir Seksaria, Chief Financial Officer.

Hello, everyone.

And Mr. Milind Lakkad, Chief HR Officer.

Hi, everyone. Happy New Year.

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 construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. We have outlined this risk in the second slide of the quarterly fact sheet available on our website and e-mail out to those who have subscribed on our mailing list.

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

Thank you, Nehal. In Q3, our performance was consistent with the quarterly seasonality, our revenues grew 4.5% year-on-year in constant currency. Operating margin was at 24.5% and net margin was at 19.4%. The highlight of the quarter was our exceptionally strong and broad-based TCV at $10.2 billion. North America TCV was at $5.9 billion. BFSI TCV was at $3.2 billion and consumer business accounted for $1.3 billion. We achieved significant large deal wins across various markets and industries, resulting in a double-digit growth in TCV year-on-year.

This performance is particularly noteworthy given the absence of any mega deal wins. Our strong deal pipeline and TCV gives us confidence as we look ahead. I'll now invite Samir and Milind to go over different aspects of our performance during the quarter. I'll step in later to provide more color on the demand trends we are seeing in our business. Over to you, Samir.

Thank you, Kriti. Good day, everyone, and wishing all of you a great start to the new year. In the third quarter of financial year '25, our revenue was INR 63,973 crores, which is a year-over-year growth of 5.6%. In dollar terms, the revenue was USD 7,539 million and a year-on-year growth of 3.6%. That translates to a constant currency growth of our revenues to 4.5%.

Our Q3 operating margin was 24.5%, a sequential improvement of 40 basis points, despite headwinds on account of furloughs and Q3 seasonality, which was offset by operating efficiency through improvement in productivity, utilization and pyramid.

Net income margin in Q3 was 19.4%, and our EPS grew 6.4% Y-o-Y. Our accounts receivable was at 74 days DSO in dollar terms. Net cash from operations was $1.54 billion, which is 105.3% of net income.

Free cash flows were at $1.45 billion and invested funds at the end of the period stood at $7.28 billion. Consistent with our capital allocation policy of returning substantial free cash flows back to our shareholders, the Board has recommended a dividend of INR 76 per share, which includes an interim dividend of INR 10 and a special dividend of INR 66 per share.

Let me walk you through our segmental performance. Note, all growth numbers are in year-on-year constant currency terms unless otherwise mentioned. BFSI grew 0.9%. Consumer business grew -- group grew 1.1%. Life Sciences & Healthcare declined 4.3%. Manufacturing grew 0.4%. Technology and Services & declined 0.4%.

Communication & Media declined 10.6%. Energy, Resources and Utilities grew 3.4% and Regional Markets grew 40.9%.

Moving on to geographies. Amongst major markets, U.K. grew 4.1%, whereas we had a decline in North America of 2.3% and Europe of 1.5%. All the growth markets continued their strong performance. India led with a growth of 70.2%. Middle East grew by 15%, Latin America by 7% and Asia Pacific grew 5.8%.

I'm now going to talk about a few of our industry-leading portfolio of products and platforms. ignio, our cognitive automation software suite saw 30 new deal wins and 9 go-lives. The ongoing trends in AI and GenAI are significantly driving investments in AI-based systems and intelligent automation. These advancements are propelling ignio deal wins as an increasing number of customers embark on their journey towards becoming autonomous enterprises.

TCS BaNCS, our flagship product for financial services, continued its leadership with 4 wins and 7 go-lives during the quarter. This quarter, we successfully completed Zions Bancorporation multiyear future core projects with TCS BaNCS. This large-scale core banking modernization positions Zions, a leading financial services company in U.S. at the forefront of the industry.

It enables real-time transaction processing and delivers an exceptional customer experience. The project underscores the power of collaboration, positioning Zions as an innovator allowing for quick responses to market demand and customer needs and driving increased revenue.

TCS BFSI production platform saw 3 wins and 2 go-lives during the quarter. We signed a 15-year contract with Ireland's Department of Social Pension (sic) [ Protection ] to implement and support the new auto enrollment retirement savings scheme. This initiative is will provide a comprehensive digital solution for automatic enrollment of nearly 800,000 workers in Ireland. This is a landmark deal for TCS in the geography and the first BPaaS implementation in Ireland. This further solidifies our leadership position in the U.K. and Ireland market for life and pensions.

We have migrated 800,000 U.K. life and pension policies for Scottish widows over 4 migrations in H2 of 2024. This now completes a highly complex migration of life and pensions for Scottish widows comprising of over 500 products and resulting in 3 million U.K. L&P customers being serviced on TCS BaNCS.

Quartz, our innovation-led platform leveraging blockchain and AI, had 1 win and 1 go-live this quarter, including a strategic pilot for hybrid market infrastructure in Europe. TCS iON, our platform for digital assessment and exam administration and learning, had 38 new wins and 150-plus platform capabilities went live.

Our Assessment platform administered in-center exams for over 17 million candidates. The growing demand for AI-driven analysis and recommendations on assessed candidates data is driving the platform's progress. The Indian government's focus on industry participation in employability, internships and skilling should drive strong growth on the iON platform.

Additionally, there is an increasing emphasis on reducing logistics work and shortening the results generation time line. TCS OmniStore, our AI-powered universal commerce suite, had 1 deal win and 1 go-live this quarter. TCS Optumera, our AI-powered retail merchandising suite, went live for 1 client.

TCS TwinX, our digital twin solution, had 3 wins and 1 go-live. And in Life Sciences, TCS ADD platform, had 3 go-lives this quarter. On the client metrics, customer centricity is one of the key pillars for our long-term growth strategy.

Our deep, long-term relationship with clients enable us to anticipate their needs and help them pivot effectively. As on 31st of December, we have more than 1,300 clients, which contribute to $1 million-plus in annualized revenue. In Q3, we added 3 new clients year-on-year basis in the $100 million-plus band, bringing the total to 64.

With that, let me hand it over to Milind.

Thank you, Samir. Let me start by wishing you all a very happy new year. Workforce at the end of the third quarter was INR 607,350 crores (sic) [ 607,350 ]. Our workforce continues to be very diverse with 152 nationalities represented and with women make 35.3% of the base. Our LTM attrition in IT Services was at 13% at the end of Q3.

Employees logged over 40 million learning hours year-to-date and acquired 3.8 million competencies. This quarter, we are proud to have recognized the exceptional contributions of our associates by awarding over 25,000 well-deserved promotions across levels, taking the total promotions for the fiscal year to more than 110,000. These promotions reflect our unwavering commitment to pursuing growth.

Simultaneously, we continue to strengthen our current pipeline through strategic investments and skill development. Our campus hiring program is progressing as planned, and we are getting up to onboard an increased number of campus hires next year.

These initiatives ensure that we are well prepared to meet the evolving mix of our clients and drive long-term financial success.

I will now request Kriti to speak of the demand levers during the quarter.

Thank you, Milind. Starting with the demand drivers for Q3, we observed that customer priorities continue to remain centered around cost optimization, business transformation. GenAI and AI and Cloud Services continued to see significant growth for us this quarter. Clients are investing in Agentic AI adoption, building robust data foundation and taking a value chain based approach to AI and GenAI transformation.

Agentic AI represents the next step of maturity the exponentially evolving space of AI. It allows us to orchestrate actual transactions inside business value chains using the rapidly improving planning and reasoning capabilities of large language models.

We are now starting to go past the initial way of chatbots and RAG deployments of GenAI. And more crucially, this will allow TCS to use our deep contextual knowledge of our customers' business to design, train and deploy agents that solve high-value business problems.

As an example, a leading American electronics retailer partnered with TCS to enhance customer engagement and drive operational excellence. TCS utilized contextual knowledge, design and implement a scalable unified contact center platform that consolidates chat and IVR system, enabling seamless workflows across channels.

The platform employs advanced natural language understanding and conversational agents for intent identification and handling of open-ended inquiries. The real-time dashboard tracks critical metrics including user containment rate, queue transfers and system utilization, providing actionable insights for continuous optimization, supporting over 30% daily chat conversation and 3x as many invoice. The system has achieved 90% intent identification, 3% user containment improvement rate and enabled [ context server ] brand-aligned response, improved self-service and reduced live agent transfers.

One of the leading global life sciences major partnered with TCS for accelerated cancer drug discovery. The challenge was to design small molecules against a novel target protein of interest where no target-specific small module dataset is available. The only available input is a target protein structure.

The novel molecules must satisfy all drug-like properties. We designed the GenAI-based drug discovery solution for identifying small molecules on a cancer target that takes the structure of the target protein as input and designs target-specific property optimized small molecules.

We generated around 1,300 molecules, optimized for 5 properties and further reduced it, had to pass several proprietary filters on client sites and assessed on synthesizablty, against client signals compound library. These 12 molecules have been shortlisted and are in-vitro assessment.

Technology modernization, [ sharp ] S4 HANA transformations, cloud engagements, building data foundations for AI and cybersecurity continue to be priority areas that are seeing strong investments from our clients. We expect client IT budgets remain similar in CY '25, with a positive bias. We are seeing early signs of revival in discretionary spend in BFSI and Retail. Manufacturing, Life Sciences & Healthcare should also start seeing growth in the medium term, as near-term challenges have bottomed out in this quarter.

Let me now give some specific color on our performance during the quarter and outlook for our key verticals in Q3. For BFSI, the new year promises cautious optimism with easing inflation, falling unemployment numbers and stable government. Headwinds will continue because of unresolved geopolitical issues, trade wars and uneven growth profile.

Customers are focused on operational efficiency and modernize IT with an eye on future growth. The BFSI industry is a leading adopter of AI, GenAI and other cutting-edge technologies. We saw a significant increase in successful production deployment of AI, GenAI engagements, leading to greater business certainty and confidence for our clients.

As an example, one of the leading global banks partnered with us to build the first of its kind AI-led real-time for fraud detection solution, replacing its existing technology, thereby reducing fraud-related losses and improving the financial well-being of customers. Our innovative predictive AI solution performs real-time transaction monitoring, detect customer behavior anomalies and generate risk scores.

This solution delivered an 18 percentage point improvement in fraud detection, reduced false positives by 25% and improved fraud analysis response time by 50%. The consumer business will return to growth on a sequential basis, and it was primarily driven by the improvement seen in retail in all major markets. We are helping our customers navigate changing customer expectations, embrace digital transformation and prioritize technology modernization and sustainability solutions in an uncertain macroeconomic environment.

TCS performed well in U.K., EMEA and APAC markets, however, slowed considerably in the U.S. due to market-specific issues and strained profitability of our customers. The leading American multinational luxury fashion retailer, looking to expand within the EU chose TCS as a strategic partner to enable faster market entry.

We leveraged our contextual knowledge and deep understanding of the omnichannel ecosystem to adapt it for local languages, currency payment preferences and complaint regulations, ensuring a unified user experience across all geographies and channels. We implemented a leading order management system and integrated various third-party services, including various management systems and multiple payment gateways. This scalable solution streamlined brand onboarding, reducing cycle time by 30% and enabled quick access to new markets. So the localized experiences helped the brands to connect more effectively with European consumers driving sales and fostering loyalty.

Client's IT budgets in the technology, software and services industries continue to remain flat. TCS saw continued growth momentum despite the seasonal weakness in Q3. We're really proud of a differentiated value proposition to leading technology players.

As an example, a leading global semiconductor major has partnered with TCS to cocreate foundational AI technology that includes multi-core server CPU, GPUs, SoCs and AI-based systems. We are also helping our clients build LLMs, benchmark their performance and enhance their efforts and quantization.

In Life Sciences & Healthcare, the client-specific challenges called out by us last quarter are largely stabilized. The med-tech industry is undergoing rapid transformation, driven by shift to intelligent devices and predictive AI, GenAI and genomics, cell therapy and personalization. Customers are also investing significantly in scaling the digital manufacturing capabilities and building resilient supply chain. TCS is well positioned to capitalize on opportunities in this segment with a unique proposition across the value chain. A global medical technology company has partnered with TCS to digitize device history records, transform plant operations using cutting-edge platform and reimaging customer experience, next-gen e-commerce.

In Q3, we continue to see softness in manufacturing due to a combination of macro and industry-specific issues in auto and aerospace. However, we saw a good number of large deal wins during the quarter, and we see a strong pipeline for the future. We continue to capture demand on the back of significant investments in the areas of factory of the future smart manufacturing, software-defined vehicles, AI, and GenAI. The CMI industry continues to encounter challenges with demand primarily led by technology-driven cost optimization. However, there are encouraging signs of a rebound in IT spending as telcos advance their efforts to expand into adjacent businesses, while enhancing efficiency in their core operations.

Customers now have a heightened expectation of ROI, leading to a major transformation initiatives being divided into small and manageable components. We continue to see excellent traction in growth markets. Clients and growth markets are focused on digital transformation, including cloud migration, cloud-native applications, application modernization, advanced data analytics, ERP transformation, infrastructure consolidation.

TCS has an outstanding track record of executing nation building and transformative projects across these markets. This combined with the strategic investments we have made in the talent, global delivery centers, [ spaceports ] and partnerships gives us a unique opportunity for long-term sustainable growth.

To conclude, amidst an environment of uncertainty and seasonal softness, we delivered flat growth in Q3 with margin expansion of 40 basis points. With reduction in the interest rates, easing of inflation and reduced uncertainty with the new U.S. administration taking over, we expect the discretionary demand to strengthen.

Thank you, and we can now open the line for questions. Over to you, Nehal.

[Operator Instructions] We'll take our first question from the line of Yogesh Aggarwal from HSBC Securities and Capital Markets India Private Limited.

First of all, Happy New Year to you all. Two questions. Kriti, good to see deal wins improving, but I was just curious, even in FY '24, deal wins were very strong, but '25 growth, I think, has not lived up to expectations. So do you think this time around the color of deal wins are different and hence, the conversion could be a lot more favorable?

So Yogesh, yes, the deal wins, we had strong deal wins in '24 also. But what happened during '25 was also the deferral of some other projects or some projects going slow based on the ROA expectation, re-prioritization. And seeing the revival in discretionary spend, as I said, when I say revival early signs of revival, I don't want to say that it's recovered, seeing the early sign of revival and the strong TCV win gives us more confidence on CY '25 and FY '26.

Okay. Okay. Just on a separate kind of related note, Kriti. So headcount declined again, and you sound positive for this year, and this is despite the BSNL headwind. So why is the head count declining or do you think the growth is more back-end loaded and then during the year, you'll be able to hire people?

No, see, like Milind has been calling out, there is no -- while on a long-term basis, there will be some correlation between the headcount and growth. On a quarter-on-quarter basis, it will be difficult to have that correlation. Also, if you look at Q1 and Q2, we significantly added headcount. In Q3, we knew even beforehand, it's going to be -- there will be some seasonality. So we had to -- we try to do optimize wherever we can. So that's 1 reason why the head count went down. But overall, this is not a reflection of the demand environment.

We'll take our next question from the line of Ravi Menon from Macquarie.

Happy New Year to the management. This is the best quarter for deal wins in the third quarter. I think ever since you started disclosing this number. So did we benefit a bit from any slippage of the deals, I mean, deals that were waiting to be decided on that we saw a bunch of them get decided maybe up to November or December?

So see, every quarter, we'll always have, Ravi, some deals that could have been closed before the end of the quarter, slip in the next quarter. So there is no specific bunching that happened in the beginning of the quarter. I would say this is more organic. There is nothing timing. There's no specific deal that should have closed in Q2 that closed in Q3 to give us this bump.

And you also said that there were no mega deals in this quarter. How is the mega deal pipeline looking though?

There are -- always there will be a few -- we have a few mega deals we are working on. But we are also happy like though we don't call out the number, the number of large we have also shown an improvement this quarter.

All right. And BFSI in North America, could you talk a bit about how that is Q-o-Q on a constant currency basis?

BFSI North America, again, we don't disclose the individual number, but the BFSI North America has grown positively. And again, to us, what is equally comforting is the large accounts in BFSI North America, all of them contributing to growth.

We'll take our next question from the line of Sandeep Shah from Equirus Securities.

Yes, Kriti, just wanted to understand that the 3Q growth when you entered versus what has come is as per our initial expectation because out of the verticals outside emerging markets or growth markets and to some extent, consumer, all other verticals have declined in a constant currency Q-on-Q?

See, like when we started the quarter, also we knew it's going to be a seasonally weak quarter. And there were -- so to that extent, I would say, see, always like if we had 1% more growth, we would have been happier than this past year. But within this band is what we are expecting when we started the quarter also.

Okay. And Kriti, if I look at last 4 quarters growth in international markets outside India has been really sluggish. With deal wins picking up, do you believe fourth quarter international market may help us to compensate the impact of BSNL gap, which may come in the fourth quarter?

That's our aspiration and going-in position. We believe as BSNL ramps down, not only international business, we are also quite bullish on what's happening in other regional markets, plus the growth returning in global market and furloughs also to some extent recovering collectively should help us in growth.

Okay. Okay. And just coming to margins, just wanted to understand, last time we said we have an aspiration to reach to 26% by Q4. And now furloughs won't be there, rupee depreciation may help. In that scenario, do you believe this aspiration could be realistic or still an aspiration to reach by Q4?

So Sandeep, aspiration still remains 26% to 28%. I had not committed that aspiration. So what I said is we'll be happy we can exit Q4 at 26%. We have seen a sequential margin improvement. We still strive to get as close to our guiding band as possible. But given the seasonality, Q3 on a flattish growth, getting a 40 basis points improvement is significant [indiscernible] levers. We'll push further to get in Q4 an improvement over and above that.

Just last follow-up on this. Just wanted to understand the likely decline in BSNL, that could be also a big margin lever for the fourth quarter?

Depends -- so per se, we have been calling out the increase in third-party costs having an impact. On a like-to-like basis, that would be depending on how much is the decline. We are 70% complete on the contract, which we had. So that in itself is a lever per se. And going into FY '26 as well, our product mix does remain -- become a lever.

We'll take our next question from the line of Ankur Rudra from JPMorgan.

So the first question is on -- you mentioned there are early signs of revival in some of the verticals you highlighted. Could you maybe elaborate what is the nature of these signs, at least basically the nature of the deals you've signed this quarter or the nature of pipeline, client conversation intent? Just some more color would help.

Ankur, from a vertical perspective, as I said, deal wins have been good in BFSI, CBG. And in fact, almost all verticals, there is an increase in deal wins compared to previous quarter. And in fact, Europe has one of -- from a geography perspective, Europe has one of the best deal wins. So it's been quite all round from a geography as well as industry perspective.

The type of deals, we all -- apart from seeing regular optimization deal, there is an increased proportion of deals on the application modernization, cloud, and our customers are gearing up to leverage AI towards that there are more data projects being commissioned or we are winning deals on data. So it's a good mix of projects on optimization with the improvement on the discretionary spend, like compared to the past.

And another interesting data point we observed is for the first time, there is a good decrease in the deal cycle, like by a few weeks. The deal cycle of -- we looked at deals that are more than $20 million and above, there's a deal cycle reduction also, which also shows that the decision-making is also improving largely. So that's broadly the color on deal wins, Ankur.

I think last quarter, you had said, Kriti, that the deal cycles were extending. So basically, the next -- in the following 3 months, it has already recovered. Is that how we should take this?

Yes. Like compared to the previous quarter, there has been an improvement in deal cycle this quarter.

Okay. I appreciate it. I just want to probe a bit more on the AI work. You mentioned a lot of Agentic AI coming your way. What's the impact of this on effort needed for projects of different types? So for example, does this mean that there will be more work on software engineering, but some volume pressures on legacy modernization and ops? In addition to that, if you can highlight if there's been any loss of volume due to Agentic AI or SLMs on your any of the large projects or customers?

Ankur, mostly, at this time, most of the work that leverages, say, our customers are leveraging AI to do new tasks. I talked about drug discovery, okay? Without this particular work would not have done through AI. Without AI, they would not have approached this particular project at all. So many of them tend to be new projects that leverage this technology.

And there are also like customers are leveraging this technology towards technology modernization. One of the large modernization out of mainframe, we are attempting to use generative AI to ensure that the technology modernization is more failsafe. So there are opportunities we find towards software engineering where there's a productivity improvement as well. But net-net, if you look at the overall demand environment, we think AI will be demand net positive than being negative. That is at least what we are seeing as of today.

We have our next question from the line of Nitin Padmanabhan from Investec.

Wishing you a very happy New Year. Just a couple from my end. So one is you mentioned that BSNL's [ family question ] is complete. So how should we think about it? Do you think the net reduction in revenue there should happen in the following quarter or it will happen in the next fiscal year? So that's the first one.

The second one is that considering we had very strong deal wins this quarter and there is no mega deal and decision cycles are also improving, does that mean that the revenue conversion will also be much quicker, considering these are relatively smaller and more discretionary in nature, and that should aid near-term performance?

And finally, I think you also mentioned that you were looking at projects that could refill the gap from BSNL. Just your thoughts on if there's anything specific out there that sort of fills that in, that will be helpful.

Like Samir mentioned, Nitin, like BSNL, we have completed 70%, which naturally means slowly it will taper off. It should start tapering off either in Q4 or maybe Q1, but I would expect some tapering off starting Q4 itself, okay? And I'll just answer the other question on BSNL.

So it tapers off, we will -- we are trying -- looking at multiple opportunities, both within India or BSNL itself is new capability we have for it. We want to see whether using that capability itself, new projects could be won globally. And of course, the new deal wins that we spoke about, that also will help us in replacing this revenue. So they are looking at all options. And we are quite confident that we'll be able to manage the impact.

On the deal wins, yes, there are no mega deals because the deal tenure with what we won could be marginally lower than what it was before. And there is a confidence that it could be the revenue realization could improve compared to the past. And more -- I would say, revenue realization will improve, Nitin, more because of the certainty of the -- as the customers are embarking on more discretionary work. That gives us more confidence on the faster revenue realization than necessarily on the deal tenure itself.

Sure. That's helpful. Just one clarification. I think on the press conference, you made a comment that BSNL could come off slowly or sharply, I was just wondering what you meant by that?

No, it would start tapering down is what we said. It could taper off across Q4, Q1 and maybe it might extent to max Q2, the current contract.

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

Kriti, Happy New Year. You seem to be sounding much more confident on the broader demand environment than what we had noticed in the last 2 quarters. And you are seeing CY '25 should be better than CY '24. So given that BSNL deal will ramp down over CY '25, which is a big headwind. And despite that, we are expecting a better year in CY '25 over CY '24. So if we reverse engineer the math, are you sort of alluding to a double-digit kind of revenue growth expectation in the core markets in calendar '25?

No, we don't see like -- we do not to have a double digit, but we are expecting a stronger growth. And also, we are hoping that we'll be able to compensate the BSNL revenue in multiple other ways both internationally as well as domestically. So we are at this time confident obviously like with BSNL, when I said there's a better year than CY '24, it's more broadly on the international business. Say, net business, we have to see, like that would be -- if you are -- the replacement could be or definitely is a headwind, but we know that we'll be able to replace most of it.

Okay. So what I was trying to understand is I think India business, we had seen close to $1 billion incremental revenue in calendar '24 over '23 and that should taper off or unwind in calendar '25, which means the core market should at least do the heavy lifting of going up to double digit, and that's when you can be better than...

Sudheer, I want to put a double-digit target, but definitely the core markets should do heavy lifting. And even -- but the regional markets other than BSNL also, they are growing quite nicely. So it could be -- some part of the load could be taken up by the regional markets as well.

We have a next question from the line of Vibhor Singhal from Nuvama Equities.

So Kriti, again, just to dwell a bit on the discretionary part, the comment that you mentioned. Now one of the things that has been plaguing us and the industry over the past 2 years was the discretionary part of many of the existing deals have been put on hold from the client side. So are we seeing some basically recovery in that as well in terms of clients maybe looking to put that back on the annual along with, of course, the normal recovery that you mentioned in your comment and explanation thereafter.

That's what I said. There are some early signs of discretionary spend. So that is what is giving us such confidence also to say CY '25 could be better than '24.

Got it. Got it. And specifically in the BFSI segment, if I could just dwell a bit, I think this is a segment which has historically been one of the biggest adopters of technology. You mentioned that they are also the ones which are also looking at wide-scale GenAI adoption. So any progress that you believe that we are also making in terms of the legacy code modernization, the opportunity that we kind of showcased in our Analyst Day as well? I mean any -- what should I say, any POCs or projects which have kind of gone towards an incremental advanced stage on that front that we can talk about?

See, overall on the BFSI thing, as I said, adoption is very strong, and they are quite [indiscernible]. And from overall technology modernization, code modernization, we are talking to some of our customers on large scale transformation as well. So we do see a reasonable kind of either advance discussions with our customers or early discussions, but technology modernization discussions are quite strong.

Got it. Got it. Great. Just one last question on the BSNL part. We had some -- in some of our earlier remarks, we had mentioned that there might be some extension to the BSNL deal from the magnitude that it is at this point of time. So does the TCV for this quarter include any amount of contribution of extension of the project or it is completely non-BSNL TCV that we have?

No. Current TCV does not include any BSNL contribution.

Are we expecting any extensions, sir, in the next fiscal year or too early to call? Or is it [indiscernible]?

We have floated a 5G RFP. We qualify for that. Given that we have successfully executed on the 4G one, we will be participating on to it.

We have a next question from the line of Rishi Jhunjhunwala from IIFL Institutional Equities.

Just a couple of quick questions. Firstly, on this BSNL thing, right? So over the course of the entire project, which I guess is going to go on for in total 6 to 8 quarters, 8 quarters or so. Just wanted to understand the overall project, what the end profitability would eventually be that you would have envisaged if at all there is? I understand it was strategic in nature, was giving you an entry into network services management and all that. But just from a project profitability perspective, just wanted to get some color on that.

Rishi, unfortunately, like we have said in the past, we'll not be divulging client-specific contributions of revenue or profitability.

Okay, no problem. The other question is on capital allocation method. So you've announced a special dividend this quarter. So given the change in the tax regime on buybacks? Is it fair to assume that going forward, dividends would be the more efficient way for you to return capital?

See, it's a Board decision. Both the alternatives are still available. The point you mentioned is also right. But depending on -- so we take into account or the Board takes into account various references from various classes of shareholders and arrives at the decision. Regulation changes or tax changes will also be factored in when that decision is likely taken.

So assuming no regulation or tax change, we will continue to give dividend only?

Both the options are still available in terms of buyback and dividends.

We have our next question from the line of Manik Taneja from Axis Capital.

While my question on BSNL has been answered, I just wanted to understand this deal, basically. In the past, you remarked about an elongation in terms of deal tenures. Are we seeing some normalcy return there? That was the data-keeping question.

And the second question was, we've been hearing from some of the industry folks about GenAI giving the managed services players the option to simply move to a software pricing model. It would be great to understand your viewpoint on this.

One, on the -- I said I did mention there's a shortening of deal cycle. Deal tenure, I won't say there is a greater -- there's a big difference. The deal tenures more or less remain same. But deal cycles, there is a shortening.

In terms of pricing because of GenAI, we have -- while there are discussions that happen on what could be alternate options. But there has not been a significant change because of AI, GenAI in our pricing at this time.

But do you envisage such a scenario playing out over the next few years?

Too early to call out, Manik, at this time because not too many -- most of the deals are all in the traditional models only, while people are discussing what options could exist. So I would say it's a little early to call out on how it will evolve.

[Operator Instructions] The next question is from the line of Abhishek Kumar from JM Financial.

Kriti, I just wanted to pick up one remark you made earlier that furloughs could recover to some extent in next quarter. I was just wondering if you believe there could be some spillover of furloughs into Q1 like what we saw last year?

Yes. Like the reason I said that is I see in some geographies, furloughs do spill over into until first couple of weeks of January. It's a small proportion of overall furlough. So that's the reason I said some furlough recovery, not complete. There will be some spillover in some geographies.

Sure. But nothing unusual, a similar trend as what we have seen in previous years?

Yes, similar to last year.

Okay. And second question is, you said client budgets are likely to be flat with some positive bias. At the same time, we are hopeful of discretionary spending picking up. Just trying to reconcile the two. Do you think there is still reprioritization of budgets where these discretionary spends will be funded by efficiency gains somewhere else? Or you think budgets could be revised as we go through the year?

Abhishek, reprioritization in my view will keep happening all the time. But the expectation of ROI or how soon the ROI should be what is the period by which they have to get the return. There could be -- that bar could change because clients are interested in doing more -- and also, there is a greater interest and focus on discretionary projects. All put together, we find that there will be a positive momentum, and there is a positive bias in the overall budget, but reprioritization will not stop completely. That would be an ongoing process to ensure that they get the value out of the project they start up.

We have our next question from the line of Sumeet Jain from CLSA.

Happy New Year to entire management. Kriti, I think you mentioned that you are seeing early signs of revival and discretionary spend across various verticals due to political uncertainty being behind in U.S. But if you look at, there is still a lot of uncertainty around potential increase in inflation due to trade tariffs or uncertain government policies or increase in the U.S. interest rates, which we are seeing in the current U.S. bond yields. So how stable is this revival to discretionary spend you're expecting probably over the next 1 to 2 quarters and entire CY '25?

Sumeet, what we commented is based on what our discussions with our customers tell us and what we are seeing in terms of the opportunity and the pipeline. If the macros change for the negative in a big way, that will definitely impact. So I don't think this is -- this will be resistant to macro change. The comment I made is based on what we are seeing today based on the discussions we are having and the pipeline that we are seeing in front of us.

Got it. That's helpful. And maybe can you also comment around Healthcare, Life Sciences and Manufacturing verticals. I was not very clear. Are you saying that they have already bottomed out and they will start seeing growth from next quarter onwards? Or are you still waiting for some clarity there?

From a Manufacturing perspective, I feel we'll bottom out in Q4 and growth should revive subsequently. In Life Sciences & Healthcare, there is definitely, that's one industry waiting for more policy clarity in U.S. So once the clarity emerges, discretionary spend could return there.

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

Wishing everyone a very happy New Year. I have two questions. The first, where are we in our journey of infusing AI into various statement of work that we do with the clients? I'm sure like we run thousands of different projects with the clients, and there will be an initiative to infuse AI. So where are we in that journey?

And my second question is that, Kriti, you made a comment that discretionary work comes then automatically, the revenue realization is faster. Would that also mean better revenue productivity and could that also be a lever for margins?

Yes. On infusing AI, it's a continuous process, Gaurav. We are looking to infuse AI [ leverage ] program, be it AMS program or application development. We are looking to infuse AI, like one is from a productivity perspective; two is, also the way of bringing technology resilience for our customers and keeping them like technology infrastructure future-ready. So it's an ongoing process, almost every large RFP we work with, there is a component of AI, infusion of AI gets discussed in almost all of them.

In terms of revenue productivity because of discretionary projects. That's a fair -- I would say it's a fair assumption to make that discretionary projects should yield a better productivity. But sometimes like things competition can play out and the overall environment could play out. But generally, better discretionary spend environment should give us a better revenue productivity.

We have a next question from the line of Abhishek Pathak from Motilal Oswal.

Kriti, just a question on your point earlier around retail as about seeing some recovery. I just wanted to know the drivers behind that and the outlook for that, let's say, for CY '25? And the other thing, likewise on technology and hi-tech, what's your view on the hi-tech vertical? Do you think a lot of the CapEx spend around GenAI and GPUs is now behind? And can we expect the U.S. big tech companies to maybe shift their focus on services spends for the next year?

On the retail, definitely, we are seeing a better outlook and particularly the growth we are seeing in the essential, fashion apparel kind of subsegments. We are seeing some sort of early signs of revival of discretionary spending.

And your question on hi-tech. Again, hi-tech, we are overall positive on the industry. We work with the semiconductor players. We work with hyperscalers. Most of them are planning to increase the spend in the coming year. And so our participation in -- with them will also be improving. So excepting the professional services side of that industry, the overall hi-tech industry, we are quite positive.

We'll take our next question from the line of Sandeep Shah from Equirus Securities.

Just to get a clarity on BSNL and sorry to hop around the same. The first phase, which largely involved 4G, the belief is the TCV is close to $1 billion. And now you are seeing that tapering off could extend till 1Q or 2Q of FY '26. So is it fair to assume the deal TCV is higher than $1 billion in the first phase?

Sorry, could you repeat that? Is it fair to...

Deal TCV in phase 1.

Is higher than?

$1 billion.

So when we disclosed, we had said that overall it was over $1 billion deal. We didn't disclose exactly what the amount was. And in line with tradition, we don't disclose client-specific details, given so much of overall intuitiveness around the BSNL. Traditionally, we have been giving the progress of what it is, and that is basis what has been in the public domain. But further client-specific details, either in terms of TCV, revenue or margins is unlikely that we'll be able to provide further color on.

Okay. Fair enough. And just last thing, Kriti, is it fair to assume you are expecting recovery in CY '25 in most of the verticals, but auto and aero may lag in terms of the recovery? How do you like to see which verticals where there would be a lag in terms of recovery in discretionary spend?

I won't be able to call that by which vertical will lag because as I said, we don't have full clarity on Life Sciences, Healthcare. Auto and actually, aerospace industry should grow because kind of order book they have. See, the challenges they have been having are more transient in terms of labor market or supply chain [indiscernible]. And as they stabilize, I think that demand environment should improve in aerospace industry. And auto also, we are seeing some revival slowly happening in North America. So as I said, Life Sciences & Healthcare, I would like to wait and watch. And most other industries look positive at this time.

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.

Thank you, operator. So revenue grew by 4.5% year-on-year in constant currency with an operating margin of 24.5% and a net margin of 19.4%. We are very pleased with the strong TCV of $10.2 billion, with sharp uptick seen across markets and industries. Our campus hiring for the year is going according to plan and preparations are underway to onboard a higher number of campus hires next year.

I would like to thank all TCSers for their efforts and unwavering dedication to realizing their own and company's potential. We look forward with cautious optimism to the promising opportunities that 2025 will bring for us. With that, we wrap up our call today. Thank you all for joining us.

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.