TCS hosted a conference call on July 11, 2024. In the call the company was represented by Mr K Krithivasan-CEO and MD, R Samir Seksaria-CFO and Mr Milind Lakkad-CHRO.

Key Takeaways of the call

The company had a good start for the fiscal year. Ability of the company to deliver on large scale complex engagements, projects of national importance, mission critical services for world’s large corporate has helped win market share.

Revenue: Revenue during Q1FY2025 quarter increased by 5.4% YoY to Rs 62613.0 crore. In US $ terms revenue for the quarter stood at US $ 7505 million a growth of 3.9% YoY, in constant currency terms the growth was 4.4% YoY.

All the major markets and verticals returned to growth sequentially (except CMI vertical).

By Industry verticals, growth was led by manufacturing which grew by 9% YoY followed by Energy, Resources and Utilities vertical which grew by 5.7% YoY and life science which grew by 4.0% . The Consumer Business Group (CBG) declined by 0.3% YoY, BFSI declined by 0.9% YoY, Communications & Media declined by 7.4% YoY and Technology & Services declined by 3.9% YoY. (Growth are in constant currency terms).

By markets growth was led by Emerging markets with India growing by 61.8% YoY growth led by the mammoth Rs 15,000 crore BSNL deal it won last year for deploying 4G networks across India; Asia pacific grew by 7.6% and Middle East grew by 8.5%. Latin America grew by 6.3% YoY, UK grew by 6.0% YoY ; Continental Europe grew by 0.9%; while North America declined by 1.1% YoY.

India growth was also driven outside BSNL.

Margins: EBIT margins for the quarter stood at 24.7% in Q1FY2025 inspite of head winds of 170 bps due to annual wage hike. In addition third party expenses also increased. These were offset by improvement in operating efficiencies including better productivity, improved utilization and reduction in subcontracting expenses. Net income margin for the quarter stood at 19.2% during the quarter.

The company expects to get back to aspirational EBIT margin band of 26-28%.

Pricing: Prising is stable. While the company witnessed apprehensions at individual client level, there are no major impacted at a portfolio level which has to be called out. Realization for the company is also improving sequentially.

Human resource:

Total work force stood at 606998 with an increase in head count by 5452 on a sequential basis.

LTM attrition for IT services stood at 12.1% in the quarter as gainst 12.5% in Q4FY2024.

Work force remains diversified across 151 nationalities and 35.5% women employees.

TCSers have clocked 11 million learning hours, and acquired 1.2 million competencies.

The company has on boarded 11000 freshers’ in Q1FY2025 and also expects to meet its annual fresher hiring target of about 40,000 in the current financial year FY2025.

The company has completed the wage hike cycle in Q1FY2025 effective April with hike in the range of 4.5-7%. High performers were given double-digit hikes. However, the company held back variable pay to employees who did not maintain their eligible office attendance in FY24.

Client Metrics: The company has added 3 clients in the US $100 million+ bucket, 3 clients in the US $50 million+ category, 4 clients in the US $ 10 million + category, while there was addition of 18 clients in the $10 million+ category, 20 clients in US $ 5 million category and 42 clients in US $ 1 million category on a YoY basis.

Order book:

The company’s reported TCV order book of US $8.3 billion for the quarter Q1FY2025.

TCV of deals signed in North America stood at US $ 4.6 billion. BFSI TCV stood at US $2.7 billion, Consumer Business TCV stood at US$1.1 billion.

Win themes across key deals involved operating model transformation, vendor consolidation, legacy modernization, M&A, customer experience, digital workplace services, ER&D, Identity & access management and AI/GenAI initiatives.

TCS is currently executing about 270 GenAI projects and its  AI and Gen AI pipeline has doubled to US$1.5 billion in Q1FY2025. Most AI deals are short-term ones, but have started to see long-term opportunities as well.

Outlook:

The management said that there is nothing new to add with respect to market sentiments. However it expects FY2025 to be better than FY2024. With the conditions remaining the same it is too early to call whether the growth momentum will continue or there is demand stability.

Clients budget spending is either where RoI is better or the projects are stopped where RoI is low.

The company is not witnessing any change in the environment with respect to discretionary spends and the clients are waiting for more clarity on macro-economic environment. Investment decisions are not yet taken. The clients are more focussed on cost optimization and vendor consolidation deals.

In BFSI there is positive movement and North America has done well.

CMI vertical has witnessed decline in revenues for the last 5 quarters. Most of the telcos have done CAPEX with respect to 5G and have not witnessed the return expected. The company expects the growth to come back in the vertical once interest rates start declining.

Retail vertical growth depends on consumer confidence, inflation and interest rates.

Dividend: The board has recommended interim dividend of Rs 10 per share.

Management commentary:

K Krithivasan, Chief Executive Officer and Managing Director, said: “I am pleased to report a strong start to the new fiscal year with all-round growth across industries and markets. We are continuing to expand our client relationships, create new capabilities in emerging technologies and invest in innovation, including a new AI-focused TCS PacePort™ in France, IoT lab in the US and expanding our delivery centers in Latin America, Canada and Europe.”   

Samir Seksaria, Chief Financial Officer, said: “In spite of the usual impact of the annual wage increments in this quarter, we have delivered strong operating margin performance, validating our efforts towards operational excellence. We remain focused on making the right investments in R&I and talent, strengthening our superior return ratios and creating long term value for our stakeholders.

”Milind Lakkad, Chief HR Officer, said: “I am delighted to announce the successful completion of our annual increment process. Our continued focus on employee engagement and development led to industry-leading retention and strong business performance, with the net headcount addition being a matter of immense satisfaction.”