Tata Consultancy Services : Transcript of the Q2 2023-24 Earnings Conference Call held on October 11, 2023

	Tata Consultancy Services Limited
	Earnings Conference Call.
	October 11, 2023, 19:00 hrs IST (09:30 hrs US ET)
Moderator:	Ladies and gentlemen, good day and welcome to the TCS Earnings
	Conference Call. As a reminder, all participant lines will be in the listen-only
	mode, and there will be an opportunity for you to ask questions after the
	presentation concludes. Should you need assistance during the conference
	call, please signal an operator by pressing star, then zero on your touchtone
	phone. Please note that this conference is being recorded.
	I now hand the conference over to Mr. Kedar Shirali, Global Head of Investor
	Relations at TCS. Thank you and over to you, sir.
Kedar Shirali:	Thank you operator. Good evening and welcome everyone. Thank you for
	joining us today to discuss TCS's financial results for the second quarter of
	fiscal year 2024 that ended September 30th, 2023. This call is being webcast
	through our website and an archive including the transcript will be available on
	the site for the duration of this quarter. The financial statement, 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:	Hi, good day everyone.
Kedar Shirali:	Mr. N G Subramaniam, Chief Operating Officer and Executive Director.
N G Subramaniam:	Good evening everyone.
Kedar Shirali:	Mr. Samir Seksaria, Chief Financial Officer.
Samir Seksaria:	Hello, everyone.
Kedar Shirali:	And Mr. Milind Lakkad, Chief HR Officer.
Milind Lakkad:	Hi, everyone.
Kedar Shirali:	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
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Tata Consultancy Services Earnings Conference Call

October 11, 2023, 19:00 hrs IST (09:30 hrs US ET)

reflects our outlook for the future, or which could be construed as a forward- looking statement, must be reviewed in conjunction with the risks that the company faces. We have outlined these risks in the second slide of the quarterly fact sheet available on our website and emailed out to those who have subscribed for our, on our mailing list. With that, I would like to turn the call over to Krithi.

K Krithivasan: Thank you, Kedar. Good morning, good afternoon, good evening to all of you. Our Q2 performance shows continued strength and demand for our services, particularly around cloud and cost optimization, resulting in strong deal wins, a robust order book, and a good pipeline.

This was true in prior quarters as well. In each of the past three quarters, our order book has exceeded $10 billion TCV compared to the average of $7 to $8 billion range in the 2021 and 2022.

The newly won deals are converting into revenue as expected, but these revenue inflows are getting neutralized by reduction in the existing revenue base as the transformation projects get completed, or RTB projects get optimized, or in some cases, downsized. This has led to muted revenue growth.

In Q2, our revenue grew 7.9% in rupee terms, 2.8% in constant currency terms, and 4.8% in dollar terms. Our operating margin was at 24.3%, and net margin was at 19%.

I'll now invite Samir, Milind, and NGS 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. Over to you, Samir.

Samir Seksaria: In the second quarter of FY24, our revenue was `59,692 crore, which is a year-on-year growth of 7.9%. In dollar terms, the revenue was $7.21 billion, a Y-o-Y growth of 4.8%. In constant currency terms, the revenue growth in Q2 was 2.8%.

Let me now go over financial performance. Our operating margin is at 24.3%, which is 110 basis points expansion sequentially. We got 100 basis points benefit from disciplined execution, which resulted in improved utilization and productivity and further optimization of subcontractor expenses.

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Tata Consultancy Services Earnings Conference Call

October 11, 2023, 19:00 hrs IST (09:30 hrs US ET)

Additionally, we gained 35 basis points from driving efficiencies in discretionary expenses, which I had referred to last quarter as gaining critical mass. On the

	other hand, we continued to invest in infrastructure.
	Net income in Q2 was 19%. Our EPS grew 8.7% on a year-on-year basis.
	Effective tax rate stayed unchanged at 25.8%. And our accounts receivable
	was flat sequentially at 65 days' sales outstanding in dollar terms.
	Net cash from operations was at `118.23 billion, which is 104.2% of net
	income. Free cash flow was at `113.57 billion and invested funds as of at the
	end of 30th September stood at `596.77 billion.
	The board has recommended an interim dividend of `9 per share. Further, the
	board has recommended a buyback to the tune of `17,000 crore through the
	tender route at `4,150 per share. Over to you, Milind.
Milind Lakkad:	Thank you, Samir.
	Our workforce at the end of the second quarter was 608,985 strong. Our
	strategy of proactively hiring bright freshers and investing in training them with
	the right skills is paying off now. With that talent coming on stream and with
	reduced attrition, we were able to recalibrate our gross additions, keeping it
	below the departures during the quarter, driving up productivity and enhancing
	project outcomes.
	Our workforce continues to be very diverse with 152 nationalities and with
	women making 35% of the base. We continue to invest in organic talent
	development.
	Year to date, TCS has logged 26.4 million learning hours and acquired 2.6
	million competencies, including over 350,000 high demand competencies. We
	have over 100,000 Gen AI ready employees today and we are now investing
	in deepening their expertise further on this exciting new technology.
	LTM attrition in IT services was at 14.9%, down 2.9% sequentially, close to our
	historical range of 11% to 14%.
	Over to you NGS for some color on our segments and products and platforms.

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Tata Consultancy Services Earnings Conference Call

October 11, 2023, 19:00 hrs IST (09:30 hrs US ET)

N G Subramaniam: Thank you, Milind. Before I get into segmental performance, I wanted to highlight some changes in how we report segmental performance in our fact sheet from this quarter. Historically, we reported revenues from North America, Latin America, UK, Europe, and Australia under the industry verticals, separating out other emerging market revenues, products and platforms and a few other small businesses, or those with atypical revenue profiles, in a separate line called Regional Markets and Others (RMO).

In Q2, we made three changes:

First, we reclassified revenues from Asia Pacific (excluding Japan), and Middle East and Africa, hitherto part of RMO under their respective industry verticals.

Second, with our Energy, Resources and Utilities vertical gaining critical mass, we have extracted out the first two sub-verticals from RMO, and we'll now start reporting it as a standalone industry vertical.

With these two changes, revenue contribution from RMO is down from over 17% to around 11%. We have provided comparatives for the last four quarters in our fact sheet.

The third change is the renaming of our retail cluster, consisting of Retail, CPG, Travel, Transportation and Hospitality verticals as the Consumer Business Group or CBG.

Let me walk you through our segmental performance now. As a reminder, all growth numbers are in year-on-year constant currency terms.

Growth was led by the newly carved out Energy Resources and Utilities vertical, which grew 14.8%. Manufacturing grew by 5.8%. And life sciences and healthcare grew by 5%.

Our Consumer Business Group grew by 1%. Banking, Financial Services and Insurance grew by -0.5%, Communications and Media by -1%, and Technology and Services by -2.2%.

By geographic markets, we see maximum caution in North America and Continental Europe, which grew 0.1% and 1.3% respectively. We continue to have good momentum in the United Kingdom, where the market grew by

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Tata Consultancy Services Earnings Conference Call

October 11, 2023, 19:00 hrs IST (09:30 hrs US ET)

10.7%. In emerging markets, Middle East and Africa grew 15.9%, Latin America by 13.1%, Asia Pacific by 4.1%, and India by 3.9%.

Let me move on to our products and platforms. Our industry-leading portfolio of products and platforms had a very strong quarter. All of the products and platforms are now offered on a SaaS basis only, and we have a healthy ARR as a product portfolio.

ignio™, our cognitive automation software suite, saw 28 new deal wins and 18 go-lives.

TCS BaNCS, our flagship product for financial services, had 2 new wins and

11 go-lives during the quarter. Among the go-lives this quarter is JPMorgan Security Services, where our real-time,event-drivenmulti-market platform is helping the bank provide clients with a standardized and streamlined process in each of the 100 markets they operate in, enhancing the customer experience around corporate actions.

TCS BaNCS insurance platform continues to see strong momentum in Q2 with 4 new wins and 2 go-lives during the quarter. For a global financial institution based out of South Africa, TCS has completed a massive migration from a heritage platform to TCS BaNCS for insurance. This is the largest and most complex migration of its kind in the history of the market, entailing 4 million policies. With this migration, the client's entire retail protection business is on TCS BaNCS. Post migration, the policies are now available to both advisors and customers through digital channels.

Quartz blockchain platform had 2 go-lives this quarter.

In life sciences, TCS ADD platform had 2 new wins and 1 go-live this year. TCS ADD Safety went live at a top 10 UK based pharma with its latest version that uses advanced AI algorithms to process adverse event cases, a first of its kind in industry.

With this, TCS ADD Safety has successfully automated more than 1 million cases, a landmark by any technology company using AI in pharmacovigilance, delivering industry-leading efficiency and accuracy metrics.

TCS HOBS, our suite of products for communication service providers, had 1 new win and 2 go-lives during the quarter.

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