TCS conducted a conference call on April 12,2024. In the call the
company was represented by Mr K Krithivasan-CEO and MD, Mr N Ganapathy Subramaniam-COO, R
Samir Seksaria-CFO and Mr Milind Lakkad-CHRO.
Key Takeaways
of the call
The company closed Q4 and FY24 on a strong
note with the highest ever order book and a 26% operating margin
Revenue: Revenue during the Q4FY2024 quarter increased by 3.5% YoY to Rs 61237 crore.
In US $ terms revenue for the quarter stood at US $ 7363 a growth of 2.3% YoY,
in constant currency terms the growth was 2.2% YoY.
Revenue for the full year FY2024 stood at Rs 2,40,893 crore up 6.8% YoY
and up 3.4% YoY in constant currency terms.
By Industry verticals, in Q4 FY2024 growth was led by manufacturing
which grew by 9.7% YoY; the Energy, Resources and Utilities vertical
grew by 7.3% YoY. BFSI declined
3.2%, consumer business declined by 0.3 % YoY, Technology & Services
declined by 5.6%, communication and media declined by 5.5%. Regional markets
grew by 26% yoY.
By markets in Q4
FY2024 growth was led by Emerging markets with India growing by 37.9% YoY
growth followed by
the UK 6.2%YoY,continental Europe declined by 2% YoY, North America declined by
2.3%, while Latin America grew by 9.8% YoY; Asia Pacific
grew by 5.2%YoY and MEA grew by
10.7% YoY.
BSNL project is progressing well and the company has installed 10000 tower equipment.
The company expects most of the supplies by vendors be September 2024 and it
will take another 2-3 quarters to roll
out.
Margins: EBIT margins for the quarter stood
at 26.0% in Q4FY2024, a growth of 100 bps sequentially. There was head winds of
90 bps due to higher third party cost and increase in travel expenseswhich was
offset by 190 bps by favourable currency movement, reduced sub-con cost,
improved productivity and better utilization.
Margins have improved sequentially in all the
preceding 3 quarters by around 100 bps.
Incremental margin growth is expected to come
from focused execution, improved pyramid, productivity and utilization. Pricing
will also be a lever for incremental margin. However, sub- contractor cost has
bottomed out and expected to bounce back.
The company expects head wind in margins in
Q1FY2025 due to salary increments and expects to improve sequentially in
subsequent quarters as in FY2024.
EBIT margins for the year stood at 24.6% an
increase of 50 bps over FY2023. The company had an impact of 250 bps due to
annual increments and other and another 90 bps due to third party expenses and
the company mitigated the same by optimizing sub-con cost, improving
productivity, improved utilization and support from currency.
Net income margin stood at 19.3% and
effective tax rate stood at 25.8% for FY2024.
Human
resource:
Total work force stood at 601546 with a
decline of head count by 1759 on a sequential basis.
LTM attrition for IT services stood at 12.5% in
the quarter down 80 bps and with in the comfortable range of 11-13%.
Work force remains diversified across 153
nationalities and 35.6% women employees.
TCSers have clocked 51 million learning
hours, and acquired 5.0million .
The company is committed to hiring from
college campuses and growing talent organically. The company still stands
at the plan for hiring 40,000 fresher’s in FY25
The company has commenced its campus hiring
process for the next year FY2025.
The company is implementing wage increases of
around 4.5-7% raise across the board, with exceptional performers receiving
double-digit raises effective april 1, 2024.
The company does not see any correlation
between demand and decline in head count.
Client Metrics: The
company has added 2 clients in the US $100 million+ bucket, 6 clients in the
$50 million+ category, 10 clients in the $ 20 million + category, there was
addition of26 clients in the $10 million+ category,28 clients in $ 5 million +
categoryand 53 clients in US $ 1 million category on a YoY basis.
Order book:
The company’s reported strong order book of TCV US $13.2 billion for the
fourth quarter of fiscal year 2024. The company signed one mega deal with
AVIVA.
BFSI TCV continues to be robust at US $ 4.1billion and consumer business
order book at US $ 1.6 billion. TCV of deals signed in North America stood at
US $ 5.7 billion.
Deals are of regular size and the company is winning deals in every
geography and verticals. And most of the verticals have higher deals. Deals are
across transformation and cost optimization. Gen AI pipeline has also doubled
and it is around US $ 900 million.
The deals are getting converted to revenue as expected.
Small deals to be executed within a year constitutes a good chunk of the
total order book.
FY2024 order book TCV stood at US $ 42.7 billion up 26% YoY.
Outlook:
The company expects FY2025 to be better than
FY2024.
The company is cautious in the short-term as short-term demand remains volatile and unclear. The company is unable to predict
the customers willingness to spend.
However this will bounce once the economy stabilizes.
Discretionary spends- Some of the clients are
either postponing or delaying the
discretionary programs due to lack of visibility in near term.
The company expects emerging economies
including Latin America, India , Middle East and Asia pacific to grow, however
the base of the same is small.
Tech spends- Budgets for technology spends
are not contracting and are either at similar levels or for some cases it is
increasing. The company expects tech spends to actually increase going forward.
Order book from BFSI vertical and Major markets
are not negative but flattish. Further, the company expects turnaround.
Artificial Intelligence projects are not
eating typical spends. They are in fact embedded in large transformational
deals.
Dividend:The board has recommended dividend of Rs28 per share.
Management
commentary:
K Krithivasan, Chief Executive Officer and
Managing Director, said: “We are very
pleased to close Q4 and FY24 on a strong note with the highest ever order book
and a 26% operating margin, validating the robustness of our business model and
execution excellence. In an environment of global macro uncertainty, we are
staying close to our customers and helping them execute on their core
priorities with TCS’ portfolio of offerings, innovation capabilities and
thought leadership.”
N Ganapathy Subramaniam, Chief Operating
Officer and Executive Director, said: “Our Q4 performance is robust, with broad
based deal wins across industries and geographies. Our products and platforms
business sparkled with the mega deal win at Aviva and emerging markets had
another stellar growth quarter demonstrating the power of TCS’ diversified
portfolio.”
Mr Samir Seksaria, Chief Financial Officer,
said: “In FY 2024, our disciplined approach to operations have helped us expand
our industry-leading margins. In a challenging environment, we persisted with
our long-term investments in workforce re-skilling, research and innovation. We
will continue to drive efficiencies and competitiveness to capture opportunities
for growth with profitability.”
Mr Milind Lakkad, Chief HR Officer, said: “We
are pleased to announce the annual increments for our workforce, as we have
done consistently every year, with top performers receiving double digit hikes.
The reduced attrition at 12.5%, enthusiastic response to our campus hiring,
increased customer visits and employees returning to the office have resulted
in great vibrancy in our delivery centres and elevated morale of our
associates."
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