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."