TCS — earnings call

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Prepared remarks

Moderator · Conference Operator

The next question is from the line of Sandip Agarwal from Edelweiss.

Please go ahead.

The next question is from the line of Kumar Rakesh from BNP Paribas.

Please go ahead.

Kumar Rakesh

My first question was again on the margin side.

So, on the subcon side, hypothetically speaking, suppose we enter into a weak demand scenario, and that is one of the levers which we potentially have to improve our cost structure.

In such a scenario, how much of this subcon benefit we can potentially drive?

What I'm trying to understand is how much of our cost impact is coming from subcon currently given the supply constraint which we are facing?

Samir Seksaria

So, our subcontractor expenses currently are at 9.7% of our revenues, and have moved up from about 7% levels to where we are currently.

And as Rajesh pointed out, we have proactively and strategically invested in creating a bench.

Our current priorities are to stay focused on capturing the demand.

And we have known how to balance on the subcontractor side.

And as the need arises, we'll be able to realign it or balance it.

Kumar Rakesh

So, what I understand is that we can stabilize it at 7% if the need arises, right?

Samir Seksaria

Yes.

Kumar Rakesh

My second question was around the fresher hiring target we had set about 40,000.

How we are progressing on that and has that changed that target?

Rajesh Gopinathan

No, we are on track for that and we're progressing well on it.

This quarter reflecting what we already had in the system, we've been a bit lighter on the one which typically has been our long term trend, Q1 is a lighter quarter for trainee absorption whereas Q2 and Q3 are the primary quarters.

Last year, we had gone very aggressive and hired through the year to build up more than 100,000 trainee bench.

This year is more than normal.

We're progressing well on that 40,000 mark.

Moderator · Conference Operator

The next question is from the line of Gaurav Rateria from Morgan Stanley.

Please go ahead.

Gaurav Rateria

So, first question is with respect to the UK market.

If you look at the YoY growth, it has been actually slowing down and it's a clear divergence compared to the North America market, which is continuing to remain very, very strong.

So, what's really going on there, are the trends or the discussions actually fructifying in the form of a little bit of a slowdown in the velocity of the deal closures, or the ramp ups, any trend that you can highlight will be helpful.

N G Subramaniam

NGS here.

Both in the UK and North American market, we don't see any anomalies or abnormalities in terms of customer behavior or the deal closure trends.

All of this

Moderator · Conference Operator

The next question is from the line of Ravi Menon from Macquarie.

Please go ahead.

Ravi Menon

Rajesh, are there any soft spots that you see in any vertical you're seeing in the pipeline shift towards more efficiency or programs?

Rajesh Gopinathan

No, Ravi, we're not seeing much from a vertical perspective.

It seems to be fairly balanced across.

Nothing at this stage that you can call out at a vertical level.

Ravi Menon

We had heard your comments in the press conference, you were talking about how the US will likely be the main driver of growth during the near term.

But I thought in Europe, our market share is still fairly small.

So, we should have a lot of these gen-two outsourcing contracts come out.

So, shouldn't that also be a driver at least medium term once uncertainty settles a bit?

Moderator · Conference Operator

The next question is from the line of Sandeep Shah from Equirus Securities.

Please go ahead.

The next question is from the line of Debashish Mazumdar from B&K Securities.

Please go ahead.

D Mazumdar

Just one small question.

I need to understand as far as the margin trajectory is concerned, in a normal year, we see the entry margins are lower and exit margins are normally higher, which was not the case last year; last year, we started with 25.5%, we

Moderator · Conference Operator

The next question is from the line of Dipesh Mehta from Emkay Global.

Please go ahead.

Dipesh Mehta

A couple of questions.

Starting with regional market, if I look at our regional market performance remain muted for some time and even though BFSI also remains softer, so if you can provide some sense about how we should look at regional market?

Second question is about the fresher hiring.

We are indicating about 40,000 for FY 23.

But considering that we plan one year advance, how many offers are we planning for

Moderator · Conference Operator

The next question is from the line of Manik Taneja from JM Financial.

Please go ahead.

Manik Taneja

I had a couple of questions.

Number one is that you mentioned that some of your senior client executive conversations are suggesting some concerns on the macro economic

Moderator · Conference Operator

The next question is from the line of Apurva Prasad from HDFC Securities.

Please go ahead.

Apurva Prasad

Rajesh, just a couple of quick ones.

Most of the others have been covered.

So, first one is on pricing.

Are you seeing any incremental challenges in getting price increase even though that being selective say versus the previous quarter?

And the second question is on Retail and CPG.

Are there some early signs of some softness there, and I'm referencing to the book-to-bill has been significantly higher than the past three years, this looks excellent down a lot more.

Rajesh Gopinathan

No, on pricing, actually, the conversations are picking up momentum rather than losing momentum.

So, absolutely no reflection there.

On retail, those TCV numbers are normal nature of TCV rather than anything else.

We are seeing very strong transformation agendas across many retailers, especially grocery and essential retailers, where significant transformation programs are getting executed and we see continuing demand.

So, overall the pipeline is quite strong and the demand environment also in retail is very strong.

Moderator · Conference Operator

Ladies and gentlemen, that was the last question for today.

I now hand the conference over to the management for the closing comments.

Rajesh Gopinathan

Thank you.

It has been a good start to the year with 15.5% growth in constant currency, and with all our industry verticals showing good growth.

Our order book and pipeline is also very strong, giving us good visibility for the next few months.

Our margin dipped this quarter due to salary increase and supply side related costs.

But we stay confident in our ability to bring it back to a preferred range over time.

Moderator · Conference Operator

Thank you members of the management.

On behalf of TCS that concludes this conference.

Thank you all for joining us and you may now disconnect your lines.

Note

This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings.

Questions and answers

Moderator · Conference Operator

We will now begin the question-and-answer session.

The first question is from the line of Ankur Rudra from JP Morgan.

Please go ahead.

Ankur Rudra

A few questions from me today.

First, Rajesh, could you maybe elaborate on the tone of conversations you had with clients on perhaps new growth and transformation contracts.

How has that evolved this quarter?

And in addition to that, how do you think the pipeline formation has been?

And finally, how should we interpret the fact that deal signing to the growth on a year-over-year basis seems to be sort of flattening out and the book-to-bill ratio seem to be lower than the last couple of years?

Rajesh Gopinathan

Hi Ankur.

As you can imagine, we have been staying very close to our customers given the overall news flow that we see all around us.

We have been at all levels personally reaching out, meeting with as many customers as we can.

The general sense that we're getting is that at the operating level, the demand continues to be very strong and unabated.

There is high visibility of project funding; there is appetite for continuing investments and in fact, for acceleration.

So, the demand environment on an immediate basis continues to be very strong.

Some conversations at senior executive levels – CEO, COO, level, etc., are more about what they see overall about the whole macro environment that you spoke about.

But that elevated conversation does not seem to be reflecting in the actual budgets and the spend.

We have not seen any project cancellations, pull backs, nothing of that sort.

And this is across both transformation projects as well as on the optimization projects.

Overall, we are, as you can imagine, staying very vigilant, maximizing contact with customers and taking it on a case-to-case basis, and reacting to what we have on hand and maintaining that stance.

Ankur Rudra

Second part, Rajesh, should investors read anything into the fact that the book-to-bill ratios have dropped a bit this year versus the last years at this time?

Rajesh Gopinathan

TCV is a forward-looking number.

It is what it is.

I gave you the commentary on what we're seeing on the field.

The actual closures, that number is there.

When we look at our pipeline and overall trend, I don't think there's anything that is alarming for us.

A 1.2 times book-to-bill is still quite strong.

So, nothing more than that from our perspective, but we're also being very vigilant.