TCS — earnings call

The transcript as filed. Every paragraph is addressable: its link names the page and the position it sits at in the call.

Prepared remarks

Moderator · Conference Operator

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, 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’ financial results for the first quarter of fiscal year 2024 that ended June 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 statements, 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

Good evening, good morning to everyone.

Kedar Shirali

Mr. N G Subramaniam, Chief Operating Officer and Executive Director.

N G Subramaniam

Hello, everyone.

Kedar Shirali

Mr. Samir Seksaria, Chief Financial Officer.

Samir Seksaria

Hello, everyone.

Kedar Shirali

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 reflects our

Moderator · Conference Operator

Thank you very much.

We have our first question from the line of Sudheer Guntupalli from Kotak Mahindra.

Please go ahead.

Sudheer Guntupalli

Hi Krithi.

Congrats and all the best once again on your new innings.

Just a couple of questions.

Last time when we announced our results, the banking crisis in America and Europe was just cooking.

Now, is this issue still being referenced to by clients as a concern or is this subject largely behind, based on your client conversations?

1 Total Contract Value

Moderator · Conference Operator

Thank you.

We have our next question from the line of Apurva Prasad from HDFC Securities.

Please go ahead.

Apurva Prasad

Thanks for taking my question.

Krithi, after two quarters of 10 billion plus TCV, I just wanted some more understanding on your media comment earlier, when

Moderator · Conference Operator

Thank you.

We have a next question from the line of Mukul Garg from Motilal Oswal Financial Services.

Please go ahead.

Mukul Garg

Thank you.

A couple of questions from my side.

Krithi, first on the nature of pauses which you guys have started seeing.

What are you hearing from your clients in terms of what are the signs they are looking for which can make them change their view on these pauses or kind of pushouts?

Is this something which people will still have patience for some time before they start pulling back their tech spending or do you think the uncertainty being where it is, if things don't worsen materially, the demand can come back on a shorter notice?

K Krithivasan

So, Mukul, as you also mentioned, it is a near-term uncertainty which is causing the clients to re-look at the programs and pause them wherever they think the

Moderator · Conference Operator

Thank you.

We have our next question from the line of Kumar Rakesh from BNP Paribas.

Please go ahead.

Kumar Rakesh

Hi.

Good evening.

Thanks for taking my question.

Just an extension of the generative AI discussion, we were having just now.

So while you definitely talked a lot about the demand opportunity for the customers, I understand, you are also running multiple projects internally as well, to assess AI augmented processes, how they are going to save cost or productivity for you.

Can you share some of the details on that?

And is that a possibility that, our own productivity benefits within TCS could start to prove much ahead of the revenue opportunity from generative AI comes through, eventually?

N G Subramaniam

Rakesh, this is NGS again.

It’s difficult to call out some of this, but sufficient to say that, we have multiple teams, in almost every vertical that we have, who are working on pilots and internal projects.

We are also working on how to craft the methodologies and toolkits to be meaningful to our clients, using this technology.

All this is going on.

And as we called out earlier, there are at least about 50 projects that we are executing.

Some are small, some are large.

And one of the nice things to see is , if a particular organization has an ability to predict one or two parameters, that can be focused upon using this technology, that will create maximum business impact for them.

I mentioned about, for example, if someone can predict, if the technology can predict let us say, the container price three quarters down the line, then it could be a boon for the shipping industry.

So, it is a problem such as that, and how do you improve or increase the yield per acre of agricultural commodities, right?

Moderator · Conference Operator

Thank you.

We have our next question from the line of Gaurav Rateria from Morgan Stanley.

Please go ahead.

Gaurav Rateria

Hi.

Thank you for taking my question.

I have a few.

Firstly, let us know if the understanding is correct.

You entered 1Q with softness owing to events that played out in the month of March, especially in the US on banking side.

And then you built momentum through the quarter to deliver what you delivered.

Is it fair to say that you are entering the next quarter 2Q with slightly better momentum and better visibility than you did in the last quarter?

K Krithivasan

Gaurav, that is very difficult to say.

I do not want to venture into saying something like we have better visibility, better momentum at this time.

I would say, it has been very similar to what we saw in March.

I wish, I can could say that, we are in a much better place, but I do not want to give that optimism at this time.

Moderator · Conference Operator

Thank you.

We have our next question from the line of Ravi Menon from Macquarie.

Please go ahead.

Ravi Menon

My question is about fresher hiring.

So was there any fresher hiring this quarter or was the recruitment mostly lateral to backfill that ?

Moderator · Conference Operator

Thank you.

We have our next question from the line of Rahul Jain from Dolat Capital.

Please go ahead.

Rahul Jain

Yes.

Thanks for the opportunity.

Firstly on the regional market side, we have seen that, one-third of the contribution on a TTM basis has come from this segment, where the profitability is lower by 400 bps versus company average.

And some of the large deals in India market that we know like BSNL and GM probably may not have higher margins.

So you think this segment growth, faster growth would put further pressure on profitability in the coming period?

N G Subramaniam

It is something that we will have to work on.

But, these are fundamentally large programs, large system integration opportunities.

And if you really look at the

Moderator · Conference Operator

Thank you.

We have our next question from the line of Vibhor Singhal from Nuvama Equities.

Please go ahead.

Vibhor Singhal

Yes.

Hi.

Thanks for taking my question.

Krithi, just one question from my side on the two segments that we have seen quite contrasting performance in the past few quarters.

So manufacturing has held up quite well for us.

And not just for us, for all the companies across the industry.

It's been quite stable in terms of growth.

Even in this quarter, we almost have double digit growth on a Y-on- Y basis.

So what is keeping this spend up in the manufacturing segment?

And are we not facing the kind of delays that we are facing in, let's say, BFSI or other verticals, in the manufacturing segment?

And do you think that manufacturing might continue to remain stable in the coming quarters as well?

And a similar kind of opinion about retail.

So in retail, we had seen a lot of weakness in the past couple of quarters.

And again, not just for us, for the entire industry.

Are there any signs of that segment bottoming out?

If not today, maybe in a couple of quarters' time?

Just a little bit color on these two verticals?

K Krithivasan

I would say manufacturing is doing well because of the low base and the delayed pickup in demand and growth compared to other industries.

And as the supply chain situation also eases slowly, customers are able to see the growth.

Today you see the demand is still high for many of the automakers.

I think that's probably driving it.

And again, I won't be able to say how long this will last because it will eventually be a function of the overall economy.

On Retail, our view is, or what we see, the essential retail is doing well.

But if it is luxury or fashion or other specialty retail, we find that there is a softness in demand in such sub-segments of the industry.

So that's a broad color that we can provide you on these two verticals.

Vibhor Singhal

Got it.

And on the manufacturing part, just a follow-up.

Is it only the auto part of the manufacturing segment appearing stable at this point of time and looking to continue to spend?

Or are the other sub-verticals in manufacturing also kind of stable?

K Krithivasan

No, we don't provide that detailed color.

I think, excepting one, quite a few of the sub-verticals are doing well.

And our outlook may not even apply for the overall industry, as we also have significant market share gain in this segment, which is also driving our growth.

Moderator · Conference Operator

Thank you.

We have our next question from the line of Ankur Rudra from JP Morgan.

Please go ahead.

Ankur Rudra

Hi.

Thank you for taking my questions.

Just the first question, a bit on the demand, maybe one more time.

Krithi, of course, you've seen over your long time at TCS several demand cycles over the last 30 plus years.

Is it possible to compare the current client behavior to any of the prior periods, such as perhaps post dotcom or GFC or taper tantrum or anything?

Or is it completely novel?

That's question number one.

K Krithivasan

I don't know if I can compare with any other cycle in the past.

Every cycle has its own nuances.

I would say today the way to look at the environment, there is an uncertainty because of which customers are reviewing or assessing the ongoing programs.

At the same time, there is so much they realize that they have to do because there is so much of technology debt within each one of those industries.

And unless they carry out those transformative programs, they'll have a competitive disadvantage.

So these two things are at play.

So that's the reason, we keep saying that while the TCV is high, we do see softness in the short-term revenue.

I don't know whether, we can compare or again, I'm not sure what is the value you get in comparing also, Ankur.

Like today, the reality is, long term, this technology spend has to happen.

Short term, the customers are navigating the uncertainty there.

Ankur Rudra

Okay.

I was just looking for if there is any historical path we can compare with.

But fair enough.

Thank you for the comment.

Maybe moving to the Generative AI side of the discussion.

Thank you for all the color today.

I'm just curious if you think Gen AI would be a needle mover on revenues either for this year or the next.

And if it is showing up in contract discussions at all, maybe as a source of price aggression in cost takeout deals?

N G Subramaniam

I don't know.

It is not showing that much as being a differentiated feature in our contract discussions.

But, you know, everybody is curious about its value.

And if you really look at, the investments that large enterprises are making as they move to a cloud native architecture, there is an intelligence layer in the overall architecture.

Moderator · Conference Operator

Thank you.

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

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

K Krithivasan

Thank you, operator.

We have started the fiscal year with a string of marquee wins, a robust order book, and revenue growth of 12.6% in rupee terms and 7% in constant currency terms.

We see strong interest in Generative AI among clients.

While we are helping them explore use cases with proof of concepts and pilot, we also launched an advisory offering to help clients create a holistic vision, strategy, and plan for enterprise-wide adoption of Generative AI.

Moderator · Conference Operator

Thank you, members of the management.

On behalf of TCS, that concludes this conference call.

Thank you 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