TCS — earnings call

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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 Ms. Nehal Shah from the Investor Relations team at TCS.

Thank you, and over to you.

Nehal Shah

Thank you, operator.

Good evening, and welcome to TCS' Earnings Call for Q2 FY '25.

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

Hi.

Good day, everyone.

Nehal Shah

Mr. Samir Seksaria, Chief Financial Officer.

Samir Seksaria

Hello, everyone.

Nehal Shah

And Mr. Milind Lakkad, Chief HR Officer.

Milind Lakkad

Hi, everyone.

Nehal Shah

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 outlook for the future, or which could be

Moderator · Conference Operator

Thank you very much.

We will now begin the Question & Answer session.

We'll take our first question from the line of Ankur Rudra from JPMorgan.

Please go ahead.

Ankur Rudra

Thank you very much for taking my question.

Just maybe a few questions, maybe starting with demand.

It seems like this was a challenging quarter for international business, slightly soft on our headline numbers and also signings.

Could you maybe elaborate in terms of the nature of demand environment?

Has it begun to perhaps deteriorate overall after a couple of promising quarters?

And should one assume that recovery perhaps had pushed out a bit from here?

K Krithivasan

Thanks, Ankur.

As we explained, demand continues to be around areas of cost optimization and discretionary spend demand stays where it was and in fact, what we saw is in some of the cases, the deal duration has slightly increased.

But otherwise, we don't see a demand drop in a big way.

We also mentioned that BFSI North America has done well this quarter.

Tech and Services has done well for the second consecutive quarter.

Moderator · Conference Operator

We'll take our next question from the line of Apurva Prasad from HDFC Securities.

Apurva Prasad

Thank you for taking my question.

As a first off, deepest condolences from my side, too.

Krithi, just to tie in with your comments of improvement in discretionary and optimism going forward, how should we think of growth visibility or acceleration beyond the current calendar, especially in absence of mega deals.

If I look at bookings for the first half TCV, it's down 20% of course, with no mega deals that is compared to the comparable period earlier.

So, any comments on how is the pipeline around some of those mega deals and/or the ACV and duration of what you've been booking?

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Sandeep Shah from Equirus Securities.

Please go ahead.

Sandeep Shah

Yes.

Thanks for the opportunity and deepest condolence for TCS and Tata Group.

Krithi, just some bookkeeping questions.

I wanted to understand and reconcile as you are saying, the BFSI has been showing signs of revival in the US and North America, but this quarter, North America as a region has not shown a growth, while Europe has shown

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Vibhor Singhal from Nuvama Equities.

Please go ahead.

Vibhor Singhal

Good evening.

Thanks for taking my question.

So, Krithi, just to dwell a bit more on North America.

If I look strictly in terms of dollar revenue terms, we fell by almost $60 million in our North America revenue, almost half of it assuming came from the health care segment, which was down almost $28 million.

So, which are the other verticals in which we saw some kind of weakness in US specifically?

And was that also of a similar nature like health care or client-specific issue which you expect to may be recover in a couple of quarters?

Or do you think there is a more structural issue to some of the shortfall in the revenue, maybe like the telecom sector?

K Krithivasan

From a client-specific perspective, we called out it's essentially what we saw in health care.

It's a life sciences’ client-specific issue.

We saw growth coming up in BFSI.

We had growth come up in Energy, Resources, Utilities also and even Technology and Software Services grew.

And in the Consumer Business Group, we had issues in terms of demand being slightly soft because of the discretionary spend cut.

And we also saw in manufacturing some labour and supply side challenges in near term.

Telecom has been a slightly long-term trend.

We are hoping that it will recover once the interest rate environment becomes better, there will be motivation to invest on the capex.

We are hoping for a good holiday season, having a good holiday season would be good trigger for investment to resume in Consumer industry.

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Kawaljeet Saluja from Kotak Securities.

Please go ahead.

Kawaljeet Saluja

A couple of questions actually from my side.

One, Krithi, how's the furlough situation going to be this year from the initial conversation with clients?

Is it any different than what you have seen in earlier years?

K Krithivasan

Okay.

On furlough, we at this time from whatever we know, it's similar to last year.

We don't expect this to be any different compared to last year.

Kawaljeet Saluja

Got that.

The second question is on the BSNL deal.

Now there are various numbers -- I mean, various sizes, which are being discussed.

I think your company announced a $1 billion in terms of deal size.

Whereas when I read your annual report, there was a specific mention of an additional 20,000 sites, which will be rolled out as part of deployment.

I'm just trying to understand the overall size of the scope of the deal.

And if it's a $1 billion, then I guess in the last four quarters itself, the bidding would have reached around $750 million, so with that as a backdrop, how do you end up with, let's say, flattish deployment or another quarter of strong robust revenue from BSNL in the December quarter?

Samir Seksaria

Kawal, overall, 100,000 sites need to be deployed.

We are around the halfway mark on that.

And that is the incremental information we can share on it.

There is still scope to go and like we have been sharing in the past, the entire scope of deal is from manufacturing, installation and beyond in terms of acceptance.

So, there are various milestones also which are intermediately built into the deal.

I will not be able to comment on how much of it is already recognized, but back calculations probably can be done.

But on client-specific color, we'll abstain from giving specific revenue numbers.

Kawaljeet Saluja

Got it.

Now Samir on this, specifically, when you look at the revenue dynamics, right, these large transformation contracts, the revenue profitability dynamics may not be synchronized at least from the

Moderator · Conference Operator

Thank you.

We'll take a next question from the line of Rishi Jhunjhunwala from IIFL Institutional Equities.

Please go ahead.

Rishi Jhunjhunwala

Yes.

Thanks for the opportunity.

Just a couple of questions.

Firstly, if you look at our SG&A expenses as a percentage of revenue, they are pretty much at an all-time low.

And in the past four to five quarters, we have seen sequentially even the absolute amount coming down.

Just wanted to understand, is it more a reflection of how things have slowed down in the past four, five quarters and hence, you are trying to rationalize that or more a reflection of how the next three, four quarters might look like and kind of managing investments there?

Samir Seksaria

So, if you look at it from an absolute perspective, SG&A expenses have been in the stable level.

If you look at it from a year-on-year perspective, there has been investment in infrastructure as well as travel expenses going up.

And I'm assuming you're talking about from an absolute one because as percentage of revenue, due to inclusion of some of the non-services revenue, will also have an impact.

But overall, SG&A is one of the levers in terms of stable management of margins.

Rishi Jhunjhunwala

Okay, sir.

And just secondly on deals, right?

So last quarter we had indicated that there were delays in deal closures and so possibly that could have been reflected in better wins this quarter.

There hasn't been any material uptick, but you mentioned 7 billion to 9 billion is a comfortable range in which you are operating.

Just wanted to

Moderator · Conference Operator

Thank you.

We'll take our next question from the line of Ravi Menon from Macquarie.

Please go ahead.

Ravi Menon

Thank you for the opportunity.

I wanted to touch upon one of the markets that you're already strong in that is the Airline Industry.

We had heard about how they want to go direct-to-consumer, and I guess, those plans have been put on hold as they struggled on that front.

Do you see some of those kinds of investments coming back?

Moderator · Conference Operator

Thank you.

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

Please go ahead.

Gaurav Rateria

Thanks for taking my question.

The first question is for Krithi.

You did talk about optimism around discretionary spend returning back.

So apart from macro data points, what are you seeing either in your portfolio or client conversation or the pipeline that gives you more confidence around return of discretionary spend over a period of time?

K Krithivasan

See, there are a couple of things.

One is there is a lot of optimization work going on.

Some of the investments around technology debt have not taken place.

For instance, there's a workaround technology modernization, mainframe modernization, that spending, and 1 good thing is with the Generative AI becoming more and more mainstream, Generative AI is also being seen as an important lever through which modernization could be expedited and accelerated.

So that's one and the second is our client conversations in terms of enhancing customer experience.

That's also in some cases that which should have happened last year did not happen.

So, the optimism comes from the

Moderator · Conference Operator

Thank you.

We move on to the next question from the line of Nitin Padmanabhan from Investec.

Please go ahead.

Nitin Padmanabhan

Hi, good evening.

You mentioned that the deal tenures have sort of expanded.

So, is that in specific cases or is that a very broad-based kind of phenomenon?

Samir Seksaria

Nitin, I think probably what I meant was a deal cycle, like the time to close the deal, we saw an expansion.

It's not the tenure of the deal.

It's the time to close the deal has expanded between Q1 and Q2 in some other cases.

Nitin Padmanabhan

Got it.

And you mentioned that the headwinds that we have seen this quarter in some cases, it could sort of stabilize in the next quarter and then possibly improve I think that was more Life Sciences.

But broadly, do you get the sense that in all the areas where you have seen

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.

Over to you.

K Krithivasan

Thank you, operator. • We are very pleased with our second quarter performance, growing at 5.5% Year-on-Year in Constant Currency, amidst the challenging geopolitical situation. • Deal momentum continued to be very strong in Q2, with our order book at $8.6 billion for the quarter. • Operating margins were at 24.1%, declining 60 bps sequentially. • Our LTM attrition in IT services was 12.3%. • I would like to thank the 612,000+ TCSers whose valuable work is helping us achieve excellence every day.

With that, we wrap up our call today.

Thank you all for joining us. _________________________________________________________________________________

Note

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