Tata Consultancy Services Ltd Q2 FY24 Earnings Conference Call Insights

Key highlights from Tata Consultancy Services Ltd (TCS) Q2 FY24 Earnings Concall

• Financial Performance
  • TCS reported a 7.9% YoY growth in revenue in rupee terms, 2.8% growth in constant currency terms, and 4.8% growth in dollar terms.
  • Operating margin was 24.3%, up 110 bps sequentially due to higher utilization and productivity.
  • Net margin was 19%, and the effective tax rate remained at 25.8%. 
• Workforce and Talent Development
  • TCS’s workforce at the end of the quarter was 608,985.
  • LTM attrition in IT services was at 14.9%, down 2.9% sequentially.
  • Reduced headcount this quarter due to lower attrition and recalibration of hiring.
• Strong Order Book Momentum
  • TCV of deals signed in Q2 was $11.2 billion, second-highest ever.
  • BFSI and consumer business TCV continued to be robust at $3 billion and $1.4 billion respectively.
  • North America TCV was $4.5 billion.
  • Two mega deals signed – BSNL and JLR, each roughly $1 billion TCV.
  • BSNL payments tied to project milestones, with substantial revenue expected over 12-18 months.
• Segments And Products/Platforms Update
  • Energy resources and utilities was the fastest growing vertical at 14.8% growth.
  • Banking, financial services, and insurance reported a slight decline of -0.5%.
  • Growth led by UK at 10.7% while caution visible in North America and Europe.
  • Products/platforms like ignio, Quartz, TCS BaNCS had several new deal wins and go-lives.
  • Mastercraft and Jail won 34 new clients in Q2.
• Operating Model Transformation
  • TCS Cognix is driving strong growth in operating model transformation deals, leveraging AI and ML technologies, including generative AI.
  • Q2 saw six large operating model transformation deals with TCS Cognix as a core component.
• Generative AI Adoption
  • TCS is investing in generative AI capabilities and training 100,000 employees; it is launching an AI playground for hands-on experimentation.
  • Demand for AI services neutral for now, though expected to grow.
  • Cloud migrations remain a focus area.
• Impact of Revenue Deceleration and Reprioritization
  • While TCS continues to win new deals, there’s a focus on conserving cash and optimizing existing spend due to market uncertainty.
  • Projects may get reprioritized, and long-running projects may end, leading to revenue deceleration.
• Margin Performance And Outlook
  • TCS expanded margins by 110 bps sequentially in Q2 despite revenue headwinds.
  • The focus is on utilizing existing levers like productivity, utilization, and subcontractor expenses to continue margin improvement.
  • Margins expected to continue improving gradually despite PSU deals having lower margins.
  • Growth recovery will provide further margin leverage.
  • Furloughs are planned to be normal like every year.
• Retail Segment Performance
  • The retail segment has been weak for multiple quarters, including essentials, traditionally a strong sector.
  • Growth depends on consumer spending picking up, and conversations with clients are focused on growth indicators.
• Impact of New Order Wins on Inflow
  • The inflow from new order wins is expected to improve in the second half compared to the first half.
  • No significant change in Average TCV (ATV) of deals compared to before.
  • While there are project completions, no significant material completions are anticipated in 2H.