Tata Consultancy Services Ltd Q3 FY24 Earnings Conference Call Insights

Key highlights from Tata Consultancy Services Ltd (TCS) Q3 FY24 Earnings Concall

• Q3 Financial Performance
  • Revenue grew 4% in rupees, 1.7% in constant currency, and 2.9% in dollars YoY.
  • Operating margin was 25% and net margin was 19.4%.
  • Continued momentum in deal wins across markets.
  • Focused effort to reduce unbilled revenue in 4Q; helps improve visibility on collections.
• BSNL Partnership
  • Started delivering equipment and services for BSNL’s 4G and 5G networks.
  • Installed about 2,000 sites and progressing on data centers.
  • Rollout over next 4-6 quarters as originally planned.
  • Acting as a systems integrator partnering with other OEMs.
• Operating Metrics
  • Accounts receivable increased by 2 days sequentially to 67 days.
  • 102% cash conversion; free cash flow of INR 103.52 billion.
  • LTM IT services attrition declined 1.6% sequentially to 13.3%.
  • 603,305 total workforce; 153 nationalities represented; 39.7 million learning hours YTD.
• Segment Performance
  • Energy, resources and utilities grew 11.8%.
  • Manufacturing grew 7%.
  • Life sciences and healthcare grew 3.1%.
  • UK led major markets with 8.1% growth, while India led emerging markets with 23.4% growth.
• Products and Platforms Highlights
  • Ignio had 27 new deals and 6 go-lives.
  • TCS BaNCS had 6 wins and 3 go-lives, including a major deal with ASX in Australia.
  • TCS iON had 32 new wins and administered exams for 14.5 million candidates.
  • TCS TwinX had 4 wins, including for a major North American delivery company.
  • 35 new clients for MasterCraft and Jile.
• Demand Environment
  • Enterprises prioritizing business-critical projects with fast ROI.
  • Pent-up demand exists due to caution around investments.
  • Expect customers to scale strategic growth initiatives once macro risks recede.
• Order Book Resilience
  • Strong TCV of $8.1 billion and book-to-bill ratio of 1.1.
  • Trailing 12-month order book grew 11.3% year-over-year.
  • BFSI order book was $2.6 billion.
  • North America TCV was $4.2 billion.
• Generative AI
  • Launching offerings across industry value chains and SDLC.
  • Enhancing products like Optumera, TCS ADD, and TwinX with Gen AI.
  • Working with clients on use cases like customer service, sales support, HR policy, etc.
  • Partnering on Gen AI centers of excellence and advisory services.
• Cloud Demand
  • Investment in cloud becoming more meaningful over time.
  • Focus on optimizing consumption and fine-tuning strategies.
  • Partnering on cloud transformation across industries like retail and airlines.
  • Seeing significant demand around cloud migration and transformation.
• Margin Improvement Outlook
  • Margin improvement cycle has more room given attrition and supply improvement.
  • Delivered margin expansion despite large deal ramp-ups.
  • Additional levers like productivity, utilization, realization to drive further optimization.
  • Remain committed to 26-28% over medium term.
  • Further room in subcontractor costs compared to pre-COVID.
  • Normal headwinds like increments in Q1.
• Deal Flow and Demand
  • TCV lumpy by nature, don’t view Q3 as soft.
  • See no signs of softness in demand environment.
  • Demand tone similar to previous quarters.
  • Seeing green shoots in some verticals like manufacturing and consumer.
  • Clients remain agile on budgets given uncertainty.
• BFSI Growth Trends
  • Adjusting for specific items, BFSI grew sequentially.
  • Broad-based deal momentum across markets.
  • Momentum from deal wins should drive growth in Q4 and beyond.
  • Gaining share even as overall growth moderates.
• Europe Performance
  • Europe pipeline and TCV improved sequentially.
  • Europe grew faster than North America in Q3.
  • Expect return to growth in Europe medium-term.
  • Anticipate growth returning in North America as well.
• Discretionary Spending
  • Proportion of discretionary vs non-discretionary similar to prior quarters.
  • No significant change or tilt observed.