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.