Key highlights from Tata Consultancy Services Ltd (TCS) Q4 FY22 Earnings Concall
- TCS said it added $3.533 billion in incremental revenue during the year, the company’s highest ever.
- The company reported an all-time high employee net additions for 4Q22 of 35,209 and 103,546 for FY22, bringing the total headcount to 592,195. However, TCS said that its attrition in IT services continued to rise on an LTM basis and was at 17.4%.
- In 4Q, TCS had strong deal wins, resulting in an all-time high order book with TCV of $11.3 billion. For FY22, order book TCV was at $34.6 billion, a growth of 9.5% YoY.
- Kumar Rakesh from BNP Paribas asked about TCS’ aspirational margin band of 26% in the current context. Samir Seksaria CFO said that the 26-28% remains TCS’ aspiration and the company’s long-term cost structures are well placed. TCS added that it firmly believes that it can operate in the 26-28% band based on the long term cost structure. Near term, in FY23, TCS said it will be seeing some churn and pressure on margins.
- Kumar Rakesh with BNP Paribas also asked about the onsite wage hike impacts and how TCS is planning to mitigate the impact. Rajesh Gopinathan CEO replied that in aggregate, the company believes that the portfolio can lend itself for some optimization, but short-term volatility is to be expected.
- Diviya Nagarajan of UBS asked about the overall demand outlook and TCS’ confidence versus last year. Samir Seksaria CFO answered that overall the demand outlook looks very good. And with a couple of significant deal wins and the momentum TCS has, the company clearly feels it’s in a better position now compared to what it was in FY21, which should augur value for its growth and aspirations for FY23.
- Sandip Agarwal from Edelweiss enquired about the manpower supply issues and how TCS expects to tackle the huge supply demand imbalance in the industry. Rajesh Gopinathan CEO answered that fresher hiring and productive use of freshers is long cycle activity. However, TCS added that there has been an industry-wide step up of hiring for the last four quarters and the company expects that as that supply hits productive use, it will ease up the supply demand imbalance a bit.
- Apoorva Prasad of HDFC Securities asked about TCS’ TCV reverting to $8-8.5 billion and how the mega deal pipeline is looking. Rajesh Gopinathan CEO said that the pipeline distribution of deal sizes is similar to earlier periods. However, when a very large megadeal closes or not is hard to predict. The context of $8-8.5 billion was to say that TCS has seen a steady expansion of its base TCV levels, which indicates a robust demand environment.
- Mukul Garg with Motilal Oswal asked about pricing and its impact on margins. Rajesh Gopinathan CEO replied that on pricing, typically renewals and other aspects of ongoing relationships has a slight uptick in terms of pricing. However, looking at fresh new deals that are coming in, the competitive intensity is quite high and the price points there are reflective of the nature of the work.
- Sandeep Shah from Equirus Securities queried about the tenure of the two large deals announced recently. Rajesh Gopinathan CEO said that typically for larger deals, the deal tenure is somewhere in the 5-7 years range and for deals which are closer to $1 billion, they are upwards of 7 years and these deals are also similar to that, in the 7-10 year kind of a range, both the deals.
- Sandeep Shah of Equirus Securities also asked about the reason for absolute travel cost being the lowest in 4Q22 and if it will remain in this level. Samir Seksaria CFO said that travel has been sluggish in the first two months of 4Q and also there was moderation in visa costs in 4Q. TCS added that it expects its discretionary expenses to increase, which was an abnormality, and expects this trend to continue.
- Ravi Menon with Macquarie asked about the large gap between the employee addition and revenue growth. Rajesh Gopinathan CEO answered that the company has been medium to long-term focused, especially on fresher hiring. But EP (experienced professional) hiring is the one that is more short term focused, and the company is running very tight on that.
- Gaurav Rateria from Morgan Stanley asked about margin volatility in FY23 and if there is any threshold level below which TCS would want margins to not go. Rajesh Gopinathan CEO answered that TCS doesn’t have any specific cap on the margin front. The company added that it has never put margins over given business or growth opportunity, but has stayed disciplined in chasing growth.
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Can you guess the name of the company that was listed during the IPO frenzy in 2020 and is the second largest player in the Indian municipal waste management industry?
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