Tata Consultancy Services Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from Tata Consultancy Services Ltd (TCS) Q4 FY23 Earnings Concall

Management Update:

• [00:06:43] TCS said it on-boarded over 44,000 freshers, and highest number of experienced professional during FY23.

• [00:14:39] TCS said its clients, especially in North America and Europe took a cautious approach to their projects, resulting in a decrease in revenue growth during 4Q23.

Q&A Highlights:

• [00:27:25] Ankur Rudra at JPMorgan asked how much of 1Q’s slowdown and sentiment change occurred in late March and the visibility on demand and revenues for 1Q24. Rajesh Gopinathan CEO replied that the impact of weakened global market sentiment has been felt across sectors in the US. It was expected to have a strong pickup in the New Year, which did not happen and the weakness is not just limited to BFSI.

• [00:31:26] Ankur Rudra of JPMorgan asked about any current change in strategy due to change in guard and change in demand sentiment. K. Krithivasan President clarified that the leadership change at the organization does not mean a strategy change. The strategy already in place is based on client-centricity and employee empathy and these two pillars will continue to be the focus of the organization going forward.

• [00:32:19] Ankur Rudra with JPMorgan queried how generative AI would change the nature of tech consumption and if it impacts the bargaining power for TCS. N.G Subramaniam COO answered that TCS is excited about the potential of generative AI and have developed a tool called MasterCraft long time ago which generates software. TCS plans to build expertise around this capability in order to stay relevant to its clients’ expectations.

• [00:37:19] Sandeep Shah from Equirus asked if growth in FY24 will be back ended vs. front ended due to client caution in terms of IT spend. K. Krithivasan President replied that TCS is comfortable with the current order book and does not want to comment on FY24 overall, but discretionary projects may be cancelled if sentiment worsens.

• [00:38:49] Sandeep Shah from Equirus asked about margin, the nature of on-site cost pressure in 4Q23 and margin in FY24. K. Krithivasan President said the current quarter has seen an on-site increase due to the replacement of higher cost BAs with employees and additional hiring. In FY24, TCS plans to reduce BA costs and double down on labor arbitrage in order to address headwinds.

• [00:40:36] Abhishek Kumar with JM Financial asked about the growth driver in the UK market. Rajesh Gopinathan CEO said the UK market is a mix of cost takeout and transformation projects, but US companies tend to be more dynamic in leveraging technology. This means that technology will continue to grow regardless of the scenario.

• [00:45:02] Pankaj Kapoor at CLSA queried how the deal velocity panned out during 4Q23. Rajesh Gopinathan CEO clarified that deal velocity has not slowed down and may even have accelerated in Europe with US TCV remaining strong throughout the quarter.

• [00:48:25] Pankaj Kapoor of CLSA enquired about the higher on-site cost. Samir Seksaria CFO answered that the on-site cost replacement was additional hiring to reduce costs by 25% due to a negative macro environment and customer sentiment.

• [00:49:43] Gaurav Rateria of Morgan Stanley asked if Europe will be the primary growth driver for overall revenue at least for the next two quarters. Rajesh Gopinathan CEO said it needs to be a wait and see approach. Europe is still complex, especially on the BFSI side.

• [00:56:14] Ravi Menon with Macquarie asked if the normalized annual gross hiring target of 125,000-150,000 people remains the same as attrition normalizes. Rajesh Gopinathan CEO said TCS don’t give exact numbers for hiring, but expects to hire around 40,000 campus hires in FY24 and lateral hire demand depends on the business needs every quarter.