Tata Consultancy Services Ltd Q4 FY24 Earnings Conference Call Insights

Key highlights from Tata Consultancy Services Ltd (TCS) Q4 FY24 Earnings Concall

• Revenue Growth
  • Q4 revenue grew 2.2% YoY in constant currency, 3.5% in rupee terms.
  • FY24 revenue grew 3.4% YoY in constant currency, 6.8% in rupee terms, 4.1% in dollar terms.
  • Regional markets led growth at 26%, followed by Manufacturing 9.7% and Energy, Resources & Utilities 7.3%.
  • United Kingdom led among major markets with 6.2% growth.
• Profitability
  • Q4 operating margin at 26%, expansion of 100 bps sequentially.
  • FY24 operating margin at 24.6%, expansion of 50 bps YoY.
  • Net margin in Q4 at 20.3%, FY24 net margin at 19.3%.
  • Annual EPS grew 10.9% during FY24.
• Products and Platforms
  • Ignio cognitive automation suite saw 32 new deal wins and 6 go-lives.
  • TCS BaNCS had 8 new wins, including Central Bank for core banking modernization.
  • Aviva expanded partnership for 15 years to transform life business using TCS BaNCS.
  • TCS Optumera pricing optimization platform expanded to Belgium retail client.
  • TCS iON assessment platform had 22 new wins, administered exams for 13.9 million candidates.
• Talent and Workforce
  • Workforce at 601,546 at Q4 end.
  • IT services attrition at 12.5%, down 80 bps sequentially.
  • Employees logged 51 million learning hours, acquired 5 million competencies in FY24.
  • Annual salary increments announced, with top performers receiving double-digit hikes.
• Generative AI
  • Customers exploring GenAI for application development, maintenance, automation.
  • TCS partnered with manufacturers to leverage GenAI for duplicate part identification, service instructions.
  • Scaling out GenAI PoCs and pilots with necessary guidelines.
• Growth Outlook
  • Confusion raised about strong TCV but unclear near-term growth outlook.
  • TCS had one mega-deal, other deals were of normal size.
  • High number of recent deal wins gives confidence in growth returning over time.
• India Business
  • India market has matured and TCS is selective about right deals.
  • Many large enterprises in India embarking on new technology programs.
  • TCS sees further upside from levers like pricing, utilization if risks recede.
  • Q1 to see impact of increments, but overall focus on disciplined execution.
• Demand Environment
  • TCS comfortable with typical conversion rates from recent deal wins.
  • Clients balancing transformative projects with cost optimization initiatives.
  • AI transition a huge focus area across organizations currently.
• TCV Composition And Margin Levers
  • No change in renewal vs. new revenue mix.
  • New revenue component stronger, allaying concerns over TCV composition.
  • Incremental margins to be driven by pricing improvements.
  • Structured pricing increases through renewals, new deals expected to aid margins.
• BSNL Deal and Growth Visibility
  • Opportunities for subsequent work like 5G upgrades, maintenance, increasing tower count.
  • Indigenously developed solution presents market opportunity for other operators.
  • Unpredictability in customers deprioritizing discretionary projects.
  • Vertical-wise, prioritization driven by individual customer sentiments and ROI assessment.
• Margin Trajectory
  • Expects a similar pattern of Q1 impact from increments/headwinds for FY25.
  • Margins to then improve through the year as they claw back.
• Pent-up Demand
  • TCS saw pent-up demand in retail segment last quarter and BFSI this quarter.
  • Catalyst would be customers’ comfort with their demand environment, market outlook.
  • Already seeing green shoots in consumer business verticals like airlines, transportation.