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.