Tata Consultancy Services Ltd (TCS) Q1 FY22 Earnings Concall Transcript

Tata Consultancy Services Ltd (NSE:TCS) Q1 FY22 Earnings Concall dated Jul. 08, 2021

Corporate Participants:

Kedar Shirali — Head, Global Investor Relations

Rajesh Gopinathan — Chief Executive Officer and Managing Director

N. Ganapathy Subramaniam — Chief Operating Officer and Executive Director

Samir Seksaria — Chief Financial Officer

Milind Lakkad — Executive Vice President and Global Head, Human Resources

Analysts:

Sandip Agarwal — Edelweiss Financial Services Ltd. — Analyst

Sudheer Guntupalli — ICICI Securities — Analyst

Diviya Nagarajan — UBS — Analyst

Sandeep Shah — Equirus Securities Private Limited — Analyst

Apurva Prasad — HDFC Securities Ltd. — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Ruchi Burde — BOB Capital Markets Ltd. — Analyst

Girish Pai — Nirmal Bang Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the TCS Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Kedar Shirali, Global Head, Investor Relations at TCS. Thank you, and over to you, sir.

Kedar Shirali — Head, Global Investor Relations

Thank you, Margaret. Good evening, and welcome everyone. Thank you for staying dialed in. And I apologize for the delay in starting of this call. Thanks for joining us today to discuss TCS’ financial results for the first quarter of fiscal year 2022 that ended June 30, 2021. This call is being webcast through our website and an archive including the transcript will be available on the site for the duration of this quarter. The financial statements, quarterly fact sheet and press releases are also available on our website and have been mailed out to those who have subscribed to our mailer. Our leadership call is present on this call to discuss our results. We have with us today, Mr. Rajesh Gopinathan, Chief Executive Officer and Managing Director.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Hello, everyone.

Kedar Shirali — Head, Global Investor Relations

Mr. N.G. Subramaniam, Chief Operating Officer.

N. Ganapathy Subramaniam — Chief Operating Officer and Executive Director

Good evening to you all.

Kedar Shirali — Head, Global Investor Relations

Mr. Samir Seksaria, Chief Financial Officer.

Samir Seksaria — Chief Financial Officer

Hello, everyone.

Kedar Shirali — Head, Global Investor Relations

And Mr. Milind Lakkad, Chief Human Resources Officer.

Milind Lakkad — Executive Vice President and Global Head, Human Resources

Yeah. Hi, everyone.

Kedar Shirali — Head, Global Investor Relations

Rajesh and Samir will give a brief overview of the company’s performance, followed by the Q&A session. As you’re aware, we don’t provide specific revenue or earnings guidance, and anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement, must be reviewed in conjunction with the risks that the company faces. We have outlined these risks in the second slide of the quarterly fact sheet available on our website and e-mailed out to those who’ve subscribed to our mailing list.

With that, I’d like to turn the call over to Rajesh.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thank you, Kedar. And once again, good morning, good afternoon, and good evening to all of you. As we come out of the second wave of the pandemic, which was once in a generation health crisis, our thoughts and prayers are with everyone who suffered the habilitating effects of COVID and the loss of loved ones. Before we move on to business, I want to talk about what has been a traumatic period for most of us. As the second wave overwhelmed the country’s medical infrastructure, we provided hospitalization support, opened COVID care centers in our facilities in 13 cities to help affected associates and their families.

But despite our best effort, we lost a number of TCSers and their family members. Our thoughts and prayers are with them. Recognizing that vaccination was our best bet to an early return to normalcy, we undertook a pan-India vaccination drive that began in May and which covered not only all TCS locations, but also smaller cities where our associates are currently remote working from. I’m happy to say that over 70% of our associates have been vaccinated till date, at least with one shot, including their families that amounts to over 500,000 individuals covered so far. We are on track to vaccinate all TCSers and their families by September.

Even as we speak, the National Vaccination Program is also proceeding well. And we are hopeful that we’ll never again have to go through the experience that we had over the last 90 days. Moving on to our performance in Q1, we saw continuous strength and demand for core transformation services across all segments. But the second wave disrupted technology initiatives in several of our emerging markets, especially in India. While our industry verticals collectively grew 4.1% sequentially in constant currency headwinds in our regional market and other segment brought down overall revenue growth in constant currency to 2.4%.

Sequential growth was 2.7% in dollar terms and 3.9% in rupee terms. On a year-on-year basis, we grew 16.4% in constant currency terms, 21.6% in dollar terms and 18.5% in rupee terms. Our operating margin for the quarter was at 25.5%, a contraction of 1.3% sequentially and an expansion of 1.9% year-on-year. Net margin in Q4 was at 19.8%. I will now ask Samir to go over all the headline numbers, financial and segmental performance and, I’ll step in later to talk about demand trends we are seeing and the emerging opportunities in growth and transformation.

Over to you, Samir.

Samir Seksaria — Chief Financial Officer

Thank you, Rajesh. Let me first talk you through the headline number. In the first quarter of FY ’22 our revenues grew 2.4% QoQ and 16.4% year-over-year on a constant currency basis. Reported revenue in INR was INR454 billion, a sequential growth of 3.9% and a year-over-year growth of 18.5%. In dollar terms revenue was $6.154 billion, a QoQ growth of 2.7% and a year-over-year growth 21.6%. Let me provide our segmental performance details for the quarter. All growth numbers are in constant currency terms. All our verticals showed both sequential as well as year-on-year growth. Growth continued to be led by Life Sciences and Healthcare, which grew 7.3% sequentially and 25.4% year-over-year this quarter.

BFSI grew 3.1% sequentially and 19.3% YoY powered by increasing investments and enhancing customer experience, product innovation, cloud transformation and optimization of core operations. Retail and CPG bounced back to double-digit growth this quarter, growing 4.4% sequentially and 21.7% year-over-year, with discretionary retail as well as parts of travel and hospitality segments showing signs of recovery in major markets. Manufacturing grew 4.8% QoQ and 18.3% YoY. Technology & Services grew 5% QoQ and 12.3% YoY. Communications & Media grew 1.7% QoQ, and 6.9% YoY. By geography, growth was led by our major markets.

North America grew 4.1% QoQ and 15.8% YoY. UK grew 3.6% QoQ and 16.3% YoY. And Continental Europe grew 1.5% QoQ, 19.7% YoY. Among our regional markets, Latin America grew 4% sequentially, and 16.1% YoY, while Middle East and Africa grew 4.2% QoQ, 25.3% YoY. The pandemic second wave severely impacted sequential growth in India, which declined 14.1% QoQ, but grew 25.3% year-over-year. Growth has been affected in the Asia-Pacific, where revenue grew 2.4% QoQ, and 9.3% YoY. Our products and — our portfolio of products and platform performed well in Q4. ignio, our cognitive automation software signed-up 17 new customers and had eight go-lives.

TCS BaNCS, our flagship product suite for financial services domain had five new wins and five go-lives in Q1. Over half our deals are now for the SaaS version of the product. This quarter we signed our largest SaaS deal for TCS BaNCS till date, with one of those largest financial groups in Finland for their retail consumer lending business spanning origination, servicing of accounts and deposits, profit, SME and unsecured loans. Our Quartz Blockchain platform had two new wins in Q1. We also launched a new product Quartz for Markets, which helps market infrastructure institution, offer next generation services around tokenized securities.

In Q1 TCS was selected by the largest commodity exchange in India to build their new commodity derivatives platform using TCS BaNCS for market infrastructure for clearing and custody and Quartz. The new platform will help them achieve their growth aspirations and meet international exchange standards with respect to business features, robustness, high performance and security. In Life Sciences, our award winning advanced drug development suite had one go-live. We developed the TCS ADD Safety platform for a U.S. based global top 15 pharma company for their Safety Case Management Automation program.

TCS ADD safety will transform the pharma company’s adverse event case intake and processing using AI, thus improving efficiency and accuracy in the pharmacovigilance processes. Our HOBS suite of solutions for communication service providers had one new win and one go-live in Q1. TCS TwinX, our AI-based digital twin solution also had one win in this quarter and one go-live. TCS iON which celebrated its 10th year this year is expanding its international footprint by winning in its first country level deal in Indonesia to provide a country-wide digital learning solution for 250,000 schools and also handle the recruitment process across ministries. It also won a customer in Malaysia for digital campus for 5,500 users.

The TCS National Qualifier Test, which is now becoming a preferred assessment instrument for every — for entry level hiring by corporate India added 10 more logos in Q1, bringing the total number of corporate employers to 160. Moving to our client metrics, as you are aware these are important validations for TCS customer-centric strategy for continually expanding and deepening our engagements by investing in newer capabilities and launching newer services and products relevant to our customers. In Q1, we had robust additions in every revenue bucket compared to the year ago. We added two new, two more customers in $100 million band, bringing the total to 50.

We added five more clients in $50 million band, bringing the total to 105; added 11 customers — more customers to $20 million plus band, bringing the total to 241; 23 in $10 million plus band, bringing the total to 405; 22 more clients in $5 million plus band, bringing the total to 586; and finally, 52 more clients in $1 million band, bringing the total to 1,118. Let me now go over the financials. Q1 is when our annual salary increase takes place. This year, we had roughly 1.7% margin impact from the wage hike. With many parts of the world on their way back to normalcy, we saw some return of discretionary expenses including travel, offset by currency gain.

Our operating margin was at 25.5%, down 130 basis points sequentially and an expansion of 1.9% year-over-year. Net income margin was at 19.8%. Our effective tax rate was 25.7%. Our accounts receivable was at 65 — our DSO was at 65 days in dollar term, down three days compared to Q4. Net cash flow from operations was at INR103 billion, which is 114% of net income. Free cash flows were at INR97.5 billion. Invested funds as on June 30 stood at INR543.6 billion. The board has recommended an interim dividend of INR7 per share. On the people front, we had an all-time high net addition of 20,409 employees during the quarter bringing the total headcount to 509,058, five lakhs nine thousand zero fifty eight.

It continues to a very diverse workforce with 155 nationalities represented and with women making up 36.2% of the base. We continue to invest in building the next-generation G&T workforce. Our investments in organic talent development resulted in employees logging over 10 million learning hours in Q1. Over 407,000 employees are now trained on multiple new technologies and we now have 19,000 Contextual Masters in the company. LTM attrition in IT Services was at 8.6%. While this is still the lowest in the industry, it is inching up. We will be monitoring the scores globally because we have the largest pool of the best trained digital talent in the country and there will be [Indecipherable] to coach as hiring picks up across the industry.

Over to Rajesh now for the demand drivers. Rajesh?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thank you, Samir. I’ve spoken earlier about how customers are starting off on multi-horizon cloud transformation journeys. See it’s a fairly large program and within which there are various transformational sub-teams such as customers, employee experience, supply chain management, sustainability and M&A. I want to give a few color on some of these. If you look at Horizon 1 example, if we begin with some examples of core transformation, which includes cloud migration, application modernization and data modernization, we were selected by an American investment management group to help them modernize their existing mainstream-based advisory wealth management platform.

TCS will leverage its domain knowledge and experience to create a microservices architecture on a leading hyperscaler cloud platform to enhance the retail client experience. A leading provider of high performance, semiconductors and analog solution has partnered with TCS to advise them on moving their enterprise applications to the cloud. TCS helped analyze and identify the best cloud provider for their work load, build a business case and a three-year roadmap for the transition to the cloud. Coming to Horizon 2 example, several of our customers are now moving on to Horizon 2 of the journey using native capabilities of the hyperscaler stack to innovate, transform customer experience and differentiate themselves.

For example, we have been engaged by Loblaw, a leading Canadian food and pharmacy retailer as a partner for modernizing their core pharmacy dispensing platform, leveraging a leading hyperscaler platform. This program is expected to deliver better customer experience, making the pharmacy operations more patient-centric and one of the best in the business. Similarly the largest hotel franchiser in the world based in the United States has selected TCS as a strategic partner to re-imagine their customer interactions and loyalty and to modernize the front office and build agility core to significantly upgrade their customer engagement.

TCS will build smart mobility solutions to improve customers’ digital journey enabled by native capabilities of the cloud. This will build incremental capabilities to transform franchisees business function and reestablish the brand value. A world leader and supplier of analytical instruments and [Indecipherable] that are used in municipal industry and other process applications to test water quality chose TCS to transform the business from a traditional instrument seller to providing everything as a service model — the instruments, the software and services. The transformation which is underway is comprehensive. It touches as all major business functions and IT systems and involves developing a scalable elastic IoT platform hosted on a leading hyperscaler platform.

This one is an especially great example of how — when we talk about these technologies, it is not one alone that actually brings in that value, but the ability to weave together solutions across as we said here, IoT, cloud, even their core enterprise application are getting transformed on supply chain side — areas like — bringing in newer areas like CPQ. So, bringing all that together and being able to transform the customers’ business model is the core of what we call this growth and transformation led opportunity that we are so focused on.

The third aspect that I want to touch upon today is sustainability. Let alone benefit of cloud adoption, which is increasingly moving center stage on the CEO and Board agenda is the reduction of IT carbon footprint that the migration to clouds provides. That is because hyperscaler providers are liberating scale and technology to build more energy-efficient infrastructure and using renewal energy at scale to power their server farms. Consequently enterprises who migrate workloads from their own data centers to hyperscaler are achieving significant reduction to the carbon footprint associated with these workloads.

So when we help customers embrace the cloud stack it is very fulfilling to know that we are also helping them get closer to their sustainability goals. We have articulated our own carbon reduction goals in our FY ’21 Annual Report which is published in May. We are looking to bring down our absolute carbon footprint by 70% by 2025 compared to a base year of 2016 and to become net zero emitter by 2030. While we work towards mitigating our own environmental footprint, we are also using our expertise to build solutions that help our customers bring down theirs. This quarter we had quite a few customers engaging us for their sustainability initiatives.

For example an American pharmacy major has selected TCS to deploy TCS Clever Energy for more than 8,300 stores and 31 warehouses helping them save energy and potentially reduce CO2 emission by 70,000 tonnes. This was a solution that was originally designed and deployed by TCS within its own facilities in India as one of the largest and earliest full-scale IoT deployment and which helped significantly reduce TCS’ own energy consumption across over 100 buildings and 33 million square feet of office space that we had. And we have now been able to productize and package it and take it to multiple markets including Middle East and now North America.

Japan’s largest power generation company has engaged TCS to transform their power plants with autonomous operations and maintenance using the TCS IP2 solution framework and to help achieve sustainability goals through reduced emissions. Similarly TCS has been selected by a U.S. based leading electric gas company — electricity and gas company for GIS-based wildfire applications development and support. This program aims at significantly improving detection and emergency response to a wildfire event, hence ensuring environmental protection and public and employee safety. A leading Australian oil and gas company has started design work to build a carbon capture and sequestration plant.

As part of its energy mix portfolio, it has also started piloting hydrogen production with green energy sources and developing value chains to export hydrogen. TCS is partnering to develop pilot proving the efficiency of these technologies and to help them achieve their sustainability goals. While on the topic of emission reduction, one of the largest and most material shifts playing out globally is the automotive industry switch to electric vehicle and alongside that autonomous and connected driving. I want to share with you the broad spectrum of activities that we’re engaged in, in this industry as an example of how we are able to be relevant across multiple industry participants in a large industry structure like that.

You are aware of our investment in taking over GM’s Technology Center in India. For GM now more than 20% of those workforce is involved in their electric vehicles and autonomous vehicle programs. Similarly, TCS is now partnering with over 15 startups in the EV and autonomous space including companies like Stoneridge, Velodyne, Luminar Tech, etc, working on ADAS including LiDAR, battery management systems and a full spectrum of various activities in this stack. On the Tier 1 vendor side, we are working with leading providers like ZF in areas including ADAS 2.5 development and even more importantly working together with them to address the significant shortage in the chipsets that is one of the biggest impacts that the automotive industry is going through.

Our teams worked jointly with ZF to put together an analytics and a procurement solution that maximize the contextual knowledge and the data in the ZF system and combine that with the ecosystem of partners that they have to identify both sources as well as to optimize choices of products and portfolios to maximize value and customer centricity across their ecosystem. The spread of technologies that we see and the unifying fabric of cloud is allowing us to be relevant, as we said, across various customer size levels when they’re brought together under common theme at an across industry level. Moving on to another thing that you’ve spoken a lot about in the past is mergers and acquisitions. It’s a recurring G&T theme and corporate restructuring leading to M&A divestiture are areas where we are significantly participating.

In the case of former, we’re helping customers integrate and harmonize the merged entity or the acquired entity’s process and systems and into the acquirers landscape. With the latter, we help customers plan and implement the separation of assets and processes to ensure that the divested entity is fully operational from day one of its independent existence. In addition to our deep contextual knowledge and technology expertise across the spectrum, customers have been selecting TCS for our differentiated ability to stitch together multiple services and offering such as M&A consulting, strategy, planning, digital value identification and harnessing, change management, TSA management, day one readiness, supply chain ERP implementations rollouts, etc.

I want to take a couple of examples that showcase some of this. U.S.-based biopharmaceutical company selected TCS as a partner to design and implement integration of their acquisition of a medical aesthetics major recently. So what we’ve been able to do is to leverage our deal contextual knowledge of the acquirer in designing the sequence of process integrations that need to be played out to maximize the realization of the INR2 billion cost synergies that the acquisition is very strategically inching on. Similarly for a global pharma leader, TCS worked very closely with them to identify integration strategy for the newly created JV a few years back where we put in place a slightly — a typical solution involving integration of technology systems on to the parent entity even though the acquired entity continued as the joint venture.

And now we are working with them to help them spin off the technology systems to make the JV fully standalone and ready for an independent strategy of its own. Alongside these growth and transmission engagements we are also seeing increased activity around outsourcing as customers look for pathways to fund their new initiatives. Here too our innovative approach to deploying machine-first operating model, powered by AI and machine learning to re-imagine business and IT operations is helping us win such deals across the industry.

Coming to our Q1 order book, we are seeing a strong demand for our services as I have spoken about. As you know we have had strong deal wins every quarter in the last fiscal. On the back of an all-time high TCV in Q4, we once again had a very strong set of deal wins in Q1 with a TCV of $8.1 billion. Once again, it’s a very heterogeneous mix of deal for all sizes and distributed across the industrial verticals and geographies. By vertical, BFSI had a TCV of $2.2 billion, while retail vertical again achieved its all-time high order book of $1.5 billion for the second consecutive quarter. The TCV of deals signed in North America stood at $4 billion.

With that, we can now open the line for questions.

Questions and Answers:

 

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Sandip Agarwal — Edelweiss Financial Services Ltd. — Analyst

[Technical Issues]

Operator

I’m sorry to interrupt you Mr. Agarwal. We cannot hear you clearly.

Sandip Agarwal — Edelweiss Financial Services Ltd. — Analyst

Yeah, hi, can you hear me now? Can you hear me now?

Operator

Yes, we can hear you. It’s not very clear. May I request you to come on the handset mode and then ask your question?

Sandip Agarwal — Edelweiss Financial Services Ltd. — Analyst

On the handset mode, yeah.

Operator

Thank you.

Sandip Agarwal — Edelweiss Financial Services Ltd. — Analyst

Yeah. Can you hear me now, please? Hello? Can you hear me now?

Operator

We can sir, but it’s not very clear. I would just request you to please check your phone line and join the queue again. In the meanwhile, we’ll move to the next question. The next question is from the line of Sudheer Guntupalli from ICICI Securities. Please go ahead.

Sudheer Guntupalli — ICICI Securities — Analyst

Yeah. Good evening, gentlemen. Thanks for giving me this opportunity. And here’s my first question is on the SBWS model; in the recent past, we’ve had seen news flow about CEOs of different American banks expecting their employees back in their offices by a certain timeline. We are seeing similar trends in India as well as most of the employees are vaccinated at least once. So in that context, when the clients are expecting their own employees to be back in offices soon, will they allow, realistically allow the IP vendors to let their employees work on a borderless manner, any thoughts on this will be helpful?

Samir Seksaria — Chief Financial Officer

Thank you, Sudheer. I think we are committed to SBWS as a model and a number of our customers are happy with the way that it is working. But having said that, look if customers are demanding that people will have to be working from let’s say approved facilities then we will have to discuss with them and align accordingly.

Sudheer Guntupalli — ICICI Securities — Analyst

Perfect. Thanks. Rajesh, my second question, we understand that in Indian business there was post majeure event that even if we shift the focus away from India business for a minute and assume stable revenue run rate over there, probably we can add that 70 basis points, 80 basis points of growth to the reported 2.4% QC number. But if you take roughly 3.1% sort of a sequential growth in QC terms in June quarter, which is perhaps seasonally the strongest, historically the industry [Indecipherable] would have averaged growth in the north of 3.5% in June quarter. Now but we are anticipating structurally higher growth rates post-COVID. How do we reconcile this tepid growth in seasonally the strongest quarter, once the base of the [Indecipherable] in FY ’22, probably this run rate and trajectory can translate into the same 8% to 9% sort of a growth that we were doing even before COVID. Any thoughts on that will be helpful?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

I think seasonality and many of the growth trends that you’ve spoken about is better understood at a market level. And at 4.1%, most of these core markets that they seem — I think the growth trajectory is fairly strong. And especially coming on the back of a — this being the fourth quarter of sequential 4% growth. So I think the numbers are there, even more importantly the main growth themes that we’ve spoken about, we have been seeing increasing traction on that. And our confidence in that is strong and in fact getting stronger, as many of the examples that is set or played out.

How the specific quarter or the next quarter develops? It’s difficult for us to look on. We are hopeful for a return to strong growth on a secular basis. But irrespective of that, the business model and the business strategy is [Technical Issues] making sure that we are aligned to the right trend. And in that area, we are quite confident about our long-term bets on the [Technical Issues] as well as our increasing focus on what we call the growth and transformation side. So we are quite, overall happy and confident about the trajectory.;

Sudheer Guntupalli — ICICI Securities — Analyst

Perfect, thanks. That’s it from my side and all the best.

Operator

Thank you. The next question is from the line of Diviya Nagarajan from UBS. Please go ahead.

Diviya Nagarajan — UBS — Analyst

Hi, thanks for taking the question. First question, Rajesh is on pricing. I think we’re probably in the most conducive environment for price increases that we’ve been in a long time. Could you kind of throw some light on what you’re seeing in terms of pricing overall for the company and what you’re seeing for the digital side of this? That’s question number one. The second one is to Samir, we started with the 25.5% kind of margin. Should we expect normal seasonality of improving margin trajectory as the year goes on, travel cost not included and the coronary to that would also be that when and how do we expect travel cost to trend this year?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Diviya, I want to make sure I understood your first question, you are asking about the pricing environment in the overall cloud demand, right?

Diviya Nagarajan — UBS — Analyst

Overall and specifically with digital as well and specifically if I was going to find that further are you able to push through price increases or cost of living increases given that — increase in demand as well as tightening supply situation.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. So that Diviya, I think they’ve spoken about it in the past also. As I said our pricing strategy is built on fairly long-term relationships with customers. And it’s not very volatile to specific demand trends. But the second part of your question is the more relevant one. Typically in a positive environment like what we have, some of the contractual provisions like [Indecipherable] increases and all go through much more easier, as also we have a much more supportive environment in terms of distribution of skill sets across various price bands, etc. So there is definitely a small — long-term support coming out of the demand environment, but headline numbers and specific pricing is not very materially linked in our business model to short-term spot demand as it were.

Samir Seksaria — Chief Financial Officer

Yeah. Hi Diviya to your question on margins, as we have seen in the past margins are usually lower in Q1 impacted by the normal implement cycles which we have. And also we have said that growth remains our biggest driver to margins. So as we see growth picking in back end we should see the margins recovering from the Q1 impact, which we usually have. Having said that, as you rightly asked, we are seeing uptick in many discretionary expenses, travel this quarter also has a slight uptick and we expect expenses — some of the discretionary expenses to get back to pre-pandemic level by the end of this year.

Diviya Nagarajan — UBS — Analyst

Sorry, so what does that mean in terms of margins in this as we go through the rest of the year and for the full year?

Samir Seksaria — Chief Financial Officer

We’ll have to wait and watch on that. But we would be — we should able to maintain margins — or sustain margins.

Diviya Nagarajan — UBS — Analyst

Got it. Thanks. I’ll come back for follow-up if there is time. Thanks and wish you all the best for the rest of the year.

Operator

Thank you. The next question is from the line Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Yeah. Thanks for the opportunity and congrats on a good execution outside India. Just the question in terms of the order book. So even — Rajesh can you share last time you said that you had only one deal which was about $500 million. So it is possible to share number of deals above $500 million or this time also the order book has been constituted by many small and medium-sized deals? And just to follow up on that for these smaller and medium-sized deals, how is it made up of the demand? So is it sticky deals where revenue can be annuity or you have to replenish these smaller size deals each quarter so the run on the ground could be higher, which may lead to have SG&A spend as is it?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Sandeep, let me answer the second part of your question and I’ll come back to the — so the distribution of deals is fairly well mixed between large and small ones. And the — I would say that — what you asked in terms of SG&A load, of course that is higher on the smaller deals. But there is a fairly good distribution. So our overall SG&A load should not be any significantly different than what we’ve seen in the past. And this is across markets — across all our major markets. And that’s the kind of nature of deals that we’re seeing. I didn’t fully follow the first half of your question. Is that about the same mix of deals or?

Sandeep Shah — Equirus Securities Private Limited — Analyst

Yeah. Rajesh, last time I think you said out of $9 billion order book there was only one deal above $500 million so can you clear that number for this one?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. Right, right. That same — it is a similar trend this time also. In fact, we don’t even have a deal above $500 million. In fact the largest is about $400 million. But we have a fairly large set of deals in the — in that category. But overall, it’s well distributed. There is no dependents on one single deal which has been the case for the last few quarters as you know.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay, okay. And just a couple of more if I can squeeze. Just a follow-up to Diviya’s question. So, Rajesh, are you saying clients are reflective to consider price increase because of the talent crunch even in the near to medium term or it may happen over a longer period of time? And second, in terms of India business, what I understand, it’s not a business which is lost, it’s just the postponement. And if it’s a postponement, do you expect the full recovery by 2Q itself or maybe spread over 2Q to 4Q?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. Sandeep, the answer to the first question is that as I said, in our business model, price volatility is fairly low on both sides. So, typically, businesses are built on long-term MSAs. There is some amount of tactical change that happens and the incremental deals or incremental client acquisition reflects the price environment of that time. But bulk of the business comes from existing relationships. And there the pricing is quite stable. We don’t — we are not much into what I said earlier the spot market as it where. The incremental deal signings happened.

Greater support comes from the fact that the revenue leakages and pricing increase opportunities in contract renewals and all, they’re much more easier to enforce in an environment like this compared to when the demand environment is more stretched. So, it gives long-term lift and support, but not a very meaningful short-term flow through. On the second question on India, we are very right that it is not business lost per se rather than, it’s more of business postponed. And if things continue the way they are in the last few weeks, we should see an equally strong bounce back in the India market as it comes back to normalcy. But we will wait and watch and see how it develops. But it is a one-off kind of a event.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay. Thanks and all the best.

Operator

Thank you. The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.

Apurva Prasad — HDFC Securities Ltd. — Analyst

Yes. Good evening. So, Rajesh, how should we think about continental Europe as — that’s been the growth driver earlier and it appears that deal wins have been strong. But the region decelerated last quarter and I think you mentioned in your earlier comments that you probably consolidate for another one or two quarters. Is that just base impact or should we read anything beyond that?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

It’s — the current quarter is significantly impacted, the sequential 1.6% — see on the year-on-year basis, it’s a 19%, sequentially 1.6% is impacted by the fact that we grew 8.5% last quarter in Europe. So, there is definitely that and that’ll have another one or two quarters of impact as we digest that and restructure that relationship. But overall demand environment in Europe continues to be very strong. We are seeing good traction in transformative deals, Europe has also used this opportunity to embrace offshoring in a much larger way, which is also while it is — it’s much more — it is very encouraging from a longer term business model perspective.

We are also seeing parts of manufacturing return significantly in Europe on the industrial side, not as much on the automotive side. Automotive, U.S. we have seen very strong recovery. But industrial manufacturing we’ve seen good recovery especially greater penetration into many segments that we were earlier not that present in. And we are also seeing retail I think I mentioned earlier. Travel and transportation, once again North America is leading the recovery, but we think that, that will come through. And we are again seeing penetration into newer segments like rail and other areas, which were traditionally we were not present in. So overall, I’m very positive about Europe and both on the demand side as well as on the revenue side.

Apurva Prasad — HDFC Securities Ltd. — Analyst

Okay. My second question is for Samir, you mentioned discretionary spend outside travel seeing an uptick and hitting pre-pandemic in three to four quarters. So what do you our offsets here in order to hold on to margins especially as we see attrition looking to head towards double-digit?

Samir Seksaria — Chief Financial Officer

So we would expect — so the discretionary spend upticking would definitely be there. We’ll have to rely on other levers including growth being one of the key levers and looking at probably differential pricing to offset that. But we would look towards all the measures available to help assist in margins.

Apurva Prasad — HDFC Securities Ltd. — Analyst

Okay. Thank you and all the best.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thank you.

Operator

The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Gaurav Rateria — Morgan Stanley — Analyst

Hi. Thank you for taking my question. Sir, two questions. Firstly, the book-to-bill ratio historically used to be one time, 1.1 times and now it has been sustainably above 1.4 times in the last few quarters. Should one read this as a better revenue visibility over the coming quarter versus the usual year or should one read that as a change in the average tenure of the deals? That’s my first question.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

With some of the cloud and large scale technology transformation deals definitely tenure has increased in the recent past, in the last year or so. So there is definitely some amount of that factor at play. Beyond that it’s early stages yet to say what the — what this is because as you know we have been reporting this only for the last two years. And the — I think the ratios you’re referring to come from other business models. So we’ll have to wait and see what the stable ratios for our business model are?

Gaurav Rateria — Morgan Stanley — Analyst

Okay. Secondly just wanted to understand the growth and transformation deals in which we are winning our fair share. How the deals are originated in the sense historically one would expect the consulting companies to be advising on some of these deals which can go through either to the same consulting companies or to the outsourcing companies. Just trying to understand how the difference in the originations of deals have happened for these kind of opportunities which probably we were not participating couple of years back?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Absolutely. I’ll go back to a couple of examples that I actually touched upon in my opening comments. So if you look at traditionally on the M&A side, we used to participate on the — the fag end of the transmission side, the technology integration per se, though that used to be a significant part of the value driver. If you look at most M&A transactions, the most definite and called-out value is the synergy benefit, and bulk of the synergy benefit really comes from technology integration and rationalization of processes. And we would participate at the — at only the technology level.

What we are doing is, we are now proactively in scenarios like that, going to customers and putting out our point of view on what that strategy ought to be. And that is allowing us a seat at the table all the way up to the — actually the day one planning and integration management office. So an example is the one that we spoke about where a biopharma company acquired a company in what is known as cosmetic healthcare or cosmetic drugs. So these — the portfolios were quite different, there were parts of the portfolio that to be integrated, part of the portfolio that requires a different supply chain and a different customer front-end.

Because of our deep contextual knowledge of what their systems were and what parts of the systems could be exposed to be able to support the new business models we were able to put out a very proactive pitch to them saying that we can significantly accelerate this integration by following this strategy. And accelerate the realization of the $2 billion synergy value that they had shared with the market. That allowed us a seat at the table in terms of designing that and thinking through the options of that integration and being part of what is known as the integration management office and designing what is called the day one operating strategy. So it is — in many ways us actually becoming more aware of the knowledge that we have.

Being able to package and articulate it better and then being able to covert that into incremental services and opportunities up that chain or in the front end of that chain. So that’s a classic example of what we are trying to achieve here that building on our trusted relationships, building on the contextual knowledge that we have and then reaching forward and investing in those incremental consulting capabilities and skillsets that are required. So that we’re putting out a integrated seamless proposition, which compete against a outside in proposition that a traditional consulting model brings about. So that’s the nature of the change that we’re seeking to engineer here. And early signs of success are very encouraging.

Gaurav Rateria — Morgan Stanley — Analyst

Great. Thank you for the elaborate answer. If I may just squeeze in last question for Samir, your comment on stable margin outlook is for the full year, right, sustained margin at the last year level, is that correct understanding? Thank you.

Samir Seksaria — Chief Financial Officer

Yes, absolutely. I’m talking about long-term structural margins to be sustained and it’s for the full year.

Gaurav Rateria — Morgan Stanley — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Ruchi Burde from BOB Capital Markets. Please go ahead.

Ruchi Burde — BOB Capital Markets Ltd. — Analyst

Thank you for the opportunity. My question is to Milind. Could you share your thoughts about the talent market situation at present and some qualitative colors regarding the talent induction, which TCS is having maybe in terms of the mix between the fresher and experienced professional, the locations, are we doing more offshore or we are committed to the onsite local hiring agenda even at the current moment?

Milind Lakkad — Executive Vice President and Global Head, Human Resources

Yeah. So, I think our model is very strong and we have been using this for many years now. And that that remains the same. Basically our — like we hired closed to 40,000 trainees last year from the campus. We will do the same thing even more numbers this year. The overall market demand is — job market is hot. So, yes, there will be some impact on attrition. But like I said earlier, it is something which is part of our operating model and we will manage that. I don’t think it will have an impact, anything specifically on any parameters — business parameters materially.

So — and the fact that we are continuing to hire not only in India but we actually strengthened our overall local hiring across the globe and that continues. For example, a very large number of trainees on the order of between 2,000 and 3,000 trainees we’ll hire in the U.S. again this year. And similar numbers are there in APAC, in LatAm and we also are building now a training base in Europe and UK. So, I think from a talent standpoint and our operating model standpoint and most importantly our own internal talent development machinery, which is industrious is all of these factors when they come together we actually create an operating model which can deal with any of this external environment parameters in a very healthy manner.

Ruchi Burde — BOB Capital Markets Ltd. — Analyst

Thank you.

Operator

Thank you. Next question is from the line of Girish Pai from Nirmal Bang. Please go ahead.

Girish Pai — Nirmal Bang Securities — Analyst

Yeah. Thank you for the opportunity. Rajesh I heard a couple of questions on demand. You mentioned that last couple of quarters you’ve not seen very — you’ve not locked large deals you had, the largest deal was $400 million this quarter rather in 1Q and the previous quarter it was $500 million. The question is aren’t there large deals in the market anymore or are you walking away from large deals because they do not meet your profitability criteria?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

No, no, no, we are not walking away from large deals. I think we continue to participate. We are quite disciplined in our approach, but we are also tactically quite competitive. It is just the nature of deal closures that we have had and the kind of pipeline that we’re focusing on. It’s also impacted by our increasing focus on the G&T kind of engagements and traction that we’re gaining. But as a strategy we are focused on the full spectrum and we absolutely are very keen and participating in many such ones, whether it be the large one that we spoke about last quarter. Last quarter I said $500 million, $500 million plus rather, which was the Deutsche Bank deal in Germany we’ve spoken about in the past, the quarter before about the Prudential deal in Ireland. So large, transmitive, even outsourcing led deals we are very, very focused on it. That’s a sweet spot for us.

Girish Pai — Nirmal Bang Securities — Analyst

The second question had to do with pipeline. Your order inflow numbers have been growing in the teens — high teens last quarter. So is the pipeline also growing at that same rate or is it growing faster or is it — are your growth in the order inflow largely market share gain driven?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

So pipeline numbers are growing but we are not directly sharing that because also as we said we are stabilizing these metrics. Our typical target win rates are different. And we are taking a more liberal view on what we want to participate. So we are seeking to participate more than what we were traditionally seeking. And that is driving a much higher pipeline growth. But I wouldn’t directly relate that to revenue. So it’s part of the overall transformation that we’re going through.

Girish Pai — Nirmal Bang Securities — Analyst

Okay. Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thank you, operator. To sum up, the growth and transformation teams we have been talking about are only strengthening as evidenced by the robust growth in our major markets and across industry verticals as well as strong deal wins in Q1. With growth returning, we had robust client additions across all revenue buckets this quarter which is an important measure of depth of our customer relationships. Our margins continue to be industry-leading and we believe we’ll sustain going ahead. It also gives us the wherewithal to continue investing in building the capabilities needed to expand our footprint in the growth and transformation opportunity.

On the people front, we had an all-time high net addition in Q1. Our attrition continues to be low at this point but we’re watching carefully given the strong demand for high-quality digital talent in the market. Our pan-India vaccination drive has progressed well. Over 70% of our employees are now vaccinated at least with the first shot and we expect to cover TCSers and their families by September. Thank you all for joining us on this call today. Enjoy the rest of the evening or day and do stay safe. Thank you.

Operator

[Operator Closing Remarks]