Tata Consultancy Services Ltd (NSE: TCS) Q2 2025 Earnings Call dated Oct. 10, 2024
Corporate Participants:
Nehal Shah — Investor Relations
K. Krithivasan — Chief Executive Officer and Managing Director
Samir Seksaria — Chief Financial Officer
Milind Lakkad — Chief Human Resources Officer
Analysts:
Ankur Rudra — Analyst
Apurva Prasad — Analyst
Sandeep Shah — Analyst
Vibhor Singhal — Analyst
Kawaljeet Saluja — Analyst
Rishi Jhunjhunwala — Analyst
Ravi Menon — Analyst
Gaurav Rateria — Analyst
Nitin Padmanabhan — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to the TCS Earnings Conference Call. [Operator Instructions].
I now hand the conference over to Ms. Nehal Shah from the Investor Relations team at TCS. Thank you, and over to you.
Nehal Shah — Investor Relations
Thank you, operator. Good evening, and welcome to TCS’s earnings call for Q2 FY ’25. 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.
Our leadership team is present on this call to discuss our results. We have with us today Mr. K. Krithivasan, Chief Executive Officer and Managing Director.
K. Krithivasan — Chief Executive Officer and Managing Director
Hi, good day, everyone.
Nehal Shah — Investor Relations
Mr. Samir Seksaria, Chief Financial Officer.
Samir Seksaria — Chief Financial Officer
Hello, everyone.
Nehal Shah — Investor Relations
And Mr. Milind Lakkad, Chief HR Officer.
Milind Lakkad — Chief Human Resources Officer
Hi, everyone.
Nehal Shah — Investor Relations
Our management team will give a brief overview of the company’s performance, followed by a Q&A session. As you are 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 this risk in the second slide of the quarterly fact sheet available on our website and e-mail out to those who have subscribed to our mailing list.
With that, I would like to turn the call over to Krithi.
K. Krithivasan — Chief Executive Officer and Managing Director
Hey, thank you, Nehal, and good day, everyone. As most of you will know, today is a very sad day for all of us. Thank you to many of you who have sent us warm words of condolence. It is a deep sorrow. We mourn the passing of Mr. Ratan Tata, an extraordinary individual whose life and legacy will always be a guiding light for Tata Consultancy Services. His wisdom, compassion and commitment to uplifting the lives of millions made him revered across the world.
This morning, the TCS leadership team and our Board of Directors went to pay our tributes to him and offer our condolences to his family. It was touching to see so many people who turned out to pay their respects to him and he also received many messages from our clients, partners and industry leaders.
Mr. Tata was one of a kind. His remarkable leadership marked by a unique blend of humility and confidence guided TCS through transformative global expansions with a deep sense of service to the communities we operate in and the values we cherish. He had a rare gift for making those around him feel valued and heard, earning the admiration and respect of all who had the privilege of knowing him. His approach to leadership paired with his genuine care for people has left an indelible mark on everyone of us.
Thank you for keeping him and his family in your thoughts today. All my colleagues at TCS and I will remain forever inspired by him as we carry forward the vision. On that note, let me offer you some thoughts related to where our business stands this quarter and what we are looking to do so in the future.
Our performance in this quarter demonstrate the resilience of our diversified portfolio amidst an uncertain geopolitical situation. Our biggest vertical, BFSI, showed signs of recovery. Growth markets also continued with a strong performance. Revenue grew 5.5% year-on-year in constant currency. Our operating margin for Q2 was 24.1% and net margin was 18.5%.
I’ll now invite Samir and Milind to go over different aspects of our performance during the quarter. I’ll step-in later to provide more color on the demand trends we are seeing in our business. Over to you, Samir.
Samir Seksaria — Chief Financial Officer
Thank you, Krithi. Let me go over the financial details. In the second quarter of FY ’25, our revenue was INR64,259 crores, which is a year-on-year growth of 7.6%. In dollar terms, that revenue translates to US$7.67 billion, a Y-o-Y growth of 6.4%. In constant currency terms, our revenue grew 5.5%.
Our Q2 operating margin was 24.1%, a sequential decline of 60 basis points. Our long-term investments to ensure sustainable growth, continuing talent acquisition and development, strengthening ecosystem partnerships and alliances, opening new delivery offices, nearshore centers and baseboards.
Net margin in Q2 was 18.5%. Our EPS grew 6.2% year-over-year. Our accounts receivable was at 72 DSO in dollar terms. Net cash from operations at US$1.4 billion, which is a cash conversion of 100%, a percentage of net income. Free cash flows were at US$1.3 billion and invested funds at the end of the period stood at US$6.4 billion. The Board has recommended an interim dividend of INR10 per share and our capital allocation policy remains consistent on returning surplus free cash flow back to our shareholders.
Let me walk you through our segmental performance. Please note that all growth numbers are in, on year-on-year constant currency terms and unless otherwise mentioned. BFSI, Consumer Business Group and Life Sciences, Healthcare vertical all grew 0.1%; Manufacturing grew 5.3%; Technology and Services declined 1.9%; Communication and Media declined 10.3%; Energy Resources and Utilities grew 7%; and Regional Markets grew 50.4%.
Moving on to geographies. All growth markets grew above the company average. India led with 95.2% growth, Middle East and Africa grew at 7.9%, Asia-Pacific grew 7.5%, and Latin America grew 6.8%. Among major markets, United Kingdom grew 4.6%, and Europe grew 1.8%, North America declined 2.1%.
I’m now going to talk about our industry-leading portfolio of products and platforms. ignio, our cognitive automation software suite saw 34 new deal wins and four go-lives. Gen AI conversations are fueling an increase in conversation around traditional AI and automation. ignio is steadily creating real-life Gen AI use cases and making them an integral part of the platform to help customers realize quantifiable value.
TCS BaNCS are flagship product for financial services had three wins and three go-lives during the quarter. The TCS BaNCS global banking platform now caters to the entire spectrum of banking technology from commercial to urban cooperative, to rural, private and small finance banks in India. With an installed base of close to 200 banking institutions in India, we continue to help our customers to transform and achieve their goals of digitization and become active players in the thriving ecosystem of Indian markets.
TCS BaNCS insurance platform continues to grow with one win and three go-lives during the quarter. Quartz blockchain platform has two wins this quarter. TCS iON, our platform for digital assessment, exam administration and learning had 17 new wins and 80-plus platform capabilities, which went live. Our assessment platform administered more than 12 million candidates.
TCS OmniStore, our AI-powered universal commerce suite had two go-lives during the quarter. Clients have continued to prioritize enhancing their omnichannel capabilities and optimizing their checkout processes. The focus is on modernizing to create a seamless experience across online and in-store channels. Many retailers are investing in data insights and AI tools to gain deeper insights into customer behavior and optimize their personalization and marketing strategy. Investment into cloud-based checkout solutions have surged, signaling a long-term commitment to staying agile and adaptable.
TCS TwinX, our digital twin solution has two wins and two go-lives. In TCS, in life sciences, our TCS ADD platform has four new wins and three go-lives this quarter. A US-based leading pharma company extended their collaboration with TCS ADD for usage and cloudification of Metadata repository platform for automation of biostatistical submissions to a health authority. TCS ADD platform is able to automate more than 90% of the submission. TCS HOBS, a suite of products for communication service providers had two new wins and four go-lives during the quarter. MasterCraft and Jile won 35 new deals in Q2.
Let me now go over our client metrics. As on 30th September, we have more than 1,300 clients in the US$1 million+ band. In Q2, we added five new clients year-over-year in the $100 million+ band, bringing the total to 66. We added six clients in $20 million+ band, bringing the total to 298, eight clients in $10 million+ band, taking the total to 491.
With this, I’ll hand it over to Milind.
Milind Lakkad — Chief Human Resources Officer
Thank you, Samir. Our workforce at the end of second quarter was 612,724. We added net 5,726 associates this quarter after adding a similar number last quarter also. We remain on track for special onboarding as planned for the year and have also commenced the process for recruiting freshers through the National Qualifier Test for FY ’26. Our workforce continue to be very diverse with 150 nationalities represented and this women making 35.5% of the [Indecipherable].
We continue our focus on acquiring quality talent. Our current trainee hiring is segmented with differential compensation for each segment. This year, we have more than doubled our intake of higher cadre trainees. Training intensity has increased across the organization. Employees logged 26.1 million learning hours year-to-date and acquired 2.6 million competencies.
Education and skill development are also part of our core themes under community initiatives that we work on. All our efforts are reflected in our retention rate, which are one of the best amongst industry peers. Our LTM attrition in IT services [Indecipherable] 12.3% in Q2, which is in our comfort range of 11% to 13%.
I will now request Krithi to speak on the various demand drivers during the quarter.
K. Krithivasan — Chief Executive Officer and Managing Director
Thank you, Milind. I’m pleased to see some signs of improvement, most notably in financial services in North America, in environment of global uncertainty. Our diversified portfolio and yearly investments in growth markets are bearing fruit. All the growth markets continue to grow above company average. However, as a general trend in the major market, the demand outlook continues to remain cautious as seen in the last few quarters.
Key business themes seen across industries were cost optimization, vendor consolidation, customer experience transformation, supply chain modernization, risk and resiliency. Globally, clients continue to prioritize efficiency through cost transformation programs and demand for discretionary deals with low immediate ROI remained relatively subdued.
Some recent trends that we are seeing in our major segments are; in BFSI, financial institutions in the US are looking at sustaining the growth momentum with the Fed’s first rate cut in four years. Stability in the macro brings initial signs of confidence. With the easing of interest rate environment, consumer confidence and industry confidence will get better. This can potentially lead to improved investment. Customers are focused on operational efficiency and upgrades for the future with an eye on efficiency and automation. While pipeline continues to remain strong, we are yet to see large transformational deals in the BFSI.
TCS partnered with Tryg in the complex M&A integration journey following the Trygg-Hansa acquisition. TCS combined its M&A capabilities and deep contextual knowledge of Trygg business landscape to ensure a smooth IT integration within the stipulated timeframe. The entire IT estate of Trygg-Hansa was demerged and unified with minimum disruption to business. Post this integration, Tryg-Hansa’s user experience has been elevated and Tryg has been able to realize significant commercial synergies from the M&A. It has also enabled Tryg to focus on growth in the Swedish market, while further unlocking operational efficiencies through consolidation and transformation.
In Consumer Business Group, growth was led by TTH, which saw demand for customer engagement and hyper-personalization, business process transformation, SaaS platform implementation and Gen AI as key focus themes. In retail sector, customers are taking a cautious approach due to the macroeconomic and geopolitical situation. Consumer spending during the coming holiday season will also play a crucial role in determining budgets towards transformation initiatives. Retailers are likely to wait-and-watch for these parameters and factor these into their planning for the next fiscal.
Supply chain transformation continues to be a key priority, attracting investments from customers in addition to customer experience and M&A. As an example, a leading US supercenter chain partnered with TCS to modernize and transform their supply chain processes. The client faced several challenges with their existing warehouse management system, including system latency, inefficient product slotting, work allocation, scheduling and insufficient decision support.
TCS conducted design thinking workshops and implemented a user centered, modular, fully automated data driven cloud-based system, integrating approximately 40 diverse applications to cover and end-to-end, cover the end-to-end processes. This has improved efficiency by 97%, increased agility and scalability to handle surges in demand, enable five times faster deployment at new facilities, increased flexibility to accommodate diverse and evolving business needs, thereby improving sales, time-to-market and overall customer experience.
In manufacturing, we are seeing some pressure in the near term. Labor and supply side constraints are impacting the industry. However, barring these areas of concern, manufacturing continues to see a strong demand environment within the strong, strong demand environment and deal pipeline. Smart manufacturing and software-defined vehicles are the two mega long-term trends. TCS showcased its commitment to a sustainable and technologically advanced future for the aerospace industry at Farnborough International Airshow in 2024.
Cutting edge solutions designed to solve critical industry challenges are on display, including Generative AI [Phonetic] for supply chain and immersive MRO experience and exploration of quantum computing in aviation. These innovations underline TCS dedication to pushing technological boundaries and shaping future ready [Indecipherable].
In Life Sciences and healthcare, we had client-specific headwind in the US geography resulting in significant impact. We expect the headwinds to stabilize in Q3 and return to growth in Q4. The tech, software and services vertical saw sequential growth for the second consecutive quarter. Cost and efficiency remained a top priority for tech and, tech software and services customers and they continue to be cautious on capex investments and in transformation initiatives. In CMI, telecom and media firms are keeping a keen continued focus on bottom line impact doing more with less. ROI expectations continue to remain heightened.
Moving on to service lines, growth this quarter was driven by Cybersecurity, AI.Cloud and TCS Interactive. With increasing sophistication, ransomware, phishing and data breaches, enterprises are required to invest in advanced cybersecurity measures, including threat intelligence, endpoint security and incident response plans. Artificial intelligence is aiding the sophistication of cybercrime, making it imperative for financial institutions to stay ahead of the core.
TCS partnered with one of the largest ground handling companies based in Europe to help them improve their cybersecurity maturity and reduce risk exposure. TCS enables comprehensive visibility of the enterprise cyber risk landscape, which enable the customer to measure the efficacy of their security operations, establish better control and governance on key security programs and track the returns on cybersecurity investments.
On cloud front, we continue to see good growth in legacy modernization, data platform organization and technology landscape simplification. Over the past two years, companies have significantly increased their investments in AI and Generative AI. They are focusing on using this technology strategically to drive business value and are becoming more aware of ethical considerations. Talent development and navigating the regulatory landscape are also key areas of focus.
While challenges remain, the potential benefits of AI and Generative AI are driving continued adoption and innovation. On AI, Generative AI, companies have moved past the point of experimentation through proof of concept and are increasingly viewing AI and Generative AI strategic assets, integrating them into the entire value chain.
We are now helping our most mature customers set-up interdisciplinary AI officers, where business and technology come together to rapidly turn ideas to AI PoCs and scale them to production in an agile manner. There is also a growing interest in using Generative AI throughout the software development life cycle, including legacy migration and modernization initiatives across all industries. TCS was selected by the UK entity of a leading global insurer to transform its IT organization to meet the strategic growth initiative, objectives. As part of the, on its multi-year partnership, TCS will help set-up a future proof operating model built on enterprise wide distributed agile.
From modernizing the core insurance systems to developing a cloud-native modular platform and embedding Generative AI across the software development life cycle and business value chain, TCS will drive multiple traditional and disruptive initiatives. The program will enable the insurer to enhance productivity and improve customer experience while growing its market share in the region.
Openreach, UK’s largest telecom infrastructure company has selected TCS as its strategic partner for the business operations transformation of their national rollout of next-gen fiber network. This managed services deal solidifies our role as a trusted partner in Openreach’s end-to-end network transformation journey, delivering superior services for their flagship broadband business, business customers, while optimizing cost of network build, minimizing truckloads and shortening of production cycles. TCS will harness its unparalleled contextual expertise and domain knowledge of Generative AI and cloud-led innovations to deliver efficient operations.
A leading global FMCG company has engaged TCS to transform their global quality management. With contextual knowledge of the client’s quality management, TCS implemented a Generative AI solution that extracts value from millions of consumer feedback in over 130 languages for accurate translation and context preservation, sentiment tagging, root-cause identification, feedback classification and prioritization. This has increased operational efficiency by over 50% and is delivering actionable insights, enabling improved product quality management, brand perception and customer engagement.
A global hospitality company partnered with TCS to improve its contract management processes. TCS utilized Generative AI models trained with diverse regional data to analyze contracts, identify differences in contract terms and streamline data extraction. This will improve audit efficiency and delivers approximately 17,000 person days saving in manual effort allowing experts to focus on higher-value activities. We are seeing the rise of AI-infused service lines rather than standalone AI demand.
The reimagination of contract centers, contact centers with AI, for example is showing a very strong trend. Similarly, AI reimagined business processes, process services and AI powered cloud modernization are also seeing strong traction. So, it is safe to say that AI is now an integral part of everything we do and will continue to significantly benefit almost all services in the coming quarters.
Coming to our long-term growth strategy, we are investing significantly to create a large footprint in emerging growth markets. Top bids include India, APAC, Latin America and Middle East and Africa. We believe these markets are likely to turn into a sustainable driver of long-term growth. A scalable presence in these markets is likely to provide the muscle for growth in TCS overall business over the next couple of decades.
We are establishing robust partnership with our ISV and other ecosystem partners to drive unparalleled efficiency in our operations across applications, infrastructure, engineering and business operations for our customers. Our client relationships are more about building resilience together. As we face unprecedented global challenges, the strategic approach to collaboration will prove crucial for long-term success and improving market share.
TCV in Q2 was at US$8.6 billion. The BFSI TVC, TCV was at US$4.6 billion, while TCV for our consumer business group was at US$1.2 billion. The TCV of deals signed in North America stood at US$4.4 billion. The gradual easing of inflation in the major markets, improving macroeconomic trends and expectations of a good holiday season, holiday season spend among consumers give us hope and optimism around the prospect of improved discretionary spend and capital investments by our customers, which should bode well for our business.
Thank you. We are now, we can now open the line for questions.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. We’ll take our first question from the line of Ankur Rudra from JP Morgan. Please go ahead.
Ankur Rudra
Thank you very much for taking my question. Just maybe a few questions, maybe starting with demand. It seems like this was a challenging quarter for the international business, slightly soft on our headline numbers and also signings. Could you maybe elaborate in terms of the nature of demand environment? Has it begun to perhaps deteriorate overall after a couple of promising quarters? And should one assume that recovery perhaps had pushed out a bit from here?
K. Krithivasan
Thanks, Ankur. As explained, like demand continues to be around areas of cost optimization and discretionary spend demand stays where it was. And in fact, what we saw is, in some of the cases, the deal duration has slightly increased. But otherwise we don’t see a demand drop in a big way. And we also explained like BFSI North America has done well this quarter. Tech and Services has done well for a second consecutive quarter. We do, I also mentioned like we had challenges in a couple of accounts in Life Sciences and Healthcare, more client-specific where we were quite big and large account in UK as well. So barring those instances which are more client-specific, I would say the environment has been quite similar to the previous quarter.
Ankur Rudra
Okay. Thank you, Krithi. And maybe just on financial services, if you could dig in a bit deeper and add some more color in terms of which is the segments of the broader financial services portfolio where you’re seeing strength? And I think you also mentioned manufacturing were a bit concerned if you can elaborate on that one as well. Thank you.
K. Krithivasan
Yeah. What is your question, Ankur, on manufacturing?
Ankur Rudra
I think there was some comment that manufacturing has begun to see some signs of weakness, I was just curious if you could add, add to that.
K. Krithivasan
Okay. So, first on BFSI. In North America, we see all-round growth, actually, both North America and Europe, we see good, UK, we see good growth in banking. And capital markets has been weak. Insurance has grown and regulations and risk and compliance has also grown in banking. And then Europe, it’s more or less very similar trend. UK, we are, again, the capital markets has always been a problem. But also as I said, UK is probably more a customer-specific situation than a overall trend. So, this is broadly, but otherwise good thing is banking is coming up, insurance is coming up, so, which we hope will sustain in the coming quarters.
In banking, sorry, in manufacturing, what we mentioned is, there is an overall supply chain issue, like because of that some impact, it’s impacting the demand situation. But we believe it will be a short-term, because we talked about labor situation and supply chain. We believe it will be short-term. And once these issues are resolved, because many of our customers have a long order book and they’re quite strong in that, the health is strong and the order book is strong for our customers. So we expect, we expect the, our demand to pick up in the coming quarters, Ankur.
Ankur Rudra
Thank you so much. Just if I can squeeze in a last question on margins. Clearly, there’s been a lot of moving parts this time. Maybe the first part of the question would be, if you could highlight the, I mean, there appears to be a bit of a margin trade-off here going through at least on the CMT side, perhaps because of one deal. Are they expected to be any sort of synergies is the worst of that deal margin impact behind us? Number one.
Number two, overall, if I look at, sorry, segmental margins, both on manufacturing and CMT, both are opposite direction of significantly out of long-term trends. How long will that last? When we will see this coming back to long-term trends? Thank you.
Samir Seksaria
Sure. Hi, Ankur, this is Samir here. So, let me give you the margin bridge, and that will cover most of your first part of the question. So margins at 24.1% are a sequential decline of 60 basis points. And the headwinds were in form of the higher third-party expenses on account of a large transformational project, which you also mentioned about. And that project is running, running at its peak. And that, that impact is about 60 basis points. We had incremental investments in talent and infra, that combined impact was about 70 basis points, and this was offset by mainly currency and a little bit of one-offs not recurring from Q1.
Your second part of the question in terms of segmental margins, the CMT one, as you called out, the large projects do reflect out here. There’s nothing very specific. The trends on the overall margin versus on the segment driven, except for, I think, on the CMT are on similar sites, one or two segments had a slight positive.
Ankur Rudra
Appreciate it. Thank you.
Operator
Thank you. We’ll take our next question from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Apurva Prasad
Yeah, thanks for taking my question. As the first-off, deepest condolences from my side, too. Krithi, just to tie in with your comments of improvement and discretionary and optimism going forward, how should we think of growth visibility or acceleration beyond the current calendar, especially in absence of mega deals. If I look at bookings for the first half, TCV, it’s down 20%, of course, with no mega deals there as compared to the comparable period earlier. So any comments on how the pipeline around some of those mega deals and/or the ACV and duration of what you’ve been booking?
K. Krithivasan
Apurva, like on the TCV front, like, as you would say, it’s better than Q1. And like we explained last quarter and previous quarters also, TCV always have some lumpiness, like what we expect to close in the last quarter sometimes gets pushed to a subsequent quarter. So, and we’ve always been maintaining that 7 to 9 is our, US$7 billion, US$9 billion TCV is a comfort range. And particularly in the absence of a mega deal, like, if you were comparing with last year, last year, Q2 itself, we had mega deals amounting to almost US$2 billion.
So in the absence of those mega deals, I think it’s a comfortable number, like, and from a pipeline perspective, actually our pipeline is nearly at an all-time high and both what we call a qualified pipeline and the overall pipeline. So, pipeline, and the pipeline is also across all geographies and industries. So pipeline is looking strong. TCV is within our comfort range, and it has shown sign of improvement. And as I said, it’s may not, may not easily, not easily comparable with last year, because we had two mega deals also come in last year.
Apurva Prasad
Got that. And secondly, how much of the weakness this quarter relative to the previous quarter is sort of emblematic of macro versus the temporary client-specific factors that, that you mentioned. How long is this expected to last?
K. Krithivasan
So, quantification on how much on, it will be difficult, Apurva, but that is, as I said, overall trend, whilst there is demand environment has remained stable compared to last quarter, then there is, as I said, few accounts, two, three accounts more on, we had some client-specific situation, but all happening at the same quarter is probably a little unfortunate for us. But I think that is a one quarter phenomenon. So we should rebound from that situation.
So that’s the way I would put it. Like, I won’t be able to split between how much is the overall environment specific and how much is clients-specific. But we are confident that in near see that Q3 is also a seasonally weak quarter, but Q4 onwards, these factors should ease out.
Apurva Prasad
Got it. And just finally, how is the Gen AI pipeline converting to bookings and revenue, especially as one of your competitors is talked of numbers, which is not too different from our own pipeline. So, if you could comment on that in terms of how integral it is becoming part of deals?
And just finally, on margins, Samir, how much of the long-term growth strategy in growth markets? How should we think about margins from that point of view?
K. Krithivasan
See, we have not been disclosing the AI, Gen AI TCV, but it has been improving very well, almost like doubling every quarter. And the pipeline also remains very strong. And as of this quarter, the engagements in AI, Gen AI, including the POCs, POVs, and production engagements, we are doing more than 600 engagements, which increased to just almost 275 last quarter. So, it’s a very significant increase in the number of engagements. And we also saw engagements that went into production also jump, like it’s a sign of maturity. Last quarter, we said eight engagements went into production. And this quarter, we have almost 86 engagements going into production. So we are finding all-round improvement and becoming mainstream.
And also the quality of engagements also like some of, we’ve always been talking about engagements in terms of Assist, Augment and Transform, And you’re seeing more and more engagements in the higher order of Generative AI, namely Augment and Transform. So, we are quite comfortable and pleased like we unveiled our WisdomNext next platform, and that’s also getting a lot of traction with the customers.
Samir Seksaria
Apurva, Samir here. From a long-term perspective, we stay committed to our 26% to 28%, and that will factor in any big bets, whether it is growth market or anything else, which we’ll be taking into account. On an overall portfolio basis, we would like to deliver the guiding weekend, which you talk about.
Apurva Prasad
Thank you.
Operator
Thank you. We’ll take our next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Sandeep Shah
Yeah, thanks for the opportunity, and deepest condolence for TCS and Tata Group. Krithi, just some bookkeeping question. I wanted to understand and reconcile as you are saying, the BFSI has been showing signs of revival in the US and North America, but this quarter, the North America as a region has not shown a growth, while Europe has shown a growth. So can you reconcile, is it fair to say challenges in non-BFSI segment is bigger in North America?
K. Krithivasan
Yeah. So, what you said like, if I split BFSI across geographies. North America has done well. And I did mention that there is a softness in UK, Europe, because of a client situation for us. But, but the overall BFSI, but overall, BFSI still continue to grow. And the other geography, I did talk about Life Sciences and Healthcare, having a, North America having a softness because of one-off client issues. So that is probably the, that dragged the overall North America revenue growth. Similarly, like the BFSI growth in Europe has held in while some other vertical, few other verticals have not, have been soft in Europe, the growth of BFSI has helped them overall Europe growth in BFSI, I’m sorry, Europe growth as well.
Sandeep Shah
Okay, okay. And just on the BSNL deal, one of the comment of CFO has been it’s at a peak rate. So, is it fair to assume BSNL deal revenue in the second half would be materially lower versus first half? And this could be a growth headwind in the second half on a consol level?
Samir Seksaria
So Sandeep, it’s running at its peak, and we would expect maybe a quarter more where it would remain at similar levels. And as you rightly know, the transformational program then will start tapering off.
Sandeep Shah
Okay. Okay. So, this would also be a margin tailwind in the fourth quarter, maybe third quarter could be again a difficult quarter in terms of showing up, what trend on the margins?
Samir Seksaria
So, while we don’t say, say deal specific, but as you rightly called out, we have been calling out the third-party expenses incrementally going up. So once it starts tapering Q3, Q4 or Q1, that should reflect on both revenue and margins.
Sandeep Shah
Okay. And the last question with the tax ruling change on the buyback. How are we looking at capital allocation? Are we still looking in terms of inclined towards buyback or we are more inclined towards dividend?
Samir Seksaria
So overall, our capital allocation in terms of returning back substantial free cash flows back to our shareholders remains the same. The Board considers in terms of the mechanism of it, whether it should be buyback or special dividend, taking into account preferences of various varied group of stakeholders or shareholders, which we have, and they will take a decision this is that when it is taken up for consideration.
Sandeep Shah
Okay. Thank you, and all the best.
Operator
Thank you. We’ll take our next question from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Vibhor Singhal
Yeah. Hi, good evening. Thanks for taking my question. So Krithi, just to dwell a bit more on North America. If I look at strictly in terms of dollar revenue terms, we fell by almost US$60 million in our North America revenue almost half of it assuming came from the Healthcare segment, which was down almost US$28 million. So which are the other verticals in which we saw this kind of, some kind of weakness in US specifically? And was that also of a similar nature like healthcare or client-specific issue, which you expect to may be recovered in a couple of quarters? Or do you think there is a more structural issue to some of the shortfall in the revenue maybe like the telecom sector?
K. Krithivasan
It’s from a client-specific perspective, we called out like it’s essentially what we saw in healthcare. It’s a Life Sciences client-specific issue. You saw growth coming up in BFSI. We had growth come up in energy resources utilities also and even technology and software platform, software and services grew. And we’ve been having the consumer business, we had the issue in terms of demand being slightly soft because of the discretionary spend cut. And we also saw yeah, that’s primarily, title manufacturing also, we called out regarding manufacturing and telecom, telecom has been a slightly long-term trend. We are hoping that it will recover once the interest rate environment becomes better. There will be a motivation to invest on the capex. But we expect retail, we are hoping for a good holiday season. Having a good holiday season would be a good trigger for investments to resume in consumer industry.
Vibhor Singhal
Got it. Got it. So by that count should, are we sticking to the commentary that we mentioned last quarter, that retail sector has also possibly bottomed out for us and next quarter onwards, we could see some green shoots in that sector as well?
K. Krithivasan
We are at least [Indecipherable], next year, we are hoping, because once these macro uncertainties ease and economic environment improves, we are hoping could, should be, things should start improving. I don’t want to, at this time, it’s only half the year is over.
Vibhor Singhal
Right, right.
K. Krithivasan
It will be too early for me to call out like next year is better than this year, but we are hoping for the situation to improve with all the macros also improving.
Vibhor Singhal
Got it, Krithi. Thank you so much. Just one last question from my side on the headcount addition. I think another strong quarter, another quarter of strong headcount addition. So how to read into this going forward? I mean, are we looking at maybe it’s not similar, but still a positive headcount addition in the coming quarters? Is that more related to the kind of growth demand environment that you are seeing? Or is it just a backfill of the negative number that we had for the past three quarters to four quarters?
Milind Lakkad
I think we will, from a trainee addition standpoint, which is our strategic addition, I think that we will continue to do in the coming quarters, including Q3. Now, other lateral intake from the market will decide based on the market situation.
Vibhor Singhal
Got it. So on the lateral side, is it like we are focusing on specific technologies that we are looking to hiring? I know we kind of give a number that we’ve trained so many people on Gen AI. Is that the area that you’re looking to hire lateral people? Or is it, I mean, more across the broad?
Milind Lakkad
See, we are working on various technologies and various transformational programs, which are across technologies, right, from —
Vibhor Singhal
Okay.
Milind Lakkad
SAP S4/HANA to Gen AI to very specific skill sets on, on certain products. All of that is something we continue to hire in the quarter.
Vibhor Singhal
Got it. Got it. Thank you so much. Thanks for taking my questions and wish you all the best.
Milind Lakkad
Thank you.
Operator
Thank you. We’ll take our next question from the line of Kawaljeet Saluja from Kotak Securities. Please go ahead.
Kawaljeet Saluja
Hey, hi. A couple of questions actually from my side. One, Krithi is that, how’s the further situation going to be this year from the initial conversation with clients? Is it any different than what you have seen in earlier years?
K. Krithivasan
Okay. On furlough, we at this time from whatever we know, it’s similar to last year. We don’t see, expect this to be any different compared to last year.
Kawaljeet Saluja
Got that. The second question is on the BSNL deal. Now there are various, I mean, various sizes, which are being discussed. I think your company announced a US$1 billion in terms of deal size? I’m just trying, whereas when I read your annual report, there was a specific mention of additional 20,000 sites, which will be rolled out as part of deployment. I’m just trying to understand the overall size of the scope of the deal. And if it’s a US$1 billion, then I guess in the last four quarters itself, the bidding would have reached around US$750 million, so with that as a backdrop, how do you end up with, let’s say, flattish deployment or another quarter of strong robust revenue from BSNL in the December quarter?
Samir Seksaria
Kawal, overall, 100,000 sites need to be deployed. We are around the halfway mark on that. And that is the incremental information we can share on it. There is still scope to go. And like we have been sharing in the past, the entire thing is from the manufacturing till the installation and beyond in terms of acceptance. So there are various milestones also, which are intermediately built into it.
Kawaljeet Saluja
Okay. That’s useful.
Samir Seksaria
I will not be able to comment on how much of it is there, but that calculations probably can be done. But we’ll not, on a client-specific one, we’ll obtain from the specific numbers, revenue numbers on it.
Kawaljeet Saluja
Got it. Now, Samir on this, specifically, when you look at the revenue dynamics, right, these large transformation contracts, the revenue profitability dynamics may not be synchronized at least from the financials, when I look at the CMT vertical, the absolute EBIT has been flat, whereas the revenues have grown, leading to an impression that it’s been no margin kind of a business. Does this dynamic change as the transformation program hit specific milestones here?
Samir Seksaria
So, in the overall transformation program, during the transformation program, we don’t expect the dynamics to change considerably.
Kawaljeet Saluja
Fair enough. The last question that I had is for Krithi, again. Krithi, you mentioned client-specific challenge. Actually, can you just elaborate what this client-specific challenge would be? And did it have any margin impact?
K. Krithivasan
No. In this particular case, we had a scope reduction. The client decide, and we had a very significant presence and the client had a scope reduction, more abrupt, so leading into our revenue decline. So, that’s what I meant on a client-specific. When I say challenge, it’s a challenge because it resulting in a scope reduction.
Kawaljeet Saluja
But does that scope change, let’s say, as you move early into the next year, or is it just —
K. Krithivasan
See, the client, [Speech Overlap] no, this would, I would say is probably like where the client decided to reduce the amount, quantum of our transformation work they were doing. And because of that, the program was stopped. So will they pick up the program again, we will know only once the situation turns positive, Kawal.
Kawaljeet Saluja
Okay. That’s clear. Final question, I don’t know if it was asked earlier, but I did hear about a specific instance of focus on growth market. All of us know that growth market may not be the most profitable one. So how do you intend to balance the aspiration of expanding into India or maybe some other, actually, India or some of the other regions in Asia Pacific and the profitability aspirations you have?
K. Krithivasan
See, like our experience is that, yes, they’re not, the profit margin may not be as high as the major markets. At the same time, we’ve been able to manage overall at the portfolio level. And it’s, and also it’s a market where growth will come in and the kind of transformative engagements we do are very interesting. And as the volume picks up, Kawal, my guess is we will be also able to manage the margin. Currently, also the volumes are low because of the SG&A expenses in the markets are slightly higher. Our expectation and the way we would operate is as the volume picks up, we should be able to manage our cost and improve the margins also.
Samir Seksaria
Just to add to it, we could drive growth in that portfolio and drive efficiency in another portfolio. Our intent would be to deliver a combined mix of growth and profitability in the, in the aspirations which we have set.
Kawaljeet Saluja
Thank you so much for your responses. Appreciate it.
Operator
Thank you. We’ll take our next question from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.
Rishi Jhunjhunwala
Yeah. Thanks for the opportunity. Just a couple of questions. Firstly, if you look at our SG&A expenses as a percentage of revenue, they are pretty much at an all-time low. And in the past four quarters to five quarters, we have seen sequentially even the absolute amount coming down. Just wanted to understand, is it more a reflection of how things have slowed down in the past four quarters, five quarters and hence, you are trying to rationalize that or more a reflection of how the next three quarters, four quarters might look like and kind of managing investments there?
Samir Seksaria
So, if you look at it from an absolute perspective, SG&A expenses have been in the stable level. If you look at it from an year-on-year perspective, there have been investment infrastructure as well as travel expenses going up. And I’m assuming you’re looking at it just from, you are talking about from an absolute one, because percentage, some of the non-services revenue will also have an impact. But overall, SG&A is one of the levers in terms of stable management and efficient management on SG&A, when we are looking at the combined margin, Rishi.
Rishi Jhunjhunwala
Okay, sir. And just secondly on, on deals, right? So last quarter, we had indicated that there were delays in deal closures and so possibly that could have reflected in better wins this quarter. There hasn’t been any material uptick, but you mentioned US$7 billion to US$9 billion is a comfortable range in which you are operating. Just wanted to understand in order for our growth to accelerate to maybe high single digit or closer to double-digit over the next 12 months, 18 months, do you still need this number to go up substantially or the overall budgets might just reflect that even if it is not getting reflected in the TCV?
K. Krithivasan
No, let’s say for the current revenue trajectory we are in about US$9 billion, I’m not saying US$7 billion will be comfortable consistently. But close to the, in the range, we have to get close to our book-to-bill ratio. If it gets somewhere around 1.1, 1.2, would service the growth that is required. So that’s the reason we are coming up with a number of almost US$7 billion to US$9 billion. But also, Rishi, the idea is that when you say US$7 billion to US$9 billion, there will be a couple of quarters where you will have a mega deal come in. So, it will also give a additional bump to the overall number. So US$7 billion to US$9 billion without mega deals is fine, like then we’ll have sometimes a mega deal that will push the number up.
So that will be, see, for instance, last year, we had almost more than US$40 billion. This year, we had somewhere between close US$16 billion and US$17 billion is what we have with some large deals coming in and with all the better deal closure, we may be closer to the mark than we were last year, or if you be lesser, will not be less by a big number. And as I said, 1.1, 1.2 book-to-bill is a decent number for sustaining the growth.
Rishi Jhunjhunwala
Got it. But would you have mega deals in the pipeline, which could potentially [Speech Overlap].
K. Krithivasan
There’ll always be a few megadeals in the pipeline, Rishi.
Rishi Jhunjhunwala
Okay. All right. Thank you so much.
K. Krithivasan
Thank you.
Operator
Thank you. We’ll take our next question from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon
Hi, thank you for the opportunity. Krithi, I wanted to touch upon one of the markets that you’re already strong in, that’s airline industry. We had heard about how they want to go direct-to-consumer. And I guess, those plans have been put on hold as they struggled on the front. Do you see some of those kind of investments coming back?
K. Krithivasan
Yes, definitely. Like from what we understand, those investments are coming back.
Ravi Menon
And in manufacturing, where you spoke of, were you talking about aerospace specifically or any other segments?
K. Krithivasan
Definitely, the labor issue is around aerospace. Supply chain issue is in auto as well as aerospace.
Ravi Menon
Thank you so much. And one last question on the BSNL deal. I think if I understood correctly, by next year Q1, that’s supposed to end? And is there a maintenance phase after that?
K. Krithivasan
Yes, there will be a maintenance phase, like, see currently the existing deal, we are on track to, in fact, close by Q4, okay? And Q1, there could be some residual work and some maintenance work will be there.
Ravi Menon
Thank you so much. Best of luck.
Operator
Thank you. We have a next question from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Gaurav Rateria
Hi, thanks for taking my question. First question is for Krithi. You did talk about optimism around discretionary spend returning back. So apart from macro data points, what are you seeing either in your portfolio or client conversation or the pipeline that gives you more confidence around a return of discretionary over a period of time?
K. Krithivasan
I think, there are a couple of things. One is there is a bit, a lot of optimization work going on. Some of the work expense spend or investments around technology debt has not taken place. For instance, there’s a workaround technology modernization, mainframe modernization, that spending. And what one good thing is with the Generative AI becoming more and more mainstream. Generative AI is also being seen as an important lever through which modernization could be expedited and accelerated. So, that’s one.
And the second is our client conversations in terms of enhancing customer experience, okay? That’s also in some cases that which should have been, happened last year did not happen. So the optimism comes from the backlog of work, which some of our customers are not being able to carry forward because of the current environment they are in.
Gaurav Rateria
Got it. Second question is on margins. I know that you did gave us a bridge, and that had a component of capacity building an infrastructure-related investments that had some impact on the margins, kind of coming back gradually, would you expect margins to return to the range that you talked about in the near term, or will it be more like a medium-term phenomenon? Basically, you have levers around India business sort of tapering down on that contract, which can lead to some margin expansion on top of it, some capacity creation has happened. That also kind of can lead to a margin expansion. So trying to understand 26% is it more of a near-term phenomenon or more like a longer-term margin aspiration one should think about? Thank you.
Samir Seksaria
Gaurav, we’d like to get to 26% to 28% or nearer to 26% as soon as possible. Given how the macros are stacked up, we can’t tell you it is in the immediate quarter or two quarters or three quarters or four quarters, but we’d like to get to it. Our aspiration, we exited at 26% in Q4, I’d be really happy if we can exit this year Q4 also at 26%.
Gaurav Rateria
Thank you very much.
Operator
Thank you. We move on to our next question from the line of Nitin Padmanabhan from Investec. Please go ahead.
Nitin Padmanabhan
Yeah. Hi, good evening. You mentioned that the deal tenures have sort of expanded. So, is that in specific cases or is that a very broad-based kind of phenomenon?
Samir Seksaria
Nitin, I think probably what I meant was a deal cycle, right, like deal, time to close the deal. We saw an, it’s not the tenure of the deal. It’s the time to close the deal has expanded between Q1 and Q2 in some other cases.
Nitin Padmanabhan
Got it. Got it. And you mentioned that the headwinds that we have seen this quarter, in some cases, it could sort of stabilized in the next quarter and then possibly improve I think that was more Life Sciences. But broadly, do you get the sense that in all the areas where you have seen headwinds in the current quarter that’s more or less peaked out and things can incrementally improve for those specific areas?
K. Krithivasan
See, like we have, we’ve never given a short-term commentary or near-term commentary, Nitin. But we believe like once the uncertainties are out of here, they have been cleared, once we enter a more stable situation, we believe the growth should also return. Current, we believe the short-term, freeze on or freeze or cut down on the discretionary spend comes out as a market uncertainty. Once that is, that eases, the return, the investment should return. But I’m not, I don’t want to say that it will immediately happen in Q3, but we believe in the medium term, it should happen.
Nitin Padmanabhan
Got it. And lastly, you mentioned that 86 sort of projects on Gen AI have gone live compared to, have gone into production compared to eight in the last quarter. What are the average sizes of these projects? Are they very large or [Speech Overlap]?
K. Krithivasan
No, see at this, at this time, Nitin, many of them tend to be small, but we do also get some large projects. For instance, for one of our clients, we establish AI office. It’s a program that sets the overall architecture, sets the guardrail and ensures the risk and regulatory framework, legal framework and then looks at all potential POCs and then evaluates the POCs and then creates a backlog and works with each group to deliver one after other. Some, such projects will be more long tenured and the value could be higher. So, if you’re doing one single POC or one single program, the value may not be very high. But where are long-standing long-term projects, the value also could be high.
Nitin Padmanabhan
Got it. Are you seeing any large AI projects where enterprises are sort of looking to build some sort of a broad infrastructure framework where the entire org could sort of use irrespective of departments, just the broad individual building blocks, which is enterprise-wide?
K. Krithivasan
That’s what I mentioned these AI offices, we are trying to create an overall infrastructure. It’s both the, it’s more technical infrastructure as well as the framework and guardrail that’s required. That’s what we have. When I said AI office, that’s what these programs tend to do, Nitin.
Nitin Padmanabhan
Got it. And just lastly, in such cases, how large would these programs be were in an org tries to do this?
K. Krithivasan
I’m sorry?
Nitin Padmanabhan
In the case where an enterprise seeks to create an AI office broadly, typically, how large will these projects be?
K. Krithivasan
See, it can vary. Like, see, it can vary based on the size of the organization, tenure of the deal, it could be US$10 million to US$20 million, US$30 million based on the tenure and size of the organization.
Nitin Padmanabhan
Got it. That’s very helpful, Krithi. Thank you so much and all the very best.
K. Krithivasan
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. Over to you.
K. Krithivasan
Thank you, operator. We are quite pleased with our second quarter performance growing at 5.5% year-on-year in constant currency amidst the challenging geopolitical situation. Deal momentum continued to be strong in Q2 with order book at US$8.6 billion for the quarter. Operating margins were at 24.1%, declining 60 bps sequentially. Our LTM attrition in IT services was at 12.3%. I would like to thank the 612,000 TCSers whose valuable work is helping us achieve excellence every day.
With that, we wrap up our call today. Thank you for joining us.
Operator
[Operator Closing Remarks]