Tata Consultancy Services Ltd (TCS) Q2 FY24 Earnings Concall Transcript

Tata Consultancy Services Ltd (NSE:TCS) Q2 2024 Earnings Conference Call dated Oct. 11, 2023

Corporate Participants:

Kedar Shirali — Head, Global Investor Relations

K. Krithivasan — Chief Executive Officer and Managing Director

N. G. Subramaniam — Chief Operating Officer and Executive Director

Samir Seksaria — Chief Financial Officer

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

Analysts:

Ravi Menon — Macquarie — Analyst

Nitin Padmanabhan — Investec — Analyst

Kumar Rakesh — BNP Paribas — Analyst

Sudheer Guntupalli — Kotak Mahindra AMC — Analyst

Sandeep Shah — Equirus Securities — Analyst

Vibhor Singhal — Nuvama Equities — Analyst

Abhishek Kumar — JM Financial — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Rahul Jain — Dolat Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the TCS Earnings Conference Call. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

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, operator. Good evening, and welcome everyone. Thank you for joining us today to discuss TCS’ financial results for the second quarter of fiscal year 2024 that ended September 30th 2023. 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.

Kedar Shirali — Head, Global Investor Relations

Mr. N. G. Subramaniam, Chief Operating Officer and Executive Director.

N. G. Subramaniam — Chief Operating Officer and Executive Director

Good evening, everyone.

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 HR Officer.

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

Hi, everyone.

Kedar Shirali — Head, Global 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 these risks in the second slide of the quarterly fact sheet available on our website and emailed out to those who have subscribed for our — on our mailing list.

With that, I would like to turn the call over to Krithi.

K. Krithivasan — Chief Executive Officer and Managing Director

Hi. Thank you, Kedar. Good morning, good afternoon, and good evening to all of you. Our Q2 performance shows continued strength and demand for our services, particularly around cloud and cost optimization, resulting in strong deal wins, a robust order book, and a good pipeline. This was true in prior quarters as well. In each of the past three quarters, our order book has exceeded $10 billion TCV compared to the average of $7 billion to $8 billion range in the 2021 and 2022.

The newly won deals are converting into revenue as expected, but these revenue inflows are getting neutralized by a reduction in the existing revenue base as the transformation projects get completed, or RTB projects get optimized, and in some cases, getting downsized. This has led to muted revenue growth. In Q2, our revenue grew 7.9% in rupee terms, 2.8% in constant currency terms, and 4.8% in dollar terms. Our operating margin was at 24.3%, and net margin was at 19%.

I’ll now invite Samir, Milind, and NGS 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.

Over to you, Samir.

Samir Seksaria — Chief Financial Officer

Thank you, Krithi. In the second quarter of FY ’24, our revenue was INR59,692 crores, which is a year-on-year growth of 7.9%. In dollar terms, revenue was USD7.21 billion, a YoY growth of 4.8%. In constant currency terms, our revenue growth in Q2 was 2.8%.

Let me now go over financial performance. Our operating margin is at 24.3%, which is 110 basis points expansion sequentially. We got 100 basis points benefit from disciplined execution, which resulted in improved utilization and productivity, and further optimization of subcontractor expenses. Additionally, we gained 35 basis points from driving efficiencies in discretionary expenses, which I had referred to last quarter as gaining critical mass. On the other hand, we continue to invest in infrastructure.

Net income in Q2 was 19%. Our EPS grew 8.7% on a year-on-year basis. Effective tax rate stayed unchanged at 25.8%. And our accounts receivable was flat sequentially at 65 days sales outstanding in dollar terms. Net cash from operations was at INR118.23 billion, which is a cash conversion of 104.2% net income. Free cash flows was at INR113.57 billion, and invested funds as of — at the end of the 30th September stood at INR596.77 billion.

The Board has recommended an interim dividend of INR9 per share. Further, the Board has recommended a buyback to the tune of INR17,000 crores through the tender route at INR4,150 per share.

Over to you, Milind.

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

Thank you, Samir. Our workforce at the end of the first quarter was 608,985. Our strategy of proactively hiring bright freshers and investing in training them with the right skills is paying off now. With that talent coming on stream and with reduced attrition, we were able to recalibrate our gross additions, keeping it below the departures during the quarter, driving the productivity, and enhancing project outcomes.

Our workforce continues to be very diverse with 152 nationalities, and with women making 35% of the base. We continue to invest in organic talent development. Year-to-date, TCSers have logged 26.4 million learning hours and acquired 2.6 million competencies, including over 350,000 high-demand competencies. We have over 100,000 GenAI-ready employees today, and we are now investing in deepening their expertise further on with exciting new technology. LTM attrition in IT services was at 14.9%, down 2.9% sequentially, close to our historical range of 11% to 14%.

Over to you, NGS, for some color on our segments, and products, and platforms.

N. G. Subramaniam — Chief Operating Officer and Executive Director

Thank you, Milind. Before I get into segmental performance, I wanted to highlight some change in how we report segmental performance in our fact sheet from this quarter. Historically, we reported revenues from North America, Latin America, U.K., Europe, and Australia under the industry verticals, separating out the emerging market revenues, products and platforms, and a few other small businesses or those with a typical revenue profile in a separate line item called regional markets and others.

In Q2, we made three changes. First, we reclassified revenues from Asia-Pacific, excluding Japan, and Middle East, and Africa under the respective industry verticals. Second, with our Energy, Resources and Utilities verticals gaining critical mass, we have extracted out — extracted the first two of this from regional market and others, and we’ll now start reporting it as a standalone industry vertical. With these changes, revenue contribution from regional markets and others is down from over 17% to around 11%. We have provided comparatives for the last four quarters in our fact sheet. The third change is a renaming of our retail cluster, consisting of retail, CPG, travel, transportation, hospitality verticals as the Consumer Business Group, or CBG.

Let me walk you through our segmental performance now. As a reminder, all growth numbers are in year-on-year constant currency terms. Growth was led by the newly carved-out Energy, Resources and Utilities vertical, which grew 14.8%, Manufacturing grew by 5.8%, and Life Sciences and Healthcare grew by 5%. Our Consumer Business Group grew by 1%, Banking, Financial Services, and Insurance grew by minus 0.5%, Communications & Media by minus 2.1%, Technology & Services by minus 2.2%.

By geographic markets, we see maximum caution in North America and Continental Europe, which grew 0.1% and 1.3%, respectively. We continue to have good momentum in the United Kingdom where the market grew by 10.7%. In emerging markets, Middle East and Africa grew 15.9%, Latin America by 13.1%, Asia-Pacific 4.1%, and India by 3.9%.

Let me move on to products and platforms. Our industry-leading portfolio of products and platforms had a very strong quarter. All our products and platforms are now offered on a SaaS basis only, and we have a healthy ARR as a product portfolio. ignio, our cognitive automation software suite, saw 28 new deal wins and 18 go-lives. TCS BaNCS, our flagship product for financial services, had two new wins and 11 go-lives during the quarter. Among the go-lives this quarter is J.P. Morgan Security Services where our real-time, event-driven, multi-market platform is helping the bank provide clients with a standardized and streamlined process in each of the 100 markets they operate in, enhancing the customer experience around corporate actions.

TCS BaNCS Insurance platform continued to see strong momentum in Q2, with four new wins and two go-lives during the quarter. For a global financial institution based out of South Africa, TCS has completed a massive migration from a heritage platform to TCS BaNCS for Insurance. This is the largest and most complex migration of its kind in the history of the market, entailing four million policies. With this migration, the client’s entire retail protection business is on TCS BaNCS. Post-migration, the policies are now available to both advisors and customers through digital channels.

Quartz Blockchain platform had two go-lives this quarter. In Life Sciences, TCS’ ADD, our Advanced Drug Development platform, had two new wins and one go-live this year. TCS ADD Safety went live for a top 10 U.K.-based pharma, the latest version, that uses advanced AI algorithms to process adverse event cases, the first-of-its-kind in the industry. With this, TCS ADD Safety has successfully automated more than one million cases, a landmark by any technology company using AI in pharmacovigilance, delivering industry-leading efficiency and accuracy metrics.

TCS HOBS, our suite of products for communication service providers, had one new win and two go-lives during the quarter. TCS iON had 44 new wins. Our platform administered assessments for 16.2 million candidates, 150% higher year-on-year. MasterCraft and Jile won 34 new clients in Q2.

In terms of client metrics, our business model is built on continually delivering tangible value to our clients, which results in them rewarding us with repeat business, consuming more of our services and solutions over time. The deep and enduring client relationships we build give us tremendous contextual knowledge of how their business run at a very granular level, the individual processes, and how the underlying systems support them. The various interrelationships among systems and databases and infrastructures layer beneath, all these are extremely useful as we build out our GenAI capabilities and position our GenAI services for our large clients. This contextual knowledge and our track record of consistency and predictability in our deliverables is our competitive edge.

From the outside, the success of our customer-centric strategy is just validated through client metrics we report, which show a steady increase in the number of clients in every revenue bucket. In Q2, we added two more clients year-on-year in the $100 million-plus band, bringing the total to 61. 13 more clients in the $50 million-plus band, bringing the total to 137. Nine more clients in the $20 million, bringing the total to 292. 28 more clients in the $10 million-plus band to total to 483. 38 more clients in the $5 million-plus band, bringing the total to 688. And 62 more clients in the $1 million-plus band, bringing the total to 1,272.

I will now request Krithi to speak on the demand drivers during the quarter.

K. Krithivasan — Chief Executive Officer and Managing Director

Thank you, NGS. Given client caution over the macro overhang, we continue to see the prioritization of spending from discretionary areas to cost optimization. This is driving a significant deal momentum towards large outsourcing deals, vendor consolidation, and operating model transformation.

We had a very strong order book in Q2 with a TCV of $11.2 billion, our second-highest TCV ever, and a book-to-bill ratio of 1.6. BFSI TCV continued to be very robust at $3 billion, as also the Consumer Business order book at $1.4 billion. The TCV of deals signed in North America stood at $4.5 billion.

The order book in Q2 had two mega deals, BSNL and JLR, each roughly $1 billion in TCV versus one mega deal in Q1. We had a detailed press note on the JLR deal, so I won’t spend time on that. But the BSNL win is very special and showcases our unique capabilities. So let me give you a high-level overview.

BSNL selected TCS to roll out a modern 4G and 5G mobile communication infrastructure across India, covering 100,000 telecom sites. The project involves supply, planning, design, installation, and commissioning, and optimization of this mobile network, satisfying a detailed set of requirements conforming to 3GPP standards. Our solution caters to needs such as trusted source of components and equipment, advanced RF planning, intelligence on the edge to support cognitive network operations, software-driven radios, and reconfigurations, and so on.

This is part of the Government of India’s efforts to build indigenous telecom technology and local manufacturing of telecom gear. TCS and its partners have integrated the EPC Core, RAN and NMS, and have started the roll-out of the network, which is expected to be completed in stages over the next 18 months.

I’ll move on to operating model transformation. Overall, deal momentum in operating model transformation continues to be very strong. A big differentiator for us is our TCS Cognix, which significantly accelerates the operations transformation. It embeds AI, machine learning, and increasingly GenAI to enable superior business outcomes with increased velocity, improved user experience, reduced turnaround times, and superior decision-making powered by rich dashboards and predictive analytics. In Q2, we won six large operating model transformation deals with TCS Cognix at their core.

The other interesting thing is that we also saw several large deals featuring first-time outsourcers. For instance, we were selected by the British Council, the U.K.’s international organization for educational opportunities and cultural relations, to transform its professional services function that includes Finance, Procurement, Human Resources, and Digital technology. TCS will leverage its deep domain expertise and proprietary platforms to help develop more innovative and user-friendly services. The partnership will also enable the British Council to focus on improving the quality and efficiency of services, ultimately leading to an enhanced customer experience.

Last quarter, I highlighted how clients have taken to TCS integrated operations model wherein we take ownership for the entire slice of operations from back to — back-end to front-end, along with the underlying application and data estates, and IT infrastructure layer. We call this integrated offering business as a service.

Our AI-powered business command center provides end-to-end visibility and holistic control across that entire stack, resulting in more resilient operations and better alignment with business KPIs. Our proactive leverage of next-gen technologies to redefine processes reduces the need for human intervention, increases process velocity, and delivers superior process outcomes.

From a competitive standpoint, our holistic approach, deep contextual knowledge, and unmatched speed — speed-to-value from TCS Cognix, is providing a deep moat that is powering strong deal wins and market share gains. In Q2, we won a large deal from a leading media company that is currently transforming to focus on new lines of business, which will drive future growth. They are partnering us to improve customer retention by providing superior experience while reducing engagement.

In keeping with those business as a service value proposition, TCS will take full ownership of the operating stack with an integrated solution across customer interactions, which includes voice, chat, email, and social, supporting the IT applications and infrastructure. Incidentally, this is also a vendor consolidation across multiple countries and vendors, and multiple business lines and good illustration of how our IP and innovation differentiates us.

Our solution uses TwinX, our digital twin solution, to model customer engagement and reduce churn, ignio to make underlying infrastructure self-healing, and GenAI for directing voice-to-chat, voice-to-text, and for customer sentiment analysis for emotionally responsive chats and emails. The level of innovation in next-gen capabilities embedded in our solution and the business alignment of our value proposition were the key differentiators in this large base.

Speaking of GenAI, it continues to dominate our conversations with IT and business leaders in every market. There is tremendous interest in harnessing its power to drive productivity and enhance customer experience. We are co-innovating with clients across multiple industry verticals, executing proof-of-concepts and pilots, and helping them drop their GenAI strategy [Indecipherable].

Last quarter, I shared examples of client engagements, excluding the use of GenAI for contract administration and customer service automation. Many of the projects we executed this quarter are conceptually similar, focused on task automation, around knowledge abstraction, and content creation. We are now seeing a progressive increase in the complexity and sophistication of GenAI use cases, from simple knowledge discovery cases and chatbots to complex ones, such as augmentation solutions for financial advisors and wealth management strategies, automated underwriting for insurance policies, AI-lead molecule discovery, as well as engineering design space explorations for automotives and gas turbines.

Slightly more mature clients are taking a broader enterprise-wide approach with GenAI deployment. For a European airline, TCS is helping reimagine its core business functions leveraging GenAI and analytics to create a future-ready enterprise. The TCS team co-presented with the CTO to the Board, and is now engaged in helping drive our holistic GenAI strategy. A leading U.S.-based specialty retailer is partnering with TCS for multiple GenAI-led interventions to enrich customers as well as employee interactions, including customer request handling, virtual assistant for shopping, knowledge management designs for creatives, marketing and sales collaterals, and core enhancements.

Some other organizations are using Generative AI to reimagine an entire activity. A good example is a client in the construction industry for whom we are using GenAI to prepare the preliminary architectural plans for a new building project. The AI-generated designs are then validated and detailed out by the human team. We see similar opportunities in product innovation where Generative AI can visualize multiple new form factors for a product in the manufacturing industry or perhaps new types of packaging in the CPG industry, significantly enriching and accelerating the design process.

While these are examples of standalone deployment of Generative AI, we are also beginning to win larger transformational projects that involve multiple technologies where Generative AI is infused to address specific parts of the value chain. We believe that, as the technology matures, we will see more instances of activity level automation and eventually end-to-end value chain transformation using Generative AI in combination with other technologies. That is when the mainstream adoption of this technology will really take off and the full potential of this technology will be realized.

In the meantime, we continue to invest in building capabilities on this exciting new technology. Last quarter, I had mentioned our plans to train a large number of employees on Generative AI. I’m happy to inform you that we now have 100,000 strong GenAI-ready cohort, and our focus now is on further deepening their expertise.

Going beyond skillings and certifications, we are launching an AI playground, that will be an alternative work environment where TCSers can safely and securely access various Generative AI platforms and a curated set of startup technologies from our COIN, or Co-Innovation Network partner. This is using the hands-on experience of experimenting with large language models, trying out new ideas and building out solutions to real-life business problems without exposing data in our network.

Over time, we plan to hold hackathons in the playground, throwing challenges for TCS’ best and brightest to solve using these opportunities to identify the most talented engineers within the organization and nurture their talent. Our various product and platform teams are working towards leveraging Generative AI to create differentiating capabilities in their respective products.

Ignio, our flagship AI HOBS product, has been in the forefront of leveraging AI to drive autonomous operations. The latest enhancement to its knowledge accelerator module leverages large language models to extract information from various sources, create a comprehensive enterprise context, and gain a deeper understanding of each organization’s unique environment, challenges, and objectives. This contextual approach allows ignio to optimize automation to the situation and technology-specific actions, delivering tailored and efficient solutions that fuel enterprise agility, resiliency, and innovation.

We have also launched AI Assist, an intelligent conversation engine designed to offer plain language explanation of diagnosis and resolutions, as well as insights for continuous improvements generated by ignio. AI Assist uses GenAI’s ability to understand language, capture context, and learn from feedback. As a result, it presents analytics insights in a much simpler and intuitive way, guiding users through intricate processes, helping them sift through large volumes of analytics, and make data-driven decisions with confidence and ease.

In TCS OmniStore, we are adding GenAI plug-ins to augment product discovery, create personalized buying gauge for customers, store management operations, automation of marketing campaigns and promotions. We are also introducing Generative AI to automate our product help desk and support operations.

TCS Optumera, which already uses AI and ML to finance product pricing, will now see the infusion of Generative AI in the pricing process [Indecipherable] for merchants. We see plenty of opportunities for Generative AI infusion in the drug development value chain. The TCS ADD product team is working on GenAI-enabled solutions for narrative writing, pharmacovigilance, health authority submissions, and intelligence services [Phonetic].

While cost optimization remains a dominant theme overall, clients continue to invest in projects with a clear ROI and ones that drive business growth. Here are some examples. A leading U.K. bank partnered with TCS to help renters living in shared accommodation with an app that helps in bill splitting and building their credit profile. TCS designed and built the app, which scans through monthly payment of customers, pulls rental records, and automatically shares it with credit bureau, which helps in improving renter’s credit profile.

Using open banking capabilities, the app is accessible to anyone with an eligible U.K. bank account and enables the bank to cross-sell, up-sell its products and services to even non-customers. TCS is now working with the bank to enhance the marketing strategy to increase adoption of the app and drive growth. The product recently won the best product innovation in Jury’s Choice Award at the 2023 Financial Services Forum Award.

A leading Nordic insurer is pursuing a completely new business model with a subsidiary in the mobility space. The new insurer is building a mobility ecosystem that offers a wide range of services like tire replacements and used car servicing using a TCS-built digital platform and mobile app as a direct distribution channel to acquire new customers, that is their car owners, to whom insurance can then be cross-sold. The app is expected to drive up new insurance sales and create new upsell opportunities with 10% to 15% increase in customer realizations. The app has been very well-received and is expected to cross 100,000 downloads by December.

In the retail domain, retailers are looking to leverage technology to meet evolving customer expectations and offer tailored experiences to reach more audiences in market and to enable better decision-making on merchandise using and analyzing data. We are helping a global fashion retailer in Europe to reimagine the visual merchandise — visual — to reimagine the visual merchandise planning and commercial revamp [Phonetic] process. The collaborative intelligent digital solution enables the visual merchandisers to plan and optimize store layouts and presentation of locally relevant assortment based on integrated insight of sales and stock information and performance targets.

And the planning solution has enhanced the productivity of visual merchandisers in sample picking processes by 50%. The solution enables new capabilities for the stores, including digital interactive match article search and details integrated with the stock data in stores and warehouse. Store data is now available on a daily basis compared to the weekly data transfer.

Similarly, we are partnering with Kingfisher plc group in transforming their customer and associate experience across banners in U.K. and Europe using TCS OmniStore to realize an AI-powered unified and composable commerce platform. The platform’s capabilities around flexible fulfillment, self-checkout, clienteling, and dynamic promotions is helping Kingfisher plc drive greater associate productivity, increased revenue, faster checkout, and broader sales opportunities.

Lastly, divestitures and spin-off present enterprises a great opportunity to start with a clean slate and build a new future-ready technology estate from scratch to support a differentiated business position. In Q2, we won a very large transformational engagement, coincidentally, in the retail vertical. We have been engaged by a large U.K. retailer to help build-out a separate IT estate, following its divestiture, and digitally transform its business. TCS will build a new greenfield digital core by implementing cloud-based ERP platforms to streamline core business functions, including supply chain, [Indecipherable] management, and e-commerce processes.

We will enhance employee experience with new digital solutions, enabling deficient and resilient business operations, powered by our Machine First Delivery Model. We will also implement the new organization-wide IT operating model that consolidates and simplifies their vendor landscape. On the front-end, TCS will help them grow their e-commerce business, starting with their grocery and apparel sites. We will leverage our experience [Indecipherable] commerce implementation services across functions such as shop, fulfill, and care to drive improvements in customer satisfaction and business growth. Lastly, cloud migrations continue operations [Phonetic].

We can now open the lines for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Ravi Menon from Macquarie. Please go ahead.

Ravi Menon — Macquarie — Analyst

Thank you. Good evening, gentlemen. Just wanted to ask you about the BSNL deal. So it seems like the IP that you create is something that lets you compete with the likes of Nokia and Ericsson. Is this understanding correct, most of the IP rest with your partners like Tejas?

N. G. Subramaniam — Chief Operating Officer and Executive Director

Hi, Ravi. This is NGS here. TCS is a system integrator with opportunity. The EPC Core software, the IP lies with our partner, CDoT. Radio access network and its developed and designed by Tejas Networks, the IP rests with Tejas Networks. There are a few other things that are required for integrating the software, overall [Phonetic] network optimization, network planning, cognitive network operations, some of those traditionally at their site [Phonetic]. They have built those platforms. The IP of those components are with TCS.

Ravi Menon — Macquarie — Analyst

Great. Thank you. And then we have historically been used to, as investors, perhaps fairly, unfairly comparing yourself with Accenture’s outsourcing. And that division is what we thought that TCS most compares to. But now with your focus on growth and transformation, should we think about a larger part of TCS revenues being exposed to a segment closer to Accenture’s consulting?

N. G. Subramaniam — Chief Operating Officer and Executive Director

I don’t want to compare it like that, but I think we are focused on multiple type of engagements and cost and optimization, growth and transformation is a broad categorization. I think consulting is typically included as a part of every growth and transformation opportunity. We have to see. There are certain verticals in certain customer segments where we really built a lot of expertise. Those engagements, I think, what you alluded to maybe true.

Ravi Menon — Macquarie — Analyst

One last follow-up on the BSNL deal. The newspaper reports were quoting this deal at INR15,000 crores. So the number that you are putting out, $1 billion, seems to be just about half of that. So is this just phase one of the program?

N. G. Subramaniam — Chief Operating Officer and Executive Director

I think, BSNL, what we have contracted so far is this, but there are things like follow-up on some of this, like, for example, annual maintenance, etc. It will come as we progress this. Overall deal size is something that there are multiple things which are there, but currently, what we have contacted is the supply, installation, commissioning, and design and optimization of the network, which is the one that we talked about a little over $1 billion.

Ravi Menon — Macquarie — Analyst

Perfect. Thank you. That’s clear.

Operator

Thank you. We have our next question from the line of Nitin Padmanabhan from Investec. Please go ahead.

Nitin Padmanabhan — Investec — Analyst

Yeah. Hi, good evening, and thanks for the opportunity. Just wanted some color on the demand overall. So if you see the last three quarters, including this one, our book-to-bill has been consistently above 1.4. So however, from a revenue attrition perspective, it’s been soft. So just wanted your thoughts on how one should think about this.

The second is, you did mention that reprioritization and cutting discretionary has been sort of driving revenue headwinds. Do you get the feel that this is sort of at its peak and it’s — are you seeing signs of this abating in terms of the overall impact on the existing book of business, right? So those are the two questions. Thank you.

K. Krithivasan — Chief Executive Officer and Managing Director

Nitin, so like we explained last quarter also, we explained the situation. On one hand, our customers continue to trust on building new technology capabilities, and so based on that, we continue to win new deals. But at the same time, given the overall market uncertainty, they are trying to conserve cash and optimize their current spend, particularly on the long — for projects that have been running for long. So — and sometimes, such projects, they end also, and we may not have sufficient replacement of those revenue streams. So which is causing the revenue growth to moderate. But like you said, the reprioritization is also a factor into that, like a large project may get re-prioritized into smaller chunks or maybe slowed down. All these factors are at play. But how long this will last is not a question that we can answer at this time.

Nitin Padmanabhan — Investec — Analyst

Sure. And just one last thing is, how do you see furloughs? Are there any conversations on furloughs? Do you think — are you seeing any signs to suggest it’s going to be normal or [Speech Overlap]

K. Krithivasan — Chief Executive Officer and Managing Director

It will be — our planning is to be like normal like every other year. We don’t see any difference.

Nitin Padmanabhan — Investec — Analyst

Perfect. Fair enough. Thank you so much, and all the very best.

K. Krithivasan — Chief Executive Officer and Managing Director

Thanks, Nitin.

Operator

Thank you. We have our next question from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Kumar Rakesh — BNP Paribas — Analyst

Hi, good evening. Thank you for taking my question. Krithi, my question was around the revenue side. If you see over the last three quarters, our revenue in absolute terms have largely been steady, while, at the same time, our deal win has accelerated, now crossing consistently $10 billion. So that is fair to expect that the incremental new part of the revenue — within that about $7.2 billion of revenue, the new part would be more sizable now. That implies that the underlying impact on the existing ramp-down of the projects or the reprioritization, which you were talking about, sequentially is increasing. Is that inference correct?

K. Krithivasan — Chief Executive Officer and Managing Director

That’s mathematically what you’re saying is correct, like there is an increasing reprioritization of long-running projects. And also, what’s also happening, Kumar, there are a few places where we have a large program that comes to an end, and that doesn’t give the — when I say that comes an end, like [Indecipherable], for instance, for one, also in Germany we’re doing a large integration. Once the integration of two banks come to an end, like that was a large revenue stream, and that stops. And such situations also cause that revenue stream not getting replaced by something else. So both are possible. I won’t say like, yes, there is an increased focus on cost optimization, which is causing our revenues not to increase in line with the increase in TCV.

Kumar Rakesh — BNP Paribas — Analyst

Got it. My second question was for Samir. So in the second quarter, after the wage hike, our revenue — sorry, our margin improvement have been ahead of what historically we have done at least in the recent past. And you did talk about that this cutting down on the discretionary expense is now picking up pace and scale. Should we expect that our revenue recovery — our margin recovery trajectory should be ahead of what we have seen, say, last year or in the past years?

Samir Seksaria — Chief Financial Officer

I think two points. First, we are happy with what we were able to deliver in Q2, 110 basis points sequentially improvement. Given the current macro uncertainties impacting top line, it is fairly decent. Our focus will be to use the existing levers itself, such as in terms of productivity utilization or even looking at further optimizing subcontractor expenses. And try to continue the journey. And if growth helps us, it will only help us accelerate this journey.

Kumar Rakesh — BNP Paribas — Analyst

Got it. Thanks a lot.

Operator

Thank you. We have our next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.

Sudheer Guntupalli — Kotak Mahindra AMC — Analyst

Yeah. Good evening. Thanks for the opportunity. NGS sir, just one clarification on your characterization of the BSNL deal. When you say you are looking to complete the project in 12 to 18 months, is it the entire $1 billion TCV will be converted into revenue over the next 12 to 18 months? Or is there any sizable part of the $1 billion TCV, which is also structured as network maintenance revenue over a longer horizon?

N. G. Subramaniam — Chief Operating Officer and Executive Director

When I said, 12 to 18 months, I think the rollout of the network, the 4G and 5G network for 100,000 network sites is what we will install, we will commission, and afterwards, we hope to with the maintenance and network operations effort, which will be for optimizing the network and continuously modernizing it, right? This — there are — the payment terms with BSNL, there are certain payer milestones. Whatever this $1 billion that we have put in place, a part of it will definitely mature within these 12 to 18 months and some part of it will be subject to warranty and acceptance by BSNL and things like that. But overall, I think it’s safe to assume that a good part of this $1 billion is something that we will — would like to bill and collect from BSNL between this, let’s say, 12 to 18 months’ time.

Sudheer Guntupalli — Kotak Mahindra AMC — Analyst

Understood, sir. So any maintenance will be probably subsequent phases — any maintenance revenue will be subsequent phases?

N. G. Subramaniam — Chief Operating Officer and Executive Director

Absolutely. It could be subsequently or it could be even, for example, at the end of the sixth month, if we have completed one zone of consisting of a few circles, then we might go and contract the annual maintenance, etc., specifically for that circle.

Sudheer Guntupalli — Kotak Mahindra AMC — Analyst

Understood, sir. Thanks for that. And Krithi, we know it’s difficult to second guess the macro and sorry for persisting on this aspect. But given you have seen these clients over, let’s say, multiple decades, multiple macro cycles, any specific macro events, outcomes, timelines or variables these clients are looking forward to now, post which they may sort of bite the bullet and move forward in terms of spending and ramping up the deals?

K. Krithivasan — Chief Executive Officer and Managing Director

Sudheer, like probably they are looking for some very definitive signs of economic recovery, okay? Currently, the CY ’23 and CY — and some other reports are even giving CY ’24 also is uncertain. So they are looking at the — once they have definitive signs of recovery, I think the confidence will come into the market. Till then, this will continue.

Sudheer Guntupalli — Kotak Mahindra AMC — Analyst

Sure, sir. And lastly, to Milind, so the headcount reduction we have seen is purely because of the fact that we have not replaced the normal attrition, normal course of attrition during the quarter. Is that a fair assessment, sir?

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

Yes, that is a fair assessment.

Sudheer Guntupalli — Kotak Mahindra AMC — Analyst

Thank you, sir. All the best.

Operator

Thank you. We have our next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yeah, thanks. Thanks for the opportunity. Sir, just a question in terms of this commentary about there is a conservatism on discretionary spend and the cost take-out deals are increasing, outsourcing deals are increasing, vendor consolidation deals are increasing. This is almost happening in the sector, including for TCS for last two to three quarters. So is it fair to say these deals may start ramping up in the second half and which will try to actually reduce the impact of the leaking bucket and there could be some gradual turnaround in the revenue? Is it the right way of looking at it?

K. Krithivasan — Chief Executive Officer and Managing Director

Sandeep, I don’t want to say that — see, okay, let me put it this way. All the deals are yielding the revenue as per plan. Like, we have not had — the deals that we signed, we have not had delays in the revenue per the way we planned the revenue. So there is no change there. Whether will Q2 — say, H2 will be stronger than H1, I cannot comment on that one.

Sandeep Shah — Equirus Securities — Analyst

Okay, okay. And just another question to CFO, sir. In terms of margins, how to look at second half margin? Generally, we do well on a Q-on-Q basis across from Q2 to Q4, but this year in the second half, we will also have some headwind coming through BSNL deal and what I believe the $1 billion deal will have a thin margin. So directionally, still one can expect despite that headwind, which would be incremental where margin can still go up on a Q-on-Q?

Samir Seksaria — Chief Financial Officer

So as you rightly pointed out, see, usually we have been taking our biggest headwind in the first quarter and we gradually claw back. And in a typical year where it’s supported by growth, we get higher leverage from growth, also helping us on the margin front. In the first two quarters, we have seen the top line being sluggish, but at least in Q2, we have been able to deliver the 110 basis points. And collectively, we have been focused on specific initiatives, which have helped us deliver this. And as I said in the last question, we’ll try to use the same levers and continue the journey.

Sandeep Shah — Equirus Securities — Analyst

Okay. This would be despite the BSNL headwind, which could be there on margins?

Samir Seksaria — Chief Financial Officer

We take deal-specific headwinds as part of the portfolio and try to deliver margins at an overall level. But these would be headwinds on specific ones, which are part of our overall portfolio, as in we don’t call out each and every specific ones.

Sandeep Shah — Equirus Securities — Analyst

Okay, okay. Thanks, and all the best.

Samir Seksaria — Chief Financial Officer

Thank you.

Operator

Thank you. We have our next question from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.

Vibhor Singhal — Nuvama Equities — Analyst

Yeah, hi. Thanks for taking my question. So sir, a couple of questions from my side. In terms of the vertical performance that we are looking at, retail continues to be quite weak, I think, for multiple quarters. What is the outlook on that segment? Are we seeing any signs that, okay, cloud spending might come back in a quarter or two, or what are the client conversations like in the overall retail segment specifically? And then I have a follow-up question.

K. Krithivasan — Chief Executive Officer and Managing Director

So on the retail segment, your observation is correct. Like, it’s been a tough quarter. But see, on a year-on-year basis, retail segment has grown marginally, but this quarter has been tough because we have seen that even the essential spending has also come down. Normally, essentials is a strong sector for us. This time, even essentials has been quite weak.

We need to see, like, as I was mentioning before, once the consumer spending, like, picks up, all these things will bottom out and then we’ll be able to grow. But as I said, I cannot call out when it will turn, but it’s been, as I said, multiple sub-verticals within retail has been weak, like essentials normally will be strong, but this time it’s been weak, which has resulted in this weakness.

Vibhor Singhal — Nuvama Equities — Analyst

So no signs of conversations with the clients, which could hint at some — their expectations as to what are they looking at?

K. Krithivasan — Chief Executive Officer and Managing Director

See, they would look at [Technical Issues]

Operator

I’m sorry, sir, you’re not audible.

K. Krithivasan — Chief Executive Officer and Managing Director

Sorry. As I was mentioning before, they look at our, one, what is the forecast for the coming quarters. If they expect there is a certainty on — certainty on growth or they look at what is the projection on spending, okay? Once the one of these two comes, the retail sector will also start investing. Currently, while the spending is still reasonably high, but the household being in — therefore, the savings in U.S. has come down, which is creating some sort of an uncertainty. So — but there could be a festival city season optimization also. So we will get to see when some of these macros might turn positive, we’ll see more with the growth indication coming in.

Vibhor Singhal — Nuvama Equities — Analyst

Got it, got it, sir. Sir, just one follow-up question in terms of, just a book-keeping question. What did you mention was the reason for the sharp reduction in headcount in this quarter?

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

So I think we have been investing in our fresh talent for almost 18 months, and though that investment is now paying off, and as a result, also because of lower attrition, so we kind of recalibrated our hiring and our hiring numbers are less than our attrition, and hence, there’s a reduction.

Vibhor Singhal — Nuvama Equities — Analyst

Got it, got it. And do we expect this thing to maybe continue? Because I mean, attrition is, I think, easing off further. And so do we believe this headcount reduction will continue for some time or do you think it could stabilize in the coming quarters?

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

We will continue to, like, look at all the other parameters, including growth, and based on that, make the calls. But yeah, I expect the numbers to be — may not be this high or may be similar or maybe a little higher — more than zero, in that range in the coming quarters.

Vibhor Singhal — Nuvama Equities — Analyst

Got it, sir. Great. Thank you so much for taking my questions, and wish you all the best.

Operator

Thank you. We have our next question from the line of Abhishek Kumar from JM Financial. Please go ahead.

Abhishek Kumar — JM Financial — Analyst

Hi. Good afternoon, and thanks for taking my question. Sir, I had a question on deal wins. I know, Krithi, you mentioned that the quarterly run rate has gone up from $7 billion to $10 billion almost. Just wanted to understand, given that the confluence of the deal now is more cost take-out, how should we look at ACV of the deals? Any color, has the ACV also gone in line with the improvement in TCV or there is any difference in ACV growth?

K. Krithivasan — Chief Executive Officer and Managing Director

There is no specific call out on that. I think that ACV has remained similar to what it was before. I don’t think the deal tenure has significantly increased. So it’s more or less same as before.

Abhishek Kumar — JM Financial — Analyst

Okay. And my next question is on GenAI. I was just wondering, are the investments that we are doing or many of our peers are doing in GenAI doesn’t seem to be any margin headwinds, essentially looks like we are reprioritizing our own budgets for investing in GenAI. Is it something that clients are also kind of creating investments in GenAI in a similar fashion, and therefore, it is, at best, kind of a net neutral from a demand perspective?

N. G. Subramaniam — Chief Operating Officer and Executive Director

I think it is safe to assume that it is neutral, primarily because I think — we are in an investment cycle. I think like our clients, I think, we as a company are also investing a lot in, one is, training our employees, second is, creating learning platforms and a separate environment, like I think Krithi talked about AI playground which we launched, which — in which, we are making available all the digital infrastructure tools and technologies in which people can train and people can actually develop things, right, and get used to how this particular technology works and that can be meaningfully deployed to our clients. There is a lot of investment that’s happening on our side.

Our clients also invest in this technology to do small projects, proof of concepts, or proof of values, and then structure a typical use case, and so on and so on. We also invested in cataloging several use cases by verticals and by technology domains to see how this particular technology can meaningfully deliver value on a sustainable basis. So I think in all that, there is demand, and the demand is, I wouldn’t rate it to be very high, but I would say that, look, I think our directions indicate that this is something that will mature, and potential for embedding it and embracing it all across our IT services value chain is huge.

Abhishek Kumar — JM Financial — Analyst

That’s helpful. Thank you, and all the best.

Operator

Thank you. We have our next question from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Gaurav Rateria — Morgan Stanley — Analyst

Hi. Thank you for taking my question. So the first question again coming to revenue. There are multiple moving parts, which is inflow of new work, project completions, and reprioritization of existing book. But if we were to just look at only the inflow from the new order wins, would it be fair to believe that inflow number should be better in the second half compared to first half based on the deals that we have already reported?

K. Krithivasan — Chief Executive Officer and Managing Director

Yes, the inflow should continue to improve from the new order wins, like, that’s a fair assessment, Gaurav.

Gaurav Rateria — Morgan Stanley — Analyst

Secondly, are there any thing to call out with respect to any unusual project completions which are scheduled in second half, which is keeping your optimism under caution? I understand the leakage part of the business, but just trying to understand any project completions, which also could be one of the reasons for keeping the optimism under check.

K. Krithivasan — Chief Executive Officer and Managing Director

Yeah, Gaurav, like, nothing that’s very material that comes to our mind. [Speech Overlap] it will be normal course whatever is happening, but nothing very material that comes to in mind, Gaurav.

Gaurav Rateria — Morgan Stanley — Analyst

Got it. Last question, on the margin levers front, how much more room we may have on the utilization and productivity metrics? Those would still continue to be levers in the near-term in 3Q, 4Q point of view? Thank you.

Samir Seksaria — Chief Financial Officer

Yes, Gaurav. Those will still continue to be levers. We invested significantly when the overall challenging supply environment was going on and we still [Indecipherable] utilization as well as looking at perhaps [Phonetic] sitting on the direct cost itself are levers. So all of it, which you mentioned, that is productivity, utilization, or in the given environment, the subcontractor costs also continue to be levers in Q3 and Q4.

Gaurav Rateria — Morgan Stanley — Analyst

Thank you.

Operator

Thank you. We have our next question from the line of Moshe Katri from Wedbush Securities. Please go ahead. Mr. Moshe Katri, you may please proceed with your question. As there is no response, we’ll move on to the next question from the line of Rahul Jain from Dolat Capital. Please go ahead.

Rahul Jain — Dolat Capital — Analyst

Hi. Yeah, hi. Thanks for the opportunity. Just wanted to understand a little bit on the rationale of reassigning this regional and others segment. What is left out of here? Because it seems the same vertical, which has been losing some component into this line item, has again gained back in a similar fashion. So which region do it ascribe to and what is left now?

K. Krithivasan — Chief Executive Officer and Managing Director

Rahul, like, one is what we looked at is, we want to give a overall global color to all of you on what is happening in a given industry vertical rather than splitting them into regions. So as much as possible, we looked at wherever the revenue streams are stable and mature, put them under the industry vertical. And where we still believe there is lot of volatility, keep that in regional markets.

So with that, we have moved like essentially what is happening in our APAC region and as well as in EMEA into the industry vertical and kept India public services, Japan, and — platforms and our products in the reginal vertical now. It’s more to ensure that, so that we can give you more color at the industry level globally.

Rahul Jain — Dolat Capital — Analyst

Okay. So what I understood is that, India, Japan, and product and platform is broadly the component in this at this point?

K. Krithivasan — Chief Executive Officer and Managing Director

Exactly. In the regional markets, yeah.

Rahul Jain — Dolat Capital — Analyst

Yeah. And just a small extension to that. If we see, over a period of time, our contribution from Asia, Middle East, Africa, the market which you called out, have come off over last six years, while the contribution in this period has increased for Europe as an end market. So does that also mean that a very larger P&P [Indecipherable] would it be Japan and Europe?

K. Krithivasan — Chief Executive Officer and Managing Director

No, I didn’t get the last part, Rahul, like [Speech Overlap]

Samir Seksaria — Chief Financial Officer

No. So Rahul, if you look at it, it’s also a matter of growth coming in across various segments. The APAC region has grown significantly. And in the industry verticals, when we are putting it out, P&P [Phonetic] versus Japan is not a combination of P&P and Japan, it is an — it is a combination of various elements. We are not breaking those out into respective segments, given the volatility factor.

Rahul Jain — Dolat Capital — Analyst

Yeah. I understand. Probably, I’ll take it offline. 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 the closing comments. Over to you, sir.

K. Krithivasan — Chief Executive Officer and Managing Director

Thank you, operator. In Q2, our revenue grew 7.9% in rupee terms and 2.8% in constant currency terms. Our growth affected by the holding back of discretionary spends by clients. Improved utilization, productivity, and other efficiencies helped expand our operating margin by 110 basis points sequentially to 24.3%. Our net margin is at 19%.

Generative AI continues to drive client conversations. We have hundreds of opportunities in the pipeline and embedding Generative AI solutions is helping us win large deals. We continue to invest in building our capabilities. We now have over 100,000 Generative AI-ready employees and are investing in building differentiated capabilities using Generative AI in our portfolio of award-winning products and platforms.

Deal momentum continued to be very strong in Q2, with our order book at $11.2 billion, the second-highest TCV ever. On the people front, we continue to hire the right talent, but have recalibrated our gross hiring to ensure better utilization of our existing capacity. Our LTM attrition in IT services fell further to 14.9%. Lastly, our Board has recommended a second interim dividend of INR9 per share and also a share buyback to the tune of INR17,000 crores at INR4,150 per share.

With that, we wrap up our call today. Thank you all for joining us. Enjoy the rest of your evening and — or day, and stay safe. Thank you.

Operator

[Operator Closing Remarks]