sloppysid/faiss_search huggingface dataset:
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) cluster. TCS services will span product development, HMI or Human Machine Interface, functional safety, cyber security and other cockpit related products. In prior calls, I have given examples of how TCS is participating in large industry transformation initiatives. In the Utilities sector, we have had several examples of TCS helping utilities or power producers navigate energy transition. Our domain expertise and track record in executing successful transformations is firmly establishing us as the preferred G&T partner in the sector. Here’s one more example of the same. Western Power, a leading Australian power generator and distributor, selected TCS for our credentials in this space to design, deliver and support a distribution system operator platform solution. Our solution enables the client to orchestrate Distributed Energy Resources or DERs, such as rooftop solar batteries and large appliances across homes and businesses into a virtual power plant, aggregating the excess electricity generated by their assets and then dispatching it into what will become new energy markets and services. TCS’ solution also addresses critical issues like low voltage network visibility and optimization. With over 650 participating customer energy assets till date, the platform has demonstrated the safety and reliability of aggregated DERs and helped the client model the complexity of bi-directional energy flows. This will open doors for Western Power to participate in the futuristic energy market and build new revenue streams while safely operating within the technical limits of the distribution grid. Likewise, we're participating in the longer-term transformation trends in the transportation sector. Last year, I had spoken about the work we're doing for Transport of London to transform the administration of taxis and private hire vehicles in London to prepare it for an electric and autonomous future. In Q3, we won a deal that will transform the railways sector in the UK. TCS was chosen by the Rail Delivery Group, UK's leading rail industry membership body for the creation of a rail data marketplace. TCS will leverage data syndication, monetization and marketplace features of its DeXAM platform and a leading hyper scalar cloud to combine fragmented sources of rail data into one digital service. : Page 11 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) This will optimize the sharing of data and real-time information to passengers and operational bodies, improving transparency and enable a UK-wide railway innovation ecosystem. Let me now come to the Q3 order book. Our deal closures in Q3 amounted to a TCV of $7.8 billion. By vertical, BFSI had a TCV of $2.5 billion while retail order book stood at $1.2 billion. The TCV of deal signed in North America stood at $4.2 billion. With that, we will open the line for questions. Moderator: Ladies and gentlemen, we will now begin the question-and-answer session. The first question comes from the line of Kumar Rakesh from BNP Paribas. Please go ahead. Kumar Rakesh: My first question was to better understand the headcount moderation during the quarter. During the press conference, Rajesh, you talked about the focus on headcount efficiency to continue in the fourth quarter as well. Assuming the headcount stay steady in 4Q, you will be exiting the year with a headcount growth of about 4% YoY. My question was, is that an indication of growth visibility that you have today and hence the rationalization or you are confident of driving similar or higher productivity gains, and hence revenue growth could be significantly higher than that? Rajesh Gopinathan: I think the best way to think about it is that on a year-on-year basis, our net headcount is higher. So, we have significantly invested in building up capacity from 2021, tried as much as possible to bypass the industry's hire-from-each- other attrition cycle, and focus on hiring at entry level, and invested in training and cross training our resources. That investment has hit our productive capacity and stood us in good stead. The incremental hiring for this year should be seen in context of what we've done in the last year also. Overall, we are very comfortable with where we are with our net headcount. We hired significantly ahead of revenue growth in '21 and balanced it with a more prudent hiring in calendar '22. Going forward, we should be back to a more normal kind of hiring trend. While specific numbers will keep evolving, we should expect hiring in the range of 125,000 to 150,000 for the year, offset by more normalized attrition levels closer to our long-term averages, which will give us sufficient capacity to take : Page 12 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) care of growth. And then we can keep bringing in shorter term hiring to take care of demand as it unfolds. So, that would be the best way to think about and model it. Kumar Rakesh: My second question was on the deal side. So, you talked about that cost optimization deals have already started picking up meaningfully. In the past, during recessions, we have noticed that first, there's a sharp cut to IT budget, before cost optimization deals starts picking up. I understand that visibility on client budgets is still a couple of months away. But do you think this time the transition from discretionary IT spending to cost optimization deals could be far smoother than what we have seen in earlier recession period? Rajesh Gopinathan: It's also a factor of how it is playing out in different markets. So, as I said, if we take a market like UK, that is well and truly into much more strategic long term, cost-based restructuring kind of deals. We're seeing multiple such ones play out and we're participating very strongly in that. Markets like US, we need to wait and watch how that will play in the next couple of quarters, but we are fairly constructive. Our conversations with customers are much more balanced ones where they are equally positive, as well as cautious and we should see a mix of both cost and transformation deals. In Europe, decision making is slow. So, it's very difficult to call it one way or the other. So, this is not some major single event that has happened globally. All three markets are moving to three different beats and each of them is indexed to their own specific outlooks. Moderator: Our next question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead. Vibhor Singhal: Rajesh, I just wanted to basically pick your brain on the performance of the retail segment in this quarter. This segment has outperformed the company average growth rate and also doing really very well. Globally, we are hearing about a lot of these retail chains, calling out weakness, especially in Europe in parts as well. So, any color on that would be helpful as to what drove this strong performance in this quarter, do you expect this to sustain in the coming quarters also? And also, is there some color to it in terms of let's say, US retail maybe doing slightly better than Europe retail, as you just called out that in Europe, the decision making is slow on an overall basis? : Page 13 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Rajesh Gopinathan: First of all, the numbers that we show in Retail is a combination of Retail, CPG, Travel and Hospitality. So, that's the industry group that we report on. Within that, if you look at it, travel and hospitality is enjoying a very strong rebound after a couple of very, very challenging years. And we are one of the largest, if not the largest, service provider in that industry and we were significantly impacted in the last couple of years and also we are now participating and also winning quite reasonably. CPG sector going through multiple forms of transformation, mostly led in various forms of direct-to-customer channel strategy transformation, and significant investments going into that. Also, analytics, sustainability, direct-to- customer, each of these themes are continuing to find a lot of traction and continued investment, and we are participating in all three quite well. Retail itself is more regional, and different markets have different focus. Plus, within retail, grocery as a segment continues to do well. More discretionary retail is, as I said, market specific. Going to the last part of your question, US retail sales adjusted for inflation itself, have still come in stronger than last year and last year was a very strong year. So, overall, from a volume perspective, retail in the US has done well. However, profitability has been challenged, both by customers walking down the product line in terms of preferring a slightly cheaper products on a relative basis, as well as the fact that cost structures have been up. We need to wait and see how this will be translated. But some of those costs are transient, some of them will require more structural cost transformation deals. So, it's a fairly complex set of drivers in there. It goes back to what we always said, we stay close to the customer, and we play each customer and each scenario on a one-on-one basis. Overall, we believe that the industry continues to be very attractive. And we have the full suite of capabilities to be participating across this broad spectrum, and to make sure that we stay relevant to customers on a very individualized basis. Vibhor Singhal: Since you touched upon the travel and hospitality segment, as you mentioned that we bore the brunt of it while COVID struck and the segment was down and now we're seeing a strong rebound in this segment. I think globally also we are seeing very strong bookings in Greece and Spain and baggage can also come : Page 14 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) up. So, do you expect this momentum to maybe continue in the travel segment in the coming quarters as well? Of course, this is assuming no more waves and no more lockdowns and everything. But do you think you expect this momentum to continue in this segment in the next couple of quarters given that these clients would now probably start spending more on to it? Rajesh Gopinathan: I think so. The caveat, of course, is that there is no major event that happens. But if things continue as they are, we expect that the sector will continue to do well. One, there is the demand side. In fact, the sector is supply constrained. As more capacity comes on board, they should continue to do very well. More importantly, while they did a great job dealing with the pandemic, many structural changes that need to be done have been identified, and those are longer term programs that will need to be put in place. So, we expect a lot more of preparatory investments amongst the more forward-looking customers, and very high profitability during the course of this year will give them that war chest they require to make the investment for increasing the resilience of their network and resilience of their operation in any future potential scenarios. Moderator: Our next question is from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management. Please go ahead. Sudheer Guntupalli: Rajesh, it has been almost 10 to 13 months since the inflation, macro, and geopolitical concerns surfaced, and some of the upstream segments of the tech ecosystem, like internet or software started flagging off on demand concerns. But so far if we look at your reported revenue growth, some of the forward-looking metrics or even your commentary, the situation for us seem to be reasonably strong, fairly resilient. If we take cues from the lag times between impact on upstream and downstream tech players historically, if something could have gone wrong massively, it should have gone wrong by now. What do you think is happening differently now. Is it the case that IT services business has become less correlated with macro in the cycle, or you think time lag for the impact will be little longer this time around? Rajesh Gopinathan: I think as I've always said, the best way to think about IT is to think of it as an industrial perennial. The tech needs of an enterprise will evolve over a cycle, but it is not totally discretionary. So, that's one aspect of it. : Page 15 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) The second aspect of it is that compared to let's say even five years ago, the technology landscape has stabilized significantly. There was a lot more heterogeneity in the landscape, and a lot more competing solutions in the landscape earlier. And now there is a fair amount of convergence on the main platforms, and the main basic architectural elements. So, in the wider technology products marketplace, that shakeout will be visible, which is normal at this stage of a technology adoption cycle. But the focus in terms of actual enterprise investments to execute on those transformations is continuing.So, lesser number of platforms, greater focus on larger programs, much calmer technology environment – all this is typical at this stage of technology adoption cycle. So, probably that also kind of reflects in the difference between the product space and the services space. But beyond that, I don't think we have any greater visibility. Sudheer Guntupalli: My second question. There is the broad agreement by now is that growth for the industry in FY'24 will revert to pre-COVID levels impacted by macro issues and the unwind of COVID pull forward impact, etc., Keeping aside the negativity around the near term, how do you think of the medium term growth prospects for TCS… not asking for a hard guidance, but do you continue to believe that once this near term noise around macro, etc., is in the base and behind us, growth rates can again accelerate back to double digits, which has been our medium term aspiration? Rajesh Gopinathan: We believe so. Our stance is quite positive, and as I said, if you take market- by-market, in the US, we definitely think that's the scenario. In UK, we are participating very well. The market itself is challenged. In Europe, once the geopolitical situation calms down, we believe that we have the full suite of capabilities to be able to participate. When decision-making restarts, we should be participating well. So, overall, we are quite confident about having the full suite of services to be able to be relevant to customers across a wide spectrum of actual scenarios, and therefore we are quite confident about the medium to long term outlook. Moderator: Our next question is from the line of Pankaj Kapoor from CLSA. Please go ahead. Pankaj Kapoor: I have two questions. First, Rajesh, you mentioned that there is a higher share of cost take out deals which are now coming in the pipeline. So, just wanted to : Page 16 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) understand, if such deals are also moving faster in terms of decision-making? And any color if you can give on the competitive intensity for such deals, I mean, is it normal or are you seeing such deals getting more competitively bid now by other vendors? Rajesh Gopinathan: Speed is varying by markets. I would say that in the UK, decision making is quite fast, customers are very clear, and there is a lot of action happening there. The US is normal. It continues to be doing well, but that does not account for the short-term aspect of that market. Everybody is a bit cautious for the time being, but we don't think that will last into next year. In three months’ time, we should be able to know better. In Europe, decision making has significantly slowed down. So, that's the full spectrum there. In terms of competitive intensity, many of the deal structures are quite complex. That narrows down the field to a more limited set of competitors. Within that, obviously, people are aggressive and everybody is hungry. But at least the competition set is a much narrower set than just a few years ago, when deals were smaller, and there was a lot more focus on immediacy of response and the supply side was challenged. Pankaj Kapoor: My second question is on the special dividend. With this, you would have almost paid out the entire amount that we paid last year, which included a buyback. So, does this mean there is a rethink in terms of the mode of capital return in favor of dividend versus buyback? Rajesh Gopinathan: No, rather than looking at it in absolute terms, on INR terms, we are growing at 15%-plus kind of basis. So, if you consider that growth, we are still benchmarked to 80% to 100% of net profit or free cash flow kind of a trajectory, not much of difference to that. Pankaj Kapoor: So, buyback remains something which our board can consider whenever the window opens up? Rajesh Gopinathan: As you know, the current regulations require a 12-month gap between the two buyback announcements. Buyback will be considered when it becomes possible from the regulatory perspective. Right now, we are in a period where we couldn't anyway consider a buyback. Moderator: Our next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead. : Page 17 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Sandeep Shah: Rajesh, one broader question. At an industry level where are we in terms of the cloud transformational journey or adoption by the enterprise client? And do you believe the pace of the adoption can change starting from CY'23 onwards irrespective of the macro issues? Rajesh Gopinathan: Cloud adoption journey is, I would say, a third of the way in. Different customers have different challenges there. Some of them who have gone very rapidly to the cloud, mostly lift and shift, are realizing that unless it is architected right, cloud costs are actually quite difficult to manage and it's a fairly large bill that can come if you do not architect and if you do not actively manage the cloud environment. So, some of the transformation activities and projects that we're doing is to actually help them execute that transformation agenda so that their application stack is architected in a manner in which it can fully leverage the variability that the cloud model offers. Unless you're able to actually switch off and release the resource, you will not participate in the variability. And to be able to do that you need to be able to architect your application properly so that resource dependency can be switched off on a variabalized manner depending on what your requirements are. So, that's one kind of work that is going on. The other kind of work that's going on is actually the migration itself of complex workloads that require a lot more of heavy lifting. That is the other kind of an area that there's a lot of work going on. Neither of them is easy to execute. So, you should not expect much acceleration. The next couple of years are going to be about execution, rigor, operational capabilities. But it will be a steady move, neither is it likely to accelerate significantly, neither is it likely to decelerate or fall off. The movement is committed, the direction is very clear, the investments are in place and the deals are in place. Now, the execution and the operations have to happen. That's likely going to be the story for the next year or two. Sandeep Shah: Just a question in terms of CY'23 IT budgets. Do you believe the spend of the IT budgets could be conservative in the first half of the calendar year versus the second half or you expect the spend to be remain normal like any other year, though the budgets may be slightly lower versus the earlier last two years because of the macro slowdown? Rajesh Gopinathan: Again, going by market-by-market, in the UK, unlikely that it is any different than last year, because there is no incremental shift in the overall environment : Page 18 of 23
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) in UK. In the US, we'll have to wait and see how the next couple of months plays out. We are positive or rather we are hopeful, but we'll have to actually wait for actual confirmation to come. We think the immediate caution that is there, probably will dissipate a few months into the year. In Europe, we will have to wait for some major event to happen for it to change. Europe will be incrementally cautionary this year compared to last year. Sandeep Shah: Just a last bookkeeping question. I think this third-party pass-through cost increase this time does not relate to the domestic revenue, if I'm not wrong, it relates to the international revenue and will it be a growth headwind in the fourth quarter if it doesn't repeat? Samir Seksaria: So, third-party costs actually you could link it to the domestic revenue. There has been a sequential increase, and typically Q3 has some bit of it coming in. On a year-on-year basis, we don't see that big jump. Moderator: Next question is from the line of Ravi Menon from Macquarie. Please go ahead. Ravi Menon: So, Regional Markets and Others segment had an acceleration year-on-year growth versus the last quarter despite muted growth in India. Should we think that this comes from improved traction in the insurance BPaaS area? I think NGS mentioned six new go lives in the quarter for BaNCS. Any large deals here that you'd like to call out or maybe you also share some comments on the deal pipeline in this segment? N G Subramaniam: I'm sorry, I didn't hear you properly. Could you repeat the question? Ravi Menon: NGS, you talked about the six new go lives this quarter for BaNCS. Just wondering if there are any large deals in the BPaaS segment in insurance, and how the pipeline is shaping up there? N G Subramaniam: One of the areas where we are seeing opportunities and significant pipeline is the various digital core, whether it is banking or capital markets or insurance, all of them are looking at putting together a new digital core. And it's going through a lull period in the last about two years or so. But now, people are thinking about a new core banking system, or a new security settlement system, which are really architected for the future, which are cloud-native, which are inherently micro services or inherently comes with that capability of marketplace with significant amount of APIs and micro services that will enable them to integrate into the ecosystem. : Page 19 of 23