sloppysid/faiss_search huggingface dataset:
TATA CONSULTANCY SERVICES LTD. — 2023-01-11
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 LTD. — 2023-01-11
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 LTD. — 2023-01-11
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 LTD. — 2023-01-11
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 LTD. — 2023-01-11
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 LTD. — 2023-01-11
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
TATA CONSULTANCY SERVICES LTD. — 2023-01-11
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) So, as you may see, during this quarter, we announced a large deal win with the Chinatrust Banking Corporation, which is really the future core in terms of architecture, in a fashion that is cloud-native, and it is truly providing open banking APIs and so on so on. Such opportunities are opening up. At this moment we're working on three or four such opportunities where some of the large banks are looking at modernizing their core in favor of something which is completely open banking, open APIs. So are some of the market infrastructure institutions trying to create open payment system, and some of them typically say that whatever you guys have implemented in India, can you offer this whole instant digital payment infrastructure in our geography? So, these are the opportunities that are coming out of it, and there are a decent number of opportunities in the pipeline that we see in banking as well as capital markets. Ravi Menon: SG&A, travel costs have increased sharply. How close to normal, Samir do you think we are in business travel? I think we are still about 30 bps below what we used to clock pre-COVID. So, should we think of travel as a continued headwind or you think we'll stabilize at this level? Samir Seksaria: Yes, as normalcy continues to get through, we would expect travel costs to continue to increase. If you look at it more on the direct revenue side or the direct cost side, a lot of it is coming in. On SG&A, as things open up more on sales-related costs, as well as team building exercises and team meetings happening, that cost is increasing. We’re seeing it going back to what it was pre-pandemic. Moderator: Our next question is from the line of Abhishek Kumar from JM Financial. Please go ahead. Abhishek Kumar: I have a question on budgets. Rajesh, you mentioned in the US there is a wait and watch mode and therefore budget could take some time. Is there any possibility because of that there was probably a little bit of budget flush in 4Q which could have supported the growth? Rajesh Gopinathan: Sorry, budget flush due to what? Abhishek Kumar: See, there's possibly an indecision or wait and watch mode for CY'23 budget. So, to exhaust CY'22 budgets, any possibility that there is a budget flush to exhaust the previous year's budget? : Page 20 of 23
TATA CONSULTANCY SERVICES LTD. — 2023-01-11
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) Rajesh Gopinathan: No, I don't think so. CY'23 will be slightly delayed in a couple of months… but again, it's entirely in the realm of speculation. So, we'll have to just wait and see how it plays out in the next few months. Abhishek Kumar: Another related question to this is given this little bit of indecision in US, do you think the cost takeout projects in US probably would be low compared to other geographies, at the same time spending on discretionary would be cautious and that would probably keep the budgets little low? Rajesh Gopinathan: Yes, fair assumption. Even if you look at our US TCV, that is down both sequentially and on a year-on-year basis. So, TCV still reflects that decision- making lag in this quarter. Moderator: Our next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead. Gaurav Rateria: So, firstly, Rajesh, is it fair to believe that the ACV growth could be lower than TCV growth as mix of the deals are changing, and should that be even considered as a lead indicator for growth going forward or you think the deal win trajectory could actually shift upwards over the coming quarters? Rajesh Gopinathan: Gaurav, I don't have a direct answer to that, but there is not much of change in terms of the mix of deal structures between large or small or long dated or small dated. So, nothing that we can call out over the last two, three quarters that we can say that we're seeing. There is an elongation in decision making, which we had spoken about last quarter also and which has also played out this quarter. So, that the pipeline growth and the qualified pipeline growth is ahead of the actual TCV growth that we're seeing…in fact, we have seen a sequential decline in TCV while our qualified pipeline still continues to grow in absolute terms. So, beyond that, the specific mix of deals is not materially changing. Gaurav Rateria: Secondly, on the margins, as headwinds on attrition subside, would our immediate priority be to take margins back to our aspirational band of 26%, 28% or would we prefer to prioritize some investments, keeping margin stable after recovering it to 25%? Samir Seksaria: Gaurav, our margins or our industry-leading margins are on the back of the investments which we make, and most of our investments, whether it is in terms of talent, in terms of research and innovation, or branding, all are : Page 21 of 23
TATA CONSULTANCY SERVICES LTD. — 2023-01-11
Tata Consultancy Services Q3 FY23 Earnings Conference Call January 9, 2023, 19:00 hrs IST (08:30 hrs US ET) factored in into the P&L. Our aspirations for the margins are taking into account all these investments Moderator: Our next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead. Ashwin Mehta: Rajesh, we've seen pretty strong growth in regional market and others over the last two quarters; it's of the order of almost 6% sequentially. So, what is the nature of demand here and how sustainable is this going forward? Rajesh Gopinathan: The reason of calling the segment out is because it's volatile and difficult to predict. So, its sustainability is difficult to answer. From a nature perspective it's come both from the market side – India has done very well, in fact, APAC ex-Australia also have done well. So, markets have done well, as also the product side of the business that NGS spoke about on the FS and platform side also has done well. So, it's come from both sides, markets as well as from the products side. Ashwin Mehta: Second question was you mentioned in the press conference as well that manufacturing has been more resilient compared to your expectations. So, any trends that we can take from manufacturing given the fact that if we look at client financials, manufacturing growth over the next two years is expected to be actually better than what it was before? Rajesh Gopinathan: I didn't know that, but that correlates to what we are also seeing. But I'm still wary, because of all the global supply chain disruption and energy price disruption. Industries like process manufacturing are much more globally integrated, and not as isolated as, let's say, Retail. So, we are still cautious. Our operating approach is always the same; stay close to the customer, deal with the customer on an individual opportunity-to-opportunity basis and we will continue to participate on that basis. But on a zoomed-out way, talking to customers, it is an industry that's not completely out of the woods. Moderator: Our next question is from the line of Rahul Jain from Dolat Capital. Please go ahead. Rahul Jain: Basically, my question is related to TCV signing which is $7.8 billion is slightly lower by our recent average win. Despite the fact that we have been favorable situation on the vendor consolidation exercise. What explains this mismatch? : Page 22 of 23