Highest Ever Order Book of $11.3 Bn in Q4 for TCS, Demand remains strong but attrition rises to 17.4% from 15.3% in Q3FY22.

TCS Q4 FY22 Conference Call Key Highlights

• Q4FY22: INR Revenue of ₹ 50,591 Cr, up 15.8% YoY. USD Revenue of $ 6,696 Mn, up 11.8% YoY - Constant currency revenue up 14.3% YoY. Operating Margin at 25.0%, Net Margin at 19.6%, Cash flow from operations at 111.3% of net profit.

• FY22: INR Revenue of ₹ 1.92 Lakh Crore, growth of 16.8% YoY; USD Revenue of $ 25,707 Mn, growth of 15.9% YoY; Constant currency revenue growth of 15.4%. Operating Income at ₹ 48,453 Cr, Operating Margin of 25.3%, Net Income at ₹ 38,327 Cr, $ 5,139 Mn, Net Margin of 20.0% - Free Cash Flow at ₹ 39,181 Cr, 3.2% up.

• Margin movement: Quarter- 70 bps increase due to tactical interventions, 20 bps decreased due to use of subcontractors, 10 bps increased due to currency movements and rest due to operational efficiencies across the service lines. Yearly- 230 bps increase due to tactical intervention, 100 bps decrease due to subcontracting costs, 30 bps improved due to currency movements and balance increase due to operational efficiencies.

• Clients: $100M+ up by 10; $50M+ up by 19; $10M+ up by 52 & $1M+ up by 86 YoY. Large deals are difficult to predict.

• TCV (Total Contract Value): Highest Ever Order Book of $11.3 Bn in Q4; $34.6 Bn in FY 22. TCV to remain in the range of $8 Bn+ on the quarter basis going forward. Because of uncertainty in the large deals.

• Human Resource: Net addition of 35,209 associates during the quarter and 103,546 during the year. Closing headcount: 592,195. LTM attrition at 17.4% in IT Services. Attrition to continue to rise in the next few quarters. Women makes up 35.6% of total employee strength. Target for FY23 is 40,000 freshers’ addition. It is flexible with national qualifier test (NQT) based on demand and supply. Salary hikes have been around 6-8% in FY22.

• Research and Innovation: As on March 31, 2022, the company has applied for 6,583 patents, including 187 applied during the quarter, and has been granted 2,287 patents. For the full year, TCS filed for 704 patents and was granted 437.

• Industries: All verticals grew in the mid to high teens. Growth was led by Retail and CPG (22.1%), Manufacturing vertical (+19%) and Communications & Media (+18.7%). Technology & Services grew (+18%) and Life Sciences and Healthcare grew (+16.4%) while BFSI grew (+12.9%). On a full year basis, growth was led by Retail and CPG (20.6%), Manufacturing vertical (+19.4%), Life Sciences and Healthcare (+19.2%). BFSI grew (+16.7%), Technology & Services grew (+15.8%) and Communications & Media grew (+14%).

• Markets: Quarterly growth among markets was led by North America which grew (+18.7%). UK grew (+13%), Continental Europe grew (+10.1%). Among emerging markets, Latin America grew (+20.6%), Middle East & Africa grew (+7.3%), India grew (7%), and Asia Pacific grew (+5.5%). On a full year basis, among major markets, North America grew (+17.5%), Continental Europe grew (+15.1%) and UK grew (+14.3%). In emerging markets, Latin America grew (+18.2%), India grew (+16%), Middle East & Africa grew (12.9%) while Asia Pacific grew (+6.7%) growth.

• Services: Demand continued to be strong during the quarter as well as the full year across all markets, industries, and services, with growth led by Cloud, Cyber Security, Enterprise Application Services and IoT & Digital Engineering. Products and platforms like TCS Bancs, ignio, quartz have performed well.

• Client Mining: 98% of the revenues comes from existing clients.

• Restructuring: TCS’ business will be segmented into groups named – acquisition, relationship incubation, enterprise growth and business transformation. The operating model will be aligned to the customer journey at every step, leaders who have been groomed (for this model) will lead these new groups.
• Guidance: Operating Margins in the long term (26-28%), In the medium term will get close to the long term while in near term there will be some volatility in the margins.

Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell stocks or MF.