Tata Consultancy Services : Q4 FY2022 Transcript

Tata Consultancy Services Limited

Q4 & FY22 Earnings Conference Call. April 11, 2022, 20:00 hrs IST (10:30 hrs US ET)

Moderator:Kedar Shirali:

Ladies and gentlemen, good day and welcome to the TCS Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing '*' then '0' on your touchtone phone.

Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali, Global Head, Investor Relations at TCS. Thank you, and over to you, sir.

Thank you, Steven. Good evening and welcome, everyone. Thank you for joining us today to discuss TCS' financial results for the fourth quarter and full year fiscal year 2022 that ended March 31, 2022. 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. Rajesh Gopinathan -- Chief Executive Officer and Managing Director; Mr. N.G. Subramaniam -- Chief Operating Officer and Executive

Director; Mr. Samir Seksaria -- Chief Financial Officer. Our Chief HR Officer --Mr. Milind Lakkad, could not join us today due to a personal emergency, but Samir will be speaking on behalf of Milind.

Our leadership team will give a brief overview of the company's performance, followed by a Q&A Session.

As you are aware, we do not provide specific revenue or earnings guidance.

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 e-mailed out to those who have subscribed to our mailing list.

With that, I'd like to turn the call over to Rajesh.

Rajesh Gopinathan:Samir Seksaria:

Thank you, Kedar. Good morning, good afternoon and good evening to all of you.

We are closing fiscal year 2022 on a strong note, our full year revenue growing at 16.8% in rupee terms, 15.4% in constant currency terms and 15.9% in dollar terms.

We added $3.533 billion in incremental revenue during the year, our highest ever. Our operating margin for the year was at 25.3% and net margin was at 20%.

Having crossed the $25 billion milestone this year, we are now focused on ways to get to the next $25 billion. Towards that, we are rolling out a new industry-first organization structure that adds customer relationship stage to the existing three-dimensions, that is the geography, industry vertical and service lines.

The new structure is more customer-centric and will enable curated experiences to our customers based on what stage they are at in their relationship journey with TCS. We believe this would ease the path for us to become a growth and transformation partner for more of our customers.

I will now invite Samir and NGS to go over different aspects of our performance during the quarter. I'll step in again later to provide more color on the demand trends we are seeing. Over to you, Samir.

Thank you, Rajesh. Let me walk you through the headline numbers. In the fourth quarter of FY'22, our revenue crossed `50,000 crores mark, reaching `50,591 crores, which is a Y-o-Y growth of 15.8%. In dollar terms, revenues were $6.696 billion, a Y-o-Y growth of 11.8%. And in CC terms, our revenue growth in Q4 was 14.3%.

For the full year, our revenue was `191,754 crores, which is a growth of

16.8%. In dollar terms, revenue was $25.707 billion, a growth of 15.9% and in constant currency terms, this translates to 15.4%.

Let me now go over the financial performance. Our operating margin in Q4 stayed flat sequentially at 25%. As in the previous quarter, we had headwinds of about 90 basis points from ongoing supply side challenges, which were mitigated from operational efficiencies and 10 basis points of currency support.

For the full year, our operating margins continue to be industry-leading at 25.3%. Annual increment, tactical interventions and increased subcontractor usage represented a headwind of 330 basis points, offset to some extent by operational efficiencies, improved realization and some currency support.

Net income margin in Q4 was 19.6%, and for the full year, 20%.

EPS grew 16.1% during the year, excluding the provision we made towards a legal claim in FY 21. Effective tax rate for the year was 25.6%.

Our accounts receivable was at 64 days DSO in dollar terms down 3 days sequentially and 4 days Y-o-Y. Net cash flow from operations was `110.51 billion, which is a cash conversion of 111% of net income. Free cash flow was `102.59 billion. Invested funds as on March 31st stood at `560.53 billion.

The board has recommended a final dividend of `22 per share. For the full year, this represents a shareholder payout of `31,424 crores, and this does not include `4,000 crores of buyback tax which has an outflow in the month of April.

Now, since Milind could not join the call today, let me go over the people metrics as well.

On the people front, this has been a standout quarter where we set many benchmarks. We had an all-time high net addition in the quarter as well as for the full year at 35,209 and 103,546 respectively, bringing the total headcount to 592,195. The record net addition reflects the strength of our employer brand and our ability to draw talent across the world.

We received several accolades and external validations this quarter for our commitment to excellence and talent management. We were recognized by the Confederation of Indian Industry, (CII), with the Role Model in HR Excellence and Prize for Leadership in HR at the CII HR Excellence Awards.

The Role Model award has been given only twice before in the last 12 years.

TCS ranked #1 in the LinkedIn Top Companies list of the Best Workplaces for Career Growth in India, with top scores in providing the ability to advance, skills growth, company stability, external opportunity, company affinity, gender diversity and spread of educational backgrounds.

Lastly, we were recognized as the Global Top Employer for the Seventh Year in a Row by the Top Employers Institute.

Our focus on diversity and inclusion and localized hiring in all our major markets has resulted in a very diverse workforce in 153 nationalities represented and women making up 35.6% of the base.

We continue to invest heavily in organic talent development. In Q4, TCSers clocked 22 million learning hours. For the full year, TCSers locked 60.3 million learning hours and acquired 3.5 million digital competencies.

The number of contextual masters, that is, individuals who have demonstrated deep contextual knowledge of their customers business and IT landscape, hit a new milestone crossing 50,000 in Q4.

Moving to talent retention, we have a track record of consistently maintaining the highest talent retention in the industry, even in the face of high levels of churn across the industry. Our attrition in IT services continues to rise on an LTM basis and was at 17.4%. However, the quarterly annualized attrition is plateauing.

Lastly, we have announced a salary increment with effect from April 1st similar in quantum to prior years.

With that, I'll request NGS to give the segmental and product commentary.

N.G. Subramaniam:

Hello, again. Thank you for joining us. Let me begin by providing the segmental performance result for the quarter. All growth numbers are on Y-o-Y constant currency basis.

All our industry verticals grew in the mid-to-high teens in Q4 and for the full year. Q4 growth was led by Retail and CPG, which grew 22.1%, Manufacturing and Utilities grew 19%, and Communications and Media grew by 18.7%,

Technology and Services grew 18%, Life sciences and Healthcare grew 16.4%, and Financial Services grew by 12.9%.

For the full year, growth was led again by Retail and CPG, which grew by 20.6%, Manufacturing and Utilities which grew by 19.4%, Life sciences and Healthcare 19.2%, Financial Services 15.1%, Technology and Services 15.8% and Communications and Media by 14%.

On an accounting segment basis, including revenues from emerging markets and products and platforms, our BFSI segment crossed the $10 billion revenue milestone this year.

Moving on to geographic markets, growth in Q4 was led by North America, which grew 18.7%, UK at 13% and Continental Europe at 10.1%.

Among emerging markets, Latin America grew by 20.6%, Middle East and Africa grew by 7.3%, India by 7%, and Asia Pacific by 5.5%.

On a full year basis, North America grew by 17.5%, Continental Europe by 15%, and UK by 14.3%. Moving on to emerging markets, Latin America grew 18.2%, India grew by 16%, Middle East and Africa grew by 12.9%, while Asia Pacific had 6.7% growth.

Our portfolio of products and platforms continue to do well in the market. ignio™, our cognitive automation software signed up 36 new clients in Q4, and we had six clients went live with ignio™ during the quarter. For the full year, ignio closed over 100 deals and had 27 go-lives.

The Digitate Academy has trained over 11,500 professionals in the marketplace and certified more than 4,100 professionals on ignio.

ignio continues to transform operations across domains using AI and automation, to enhance resilience in delivering superior business outcomes.

For a leading energy generation and distribution company in North America, ignio is managing over 100,000 incidents autonomously, with 100% successful resolution rate, covering 30% of their overall IT footprint.

A global professional services provider has gone live with ignio's Digital Workspace, proactively managing the health of over 11,000 laptops globally for better user experience and productivity. ignio also manages group policies, privileges and updates for improved compliance and reduced vulnerability.

TCS BaNCS™, our flagship product suite for the financial services industry had 4 new wins and 3 go-lives in Q4. In FY 22, TCS BaNCS won 22 new customers and had 16 key go-lives. Half the wins were for the SaaS model, demonstrating the growth adoption of cloud, and more importantly, TCS BaNCS' cloud readiness for large and niche projects.