Demand environment across geographies quite good: TCS Management

Help us understand the disconnect that we are seeing in terms of the global headlines and macro indicators pointing to a recession. Not only that, even a lot of corporates are talking about cautionary headwinds versus your comment coming in that demand for your services continue to be very strong. Are you expecting no sort of slowdown in clients’ spends come Jan 2023?

Rajesh Gopinathan: What is important, what Covid also proved was that technology is at the core of transformation – be it on the growth-side or on the efficiency side or on the resilient side. So across all three dimensions technology is the core. It is also important that we have built our portfolio to be relevant to customers across the full spectrum of all three of these challenges so that is where the strength that we are experiencing is coming from. But of course, we need to remain very vigilant of the overall environment.

At the end of the day, we are very focussed on the set of customers that we serve and we try to stay loyal to them and make sure that we are with them. What happens next year, in terms of budgeting, we will get to know only three to six months down the line, it will be early next year.

Any indication from the client conversation as yet?
Rajesh Gopinathan: No, we have shared with you last quarter also that there is an increasing sense of caution in the discussions, but we had told you last time, too, that it has not yet materialised into our order pipeline and that continues to be the case now.

Also, there is that increasing sense of caution, there is that increasing sense that we need to be wary of uncertainties. However, I believe there is space if we are staying close to find opportunities for growth. But will we be totally insulated? Very difficult to say but our intent will be to stay very close to customers and carve out a niche for ourselves and then minimise the impact of volatility.

The deal wins this time around were quite steady at $8.1 billion, could you specifically talk to us about how Europe is doing as a region? Even in terms of vertical, how has the order inflow been in BFSI and retail, given the kind of headlines that we have seen from global banks or the retail corporates as well?

NG Subramaniam: I think overall the demand environment as Rajesh mentioned is quite good, across geographies and as well as vertical segments. But there are some softnesses that to some extent is to be expected, especially when it comes to the question of long-term deals, long-term decision making. It is only natural to expect a certain amount of softness, given the overall macro environment.

Much of the focus is right now on how this winter is going to be for Europe. So, I think, it is safer to expect a certain amount of softness, but as Rajesh has articulated, we have the products and services ready for the customer journey, in terms of whether it is a tough market environment where they will focus on resilience and cost optimisation or investing in growth, transformation and execution.

So are you maintaining the $7-to 9-billion quarterly run rate sort of guidance that you had given in terms of deal wins?
NG Subramaniam: We do not see any reason to change that kind of focus. I think we would like to win more.

This time around, we have definitely seen margin improvement and you have also commented about being on track to achieve your operating margin target of 25% by the end of the year. What gives you that confidence, because not only the second half of the year is going to be seasonally weak but we are also hearing that pricing negotiations are getting a bit more difficult?

Samir Seksaria: So, as you rightly said, we had focussed on getting back to 25% and I think three important parameters are what we will focus on. One is focussing on operating metrics. While we had a bunch of parameters helping us this time, I have called out in the quote as well, but utilisations still provide an opportunity for optimisation. We would continue to focus on realisation as well. We would also focus on rigour in execution and once the headwinds, we have been facing specifically on the backfilling cost as well as the attrition, starts trending down, we would expect that to also give a support on margins.

On the headcount front, the obvious question is that from the quarterly run rate of 25,000 plus addition last year, it has fallen down to less than 10,000 and this is despite attrition going up to 21.5% thereabouts. Is demand coming in from the business that less?

Milind Lakkad: I think if you look at what we have done last year and in the last two quarters, we have hired 119,000 people from the campus. In the last two quarters, we have hired 35,000 freshers. In the last six to nine months, we have actually invested in organic talent development of these people coupled with some additions from the market. So bringing all of that talent and making them productive, and whatever is the gap we bring it from the market is what is driving this quarter’s growth and the future growth will also be like that.

Are you on track for that 40,000 fresh additions for the year or are you looking at retracing a tad bit?
Milind Lakkad: We have already done 30,000 in the first two quarters so we will be adding another maybe 10,000-12,000 more at least in this coming year.