Tata Consultancy Services Limited analyst Q&A

Thank you very much. We will now begin the question-and-answer session. We have a first question from the line of Yogesh Aggarwal from HSBC. Please go ahead. | 13

Hi, good evening. Just a couple of questions. On the TV, you guys mentioned that there is only one large mega -deal in the entire quarterly TCV, which is very strong. But still, the near -term growth outlook is not very clear. So, I was just a bit confused. If a large part of the deals are smaller in TCV, shouldn't the near -term outlook improve quite a bit? That is one. And secondly, just on the India business, Krithi, in the past, companies have regretted growing India business after a while, due to issues with margins, cash flows, etc. So, do you think the market has matured now and it's not a risk going forward?

Thanks Yogesh. First on the large deal, we said there is one mega-deal in the deal pipeline. Others are all deals of normal size we have every quarter, which are large deals, but not all are mega-deals. So from an overall deal-term perspective, there is no change otherwise. And since you mentioned the TV interview, we said that the number of deals that we have been winning in the last few quarters , gives us confidence that after a period, the growth would return. So, I don't see there is a reason for confusion or conflict there. Coming to India, we do believe that we have to participate in the India growth story. And many of the large Indian enterprises, both in the public sector and private sector, are embarking on new programs to leverage the technology that's available today. So, we are selective, and we want to ensure that we enter the right deals, but we believe there are enough right deals in the market today.

Thank you so much.

Thank you. We have our next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.

Yes. Hi, team. Congratulations on a good set of numbers. Krithi, you reported solid deal wins, and you are indicating that the demand visibility has improved over the previous three months, I think on the press meet. On the contrary, one of our consulting heavy peers has indicated that demand situation further deteriorated over the previous three months. | 14 So, is it fair to assume that the problem of incremental deterioration over the last three months is more pertinent to the discretionary strategy consulting kind of engagements, and the rest of the portfolio remains largely resilient?

So, definitely, in a way, if you look at what we have been saying, discretionary programs with not so exciting ROI are under pressure. So, if the ROI is not immediate or ROI is not meeting the threshold the customers have set for themselves, they tend to pause those programs or delay those programs. So, to that extent, there could be a lack of visibility in the near term. But, as I said, since the TCV has been quite high, on the medium to long term, we are more optimistic.

Sure, Sir. Second question to Samir. If we adjust for BSNL deal ramp-up led margin dilution over the previous two quarters, your EBIT margins would have already been somewhere midway of your aspirational band of 26% to 28%. So, my question is, have we peaked out in terms of margins or you see further scope for a margin upside?

Sure, Sudheer. So, first, we'll look at our margins on a portfolio basis and we'll not split or exclude a single customer or geography out of it. Coming to your question on whether the margins have peaked out, as you know, first quarter we will take the impact of increments. So, we would have a headwind coming up. But, I think, overall, during the year, we have, despite strong headwinds coming through, and in a challenging macro, we have been able to deliver consistent good margin improvement in the last three quarters, almost 100 basis points in each of the quarters. We believe some of the levers, like the subcontractor cost which was one of the levers which helped significantly in FY'24, might have bottomed out. But with our focus on disciplined execution, we believe levers like pyramid , pricing and utilization can still help us. And if the macro risk recedes and growth reverts back higher to its normal trajectory, then that can only help us accelerate this journey.

Got it. And lastly, congratulations to NGS on a glorious career. It's a privilege to listen to you, and all the best for your future endeavours. | 15

Thank you.

Thank you. The next question is from the line of Ankur Rudra from JPMorgan. Please go ahead.

Hi, thank you. Just the first question is on the strong signing momentum you mentioned. How are you thinking about the conversion of this into revenues over the next year or so? And how does it set you up for FY'25, given perhaps easier comparable this time (FY24 growth not being very high). Does it help you significantly?

Yes, we are quite comfortable on the revenue conversion of the deal that we signed in the last three, four quarters. And the conversion rate has been at a similar rate that we used to convert in the past as well. We've been saying in the last few quarters, the headwind has always been in those projects that we signed quite some time ago which are discretionary in nature or where the clients can slow it down or pause for some time. Those are the ones providing the headwind.

Will FY'25 pan out better given how FY'24 was?

Ankur, last quarter also we mentioned this. Seeing the TCV of whatever we signed this quarter, we believe FY'25 should be better than FY'24.

Understood. Maybe if you can comment a bit more in terms of how do you think or where do you think clients are and where do you think the environment is in terms of spending cycle? It's been almost, I think, two years now. It's not slightly longer till we' ve seen, you know, revenue sort of decline, decline, decline, perhaps bottom out and begin to recover. How do you feel about the spend cycle right now, especially the mix of discretionary and non -discretionary? And also, if you can touch upon financial services and CMT verticals.

See, look at it this way, Ankur. Clients want to do transformative work, and they want to embrace new technology. We talked about cloud adoption, enterprise cloud modernization and also a bout Gen AI . Clients want to do all of them, and clients also want to conserve costs. These two are the drivers that make them choose the appropriate projects. | 16 Wherever they're trying to do cost and optimization, you would see programs around vendor consolidation, operating model transformation, or sometimes application rationalization. Those kinds of engagements are started. And the saving s generated are used to fund the programs that I talked about. So, I don't think that if you look at purely the TCV and look at the kind of projects, you cannot say there's only one kind of project. You would see a fair mix. I would say maybe 55 to 60 % in terms of cost and optimization and the remaining in terms of transformative engagement.

If I can add, Ankur, to what Krithi has said, every organization wants to become an AI organization. There is a huge amount of upskilling and transition that internally they are going through to train their own people on the impact that AI can have in terms of every one of their internal processes and their planning process, and what are the parameters that are important for their growth, all of it. So, they are going through their AI transition themselves. And in addition to that, given the number of new technologies that are coming in this space, the possibilities are opening up. As I alluded to in the press conference, the first phase of defining t he architecture in which they would like to develop these programs, which LLMs will be relevant for them, which one they want to keep in-house, which one they want to keep in the public domain, what data that they have internally, what data they need to get it externally. A lot of these strategic decisions are also at play. So, I think as far as the cost and optimization, efficiency, using AI for internal purposes, they're all -- there's no dearth of opportunities, they're all happening. But on the strategic transformation programs, the kind of work that they want to do, they are calibrating it, they want to solve all this internal issues, strategic issues first, assess the regulatory impacts before they want to progress further.

Thank you for the color, NGS, and thank you so much for your guidance over the years. That was my last question. Thank you.

Thank you. The next question is from the line of Kawaljeet Saluja from Kotak. Please go ahead. | 17

Hi. Thanks a lot. I have a couple of questions. First is on TCV and the relative lack of, what I would say, excitement about the near -term growth acceleration. Is there anything in the composition of TCV which is leading to this relative lack of enthusiasm , anything which you can throw some color on the renewal component or the ACV, anything that can help us understand the dynamics of growth and our TCV a little bit better?

Thanks, Kawaljeet. I won't call it a lack of excitement. We are quite happy with the TCV we signed. Our caution comes from the headwinds that we face. The short-term demand remains very unclear or volatile. So that's a cautionary stand. Like, once we go through the quarter, probably we'll get a better understanding of the overall net demand. So, we are quite happy with the TCV , and its conversion into revenue as well. But what we have not been able to predict is the headwinds that come out because customers want to conserve cash and then stop some of those ongoing large programs. So that's the reason you see the amount of caution in terms of predicting the revenue.

And Krithi, anything in terms of renewals versus new TCV? Because I saw a stream of announcements, but plenty of them were renewals. So how does that compare with the historical average? And if you can throw any -- if you can add any insights on the ACV number, that would be useful as well.

We don't publish ACV number, Kawaljeet, but from a mix perspective between renewal to new revenue, there is no change. If at all, I would say that our new revenue has been stronger.

Okay. That's heartening to hear. The second question is for Samir. Samir, any other lever through which you can juice up the margins? I understand there's some near -term headwind from comp ensation provision, but just to understand the perspective of profitability and how it can improve, any levers that you can highlight, because at least from the face of it to us, it looks like the engine is running nice and in a very optimized way today?

Yes, Kawaljeet. The ones I called out – pyramid, pricing and utilization - - definitely have further scope. And we also believe that incremental margins will have to be contributed by pricing improvements. | 18

Right. The final question that I have is on the BSNL deal . So there's $1 billion of revenues that come in, say, a period of 12 to 18 months. Are there subsequent work packets that will flow in or does this create, let's say, a revenue vacuum as you move into FY 2026?

Hi, this is NGS here. We are focusing on installing the network across 100,000 towers. We have achieved about 10,000 towers as of date, and there are further opportunities. For example, beyond rolling out these 100,000 towers, we also have to upgrade a good number of them to 5G. That's another revenue stream that will come. And then subsequently, the maintenance support is for the next foreseeable future. That's another thing that is expected. In addition, there are also opportunities to increase the number of towers that BSNL will deploy, because clearly they are focused on what they call a s saturation sites, which essentially means rolling out new towers in rural areas where hitherto even a mobile network doesn't exist. So there are clearly some more opportunities that will come from the BSNL. But clearly, this is a mission critical project, very complex, highly integrated, and indigenously developed. The opportunities to take it to market with other operators is an opportunity that we are calibrating.

Got it. Fantastic. Thanks a lot.

Thank you. We have our next question from the line of Surendra Goyal from Citigroup. Please go ahead.

Good evening, everyone. Krithi, I'm just trying to understand your commentary better. You have sequential growth in Q4. You are saying that visibility has gotten better. Deal TCV trends are good and mostly regular-sized deals. And June and September are seasonally strong as well, based on what we have seen over the years. So why are you not willing to call out growth in the coming quarters? Is the leakage in the existing big business a concern enough to hold you back despite so many positives? Any clarity would really be helpful.

Surendra, two things. One, we have never given guidance. Two, as I told, whatever answer I gave to Kawaljeet, like, there is an amount of | 19 unpredictability in terms of our customers' readiness to cut the discretionary work that they are doing based on the return on investment they're seeing. And it is also a factor of how they see the economy panning out or what they should be ready for. So, if there is a greater confidence on their overall business growth, you would see them at least embarking upon more discretionary projects or not pausing the projects. It's a question of the overall economic sentiments our customers are in. That's the reason that we are not sounding very optimistic. We have been cautious because of these reasons.

And are there particular verticals where you see the reprioritization happening more commonly compared to the rest of the business?

No, it comes from their individual perception. See, there are some programs that have seen a number of incremental enhancements that are supposed to be done. But when they see the new enhancements not going to yield greater value, they don't do those enhan cements, they stop at wherever, whatever, after the initial set of modernization. There are programs where clients signed up to initially a very high SLA, but they realized that given the current environment, that kind of SLA is not required. Then you have a lesser number of associates handling the same program with a reduced SLA. There was one instance where the customer sold off a business to somebody else or they got out of that business, and they ran down the people in that program. Some of these decisions happen in a very short notice. This is broadly the spectrum we are seeing.

And just a housekeeping question, are any deals which get cancelled, either because of customers selling off a business or any other reason? What you report, is that a net number or just a gross number? See, if you had signed a deal six months back and then the deal got cancelled, would this quarter be net of that cancellation or the cancellations are not accounted for?

TCV is only what we sign new in a given quarter.

Understood. Thanks. NGS, thank you for all your insights over the years and all the best. | 20

Thank you so much.

Thank you. We have our next question from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.

Hi, thanks for taking my question. Just wanted to get little bit better trends on BFSI. You did talk about insurance vertical growing during the quarter across geographies. If you could lay out in terms of outlook within BFSI of subsectors, what's going to grow and where the visibility is higher, where visibility is still not there, that would be very helpful.

Hi Gaurav, this is NGS here. I think overall our engagement with our customers in the BFSI segment has been terrific and very good partnership that led to about $4.1 billion worth of TCV during the quarter. Insurance is doing well. Capital markets is doing well, almost every stock market is doing well. So, there are increasing opportunities that are coming. But largely in putting controls, risk, and safety measures as opposed to trading systems or settlement systems because they're all working fine, they're all scaling, and they don't want to touch it, and they've invested a lot in the algo trading. On the retail banking side, clearly payments and wealth management are two significant areas where we have customers wanting to try out new technologies. And especially portfolio management, portfolio optimization using Gen AI to rebalance , and assist in a way that increases their own productivity and provide that agility to their end customers is something that we are seeing and identifying arbitrage opportunities on the fly. These are all cases that people are experimenting, and there are opportunities in payments specifically and wealth management on the retail segment. On the Market infrastructure side, there are a good number of programs in th e pipeline. As you know, we signed up the deal with ASX, Australian Stock Exchange, and we implemented one of the most complex commodity systems for MCX. And we continue to engage with customers like London Clearing House and other firms. | 21 Large market infrastructure programs in payments, payments modernizations, and almost every market , they are considering implementing something like a UPI, faster payments, instant payments. There are lot of discussions that are going on, but these are all long - term projects, so deal cycles are expected to be longer. I hope that gives you a perspective.

Thank you for the very comprehensive answer. Just to follow up on this, where are you seeing the unexpected ramp downs or behaviour of client decision -making within these segments, and any likelihood of that kind of continuing? I mean, are you expecting th is to continue in the current quarter as well?

I think, I can't really, pinpoint something except that, look, if you take our BFSI segment, for example, most of our customers, are all long- term strategic customers for us. We hav e enjoyed a phenomenal relationship and partnership with all of them. So we sign deals and they commit deals to work with us. But then at the same time, they come back and then say that, look, yes, I signed this deal, and then I want to defer this for about a quarter. Even though contractually they may not have that option, we remain flexible with them, and then we have to accom modate them in the interest of our long-term relationship, and culturally we are like that. From that perspective, we see some volatility in decisions because, for example, if they face a headwind, come back and then talk to us and then say that, look, can you execute this program in terms of 12 months , 18 months or 24 months? And such things happen, it's an unplanned, distribution of work that we need to manage, and customers love us for that. I think we will continue to operate in that fashion to stay relevant to our customers and help in their times of need, and it is that volatility which we are not able to predict. And at the same time, today there are so many startups coming in AI. Some of the clients want to invest in those startups rather than building it organically. Clients want to experiment and see whether the concepts what they are coming up with is interesting. Maybe I will invest in them and then accelerate their journey and adopt that technology. These are all the volatility that we see in the marketplace, for which, we will have to be respectful of clients’ thoughts and decisions and accordingly align ourselves to th e changing paradigm . | 22 And that's the volatility which I'm not able to predict, and I'm not able to communicate it. We only echo what we see and what we hear from our customers to all of you.

Thank you very much. Last question for Samir. On the operating margin comfort band of 26% to 28%, you did talk about pricing to be one of the levers that will be required to sustain the margin in that. In the current environment, do you expect this to play out in the coming quarters based on the kind of deals that you have signed? Or is it more of a factor that could be, at play only when the discretionary spend were to return back? Thank you.

NoW we believe that incremental margins will have to be contributed by pricing improvements that need not be through an immediate pricing increase, but we will need to work out structurally . T owards that, i t would be a combination of various factors. Overall portfolio- based pricing increase, renewals getting priced in at a higher price or when the renewals happen, asking for a price increase, or the overall new deals which come in get factored at a higher price. I wouldn't expect it in one quarter, or we go and ask for a price increase to a customer and we would get it immediately.

Thank you.

Thank you. We have our next question from the line of Kumar Rakesh from BNP Paribas. Please go ahead.

Hi, good evening. Thank you for taking my question. My first question was for Samir. So, we are exiting this year closer to 26% on the margin side. So, through the next year, FY'25 through the quarters, should we expect the quarterly movement of margin similar to w hat we saw this year? Or there was some difference in the trajectory which we saw, and we should build accordingly?

I think one thing for sure is like it happens in every year. We would take the impact of increments, the largest headwinds coming in Q1 and then we claw back on the margins as we go through the year. And we would expect a similar trajectory to happen in FY25.

Got it. And there has already been a lot of questions around the deal TCV, ACV and the revenue conversion. Additionally, Krithi, you also | 23 spoke about in the last part about the pent -up demand in the retail segment this quarter. You have spoken about pent -up demand to be there in BFS. How do you see that panning out in the context where you have caution in the near term while you are also talking about there is a pent-up demand? What do you think that would be the catalyst that, you would be looking at where the pent-up demand eventually starts translating into revenue and gives you more better visibility on demand and comfort as well?

I think, o nce the customers are comfortable about their demand environment, about their market could be the catalyst. F or instance, see insurance today, they look at their long -term growth , o r manufacturing, we find there is a lot of activity. So those sectors we find there is an investment happening . Capital markets has done reasonably well this quarter, spend happening in the regulatory sector, the risk and compliance. So, it depends on the individual customer and wherever they see that there is a greater confidence of their business, you would see the pent -up demand also being satisfied. Again, it is a factor of what is the return on investment that particular investment will give them. So it's more a factor of the individual business and the client's outlook.

Got it. So, in any of the verticals or pockets have you already started seeing this pent-up demand starting to...

I wouldn't call it pent -up demand, but as I spoke in my original commentary, consumer business for now we started seeing green shoots in pockets. Like even this quarter, we found airlines, transportation, doing very well. So you will see pockets in each of these verticals. I won't say any given vertical, you may not have all sub - verticals return to growth. But there will be some sub verticals that would return to growth. But as I said, this quarter, Insurance grew well, Airlines and Transportation grew well. Manufacturing, by and large, most of the segments in manufacturing grew well. So, this is what we are seeing.

Perfect. That's very helpful. Thanks a lot. | 24

Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

Thank you, operator. We are very pleased with our financial year 2024 performance, growing at 3.4% in constant currency, amidst the macro uncertainty prevailing in the major markets. • Our Q4 revenue grew 3.5% in Rupee terms and 2.2% in constant currency terms. Deal momentum continued to be very strong in Q4, with our order book at $13.2 billion for the quarter, and $42.7 billion for the full year. • Our Q4 operating margins improved to 26%, an expansion of 100 bps sequentially. Our net margin in Q4 stood at 20.3%. • Our LTM attrition in IT services fell further to 12.5%. • We continue to deliver resilient results, winning market share, and balancing growth with profitability. • We have an exceptional leadership team and an extremely dedicated workforce. It has been every TCSers’ hard work during the year which fuelled our collective achievements, and I would like to thank each one of them for their contribution to the company’s success. With that, we wrap up our call for today. Thank you all for joining us.

Thank you, members of the management. On behalf of TCS that concludes this conference call. Thank you for joining us and you may now disconnect your line. _________________________________________________________________________________

This transcript has been edited for readability and does not purport to be a verbatim record of the proceedings.