TCS Q2FY22 Conference Call Highlights

3 min read
  • BFSI services alone crossed the $2 billion mark in this quarter, making it one of the largest providers of IT consulting services and solutions in the BFSI industry globally.
  •  Supply side shortages and increased employee churn have led to higher back-filling expenses and greater use of subcontractors across the industry.
  • Currency was not favorable this quarter. While the US dollar appreciated, all other currencies depreciated against the Rupee, creating a margin headwind. Despite these headwinds, through disciplined execution, company was able to expand the operating margin by 10 basis points to 25.6%.
  • Drivers for Growth over the last few quarters: Three broad trends for TCS

1) increased outsourcing

2) investments in building a digital core

3) Growth and transformation agendas of the clients.

  • TCV in Q2 was $7.6 billion– heterogeneous mix of large, mid-sized and small deals. while the strength of the demand environment is now no longer in doubt
  • and we are very confident of sustainability in the medium term
  • Short term volatility to cost basis coming from the attrition levels should be expected to play out. But these are not structural elements, but more transitionary elements as the industry supply chain settles down.
  • It is triggered by the fact that many players in the industry did not invest early on into creating that supply chain. That will rationalize over the next few quarters.
  • The operating leverage is visible in the margin expansion. The extent of it might not be as much given their increased dependence on subcontractors
  • Partially caused by restrictions on travel and mobility of talent.
  • Frequency of mega deals on a slightly longer-term perspective- 10+ years, are lot more today than the past, at an industry level.
  • In cloud business scenario, typically Horizon 1 deals are multi-year deals, more consumption driven. They’re simpler deals whereas Horizon 2 deals are more complex, project-based deals.
  • Europe has had a soft quarter, but not structurally a very different one.
  • A very large program that they had, has come to an end and that has had some impact.
  • Also, much more offshoring is taking place out of Europe to tackle the whole talent scarcity by significantly increasing leverage closer to global standards. That provides volume, but has a deflationary impact on the reported revenue. There is also slowdown in some industry sectors. This is a transitionary phase because new customer addition and new deal signings in Europe are actually higher and the coming quarters will give more color to it.
  • Workload migration to the cloud just on a pure migration perspective, is in the range of 20% to 30%, while it might vary by industry-to-industry, signifying nascent stage of  of adoption of infrastructure-as-a-service.
  • New business models gaining traction:
  • 1) The leverage of automation in a deeply embedded manner, which they call the Machine First Delivery Model (MFDM). Company is investing hugely into this space. That will be the biggest delivery model change for the company.
  • 2) Agile which significantly changes the efficiency of consumption, is another model.
  • 3) Product-centric operating model which combines agile at its core, and integrates technology a lot more closely with business transformation.

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