Tata Consultancy Services : Transcript of the Q4 2023-24 Earnings Conference Call held on April 12, 2024

Tata Consultancy Services Limited

Q4 FY24 Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

Nehal Shah: Our management team will give a brief overview of the company's performance followed by a Q&A session. As you are aware, we don't provide specific revenue or earnings guidance, and 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 emailed out to those who have subscribed on our mailing list.

With that, I would like to turn the call over to Krithi.

K Krithivasan: Thank you, Nehal. Good day everyone.

I am pleased to share that we are wrapping up the last quarter of financial year 2024 with the strongest sequential revenue growth in many quarters, an all-timehigh TCV and an operating margin of 26% for the quarter, highest in the last 12 quarters.

Our FY 2024 revenue grew at 6.8% in rupee terms, 3.4% in constant currency terms and 4.1% in dollar terms. Our operating margin for the year came in at 24.6% and net margin was at 19.3%. Our ability to maximize market opportunities is evident in our record Q4 TCV of $13.2 billion.

We are seeing solid deal momentum across markets resulting in strong double-digit growth in our last 12 months TCV, which is a reflection of our deepening partnership with our clients.

This is going to be NGS last quarter with all of us. I want to thank NGS with whom I have worked closely for more than three decades. I witnessed first-hand the tremendous impact it has made on TCS over a 42-year long career, working side-by-side with him and our entire leadership team on every aspect of our strategy and operations.

NGS played a key role in developing and executing our growth strategy, especially our products and platform business, positioning us very well for continued market leadership. He has played a strategic role in several landmark projects that TCS undertook across geographies,

| 2

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

most recently BSNL being one. We will miss him in his executive capacity very much.

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

Samir Seksaria: Thank you, Krithi. Good day, everyone. In the fourth quarter of FY24, our revenue grew 2.2% year-on-year in constant currency terms at ₹61,237 crores. This translates to a growth of 3.5% in rupee terms. In dollar terms, the revenue was $7.36 million, a YoY growth of 2.3%.

For the full year, our revenue grew 3.4% YoY in constant currency at ₹240,893 crores and that translates to a growth of 6.8% in rupee terms. And in dollar terms, our revenue was at $29.1 billion, a YoY growth of 4.1%.

Our Q4 operating margin stood at 26%, a sequential expansion of 100 basis points. This was in spite of 90 basis points due to higher third- party costs and travel expenses, offset by 190 basis points improvement from reduced subcontractor costs, improved productivity and better utilization.

Our FY24 operating margin was at 24.6%, an expansion of 50 basis points over the prior year. During the year, we had 250 basis points headwind on account of annual wage increases and other interventions and a further 90 basis points from higher third-party expenses and discretionary expenses. We were able to successfully mitigate those by optimizing subcontractor expenses, improving productivity, realization and support from currency.

Net margins in Q4 was 20.3% and for the full year was 19.3%. Our annual EPS grew 10.9% during the year.

Our effective tax rate for the year was 25.8%.

Please note that all the full year FY24 numbers are adjusted for the settlement of legal claim which was accounted for in Q3.

Our accounts receivable was at 67 days DSO in dollar terms, flat sequentially.

| 3

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

Our cash conversion continues to be strong and over 100% of our net profits.

Invested funds at the end of March stood at ₹46,963 crores.

The board has recommended a final dividend of ₹28 per share. The shareholders payout year till date were ₹46,223 crores including the buyback and dividends.

Over to you, Milind.

Milind Lakkad: Thank you, Samir. Our workforce at the end of the fourth quarter was 601,546. Our LTM attrition in IT services kept trending down throughout the year and was at 12.5% at the end of Q4, down 80 bps sequentially and in our comfort range of 11% to 13%.

TCS has been recognized as a "Global Top Employer" by the Top Employers Institute for the ninth consecutive year. The global certification follows a series of localized certifications with TCS being named the top employer in 32 countries and regions.

The company remains the preferred employer and one of the largest job creators in IT services in several major markets for both, freshers and lateral hires. We have commenced fresher hiring from campuses and continue to recalibrate our lateral hiring focusing more on utilizing the capacity that we have built over the prior years.

TCS organic talent development initiatives continue to deliver industry- leading outcomes. Employees logged 51 million learning hours during the year and acquired 5 million competencies. In FY24, several key initiatives were launched to inculcate a strong engineering culture among the company associates, build deeper skills in market-relevant technologies and create an AI-ready workforce.

As we have done consistently every year, we have announced a salary increment for all of our employees with effects on April 1st, similar in quantum to prior years, with top performers receiving double digit hikes.

Over to you NGS for some color on our segments and products and platforms.

| 4

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

N G Subramaniam: Thank you, Milind. Good evening to all of you. As Krithi mentioned, I'll be superannuating from TCS in a few weeks. I thoroughly enjoyed and it's been an absolute honour interacting with all of you over this forum. And I always have looked forward to your reports and all our interactions and the reports have only made me wiser. Thank you so much.

Let me walk you through our segmental performance now. As a reminder, all growth numbers are in year-on-year constant currency terms.

In Q4, growth was led by Regional markets, which grew 26%. Manufacturing vertical grew by 9.7%. Energy, resources and utilities grew by 7.3%. Life sciences and healthcare grew by 1.7%.

Our consumer business declined by 0.3%. However, it returned to positive sequential growth in Q4. Banking, Financial Services and Insurance declined by 3.2%, but saw a return of growth in the insurance business across all markets during the quarter. CMI declined by 5.5% and Technology & Services declined by 5.6%.

Among major markets, the United Kingdom led with 6.2% growth. Continental Europe declined by 2.0%. North America declined 2.3%. In emerging markets, India led with +37.9% growth, Middle East & Africa grew +10.7%, Latin America grew +9.8%, and Asia Pacific grew 5.2%.

Let me move on to our products and platforms. Our industry-leading portfolio of products and platforms saw good traction during the quarter.

• ignio™, our cognitive automation software suite, saw 32 new deal wins and 6 go-lives.
• TCS BaNCS™, our flagship product for financial services, had 8 new wins and 7 go-lives during the quarter.

1. Central Bank, a leading Midwest regional Bank in North America selected TCS BaNCS for its core banking and payments modernization. The solution will come pre-integrated with TCS BaNCS for Payments, an ISO 20022-ready solution, enabling the Bank to offer FedNow® services and RTP1® by The Clearing House.

1 Real time payment

| 5

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

• TCS BaNCS insurance platform continues to see strong growth in Q4 with 2 wins and 2 go-lives during the quarter.

1. Aviva, UK's leading insurance, wealth and retirement provider, expanded on the existing relationship with TCS, for a 15-year deal to transform its life business and enhance customer experience leveraging the TCS BaNCS based platform. As part of this, the end-to- end policy administration and servicing will expand to cover over 5.5 million policies, to be managed by Diligenta, TCS' FCA regulated subsidiary in the UK.

• Quartz blockchain platform had 3 wins this quarter.
• In life sciences, the TCS ADD™ platform had 1 new win and 2 go-lives this quarter.

1. Gen AI is a potential game changer in identifying probable drug candidates, optimizing trials, harnessing vast pools of dissimilar clinical data, capturing and processing efficacy, and safety data. There are many such Gen AI use cases where Pharma companies are investing. TCS ADD™ is actively working on PoCs on Gen AI across multiple innovative use cases, including literature insights, patient insights, safety case processing, and medical writing.

• TCS Optumera™, our AI-powered merchandise optimization suite had 1 new win in Q4.

1. A Dutch retail client has transformed its pricing strategies in their 800 Netherlands stores for the last 7 years with TCS Optumera™, fulfilling their promise of 'providing high quality at low price'. Our product will now drive their pricing initiatives in Belgium that will help them improve usability, provide flexibility in pricing, and help maintain consistent pricing position.

• TCS iON, our platform for digital assessment, exam administration, and learning, had 22 new wins and 80+ go lives.

1. Our assessment platform administered exams for 13.9 million candidates. Our platform now offers Gen AI-powered content creation and text translation in Indian regional languages, improved security in question paper creation with restrictions in editing, overwriting media/images, and creating duplicate subject codes and names, audio-based marking; with noise suppression and dual recording capabilities.

• TCS TwinX, our digital twin solution, had 2 wins and 2 go-lives.
• MasterCraft and Jile won 29 new clients in Q4.

| 6

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

Client Metrics

Let me now go over our client metrics. As you are aware, our customer-centric business strategy enhances our ability to continually expand and deepen our client relationships. These metrics provide a measure of our progress in the journey and a validation of the strategy.

1. • In Q4, we added 2 more clients year-on-year in the $100 million+ band bringing the total to 62.
   • 6 more clients in the $50 million+ band bringing the total to 139.
   • 10 more clients in the $20 million+ band bringing the total to 301.
   • 26 more clients in the $10 million+ band bringing the total to 487.
   • 28 more clients in the $5 million+ band bringing the total to 693.
   • And 53 more clients in the $1 million+ band bringing the total to 1,294.
     I will now request Krithi to speak on the demand drivers during the call.
2. Krithivasan: Thank you, NGS. As we review the last year's performance, TCS has once again proved its adaptability and relevance to customers. By working closely with them and utilizing our contextual knowledge, we proactively identified solutions to their industry-specific challenges, leading to significant deal wins and market share gains for us. Our growth remained resilient amidst macro uncertainties and geopolitical volatilities.

During Q4, customers continued to reprioritize spend in projects, where return on investment was high and immediate. Several key engagement themes, which are priorities for enterprises, include operating model transformation, vendor consolidation, cloud transformation, AI enablement, i.e. Cloud and Data foundation for AI, customer and employee experience enhancement, business process optimization, sustainability, and early-stageAI-infused transformational engagements.

We continue to see pressure on customers' discretionary spend. At the same time, transformation also remains a key ask, and customers are expecting the same to be funded through savings from operations.

For the BFSI vertical, 2023 was a year of resilience, balancing the challenges due to inflation and complex geopolitics against the initial benefits from rising interest rates. In 2024, while evolving regulation, transformative technologies like Gen AI, cybersecurity, embedded

| 7

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

finance, and green transition have become the constant driving change, businesses are going to be focused on innovation driving their plans and building new business models for the future that will unravel tremendous growth potential. We continue to see pent-up demand in BFS, which will be a growth driver in the medium to long term, but in the near term, clients continue to conserve cash and focus on business- critical projects with immediate RoI.

Challenges such as economic slowdown, soft recession, high interest rates, geopolitical tensions continue to put pressure on the consumer business group vertical throughout FY 2024. However, we saw some green shoots and moderate growth during the quarter, which represented the highest sequential growth in the last four quarters. We expect accelerated spend in the medium term in areas such as improving customer experience, loyalty and reach, hyper- personalization, scaling Retail Media Network revenues, security services, cloud transformation, cloud ERP modernization, leveraging AI / Gen AI to enhance business value.

I am now going to talk in detail about some of the major themes driving demand for our services.

We are witnessing a growing trend in deals enhancing Customer and Employee Experiencefor enterprises and are actively pursuing such deals and taking proactive measures across industries.

• An American retailer of office supplies partnered with TCS to reimagine and digitally transform their loyalty program. The omni-channel platform is enabling the launch of new features like real-time reward point redemption, special savings events and customized offers and is key to improve customer retention and satisfaction. TCS leveraged its contextual knowledge to shape the cloud-based solution and deliver a highly scalable, flexible, reliable and secure solution.
• TCS entered into a strategic partnership with a multinational energy management company to bring grid flexibility management and energy transition for global utilities and their end customer base. TCS will integrate Cloud Energy™ into customers' energy management platform and together go to market for commercial, industrial and residential end customers of global utility companies. The joint partnership will target a potential saving of around $1 billion in energy bills for over 10 target utilities and their end industrial and

| 8

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

commercial customers. It will generate a business value of $40 - $60 million for the customer over the next 10 years.

The global supply chain is rapidly evolving and striving to stay abreast of the ever-changing environment and advancing technological innovations. Below are a few examples of how TCS is helping businesses in modernizing processes and platforms to enhance efficiency, adaptability to market shifts and boost their bottom line.

• An Norwegian postal service provider partnered with TCS to modernize its critical logistics management platform that was constraining its growth ambitions. TCS leverages deep contextual knowledge to implement a new digital core, a command center, improved workforce, real-time data visibility and predictive analytics and insights. This has helped the client reduce operating costs by 40%, enable timely interventions, improved user experience and reliability during peak periods. With an empowered workforce and faster time to market, the platform has fortified the company's position in the market.
• A distributor and retailer of beauty products was facing several challenges across the supply chain and specifically significant inefficiencies in purchase order management. TCS' assessment found that over 50% of POs contained errors, and investigation was cumbersome. A control tower with automated exception handling and shipment notifications and streamlined vendor approvals, was implemented. This reduced manual intervention in PO processing by up to ~90%, significantly mitigating the risk of human error, improving operations and vendor relations..
  ESG has gained traction amongst organizations and is becoming a crucial investment. The need for emissions reporting and regulatory compliance towards net zero commitment is driving new business of data collection and deriving insights. Sustainable financing has emerged as a top priority and is driving the transition towards a carbon neutral economy.
  Our clients actively seek our expertise to develop innovative technology-driven solutions that leverage IoT, AI and advanced analytics, aiming to reduce energy and resource consumption, monitor and measure greenhouse gas emissions throughout the supply chain, minimizing carbon footprint, reducing waste, promoting recycling and reporting their sustainability initiatives.

| 9

Tata Consultancy Services Earnings Conference Call

April 12, 2024, 19:00 hrs IST (09:30 hrs US ET)

• A Nordics major partnered with TCS to enable ESG credit risk assessment with varied degree of automation and complexity aligned to the sustainable financing approach for corporate customers. With an efficient and harmonized approach, this program improved ECB regulatory compliance covering four out of the six regulatory requirements. Our solution has flexibility to accommodate future regulatory requirements and supervisory expectations and enables a risk-based approach to ESG assessment and monitoring.
  AI is beginning to permeate our lives incrementally through everything from the tech powering of our smartphones to autonomous driving features on cars, to the cool applications retailers use to surprise and delight consumers. As a result, its progress has been almost imperceptible.
  Moving on to Generative AI, excitement over this technology is substantial. Gen AI is steadfastly at the forefront of the technology trends and customers are on the lookout for POCs on the efficiencies that can be enabled by Gen AI in application development, application maintenance and deployment automation.
  A full realization of Gen AI's benefits will take time and enterprises and society still have considerable challenges to address. These include managing the risks inherent in Gen AI, reskilling and upskilling the workforce and reimagining core business processes. Customers are looking at scaling out POCs and pilots by implementing necessary guardrails. TCS has been making all the relevant investments required to participate in this opportunity.
• Last year in August, we launched our AI.Cloud business unit, bringing together the power of cloud data and AI - including Gen AI, into a dedicated group that builds on our strategic hyperscaler partnerships and deep relationships with other major AI players.
• We launched AI.Cloud Academy, which provides our associates with a powerful platform to train, get certified, share knowledge, accelerate deployment and play in our unique AI experience zone. We have one of the largest pools of employees trained on AI and Gen AI competencies.
  The type and size of opportunities are evolving, with a noticeable shift towards larger, more strategic projects that encompass cloud and AI technologies. As Assist use cases become Augment, it will drive

| 10