Tata Consultancy Services Limited (TCS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the TCS Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali, Global Head of Investor Relations at TCS. Thank you, and over to you, sir.

Thank you, operator. Good evening and welcome, everyone. Thank you for joining us today to discuss TCS' financial results for the second quarter of fiscal year 2024 that ended September 30, 2023. 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. K Krithivasan, Chief Executive Officer and Managing Director.

Hi. Good day, everyone.

Mr. N G Subramaniam, Chief Operating Officer and Executive Director.

Good evening, everyone.

Mr. Samir Seksaria, Chief Financial Officer.

Hello, everyone.

And Mr. Milind Lakkad, Chief HR Officer.

Hi, everyone.

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 e-mailed out to those who have subscribed for our -- on our mailing list. With that, I would like to turn the call over to Krithi.

Thank you, Kedar. Good morning, good afternoon and good evening to all of you. Our Q2 performance shows continued strength and demand for our services, particularly around cloud and cost optimization, resulting in strong deal wins, a robust order book and a good pipeline. This was true in prior quarters as well. In each of the past 3 quarters, our order book has exceeded $10 billion TCV compared to the average of $7 billion to $8 billion range in the 2021 and 2022. The newly won deals are converting into revenue as expected, but these revenue inflows are getting neutralized by a reduction in the existing revenue base as the transformation projects get completed or RTB projects get optimized and in some cases getting downsized. This has led to muted revenue growth. In Q2, our revenue grew 7.9% in rupee terms, 2.8% in constant currency terms and 4.8% in dollar terms. Our operating margin was 24.3%. Our net margin was at 19%. I'll now invite Samir, Milind and NGS to go over different aspects of our performance during the quarter. I'll step in later to provide more color on the demand trends we are seeing. Over to you, Samir.

Thank you, Krithi. In the second quarter of FY '24, our revenue was INR 59,692 crores, which is a year-on-year growth of 7.9%. In dollar terms, the revenue was USD 7.21 billion, a Y-o-Y growth of 4.8%. In constant currency terms, our revenue growth in Q2 was 2.8%. Let me now go over our financial performance. Our operating margin is at 24.3%, which is a 110 basis points expansion sequentially. We got 100 basis points benefit from disciplined execution, which resulted in improved utilization and productivity and further optimization of subcontractor expenses. Additionally, we gained 35 basis points from driving efficiencies in discretionary expenses, which I had referred to last quarter as gaining critical mass. On the other hand, we continue to invest in infrastructure. Net income in Q2 was 19%. Our EPS grew 8.7% on a year-on-year basis. Effective tax rate stayed unchanged at 25.8%. And our accounts receivable was flat sequentially at 65 days sales outstanding in dollar terms. Net cash from operations was at INR 118.23 billion, which is a cash conversion of 104.2% net income. Free cash flow was at INR 113.57 billion and invested funds as of at the end of 30th September stood at INR 596.77 billion. The Board has recommended an interim dividend of INR 9 per share. Further, the Board has recommended a buyback to the tune of INR 17,000 crores through the tender route at INR 4,150 per share. Over to you, Milind.

Thank you, Samir. Our workforce at the end of the first quarter was 608,985. Our strategy of proactively hiring bright freshers and investing and training them with the right skills is paying off now. With that talent coming on stream with -- and with reduced attrition, we were able to recalibrate our gross additions, keeping it below the departures during the quarter, driving the productivity and enhancing project outcomes. Our workforce continues to be very diverse with 152 nationalities and with women making 35% of the base. We continue to invest in organic talent development. Year-to-date, TCS have logged 26.4 million learning hours and acquired 2.6 million competencies, including over 350,000 high-demand competencies. We have over 100,000 gen AI-ready employees today, and we are now investing in deepening their expertise further on this exciting new technology. LTM attrition in IT Services was at 14.9%, down 2.9% sequentially, close to our historical range of 11% to 14%. Over to you, NGS, for some color on our segments and products and platforms.

Thank you, Milind. Before I get into the segmental performance, I wanted to highlight some changes in how we report segmental performance in our fact sheet from this quarter. Historically, we reported revenues from North America, Latin America, U.K., Europe and Australia under the industry verticals, separating out the emerging market revenues, products and platforms and a few other small businesses, or those with atypical revenue profiles, in a separate line item called Regional Markets & Others. In Q2, we made 3 changes. First, we reclassified revenues from Asia Pacific, excluding Japan, and Middle East and Africa under the respective industry verticals. Second, with our Energy, Resources and Utilities verticals gaining critical mass, we have extracted out -- extracted the first 2 of these from Regional Markets & Others, and we'll now start reporting it as a stand-alone industry vertical. With these changes, revenue contribution from regional markets and others is down from over 17% to around 11%. We have provided comparatives for the last 4 quarters in our fact sheet. The third change is the renaming of our retail cluster, consisting of retail, CPG, travel, transportation, hospitality verticals, as the Consumer Business Group, or CBG. Let me walk you through our segmental performance now. As a reminder, all growth numbers are in year-on-year constant currency terms. Growth was led by the newly called out Energy, Resources and Utilities vertical, which grew 14.8%. Manufacturing grew by 5.8% and Life Sciences and Healthcare grew by 5%. Our Consumer business grew by 1%, Banking Financial Services and Insurance grew by minus 0.5%, Communications and Media by minus 2.1%, Technology & Services by minus 2.2%. By geographic market, we see maximum caution in North America and Continental Europe, which grew 0.1% and 1.3%, respectively. We continue to have good momentum in the United Kingdom, where the market grew by 10.7%. In emerging markets, Middle East and Africa grew 15.9%; Latin America by 13.1%; Asia Pacific, 4.1%; and India by 3.9%. Let me move on to products and platforms. Our industry-leading portfolio of products and platforms had a very strong quarter. All of the products and platforms are now offered on a SaaS basis only, and we have a healthy ARR as a product portfolio. ignio, our cognitive automation software suite, saw 28 new deal wins and 18 go-lives. TCS BaNCS, our flagship product for financial services, had 2 new wins and 11 go-lives during the quarter. Among the go-lives this quarter is JPMorgan Security Services, where our real-time event multi-market platform is helping the bank provide clients with a standardized and streamlined process in each of the 100 markets they operate in, enhancing the customer experience around corporate actions. TCS BaNCS insurance platform continued to see strong momentum in Q2 with 4 new wins and 2 go-lives during the quarter. For a global financial institution based out of South Africa, TCS has completed a massive migration from a heritage platform to TCS BaNCS for insurance. This is the largest and most complex migration of its kind in the history of the market, entailing 4 million policies. With this migration, the client's entire retail protection business is on TCS BaNCS. Post migration, the policies are now available to both advisors and customers through digital channels. Quartz blockchain platform had 2 go-lives this quarter. In Life Sciences, TCS ADD our advanced drug development platform had 2 new wins and 1 go-live this year. TCS ADD Safety went live for a top 10 U.K.-based pharma with its latest version that uses advanced AI algorithms to process adverse event cases, the first of its kind in the industry. With this, TCS ADD Safety has successfully automated more than 1 million cases, a landmark by a new technology company using AI in pharmacovigilance, delivering industry-leading efficiency and accuracy metrics. TCS HOBS, our suite of products for communication service providers, had one new win and 2 go-lives during the quarter. TCS iON had 44 new wins. Our platform administered assessments of 16.2 million candidates, 150% higher year-on-year. MasterCraft and Jile won 34 new clients in Q2. In terms of client metrics, our business model is built on continually delivering tangible value to our clients, which results in them rewarding us with repeat business, consuming more of our services and solutions over time. The deep and enduring client relationships we build give us tremendous contextual knowledge of how their business runs at a very granular level, the individual processes and how the underlying systems support them. The various interrelationships among systems and databases and infrastructure there beneath, all these are extremely useful as we build out our gen AI capabilities and position our gen AI services for our large clients. This contextual knowledge and our track record of consistency and predictability in our deliverables is our competitive edge. On the outside, the success of our customer-centric strategy is just validated through client metrics we report, which show a steady increase in the number of clients in every revenue bucket. In Q2, we added 2 more clients year-on-year in the $100 million-plus band, bringing the total to 61. 13 more clients in the $50 million-plus band, bringing the total to 137. 9 more clients in the $20 million, bringing the total to 292. 28 more clients in the $10 million-plus band to total to 483. 38 more clients in the $5 million-plus band, bringing the total to 688 and 52 more clients in the $1 million-plus band, bringing the total to 1,232. I will now request Krithi to speak on the demand drivers during the quarter.

Thank you, NGS. Given client caution over the macro overhang, we continue to see a reprioritization of spending from discretionary areas to cost optimization. This is driving a significant deal momentum towards large outsourcing deals, vendor consolidation and operating model transformation. We had a very strong order book in Q2 with TCV of $11.2 billion, our second highest TCV ever, and a book-to-bill ratio of 1.6. BFSI TCV continued to be very robust at $3 billion as also Consumer business order book at $1.4 billion. The TCV of deals signed in North America stood at $4.5 billion. The order book in Q2 had 2 mega deals, BSNL and JLR, each roughly $1 billion in TCV, versus one mega deal in Q1. We had a detailed press note on the JLR deal, so I won't spend time on that. But the BSNL win is very special and showcases our unique capabilities. So let me give you a high-level overview. BSNL selected TCS to roll out a modern 4G and 5G mobile comminution infrastructure across India covering 100,000 telecom sites. The project involves supply, planning, design, installation and commissioning and optimization of this mobile network, satisfying a detailed set of requirements conforming to 3GPP standards. Our solution caters to needs such as trusted source of components and equipment, advanced RF planning, intelligence on the edge to support cognitive network operation, software-driven radios and reconfigurations and so on. This is part of the Government of India's efforts to build indigenous telecom technology and local manufacturing of telecom gear. TCS and its partners have integrated the EPC Core, RAN and NMS and have started the rollout of the network, which is expected to be completed in stages for the next 18 months. I'll move on to operating model transformation. Overall, deal momentum in operating model transformation continues to be very strong. A big differentiator for us is our TCS Cognix, which significantly accelerates the operations transformation. It embeds AI, machine learning and increasingly gen AI to enable superior business outcomes with increased velocity, improved user experience, reduced turnaround time and superior decision-making powered by rich dashboards and predictive analytics. In Q2, we won 6 large operating model transformation deals with TCS Cognix at their core. The other interesting trend is that we also saw several large deals featuring first-time outsourcers. For instance, we are selected by the British Council, the U.K.'s International Organization for educational opportunities and cultural relations, to transform its professional services function, that includes finance, procurement, human resources and digital technology. TCS will leverage its deep domain expertise and proprietary platforms to help develop more innovative and user-friendly services. The partnership will also enable the British Council to focus on improving the quality and efficiency of services, ultimately leading to an enhanced customer experience. Last quarter, I highlighted how clients have taken to TCS integrated operations model, wherein we take ownership of the entire slice of operations from back end to front end, along with the underlying application and data estates and the IT infrastructure layer. We call this integrated offering Business as a Service. Our AI-powered business command center provides end-to-end visibility and holistic control across that entire stack, resulting in more resilient operations and better alignment with business KPIs. Our proactive leverage of next-gen technologies to redefine processes reduces the need for human intervention, increases process velocity and deliver superior process outcomes. From a competitive standpoint, our holistic approach, deep contextual knowledge and unmatched speed -- speed to value from TCS Cognix is providing a deep moat that is powering strong deal wins and market share gains. In Q2, we won a large deal from a leading media company that is currently transforming to focus on new lines of business which will drive future growth. They are partnering us to improve customer retention by providing superior experience while reducing engagement. In keeping with our business-as-a-service value proposition, TCS will take full ownership of the operating stack with an integrated solution across customer interactions, which includes voice, chat, e-mail and social, supporting the IT applications and infrastructure. Incidentally, this is also a vendor consolidation across multiple countries and vendors and multiple business lines and good illustration of how our IP and innovation differentiates us. Our solution uses TwinX, our digital twin solution to model customer engagement and reduce churn, ignio to make underlying infrastructure self-healing and gen AI for directing voice to chat, voice to text and for customer sentiment analysis for emotionally responsive chats and e-mails. The level of innovation and next-gen capabilities embedded in our solution and the business alignment of our value proposition were the key differentiators in this large win. Speaking of gen AI, it continues to dominate our conversations with IT and business leaders in every market. There is tremendous interest in harnessing its power to drive productivity and enhance customer experience. We are co-innovating with clients across multiple industry verticals, executing proof of concept and pilots and helping them draw the gen AI strategy in advance. Last quarter, I shared examples of client engagement, exploring the use of gen AI for contract administration and customer service automation. Many of the projects we executed this quarter are conceptually similar, focused on task automation around knowledge abstraction and content creation. We are now seeing a progressive increase in the complexity and sophistication of gen AI use cases, from simple knowledge discovery use cases and chatbots to complex ones such as augmentation solutions for financial advisers and wealth management strategists, automated underwriting for insurance policies, AI-led molecule discovery, as well as engineering design space exploration for automotive and gas turbine. Slightly more mature clients are taking a broader enterprise-wide approach to gen AI deployment. For a European airline, TCS is helping reimagine its core business functions, leveraging gen AI and analytics to create a future-ready enterprise. The TCS team co-presented with the CTO to the Board and is now engaged in helping draw up a holistic gen AI strategy. A leading U.S.-based specialty retailer is partnering with TCS for multiple gen AI-led interventions to enrich customers as well as employee interactions, including customer request handling, virtual assistant for shopping, knowledge management designs for creatives, marketing and sales collaterals and code enhancements. Some other organizations are using generative AI to reimagine entire activity. A good example is a client in the construction industry for whom we are using gen AI to prepare the preliminary architectural plan for a new building project. The AI generated designs are then validated and detailed out by the human team. We see similar opportunities in product innovation, where Generative AI can visualize multiple new form factors for products in the manufacturing industry or perhaps new types of packaging in the CPG industry, significantly enriching and accelerating the design process. While these are examples of stand-alone deployment of Generative AI, we are also beginning to win larger transformational projects that involve multiple technologies, where Generative AI is infused to address specific parts of the value chain. We believe that as the technology matures, we will see more instances of activity level automation and eventually end-to-end value chain transformation using Generative AI in combination with other technologies. That is when the mainstream adoption of this technology will really take off and the full potential of this technology will be realized. In the meantime, we continue to invest in building capabilities on this exciting new technology. Last quarter, I had mentioned our plans to train a large number of employees on Generative AI. I'm happy to inform -- we inform you that we now have 100,000-strong Generative AI-ready cohort. And our focus now is on further deepening their expertise. Going beyond skilling and certifications, we are launching an AI Playground that will be an alternative work environment where TCSers can safely and securely access various Generative AI platforms and a curated set of start-up technologies from our COIN, or co-innovation network partner. This will give them the hands-on experience of experimenting with large language models, trying out new ideas and building out solutions to real life business problems without exposing data in our network. Over time, we plan to hold hackathons in the playground, throwing challenges for TCS best and brightest to solve, using these opportunities to identify the most talented engineers within the organization and nurture their talent. Our various product and platform teams are working towards leveraging Generative AI to create differentiating capabilities in their respective products. ignio, our flagship AI Ops product, has been in the forefront of leveraging AI to drive autonomous operations. The latest enhancement to its knowledge accelerator module leverages large language models to extract information from various sources, create a comprehensive enterprise context and gain a deeper understanding of each organization's unique environment, challenges and objectives. This contextual approach allows ignio to optimize, automation through situation and technology-specific actions, delivering tailored and efficient solutions that fuel enterprise agility, resiliency and innovation. We have also launched AI Assist, an intelligent conversation engine designed to offer plain language explanation of diagnoses and resolutions, as well as insights for continuous improvements generated by ignio. AI Assist uses gen AI's ability to understand language, capture context and learn from feedback. As a result, it presents analytics insights in a much simpler and intuitive way, guiding users through intricate processes, helping them shift through large volumes of analytics and make data-driven decisions with confidence and ease. In TCS OmniStore, we are adding gen AI plug-ins to augment product discovery, create personalized buying guides for customers, store management operations, automation of marketing campaigns and promotions. We are also introducing Generative AI to automate our product help desk and support operations. TCS Optumera, which already uses AI and ML to finesse product pricing, will now see the infusion of Generative AI in the pricing process workbench for merchants. We see plenty of opportunities for Generative AI infusion in the drug development value chain. The TCS ADD product, the ADD product team is working on Generative AI-enabled solutions for narrative writing, pharmacovigilance, health authority submissions and intelligence search. While cost optimization remains a dominant theme overall, clients continue to invest in projects with a clear ROI and ones that drive business growth. Here are some examples. A leading U.K. bank partnered with TCS to help renters living in shared accommodation with an app that helps with bill splitting and building their credit profile. TCS designed and built the app which scans through monthly payment of customers, pulls rental records and automatically shares it with credit bureau, which helps in improving renters' credit profiles. Using open banking capabilities, the app is accessible to anyone with an eligible U.K. bank account and enables the bank to cross-sell upsell its products and services to even non-customers. TCS is now working with the bank to enhance the marketing strategy to increase adoption of the app and drive growth. The product recently won the Best Product Innovation and Jury's Choice Award at the 2023 Financial Services Forum Awards. A leading Nordic insurer is pursuing a completely new business model with a subsidiary in the mobility space. The new venture is building a mobility ecosystem that offers a wide range of services like tire replacement and used car servicing, using the TCS-built digital platform and mobile app as a direct distribution channel to acquire new customers -- that is the car owners -- to whom insurance can then be cross-sold. The app is expected to drive up new insurance sales and create new upsell opportunities with 10% to 15% increase in customer realization. The app has been very well received and is expected to cross 100,000 downloads by December. In the retail domain, retailers are looking to leverage technology to meet evolving customer expectations and offer tailored experiences, reach more audiences and market and to enable better decision-making on merchandise using and analyzing data. We are helping a global fashion retailer in Europe to reimagine the visual merchandise planning and commercial rehang process. The collaborative intelligent digital solution enables the visual merchandisers to plan and optimize store layers and presentation of locally relevant assortment based on integrated insight of sales and stock information and performance targets. The planning solution has enhanced the productivity of visual merchandisers in sample picking processes by 50%. The solution enables new capabilities for the stores, including digital interactive maps, article search and details integrated with the stock data in stores and warehouse. Store data is now available on a daily basis compared to the weekly data transfer. Similarly, we are partnering with Kingfisher plc group in transforming their customer and associate experience across banners in U.K. and Europe using TCS OmniStore to realize an AI-powered unified and composable commerce platform. The platform's capabilities around flexible fulfillment, self-checkout, clienteling, and dynamic promotions is helping Kingfisher plc drive greater associate productivity, increased revenue, faster checkout and broader sales opportunities. Lastly, divestitures and spinoff present Enterprises with a great opportunity to start with a clean slate and build a new future-ready technology estate from scratch to support a differentiated business position. In Q2, we won a very large transformational engagement, coincidentally in the retail vertical. We have been engaged by a large U.K. retailer to help build out a separate IT estate following its divestiture and digitally transform its business. TCS will build a new greenfield digital store -- digital core by implementing cloud-based ERP platforms to streamline core business functions, including supply chain, warehouse management and e-commerce processes. We will enhance employee experience with new digital solutions, enabling efficient and resilient business operations powered by our machine-first delivery model. We will also implement a new organization-wide IT operating model that consolidates and simplifies their vendor landscape. On the front end, TCS will help them grow their e-commerce business starting with their grocery and apparel sites. We will leverage our experience-first commerce implementation services across functions such as shop, fulfill and care to drive improvement in customer satisfaction and business growth. Lastly, cloud migrations continue apace. We can now open the lines for questions.

[Operator Instructions] We have our first question from the line of Ravi Menon from Macquarie.

Just wanted to ask you about the BSNL deal. It seems like the IP that you created is something that lets you compete with the likes of Nokia and Ericsson. Is this understanding correct? Or most of the IP rests with your partners like Tejas.

Ravi, this is NGS here. TCS is a system integrator in this opportunity. The EPC core software, the IP lies with our partner C-DOT. The Radio Access Network is developed and designed by Tejas Networks, the IP rests with Tejas Networks. There are a few other things that are required for integrating the software. For all the network optimization, network planning, cognitive network operations, some of those are traditionally done by the SI, we have built those platforms. The IP of those components are with TCS.

And then we have historically been used to as investors, perhaps unfairly comparing yourself with Accenture outsourcing, that division is what we thought that TCS most compares to. But now with your focus on growth and transformation, should we think about a larger part of TCS's revenues being exposed to segment closer to Accenture's Consulting?

No, I don't want to compare it like that. I think we are focused on multiple type of engagements and customer optimization, growth and transformation is a broad categorization. I think consulting is typically included as a part of every growth and transformation opportunity. We have to see. There are certain verticals and certain customer segments where we are really have built a lot of expertise. In those engagements I think what you alluded to may be true.

One last follow-up on the BSNL deal. The newspaper reports were quoting the deal at INR 15,000 crores. So the number that you're putting out $1 billion seems to be just about half of that. So is this Phase 1 of the program?

I think BSNL what we have contracted so far is this, but there are things like a follow-up on some of this, like, for example, annual maintenance, et cetera, it will come as we progress this. Overall deal price is something larger because there are multiple things which are there. But currently, what we have contracted is the supply installation, commissioning and design and optimization of the network. That is the one that we talked about, a little over $1 billion.

We have a next question from the line of Nitin Padmanabhan from Investec.

Just wanted some color on the demand overall. So if you see the last 3 quarters, including this one, our book-to-bill has been consistently above 1.4. So from a revenue accretion perspective, it's been soft. So just wanted your thoughts on how one should think about this? The second is you did mention that reprioritization and cutting discretionary has been sort of driving revenue headwind. Do you get the feel that this is sort of at its peak and is -- are you seeing signs of this abating in terms of the overall impact on the existing book of business, right? So those are 2 questions.

Nitin, so like we explained last quarter also, we explained the situation. On one hand, our customers continue to trust on building new technology capabilities. And so based on that, we continue to win new deals. But at the same time, given the overall market uncertainty, they are trying to conserve cash and optimize their current spend, particularly on the long projects that have been running for long. So -- and sometimes such projects end also and we may not have sufficient replacement of revenue stream, so which is causing the revenue growth to moderate. But we -- like you said, the reprioritization is also a factor into that, like a large project may get reprioritized into smaller chunks or maybe slowed down. All these factors are at play. But how long this will last is not a question that we can answer at this time.

Sure. And just one last thing is, how do you see furloughs? Are there any conversations on furloughs? Do you think -- are you seeing any signs to suggest is going to be normal or...

It will be -- our planning is to be like normal like every other year. We don't see any difference.

We have a next question from the line of Kumar Rakesh from BNP Paribas.

Krithi, my question was around the revenue side. If you see over the last 3 quarters, our revenue in absolute terms have largely been steady, while at the same time, our deal win has accelerated, now crossing consistently $10 billion. So that is fair to expect that the incremental new part of the revenue, within that about $7.2 billion of revenue, the new part would be more sizable now. That implies that the underlying impact on the existing ramp down of the projects or the reprioritization which you're talking about sequentially is increasing. Is that inference correct?

That's mathematically what you're saying is correct. Like there is an increasing reprioritization of long-running projects. And also what's also happening, Kumar, there's a few places where we have a large program that comes to an end. And that doesn't give -- when I say that comes to an end, like for instance, for one also in Germany, we're doing a large integration. Once the integration of the 2 banks come to an end, like that was a large revenue stream and that stops. And such situations also cause the revenue stream not getting replaced by something else. So both are possible. I won't say like -- yes, there is an increased focus on cost optimization, which is causing our revenues not to increase in line with the increase in TCS.

Got it. My second question was for Samir. So in the second quarter, after the wage hike, revenue -- sorry, your margin improvement have been ahead of what historically, we have done at least in the recent past. And you did talk about that cutting down on the discretionary expense is now picking up pace and scale. Should we expect that our revenue -- our margin recovery trajectory should be ahead of what we have seen, say, last year or in the past years?

I think 2 points. First, we are happy with what we were able to deliver in Q2. A 110 basis point sequential improvement given the current macro uncertainties impacting top line is fairly decent. Our focus will be to use the existing levers itself, such as in terms of productivity utilization or even looking at further optimizing subcontractor expenses, and try to continue the journey. And if growth helps us, it will only help us accelerate this journey.

We have our next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC.

NGS, sir, just one clarification on your characterization of the BSNL deal. When you say you're looking to complete the project in 12 to 18 months, is it the entire $1 billion TCV will be converted into revenue over the next 12 to 18 months? Or is there any sizable part of the $1 billion TCV which is also structured as network maintenance revenue over the longer horizon?

When I said the 12 to 18 months, I think the rollout of the network, the 4G and 5G network for 100,000 network sites is what we will install, we will commission. And afterwards, we hope to win the maintenance and network operations effort, which will be for optimizing the network and continuously modernizing it, right? There are -- in the payment terms with BSNL, there are certain clear milestones, whatever this $1 billion the we have put in place, I think a part of will definitely mature within these 12 to 18 months. And some part of it will be subject to warranty and acceptance by BSNL and things like that. But overall, I think it's safe to assume that a good part of this $1 billion is something that we would like to bill and collect from BSNL within this, let's say, 12 to 18 months' time.

Understood, sir. So any maintenance will be probably subsequent phases, any maintenance revenue will be subsequent phases?

Absolutely. It could be subsequently or it could be even for example, at the end of the 6th month if we have completed one zone of consisting of a few circles, then we might go and contract the annual maintenance, et cetera, specifically for that circle.

Understood. And Krithi, we know it's difficult to second guess the macro, and sorry for persisting on this aspect, but given you have seen these clients over, let's say, multiple decades, multiple macro cycles, any specific macro events, outcomes, time lines or variables these clients are looking forward to now, post which they may sort of bite the bullet and move forward in terms of spending and ramping up the deals?

Sudheer, probably they are looking for some very definitive signs of economic recovery, okay? Currently, the CY '23 outlook and CY -- and some of the reports are even giving CY '24 also, is uncertain. So they are looking at -- once they have a definitive signs of recovery, I think the confidence will come into the market. Till then, this will continue.

And lastly, to Milind, so the head count reduction we have seen is purely because of the fact that we have not replaced normal attrition, normal course of attrition during the quarter. Is that a fair assessment, sir?

Yes, that is fair assessment.

We have our next question from the line of Sandeep Shah from Equirus Securities.