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Executives

Kedar Shirali - Head, Global Investor Relations

N. Chandrasekaran - Chief Executive Officer and Managing Director

Rajesh Gopinathan - Chief Financial Officer

Phiroz Vandrevala - Director

Ajoy Mukherjee - Head, Global Human Resources

Analysts

Mitali Ghosh - Bank of America

Ankur Rudra - CLSA

Nitin Mohta - Macquarie

Diviya Nagarajan - UBS

Sandeep Shah - CIMB

Ashwin Mehta - Nomura

Ravi Menon - Centrum Broking

Shashi Bhushan - Prabhudas Lilladher

Ashish Chopra - Motilal Oswal Securities

Ankit Pande - Quant Capital

Moshe Katri - Cowen

Srivathsan Ramachandran - Spark Capital

Keith Bachman - Bank of Montreal

Jeff Rossetti - Janney Montgomery Scott

Vibhor Singhal - Phillipcapital

Tata Consultancy Services Limited (TCS.BO) Q1 2015 Results Earnings Conference Call July 17, 2014 9:30 AM ET

Operator

Ladies and gentlemen, good day. And welcome to TCS Earnings Conference Call. As a reminder, all participants' lines will be in a listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions)

Please note that this conference is being recorded. I now hand the conference over to Mr. Kedar Shirali. Thank you and over to you, sir.

Kedar Shirali

Thank you, Umba. Good evening and welcome everyone. Thank you for joining us today to discuss TCS’ financial results for the First Quarter Fiscal Year 2015 that ended June 30, 2014. This call is being webcast through our website and an archive including the transcript will be available on the site for the duration of the quarter. The financial statement, 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. N. Chandrasekaran, Chief Executive Officer and Managing Director.

N. Chandrasekaran

Hello, everyone.

Kedar Shirali

Mr. Rajesh Gopinathan, Chief Financial Officer.

Rajesh Gopinathan

Hi. Good evening, everyone.

Kedar Shirali

Mr. Phiroz A. Vandrevala, Director.

Phiroz Vandrevala

Hi, everyone.

Kedar Shirali

Mr. Ajoy Mukherjee, Head of Global Human Resources.

Ajoy Mukherjee

Hi, everyone.

Kedar Shirali

Chandra and Rajesh will give a brief overview of the company’s performance followed by a Q&A session. As you are aware, we don’t provide 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 fact sheet, quarterly fact sheet that is available on our website and which has been emailed out to those on our mailing list.

With that, I would like to hand the call over to Chandra.

N. Chandrasekaran

Thank you, Kedar. First of all, it’s nice to speak with all of you for our Q1 earnings conference call. We have had a fantastic quarter. We have started financial year on a very strong footing. Let me explain the overall performance.

We have delivered a volume growth of 5.7% and the revenues have come in strongly on the CC basis 4.8%, 5.5% on dollar basis and 2.6% on the rupee basis. Our incremental revenues for the quarter were $191 million, which is the second highest incremental revenue we have had and the highest in the four quarters. So the revenue performance has been pretty satisfactory and it has come across the Board.

If you look at the market performance, North America has done exceedingly well. In dollar terms, it’s pretty much on par with the company performance at 5.6% and rupee terms about 2.6%. So North America has done exceedingly well.

Other important markets like U.K. is pretty much close to the company performance and Europe also has come pretty close, and India has delivered a good growth at 5%. So the revenue from market point of view is pretty broad-based, only Middle East had a muted quarter.

From an industry point of view, all industries have done very well. Non-BFS segment have all done upwards of 1.5% to [around 5.5% to 9.5%] (ph) in dollar terms and constant currency terms pretty much at or above the company average.

And particularly I would like to mention, retail and distribution has done exceptionally well, manufacturing has done very well, high tech has done very well, life sciences, travel, energy, media and entertainment have all done very well, media and entertainment is almost 10% on the rupee terms. So it’s done very, very well.

On the BFS segment, BFS particularly has done exceedingly well and I would say, BFS is pretty much on close to the company average. But our insurance has had tough quarter and that is split on the overall growth in the BFS as a segment, but there is nothing that I have to highlight as a cautionary statement, which pursued to a particular client or anything like that.

I expect the pick-up to happen right away in terms of insurance, though it may not outperform or perform under company average, but definitely there will be growth. So that’s the color on the industry segment side.

In terms of the margins, again, we have had very quarter and we have been able to deliver the margins at the company band of 26% to 28%. The EBIT margin at 26.3% and you should look at it in IFRS terms in view of three different segments.

One, significant headwind due to the wage hike, as you all know we gave a very significant wage increase across the Board and average being at 10%, and so that has like huge impact. Second headwind is a currency, of course, because of the strengthening of the rupee. And third, of course, is the one-time depreciation charge that we had retained due to the amendment of depreciation policies for the new company billings, and I am not giving you the breakup, which Rajesh will do in his comments.

In terms of the customer metrics, it’s really a satisfying customer metrics. If you see the addition of customers across revenue bands is pretty good, whether it is a 50 million customers, 20 million customers, 10 million customer, 5 million, 1 million, everywhere, we have got a very healthy addition of customers, which again validates our strategy of being relevant to the customers and deploying our full services solutions, including the digital opportunity.

Then in terms of the deal, the deals have come across the Board. We don’t give out the volume of number. But if you look at the deals, we won seven deals and which have come from six different segments and four of them are from the U.S. geography and a couple of them are from the U.K., Europe geography, and one from the Asia-Pacific.

And in the industry segment also there come multiple industries, two from retail and remaining are all from multiple different industries. And order book is pretty strong, our pipeline is pretty strong, and I continue to believe that digital will play a significant role in the transformation and the reimagination of companies and their business processes and business models, and TCS is extremely well-positioned to participate in their opportunity and help clients transform their businesses.

On the people side, again, it’s been a strong quarter, with addition 15,870 associates, taking the total number of associates to 305,431 associates and the net addition has also been strong like almost close to 5,000 people.

And utilization is all time high, excluding trainees, we have achieved 85.3% and including trainees it’s 79.8% and I have set time and again that scale becomes an important element in the where we look at utilization. So I would not pay attention to the absolute percentages. I would continue to look at the opportunity to leverage the scale that we have in terms of the overall size and the profile of people in the different areas and industries and practices that we have.

And employee retention continues to be a benchmark and overall addition has gone up from 11.3% to 12%, but that is very healthy in the Q1, because we do expect certain extra attrition due to the people joining higher studies and so on so forth in Q1. So it’s pretty much the trend.

So in summary, I feel very good about where we are and we see a good momentum and we hope to do well.

And with those comments, I would pass it on to Rajesh.

Rajesh Gopinathan

Thank you, Chandra. I will just go through the headline numbers again for record. Our first quarter revenue was rupees 221.11 billion, which represents the growth of 2.6% Q-on-Q and 22.9% year-on-year. Revenue in dollar terms was $3.694 billion, a sequential growth of 5.5% year-on-year and the year-on-year growth of 16.7%.

In constant currency terms our revenue growth is 4.75% Q-on-Q. This is made up of volume growth of 5.66% and onsite shift of 0.18%, and the constant currency realization impact of negative 1.09%.

In terms of operating margin, as Chandra said, we had three key headwinds. The 10% wage hike that we announced with effect April 1st had a margin impact of 219 basis points.

Secondly, the rupee appreciation resulted in a margin impact of 73 basis points negative. Lastly, as mentioned, in our business update last month, we have made changes to useful life of assets in our depreciation policy to rationalize it and to make in line with recommendations of the company side. This has resulted in a one-time charge to the extent of 79 basis points under IFRS.

The combined impact it’s a negative 371 basis points and certain -- to get it to a certain extent for the extent of 87 basis points to improve utilization and other operational efficiencies, giving us total operating margin of 26.3 percentages.

On the net income, net income margin declined by 171 basis points Q-on-Q to 22.9%. Our effective tax rate for this quarter is 23.1%. Our account receivable has increased by a day to 83% in terms of BFS.

Moving on to cash flow, the first quarter of the fiscal year typically shows slightly negative cash flow coming off from lower growth into a high growth quarter. However, we are glad to report that this quarter our operating cash flow to revenue is at a healthy 21.5%, which is above our target range. Invested funds as of June 30th is rupees 259.4.

With that, we open the line for questions.

Question-and-Answer Session

Operator

Thank you very much, sir. (Operator Instructions) Our first question is from Mitali Ghosh of Bank of America. Please go ahead.

Mitali Ghosh - Bank of America

Thanks and congratulations on the solid quarter. Did the quarter pan out as you expected going into it, because your utilizations of course like you mentioned is at an all time high and I’m wondering whether that was the target or perhaps demand surprised positively during the quarter?

N. Chandrasekaran

Thank you, Mitali. Before I answer the question I want to add one more comment. We also declare two dividends. I think one an interim dividend of 5 rupees for this quarter per share and I also a special dividend to mark the 10th anniversary of our IPO, incidentally it is for the quarter since we went public and we declare the dividend of 40 rupees per share. So that’s something that I wanted to share with you.

To answer your question, Mitali, I think the quarter has been pretty much as per what we thought it would be, no major surprises and you know there are always a little bit here, little bit there, but nothing to report. And the way to look at utilization is I keep mentioning this that is a difference scale at which we are operating, we have over 340 professionals and we have footprint across 100 countries now. So, it’s a huge benefit that we see in leveraging this scale.

So I don’t pay particular attention to specific target on utilization, but we keep hiring the right talent on the one side and we keep leveraging the skill that we have. So you should not read too much into it and suddenly if the utilization comes from 85.3% to 84% something, even if we grow well, I don’t wanted to get surprised and the that’s a factor of where the good is coming from, where we are able to deploy people and some times the growth maybe somewhere else, people availability maybe somewhere else. So there are different equations that are replaced. But, net-net I think we have a scale which we think we should leverage very effectively as of for that time.

Mitali Ghosh - Bank of America

Sure. And how would you characterize a demand environment compared to maybe the start of the quarter in terms of the deal flow and sale cycle ramp ups, any trends by geography or vertical what’s calling out or service?

N. Chandrasekaran

Yeah. I’ll differently give you color on this. Fundamentally, I think, demographic is good and we feel pretty positive and no negative surprises to report. And as I said, the client spends are going towards three major streams, which I have repeatedly mentioned, the simplification -- simplification of the application portfolio or the ERP footprint or infrastructure or global services, it varies from industry to industry and client to client, but this is a huge play, and we see a lots of opportunities and we continue to win those trends and execute very well on those opportunities.

Second area is digital, I really think that digital is a big opportunity across industries and retail is showing a lot of momentum in digital. The growth is extremely strong if you see -- if you see the retail this quarter. And similarly now, the all consumer efficiency industry, whether it’s healthcare, whether it is banking or whether it is travel, across the Board lots of on digital technologies and the core infrastructure will play role in both BBDC and very big companies.

Third area of growth is the governance, be it risk management or compliance, et cetera. We see opportunities especially in differential services and life sciences sector in the third dimension.

These continued to play and I do hope that it will continue to play in the coming quarter and my own personal take based what I see the data points, as well as the qualitative commentary, digital will only continued to throw out more opportunities. And it’s important for the company to continue to invest, have the capability, have the frameworks, processes, intellectual property and continue to be investing in multiple dimensions in order to be relevant to customers and sometimes lead, because it is new for everybody. So come with solutions that will be relevant for the customers and will give us great growth opportunities. So I am overall very positive about the environment.

Mitali Ghosh - Bank of America

Thanks. And just last one from me, I mean, you did a very good job on margins as well. So while I take your point on utilizations. What could be the other key levers in terms of costs and also mix or realization?

N. Chandrasekaran

Yeah. We can get into a lot of details but fundamentally what you have to look at is, we have given you the range of 26% to 28%. And as long as the headwinds all don’t get us at the same time and rupees, it is controversial one of those quarters where we had multiple headwinds, I mean, if you just take the currency and the depreciation along we are talking almost 162 basis points, just these two alone coming and hitting.

So, apart from the range like which is, I think, Rajesh, commented 219 basis points. So it’s a pretty significant headwind. So, as long as we don’t have that kind of scenario and the rupee doesn’t act in a very happy way, I think we’re pretty comfortable on the levers definitely of multiple, the service mix is important, the geography mix is pretty important, express versus space engagements are pretty important, remedy is pretty important and we will move work also it is important.

I think there are many things and also the way we investing also in a very calibrated way, there are things that we have a hot comments where we definitely want to invest in a particular sequence and there are times that we have a soft investments. We can kind calibrate that investment as we see the opportunities.

So, I think, one is the operational and the execution focus on the capability we have. Second one is the scale and size of the operations that we have. We think that if we are smart in the way that we manage our portfolio I think we can do a good job.

Mitali Ghosh - Bank of America

Okay. Thanks very much and wish you the best.

Operator

Thank you. Our next question is from Ankur Rudra of CLSA. Please go ahead.

Ankur Rudra - CLSA

Hi. Thanks and congrats on a great quarter. Chandra, can you add a bit more color in terms of TCS’ present in digital, clearly you’ve led the industry here? Even in terms of people trained already or any sense of revenues projects and proportion of penetration in your existing large customers?

N. Chandrasekaran

I think all the three dimensions. One is definitely the capability of people is very important but we also created a lot of framework and intellectual property, whether it is in Big Data. We’ve got [R1] (ph) framework on solution in fact. And then we have [R1] (ph) solutions and foundation software whether it is in terms of omni-channel or anything to do with the front-end applications.

There are solutions which are agnostic to platforms. So we are able to build solutions for multiple platforms whether it is I-voice or Android or Windows platform. So, I mean, there are multiple dimensions in which we are playing both on the skills and capability side but also on the solutions, which are technical in nature and which is called a foundation software and also domain in nature. For example, solutions for retail, solution for store work in the retail, solutions for insurance.

There are some pretty intelligent set of softwares that we have developed for insurance in the front-end, which we have deployed in some of the top brands and we just need to see how to successfully take those to multiple these are the -- definitely these two are very important dimensions.

Ankur Rudra - CLSA

Just to take that a bit forward, I mean, clearly your comment which are just becoming very important for you for continue differentiation and medium-term growth, but historically any comments in terms of size of the business has been it’s sub 10%, maybe 5%, 6%, 7%? So anyway we can track this on an ongoing basis how successfully you are?

N. Chandrasekaran

So, I think it is very a fair question, but we need to think through what to (indiscernible) to us. I think this is coming immediately, some of you have also spoken to me, I think, it’s, you guys have to tell us how to track it and I see the need. And I just don’t want to just report one line saying digital revenues have something like that. So it’s something from homework that we also need to do internally. And I’ll take your comment and question on both and then let me see what we can do.

Ankur Rudra - CLSA

Okay. Thank you very much. Best of luck.

Operator

Thank you. Our next question is from Nitin Mohta of Macquarie. Please go ahead.

Nitin Mohta - Macquarie

Oh! Thanks and congrats on a great quarter. The question was on deals and pipeline. The ISD data that came out earlier this week indicated a very solid first half, but caution for tough Q3. So just wanted to see how do you see this when you look at the deals so far in the year and the funnel ahead?

N. Chandrasekaran

Well, I think, most of the -- I’ll also take inputs from all the industry research reports, but fundamentally we plays a lot of emphasis on what we see in our universe and what we hear and what’s the commentary that I get from clients, my management team gets from the clients and what does our win rate and the deal pipeline for our strategy is far more important, because the overall spin will be good, spin will be good that is required in order for us to know, if you are not focusing somewhere that for us too performance is more important, what’s happening there, that’s what we focus.

And but in general, I would say that, I don’t see a pattern change from the normal year that the first half will get in the second half and that’s what I expect unless otherwise something suddenly happens till the end of Q2, we getting a more referring, because I don’t think so, I think it will be Q1, Q2, we’ll represent in the Q3, Q4.

Nitin Mohta - Macquarie

That’s helpful. Thanks.

Operator

Thank you. Our next question is from Diviya Nagarajan of UBS Securities. Please go ahead.

Diviya Nagarajan - UBS

Hi. Congrats on a strong quarter. A couple of questions on your insurance, vertical what you said was a bit soft. How has it shaped us in the quarter versus softness expected when you started the year result or something that’s delivered in the quarter to bear?

N. Chandrasekaran

We have an idea at the beginning of the quarter but we couldn’t quantify. I think it got crystallized as we went in the quarter.

Diviya Nagarajan - UBS Securities

Right. So overall, the SSI therefore would be little softer than the company average for the full year given the insurance to be soft?

N. Chandrasekaran

Overall we ourselves should be okay with the company average but if you take the business size, I think it should be a little soft, I think. Because even if June catches up, I think it adds not performed in this quarter. So that does build up end numbers here.

Diviya Nagarajan - UBS Securities

Okay. On your margins, I think kind of answered it a bit but given that we know it’s about 26.5 kind of margins and utilization at an all-time high. Ex-currency, what are the margin leave us to expect the kind of comeback to your 27% range that you’ve seen in the last couple of years. What are the key bandwidth?

N. Chandrasekaran

Yeah, this had multiple drivers and we have, I mentioned all of that in earlier question but fundamentally speaking, I think, first of all the depreciation charge is one-off charge that’s something that you should note which is not going to repeat that 79 basis points. Then the rate increase which happened this quarter is pretty significant that’s not the kind of rate increase that you’ve seen. There is no second rate increase. That’s planned, I can tell you that. So -- and there are business mix and associate mix with so many other things and the investments also what we do, then calibrate it, et cetera. So I’m not only concerned.

Diviya Nagarajan - UBS Securities

Then lastly on the pricing question, you did mention that pricing is stable but realization seemed to have come down lesser percentage in the half this quarter. Could you kind of throw color on what drove back and how do you expect pricing trends to pan out for the rest of the year? Thank you.

Rajesh Gopinathan

Diviya, pricing per se, I know it maybe a boring statement that I keep making quarter after quarter but pricing per se, I don’t see a change. It’s pretty much operating in a very narrow range and pretty -- it's not going either way. There is no huge increases. There is no huge decrease. And, you know, in some places, you get a marginal increase and in some places, you don’t get a marginal increase.

So pricing per se is going to be like that for some time until the digital revenue is become very substantial, part of the income revenues. It is not becoming very substantial that you probably see uptick in pricing. But in terms of the realization that is dropping, it’s actually a fact of many things and what obviously is that we go from slow growth to high growth quarter and this thing exchanges from geography perspective or a service line changes, those things to back and it’s a combination of both things. It is not anything else.

Diviya Nagarajan - UBS Securities

Thanks and all the best for the year.

Operator

Thank you. Our next question is from Sandeep Shah of CIMB. Please go ahead.

Sandeep Shah - CIMB

Yeah. Congrats again on good execution. Just in terms of digital, have we moved from a condition from project spending to a large transformational spending. What I meant to say is it any multimillion dollar deals are coming?

N. Chandrasekaran

Yeah, I think digital is multimillion dollars but digital has done its major transformation initiative with multiple projects. And we are participating in those. Definitely that is I’m teaching but you know, it’s not going to be a one digital lead of $112 million, it always $2 million but several million dollars, $0.5 million, multimillion projects make up that whole initiative because the whole initiative requires channel side work, data side work, analytic side work. So we are participating into its opportunities.

Sandeep Shah - CIMB

Okay. But Chandra here the larger size deals of upwards of $30 million, $50 million to maybe architectural change are possible, may not be now but going forward?

N. Chandrasekaran

Definitely. Definitely because many of these big data analytics project that go ahead and huge amount of change in data structure. So those kind of deals will come and those kind of deals are happening but I think it will get better and better

Sandeep Shah - CIMB

Okay. But any vertical who have started taking those initiatives and…

Rajesh Gopinathan

We just see verticals in the retail consumer products, healthcare, media, even in some situations to make it, service providers and banking. These are the verticals leading the way.

Sandeep Shah - CIMB

Okay. And just on the Japan, if I just look at the FY ‘14 annual report, it looks like on the dollar terms we have done closure to around $135 million worth of revenue. And last time we were saying that the overall venture will give us a $600 million worth of revenue on our line to line consolidation. So as in the media comment, you have said that the incremental revenue may be less than what we said last time. So can you give us more update on this?

Rajesh Gopinathan

See that Japan JV is operational only from 1st of July. Okay. We have concluded the transaction at the end of June. So whatever the FY ‘14 revenue you see for TCS is the TCS Japan revenue before the JV. So the JV is operational only from this quarter. So you will see the revenues coming in Q2.

The comment I made was that there has been a substantial change in the currency between the yen and dollar. So you will have to quantify what in fact it’s going to be. The incremental revenues coming from the JV may not be what you said before, it may be smaller than that. But that is not a cause of concern and it’s just a currency thing, it’s one own aspect.

The second comment I want to make is that the deal has gone as planned. If you close the year operation on 1st of July, the new management team is in place and we have integrated the management teams. I don’t know how it will happened and the people are already working together and our team is engaged with the customers, TCS customers, the Mitsubishi customers that we got onboard. So all those things are happening.

So we are off to a very good start. And we definitely want to do very well in Japan. And I think we’ve made the right deal, played strategic deal that we needed to do. So I’m pretty positive and I’m going to be spending time in shaping this market.

Sandeep Shah - CIMB

Okay. And last question in terms of enterprise solution has shown a good pick up and it has been doing well for us. So any particular trends or kind of demand which has been coming there?

N. Chandrasekaran

There are couple of types of engagements. So we are getting a lot of transformation engagements whether it is in procurement or supply chain or financial transformation. Those standup initiatives are definitely happening. Also on the CRM initiative, the salesforce.com and those kind of initiatives are also happening. So a lot of transformation engagements both on the front end and on the back end. Some times it is conservation, some it is transformation in tenure architecture, those kind of engagements we’re seeing.

Sandeep Shah - CIMB

Thanks and all the best.

N. Chandrasekaran

Thank you.

Operator

Thank you. Our next question is from Ashwin Mehta of Nomura. Please go ahead.

Ashwin Mehta - Nomura

Yeah. Hi. Congrats on good set of numbers. Chandra, in terms of U.S., we’ve seen both the TCS as well as Infosys, an improvement in terms of demand. So would you say the decision making are the macro improvements in U.S. are actually starting to reflect in terms of demand and is there some pattern being seen in terms of discretionary project startups beginning to accelerate there?

N. Chandrasekaran

I think we have said that -- yes, it is doing well and we did say it in the last quarter also. And both in terms of the simplification opportunity and on the digital opportunity. I think that’s the biggest market and that’s the market which moves fast and there are lots of technologies. So we would say very positive commentary on U.S.

Ashwin Mehta - Nomura

But would we still maintain our view that from a momentum perspective, Europe will still grow faster than U.S.?

N. Chandrasekaran

I think it can because the percentage are in array but market size, I think, if you really see TCS, we are more than $7.5 billion size in U.S. and in North America. So on that base, whatever we’re growing is pretty incredible whereas Europe is a smaller bit and we will continue to do similar in Europe. So I think, I wouldn’t see a much of differentiation between these markets. I would say U.S., U.K., Europe, all three are doing well but just to be kind if we do 0.5% less in the U.S. because the site is working.

Ashwin Mehta - Nomura

Yeah. And just a last question. So we’ve indicated and then maintained that 1H will be better than 2H but historically our second quarter has always been stronger than our first quarter. So our revenue trends are likely to be similar to historical?

N. Chandrasekaran

I think I maintained that the first half will be better than the second half, that’s what I maintained.

Ashwin Mehta - Nomura

Okay. Fair enough. Thanks.

Operator

Thank you. Our next question is from Ravi Menon of Centrum Broking. Please go ahead.

Ravi Menon - Centrum Broking

Thank you. Great set of numbers. If you could provide the attrition excluding BPO would be great?

Rajesh Gopinathan

Yeah. Attrition overall is 12% and attrition of IT is 11%.

Ravi Menon - Centrum Broking

11%. All right. And secondly do you see cloud and infrastructure deals getting bundled, that’s in a better position to do projects around cloud migrations, things like that where you already provide infrastructure?

N. Chandrasekaran

There are facilities in the market but we generally unless or otherwise it leverages our IT or something of that nature, we are not into those deals.

Ravi Menon - Centrum Broking

And one more question if I may, just following through on what Ashwin had asked about Continental Europe. Do you see at some point Europe, Continental Europe becoming a bigger market than the U.K. for you?

N. Chandrasekaran

I think both markets are good. So it can become, I think if we scale in all the more to find different geographies we are operating in Europe, Nordics, Benelux, France, Germany and the rest of Europe, Switzerland and other countries together. All of them have huge potential but each of them have got their own. So potentially, it can but it will take time.

Ravi Menon - Centrum Broking

All right. Thank you. Appreciate it.

Operator

Thank you. Our next question is from Shashi Bhushan of Prabhudas Lilladher. Please go ahead.

Shashi Bhushan - Prabhudas Lilladher

Thanks for taking my question and congrats for another great execution. Sir, what resulted in sharp turnaround in India business? Is there any one-time project completed during the quarter?

N. Chandrasekaran

No, there is no sharp turnaround, but actually 5% looks very strong, but actually if you’ve seen the absolute numbers, it’s not a -- on this basis, it’s not a huge number first of all. Second is that, it’s not any fair, like that if you see the equipment revenues on quarter-on-quarter, it’s a decline. So it’s a purely services based and we’ve got order opportunities, we’ve got -- we took advantage of that. But still I would wait because there is no significant deal wins in India to talk about. So it will take some more time for me to get confident and come and tell you that India is (indiscernible).

Shashi Bhushan - Prabhudas Lilladher

Sir, two-tenth, we’re hearing about in the industry is, on the deal sizes I think a smaller and other is vendor consolidation over the last I think many quarters. Do you think that these trends can go hand-in-hand or are there especially services wherein we’re seeing some vendor consolidation more than others and some services which are more prone to fragmented use?

N. Chandrasekaran

I would not particularly agree with these statements, because these are things that always there. There is always somebody is consolidating, somebody is not consolidating. So I think there’s always some customers who are doing smaller deals, some customers who are doing larger deals. These are always a mix bag. So I wouldn’t say that there is a pattern and I can confidently still say there are the who can’t say -- I wouldn’t say that. There are always situations. In some situations you have.

Shashi Bhushan - Prabhudas Lilladher

Okay. Thanks. That’s all for me.

Operator

Thank you. Our next question is from Ashish Chopra of Motilal Oswal Securities. Please go ahead.

Ashish Chopra - Motilal Oswal Securities

Yeah. Good evening. Thanks for the opportunity. My first question actually was around digital. So we do keep reading a lot about this digital opportunity opening up the new areas of the client budget, for example the CMOs budget, including a lot more components of technology. So my question to you, sir, was, are you seeing deals within digital that you would have cracked already, which would substantiate the increase in the addressable opportunity for companies like TCS because of these newer avenues of spends openings up to IT services vendor?

N. Chandrasekaran

Digital opportunities are pretty significant, I keep saying that. And without that, we -- if we don’t capture all those opportunities, there is no way we can deliver $191 million of incremental revenue. So, well, we do see these opportunities. We are capturing those opportunities. But, as I think, it was Ankur Rudra I think sometime earlier I think how do we track this and build a modular until something that we have got to wait and see.

Fundamentally, digital plays a very important role and budget comes from CIO, budget comes from COO, head of retail or head of stores or Chief Marketing Officer, I think all these things happen, and you know I’m not going to say that all budgets are shifting to CMO and/or something like that. There are opportunities at CMO in the certain context. There are opportunities in retail business, head of stores and on banking business somebody else, and there are some companies who are also appointing chief digital officers.

So I think multiple stakeholders are there and it’s very important for us to have that talent, the skill sets who can engage with these stakeholders in the context of what you’re thinking. And so we look at it like that and sometimes we have people on the ground, sometimes we realize and we supplement the skill sets. So I think those are my comments.

Ashish Chopra - Motilal Oswal Securities

Right, sir. So actually my question was exactly that, whether these set of stakeholders actually broadens or increases with the opportunity of digital coming in. So yeah, but I think that’s answered. And sir, secondly, I want to know in the retail vertical, the last time you spoke about there had been some slowness in the ramp of digital projects because of the clients also carrying on with their own learning curve, whether in this quarter retail grew very well and you also spoke digital contributing towards that. So do you say that the ramps in these digital in nature projects would have picked up versus the last quarter?

N. Chandrasekaran

So see, yes, the ramp up is happening, but you know every organization withdrawn to leverage retail. This digital has to propel itself. And they are on their journey. In some organizations, they are ahead of the curve. In some organizations, they are behind the curve. In some organizations, they are building their teams so that is happening as we speak. And I said it last quarter and I would continue to repeat it this quarter because it’s not a one quarter phenomena. But definitely the ramp ups on digital is higher this quarter than last quarter, yes.

Ashish Chopra - Motilal Oswal Securities

Okay. That’s helpful. And just lastly, a bookkeeping from my side. So the depreciation of this quarter, so should we assume that as a normalized rate or would that be any one-off element also that we should take note of?

Rajesh Gopinathan

As far as depreciation in this quarter, it has a charge of 173 crores. This is the one-off charge. The rest of it is normalized to 1, which will continue. 173 will not repeat.

Ashish Chopra - Motilal Oswal Securities

Okay. That’s it from my side. Thanks.

Operator

Thank you. Our next question is from Ankit Pande of Quant Capital. Please go ahead.

Ankit Pande - Quant Capital

Hi, good evening. My question broadly centers around the retail vertical. I would just like to put it differently in that we probably saw a lot of correlation between say the impact of declining volume of trades in the U.S. and some impact on the revenue of tech companies in the past year. The Christmas was soft and maybe January, February was soft and that translated into lower revenue growth here in tech companies. So what do you see when you look for FY ’15 and you look at the outlook? Have you factored that in that there maybe some softness in the retail vertical at the lag end of the year, because you still grew -- you managed to grew about 20% in the last year? So do you still see it being a stronger despite maybe a little bit of a weak finish towards the end of the year?

N. Chandrasekaran

I think based on what we see today, the commentary that I would say is that the environment is good. We have a strong pipeline and projects are ramping. And we see the normal pattern in terms of H1 being stronger than H2. So that will be sequence that we expect to play out. And based on that, we have given this commentary of having FY ’15 better year than FY ’14. And if any change in trend happens at any point in time should be enough to come back.

Ankit Pande - Quant Capital

All right. And Rajesh, if I may, the improvement in operating cash flow seems to have emanated from and some improvement in unbilled and accounts receivable. So do you see that -- is there any one-off impact or do you see the quality improvement say about 5% year-over-year that is in the system now?

Rajesh Gopinathan

There is no one-off in that. In fact, our reported DSO has gone up by one day. And if you take our AR plus UTR, plus UTR together also, it has actually gone up. The important trend is that when you look at it on a year-on-year basis, actually it has improved. So sequential quarter Q4 to Q2 it has deteriorated, but Q1 to Q1 there is an improvement. And that pretty much I think that is something that we should be able to maintain, but this number is a fairly volatile number, it has got a lot of seasonality to it, both on the collection side as well as on the expenditure side. So factor for that, but no one-off in this quarter if at all slight increase on the DSO side. But overall we think we should be able to maintain within our target range, which is 17% to 19% of revenue.

Ankit Pande - Quant Capital

Thanks. Appreciate that. All the best and thanks for that.

Operator

Thank you. Our next question is from Moshe Katri of Cowen. Please go ahead.

Moshe Katri - Cowen

Thanks. Great quarter. Chandra, your utilization rates are operating at very high levels, is this something that concerns you at this point given the fact that ultimately it could impact attrition, and how should we think about utilization rates down the road? Thanks.

N. Chandrasekaran

I think I already said that it does not concern me. I don’t look at utilization as a mere percentage. I’d like to think of the scale we have. With 3500 professionals, it’s a strong contra-addition. We are recruiting heavily. I think this quarter 15,000 gross and Ajoy and his team had been pretty busy. And given that we like to leverage the scale we have. So I would not too much -- I would not get concerned about utilization level at all.

Moshe Katri - Cowen

So should we not -- I mean what would be a good metric to look at in terms of how the -- how people are getting deployed if not utilization rates, is there a better metric for us to focus on because I mean you’re saying you’re not worried about that?

N. Chandrasekaran

You have to see the combination of three or four things, right. You definitely look at our volumes that give an indication of the demand that we are able to capture in the market. And you should definitely look at our attrition that gives you an indication of how much we are able to retain the people. The third, you need to really look at our headcount addition. These three are very important.

And then based on that, you see the utilization, but things that you can’t really factor in are a bunch of complex parameters because that the demand is getting fulfilled in which market, attrition is happening in which market. So you got to balance out all that. Those are things that then we could be start discussing those things and we get into so many details. If the demand is in the U.S. and there is no attrition in the U.S., that’s one for you. The demand is in U.S., attrition is in Latin America, that’s a different story.

So I think these are things that we take into account when we look at the utilization number. So I am only giving you the comfort that the scale has an important role to play and markets in which the demand happens, the markets in which the attrition happens that some other factor that we take into account. So our recruitment takes into account these factors, the things that are required. So I want to really give you an equation. But broadly I think if you look at these three parameters, that should -- if you’re managing those very tightly, then you should feel comfortable about high utilization. If we don’t manage these parameters, we’re not getting the volume and we’re not managing the attrition, we’re not hiring right, those three. Then the utilization going up sometimes is good, sometimes utilization going up is not good. And you know that, right? And that’s the only way I would recommend from the information.

Moshe Katri - Cowen

Okay. And just a follow-on on -- again, you provided some details on the insurance vertical, maybe I’ve missed it. Was there a client-specific kind of issue or challenge that we’ve seen that needed growth this quarter? Is there anything that you can provide in addition to that, because I don’t think this is something that people expected to see?

N. Chandrasekaran

Yeah. I think there is no big one-off to report and I think the insurance vertical will grow from here. And also it will grow, but it will not be at the company average immediately, so it will be a little bit muted, but we expect it to deliver growth numbers this quarter in D Group and that affected the overall BFSI portfolio number and that won’t be the case going forward.

Moshe Katri - Cowen

Fair enough. Thanks for the clarity.

Operator

Thank you. Our next question is from Srivathsan Ramachandran of Spark Capital. Please go ahead.

Srivathsan Ramachandran - Spark Capital

I just wanted to get an update on the non-linear efforts. So just because we’ve seen revenue growth far exceed headcount to growth if you take it on a multiyear business. So just wanted to understand how the various initiatives are and then would most of it be I think kind of at fixed price or outcome based pricing or would asset-based solutions start to contribute material portion of non-linear revenues?

N. Chandrasekaran

Fair question, but all I would say is that still the contribution is not material.

Srivathsan Ramachandran - Spark Capital

Okay. Sure. And in terms of the BPO piece, there has been a lot of talk on vertical specific BPO’s platform, BPO. So I just wanted to understand, are clients really accepting some of these, or is it just more things and no more two, three year perspective that this will play a segment from a revenue contribution point of view?

N. Chandrasekaran

I think the good thing is that all our platforms are getting accepted, whether it’s solar platform, whether it’s a new platform, procurement platform or anyone of those or some of the industry-specific platforms. We are winning deals and we have clients, who are active and we have reference things and so on. But I’m still not happy with the scale, so that is why I am not able to commit. So it is a multiyear cycle to scale these things. Once this start scaling and because of this start, the three, four, five platforms together start contributing 1%, 2%, 3% of the incremental growth of the company and then we start (indiscernible).

Srivathsan Ramachandran - Spark Capital

Sure. Thank you.

Operator

Thank you. Our next question is from Keith Bachman of Bank of Montreal. Please go ahead.

Keith Bachman - Bank of Montreal

Hi. Thank you for taking the question. Could you talk a little bit about the BPO market? Your results in BPO were little slower than the rest of the company average. And more broadly, we hosted the call this week and with some of the consultants who are suggesting that the BPO market is slower than the IT side. And I want to get your perspective on how you’re thinking about the BPO market currently and over the next couple quarters?

N. Chandrasekaran

I think the BPO market last quarter did exceedingly well and almost, I think it is one of the highest growing services of last quarter and this quarter it is muted. But fundamentally, we see BPO market in the areas we play are very small, especially transactions in the industry focused, whether it is retail or whether it is licenses or some of those platforms or F&D and those kinds of services. I think we’re trending to win lots of opportunities. That’s what I would say.

Keith Bachman - Bank of Montreal

So sorry, just to clarify that, as you look out over the next couple of quarters, do you think BPO will grow whatever the company average is? Do you think it will grow inline with that, better or worst than the company average for your organization?

N. Chandrasekaran

Monthly close to the company average.

Keith Bachman - Bank of Montreal

Okay. Then my follow-up question is, I wonder there has been some comments about pricing and I want to try to ask it differently. As you look at your opportunities, particularly in Europe, are you gaining share there in the European market, as partially driven by your pricing is lower than some of the North American or European domestics? Are you going in there and winning share and is price part of how you’re winning share against some of the incumbents?

N. Chandrasekaran

I don’t think the price is the reason that we’re winning share. I think wherever winning share is because of the transformative capability. The solution that we’re able to bring plays the most significant part. Otherwise, we won’t be able to maintain margins. For us you, it’s so important to be able to maintain margins and that gives us the industry power. So most of them -- they are gaining market share, definitely and because they all have deals, which we did not participate five years ago, 10 years ago, which today they are participating and we’re able to bring solutions which are conservative in nature.

Keith Bachman - Bank of Montreal

Okay. All right.

N. Chandrasekaran

And also a multiple service in Europe across market, we rank number one in customer satisfaction, whether it is U.K. or Continental Europe multiple service, so I think that’s also is helping us to win business.

Keith Bachman - Bank of Montreal

Okay. But in the base areas, if you go on a more global basis, say in some of your traditional application development maintenance. In the morning call, your previous call you said that you’re not seeing trends, but are you seeing any changes in price in the recent quarters, pricing trends in what we consider to be more commodity areas. And what I’m trying to distinguish, are you waiting to uncover whether current pricing pressure is sustained? Just really trying to understand recent pricing trends in some of the more commodity areas like application development maintenance. Are you seeing any incremental changes there?

N. Chandrasekaran

We give you commentary on realization and overall pricing. It’s a fairly complex mix of service line that cause geographies and of course vertical industries. We wouldn’t comment about a service line or a market. I don’t think that kind of commentary that we give.

Keith Bachman - Bank of Montreal

Okay. All right. That’s it for me. Thank you.

Operator

Thank you.

N. Chandrasekaran

We have not done any earlier call.

Operator

Our next question is from Joe Foresi of Janney Montgomery Scott. Please go ahead.

Jeff Rossetti - Janney Montgomery Scott

Hi. Good morning. This is Jeff Rossetti asking for Joe. Thanks for taking my question and congratulations on the quarter. Just wanted to get some more color on the large deals that you discussed, can you describe whether or not they were with existing customers or versus new customers and describe maybe how your pipeline sets up, are is it more representative of existing deals versus new potential clients?

N. Chandrasekaran

All of these are new customers.

Jeff Rossetti - Janney Montgomery Scott

Okay.

N. Chandrasekaran

The major larger deals we are on start from new customers. Any large deals which we do with the existing customers, we don’t announce.

Jeff Rossetti - Janney Montgomery Scott

Okay. Thank you. And any change to your headcount hiring target for the year?

Rajesh Gopinathan

No. I think we started with the 55,000 as the total number that we would be doing this year. We have done 15,000 in the first quarter and we are sticking to that target at this point in time.

Jeff Rossetti - Janney Montgomery Scott

Okay. Great. Thank you.

Operator

Thank you. Our next question is from Vibhor Singhal of Phillipcapital. Please go ahead.

Vibhor Singhal - Phillipcapital

Good evening, sir. Thanks for the opportunity for the question. My question is could you give up the number of the TCV of the deals that were announced in this quarter?

N. Chandrasekaran

No. We don’t share that information.

Vibhor Singhal - Phillipcapital

Fair enough. So my next question would be on basically, an industry chain that I would probably want your opinion on. I mean, you mentioned that you’ve heard about the utilizations going up to 85% and much higher. Now my question is that as we see that the industry is moving towards more of non-linear revenue model and more fix size contracts coming in? Do you see that overall the industry might move to utilizations which are much, much higher than the current level than you might see and the number of utilization itself might lose its relevance, which is in the current context?

N. Chandrasekaran

Very difficult to say, but very difficult to say and I think I can't comment on that.

Vibhor Singhal - Phillipcapital

I mean, just a -- maybe in the sense that does the revenue mix moving towards non-linear might (indiscernible)?

N. Chandrasekaran

I think we should -- let’s talk about deal when we grew multimillion dollars of non-linear revenue.

Vibhor Singhal - Phillipcapital

Okay. Fine. Fair enough. Thanks a lot.

Operator

Thank you. I would now like to hand this call back to the management for closing comments.

N. Chandrasekaran

Thank you. First of all, I want to thank all of you for taking the time and asking questions on Q1 earnings. In summary, I would say that we’ve had a very good strong beginning to fiscal year 2015. I’m particularly happy that all our businesses across industries and markets are seeing momentum. And we’d have pretty good job on the execution, both in terms of capturing the demand and also in terms of managing our margins to be in the target range. And we remain confident that the opportunities that are in front of us will give us some opportunity to deliver, I think, through India. And I repeat that before we could do FY ‘15 which is better than FY ‘14. Thank you.

Operator

Thank you. On behalf of TCS, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.

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