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Tata Consultancy Services Ltd. (TCS) Q4 2021 Earnings Call Transcript

TCS Earnings Call - Final Transcript

Tata Consultancy Services Ltd. (NSE: TCS) Q4 2021 earnings call dated Apr. 12, 2021

Corporate Participants:

Kedar Shirali — Global Head – Investor and Analyst Relations

Rajesh Gopinathan — Chief Executive Officer and Managing Director

N. Ganapathy Subramaniam — Chief Operating Officer and Executive Director

V Ramakrishnan — Chief Financial Officer

Milind Lakkad — EVP and Global Head, Human Resources

Analysts:

Sandip Agarwal — Edelweiss Securities Limited — Analyst

Sudheer Guntupalli — ICICI Securities — Analyst

Diviya Nagarajan — UBS Securities — Analyst

Sandeep Shah — Equirus Securities — Analyst

Sajeet Manghat — BloombergQuint — Analyst

Keith Bachman — Bank of Montreal — Analyst

Pankaj Kapoor — CLSA — Analyst

Ankur Rudra — J.P. Morgan — Analyst

Rishit Parikh — Nomura — Analyst

Chandra Ranganathan — MoneyControl — Analyst

Manik Taneja — JM Financial Services Ltd — Analyst

Dipesh Mehta — Emkay Global — Analyst

Shyam Sundar Sriram — Sundaram Mutual Fund — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the TCS Earnings Conference Call. [Operator Instructions]. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]. I now hand the conference over to Mr. Kedar Shirali, Global Head, Investor Relations at TCS. Thank you, and over to you, sir.

Kedar Shirali — Global Head – Investor and Analyst Relations

Thank you, Margaret. Good evening and welcome everyone. Thank you for joining us today to discuss TCS’ financial results for the fourth quarter and full year of fiscal year 2021 that ended March 31st, 2021. 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. Rajesh Gopinathan, Chief Executive Officer and Managing Director.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Good evening, everyone.

Kedar Shirali — Global Head – Investor and Analyst Relations

Mr. N.G. Subramaniam, Chief Operating Officer.

N. Ganapathy Subramaniam — Chief Operating Officer and Executive Director

Good evening, everyone.

Kedar Shirali — Global Head – Investor and Analyst Relations

Mr. V. Ramakrishnan, Chief Financial Officer.

V Ramakrishnan — Chief Financial Officer

Hello, everyone.

Kedar Shirali — Global Head – Investor and Analyst Relations

And Mr. Milind Lakkad, Chief Human Resources Officer.

Milind Lakkad — EVP and Global Head, Human Resources

Hi, everyone.

Kedar Shirali — Global Head – Investor and Analyst Relations

Rajesh and Ramki 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 to our mailing list.

With that, I’d like to turn the call over to Rajesh.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thank you, Kedar. Once again, welcome everyone and a very good day to all of you from wherever you’re joining in. Before I start the call, I hope all of you are safe and staying healthy in these trying times. I’m very pleased with our performance in Q4, on the topline as well as on the bottom line. Continuous strength in demand for core transformation services, market share gains and large deal ramp ups powered strong sequential and year-on-year growth.

Sequentially, our revenue grew 4.2% in constant currency, 4% in rupee terms and 5% in dollar terms. On a year-on-year basis, we grew 5.9% in constant currency and 10% in dollar terms and 9.4% in rupee terms. For the full year, we crossed over into positive territory in reported terms with revenue growth of 4.6% in rupee and 0.7% in dollar terms with the constant currency degrowth of 0.8% negative.

Our operating margin for the quarter was 26.8%, an expansion of 0.2% sequentially and 1.7% year-on-year. Net margin in Q4 was 21.2%. Our full year EBIT margin was at 25.9% while net margin was 20.3% excluding our one-time provisions that we took for the legal expenses.

I will now ask Ramki to go over all the headline numbers, financial and segmental performance and I’ll join you again later to talk about the demand trends we are seeing and the emerging opportunities in growth and transformation. Over to you, Ramki.

V Ramakrishnan — Chief Financial Officer

Thank you, Rajesh. Let me walk through the headline numbers first. In the fourth quarter FY’21, our revenues grew 4.2% Q-on-Q and 5.9% Y-on-Y on a constant currency basis. Reported revenue in INR was INR437.05 billion, a Q-on-Q growth of 4% and Y-on-Y growth of 9.4%. In USD terms, revenue was $5.989 billion, Q-on-Q growth of 5% and Y-on-Y growth of 10%.

Full year revenue in INR was INR1.642 trillion, which is Y-on-Y growth of 4.6%. In USD terms, revenue was $22.17 billion, Y-on-Y growth of 0.7%. In constant currency, revenues declined by 0.8% over the previous year. Let me now get into the segmental details for the quarter. All growth numbers are in constant currency terms. All our verticals had strong sequential growth in Q4.

BFSI grew 7%, powered by large deals, as well as greater investments in enhancing customer experience, expansion into newer businesses or core transformation and [Indecipherable]. Year-on-year growth was also very strong at 13.3%. The retail cluster that includes CPG and travel, transportation and hospitality also had robust sequential growth of 4% despite continued weakness in some of the sub-sectors.

Despite the good recovery over the last three quarters, retail is still in negative territory on a year-on-year basis. Our life sciences and healthcare business continues to perform very well, growing 3.8% Q-on-Q, and [Technical Issues] the quarter. It’s worth noting that over the last decade, this business has significantly outperformed the rest of the Company growing from 4.5% of our revenue in FY’11 to 9.8% in FY’21.

In dollar terms, its revenue has grown over 5.9 times during this period, a ten-year CAGR of 19.5%. Manufacturing also did well growing 3.9% Q-on-Q and 1.3% Y-on-Y. Technology and Services grew 2.8% Q-on-Q and 3.9% Y-on-Y, while our Communications and Media business grew 1.8% in Q-on-Q and remained below prior year levels.

On a full year basis, life sciences and healthcare grew 17.1%; BFSI, 2.4% and Technology and Services at 0.2%, while the rest continues to be below prior year levels. By geography, growth was led by our major markets. Continental Europe grew 8.5% Q-on-Q, and 11.7% Y-on-Y; North America grew 3.9% Q-on-Q and 5.9% Y-on-Y, and UK grew 3.4% Q-on-Q and 1.1% Y-on-Y.

Other markets grew well too. Middle East and Africa grew 4.2% Q-on-Q and 10.6% Y-on-Y; India grew 2.8% Q-on-Q and 11.2% on a year-on-year basis; Latin America grew 2.5% and 1.5% Q-on-Q and Y-on-Y, respectively, and Asia Pacific grew 1.1% on the Q-on-Q and 1.5% on Y-on-Y basis.

On a full-year basis, with the exception of Continental Europe which grew 5.5%, all the markets continued to be in negative territory, compared to the prior year. Coming to products and platforms, our portfolio performed well in Q4. Ignio, our cognitive automation software, signed up 15 new customers and had seven go lives.

With a significantly expanded portfolio of products within the suite, digi tech [Phonetic] is now able to cross-sell and upsell to existing customers. There were 21 such upsells to the existing customers in Q4. All in all, we added over 50 customers in FY’21, taking the total to over 200 customers for Ignio.

During the quarter, we onboarded seven more reselling partners to our channel partner program. The product suite won two more awards and was granted three more patents bringing the total to 30 patents granted till date. TCS BaNCS, our flagship product suite in the financial services domain had five new wins and five go lives in Q4. One of our marquee wins this quarter was State Street.

TCS will help enhance its retiree services offering, leveraging the newly launched TCS BaNCS’ retirement platform, enabling access to expanded operational capabilities and enhanced technology to State Street’s clients. Overall, it’s been a very good year for TCS BaNCS with over 19 wins. Half of [Technical Issues] our platform is also attracting a diverse clientele including digital-only neo banks and existing banks launching new crypto banking products. This momentum enabled our financial solutions business to grow sequentially every quarter this year despite the deflation resulting from the shift to SaaS.

The Quartz Blockchain Solution had two new wins in Q4 and one go live. In retail, we had one win and one go live for OmniStore, our AI-powered commerce suite that provides unified and personalized checkout experience for shoppers across all channels. In life sciences, our award-winning Advanced Drug Development suite had two go-lives. We deployed the TCS ADD [Phonetic] — Analytics and Insights platform for top three life sciences company transforming their clinical trial oversight process, enabling remote monitoring of ongoing trials at globally distributed sites using dynamic monitoring and predictive analytics. This platform is live now for 200 plus studies.

We implemented the TCS ADD Regulatory platform for a leading pharma company for automation of submission planning through a real-time and online portal-based collaboration tool. Our HOBS suite of solutions for communication service providers had three new wins and three go-lives in Q4. TwinX, our AI-based Digital Twin solution also had three wins this quarter.

Lastly, TCS MasterCraft, our suite of intelligent automation products for end-to-end enterprise application modernization had eight [Technical Issues] while Agile, our enterprise agile planning and delivery platform saw seven new wins. Coming to client metrics, we showed some improvement in Q4 versus the prior quarter, but at higher levels, it is flattish.

This is because the revenue contribution by customers is calculated on a last 12 months, or LTM basis, and so these metrics are somehow — somewhat mirror our overall revenue growth on a full-year basis. The number of clients in the $100 million-plus band stayed flat Q-on-Q at 48. We added four more clients in the $50 million-plus band bringing the total to 101. We added one more client in the $10 million-plus band, bringing the total to 387. We added four more clients in the $5 million band, bringing the total to 569, and we added 19 more clients in the $1 million-plus band bringing the total to 1,096.

Let me now move over to the financials. Strong growth and improved operating metrics resulted in an operating margin of 26.8%, an expansion of 0.2% Q-on-Q and 1.7% Y-on-Y. Net income margin was at 21.2%. For the full year, our operating margin was 25.9% and the net income margin was 20.3% excluding the prudential provision of INR1,218 crores as an exceptional item towards a legal claim that we are contesting in the US courts.

Effective tax rate for the quarter was 25.9%. Our DSO in dollar terms was at 68, down one day compared to Q3. Net cash flow from operations was INR92.47 billion, which is 100% of our net income. Free cash flow was INR80.85 billion. For the full year, it was INR379.68 billion, up 17.5% Y-on-Y. Invested funds as at 31st March stood at INR504.3 billion.

The Board has recommended a final dividend of INR15 per share, taking the total to INR37. Excluding the final dividend, over INR306.6 billion of cash has been returned to shareholders this year in the form of dividends and buybacks. On the people front, we had a net addition of 19,388 employees during the quarter, an all-time high. The total headcount stood at 488,649, a net addition of 40,185 in the course of the year.

It continues to be a young and diverse workforce with 154 nationalities represented and with women making up 36.5% of the base. At the heart of our success in gaining share in the growth and transformation opportunity has been our organic talent development strategy. We have programs that anticipate emerging technology trends and tweaks individual learning programs to build up capacity in those areas, while creating fulfilling career paths that help our customers meet their expectations.

Our other programs help identify individuals with deep customer-specific contextual knowledge and augment that with deeper solutioning capabilities to help create teams of change agents who can build transformative solutions that are deeply rooted in the customer’s reality. These learning and development initiatives have gained immense popularity in TCS. Employees logged over 43 million learning hours in FY’21, resulting in over 379,000 employees getting trained on multiple new technologies and over 457,000 trained in Agile methods.

The last 12-months attrition in IT services in FY’21 was 7.2%, an all-time low. Keep in mind though that this is partly due to the LTM effects and with growth returning [Phonetic] across the industry, we expect this to inch up in FY’22.

Now, I turn it over to Rajesh for the demand drivers and trends. Thank you.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thank you, Ramki. The key growth drivers during the quarter continued to be the ones we have spoken about in prior two quarters. We continue to see many wins around core transformation. This includes cloud migration, application modernization and data modernization. In other places, organizations are revamping their operations in anticipation of cloud migration, freeing up resources, people, as well as funding, which are critical to their success there. You can see this in the increased activity around overall outsourcing.

We are — also saw plenty of growth and transformation site engagements. These are initiatives where enterprises leverage the power of new technologies to embrace new business models, pursue new revenue lines, deliver superior customer experience or engage with newer segments of customers and transform operations.

In our January call, I had given examples of some typical transformation themes we are seeing in the market; M&A, supply chain transformation, customer experience, ecosystem innovation and operations transformation. We continue to see the same themes play out in Q4 as well.

If you look at the key highlight section of our Q4 earnings release, there are at least three new wins in the M&A or divestiture area where TCS is helping plan and implement the separation of assets and processes and to ensure that the divested entity hits the ground running from day one.

We now have several success stories in this space, validating our approach and capabilities. I’ll name a few of these. For example, for a large medical devices company, which wanted to spin off an independent publicly traded newco, TCS carried out the initial consulting-led due diligence exercise and developed a separation strategy business case.

Subsequently, TCS led the transaction management office for the carved-out entity and developed day one readiness plans including rationalization of the parent company application portfolio, developing the target operating model post IPO, and the operations blueprint for all functions in the new organization. The overall plan minimized the TSA needs to less than three months while reaching operational day one readiness in nine months.

The cloud solution designed by TCS transformed the core operations and substantially reduced the technology debt while enabling best-in-class resiliency and security. Similarly, from a customer experience perspective, this continues to be a very popular investment theme among customers. Again, we had several wins in this area in Q4. This was particularly urgent in the retail vertical where the pandemic-driven change in shopping behaviors has driven new investments in creating consistent experience across digital and physical channels.

We are very pleased with the example that we have here, which is the PGA TOUR Superstore, with an experiential specialty golf gear and apparel retailer and it selected TCS’s OmniStore platform, our award-winning unified commerce platform to transform the shopping experience of the retailer’s 8 million customers. Our platform enables a one-cart checkout, seamless omni-channel journies, personalization and flexible fulfillment with endless inventory across all stores.

A journey that starts at multiple places, you can add on to the same cart and check that out, which is one of the first instances of such a capability going live in this industry. We are also partnering customers in helping them launch new products and services to address new market segments, to provide richer upsell and cross-sell opportunities and to drive growth. TCS helped a North America based insurer known for its best-in-class customer experience and innovation culture to venture into commercial lines for small business insurance, which was being done by their own members.

TCS played a strategic role from inception to implementation, including market research, competitive benchmarking, product conceptualization, technology transformation and integrating with partner ecosystems for the launch of their small business insurance and business owners policy and general liability product.

The new product was launched within a year across five states with the plan to expand to eight new product lines across all US locations and to increase the customer base by approximately 4%, expected to generate [Technical Issues] an intellectual property. TCS has entered into an agreement with State Street to help enhance its retiree services offering with a provision of a new benefit payment technology platform. We will leverage our TCS BaNCS’ Retirement platform in a SaaS model, bundled with operations on a managed services basis. This will enable State Street to provide its client’s access to expand its operational capabilities and enhanced technology.

Coming to the Q4 order book, having some of these trends that have been driving the strong demand for our services this year, with strong deal wins every quarter this year, we are closing the year with the highest TCV in signed deals this quarter from the time we started reporting this metric. The overall order book signed in the quarter was $9.2 billion. By vertical, the BFSI order book of deals signed during the quarter stood at $3.9 billion while the retail order book was at $1.4 billion.

The TCV from deals signed in North America stood at $4.2 billion. Our total order book in FY’21 was $31.6 billion, a growth of 17.1% over the prior year. Looking ahead, as we are entering FY’22 with much better visibility for future growth, with significant momentum built up over the last couple of quarters, a strong order book and a robust deal pipeline. In the medium and longer-term, the technology refresh cycle that our customers are embarking on will unfold across three horizons that we have spoken of in the past and provide strong structural growth drivers over the next three years to five years.

The large scale shift by customers and consumers to digital channels over the last 12 months now makes it all the more important for enterprises to differentiate themselves in these channels using technology. That necessarily entails greater use of data, analytics, machine learning and AI for mass personalization.

For others, it means exploring new business models that allow addressing new market segments or enable stronger, stickier customer relationships, which involves collaborating and co-innovating with ecosystem partners to knit together the individual products and services of each of the partners to create new emergent offerings that are purpose-led. All these represent the large growth and transformation opportunity that we have been talking about for the last three years, four years, and which has crystallized over the last 12 months, especially around the hyperscaler cloud stacks.

The accelerated adoption of cloud by enterprises over the last few months means that going forward, cloud will be the unifying and enabling technology fabric that powers their growth-linked transformation imperatives. However, it is important to note that the technology by itself does not lead to competitive differentiation.

In fact, if anything, cloud models by default are about standardization and commoditization. Therefore, differentiation can take place only when a technology solution is contextualized to each customer’s unique circumstances. That’s where our approach to growth and transformation engagements differs from that of legacy models.

One of the weakness of the legacy consulting model is that it places an undue premium on an outsider’s expertise and invariably ends up replacing extent ways of working with shiny new and most likely cookie cutter solutions. And that by its very nature dilutes differentiation rather than drive innovation.

In sharp contrast, we recognize that there is tremendous value in the tacit knowledge that resides inside the customer organization and which often goes untapped. This is foundational to contextualizing technology within the enterprise. By harnessing the collective knowledge of the customer teams and TCS teams, we are able to co-innovate and come up with transformative solutions that are uniquely rooted in that customer’s reality. These bespoke solutions take into account the nuances of that organization’s business and technology landscape and amplify the strength and reduce the risks and results in a different, highly differentiated outcomes.

Another important difference is around accountability for outcomes. Our customers truly appreciate our approach of taking end-to-end responsibility and leveraging our know-how for their transformation agenda and working along their teams with a sense of shared purpose. For the eighth consecutive year, we have been ranked number one in customer satisfaction in one of the largest independent surveys of its kind polling over 1,700 CXOs of top IT spenders across Europe about their service providers. It is remarkable that on the attributes most critical growth in transformation like proactivity, innovation and business understanding, TCS got 7 percentage points to 9 percentage points higher than the average.

Of course, success on the growth and transformation space is entirely predicted on capability. Our verticalized customer centric organization structure has helped us build and foster domain and contextual knowledge within the industry solutions units. Our systematic investment in upskilling our workforce in research and innovation and in intellectual property have all helped us build strong solutioning expertise.

Our business and technology services unit has been steadily launching new service offerings aligned to the emerging transformation teams relevant to our customers. The divestiture factory that I have spoken about in the past, the supply chain transformation offerings, our bringing to life framework for IoT and for connected products and services are all examples of these new offerings.

Equally importantly, we have created structures that give us the ability to pull all the different capabilities from across different parts of TCS to put together the holistic solutions that help our customers achieve their business objectives. All of these have helped us gain a beachhead in the growth and transformation opportunity over the last few years, winning share at the cost of legacy consulting organizations.

We have had some high profile successes that significantly enhance our visibility in our customer organizations and give us a seat at the table in their strategic discussions. From a business point of view, these engagements are driving high quality revenue growth for us and industry-leading profitability.

We have been sharing these customer stories with you in our earnings call as well as our annual reports. Growth and transformation opportunity is very large, and in my opinion, yet to be fully scoped. The transformation imperative will only strengthen over time and as new technologies emerge, newer combinatorial possibilities will open up, driving further investments by our customers.

So we believe this part of the market opportunity will see tremendous growth in the coming years. That puts us in a very advantageous and promising position. In addition to the large outsourcing opportunity, which we continue to dominate, we are now entering a large growing opportunity that expands and probably significantly increases our addressable market.

Our focus and investments will now be growing further and gaining more market share in this space. Towards this, we are investing in deepening our transformation capabilities programs like Contextual Masters, which I’ve spoken about in the past, are scaling up nicely. We have added newer learning and development initiatives that will identify high potential candidates and put them through experiential courses that helped them become more effective transformation leaders.

We are strengthening our partnerships with large technology providers, as well as startups, academia and domain specialists towards co-innovating and collaborating to create new service offerings. We also refreshed our brand last month and launched a new brand statement, Building on Belief, to reflect who we are today and to support our aspirations in the growth and transformation space.

It talks of how every new idea, every new innovation is born out of a belief that it will help make the world better and how TCS partners with customers in bringing those beliefs to fruition.

With that, we can open the line for questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Sandip Agarwal — Edelweiss Securities Limited — Analyst

Yeah. Hi. Good evening to the management team and congratulations on excellent execution. Also, we wish Ramki best of luck and you know we will miss his excellent guidance on the financials. The way he… [Speech Overlap]

Operator

Sorry to interrupt you, Mr. Agarwal. Your voice is not very clear sir.

Sandip Agarwal — Edelweiss Securities Limited — Analyst

Yeah. Sorry. Can you hear me now?

Operator

If you can come on the handset mode if you are on speaker…

Sandip Agarwal — Edelweiss Securities Limited — Analyst

No, I’m on the handset mode, but I have soar throat. Okay, let me [Indecipherable]. Yeah. So thanks for giving the opportunity and congrats on a good execution and good quarter and record deal win. Also I wish Ramki best of luck and thanks for all the great explanation of the financials in the past.

I have only one question Rajesh that, you know, if you see only 45% or 50% of the business for us has started growing on a year-over-year basis and balance 45%, 50% is still flattish or is slightly lower than the last year. What is your sense that when this business starts contributing next year what will be the overall impact on our overall growth and particularly when we have 17% higher order wins?

If you can throw some color on these verticals, particularly the manufacturing piece which has not grown much in this quarter also and also the retail, CPG and communications, where do you see these businesses going forward? Will there be still one or two quarters before they start recovering strongly or you think we are probably going to see big recovery from here?

Thanks. That’s all from my side.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah, Sandip, I think this quarter and probably for the next one or two, our standard metric of year-on-year, probably is not necessarily the best one to look at. On the shorter-term trajectory that the sequential quarter provides, if it gives a good — better visibility of the trajectory. So if you look at retail itself, it is about 4% on a sequential basis, but still it’s lagging on a year-on-year basis given the kind of impact that it had, and the hit that it took in the first half of the year.

Same is true for manufacturing, sequential growth numbers are much better than the year-on-year comparatives, reflecting the returning strength. But by far, it has not completely — I mean, in no means has it fully recovered. So we are more focused on the trajectory. As you will notice, this is our third sequential quarter of 4% plus Q-on-Q growth.

And in line with our overall commentary at the beginning of the year, that we think there’ll be a deep correction in Q1. And we will see strong demand recovery going into the rest of the year and that is playing out pretty much along the lines that we expected.

As we look forward, other than sectors like travel and hospitality, other sectors are well on their path to recovery, subject to a few individual cases. But by and large, we remain very optimistic about the overall demand scenario.

Sandip Agarwal — Edelweiss Securities Limited — Analyst

Okay. Thanks. That’s all from my side. Best of luck for the current quarter.

Operator

Thank you. The next question is from the line of Sudheer Guntupalli from ICICI Securities. Please go ahead.

Sudheer Guntupalli — ICICI Securities — Analyst

Yeah. Good evening, gentlemen. Thanks for giving me this opportunity. In terms of the deal wins or deal TPV [Indecipherable] for the sector in general or TCS in particularly, any color on what share of this pertains to absolutely net new spends by clients and what share pertains to say something like the renewals, renegotiated or restructured deals?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

No. Not very different from our typical trends. As usual, year-end or beginning quarter of the year, some of the shorter-term contracts get renewed, but it is no different from whatever other typical trends. From a segmental perspective, it’s quite broad-based across all the segments that we reported, whether it is North America or BFSI or retail, it has seen a very strong growth on all the three segments.

Sudheer Guntupalli — ICICI Securities — Analyst

Sure. And general understanding at this juncture is that in the post-COVID era, industry should see structurally higher growth rates given the multi-year technology transformation cycle we are betting on. But if you look at the growth rate reported this quarter adjusted for the couple of captive takeovers, it’s more or less in line with the typical March quarter’s growth. So at a fundamental level, how do we read this gap or should this quarter be read as an aberration and going forward, do we expect higher than usual growth rates?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

No. Captive takeover is an integral part of our business model. So I don’t see any aberrations.

Sudheer Guntupalli — ICICI Securities — Analyst

Sure, Rajesh. And quickly on the reason for the strong increase in other expenses this quarter?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Ramki, you want to take that?

V Ramakrishnan — Chief Financial Officer

You mean, other operating expenses, right? So there is a slight uptick in the subcontracting and expenses, which is more tactical. We have said that in the past. It’s a more flex pool. So — but for that, I think there is no significant increase. We’ll have to look at it along with the overall employee costs. I think the overall, it’s in line. Employee cost comes as a separate line item, the other operating expenses come separately. So we don’t see a significant increase otherwise.

Sudheer Guntupalli — ICICI Securities — Analyst

Sure. Thanks, sir. That’s it from my side and all the best for the future.

Operator

Thank you. The next question is from the line Diviya Nagarajan from UBS. Please go ahead.

Diviya Nagarajan — UBS Securities — Analyst

Hi. Thanks for taking the question and congrats on a good quarter once again. Couple of questions from my end. I think we’ve seen the sequential growth numbers being pretty strong in the last three quarters. How should we think about what is normalized sequential growth for a Company of your size from hereon?

That’s question number one. And second, on the margin side, Ramki, we have seen margins go up to almost 27%, the reason it also moved a little bit in favor now. So how do you see margin trends going into fiscal ’22?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thanks, Diviya. I’ll take the first section. I think on a steady-state basis, as we have discussed in the past, with the pre-COVID spend, I think, double-digit is the aspirational band that I believe that if we can achieve that, we are in a good wicket.

That itself has whatever construct you can think of from a sequential basis, once you bring in a bit of seasonality into it. So that’s the steady-state target that we are working towards. And I’ve said that in the past that the management team is focused on trying to achieve that. This year will be a bit of an aberration because of the kind of denominator that you have coming off this year. But otherwise, our long-term strategy is built on trying to achieve that double-digit number. Ramki, on the margin front?

V Ramakrishnan — Chief Financial Officer

Yeah. And Diviya, I think our objective has been to be resilient on the margins. And what you’re seeing is it in that direction. Growth has been a factor and I think that continues and that will be definitely a contributing factor to that margin resilience as well.

Apart from that, there are discretionary expenses and also our globally distributed model [Technical Issues] parameters we have been able to do a lot of things and that is also helping the margins to be within our target range and also on a consistently on a — be steady on that. So, and currency in the overall year has been helping during FY’21 to take care of our compensation increases. And that is again another factor, which we’ll continue to watch as we go along.

Diviya Nagarajan — UBS Securities — Analyst

Thanks, Ramki. Just one last question from me. We have seen a fair amount of deal wins in the quarter, your highest ever, in terms of the deal dispersion, I think a few quarters ago when the crisis hit, you had talked about how there was a bit of a dumb-bell shaped curve and how the deal dispersion had shaped up. Has that normalized and how do you see that trending into the next 12 months?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. Diviya, very interesting thing, I mean, if you remember, two quarters back I had said that it was unusually smaller deals, but the pipeline itself is more evenly distributed.

Right now, when we look at it, we have had a — have a fair amount of large deals in here. But the $9.2 billion actually has a good mix of large, as well as very small deals, the volume of small deals is also continuing to remain quite high. So is that normalization? We can’t comment on, right now.

But the volume of smaller deals continues to stay quite high and the large deals are coming in and acting as a kicker on top. Our — to put it in perspective, our largest deal in this quarter is in the range of about $500 million-$600 million and that’s a one-off. Whereas if you compare to the year-ago period when we had $8.9 billion, we had a $2 billion deal in that setup.

So it’s a much more spread out kind of a structure, but I’m not yet ready to call it as a trend or to generalize beyond that.

Diviya Nagarajan — UBS Securities — Analyst

Okay. All right. Thank you so much. And Ramki, it’s been a pleasure interacting with you so far. Hope to stay in touch post your retirement as well, and wish you all the very best for the rest of the year.

V Ramakrishnan — Chief Financial Officer

Thank you. Thank you, Diviya.

Operator

Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yeah. Thanks for the opportunity. Rajesh, some of your peers have indicated that in some pockets there is a pricing pressure, are you witnessing for this year?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

I can’t comment on them. From our side, pricing remains quite stable. In our industry, old services get priced differently and newer services have price resilience, but overall, portfolio remains quite stable.

Sandeep Shah — Equirus Securities — Analyst

Okay. And just few bookkeeping questions. If you look at the FCF generation for the quarter, though it is still healthy, but has come off from the very strong trends in the 1Q through 3Q. So is it a growth factor which is leading to FCF now getting normalized or some collection got delayed as a whole and FCF may continue to remain robust even in FY 2022? And secondly, the two large deals of BFSI, are they fully ramped up in the Q4 of this financial year?

V Ramakrishnan — Chief Financial Officer

I’ll take that question on the FCF. Ramki here. I’ll say, I think there has been no delays in collection, etc. The overall collections have been very steady, very good. And also, if you have seen our metrics around the DSO and other working capital elements, to some extent, it is true that when growth returns, there will be little bit of [Technical Issues] working capital, but the thing to note is our cash conversion is upward of 100% of our net profit, and that is what is critical. Little bit of ups and downs within quarters is not signifying anything else beyond a growth factor.

Sandeep Shah — Equirus Securities — Analyst

Yeah. And just… [Speech Overlap]

V Ramakrishnan — Chief Financial Officer

Sorry. On the second question, Rajesh.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. That’s — both are fully ramped up.

Sandeep Shah — Equirus Securities — Analyst

Okay. Thanks. And all the best, Ramki. Wish you best of luck.

V Ramakrishnan — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Sajeet Manghat from BloombergQuint. Please go ahead.

Sajeet Manghat — BloombergQuint — Analyst

Hi, Rajesh. Just wanted to get an idea on the growth which you spoke about. At the end of Q3, you had mentioned that the kind of momentum in deal wins as you were expecting a double-digit growth for FY’22. Are we still on line to get that double-digit growth? And you just mentioned that this year might be an aberration. What does exactly that mean?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

No. We are definitely on track to achieve double-digit in FY’22, I was answering to Diviya’s question about overall model that we have. And as I said, momentum — the exit momentum that we have that is not — that is the aberration that I was talking about.

Sajeet Manghat — BloombergQuint — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Keith Bachman from Bank of Montreal. Please go ahead.

Keith Bachman — Bank of Montreal — Analyst

Hi. This is Brad [Indecipherable] on for Keith Bachman. Thank you for taking my question. Would you be able to comment on attrition trends in the industry? The last 12 months have been at an all-time low, but as competitive dynamics and demand for skills and services pick up over the last year or so, could you comment on both the expectations for employment and attrition trends going forward potential margin impacts and more specifically, what you’ve been observing in the past couple of months as it relates to competitive dynamics for talent? Thank you.

V Ramakrishnan — Chief Financial Officer

Brad, attrition is directly dependent on employees’ belief in the organizations they work for. TCS has a great history of believing in its employees and continuously investing in them. And therefore, we continue to maintain our best retention rates. Beyond that, I wouldn’t like to comment about industry. You will need to speak to other participants.

Next question, please Margaret.

Operator

Thank you. The next question is from the line of Pankaj Kapoor from CLSA. Please go ahead.

Pankaj Kapoor — CLSA — Analyst

Yeah. Hi. Thanks for the opportunity. I had two questions. First, are you seeing any change in how customers are looking at the technology spend? What I mean is that, are you seeing spend coming back on the discretionary areas or on the longer-term payout projects? That’s my first question.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

You’re completing or do you want to stand by?

Pankaj Kapoor — CLSA — Analyst

Yeah. Okay. And the second question… [Speech Overlap]

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Sorry. Okay. Go ahead.

Pankaj Kapoor — CLSA — Analyst

I mean, I’ll come back with the second one.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. NGS, you want to take that, about the nature of technology spent?

N. Ganapathy Subramaniam — Chief Operating Officer and Executive Director

Yeah. No, overall, Pankaj, the technology spend is — stays stable and what we see is a number of opportunities coming in what we call as the growth and transformation side, right. If you take, let’s say, financial services customer, the aspects like portfolio expansion or market penetration are type of opportunities that are coming.

And we are very excited about those kind of opportunities. Or in the case of retail, again whether it is supply chain resilience. And every one of the segments that we see and we operate, the opportunities are towards moving in addition to being vertically integrated, how we can collaborate horizontally is a very big theme almost in every industry that we operate, right.

And all the investments that we have made over the last three years, whether it is Agile, whether it is Machine First thinking, whether it is the Machine First methodologies that we have come up with, all of them are pretty much contributing to participating in such opportunities immediately.

Pankaj Kapoor — CLSA — Analyst

Okay. I understand that. The second question I had Rajesh was on the deal pipeline. Just taking forward from the earlier question from Diviya. Do you still see cost take out and vendor consolidation deals are out in the play or as a trend has it normalized now?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

No. They continue to be. The flight to quality that we’ve spoken about in the past, Pankaj, is still a fairly large one because people, as they’re going through this re-platforming, are using that as an opportunity, not just to clean up their legacy estate, but they’re also re-looking at their vendor landscape and seeing what can be done.

And there are multiple drivers to that. Best-in-class cost is a very big driver, but it’s also about future proofing and selecting vendors who are aligned to that technology vision and who can play proactively in that space. So it’s a complex set. It is not just a pure consolidation driven play, but it is a fairly large opportunity set as people relook at what is the kind of vendor landscape that they want and what is the kind of investments and commitments that they are looking for in this transformation opportunity.

So fair — very, very large set of those opportunities are also in play and will continue to be there for the next few years.

Pankaj Kapoor — CLSA — Analyst

Understood. Thank you and wish you all the best for FY’22.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thanks.

Operator

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

Ankur Rudra — J.P. Morgan — Analyst

Thank you. Congrats on another stellar quarter. First of all, I want to thank Ramki again for guiding us all with your insights, wisdom and patience, best of luck for the next innings. We will miss you. Closing on a high must be satisfying.

Rajesh, you have indicated in the last quarter and I think even on this call that double-digit growth for C21, F22 looks clearly certain. I think that’s probably a low bar right now for you. How high should we think F’22 can be, can TCS gun for industry growth leadership again given the order book you have and the momentum you see in the markets?

And a related question to that, are there any headwinds you are wary of as you start the year? For example, supply of talent availability a constraint?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Ankur, that’s the easy part. I think supply is definitely not a constraint. Our model, as you know is significantly organic, and as Ramki also mentioned in his early commentary, the kind of investments that we are doing and the kind of platforms that we’re building for reskilling is unprecedented. How high? I don’t want to speculate on it. It is — I think growth is not the main, what should I say, strategic factor when we look into the next — in FY’22, or the next few quarters ahead.

Our bigger opportunity and our biggest strategic agenda is around this whole growth and transformation theme, that how do we participate in that opportunity and how do we build on the early gains that we have made and really concretize that and consolidate that position. That is where our key strategic focus is. And that is something that we are executing on across the full value chain.

As I said, in the nature of opportunities that we are looking out for, we are trying to increase our participation on the upstream part and in conceptualizing those kind of transformative engagements and being part of that whole chain. We are looking at the way we go to market on these models. We are experimenting with various risk-taking models. We are experimenting with various engagement models with customers. We are focusing on capability build to support the scale of the opportunity that we see, highly integrated development plans that we have. Also, bringing together multiple service practices into holistic solution combinations and structure changes inside.

Similarly, I’ve spoken at length about our focus on innovation two, three years back. From then on, we have been — we took our R&D capability and put a very strong explicit innovation focus to it and started externalizing that R&D capability and embedding it deeper into our business value chain. We have spoken about our investments in pay sports. I’ve spoken about how we are actually looking at it as a new product development pipeline. And we have embedded what we call Innovation Champions, more than 200, 250 of them in the field in various accounts.

We are focused on creating those innovation forums that we do across the globe. We do four to six every year in New York, London, Europe, Latin America, Japan, etc. So it’s — we were on a very large enterprise-wide transformation agenda post-FY’19. And last year, obviously, we had to step back and focus on the here and now and stabilize the organization, but we are now going back to that strategic agenda and making sure that we consolidate the gains that we see there. That, I think is the transformative opportunity and that is what will define who we are over the next five years.

Ankur Rudra — J.P. Morgan — Analyst

Thank you for the detailed answers.

V Ramakrishnan — Chief Financial Officer

Ramki, here. Thank you, Ankur, for your wishes. Thank you.

Ankur Rudra — J.P. Morgan — Analyst

Thank you, sir. Thank you and best of luck.

Operator

Thank you. The next question is from the line of Rishit from Nomura. Please go ahead.

Rishit Parikh — Nomura — Analyst

Hi. Thanks for taking my question. Rajesh, a question for you. Now given the strong pipeline and given the strong up cycle that we are in, right, how should we think about the TCV trends in the next couple of quarters? That’s one.

And then to that extend, how should we think about transformation into revenues as well? Any headwinds that we should be aware about, which would mean that the revenue translation might be slightly weaker?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

We are in unchartered territory on this currently. So I don’t want to comment on what should be the trajectory forward. As you know, this is the highest that we’ve ever reported since we started reporting this. And we have also called out as we see the mix changing over time — over this. But the year has been such a volatile year that I would hesitate to extrapolate further from here.

Let it run for a few quarters and then we should have better visibility. But smaller deals, faster run down and faster conversion to revenue. Larger deals, obviously, give us visibility over a longer period of time.

And the last couple of quarters, we have seen a fairly large volume of small deals. It is also linked to this — what I said about our greater participation in these growth and transformation engagements, which by definition tend to be more project-centric and incremental project-centric.

Many of the transformation programs nowadays get conceptualized as a series of sprints rather than as one single mega program. And along with our focus on Agile as overall enterprise philosophy, we are quite comfortable with that kind of model because that enhanced engagement that transformation opportunity provides us gives us not contractual visibility, but gives us engagement which secures us the continued participation in the overall transformation agenda.

So those are the kind of things that we are focusing and developing on.

Rishit Parikh — Nomura — Analyst

Okay. And just one follow-up question on BFSI, right. Even if you remove more or less the contribution from the larger BFSI, obviously, that’s a part of the margin. But still outside of that, if you look at the growth, I think, it is similar to Company average nearly. If you could just talk about the demand environment in this vertical and how we think about various other segments here? Thank you.

N. Ganapathy Subramaniam — Chief Operating Officer and Executive Director

Yeah. I think as Rajesh explained, we are very excited about participating in many of these smaller, but very focused and value-adding engagements. Just to quote a few example, the first digital bank in Israel is something that we conceptualized it with the government. We established it, we onboarded the first digital bank into that platform in less than six months, right.

This is the kind of engagement. Second is, that when there is an opportunity for someone in Switzerland to come and say that, look, I’m going to have a completely crypto-driven private bank, right, then how do I actually participate in it and then that’s something that we have positioned our solution, and then the whole value discovery framework that we came up with was exactly the kind of opportunities that are coming our way.

And all the investments that we have made in the last two, three years, whether it is in the area of cloud, in the area of data, in the area of analytics, the whole idea is to really bring everything to the table, conceptualize and shape the opportunity and then say that, look, this is the art of possible. And that’s the kind of opportunities that we are giving.

And they are often conceptualized today as a series of sprints and it’s important that you are there in the beginning, shape it, and then contract it, conceptualize it and then execute it in the shortest possible timeframe. And the contextual knowledge, the Agile frameworks, the way that the talent is managed across in a distributed fashion, all of that is helping us to participate in this and that’s the kind of opportunities that we see in the banking, financial services space.

Operator

Thank you. The next question is from the line of Chandra Ranganathan from MoneyControl. Please go ahead.

Chandra Ranganathan — MoneyControl — Analyst

Hi. Can you hear me?

Operator

Yes. We can hear you.

Chandra Ranganathan — MoneyControl — Analyst

Hi. Hi, Rajesh. Great set of numbers. You know, just wanted to ask you what would be the two biggest challenges for you? Would it be talent, would it be the second wave perhaps in Europe? If you can take us through one or two key challenges that you see going forward?

Also, a question for Milind. This quarter is when you will really hit campuses. So do you expect to hire at the same pace, will it be 19,000 plus, will that continue to be the case? And a question for NGS on how the second wave in India has really impacted your thoughts on work from home or is it business as usual for you? And I want to wish Mr. Ramakrishnan the very best going forward since this is his last quarter as CFO.

Thank you.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. Chandra, we will try to take it one by one. See, the key challenge, as I explained in one of the earlier questions is not talent. We are very confident about our ability to both acquire, as well as develop our own talent. And even more specifically, the kind of opportunities we’re seeing are very differentiated and we believe that we need to grow the talent internally because the philosophy that we’re bringing to this growth and transformation agenda is very unique and the first of its kind in the industry.

The typical approach to this has been what we call the legacy consulting model, which is a very outside-in, throw everything that you have, replace it with a shiny new template. Whereas our approach in line with our strong beliefs that we have internally and we have always been building on is that, it is better to take internal organic approach towards transformation.

And the contextual knowledge, the collective knowledge that resides inside the organization is the one that should be harnessed. And you would have — having known us over the years, you would have seen that we have always believed in this and we have executed on this internally.

And the more we speak about it to the customers, the more they find this as a very refreshing change, and therefore, they’re quite excited about partnering with us. So the skill set that we are bringing to fore is very unique and very, very organic. And so we are quite confident about that talent availability because it is coming from our own people and our investments in our own people. So we are quite confident about it.

The health challenges that you laid out, you’ve asked Milind and NGS also to help, we are obviously very concerned, but I’ll let Milind talk about what we are doing about dealing with it proactively and in a positive way. Over to you Milind.

Milind Lakkad — EVP and Global Head, Human Resources

Yeah. Thanks, Rajesh. I think just to continue on the health front first, I think, we have been continuing to do this for the last 14 months. Associate health and well-being has been our top priority in making all of our business decisions and that continues to be like that, even more so now in the second wave.

Significantly increasing our communication with our people, basically continuing to use our own isolation centers and re-imagining what else we can do for our people in this context of a really bad situation right now in India and many other things in terms of how do we take care of vaccinations, enable and also encourage people to get those vaccinations.

All of that is happening in a very, very systematic manner. And we’ll continue to do it day in and day out, continuously connecting with our 480,000-plus people on an ongoing basis across the globe. And that has been there from day one and that continues like that for the entire year. So that is about the health part.

With respect to your question on the overall numbers, like last year, our overall numbers from the campus would be similar if not little more. So that would be there. And we continue to hire — basically, like Rajesh said, one of our key source of our talent is internal and strategic talent development which we do quarter-after-quarter and looking at the longer horizon, as well as mid-term goals.

So both of that happens and basically we depend on people from campus, internal talent development, and then, whatever we need from the market in addition. So these three together, yes, will drive our numbers from a supply side, and I don’t anticipate any challenge on the supply side.

Chandra Ranganathan — MoneyControl — Analyst

Will it continue to be 19,000, 20,000 a quarter, sir?

Milind Lakkad — EVP and Global Head, Human Resources

No, what I mean is, we don’t — what I can tell you is, we have hired — we will hire similar kind of numbers from the campus. We will continue to do internal talent development and we will actually also take it from the market. So it depend — what number would it be, depends on how we do on all fronts. But from a talent standpoint, from a supply standpoint, we will be ready to deliver those numbers.

Chandra Ranganathan — MoneyControl — Analyst

Okay.

N. Ganapathy Subramaniam — Chief Operating Officer and Executive Director

Thank you, Chandra, for that question. And I think three quarters consecutively delivering 4% and above sequential growth wouldn’t have been possible but for the, Can Do, attitude and the resilience that has been shown by our associates. So I just want to, first of all, thank them for their focus, passion and commitment towards customers.

Overall, I think the FPWS that we launched and that 25×25 operating model, the elements of it that we have rolled out, they are all auguring well and we have been able to sell, contract, execute, onboard people, associates, and customers all remotely. And our HR has also done a remarkable job in terms of connecting one to one with almost every one of our employees at least once a quarter, right.

It’s been a tremendous achievement because you just imagine our strength of about 400,000-plus employees to be contacted at least once every quarter and on a need basis, has been a remarkable achievement. And I again want to salute our HR officers for that.

So I think the focus is really about moving to a mobility-based infrastructure and enabling people to work from anywhere in a secured basis. I think that will continue. And the demand environment looks positive for us. And I do hope that the second wave is not going to bring in a lot more surprises than what we have already faced.

And I think we seem to have managed many of the levers as it applies to our operating model, right. So, wish us well.

V Ramakrishnan — Chief Financial Officer

Ramki, here. Thank you, Chandra, for your wishes. Thank you.

Chandra Ranganathan — MoneyControl — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Manik Taneja from JM Financial. Please go ahead.

Manik Taneja — JM Financial Services Ltd — Analyst

Hi. Thanks for the opportunity. Rajesh, I wanted to… [Speech Overlap]

Operator

I am sorry, Mr. Taneja, we cannot hear you very well.

Manik Taneja — JM Financial Services Ltd — Analyst

Yeah. Is this better now?

Operator

Yes. Thank you.

Manik Taneja — JM Financial Services Ltd — Analyst

Yeah. Thank you. Rajesh, I just wanted to pick your brains around the pricing trends. Just wanted to understand if customers are much more open to skill-based pricing rather than location-based pricing as they’ve got used to the global delivery model much more with the pandemic reinforcing the market?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

See, the initial quarter and all, there were obviously, as you said, different customers in different situations and we were very accommodative and supportive to longstanding relationships. But as the recovery has panned out across multiple industry segments, the pricing scenario has changed significantly, and it’s much more stable and supportive.

Beyond that, trends are not very different from what it was pre-pandemic also. Higher quality service areas command a premium and higher quality vendors also significantly command a premium and that has improved post-pandemic, where the value of quality is much more explicitly recognized and rewarded either through market share or better pricing, or both.

Manik Taneja — JM Financial Services Ltd — Analyst

Sure. Thank you. All the best for the future.

Operator

Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.

Dipesh Mehta — Emkay Global — Analyst

Yeah. Thanks for the opportunity. Rajesh, you earlier alluded about growth and transformation initiative is the now focus area for next three to five-year perspective. So do you think it could have any implication on your deal win and tenure kind of thing, and one should be mindful of any implication on reported — those metrics on going-forward basis?

Second question is about your salary hike and what would be our thought process on salary hike? Whether because of six months, it would be adjusted for it or you would consider it as — because last we have delayed it — salary hike last year, now it would be normal kind of impact? And the last question is Japan market. We have made investment in that market. So now I think sufficient period has left. So if you can provide some update about Japan market. Thank you.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. The G&T opportunity should unlock newer segments and should be a net new opportunity. So overall, it should be supportive to our business model, especially because as I said, we are building upon it in a fairly organic and systematic way. And we have been putting together the building blocks of it for many years now.

So overall, I think it is a net new opportunity. Size and scale of it, we’ll have to wait and see how it pans out, but we are quite excited about opening up new segment and participating strongly in it. But we are at early stages and we will have to take on the incumbent base one by one.

I’ll answer the Japan one and then hand it to Milind on the salary hike side. Japan is a market of strategic focus. And as everybody knows and we have spoken about it, it’s a market that tests patience. We have been systematically developing it, where our delivery models, our relationship with customers, etc are being the major focus rather than immediate things.

So we currently have about 35 priority customers there with whom we have substantial growing business. And slowly, the focus is to move the portfolio into a lesser number of clients but larger relationships, which is the typical model that we have always had globally and which was different from the business model that existed from the acquired entity.

So we are making steady progress on that strategy. But it is a long haul, and — but the payoffs of it are also worth and big, that depends. Beyond that, we’ll — nothing more specifically in the short-term to add to it. Over to you Milind on the salary hike.

Milind Lakkad — EVP and Global Head, Human Resources

Yeah. Thanks Rajesh. I think the short answer to that question about salary hikes is, it will be similar to what we have been doing in the past, no differences on that front.

Dipesh Mehta — Emkay Global — Analyst

Thank you.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

But we have already as you know — so we were the first to announce salary hikes last year. The moment visibility came back, we announced and immediately rolled out starting October 1st itself. And once again, we have been the industry leaders in announcing our salary hikes for April and committing that it will be rolled out from 1st April, and both are in line with our historical trends over the last few years. So we are fully on the trajectory, both on salary hikes as well as promotions.

Dipesh Mehta — Emkay Global — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund. Please go ahead.

Shyam Sundar Sriram — Sundaram Mutual Fund — Analyst

Yeah. Hi, sir. Good evening. This is Shyam Sundar from Sundaram Bank. Thank you for the question. From a competitive landscape perspective, I mean, you were alluding that this quarter, for example, we saw more of small deals, small size deals than the large-size deals.

Is there anything to read into it in terms of our strategic priorities? Looking at more of the smaller size deals as compared to the larger deals, is there any heightened competition that we are seeing in the marketplace that is — if you looked at these smaller deals, I just wanted to get your perspective on that?

Rajesh Gopinathan — Chief Executive Officer and Managing Director

No. Shyam. I think you misunderstood what I said. Answering to Diviya’s question I said, in two quarters back we had called out that there were significantly more small deals compared to larger ones, whereas last quarter and this quarter, we have — the larger deals are also equally there.

The only area that I pointed out that in the enhanced TCV that we have reported the strength of small deals that we saw a couple of quarters back have continued, it has not been replaced by large deals, large deals have come and added on top of it. So I think it emphasizes our competitiveness, both in the large deals, as well as in the smaller deals.

But our strategic focus that I spoke about on the growth and transformation, the nature of those deals will be smaller, so that’s the two different things.

Shyam Sundar Sriram — Sundaram Mutual Fund — Analyst

Understood, sir. Thanks very much. My second question is on the margins per se. I mean you clearly said, supply-side pressures are not there and we have very well managed the talent pool development in-house per se. So just trying to understand when we think of some of the margin headwinds as we head into the next year, would it be some of these sub-con flex pools that we spoke about that could raise — that could rise in lieu of the travel restrictions or it could be higher local hiring? What could be some of the margin headwinds that we could think of as we head into the next year? Thank you.

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Yeah. So the immediate one is of course the normalization of some of our operating expenses that the current year is slightly artificial in the operating model perspective, but that is obvious one.

Otherwise, what you said are all there, which is, if we are not able to — short-term talent requirement in various locations, if supply is constrained, we will have to do something on subcontractors, like you saw it spiking this quarter, etc. But structurally, there are no major issues that we see out there in the immediate horizon, more tactical and operational ones, some amount of normalization, some amount of individual ones, otherwise no structural headwinds.

Shyam Sundar Sriram — Sundaram Mutual Fund — Analyst

Yeah, sure. Thank you very much.

Operator

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

Rajesh Gopinathan — Chief Executive Officer and Managing Director

Thank you, Operator. To sum up, strong demand for our services has helped us build up an all time high order book and strong momentum as we enter the new financial year. We continue to enjoy very resilient industry-leading profitability that gives us the wherewithal to continue investing in building newer capabilities that will allow us to increase our share in the growth and transformation opportunity.

The growth and transformation opportunity represents a significant expansion of our addressable market and it will continue to expand as enterprises depend more and more on technology to differentiate themselves and drive their top line imperatives.

Our investments in our people, in research and innovation, intellectual property, alliance partnerships and a new business model, all of which I spoke about has helped us gain a beachhead in this opportunity and our focus for future will be to expand our footprint, while continuing to dominate our traditional area of strength.

We are investing in new initiatives to deepen these capabilities to enable this and the launch of our new brand statement is also an important initiative to support this aspiration. And we look forward to your support and good wishes in this journey.

To conclude, I will also want to call out Ramki and the role that he has played across TCS and also in the larger Group. And to thank him for his contributions and being a pillar of strength for the Company in its own growth journey over the last many decades. Thank you all for participating and over to you for Margaret to close. Thank you.

V Ramakrishnan — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks].

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How did the first quarter of 2021 turn out for the airline industry?

The airlines sector was severely impacted by the disruption caused by the COVID-19 pandemic in 2020. A year later, the industry is still limping its way to a recovery. In

Amazon (AMZN) fine-tunes growth strategy to stay in the fast lane

The company that witnessed the strongest growth during the pandemic is probably Amazon.com, Inc. (NASDAQ: AMZN), which went into overdrive when the crisis triggered an online shopping boom. Taking a

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