Birlasoft Ltd
NSE:BSOFT
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
545.4
853.4
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Birlasoft Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to Birlasoft Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Vikas Jadhav, Head of Investor Relations, Birlasoft. Thank you, and over to you, sir.
Okay. Thanks, Vikram. Good morning to all of you, and welcome to Birlasoft's Q1 FY '21 Earnings Call. So we have today joining with us our whole management team, which is the Dharmender Kapoor, DK, who is our CEO and MD; Roop Singh, our Chief Business Officer; Shreeranganath Kulkarni, SK, who is our Chief Delivery Officer; Arun Rao, who is the Chief People Officer; and of course, Shantanu Rudra, who heads Finance for us. So please note that anything we say on this call and which is referring to outlook or future is a forward-looking statement and must be read in conjunction with the disclaimer, which is given in our investor update, and which has been, of course, sent to the exchanges, which mentions that as the company faces. With this, I now hand over the call to DK. Over to DK, please.
Thank you, Vikas. Good morning to all of you, and welcome to Birlasoft quarter 1 financial '21 earning call. I trust all of you and your loved ones are safe and keeping well. This financial year first quarter will go down as one of the most demanding for every year, so not only in India, but globally. These are testing times, and I'm glad Birlasoft has managed to come out relatively well. And this was possible due to the efforts of all our employees and support from our customers and partners. I wish to thank all of their trust shown on us in these times of pandemic. I'm also very thankful to our investor community for their trust in Birlasoft and in keeping themselves invested during this time. We are committed to create value for our shareholders and stakeholders. We all continue to work from home, at least till August 31, and then we will take a call depending upon the situation and our customers' requirements. In the meantime, we still focus on the safety of our employees and have laid down the necessary steps in case we decide to safely return to the office. In fact, we [ also find ] a few of our employees and their family members testing COVID positive during this time. And we assisted them wherever required, and by God's grace, most of them have already recovered well and are keeping safe. I have been mentioning about the closure of the last piece of integration, which is the IT integration between the 2 companies. Although we had plan to integrate before COVID, but despite the acceleration of COVID and lockdown and work from home, we took this tough decision of integrating in this environment, and I'm happy to say that we have [ successfully completed ] the IT integration in the second week of June. And I would be thankful to all of the people involved who worked very, very hard on this. Coming to the quarter 1 performance and its highlights. As you have noticed, our revenue were at $121.2 million versus $125.6 million in the quarter 4 last financial year. We had a decline of 3.4% quarter-on-quarter, while it grew 8.5% on year-on-year basis. The revenue in quarter 1 was better than what we had anticipated. The decline mainly came from the sectors such as manufacturing, auto and energy verticals. However, BSFI was relatively stable and life science saw a good growth during this quarter. On the margin front, we saw our EBITDA margin at 12.3%, a drop of 50 bps quarter-on-quarter, an improvement of about 240 bps on a year-on-year basis. Despite the drop in the revenue by 3.4%, the margins were relatively stable. We took measures in reducing our cost for quarter 1. Some of positive impact will also be seen in the quarter 2. Most importantly, the encouraging part of the quarter was on the growth for future. We [ found good health ] in winning deals despite COVID situation. This is reflected in our TCV wins, which stands at $130 million during this quarter, equally split between new business and renewals. This is probably the second best quarter that we've had in the last 6 quarters post-merger with KPIT.The deal win traction is across horizontal, like infrastructure, IES, SAP, digital and applications and [ asking ] services. In fact, our deal traction in last 1 year is very significant in the [ other ] services, which has grown significantly. Our focus during the quarter was to secure long-term deals and commitment with our clients. That certainly will provide us with better stability and predictability of revenue. These COVID times have opened multiple opportunities in cost optimization, fiber security, governance and compliance, digital, cloud adoption and automation area, and we are working with our [ customers ] in addressing their needs, both for the short-term as well as for the long term. We have seen a further consolidation of our business with key customers, and this is reflected in the growth across top 5, 10 and 20 customers. Further, active clients count has gone down by 22 in this quarter and 42 on a year-on-year basis, in line with what we planned for cutting long-tailed and nonstrategic accounts in a gradual manner. We have also carefully reflected on capabilities and sectors where we need to improve, and we are using this time of slowdown in recrafting our strategy to be prepared for the momentum that we may have to catch soon after COVID situation is eased out. While the current market condition under COVID situation is still unpredictable, I am also very, very optimistic about our healthy pipeline with a mix of cloud and infrastructure, digital and ERP deals. The IT services industry will have to embrace the effects coming from the impact on various industries, but this is also a correction time for us to reimagine business model that not only help our clients sustain and remain competitive, but also keeps us to continue as a partner of choice. Apart from the business that we continue to clock in quarter 1, we continue to experience building momentum during this time. And that must shape us our recovery and revenue story for upcoming quarters. I also believe we have had a good control on costs and some of the initiatives that we took in quarter 1 would also fortify in quarter 2. This should help us see better margins in quarter 2 against quarter 1 on constant currency basis. Our accretion, as expected, has come down significantly from 19% in the last quarter, in the quarter 4, to 16.5% in the quarter 1. This was totally 1.6% in the last year. So that stability is very encouraging for us. Our fresher hiring from engineering and business schools is on track, and around 250 trainees have joined us in this quarter and that all has happened virtually. And we would continue to see a few hundred more joining over quarter 2 and quarter 3 in a staggered manner. Considering the deal win momentum, we will fulfill recruitment of offers given to fresher for financial year '21. Going ahead, our priorities will remain, number one, the profitable growth, which goes without saying. We have to continue to strengthen our talent and service lines, sales and delivery. We have hired a very senior leader in our cloud and infrastructure practice so that our go-to-market or the infrastructure and cloud services becomes better than before because we have seen a very good momentum in the last 1 year in our infrastructure services. We want to continue to improve revenue predictability and sustainability through improved annuity revenue. I have spoken about annuity revenue a few times before because this is core to our growth strategy. So we continue to cross-sell and upsell to remain as a priority for us, while expanding our relationship with key customers. We will focus on priority areas of customers because the priorities for our customers are very different during this time than what it was in the previous financial year. Their needs of better efficiency, cost reduction, mitigating their risk, cyber security is the top of agenda on their plate, and we have structured our teams, we have structured our offerings, keeping that in mind so that we go and help our customers with the service offerings. That is what is required by them in the short-term and the midterm. We will continue to keep our operational rigor. Of the quarter 1, was very tricky quarter because there were cases of projects getting deferred, there were cases of projects getting moved from on-site to offshore or there were discounts being asked. So there was going to be a much larger impact on the EBITDA in quarter 1 had we not had looked at our operational rigor. I'm very happy that we have kept that rigor, and today, we are able to deliver the margin much better than what we expected or what market expected. Before handing over to Shantanu for taking you through the numbers, I would like to conclude that we are both resilient and optimistic despite this difficult and uncertain times. We have been known for, and we will always be known for a company that is small enough to care and large enough to dare. With this, I will hand it over to Shantanu. Shantanu, over to you.
Thanks, DK, and good morning, everyone. Hope all of you are fine and keeping safe. Continuing with where DK left off, let me give you a quick rundown on how the numbers have been in the first quarter of the current fiscal. As DK briefly mentioned, our Q1 revenues were at $121.2 million, which was down $4.4 million over the previous quarter, but up 8.5% on a year-on-year basis. However, through a very strong cost optimization model, we managed to restrict our headcount costs and our SG&A costs to a large extent, which resulted in our margins being relatively stable. And the quarter's EBITDA was just down by about 0.5 percentage or 50 basis points at 12.3% of our revenues versus 12.9% in Q4 of last year. I think our PAT for the quarter at INR 7.5 billion showed a degrowth of 21.5% quarter-on-quarter, primarily led by loss on account of our foreign currency translation, which saw us swing almost about $3.7 million on a mark-to-market basis for this quarter, which resulted in our PAT being lower than where we were in Q4. However, since it's on a mark-to-mark basis, we hope to sort of improve it in the coming quarters, and this won't have a permanent impact, hopefully, as we go forward. In rupee terms, our revenues were at INR 915 crores, marginally up over the same quarter -- over the previous quarter, 0.8% to be precise, and 17.7% up over the same quarter last year. This again was basically driven by the rupee depreciation of about 4.4% for this quarter and about 8.5% for the same quarter last year. And this actually led to better numbers in terms of our performance as opposed to how the dollar numbers seem to be showing up. Our EBITDA in INR terms was at INR 113 crores versus INR 117 crores in Q4, a marginal decrease of 3.3% Q-on-Q and a growth of 46.3% on a year-on-year basis. Our PAT for the quarter at INR 56 crores was down INR 13 crores over how we recorded Q4. And this was, as I just mentioned before, primarily driven by our forex losses of $130 million for the quarter as against a gain of $139 million in the previous quarter. In light of our constant focus on managing our costs, margins and liquidity, you will be very pleased to know that we had a record cash collection of close to about $140 million in the quarter, which led to a significant increase in our cash balance of over $20 million as well as a significant reduction in our billed DSO, which declined by 12 days from 72 days in Q4 to 60 days in Q1. We did see a marginal increase in our unbilled DSO, but that is something which is a temporary phase which will be corrected as we go forward in this quarter. And that's something which we are focusing on as we look at the quarters ahead. Our billed DSO on a year-to-year basis, which is over the same quarter last year, is actually down almost about 20% from 81 days to 60 days, and that's a significant improvement that we managed to make in our efforts at managing our liquidity and margins. Our operating cash flow is at $21.4 million, primarily driven by operating profits. And our reduction in working capital is at 143% of the EBITDA for the quarter, and this is a very significant milestone that we managed to achieve for ourselves. For information, our hedge book has also gone down very significantly during the quarter, primarily as we focused on bringing most of our collections and funds from our overseas geographies where they were not earning any income to India, and I think the good news here is that we managed to actually increase our India cash balances to about 59 days -- 59% of the total as against just 44% of the total as at the end of the last quarter. However, as we brought our cash in, we also decided to convert it against the -- convert it into rupees as soon as possible to take advantage of the favorable rate, and that's what led to this drop in our hedge book from $89 million to $55 million at the end of the quarter. We continue to build our hedge book to a level of 60% to 70% of the net [indiscernible] in these quarters to come. And so we're fairly optimistic that we'll be able to achieve it. The COVID situation continues to be a little unpredictable. And while we look at our numbers, we also look at continuously focusing on improving the quality of our revenues and reducing costs. And I think we will continue to critically look at all these aspects, which will help us improve our margins even further as we go into the next couple of quarters in this year. With this, let me open the floor for questions. Thank you.
[Operator Instructions] We have the first question from the line of Baidik Sarkar from Unifi Capital.
DK, it's always a pleasure to connect and [ sum like the ] execution of the past few quarters. My heartly congratulations to you and the entire team. Three broad questions. Obviously, a ramp-up on TCVs and reported revenues have been what they are, but is there a word of caution you'd probably like to add as in, in not assuming that similar rates of growth are a given in the coming periods given the environment? In other words, if you could flesh out how the predictability of revenues are coming into play as you see it over the next year as well?
So thank you, Baidik. If you look at the current quarters, and even I would consider for the full financial year, this things are quite unpredictable even today because most of the industries in the U.S., they still continue to operate either working from home or with partial presence. So definitely, it is still an uncertain time. We have seen that there is a new wave that is hitting on the virus front, and that is causing a little bit more uncertainty again, especially in the U.S. So I believe that we are not yet out of it. And that will definitely to bring some impact on the industry, almost all industries. However, the good part of the people have started to understand that they will have to live with it. So there is planning work that has started with our clients. And they have started coming back with the initiatives that they have to face. That's the reason that we are seeing that our pipeline has improved. We have seen very good deal momentum in quarter 1, and we continue to see the similar traction in the quarter 2 also. So from that perspective, I believe the momentum will be there, and the momentum is largely because when the client has confidence in you that you can be a partner to help them improve their efficiencies, help them improve their cost, they would come and start engaging with you on those initiatives. And that is where we are seeing very good set of things happening in this quarter. So I believe that it will be a mixed bag. We should continue to keep the caution because the market situation is not very stable. But the momentum that we are seeing should definitely bring in some advantage to the decline that we were expecting in the revenue as well as in the profits. So it will bring in some stability. I believe quarter 2 will be the quarter where some stabilization will happen. And I think quarter 3 and quarter 4, we should start expecting some growth sequentially. That is not as we hope right now. But at the same time, these are all based on the assumptions that we are having based on the discussions that are going on with the clients. If there is something that is completely unforeseen that happens, then, of course, we will have to continue to look at and continue to adopt to the new situation.
That's helpful. Moving on to margins. We've been very vocal about our margin aspirations in trying to hit 15% over the next 24 months. Given the environment, does that outlook stack? I understand, you said Q2 will be significantly better. And if it does, in terms of our bridging to 15%, how does the bridge work in terms of headline growth, pyramid rationalization, offshoring? What's the bridge that will help us get it there?
Yes, absolutely. I don't think that we are letting our aspirations on the margin go down because it was a big shock in the quarter 1 because we had to move people work from home and take some additional costs during this time. At the same time, the projects that are getting deferred or the projects that are moving from on-site to offshore so that we can get better cost advantage to our customers or people coming on bench in U.S. but got stuck in the U.S. because there were no clients, and we continue to take those costs. So all that has impacted despite that we have given, I would say, decent EBITDA during this time. I believe quarter 2 will definitely be better than quarter 1 on the margins front. So I'm confident about that because some of the steps that we have taken, that advantage will also come into quarter 2. So our objective is that we continue to grow our EBITDA and aspirations are definitely there that we have to hit 15%.
Sure. And lastly, before I get back, our cash conversion continues to be very strong. So how does the Board look at capital distribution back to stakeholders in this context?
No, absolutely. They also keep asking this question and also keep on [ pursuing ] the advice because we were really looking at this taking a decision in the month of March, but the challenge happened. And at that point of time, the advisory that we got from the Board as well as the advisory that we got from all the advisers was that right now, you should conserve cash. And so we have kept a hold on that. We also kept a lot of focus on reducing our DSO or we are collecting our receivables because this is a very tricky time. What if any company comes tomorrow and files for a Chapter 11? In that case, we do not want to be in a position where we are not able to collect to be a receivable. So we stepped up our efforts so that we are in a comfortable position. And I think that has also worked very well. But what I have seen is that one of the reasons that why we were able to do so well was that whichever client we went into, they had shown a lot of confidence in us. And they absolutely had no issues in clearing all the receivables that are due to them. So we will continue to keep focus on that, but I believe it will be by the end of quarter 2 or sometime in the quarter 3 that we are going to get back to our blueprint again so that we can define as to what are our next steps with the cash that we hold.
We have next question from the line of Manik Taneja from Emkay Global Financial Services.
Congratulations for a fairly strong performance operationally. Just wanted to pick your brains with regards to the move that we've seen with regards to higher offshore delivery of business. Should we see this as a continuing phenomena over the subsequent quarters? And then also wanted to understand your comments with regards to the demand outlook in verticals like manufacturing and energy and utilities where you have significant exposure?
Yes. So yes, I think the offshoring will continue to improve because there are -- and there are quite a few reasons: one that the travel has become lesser; second, there are visa related uncertainties that are there, and the clients want to really mitigate their risks regarding that. At the same time, when the work from home is happening, it really does not matter whether the person is in the same office, in the same city or in a different country. So I think those all will fuel into higher offshoring. So that's definitely going to happen. Second, I believe that this is going to be probably a third wave of offshoring that will happen because a lot of clients initially mentioned that when it is about digital adoption, we need to develop these skills in-house and people should be sitting next to me because the experimentation becomes easier. But if you look at the kind of opportunities that we are seeing, the clients are becoming far more open because they are not looking at someone sitting next to them, but they are looking at how do we set our dollars in order to deliver more within the budget that we have. And the budgets are going to be concern for everyone, and hence, the offshoring is something that is going to pick up. So I believe there will be a third wave of offshoring that will happen as the recovery starts on the COVID side. Coming back to the different sectors. If you look at manufacturing, I believe manufacturing is very core, and we saw these hits happening because of the COVID because supply chain got impacted, and there has been an impact. But I believe that it is not going to be there for very long. Manufacturing is absolutely very core to the consumption and to the supply chain worldwide, and hence, it will bounce back pretty soon. The good part is that every manufacturing is now really looking at these digital supply chain solutions. They are looking at what are the other methods that we can apply which are technology-driven. And they have a strong belief that technology is the only thing that can pull them out of the mess that we are in. Hence, this technology definitely is going to take a lot of acceleration. And I'm sure that there will be growth coming in the manufacturing as well as in the other sectors also. The growth also is for the reason that when they go and focus on the technology, they are able to deliver more with less. And hence, there will be a focus on offshoring, on technologies; at the same time, on the partners such as ours, such as us that how can we go and provide them the cost efficiency, how can we go and provide them the benefit on the risk mitigation that they want to have.
Sure. Sure. So just trying to follow you a little further, DK, you made a very interesting remark that customers now are much more open to newer work from home. So is it possible that the typical rate cards related to offshore delivery, onshore deliveries may no longer be relevant? You might actually be able to price in services much more competently even if the work is being delivered from working in India?
So this price competitiveness will always be there, and we have to understand the fact that we are in the business to help our customers achieve more with less. And hence, we had to remain very, very competitive. Even if the client is not asking for a price reduction, we should always be ready to provide them the cost reduction or continue to improve our own margins. So I think that fact is well established, and I don't think that we should shy away from accepting that fact. Working from home, I don't think it is going to have too much of swing on the cost. Some of these costs will go down for us. But on the other area, it will also increase. So I don't think there is going to be too much of swing when it comes to working from home. And the clients also understand this very well because they are far more matured in the working model, where the work from home is a reality. So I don't think that would be the reason. However, the pressure would be because these products have lesser budget and they want to achieve more. They will ask for different operating models through which they can get better advantage on the pricing perspective. For example, some of the assignment they are engagement, we have moved into the fixed price and managed services. So the clients get the flexibility of better pricing and we get the flexibility of making better margins by optimizing our own operating costs. So I think those are the things that are going to be very, very crucial. If you look at many of the customers are today talking on the commercial model which is outcome based. And what we also call it as uberization of the services. And today, I feel very happy that we did 2 or 3 deals, including in [ 1 year ], in the last year, which was the model that has become far more relevant today. We have been talking about enterprise digital. That is far more relevant today than it was 2 years back when we actually came up with that idea that the clients will not always want to transform in the way that the product vendors will go and push for. They would like to always protect their investments and still become digital, and our enterprise digital story was absolutely on the mark that we are not asking you to change the town, we are not asking you to rebuild the town, we are just going to protect your investments, but still make your town much, much better, much more [ compatible ] and much more efficient. And I think that enterprise digital story has become far more relevant. That commercial model that we did it with a couple of customers in the last financial year is becoming very relevant today.
We have next question from the line of Shradha from Amsec.
Congratulations on another strong quarter. So just to focus on the margin question. Margins in life sciences vertical is down almost 550 bps Q-on-Q despite the fact that we have shown very strong growth in this subsegment. So what has really gone behind that margin drop?
Yes. So if you look at the life sciences, is one area which has seen a lot of up and down during this quarter because of the COVID situation. On one side, there is a hope that the revenues for all the life sciences companies will increase, but we also have to understand that they are making huge amount of investments while they have started working on the vaccines, and at the same time in the health care space or the medical devices space, because the surgeries have gone down, the elective surgeries have gone down, they are also under pressure. So while they are taking more and more initiatives, they want that at better price. And that's the reason you would see that while the top line will be better, but they need better rates in the shorter term and they want to deliver better. And hence, you will see that there will be a pressure that will come on the margins in the shorter term.
Sure. Sir, just to confirm, there were no transition costs involved on Invacare deal in this segment in this quarter because I guess most of the costs were booked in the last 2 quarters?
There was a little bit, but not as much that it will make too much of a dent on our margins in a big way. But now the transition is over for us. And hence, going forward, that impact from that transition is not going to come. But you never -- you never see that wins going down, so that means that one transition is over, I'm sure there is another transition that we have started already in Europe with another company. So this is something which is going to be on the continuous basis. And I believe that the transition cost that comes every quarter will become stable, and it will get normalized across.
Sure, sir. Sir, just that you mentioned that you did the transition in a deal in Europe. So Europe's geography aspect is up by a strong 60%, 65%. At the same time, U.S. is down by more than company average growth rate. So was there some last deal transition that started in Europe geography?
No, no. It has not because of the transition, but it is because of the 2 things. One is that we have started putting a lot of focus on Europe because we are overdependent on the U.S., and we have started putting focus on the Europe also, and we hopefully should continue to see the percentage getting better in Europe. So that is one thing. And there have been the recent wins also in Europe. The second is that the programs such as Invacare, also a couple of other clients, they are global in nature. And we did the transition completion as well as there was a milestone completion for Invacare in Europe. And hence, we saw Europe revenue getting better from that perspective also.
Right. That's helpful. And just one last bit. What would be the energy component in our ERP portfolio now?
I think I believe -- I have not computed it, to be very frank, but I think it should be in a range of about 62% to 63%. It has improved further. It has improved further. I believe it is more than that what I'm telling you, but just to be careful in giving any number without really doing the analysis, I believe it definitely is in the range of 62% to 63%. We closed -- last year, we closed March quarter 4 at 60%.
Great. Sir, just one confirmation. This aspiration, the revenue was 15% margin. Sir, this is by FY '22 earnings, right?
This is, I'm sorry, you -- can you repeat the question?
Sir, we want to get to 15% EBITDA margin, and what is the time line we are looking at to arrive at this kind of a margin?
See, we were hoping that our exit quarter for this financial year will be at 15%. I believe that because the -- we have hit upon the situation, it might get delayed by a quarter or so, but we are moving in the right direction.
The next question is from the line of Ashish Kacholia from Lucky Investment Managers.
Congratulations on a good quarter. My question is basically, we've had some very good new business deal wins in this quarter. And one would think that it would be difficult to win deals announce in a quarter where there is a lockdown and all these kind of situations. So what are the kind of conversations that you are having with your clients and particularly with the new logos that they are giving us access to new deals?
Yes. See, the deals are a little bit different from the deals that we had seen in the last financial year. These deals are mostly around managed services, consolidating the existing work and converting that into the fixed pricing, also looking at wherever we can very quickly put together an operating model that will reduce the cost for our clients. So the 2 big ways, for example, one we had in the infrastucture side, okay, in the Europe, that was primarily transitioning the work from the large player where one that we very competitive; at the same time, we have been delivering a small part of the work with a very good quality to the same customer. And they decided that they will consolidate that work in our favor. So that's what happened. Similarly, in one of the energy clients, while I know that energy went through -- energy and utilities went through tough time because one was the COVID situation and second was that the oil prices were very down and that had a huge impact on them. So their need for cost reduction was far higher than any other industry. So we entered the right time, we gave them a proactive model, and we told them this is how we can help you with the better pricing. At the same time, we can help you in automating what we have not automated for a very long time. So that way, we were able to mitigate the risk for the clients. At the same time, we were also able to maintain our margins percent. So those are the kind of deals that are coming up.Then our ability to talk about -- I talk about the enterprise, digital in one of the questions before, we are going with a very different proposition to our clients. So actually those clients who are going to go for a large transformation program. And you can imagine that any large transformation program for a large company could be $200 million, $300 million program. So we went and told them that this is probably not the right time that we are going to take that initiative because we can very clearly see that you are stopping that initiative. We went with an alternative model by telling them that we will pick up their existing set of systems and we will digitalize that, and we will implement that across other geographies. So that, in probably 1/5 of the cost or 1/7 of the cost, you are able to achieve the same results at least for the next 2 to 3 years. So if you are able to close that for the next 3 years, they felt very confident that they don't need to take much larger initiatives because they are on their cost reduction scheme. So they took that and awarded us the program. And it's going to be about $28 million program in the next 2 years where we will go and implement their DE across the globe for them. Okay. So those are some of the programs that we are doing. Our clear objective is that we don't have to always sell what we have. We have to sell what our clients are able to buy today. So we had to reposition our offerings. We had to realign our teams in such a way that we are talking what clients is ready to listen today.
And sir, any -- would you like to shed any further light on how the Invacare relationship is progressing?
So Invacare, I think, is going very well. Now we have completed the transition in this quarter as well as we also completed the e-commerce implementation for them. So we got some advantage because of that with Invacare also. So our revenue was a bit higher than the normal. But normally, it will remain stable around $6 million as we talked there. So -- but this quarter was a little better than that, than the other quarters, which gave us the advantage. I believe we have to continue to look at how do we deliver on time for that. We are able to get the planned revenue from every customer. It is not about Invacare, but on every customer. Life sciences was a very tricky quarter this -- tricky vertical this quarter because everybody thought that it will grow leaps and bounds, but they have their own priorities. But I believe that as the recovery happens, that is the sector to be watched because that is what we will have to watch for because this is going to grow in a very, very big way. And I'm very happy that we are very strong in the medical devices. We have opened up 2 new health care accounts net new in the previous quarter, and I'm talking about the health care provider at the hospitals and related services. So that is another micro vertical that we have opened up during this time. And our pharma continues to do well in the select customers. So I am absolutely very excited about this chapter.
We have the next question from the line of Rajeev Agrawal from Doordarshi Advisors.
Fantastic quarter. So my first question actually is on the life sciences. It seems like if I look at how we have grown over the last 1 year, it has been more than doubled in terms of our revenue. And I think, DK, you just now mentioned that life sciences is something that we are very excited about. So how do you think about potential opportunities in this space? Can you talk a little bit about what will come for us over the next few years?
No, definitely. Rajeev, if you look at the snippets of our strategy that I talked in almost every call, is that we are slowly bringing and narrowing down our focus on select technologies and select micro verticals. We are a small company. We are not a large company where we have to go and say that we can go and play in every single sector in the same way. So we have to look at what are the micro verticals, not the full vertical, but the micro vertical, where we can dominate that position. And medical devices was one such case. Similarly, discrete manufacturing was another case, okay? In the energy and utilities, in the services sector was another space within the energy and utilities sector. So we very well define that these are the micro verticals that we are going to go after, so that we have a very dominant position in that. And that is the reason that we are seeing that growth. Life sciences worked very well for us because we closed some of the very good clarity, and that is the reason that we are seeing that upswing. There are similar -- and as of now we have started seeing in the energy as well as in the manufacturing area as well. And I believe that we will see similar growth that would be happening in the other sectors also. If you look at in the quarter 1, out of $179 million or $180 million win almost half of the wins or the $90 million is coming from the manufacturing. While there is a whole discussion about manufacturing slowdown, and that's true also, our half the wins happened actually in the manufacturing sector. That clearly shows that the manufacturing companies are looking towards technology to help solve the situation that they are in. And that, in my opinion, is very, very encouraging. And because of our focus on the micro verticals, we are able to go to them and clearly state that this is the problem, we know the best, and we solve the problem. And hence, it becomes both the niche service that we are putting in front of them, but at the same time, we are able to display the confidence because we have many [ pat ] references of doing the same work with other customers.
Got it. Got it. No, that's very helpful. The next one is, I think you mentioned about it, DK, earlier that company is looking to get more into fixed price project. When I look at your numbers, it clearly reflects the fact that our proportion of the fixed price projects have grown. So would that be some of the drivers which will help us with the margin expansion?
It will definitely help us with the -- we have closed a very good deals, very, very recently, more than $15 million. I'm not giving a number because the clients have asked us to keep quiet for some time because it is sensitive. So that is a deal which is on the fixed price. A good portion of that is actually the adjusting business that we do with the customer [ is in signed ] in material basis. But of course, there is a portion of that which is the new revenue as well. Now the big part of that is that we are providing benefits to the customers by securing higher margin for ourselves because we are going to run the entire thing in the managed services way. So we are going and negotiating with our customers. In quarter 1, we did a lot of that. We went and negotiated with our clients, that let us change the model so that we are able to share the benefit. And I think that has worked very well for us. And both, in my opinion, are going to be more and more discussions in the coming quarters as well.
Got it. Got it. And just on the flip side, how do you see the risk in a fixed price project? Obviously, you're taking the risk because you want to have better margins. But how are you mitigating some of the risks that exist in a fixed price project?
No, the risk is only if we do not deliver in the service levels that we are committed for. That's the only risk. But because we clearly have the benchmark available, it is very clearly known in delivering that we have, for example, we are already delivering to them and they know at what service levels we deliver. So there is no -- absolutely no risk there. But in the new deal where we are closing into the fixed price, the plan is made in such a way that the service levels are agreed in different stages with the customer: during the transition time, during the stabilization period and then the steady state. So we achieve the steady state only when we have started achieving the service levels. Hence, the risk is minimized to almost negligible level because clients also understand and we also understand that the only way it can succeed is when we both are working like a partner. And hence, from that perspective as we go, it becomes far better to plan it that way. But when it comes to some of the other transformation programs, yes, though the risks are there, but then there are ways to define the contingency, define the budget for the contingency also, so that in case you encounter surprises you have already budgeted for that also.
Okay. And would you say, DK, that the industry is also moving more towards fixed price? Or what's your general observation about the Indian IT industry?
It is. It is. It is absolutely true that the industry is moving to the fixed price. And that shift will continue to happen. Even if those cases rarely clients are not very much willing, I think they are also becoming more aware that to continue to get the right productivity, they will have to give that flexibility to the service provider, and hence the fixed price becomes a model, that is something that we should be adopting pretty quickly.
Got it. Just a few more questions. One is on your service offering, there is...
Excuse me, sir, this is the operator, I'm sorry to interrupt. We'd, please, like for you to come back in the question queue. [Operator Instructions] We have next question from the line of Madhu Babu from Centrum Broking.
Yes. Sir, on the new deal wins, could you talk about the client profile, like the mid-market companies with $1 billion revenue kind of size? And are we doing more full-stack service deals from here on? So just a view on the deals wins and the client profile of...
I think they were the larger companies, not $1 billion. They were mostly in the range $5 billion to $10 billion. And there are others which are smaller also because it is well spread across verticals as well as clients. But the larger wins that happen, they are with the larger players. And we continue to see, however, with the smaller companies which are in the $1 billion to $2 billion range, a lot of interest in consolidating the work and offshoring the entire IT. So those kind of conversations are happening even in the smaller companies.
Just on the profile, is it like more of a full-stack service offering, multi-service offerings? And just on the KPIT portfolio...
[indiscernible]
Hello?
In almost every large deal, it is a multi-service offering because generally with the single-service offering, the deal size is not as big. So wherever you will see any deal that is going to happen more than $5 million, it will always be a multi-service deal.
We have next question from the line of Abhishek Shindadkar from Elara Capital.
Congrats on a great execution. Sir, my question is regarding -- in your annual report, you have mentioned about creating a challenger program for top 50 clients and a focused engagement program for 150 customers. Can you talk a little bit about it? And any markers that you would want us to keep from a year perspective in terms of execution?
Definitely. Let me ask our Chief Business Officer, Roop, to answer this question because he's absolutely driving it, along with, of course, our Chief Delivery Officer, SK. So Roop and SK, over to you, if you could answer this question?
So thank you. So the objective for us is to continue to build on our top-tier clients as well as to look at the next segment of our clients. So the challenger program that we launched last year was to really work on the customer imperatives and see what their aspirations are, both from a capital expenditure point of view, plus an operating expenditure point. And I think that enables us to understand their business, understand their priorities. And more importantly, also, work with them as a partner across a range of services that they're looking at. So we did that for the top 50 clients, and we are now continuing to reflect that program to the next level. Now of course, this program not only covers specific partnership opportunities with the customer, but it also ensures that we are delivering to the quality and service requirements that they are looking at because it becomes a long-term agreement or issuance with them. And we look at continuing to grow the wallet share from both our top-tier clients and the next segment of clients.
SK here. Just to add -- I think just to add to what Roop said, there are 3 or 4 things that are important in this challenger program is, as we focus on the cross-selling, it also helps us to derisk and make sure that we are able to increase the market share across the different service lines within the client automation. That's number one. The number 2, it also helps us to build multi-level connects to avoid any dependency on single relationship that we may have. The third one, this also brings an opportunity of optimizing our operations. So it is not just growth, but it also optimizing operations and picking up the learning from each and every account, and how do I replicate this across so that the baseline of the whole organization improves there. That is what the whole challenger program is.
That's helpful, sir. And second is just a bookkeeping question on the FX hedges. So understand this quarter because you brought in the cash, there could have been a loss. But based on the hedges outstanding today, for the rest of the year, we should not be expecting a significant loss on the book? And the second thing is the effective tax rate was pleasantly at 29%, so should that number continue for the rest of the year?
Should I, DK, take this question?
Shantanu, please go ahead. Yes, Shantanu, please go ahead.
Yes. I think, Abhishek, the current thing that we are looking at, the current loss that you saw this quarter was on a mark-to-market basis. So this will obviously keep fluctuating, but we will recover a large part of those losses if the dollar rate or the currency rates go in our favor. So yes, the current hedging strategy will make sure that we do not end up losing to this extent by the time we end up the year. On your second part of the expected tax rate, yes, it has come down to 29% from the 38% where we were at end of Q4. And this is expected to improve further as we take a call after our Q2 results on how -- which is the system that we adopt, which is the regime that we go in. And I think one of the things that we're looking at is if our margins keep growing at the rate at which they currently are, we will most probably opt for the second -- the new regime, which will bring down the effective tax rate to just 25%.
Okay. And any timelines? Sorry for the follow-up, but any timelines...
We'll probably take a call once we've closed out our second quarter.
We have next question from the line of Susmit Patodia from Motilal Oswal AMC.
Congratulations on a great quarter and hope everyone's safe. Two questions. One, the attrition rate fall, is that an industry-wide phenomenon? Or is there specific that Birlasoft has been able to do about it?
While I know that it is also an industry-wide phenomena, but also in developers also our attrition has been reducing quarter-on-quarter. Because we went through a major disruption like merger, and generally during the merger time, the attrition always goes up. But we have to continue to work with our people. We have to continue to work on finalizing these structures. And then slowly, it starts coming down. So we were improving anyway, but there is a big improvement that we have seen in the quarter 1. So it is a mix of what is happening in the industry, but also the changes that we were doing internally.
Yes. So sir, [Technical Difficulty] bonus/appraisal cycle, when does that come in to the P&L this quarter?
It starts coming from the quarter 2, from the July.
Okay. So spread over 2 to 3, is that fair to say? Or everything coming from quarter 2?
Yes, in July, our most of the people get the increment and everything. The bonus and all that is already paid out in the quarter 1 for the previous year incentive, and everything is already paid out.
Got it. The next question on -- is just on utilization. How -- what do you think is the optimum level? You've already reached 80%. What do you think or where do you go to?
Yes, utilization has taken a hit of about 10% in quarter 1. We believe that our utilization should be anything around 82% to 83%, okay? That is the goal that we want to have. If we were not in the situation that we are in, we would have actually achieved that level of utilization already because if you look at the last 4, 5 quarters, we have been improving our utilization. We started at around 75%, 76% and reached about 81%, 82%. So I believe that now things will start getting stabilized, we'll be back to around 82% very soon.
[Technical Difficulty]
Sorry, your voice is dropping.
[Technical Difficulty] that you follow.
I'm sorry, sir, but your voice was dropping, I couldn't hear the question.
Okay. [Technical Difficulty] the hedging policy that you follow, if you could just take this through that?
Yes. What we try and do as a strategy is the fact that we try and cover at least about 60% of our net forex inflows at any given point in time to make sure that we don't lose out on account of the currency. That's the broad policy that we follow. However, this is something which came down a bit in the first quarter. Fundamentally, as we brought in significant amounts of funds into the country and converted them into rupees upfront. But our strategy has traditionally always been managing a comfort level of about 60% to 70% of our net forex inflows for hedging.
How long the future, sir? The...
It depends on the kind of leads that we have and the way we see our inflows pan out in the next couple of months and quarters.
We have next question from the line of Vimal Gohil from Union AMC.
Congratulations on a very good set of numbers. Sir, my question was on the U.S. geography. While you explain on the U.S. geography, could you just throw some more light on why -- what has led to this above company average decline in the U.S.? What went wrong? And what is the outlook there?
So there is nothing that has gone wrong. One that Europe has done better. So there is something that has gone right, actually, not anything gone wrong. But this quarter cannot be taken as a benchmark for the other quarter because we work with clients who have global business, they have presence in the U.S. as well as in Europe and in the other geographies. And sometimes, it also depends on the kind of work that we have done and which entity is really paying us and who gets the advantage on the geo perspective. So it is also because of that, that we clearly see the difference. But is there anything that I can pinpoint that this is something that has gone wrong? No, I don't think so. I think business as usual. It is just that this time, we had certain milestones for the Europe and others, and we have done better. At the same time, we have special focus on Europe also so that we continue to grow our revenue in Europe. So percentage-wise, Europe should hopefully continue to improve.
Yes. Sir, the only limited point that I was making is, given the deal wins that you've seen even before this quarter, they would -- I would presume that they were uniform across all geographies and U.S. would have its fair share of contribution. I wouldn't have expected a sharp decline in U.S. Probably the growth could have been more sort of evened out across all geographies, so which is why my question.
So the wins that we had in the quarter 1, there is hardly any revenue that we could get in the quarter 1 because these are really the long-term win and the -- if this side of the contract is completed and the work is started. So I don't think that is the reason for the decline in the quarter 1. There are certain customers where the projects are dropped, okay? Those happened to be in the U.S. That is one reason. Then there is other growth that we are seeing in Europe. For percentage-wise, there is a difference that you will see. But there is nothing abnormal with the U.S. revenue or with any of our clients. And in the win side also, still the maximum number of wins are in U.S. only.
Yes. So the bottom line being that you will see growth in U.S. going forward, right?
Absolutely. U.S. will continue to grow because U.S. spends the most of the money. There is absolutely great focus that we have on the U.S., and we'll continue to do that.
Sir, could you just help me with what is the mix of -- when you talk about your deal wins, what is the mix, broadly? Are you winning these deals largely based on market share gains? Or these are deals where you have been introduced as a new vendor and you've got a fresh project there?
So about 49% of the new wins is the renewal, okay, about 49% of that. About 51% is the new revenue. Out of that, if I look at, approximately 17% of the wins is the net new. That means these are the new logos and absolutely new clients that we have opened up, whereas the rest of the 34% is the cross-selling to the existing customers, but new revenue for the existing customers, [ EN ].
Right. Right. And sir, how much do you want to take your annuity business to? You said it is about 62% to 63%. What would be the optimal number that you would want to take it to?
Minimum 70%. Minimum 70%.
Right. Okay. Okay. And this is a similar level for the industry as well?
No. The larger companies, if you compare, the larger companies have much higher annuity revenue. So our objective would be that if we are like them, but we must know the reality that these smaller companies also do a lot of niche work. So it becomes difficult for them to play at that level. But if we are at 70%, 75% range, we will be doing well along with our peers.
It ensures to help your profitability as well, right?
That's right. Absolutely.
Congratulations, once again.
Thank you.
Ladies and gentlemen, due to time constraint, we'll take the last question from the line of Mr. Rohit Balakrishnan from VRDDHI Capital.
Hello? Am I audible?
Yes, Rohit.
Yes, Rohit.
Yes. Sir, most of the questions have been answered. So just one question on your revenue mix that you mentioned. So I see that this Other segment has actually -- has almost doubled, say, from last 4 quarters. So can you just talk a bit about what the others is? And just a related question, you mentioned in your press release also that enterprise -- I mean, there is a strong demand to modernize the IT in a lot of enterprises. So do you see more opportunities in, let's say, your -- like your legacy verticals like [ gas], et cetera? So if you can also talk a bit about that?
So the Others is, actually, we are going to hopefully sometime reclassify it again so that there is no others and it is very clearly specified. For the emerging horizontal or emerging technologies for us comes as part of the others. For example, when you talk about CRM, we talk about infrastructure management and cloud. These are some of the -- or the testing services, these are some of the services that come as part of the others. And as you would imagine that there is a significant interest in the infrastructure outsourcing and the cloud migration or legacy modernization, that's the reason that you see that a lot of growth that we'll continue to see into the others horizontal also. But having said that, will the growth be there in SAP or Oracle or not? I think they are the large area. They will definitely continue to grow. I believe that the larger transformation program will slow down. If somebody was going to dig in a new program, they are going to put it on hold for some time and come back to that probably 6 or 9 months later. So from that perspective, there will be a slowdown on the transformation programs. Whereas if the program was already underway, nobody will try to shop that because that would mean that the money is completely sunk, and they'll have to continue to go with that plan. But SAP and Oracle are both big growth area for us, and they will continue to remain as the #1 priority when it comes to the horizontals. Apart from the digital output because digital, there is a good wave and we are catching it well. So that will continue to grow. I don't want to talk too much about digital because everybody talks about it. But on the Oracle and SAP side, that will remain as a priority for us.
Got it. And I guess you mentioned -- just a clarification, you mentioned that you'll take all on the cash that is there somewhere around Q2 or Q3, right?
Correct.
All the very best, and congratulations on what we have seen so far.
Thank you very much, Rohit.
Ladies and gentlemen, that was the last question. I'd now like to hand the conference over to Mr. Dharmender Kapoor for his closing remarks. Over to you, sir. Sir, any closing comments?
Is that -- you've given it back to me, the control?
Yes, sir, to you.
Okay. Okay. Excellent, yes. So thank you very much, everyone, for joining. I believe that I'm personally very satisfied the way the team has gone and pushed back and fought for every single deal that was there on the table. They have negotiated well. They have really gone and provided the confidence to the customer that we are the right partner for them, that the reason that we continue to see to this is that the return on [ DSA ] is at industry's best level. And I don't see any reason that with that mindset and with that momentum, why we would not be able to carry momentum that will come at the end of the COVID situation.So we are absolutely being very vigilant. We are actively being on top of every single day on the situation that is processing. And we are we are fully committed to providing the value to each of our shareholders and stakeholders. So thank you very much for your confidence, and all the best for all of us for the next quarter. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of Birlasoft Limited, that concludes this conference call. Thank you for joining with us, and you may now disconnect your lines.
Thank you.