Birlasoft Ltd
NSE:BSOFT
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Birlasoft Ltd
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Ladies and gentlemen, good day, and welcome to Birlasoft Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhinandan Singh, Head, Investor Relations, Birlasoft Limited. Thank you, and over to you, sir.
Thank you, and welcome, folks. By now, you have received or seen our results. These are also available on our website, www.birlasoft.com. Joining me on this call today are our CEO and MD, Mr. Angan Guha; and our CFO, Ms. Kamini Shah.
We will begin the call today with the opening remarks from Angan and then, Kamini. But before I hand over the floor to Angan, a quick reminder that anything that we see on this call on the company's outlook for the future could be a forward-looking statement. And therefore, that must be heard or read in conjunction with the disclaimer that appears in our Q1 FY '24 investor update, which has already been sent to you and is also uploaded our website as they are filed with the stock exchanges.
With that, let me hand over the floor now to Mr. Angan Guha, our CEO and MD. Over to you, Angan.
Yes, thank you. Thank you, Abhi. Good evening, and good morning, wherever you are, and thank you for your time today to join us for the discussion on our quarter 1 financial and operational performance. I trust all of you having the results.
We are pleased to report a strong start to the current fiscal, delivering a robust performance during Q1, both on revenue and on the margin front. Our performance during the quarter has been characterized by consistent execution, sustained investments in capability building and financial driver. As you have seen in dollar terms, our quarterly revenue crossed the $150 million mark for the first time in our history, increasing by 3.1% sequentially to $153.6 million in Q1. In constant currency terms, our revenue grew by 2.7% quarter-over-quarter. I'm particularly pleased to share that this growth has been accompanied by a noticeable expansion in our operating margin as well.
Our EBITDA margins for the quarter under review expanded about 170 basis points Q-o-Q to 15.3%. The quarter-ended revenue also demonstrates Birlasoft's ability to consistently generate strong cash flows, and Kamini will share with you more details during her remarks.
A solid balance sheet provided us the ability to make investments for future growth, both organically and inorganically. On the deals front, we signed a TCV of $146 million, but this comes on the back of 2 very, very strong quarters. As you all know, our Q4 and Q3 were record high signings in FY '23.
Our pipeline remains healthy. [ Deal ] arrangements are in active discussions, and we expect our deal flow to improve noticeably in the next couple of quarters. Our growth-led performance during the quarter [indiscernible], our sharp focus on execution during a period that has been characterized by a high degree of macroeconomic uncertainty. At the same time, we are meeting investments necessary to strengthen our tech capabilities, and we're ready to capitalize upon the uptrend as and when the demand sees a rebound.
You might have seen our announcement earlier this week on Generative AI Center of Excellence that we established in collaboration with Microsoft. This COE brings together the combined strength of Birlasoft's deep industry expertise and Microsoft Azure OpenAI service. Through this, we are also training 500 [indiscernible] consultants on Generative AI technologies. At Birlasoft, we have been early adapters to new technologies such as Generative AI, where we have already developed multiple use cases and solutions across client as well as support generation capability and multi-model solutions.
For instance, we have rolled out GenAI solution for one of our life sciences customers, a global leader in the space. We've also created an AI-based close-move autonomous solution for our customer in the manufacturing vertical that has improved rate of production, quality, uptime of machines and sales energy consumption. In many cases, we have been innovating with our customers, which enables better risk assessment in terms of security of data privacy, which without losing sight of rewards such as the productivity gains.
We have begun applying AI internally as well within our own ecosystem in our processes, such as in talent transformation, where we are applying AI-based to assist our talent pool and suggest personalized learning path with the skill-first mindset.
At the rest of my initial comments, I would like to throw some light on the demand environment. Our performance during Q1 results shifted the external environment over the past few months due to a confluence of factors. And I suspect the IT services industry will probably see the impact of the current macro situation for a good part of the current financial year. However, customers' organizations continue to spend on IT. There has been a change in the priorities, however, as they look for better value from their IT spend and deeper partnership with the IT service providers.
As a result, the overall tax spend should stay healthy, with the spending skewed towards operational excellence, customer experience and cost efficiency. This is what is driving our cautious optimism when it comes to our business. For Birlasoft, therefore, the full year outlook remains unchanged and is one of growth with margin expansion.
As I mentioned in our earlier call as well, our suggestion would be to measure us on quarter-on-quarter performance and the revenue that we generate through execution every quarter. We believe that our focus on execution, capability building and driving a client-centric organization with a culture of high CD ratio will enable the next phase of growth in our journey.
At this point, I would request Kamini, our CFO, to share her perspectives on the quarter. Kamini?
Yes. Thank you, Angan. A good day to all of you. Thank you for joining us, and I hope you are all doing well. Let me take you through the financial highlights for the first quarter of the current financial year.
We have reported revenues of $153.6 million in quarter 1 FY '24, and this includes an inflow of $2 million that we have received from Invacare towards this engagement services that have ended on 31st May 2023. This represents a growth of 3.1% quarter-on-quarter on dollar terms. Excluding the inflow from Invacare, Q1 revenues grew at about 1.7% quarter-on-quarter. If you have to look at it from a constant currency standpoint, our revenue growth has been at about 2.7%. And excluding Invacare, it's been at about 1.3%.
The growth was driven by a combination of new projects, ramp-ups, account mining. We've seen growth across our top accounts, with top 20 accounts growing at about 2.7% quarter-on-quarter. As far as our verticals are concerned, our growth has been led by BFSI and manufacturing, whereas from a service line standpoint, it has been largely driven by infrastructure and ERP.
As you might have already noticed, from this quarter onward, we have started aligning our verticals and service lines, reporting with which how we are driving our business. So you will see our focus in terms of reporting from our 4 service lines and 4 verticals in a way that better reflects our business.
Moving on to the EBITDA performance. Our EBITDA for Q1 was at $23.5 million versus $20.3 million in Q4. This implies a 15.3% EBITDA margin, which is an expansion of about 170 basis points quarter-on-quarter. This has been largely driven by better gross margins, led as well as lower SG&A; a lot of operational efficiencies; lean and automation; sustained improvement in attrition rates and a healthy utilization are all the factors that have contributed to our margin performance for the quarter.
As a result, our PAT for the quarter increased to $16.7 million, up 22.7% quarter-on-quarter. PAT margin at 10.9% was an expansion of 175 basis points quarter-on-quarter. While the effective tax rate for the quarter stood at 24.3%, we expect the full year EGR to be at about 25%.
Let me now briefly touch upon the key balance sheet items. Our cash and bank balances at the end of the fourth quarter stood at $150 million. This reflects our ability to consistently generate strong cash flows, also evidenced by our stable DSO of 53 days. For the first -- for the third time in 5 quarters, we have recorded a quarterly collection that has crossed $150 million. And our operating cash flow during quarter 4 -- quarter 1 has been at about 101% [ of ] EBITDA.
To conclude, the growth and the margin performance that we have reported in the face of the macro headwinds the industry has been facing demonstrates our ability to execute with financial discipline. It also gives us the confidence to deliver revenue growth and margin expansion for the full financial year as well. We are generating strong cash flows, and that enables us to make the investments necessary to drive growth in our business going forward. Thank you very much. Back to you, Abhi.
Thank you. Moderator, please open the line for questions.
[Operator Instructions] The first question is from the line of Rebor Senga from Nuwama Equities.
Congrats on a very solid performance in a highly uncertain environment. So Angan, my question was basically on 2 things. One, on the growth part and the other on the deal flow parts. So the deal flow, as you mentioned -- I mean, as we know, I mean, it was a bit softer in this quarter. And as you mentioned, it is following 2 quarters of record high deal flow. But going forward, how do you see the deal flow momentum continuing? Was that an aberration in this quarter that we had a softer deal flow, some of the deals that might have basically spilled over to the next quarter? Or do you -- I mean, how is the overall demand environment? And in that context, how do you see this deal flow number going forward in the coming quarters of the financial year? And similarly -- so I'll probably take the answer to that question and then switch to my second question.
Yes. So thanks for that question. So the way you should look at deal flow is not on a quarterly basis but over a period of time. Because as you know, the closure of deals is not really in anybody's hands because it typically depends upon your clients' ability to close deals. So you should look at our performance in 3Q of last year, 4Q of last year and 1Q of this year. We've had record these [ closures ] in 3Q and 4Q.
I understand that this quarter is a little bit -- we have seen a little bit of softness. And that is primarily really due to the fact that some of our deal closures, which were supposed to happen in Q2 -- Q1 has got pushed out to Q2. But the good news is our pipeline is improving. We've not lost any deals to competition. And we believe that our Q2 signings will be better than the Q1 signings. But look, the market is really uncertain. The uncertainty continues. So we have to predict quarter-on-quarter performance when it comes to the finances. But we will be focused on revenue expansion this year.
Got it. And to tie that answer up with the growth that we reported, I think, in this quarter, even if we strip out the Invacare settlement amount, I think the growth was pretty solid on the dollar revenue front. As we have seen, I mean, multiple other companies, many of your peers report results in the past few weeks, it's been kind of a mixed bag. Some companies are able to hold up in terms of demand and the growth momentum. But I think one thing which is across the board is that all of them are facing uncertainties regarding the execution time line of the deal.
So keeping that in context and that we -- the deal for momentum in this, I mean, given that we reported around 1.7% growth in this quarter, adjusting for the Invacare number, do you see this growth momentum continuing in the coming quarters as well? Or do you believe there could be some acceleration or deceleration to the growth that we reported in this quarter and your reasons for it?
Yes. So it's a tough question to answer because, like I said, the market environment has not really changed so much, while the uncertainty continues and the market is very volatile. Like I said in the last quarter, I think you should measure us on quarter-on-quarter performance. We would stay focused on execution. Like we have done in quarter 3, quarter 4 and now in quarter 1, we will continue the similar trend in terms of institution.
Now how much will that reflect in our growth, I can't really commit, and we don't really give guidance. But suffice to say that we will continue to execute the way we have executed and hopefully, things will look better. From the prospective demand environment, then like I said, the pipeline is growing, which is a positive. We have not lost any deal to competition, and that is also a positive. So I wouldn't be too worried about 1 quarter of letter signings because I definitely think that we can catch up in this.
The next question is from the line of Dipesh Mehta from Emkay Global.
A couple of questions first. Just want to get a sense about the normalized margin. Now as we indicated about adjusted revenue growth, if you can provide some sense about the margin. Because once, let's say, we enter into Q2, we might have salaried impact. So if one wants to understand like-to-like how margin is keeping us for us, if you can provide some sense about normalized EBITDA or EBIT margin for us?
Second question is about the service line performance. If you can provide because we reported it first time. So if you can provide some sense how we expect all these service lines to play out for us, considering the overall demand environment plus the investment focus, which we have. And the last question, which is, to some extent, linked with the margin. When we plan to give salary hike and anticipated impact of it? And from a medium-term perspective, what would be our aspirational EBITDA margin or EBIT margin, if you can give some sense.
Yes. So Dipesh, thank you for the questions. So Dipesh, look, from our -- so I will take the last question first, right? So we intend to give salary high starting [ second or first ]. So you can actually bake in about 1 month of negative impact on margins due to the salary hike. However, we will continue our winner when it comes to execution. So our endeavor will obviously be to mitigate the cost that comes into our books because of the size we have. So that's point number one.
Point number two, which ties back to our first question. So if you really look at Invacare, Invacare, the amount of revenue that we got and the amount of cost that we took kind of nets out itself. So it's not a positive or a negative impact. It's a small impact, very small impact, nothing to be talked about. So you can take our normalized margin at the current levels that we have reported. So that's question number two.
The answer for number three, in terms of the way we are going to report going forward is, like Kamini said, we will continue to report performance on our service lines and performance on our verticals. As you have seen, 2 of our verticals have done an incredible job, BFSI and Manufacturing. They have grown above company average. And similarly, on the service line side, infrastructure and ERP have grown above company average again. But not to say the other service lines are weak. Other service lines are strong as well, and they are growing at about company average.
Our sense is the financial services and manufacturing will continue to do well. On the service line side, we strongly believe that we've got great momentum with new leadership in both ERP as well as our infrastructure business. Our digital and data business is also strong, and you will see the momentum building up there as well.
So I hope I've answered all your question, Dipesh, but I would also caveat everything that I said, it all depends upon how the macro environment moves, which is why I keep saying, you must always measure us on quarter-on-quarter performance and not year-on-year performance.
I understand. Just follow-up 2 questions. First about BFSI, if you can help us understand. Because BFSI, most of your peers indicated some kind of weakness, either delaying decision-making, elongated sales cycle, plus some kind of discretely spending weakness. We are seeing some positive trends. So if you can provide some sense about which subsegment is driving growth for us.
Second question is about ERP. If you can provide in the revised service link breaker. How we are defining ERP. Is it services kind of play is also part of ERP, which is driving growth or even on in we have seen some before.
Yes. So Dipesh, let me answer the first question first, right? Sorry, what do you -- Yes. So Dipesh, BFSI for us is a very small business. So it is not going to be correct to compare our BFSI business with some of our larger peers, right? If you look at our BFSI business, we don't really work with any banks, which is where the negativity is coming in from. We work with lending companies. We work with payment companies. We work with some infrastructure companies. When I talk about infrastructure, I mean financial services infrastructure companies, those are our market segments. And those market segments are resilient, which is why you're seeing our growth.
Also, you must remember, our BFSI business is very small. It's just about $130-odd million, unlike some of the big peers who've got billions of dollars of exposure to financial services. So in many ways, that comparison is not right, which is why we continue to see momentum in our Financial Services business, and we will continue reducing that momentum.
But look, eventually, our goal is to work with banks. I'm not saying that we will never work with banks. We want to work with the larger banks. And as we go forward, we will put in a strategy to enter some of the big banks, not only in America, but in Europe as well, right?
Now on the ERP side, the way we classify ERP depletions, all our ERP businesses, whether it is our relationship with SAP, whether our relationship with Oracle, whether our relationship with Infor, all of that comes under 1 ERP business. Now as you also know, our ERP business saw shrinking quarter-over-quarter for almost 8 quarters in a row.
Last call, I had told you that it's bottomed out. And this quarter on, which we will see growth which we have seen. And I'm hoping that the ERP business has already bottomed out and we'll continue to see growth.
Now on the question of whether the growth is happening on-prem or cloud, our growth is happening on the cloud. And I think that is a big opportunity for us on the ERP business, Dipesh.
We move to the next question, that is from the line of Mohit Jain from Anand Rathi.
First, on the $2 million that you have booked in revenues from Invacare, so can you just help me with the reclassification part? Like will it cut across the vertical revenues and service and revenue base there?
Yes. So Mohit, we did cut across only 1 vertical really because in [indiscernible] into 1 vertical, which is a health care vertical. And from a service line perspective, it was predominantly infrastructure and a little bit of digital.
Primarily into?
Predominantly infrastructure and a little bit of digital.
Not into ERP either?
Not so much in ERP, no.
Okay. So the end top line time, assuming top line growth is adjusted for the $2 million [ things ], the number that you are looking at, right, because it is [indiscernible].
That is correct. That is correct, yes.
Perfect. And sir, second is more related to your reclassification. So some manufacturing and health care. I think you have both certain clients from 1 segment to another. So if you could give us the revised definition of who sits where.
Yes. So Dipesh, again, this is an internal reclassification, doesn't affect our external reporting in any way. But of course, it gives you a view which becomes a starting point going forward. So we've essentially classify a life sciences business as life sciences and services, which means any company that serves or deliver services to the Life Sciences clients for delivery services to the end client, which is related to a life kind of an activity, we would classify that under life sciences and services, which is why you see the movement. But that is only to baseline. That has no ramification on the overall numbers as you already know, Dipesh.
Right. And the medical device manufacturer, they will now sit in manufacturing? Or will there still certain life sciences?
It would still sit in Life Sciences.
Okay. Perfect. And last one on the full year outlook. I think you touched upon this topic in the initial remarks. I would like -- so full year outlook, given that everything is related to macro, is it fair to assume that for us, it will be very similar to where industry could end up?
Yes, I think so. So Mohit, I would say that you should benchmark us against the industry. But again, I'm a little -- I won't always do that caveat that don't benchmark us on a year-on-year growth because with Invacare, it kind of muddies the water, just [indiscernible].
Sequentially, from a sequential growth standpoint.
Yes. [indiscernible] should measure us. And sequentially, our end of goal, it will be to do better than the industry.
We'll move on to the next question. That is from the line of Shradha from Asian Market Securities.
Congratulations for the good quarter. Couple of questions. Sir, do you see an internal guidance of [indiscernible] 16% margin, given what we have performed in 1Q?
Yes. So Shradha, thank you for the question. So look, I mean, we don't give guidance, as you know. But like we have indicated, even after doing all the investments and doing the salary hike as we have indicated, starting September 1, I still believe that we can exit the year, which is 4Q of FY '24, with a 16% EBITDA. And that is something that we continue to maintain.
Right. That's great. And secondly, trying more from the strategy point of view. Where are we on our journey of restructuring that we had undertaken since you took over in terms of hiring new leadership across all verticals. And in terms of filling in the key rules, how much have we done on the restructuring factor? And how much is still left to be done?
Yes. So Shardha, again, a great question. Look, as I have said even in the last call, CXO minus 1 leadership is all hire, right? We have a new leader running our Infrastructure business. We have a new leader running our ERP business. we've hired leadership across verticals. So from a one-down perspective, we are -- we've hired. We made all the hiring, right?
Now it is a question about putting our head down and executing. From a CFO perspective, as I have said, that we are in the process of hiring a Chief Operating Officer. We are still on course, and we will have our Chief Operating Officer on board very soon. Similarly, we are in forced to hire the CEO for the Rest of the World business, and that's also on course. So in many ways, a lot of the leadership has already got higher. But look, we continue to monitor our leadership performance, which we will continue to do. The structure will not change. But we will look at performance, and we will be a performance-driven organization. So that's all I can say at this stage, Shradha.
Right. And just last question, again on ERP reporting. So what has changed under the new format versus the old one? Because we see a 3% drop, if I look at the -- as in now, I mean, the computation of ERP in 4Q, as per new reporting, is 3 percentage points lower than what it was getting reported in the earlier format. So what has been the [ sting ] in terms of moving parts from the subsegment for ERP?
Yes. So we've just created sharper focus, Shradha. So what we've done is in the earlier scheme of change, we would report all report separately, S&P separately, in force separately, right? We bought all of that together. Now as you also know that we are putting in sharper focus on lesser number of clients, but we want to do good work with clients. And that is something that you will see, which is why last quarter, 4Q of last year, we had the lowest revenues from ERP possible. And in my commentary, I had mentioned that we will bottom out and start growing 1Q onwards, which we have demonstrated.
Right. Sir, again, just to follow up on the ERP question. So would it be possible for you to split the revenue in terms of comment legacy and how much is cloud ERP for us currently? [indiscernible] works your base?
Yes. So Shradha, even last quarter, I had mentioned this that legacy versus cloud is a little hard to kind of bifurcate like that because long work that happens on-prem also has little bit of factor of cloudification, if you will, right? So I know company does that, and it's happened to give a breakup. I can only share at the macro level. Our end level going forward in the ERP business is to win more and more deals on the cloud side rather than on the on-prem side. But equally, I can tell you, shut back, there is on demand on the on-prem side as well. And we'll be focused on both sides of the business.
I'm sorry, if I can squeeze in one more question. So [indiscernible] first on the CP upgrade cycle to come through in the next 1, 2 years.
So sorry, I couldn't hear the question, Shradha. Can you repeat that question, please?
Sir, I was just asking us to how much do you think we can benefit of the SAP upgrade cycle that we expected?
Yes. So again, a great question, Shradha. Look, as we all know, that we have a window between now and FY '27, right. When there'll be a lot of spend in terms of SAP moving to on-prem to on cloud, which is why we kind of put a special focus on this business, hire talent, brought the organization together and how we are well poised to capture a greater market share as the movement happens. And I can't give you specific numbers because it's a -- might be $1 billion opportunity, quite frankly. But yes, we will be focused on winning market share from similar like-minded companies going forward.
[Operator Instructions] The next question is from the line of Abhishek Shindadkar from Incred Capital.
Congrats on a great quarter. My first question is on the segment results. The Life Sciences reported number has kind of doubled quarter-on-quarter. What explains that outside of the $2 million that we may have received from the customer?
And the second question is to Angan. So last quarter, the good part this time was the new portion in the deal wins was much higher quarter-on-quarter. So is there a seasonality? Did you kind of see a better conversion this time? And last quarter, you had mentioned that beyond the deal signings, we have to kind of close the leakage pool of existing customers. So any update on that would be helpful.
So Abhishek, again, thank you for those questions. So Abhishek, look, from a team signing perspective, let me comment on that. Like you likely pointed out, our net new deal signings have been higher quarter-over-quarter. And that also is a reflection of the fact that at least the deals that are getting decided in the market, we are winning our fair share.
Now the overall deal signings have been lower, and that is only a seasonality issue. So which is why I will not be too worried about that.
From a leakage perspective, I think Kamini talked about it. We have put enormous focus on execution this quarter, and that has even results, not only from a revenue perspective, but because of lower leakage, our margins have expanded, as you can see. And we will continue that rigor. We will continue that focus, both from a margin perspective as well as a revenue perspective.
Now on the first question in terms of segment reporting. And again, I want everybody to understand, this is the first time in our history, we're reporting segment-wise results only to give you a lot more transparency. So there will be a little bit of numbers here and there, and it will be helpful for us to address those questions.
So only reason you see the Life Sciences going -- doubling up, it's not like with Invacare. Because Invacare is just $2 million. It is only because like I answered the earlier question, we reclassified our segment as Life Sciences and services. So some of the services companies, which are really life sciences companies, which is sitting in manufacturing, we move them into life sciences. This is just a good governance so that we report the right customer in the right segment, which is why you see that uptick, right? But overall, I can tell you whether it is manufacturing or BFSI, we will continue to grow momentum from a like-for-like perspective. And we will also see good rebound in Life Sciences going forward.
That is very helpful. If I can just persist with your answer. I understand that you may have reclassified the segment margins. But if I compare the absolute amounts, the other segments are more or less flat. So I'm just curious as to what moved into your Life Sciences? Anyway, we can take that offline.
Yes, we will take that offline, Abhishek. I'll ask Abhi to meet with you, and we can give you a detail explanation around that.
Thank you and best wishes for '24.
The next question is from the line of Mihir Manohar from Cailin Asset Management.
Congratulations on a great set of numbers for any current enviroment. Sir, I just wanted to [indiscernible].
Sorry to interrupt. We are unable to hear you, sir.
Am I audible now?
Yes, sir. Please procceed.
So yes, sure. So first of all, I mean, thanks a lot for giving the opportunity and congratulations on a great set of numbers, specifically in this environment. Sir, largely wanted to understand on the Microsoft part of the piece. I mean the tie-up which we have done on the Gen AI side. And sir, what kind of significance, what kind of relevance and importance? What is the number that we are looking at to train? How many number of people are we looking to train? And what kind of business can we look to gain from this particular service line is to do a partnership? [indiscernible] line, we were trying to have a good offering for the Microsoft. So if you can throw some light around that, that will really helpful. And my second question was just on the ERP side. I mean you have continuously maintained that ERP looks to be bottoming out from here on. I mean, if you can throw just more clarity why do you feel, so I mean is there any change in industry structure? Or is there any realm happening or something? I mean, what do you feel about that? That would be really helpful. Yes, so those are the 2 questions.
Yes. So Mihir, again, to talk to you after a couple of months. So Mihir, look, I mean, from our perspective, it is pretty simple. We've committed to the Microsoft partnership in general from the time I have come into this organization. If you remember, even in the first quarter, I said Microsoft is a strategic partner, and we will commit to become a big Microsoft partner going forward.
As a part of the same [ negative ], we tied up very recently, just last week with Microsoft in their Gen AI practice. We believe this is a long-term partnership, which will benefit both the firms in a very big way, and we've committed to almost train about 500 of our colleagues on AI technologies along with Microsoft. Now it's hard to me to give numbers in terms of how much numbers will we do in future quarters. But I can only tell you that at this point in time, we have many of our clients who have come back to us, and we have started doing POCs with them, use case by use case to prove and sharpen our capability around AI. Going forward, it will be a big business. Now whether it takes us a year or 2 years, I don't know. But eventually, I want to get into a situation where Generative AI in itself become [indiscernible].
The second question you had was an ERP, right? Now look, ERP, fundamentally, there is no change in the structure of the industry, right? The only one opportunity that I think I was talking to Shradha about is very fast that eventually by 2027 or '28, whatever the time is, a lot of on-prem work on SAP will move on to the cloud, and that is an opportunity.
But traditionally, we lost market share on the ERP business. Like I was saying, over the last, I think, 8 to 12 quarters, we've degrown in the ERP business. We have been turning around the business now. So you're seeing a big uptick. But that is over a very low base and in 8 quarters of degrowth. So you should look at it from that perspective. So I don't think anything has changed in the market. It is only that we've got our act together. And going forward, we want to invest and continue to grow this business.
The next question is from the line of Anmol Garg from DAM Capital.
I had a couple of questions. First, I wanted to get your views on your strategy regarding M&A. So how are we seeing M&A? Would it be based on capabilities or more of a geography expansion? That would be my question.
Yes. So Anmol, one thing that you must absolutely appreciate that we will not buy other companies for aggregating revenue. That's not our strategy. We will only buy a company if we need to plug our capability. or like you said, if you need to expand the geography. Those are the only 2 situations where we will buy a company.
Now our strategy in M&A is very clear, and I've said this in multiple forums that we first need to execute on a couple of quarters of strong performance. We are on the journey. We just started the journey. And once we are confident that we have delivered good growth quarter on quarter on quarter, then we will look at doing an M&A to plug or capability. M&A is definitely a part of our future. It's a part of our strategy. or when we find the right company with the right capability with the right culture alignment, we will do an inert at that point in time, but not for revenue aggregation.
Sure. And secondly, I just wanted to understand, that's based on the pipeline that we are seeing right now. So would it be fair to estimate that we will have on an average of $200 million run rate of deal wins in the next few quarters? Or given the environment right now, given that the disclosures are taking more time. So it should be more patchy from that side.
So I can only give you my take, right? And it's hard to predict the future. So I would love to come back and say that every quarter at a minimum, we would have signings of $200 million. That's our endeavor, by the way. But more, it's hard to predict. Correct. I would say -- and if I'm a guessing person, I would say that for all companies, it will be catchy. And for us also, it will be touching. But our endeavor is to do exactly what you said, at least deliver $200 million of signings every quarter going forward.
And sir, lastly, if I may. So just wanted to understand that this quarter, now if we do exclude the Invacare onetime revenue that we have got. So incrementally, do you think that, that base, we can still grow in 2Q, given that the deal signs we have? Or should we expect that sequentially largely will be flat?
Yes. So Anmol, again, I can't give a forward-looking statement here, right? But I -- my commitment to all of you is we will continue to execute well, and we will deliver a quarter with good execution. Now how much growth will it come by? I don't know. Are we going to grow? Sure, we're going to grow. But how much will we grow by? I can't comment that. I can't comment on both.
The next question is from the line of Sandeep Shah from Equirus.
Sandeep, we can't hear you. Sandeep, you'll have to come close to the phone.
Sandeep Shahm we are unable to hear you. Mr. Shah, sorry to interrupt. This is the operator. We are unable to hear you. Mr. Shah, sorry to interrupt, but this is the operator. We are unable to hear you. Mr. Shah, we unable to hear you. Mr. Shah, we unable to hear you, we requested to join the question queue.
We'll move on to the next question, that is from the line of from Ashika Distribution Equities.
Sir, I have a couple of questions. From next 3 to 4 years' perspective, which service line and abilities we want to grow more compared to what we have today? And also vertical-wise, from M&A perspective, what are the key verticals which we are looking for to increase the revenue per those related verticals? And on manpower front, what trends are we experiencing right now compared to it was a year back?
Yes. So is that Jiraq? Jiraq, okay. Yes.
Yes.
So Jiraq, a couple of -- so first of all, thank you for the question. So 3 to 4 years is a long time in our industry. It's hard to really comment what's going to happen 3 to 4 years, but I am to tell you directionally what we will do. Directionally, whether it's the digital business, the data business, now the AI as a business, all will be our focus.
In fact, we've decided and strategically, we've only picked up 4 service lines that we're going to focus on, right? Data, digital, infrastructure and ERP. So all the 4 service lines, we will focus on.
Now we will call out AI service line from Generative AI becomes bigger and bigger, but that's only strategically done. But at a community level, these are the 4 service lines that we've called out. We will be committed to these 4 service lines and maybe growing service lines.
From a vertical perspective, I think we are underpenetrated in financial services. I think that is a big opportunity ahead of us. Now not to say that manufacturing will not grow, manufacturing is a core of our existence, right? I mean we've got a very large, almost 46% of our revenue is coming from manufacturing. And I think that business has turned around as we see in the current quarter, and that will show steady growth. But if I were to deliver exponential growth, that will be Financial Services and Life Sciences, only because the market is very big, and there is a lot of opportunity.
So in the real world, the M&A top question that you asked, if I can find the company, which is in the intersection of AI, and one of these industries would be the ideal place if we wouldn't want to put our money in. But like I said, it's -- we have to deliver strong quarter-on-quarter performance over the next 3, 4 quarters and only then, we will look at if there is an acquisition.
The next question is from the line of Sudheer Guntupalli from Kotak Mahindra Asset Management.
Congrats on a good quarter. It has been around 7, 8 months since you had joined. And despite the initial setbacks of Invacare and the poor macro, I think the execution, it's interesting to see the execution in this quarter. Just with the strategy interventions you have put in place and with the leadership additions that you have put in place, given where our portfolio is today, how confident are you that this company will be able to deliver sustainable industry-leading growth on a medium-term basis?
Yes, that's [indiscernible]. I mean, that's the reason why we all exist, right? I mean we have to, as a management team, deliver sustainable quarter-on-quarter performance. Correct? So am I confident? Of course, I'm confident. But will the macro change and tomorrow, I may falter a quarter, I may. I don't know. It's hard for me to answer that question. But inherently, that's the management team's philosophy that we consistently deliver quarter-on-quarter performance, both on margins and revenue.
Sure, Angan. And so for the new leadership team also and in general, overall, the executive team, what is the current -- is there any sort of a scheme which was in place or which you are planning to put in place to tightly linked to the performance with shareholders sort of returns?
Yes. So the LTI, as we call it, is linked to performance-driven metrics. Again, it's a long explanation, which I can't do it now. We can probably give it offline, and Abhi can set up times to be with you and me. But suffice to say that we have a large component of LTI, not only for the CXOs but even from my side, which is linked to performance. So we've made a significant impact change rather from a compensation standpoint.
We'll move on to the next question. That is from the line of from Sandeep Shah from Equirus.
Can you hear me?
Yes, Sandeep, we can finally hear you.
Yes, yes. Angan, congrats on a good execution. My first question is any company looking for a turnaround in this industry due to has to be addressed probably set of leaders. We can cross-sell, upsell, decline, mining and funding. And the second is having the right people in the service portfolio. So I think on your leadership, it looks like the first thing has been addressed.
In terms of the second thing, do you believe further restructuring will acquire in the service portfolio? Why I'm asking is looking at ERP as 1/3 of the portfolio, does it excite you? Or was slightly lower? And second, in terms of the hyperscaler relation, if I'm not wrong, we are strong with license not to be done in terms of Amazon and Google Cloud as well as with some of the other SaaS-based PC kind of a company or cloud-based kind of a company. So what is your take in terms of any restructuring is required in the service portfolio as [indiscernible].
Yes. So Sandeep, it's a great question. So first of all, I think we have intentionally mindfully rolled out an organization structure, and I have no intention to changing the organization structure in the foreseeable future, right? And foreseeable future could be 3 years. But after 3 years, because our industry changes so quickly, we may relook at it. But for the next 3 to 4 years, I think we will stay with the current organization structure.
I think your fundamental question was are we happy with ERP business. So I can tell you something, the ERP is not a bad world. It is still a growing business. It still delivers a lot of profitability, and we'll be invested in that business. But the exciting part of our business is going to be digital is going to be AI, it's going to be data analytics. And by the way, even infrastructure, which is a very small part of our business, but showing incredible growth.
So we obviously -- if I were to look at 4, 5 years down the line, I want my digital and data business to be as big as the ERP business then or maybe even bigger. So obviously, the growth rates there will be much higher. So we'll be invested.
We've just taken these 4 areas to invest on and we will stay invested. Now AI probably will be a downstream of one of these service lines. It could either fall in digital or data. We have to see how that looks. But broadly, these are the 4 service lines.
From a leadership perspective, again, like I had said, most of the leaders are already on board. They are focused on execution. But we do not want to claim victory on these, as you know, because it's just been 3 quarters of execution. We need to consistently execute quarter after quarter 4, 5, 6, 7, 8 quarters in a row. And only then, we will see a little bit more satisfied about this. So I hope I've answered your question, but we are focused on all of our businesses. I mean no business is a bad work for us.
Yes. And also a question which I asked in terms of hyper-scale relationship is it fair to assume that what needs to be done besides Microsoft as your platform? Or you still believe we have stolen outside Microsoft as your inflow at the end of [indiscernible].
Yes. So great question. So again, look, a company of our size, we can't do everything with every one, right? It's very hard for us to become a meaningful partner for a Microsoft, for a Google, for an AWS. It's just not going to work. So we've committed to the Microsoft relationship.
But that said, we will also have relationships with other hyperscalers, but that will be in very specific niche areas. And we can discuss that offline. But in our mind, the strategy is very clear. 80% of our hyperscaler or cloud revenues will come in from Microsoft over the next foreseeable future. The other businesses will contribute, but they will be very client specific. And we -- internally, we clearly know the areas where we will work with AWS side. Those areas I've identified signed off with AWS.
Okay. Fair enough. Just last 2 things. In terms of PMC growth visibility, is it fair to say that with the execution [indiscernible], which you have, even in [indiscernible] you've seen growth, which we have done in this quarter, and so you can actually maintain or improve the momentum going forward? And second, wage increase, in fact, you said it would be effective 1st of September. So how will this impact the 2Q and 3Q numbers in terms of EBITDA margin?
Yes. So again, we can't give a guidance really, Sandeep. But I can only tell you that our endeavor will be to continue performing at the same levels. But it is hard to say, right? I mean I can't comment whether next quarter, I'll grow at 1%, 2%, 3%, I can't say. But of course, our end, we need to maximize revenue.
On the margin front, like Kamini talked about, we will give a wage hike starting 1st September. But even after accommodating that wage hike, we will shy and deliver the margin performance that we've delivered this quarter. We will not go down on margins. We will only try and improve margins.
But our commitment to all of you, like Kamini has said earlier and I'd say it again, by the time we exit 4Q FY '24, we will deliver a 4% to 16% EBITDA.
[Operator Instructions] Our next question is from the line of Jyoti Singh from Arihant Capital Markets Limited.
So sir, if you can -- can you elaborate on the headcount situation if it's declined year-on-year and stable on quarter-on-quarter? So do you have any planning for the hiring? And also, if you can elaborate on the lateral and fresher hiring terms.
Yes. So Jyoti, our headcount has increased. I'm sure you've noticed it. We've added, so our -- not only as the volume increase, but we have had a volume growth and we have the headcount growth. So we are in the cost of hiring more people. Our demand environment currently is -- like we have said, we are we are optimistic. We are cautiously optimistic, and we hope to add headcount even in Q2.
Ladies and gentlemen, that is the last question. I now hand the conference over to Mr. Angan Guha, CEO and MD, [indiscernible] for his closing comments.
Yes. Thank you. So I once again thank all of you for joining the call today. As always, your questions have been insightful, and I really appreciate your interest in Birlasoft. We've made a very good start to this financial year with good profitable growth and solid fundamentals. We will continue to build on our capabilities and sharpen our go-to-market strategy. I look forward to speaking with you again next quarter. Meanwhile, please feel free to reach out to Abhinandan for any clarifications or feedback. Thank you once again. Good morning, good evening, wherever you are.
Thank you.
Thank you, members of the management team. Ladies and gentlemen, on behalf of Birlasoft, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.