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Ladies and gentlemen, good day, and welcome to NIIT Technologies Limited Q1 FY 2019 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 and M&A, at NIIT Technologies. Thank you, and over to you, sir.
Good afternoon, and welcome everyone to our Q1 FY 2019 earnings conference call. You would have received our e-mail with the results already. The same is also available at our website, www.niit-tech.com.We will begin today's forum with opening remarks by our CEO. And after that, the floor will be opened for your questions.Present along with me today on this call are Mr. Rajendra S. Pawar, our Chairman; Mr. Arvind Thakur, our Vice Chairman and Managing Director; and Mr. Sudhir Singh, our CEO to whom I would now like to hand over the floor. Over to you, Sudhir.
Thanks a lot, Abhi. And a very good evening to you folks. Before I delve into the quarterly results, a big note. You might have seen our intimation about Amit Garg, who is our CFO, who is leaving the organization to pursue other exciting opportunities. He is present with us on the call today. And he has served the organization very well and we wish him great success. His last working day here is the 27th of July. And also present on this call with me is the CFO Designate, Mr. Sanjay Mal, who will take over from Amit as the CFO effective the 27th of July.Sanjay is a commerce graduate from Delhi University and an alumnus of Wharton, having a rich experience of over 3 decades in finance. He has been associated with the NIIT Group for the past 2 decades and last held the position of EVP and Head, Group Strategic Finance. His core expertise lies in Corporate Finance, Treasury, Investor Relations, Deep Structuring, Risk Management and Corporate Governance. I look forward to inducting Sanjay to my leadership team.So let me start off with the revenue analysis. We are pleased to share that the revenue grew 16.4% over the same quarter last year, and it expanded 4.6% sequentially to INR 8,249 million. Growth in constant currency is 3.3%. The strong performance current and what is traditionally a weak quarter for our firm, in quarter 1, we have grown organic revenue by 4.6% quarter-on-quarter despite the seasonality in the GIS business and the ramp down in Morris, which was expected due to their acquisition by GateHouse.What has also been heartening is that the revenue growth has been broad-based across all 3 of our major verticals. BFS has expanded 8.8% sequentially and it now contributes to 16.8% of the revenue. Insurance has grown 10% quarter-on-quarter and now contributes to 28.5% of revenue. And the third segment, Travel & Transport has gone up 7.7% quarter-on-quarter and it contributes to 27.1% of the revenue.7 out of the 9 new clients that we have added this quarter have also come from these 3 focused verticals. The other smaller segment outside these 3 collectively declined 5.3% quarter-on-quarter due to the ramp down in Morris and the seasonal decline in GIS, and they now represent 28% of the overall revenues.Moving on, the geo-based growth cuts also shows sustained performance. Americas, which contributes to 50% of our global revenues, grew by 8% despite the headwinds in Morris. This growth in the Americas came on the back of growth in the travel and the insurance verticals. Revenues, again, expanded 6% sequentially in EMEA, which now represents 32% of the revenue mix. And the expansion in revenues in EMEA with an account of growth in digital engagements, specifically in the insurance vertical. APAC contributes 10% to the firm's total revenue. And India contributed only 8% to the firm's total revenue and has contracted by 17% on account of seasonal decline in GIS software product sale.The top 5 clients now contribute only 27% of the total revenue and the top 10 and top 20 contribute 36% and 49% of the total revenue, respectively, representing broad-based growth. The number of million-dollar clients have expanded to 84 this quarter from 80 last quarter and 72 in quarter 1 of last year. The revenue trend and the revenue quality has both seen up the same improvement over the past quarters. We believe there is a continued reduction in top client revenue concentration, the broad-based growth across all 3 verticals, the decrease in contribution of India to the overall revenue, along with a significant acceleration in new logos acquisition and order book generation from the Western market has improved the revenue profile of the firm materially. So that was historic revenue analysis, moving onto margin analysis.Operating profit at INR 1,306 million, represented a 17.9% improvement over the same period last year and a contraction of 7.8% sequentially. Operating margins have increased by 21 basis points in reported terms and 60 basis points in constant currency terms over the same period last year. It reduced by 213 basis points quarter-on-quarter to 15.8%. This movement represents the wage hikes, the H1B visa fees and the lower GIS revenues.Net profits for the quarter are at INR 858 million. They are up 67.4% year-on-year. In quarter 1 fiscal year '19, which was this quarter, DDT is recognized in statement of changes in equity as against the charge to the P&L as current tax expense in quarter 1 fiscal year '18. Net of this change that year-on-year growth in PAT is 39.6%. Effective tax rate during the quarter stood at 24.9%.Moving onto order intake now. The order intake story remains very strong. We secured fresh business of USD 151 million during the quarter. Of this, $151 million order intake this quarter, $69 million came from the U.S., $56 million came from EMEA and $26 million came from rest of the world.The trend line of order intakes starting from Q1 of last year for 5 successive quarters now reached at $110 million in quarter 1 last fiscal that was followed by $122 million, in turn followed by $130 million, last quarter was $145 million and this quarter is $151 million as I said.We added 9 new customers during the quarter. 5 of these were in the U.S., 3 were in EMEA and 1 was in the rest of the world. You will remember, we have added 7 new customers in the last quarter. The firm also recorded 3 $10 million-plus contracts through the quarter. These included an award from one of our largest BFS customers to support our client onboarding and wealth management support expansion exercise for the firm. We secured also the mandate from one of the largest European airlines for work, including driving their data and digital transformation initiatives. And furthermore, in addition, we did secure a product development support mandate from a key travel major.Importantly, the firm's digital business scored some of the largest wins in our history in this quarter, digital wins. We signed material new contracts with a key client in the U.K. and with one of the largest banks in Australia. We also signed our first and a material offshore-based security operations center contract for one of the world's largest airlines. There was a large cloud migration exercise from an insurance major that was secured as well. So the order book is executable over the next 12 months continues to expand and now stands at USD 347 million, which has risen from USD 320 million as of the same period last year despite the modest ramp down.Some color around pipeline. The pipeline continues to strengthen as elegance in the order book number of $151 million and the order executable number of $347 million. The pipeline of prospects post the 9 new clients added for this quarter, that I just spoke about, continues to be robust. We believe that we have now established a new normal of around 8 new clients per quarter from the 4 to 5 new clients per quarter, which was at 8 a year back. We had an active conversation at the close and even a larger automation contract in the coming quarter with one of the world's largest leasing firms. Across our business, we see demand picking up and acknowledgment of our capability is getting sharper in spaces around cloud, data, digital experience and automation.The vertical industry pivot that we have taken around BFS, Insurance and Travel & Transport has resulted in an almost immediate revenue boost that you're seeing. And more importantly, a sharper market positioning, which is translating to significant widening and deepening of the pipeline funnel.Moving on to delivery. We have accelerated our efforts in our internal automation and reorienting ourselves to a factory-based approach for the back-end. A material portion of the 50 basis points improvement in operating margins in constant currency terms over the same quarter last year has come on the back of these efforts. We believe this approach will help drive quantum changes in productivity and client satisfaction.Our efforts over the past few quarters to incubate and drive growth across newly segregated service lines, like cloud and data automation, that we've spoken about, have also started bearing clear fruits now. Both these service sides are on track to record material growth this year and they have been effective GIS for opening new clients as well.With the new CTO, Chief Technology Officer organization with a focus on cognitive technology and block chain, which was established last quarter to validate our capabilities in these 2 fast growth areas, we plan to mirror the market and revenue impact that we have achieved in cloud, data and automation spaces in these 2 cognitive and block chain technologies as well in the quarters to come.People metrics. There was an increase in headcount by 341 during the quarter. The total headcount at the end of the quarter now stands at 9,764. We have now added close to 670 net new employees over the last 2 quarters. The utilization this quarter also improved to 80.1%. Attrition stands at 10.1%. Our leadership perspective, the conscious and the aggressive addition of lateral Tier 1 talent continues. I shared in the last call how we hired an Accenture Managing Director as the new Insurance leader and appointed an Infosys and Capgem leader as the BFS head from Infosys and Capgem. The RPA, Robotics Process Automation, business for us is now headed by a Cognizant veteran, the Cloud business by a Microsoft veteran, the Automation business by an Infosys and TCS veteran, and the Australian business by an ex-TCS and a[indiscernible] veteran.In this quarter, in addition to what I just spoke about, we effected 2 key client partner changes in 2 of our top 10 accounts to ensure that the process of lateral Tier 1 leadership talent induction accelerates. In addition to these 2, we also hired 2 industry veterans with around 30 years of experience each across Insurance and BFS in this quarter to act as a transformation consulting leaders reporting into the BFS and Insurance business heads. The Travel business and you would have seen this from the results has rebounded smartly for us and that too have seen recent leadership changes, both at the front-end and the back-end.In this quarter, our new compensation philosophy was rolled out as part of our annual compensation review that was concluded. The range of increment basis performance across the organization has been doubled to drive sharper differentiation.On the sales front, we have quadrupled the payout for large deals. And then, finally, results of the last quarter, we followed out our plans to fundamentally restructure the organization from a geo-based structure to an industry-based model. That change exercise is now complete. And it has helped further strengthen and sharpen the client-centric [via] the organization.Balance sheet. Key metrics. Cash and bank balances stood at INR 6,849 million, which was a decrease of INR 1,209 million over the previous quarter and an increase of INR 687 million over the previous year. CapEx spend during the quarter was INR 302 million and debtors at the end of the quarter was at 75 days of sales outstanding. Last quarter, the number you'll remember, it's 70 days.Hedge position. Outstanding hedges in USD are USD 60.15 million at an average of INR 67.56 to the dollar -- U.S. dollar. In British pounds, we have 13.05 million outstanding at INR 92.38 for the British pound. And in euro that number is 4.5 million at INR 82.51 to the euro.Finally circling the positive outlook. The macro environment has been relatively stable since we spoke last in May, although there has been some uptrend in oil prices and a weakening of the rupee. Recent estimate for U.S. economic output in the second quarter of 2018 continues to anticipate continued growth. Last month, which is June 2018, the IATA, International Air Transport Association, released its revised forecast for this year, 2018, where it expects 2018 to be a healthy growth year for the airline industry, although it estimates that industry-wide profit might moderate due to rise in costs. As for the update issued by the IATA last month, passenger volumes in RPKs, which is revenue passenger kilometers is expected to grow 4.5% during 2018. Insurance, two things have picked up on the technology investment compared to previous years. According to a study by Celent, and this is a study called Life Insurance CIO Pressures and Priorities 2018, IT budgets in the insurance sector are expected to rise this year with a lot of those dollars going to innovation efforts. The capital market push in spending revised revenues and manage the regulatory environment continues.Grounding off last quarter. You will recall, we have indicated that despite headwinds from Morris and GIS, we would expand our revenues on a quarter-on-quarter basis. As noted, we have delivered a strong quarter-on-quarter performance with all the major verticals, BFS, Insurance, Travel & Transport, showing robust growth in international geos during the quarter.As we look forward, we expect the growth momentum and the margin to strengthen further going ahead. Our confidence in this regard is born out of multiple factors. They include the broad-based growth we have seen, the sustained deal flow, the significant leadership addition that has been done, the impact that both the hunting and the mining engines are creating for us and the traction that are newer technical capabilities that we spoke about have registered.So with those opening remarks, I look forward to addressing your questions. Thank you very much.
[Operator Instructions] The first question is from the line of Madhu Babu from Prabhudas Lilladher.
Sir, the top clients have been a bit weak even quarter-on-quarter and YoY. So what is the reason for that?
You know quarter 1 for us, as you know, is a soft quarter. But in this quarter, we're actually very pleased with the top line numbers that we're looking at. We're looking at, as I said, a 16.4% year-on-year growth. Quarter-on-quarter, that number is 4.6% as we talked about. And this was also a quarter where we talked about last quarter where the impact of Morris was coming in. It has come in. It is 100% behind us and these numbers have been registered despite those headwinds.
Sir, the top 5 clients, I was talking of top 5 and top 10, is it mainly driven by Morris or any other client has been weak?
It's only driven by Morris. And that impact is fully behind us. All the other 5 -- top 5, top 10 clients' relationships are absolutely steady and improving.
Okay. Ex-Morris, these are looking very much intact?
Absolutely, no headwinds, looking very solid. Relationships are very, very strong.
Okay. And sir, Insurance vertical has superior growth, I think, 35% YoY growth. So what is the reason the existing client ramp-up or even the new deal wins or from new clients?
Insurance has actually been a mix of both. The existing top clients for us in the segment have expanded. And the new logo acquisition across Insurance again continues to accelerate. We talked about 9 new logos that were added across the U.S. and across NITL, we continue to seek traction across the revenue stream and also new logos coming in.
Okay. And just one last question. Sir, last quarter, we talked about the new deal win infrastructure management from U.K. bank. So how is that ramping up? And are we going to see more deals in the IMS and BPO side on the horizontal-led strategy?
That's worked out very well for us, Madhu. We -- transition for that engagement is now behind us. Transition was closed on time, on budget, and with a very positive voice of customer from the client. So that's worked out very well. IMS and BPO, and within BPO, we also house our RPA capabilities, continue to have a materially strong pipeline.
The next question is from the line of Pankaj Kapoor from JM Financial.
My first question is on the executable order book, which seems to have grown at about 8%, 9%, your revenue growth obviously is trending ahead of this. So I presumed that maybe because of some short-term digital projects, which come in and get executed in between the quarter. So first, if you could correct me if I'm wrong. And second, if that is the case, why we are not seeing the kind of an increase in longer duration digital projects? You did mention some projects in the -- in your opening comments. So if those are going to come in with the pace that you are talking about, then should we expect that the revenue growth can possibly a bit slowed down going forward?
Pankaj, thanks for your initial comments. The -- your analysis is correct. While order intake continues to accelerate on a quarter-by-quarter basis, as I said, it was a $110 million same quarter last year and it's a $151 million in quarter 1 of this year. The proportion of digital business for us has gone up materially. Our digital business in this quarter is about a 150% of what it was in the same quarter last year. The point that you've said around digital business and digital mentioning short cycle is absolutely correct. They tend to be shorter cycle. They tend to be slightly higher margin -- materially higher margin in some cases. And that is what is ensuring that the executable growth is not on the same sharp gradient that the order intake growth is. So that's absolutely -- that's an absolutely fair perception from your point of view.
So going forward with the kind of details that you mentioned in the opening comments, how should we see the movement happening in the executable order book or as well as in the revenue outlook?
I think the revenue outlook given what we've seen in this quarter and I said this earlier, this was supposed to be a soft quarter for us, we feel very confident around the future outlook. Moving forward, we expect the momentum to accelerate beyond what we've seen. That's order book. And the executables, again, we expect to see that continuing to ramp up.
Sure. And the next question is, if you can quantify the incremental impact of Morris? And is it right that this is probably the last quarter and the impact possibly would have bottomed down in this quarter?
So Morris, in the quarter -- this quarter and we do report our -- we do share our segment-wise details with you for the quarter. We recorded INR 146 million by way of revenue on the JV, right. So Pankaj, that's how we see it. Moving forward, we see absolutely no further negative contraction happening because of the Morris buyout by GateHouse.
Got it. And just lastly, if you can just help me with the operating cash flow that we had in this quarter. And also on the tax rate, I think, if you can just re-explain why it was lower in this quarter? And what could be the likely tax rate we should build in our own model for this year?
So, Pankaj, hi, this is Amit Garg. We would -- we believe in the closing 25% as the year-end rate for the company. What you're seeing a low tax rate versus our previous year similar quarter, there is a net expense that we used to take for these dividends that we receive from our subsidiaries was digital tax expense. Now there is a circular from institute, which allows us to get it up against our DDT liabilities in the balance sheet. Certainly the company is adopting that factor and that is why you are seeing our tax basically less and that's been disclosed in our financial statement also.
Sure. Sure. And Amit, what was the operating cash flow for us in the quarter?
Operating cash flow was around INR 691 million.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Just the first question is, if you look at the onsite revenue mix, it has gone up from 61% to 64%. But, however, it looks like it has not impacted the margin. So Sudhir, is it fair to say that this business is actually coming at a higher billing rate for onsite rather than a higher onsite effort, which has led to a shift to the onsite revenue mix?
Sandeep, for the shift that you talked about from 61% to 64% is coming largely because of the digital engagements tend to be onsite heavy. And to the second part of your question, these engagements even though they have a higher onsite footprint on higher margin. That's how [we mean place that one].
Okay, okay, okay. And this is -- the increase in the digital deal, are you seeing broad-based across verticals or the focused verticals where you are seeing?
We're seeing it across all the 3 verticals, Sandeep. So we've seen it across the Insurance, BFS and Travel & Transport, all 3.
Okay, okay, okay. And in this quarter, when you say, 3 deals of more than $10 million, largely these are digital-related deals and are largely a new business?
It's a mix, Sandeep, in terms of digital deals having in some of these cases. Part of the $10 million-plus portion of the order has a digital component to it. But it also is a mix of the more traditional service lines, like data, ADM, infrastructure, BPO that we have.
Okay, okay, okay. And Sudhir, I think, you said that one of your key -- the targets is to keep adding close to at least 2 large deals. I do agree this quarter, you had many deals, but slightly lower than $20 million. But how do you see the pipeline and the winning of the large deals, which you define as more than $20 million?
So large deals, Sandeep, we've actually constructed an organization that is dedicated to large deals. We have quadrupled the bonus that the commission that people get for getting large deals. And I expect our quarter 2 to lock in at least 2 large deals, which is the guidance we've given. Quarter 1 being quarter 1 and a softer quarter, we're actually very pleased with the 3 $10 million-plus deals that we've signed.
Okay, okay, okay. And just few things. When you say the future outlook and the growth momentum to accelerate, this is based on the order book, which you have? Or you anticipate few more deals to be closed and that will give you acceleration in 2Q to 4Q?
I expect it to accelerate because I see no headwinds -- material headwinds moving forward, Sandeep. I see most of the headwinds behind us now over the last 2, 3 quarters. Second, I expect it to accelerate because the order book, the order intake has been accelerating. Third, the large deals pipeline is looking robust from our point of view. And fourth, the team seems to have settled down very, very well. Fifth, the restructuring verticalization centric exercise has gone up very well for us. And sixth, the large clients, the material clients for us, the relationship is very solid. So it's an interplay of these factors. That gives us the confidence that growth and margins will actually not just stay here, but will accelerate from here.
Okay, okay, okay. And after many quarters, I think, this time also again the export revenue has excelled Incessant than the Morris. So it has also been almost in dollar terms, it's like a 6% Q-on-Q growth. So you believe that even the momentum has been strong outside the Incessant-related deals?
I think that's a very good observation. And that's something that you've observed it well, and that actually clarify to the earlier question that you had around why we expect momentum to accelerate around growth and margins, that's largely because all engines across the firm are firing. And as I said, the verticals are firing, Incessant is firing. It is as broad-based as one can imagine growth across all deals that we're seeing.
Correct. Correct. So is it fair to say like typical, we have 2Q to 4Q is good both in terms of revenue and margin even this year that seasonality will continue 2Q to 4Q are good both in terms of revenue and margins?
So Sandeep, we don't give a guidance, but we share our plans with you as we have every quarter when we got out. Given where we are right now, given the factors that I just talked about, we think it should, Q2 to Q4 should definitely be very strong quarters moving forward.
Okay, okay. Just last question. Cash and bank generally we repatriate some additional cash from the overseas subsidiary. Is there a figure this time we have done because we started from 1Q of last year? Is it the same thing happened this quarter?
Yes. This quarter, we got money from our subsidiaries and that momentum continues.
Can you quantify?
It's INR 92 crores -- INR 92 million.
Okay. Last year, it was INR 55 million, INR 56 million. So this time, it is INR 92 million.
Yes.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Couple of questions. Just to start with data related, can you help us understand the typical segmental breakup, which you give for Morris, GIS, Insurance subsidiaries and then Incessant?
Absolutely, Dipesh. Revenue figure if we extrapolate GIS and I'm going to talk about revenue in Indian rupee terms and the operating margin. GIS, INR 245 million, operating margin 8%; NITL, INR 479 million, operating margin 27%; Incessant and RuleTek together, INR 1,140 million, operating margin 24%; Morris, INR 146 million, breakeven in terms of margins because of the exit costs; and Proyecta, INR 210 million at a margin -- operating margin of 14.5%.
The second question is about revenue growth as well as overall demand outlook. You are indicating about acceleration in growth momentum. So if let's say one look at the YoY trend what we are witnessing from mid-single-digit kind of trajectory of last year Q1, we are now mid-teens kind of growth momentum. So do you indicate in, we will see acceleration from mid-teen to even higher by exit of this year, which would set very good base for a FY '20 kind of outlook? And second question related to that about margin. How one look this rupee depreciation to a implication on margin because earlier we expected when rupee was at different level, margin to improve from YoY perspective, now considering where rupee is, how one should look margin, expense and trajectory?
So Dipesh, first I'll take the issue around guidance, right. As you'll recall, we shared our plan at the beginning of the year where we said that we will target at least, at least constant currency double-digit growth. Quarter 1, of course, has been a very solid quarter for us. So moving forward, we feel absolutely confident about that minimum threshold that we had set for ourselves. As you can imagine while we don’t share a guidance, the intent is clearly to make sure that we keep ramping up the plans at quarters like this go behind us. So well I can't give you a guidance, the plan that we shared, I think you can see from this quarter number that we have more or less secured it in terms of growth -- of continuing momentum, acceleration will hopefully take us beyond it. That's how we see this. I'm going to request our CFO to talk about the depreciation question, being a rupee question that you asked.
So the thing now what we do is basically as you know our hedge policy. We have a cross-currency across euro, GBP and dollar. We don't see any significant impact coming or benefits coming from that because of our hedge transactions that we have. Definitely, there will be a flow for unhedged transactions. This should negate that, but if we were to make up significant impact on our margin then I would say it won't be there. So we will continue with our guidance and improvise the orders as the business grows.
And the last question is, so broadly, what you're indicating is there is no change in the margin guidance kind of thing than what we earlier indicated considering the way we hedge is into revenue line item kind of thing and there would be some mark-to-market losses likely to happen.
So I think what we explained Dipesh here is 2 things. Do we expect margin to improve? The answer is very definite yes, right. And that's what I said. We expect margin to improve significantly from where we are. The question is, our CFO was answering was, is the rupee depreciation going to play into it and he was saying, given the hedge, the forward hedges that we have, we don't expect it to play a role in it. So 2 different questions and the answer is, margins, we do expect it to improve, but not because of the rupee depreciation.
Yes. And last question is, can you help us writing this quarter, we have increased stake in Incessant and RuleTek, what would be the stake now if you can help us?
Sure. At this stage, Incessant, we have 90% stake and in -- we have a 67.5% stake in RuleTek through Incessant.
And what will be -- now Incessant is 1 year down the line, remaining 10 and what about RuleTek?
I'm sorry. Can you repeat that question, please?
Incessant, I think, last quarter, we indicated 10% -- remaining 10 percentage would be at the end of second anniversary. So 1 year down the line, what about RuleTek remaining stake?
So we're going to take -- when we take the remaining 10% from Incessant in May of 2019, we'll acquire another 12.5% from RuleTek at that point in time as well in addition to what we carry, of course.
Okay. And then remaining would be, from RuleTek perspective?
20th same month, following year.
The next question is from the line of Vibhor Singhal from PhillipCapital.
I just have a couple of questions. So one is on the Travel & Transportation segment. We've seen the growth come back in this quarter. And you also mentioned a couple of large deals that we basically signed in the Travel space. I just wanted to basically step aside a bit and just ask you on a broader level, with crude prices being so volatile and going high up and then probably now coming down a bit. Do you still -- do you see a net interest through our Travel & Transportation growth, maybe a quarter down the line or 2, what is on the line because we've generally seen that the IT spend of these travel companies tends to come with a lag of a couple of quarters either on a positive or on the negative side. So does that worry you at this point of time? Or do you think there's enough pipeline in the market for us to be insulated against these volatilities?
So Vibhor, for us Travel isn't just airlines, which is a segment that normally gets impacted by price increases. Travel for us is a -- travel for us is hotel and hospitality. Travel for us is travel technology firms, which are proliferating in the budgets that are going through the roof. So if I look at the entirety about Travel & Transport and Travel for us also is mix of the transport. If I look at the entirety of what Travel & Transport means to us and the aggregate scenario, we feel very confident that the rebound that we've been speaking about for a couple of quarters now, which has got exemplified in the 7.7% quarter-on-quarter growth this quarter. So it's going to continue moving forward. We don't really see a material risk moving ahead.
Okay. So maybe just to drill down that a bit further. Do you see a risk to that airlines part of that Travel & Transportation domain, and that to be mitigated more than enough by the other segments or do you believe the airlines could also continue to do well?
See the way we look at the airline space right now is looking at the IATA guidance. IATA guidance actually expects the number of passenger kilometer this year to go up by 4.5%, which for the airline industry is a very material count. Basis that and given what the -- how the economies are faring across the world, how employment and unemployment numbers are trending, we feel confident about where the airlines are headed. The airline clients that we work with and we work with, as you know, some of the largest clients in the world also seem to be reasonably confident about the medium- to long-term outcome.
Fair enough. Sir, then my next question was on basically the top clients flow so I think that question has been asked before, but I just wanted to basically drill a little bit deeper that not only just the top 5, but if you look at -- if you remove the top 5 growth from the top 10 growth, the clients 6 to 10 have also kind of declined on a Q-on-Q basis as well as on a YoY basis in this quarter. Is this all due to the seasonality in GIS and Morris? Or there's more to it than we are basically reading here?
No, I just want to reassure you. I think our top client relationship and outlook status is possibly one of the strongest that it has ever been in our history. I want to make that statement upfront because this question has come for the second time. The only reason why we're seeing the contribution going down is twofold. One, the company's revenue has been going up materially and consistently and the number of million-dollar-plus clients that are not top 20 clients has been going up. As I said, same quarter last year, we only had $72 million-plus clients. Today, we have 84. 12 have gone up. That's one thing, right. Second, the only impact that we're looking at in these numbers is largely because of Morris that had from the Morris JV, Morris part of the business going away. Everything else is rock solid. And as I said earlier as well, no headwinds that we anticipate or see or expect moving forward.
Okay. And regarding the Morris business, do we see it bottoming out in near future? Or have we hit the bottom? Or what's the visibility on that?
We have hit complete bottom. There is only 0 negative impact moving forward. And if I just -- just to the earlier question that I was asked around, why do we feel so confident, one reason that we also feel confident is because we see no headwinds from it.
Okay. So $146 million -- INR 146 million that we did in this quarter should probably be the lowest number that we should go and probably -- we should probably look at a positive trajectory from here on. Right, sir?
You're right. Absolutely.
The next question is from the line of Ruchi Burde from Bank of Baroda Capital Markets.
Can you repeat the name, please? Ruchi?
Ruchi Burde.
Hello. Am I audible?
Yes, you are. Please go ahead.
I have a very small question. Could you quantify because of ramp down at Morris, how much would be the impact on the executable books? If I recollect correctly, now, we have one of our largest contracts from Morris amounting about $63 million in September '16. So as we conclude the ramp down at Morris, is there some executable book which has shrunk because of this contract?
See, it has an impact on executables and all of that is fully baked in, and despite the ramp down executables have gone up. So Ruchi, that's the position. And it's going to have no negative impact on a go forward basis. Whatever negative impact that has to have has been fully absorbed by us, that has been more than offset by the growth that the executables have seen because of the strong order intake and moving forward nothing negative at all.
Yes. I mean, it's good to hear that. I was just wondering if you could quantify how much we have lost on the executable? What is the reduction baked in, in that total number that we should see today?
So, Ruchi, we don't share account by account numbers. The JV numbers we share every quarter, and I did share them right now on the call as well. So you have the last quarter numbers, you have this quarter numbers. Within the JV specific account-wise numbers for any account is not data that we share.
We have a follow-up question from the line of Sandeep Shah from CGS-CIMB.
Yes. Sudhir, on the BFS as a vertical, there is a sharp rebound in this quarter as a whole. So can you just give us what are the demand trends and this kind of a spending is sustainable going forward? And how do you see your growth outside your top client within the BFS as a vertical?
So for us BFS, as you know, Sandeep, is largely a capital market space. The demand in the capital market space is coming around 2 access. One, firms continue to spend on the regulatory front to manage regulation that keeps changing. Second off lane, for the last couple of quarters, we've seen leading parties getting into the innovation funnel as well. So that's where the growth has been coming for, for us. The other interesting thing that has happened over the last 2 quarters is that additional leadership getting hired in Europe in addition to what we had. Even Europe BFS has started filing for us. So BFS for us right now from a geo perspective is generating growth across the world. From a demand perspective, money is getting assigned -- funds are getting assigned by clients into the -- into exiting the regulatory imperative and innovation up. So overall, that global drivers that are driving things for us.
Okay, okay. And Sudhir, in terms of -- if you look at just from a company-specific issue, what can go wrong according to you to break this momentum for you?
And if you were to ask me this question 4 quarters back, I didn't have -- I would have had a pretty extensive list to share because there could have been potential risk. At this point in time, it can only be external risks like the visa regime are getting extremely restrictive. I don't think that's likely. We've already learned to live with the restrictions that have been imposed, but something like the visa regime getting extremely restrictive in the States could be a risk, but that won't be a risk only for us, it could be for the industry as a whole.
Okay, okay, okay. And just last thing. Amit, can you just share us exactly the hedging policy in terms of how much for the yearly net inflow we hedge and how the maturity for the quarter-on-quarter it looks like?
So it's basically from a hedge policy perspective, correct? So we have outstanding hedges of USD 60.15 million, which we shared in our announcement. From a hedge policy, we roughly cover 75% of our cash flows, which are coming from outside from digital books into the external, of revenues coming into the hedge policy. The other 25% then made open and that's what you know EBITDA based on what market believe it is.
Okay, okay. But there would be a comparable portion within the quarterly exposure, which would be also open for the spot rates, right, because that portion may not be that low as well looking at your hedge position versus the total revenue?
So that's what I talked about. The 25% in an open exposure, 75% is actually what is being hedged. These are hedges being across 3 dominant currency, which is USD, GBP and euro.
We have a follow-up question from the line of Madhu Babu from Prabhudas Lilladher.
Sir, in terms of this new deal wins which we have been winning, so what is the competition set in these deals? I mean, is it Tier 1 vendors or is it the midsize vendors from India? Can you explain more on the competition now in which we have won these deals?
Absolutely. So if I look at the 3 $10 million deals that I talked about, the first one, the competitor, the principal competitor was a Tier 1 vendor, actually one of the largest carrier in the world. The second one that I talked about was a mix of a Tier 1 vendor and 2 other mid-tier providers like us. The third one, which, again, was from Travel like the second one had a mix, I would say, of an onsite-based Tier 1 vendor and multiple mid-tier vendors.
So what is the advantage position, which we're getting. I mean, the differentiation position. Is it the engagement with advisors? Or speaking with the client or you know ability to do better and attention to the client?
I think the advantage that we're getting right now, one quite clearly is the industry appreciation, Madhu. For vendors in our space and we did a conference in London this year where we spoke to analysts as well. The positioning that we have, which is focused exclusively on only 3 industries resonates very sharply with clients because we don't walk in there saying that we're going to do infrastructure, IMS, BPO, RPA and what have you, walk in there, some would understand your industry. We understand illustratively in the travel context, cargo operations inside out. We're not going to be order takers. We will come in with a point of view. We will make sure that you have the idea that we're one of the best, good in front of your CEO. So that domain appreciation story is resonating very well. Incidentally, in the meeting, European research firm, Whitelane, report that came out this quarter, we were ranked #1 across Europe when it came to domain appreciation. This is the Whitelane Research, that's out. The second thing that's working well for us, Madhu, is the relationships that we have. If you look at our top 10 relationships and the top 20 relationships, a lot of them tend to be 10-plus years, 20-plus years. In the quarter that just went, we celebrated a 20-year anniversary with one of the largest airlines in the world. We're heading out to celebrate -- we also celebrated a 10-year anniversary with one of the largest airlines in APAC. So the relationship tenure and the client relationship strength that we have is the other thing that plays into it. There are a ton of other factors, but if you ask me for the top 2, I would say industry appreciation and the strength of our client relationships with the top 10 and top 20 clients.
[Operator Instructions] The next question from the line of Sangam Iyer from Subhkam Ventures.
Sir, just a small clarification. On the $151 million new order intake that we had this quarter, how much was renewed and how much were the new orders actually?
We don't give a breakup item of renewals versus new orders. The overall trajectory, of course, as I said, it was a $110 million in the same quarter last year, it's $151 million right now. The mix hasn't materially swung either way. There's been a straight movement towards new but we don't give an exact breakup in terms of it.
Okay. Got it. Sir, and secondly, on the large deals, on the 3 $10 million deals that we won this quarter, could you -- I mean, what's the execution tenure for these deals?
So the first one, the TCV of the deal was over a, I believe, a 3-year period. The second one was a 5-year period, and the third one, again, was a 3-year period.
Okay, okay. Sir, also, I mean, I think Sandeep or some other participant had asked in the call regarding the large deals that you had alluded to, which you refined actually greater than $20 million, would you expect to actually couple of them getting closed this in Q2? Could you throw some more light in terms of which are the verticals to which they [cater to] and any particular geographies where in this new deals are going to [quantify]?
So Sangam, it's not just 2 that are cooking right now. The number of large deals that we have cooking is significantly more than 2. I've put in a number of 2 just to be conservative. If I look at the entirety of the pipeline that we have, the pipeline is spread across Insurance, it's spread across BFS and Travel. If you go back and look at the 7 large deals that we closed in the last 3 quarters, you will find again that those were spread largely around Insurance and BFS. The good thing that we see is that Travel also is now in the hopper and the large deal pipeline is across the 3 verticals.
Okay. Great, sir. Great. And sir just last question. On the margins, given -- you definitely gave us an outlook in terms of margins are definitely going to move up given the trajectory of the -- from the business perspective in terms of the revenue growth, et cetera coming through. So will there be a point given the strong traction of order booking and the pipeline that we are having that beyond a certain level of margins where the currency benefits you would want to reinvest significantly back into the business. So is there any level of threshold, which you can give us some idea upon in terms of beyond which you would want to reinvest further to for the next couple of years growth?
So Madhu, we, as I talked about over the last few quarters, we continue to reinvest in the Tier 1 lateral hiring that we've done. We don't have a guidance around margin that we normally share. We get close to the 16.7% margin for the whole year last fiscal. As we shared, we expect that number to go up for the current fiscal. The confidence around the number going up and the extent to which it can go up has strengthened after this quarter's performance. So while I can't give you a number, we are sticking to what we said and we think that with this quarter performance, there is more momentum behind getting to that number and hopefully beyond the numbers that we are internally targeting.
The next question is from the line of [ Ganesh Shetty ] as an individual investor.
I just want to ask some query regarding our Insurance business. And the Insurance business being one of the top ranking businesses for us for many years now. And can you throw some light on the business performance in Europe and then the digitalization acceptance and digitalization business going ahead, sir?
Absolutely, Ganesh. So the Insurance business, as you know, for us has a software products connotation around the NITL report that we do, which is at London. That business has performed very well. There has been a very material restructuring of this product offering that was attempted over the last 8 -- 4 quarters where we completely refreshed the product suite. We've gone to the market with that product suite and the market has responded very positively to the new product offerings, which are cloud-based, micro-services architecture-based and are on more of a pay-as-you-use kind of model. That business and you would have seen the results has been trending upwards on a very steady basis with solid margins. That's how NITL is doing and that business is now also expanding from beyond London into Bermuda and the U.S. The other line of our business, as you know, is the Insurance Services business where we hired a new global leader, who is the Accenture Managing Director, who we spoke about this quarter and last quarter. That business has been accelerated momentum. It was always a growth business, but the growth had got accelerated in the last quarter. And we expect that growth to sustain moving forward as well.
We have a follow-up question from the line of Sandeep Shah from the CGS-CIMB.
Yes, sorry to come back again. Sudhir, just your -- you are increasing the payouts related to the large deal formation or the new business to the sales and marketing. But at the same time if I look at this quarter's SG&A expense, it's at a multi-quarter low as a percentage to the revenue despite the currency, which we realized in this quarter versus maybe FY '17 where you were on an average of 67 versus this quarter 66.35, it looks like there is a benefit also coming. So how do we look like -- look the SG&A line going forward because your focus is to bring the new business. So will it be that the leverage may continue with the growth coming? Or you believe it could further increase going forward and this could not be the right matrix to look at for the 1Q going forward?
I think the leverage will continue, Sandeep, to the question that you asked. What the way we're approaching SG&A and the reason why you see SG&A numbers are 18.2% this quarter compared to 19.8% in the same quarter last year and 18.6% in last quarter. The reason why you see that decline is: a, because the revenue is going up; b, because we're holding the absolute cost to the same level; c, the reason -- the way in which operationally we're able to do it is to make sure that we keep looking at performance with a very sharp lens. People who are performing are getting the quadrupled commission that I talked about. They are operating under the new regime where the range of incentive-fixed compensation increments has been increased and people who are not performing are obviously no longer part of a team that is very hard hitting in the market. So the cost I don't expect it to go up. We expect the performance lens, the performance I think that all of us collectively are pursuing in the organization to continue to stay strong. Hence just making this simple, I expect SG&A as a percentage to go down because revenue goes up and absolute SG&A cost to more or less stay where it is.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sudhir Singh, CEO, NIIT Technologies, for closing comments. Thank you. And over to you, sir.
Thank you very much for your time. We really appreciate the fact that all of you made time for this. We're very pleased with our results, which we shared with you, and I'm -- we were all very happy with the interest that all of you have shown and the time that you made for us. Thank you very, very much. We look forward to speaking to you again.
Thank you very much. Ladies and gentlemen, on behalf of NIIT Technologies, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.