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Ladies and gentlemen, good day, and welcome to the NIIT Technologies Q2 FY '19 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, NIIT Technologies Limited. Thank you, and over to you, sir.
Good afternoon, and welcome, everyone, to our Q2 FY '19 earnings conference call. You would have received our e-mails with the results already. Those are also available on our website, niit-tech.com. Present along with me today at this call are Mr. Rajendra S. Pawar, our Chairman; Mr. Arvind Thakur, our Vice Chairman and Managing Director; Mr. Sudhir Singh, our CEO; and Mr. Sanjay Mal, our CFO.We will begin today's program with opening remarks by our CEO, Mr. Sudhir Singh. And after that, the floor will be open for your questions.With that, I would like now to hand over the floor over to Mr. Sudhir Singh, our CEO. Sudhir, over to you.
Thank you, Abhinandan. And a very good evening, a very good morning to you folks wherever you are. Let me kick this off. We are very pleased to share that revenues have expanded 10% quarter-on-quarter, and they've grown 23.1% over the same quarter last year to INR 9,074 million. Quarter-on-quarter growth in constant currency is 7.6%.We're equally pleased to report that operating profits stand at INR 1,634 million for the quarter, representing a sequential growth of 25.1% and an improvement of 37.2% over the same quarter last year. This extremely robust 10% quarter-on-quarter revenue growth and the 217 bps Q-on-Q improvement in operating margin is a reflection of the new operating normal that we have established as we target and deliver predictable and fast-scaling profitable growth.Broad-based derisked growth across all businesses and significant investments in building differentiated capability while simultaneously improving margin profile were the highlights of this quarter. I'll step into the revenue analysis section last. The revenue growth continues to be broad-based, predictable and on an accelerating curve. All our constituent businesses continue to expand. Insurance grew 11.2% quarter-on-quarter, contributing to 28.8% of our revenue. Travel & Transport was up 9.2% quarter-on-quarter, contributing to 26.9% of revenue. And Banking Financial Services expanded 6.2% quarter-on-quarter, contributing to 16.2% of revenue. Others segment collectively expanded 11.9% quarter-on-quarter, and they now represent 28% of overall revenues. The geo-based growth cuts also showed latest, sustained and accelerating performance. Americas, which contributes to 49% of our global revenues, grew by 8.4%. The growth in the Americas came at the back of growth in the travel and the insurance verticals. EMEA revenues expanded 16% sequentially, and they now represent 34% of the revenue mix. The expansion in revenue at EMEA was an account of growth in travel, insurance, digital, new-generation infrastructure services, including cloud services. APAC contributes 9% to the firm's total revenue. India, in turn, contributed only 8% to the firm's total revenue. Revenues expanded by 12% on the back of improved GIS business. The top 5 clients now contribute 28% of the total revenue, and the top 10 and top 20 contribute 40% and 54% of the total revenue, respectively, representing broad-based growth and an improved risk profile. Broad-based growth is supported by the number of million-dollar clients, which has expanded to 88 this quarter from 84 last quarter. And this number compares to 74 in quarter 2 of last year. Stepping on to the margin analysis section now. Operating margin has increased by 217 basis points quarter-on-quarter to 18% for the quarter. Constant currency margins improved quarter-on-quarter by 200 basis points. Operating margins have increased by 186 basis points in reported terms and 225 basis points in constant currency terms over the same period last year. This significant and equally importantly sustainable jump in margin was driven by growth across all verticals with nearly the same levels of SG&A spend and through a very comprehensive automation and productivity improvement framework and tool set rollout across the delivery factory. We continue to drive intense automation, productivity tools and options and amplified monitoring frameworks across our delivery factories. Net profits for the quarter are INR 1,118 million. They are up 66.3% year-on-year and 30.3% quarter-on-quarter. Effective tax rate during the quarter stood at 23.7% as against 24.9% in the previous quarter. Let's talk about order intake now. The order intake story remains very strong, and the pipeline continues to improve. We secured fresh business of USD 160 million during the quarter. Out of the USD 160 million order intake this quarter, $86 million came from the U.S., USD 39 million came from EMEA and USD 35 million came from Rest of the World. The trend line of order intake starting from quarter 1 of last year, for 6 successive quarters, has increased every quarter and now reads as $110 million, followed by $122 million, $130 million, $145 million, $151 million and now $160 million, respectively. 10 new customers were added during the quarter: 5 in the U.S., 3 in EMEA and 2 in Rest of World. You will notice that over the last 4 quarters, we have doubled the rate of new logo acquisitions per quarter, and 10 new logos a quarter will be the new baseline. The firm recorded 2, $20 million-plus large deals: one from one of our largest BFS customers for DevOps, proactive monitoring and IT landscape refresh; and the other one was with an existing client in the insurance space in the U.S. We also recorded 3, $10 million-plus contracts during the quarter, which included a multimillion dollar digital engagement with a new commercial lending and leasing major, focused on driving digital process orchestration across the client's onboarding cycle. The other 2, $10 million-plus large deals was secured in our travel vertical, which has rebounded smartly on a sustainable path over the past few quarters. The order intake during the quarter is USD 160 million. In line with our recent quarters, order book executable over the next 12 months continues to expand and it now stands at USD 363 million. I will comment on the delivery section now. The sustained growth that we have delivered in recent quarters has been aided materially by the differentiated capabilities that our delivery factory has incubated at the intersection of our 3 industry verticals and emerging technologies like full-spectrum automation, cloud and data services, robotic process automation, DevOps, cognitive and AI technologies, and core digital. Our success in the market continues to be shaped by real-world stories of live use cases and real-life impact generated and not through vanilla PowerPoint switches. Illustratively, in this quarter itself we rolled into production an Amazon Alexa-driven UI interface for all passengers of a major airline; we created a set of cognitive chat bots for a large asset management major; we rolled out a blockchain framework for the airline industry; we delivered a micro-services-based platform and environment integration solution for 2 of our top 10 clients; and we created an AI-based cost-out model for a wealth management major. In addition, we constructed a factory base upgrade model for interim [ battery ] upgrades and, importantly, sold it to a new prospect. We rolled out 40 automation use case-based solutions across 2 clients in the U.S. and Australia; and for a market processor, created custom automation scripts to reduce market processing analyze time from 3 months to 2 days. We successfully applied our processing framework for a wealth management fund and are also in interesting conversations like via recently hired transformation leaders around potentially partnering with clients to create industry utility frameworks in the asset transfer space. As noted, a lot of our confidence in the continued growth into the future stands from real technical capabilities, which are getting applied in real-life client contexts. The investments we have made over time into technical capability build and SME pool creation are now delivering impact for our clients and creating positive top line and bottom line impact for the firm. People section now. We crossed the milestone of 10,000 employees this quarter, and the total headcount at the end of the quarter now stands at 10,025. There was an increase in headcount by 261 during the quarter, and this included 138 employees in the digital space. We have added over 1,000 net new employees over the last 3 quarters, 50% of which are in the digital space. Utilization during the quarter has improved to 80.4%, and attrition stood at 10.8%. Over the past 4 quarters in our results commentary, we have shared details of the focused lateral senior Tier 1 leadership hiring that we have done to sharpen our market and our growth focus. These leaders have now settled in and have taken effective control. They are marshaling our resources. They are helping drive differentiated propositions and capability construction, and they are helping directly fuel growth. All our current global industry vertical business heads based in the markets are new hires brought on board over the last 1 year from Tier 1 firms, including Accenture, Capgem, TCS and Infosys. In addition, 2 veteran industry consulting leaders joined us this quarter, one of whom was a CIO of 2 large insurance carriers; and the other one, the COO of a capital markets firm. The reconstituted leadership team has settled down well, and our investment in leadership hiring are bearing fruit as evidenced in the numbers that we have shared. In addition, we have strengthened the leadership of our top client-facing teams, good experienced lateral hires who have both external industry and digital experience. Moving on to a section around key balance sheet metrics. Cash and bank balances stood at INR 7,556 million, an increase of INR 707 million over the previous quarter and an increase of INR 1,093 million over the previous year. CapEx spend during the quarter was INR 119 million. And days sales at the end of the quarter stood at 73 days of sales outstanding compared to a number of 75 for the last quarter. Hedge position. Outstanding hedges in U.S. dollars are $64.23 million at an average rate of INR 69.49 to the U.S. dollar. And in British pounds, we have GBP 13.05 million outstanding at INR 94.54 to the pound. And in euros, it is EUR 4.2 million at INR 84.55 to the euro. Outlook. The macro environment has witnessed some shifts with the strengthening of oil prices and a noticeable weakening of the rupee. The economies of the major markets that we serve seem to be in the growth mode. You will recall that last quarter, we had indicated that we would expand our revenues and margins on a quarter-on-quarter basis. As noticed and as you would have noticed, we have delivered a strong quarter-on-quarter performance with all businesses across international geos showing robust growth during the quarter. As we look forward at Q3, we expect growth to continue and margins to strengthen further, given our strong base pipeline despite this being a shorter quarter. As we had noted last quarter, our confidence in our plans is born out of multiple factors. They include a sustained deal flow; the large deal velocity and pipeline; the broad-based nature of growth we see across all our industry segments; the successful integration of our new senior hires, who, along with the broader teams, are driving both growth and differentiation impetus in the market; the impact that both the hunting and the mining engines are creating; and also the traction that our newer capability vectors like cloud, core digital, PSV revenues, data services and cognitive offerings are recording. The revenue trend and the revenue quality have both seen a material improvement over the past quarters. We believe that the expanding pipeline funnel across verticals, continued reduction in top line revenue concentration, decrease in contribution of India to the overall revenue, the growth from capability vectors like automation, AI and data, a significant acceleration in a new logos acquisition and order book generation from the Western markets have improved the revenue and the risk profile of the firm materially. At the beginning of the current fiscal year, we had shared plans to grow at least double-digits in constant currency organic terms. You will notice from our recent results that with a reported growth of 20% in the first half, we are on a growth trajectory to significantly exceed those plans. With these opening remarks, I look forward to addressing your questions. Thank you very much.
[Operator Instructions] The first question is from the line of Vibhor Singhal from PhillipCapital.
Sir, my question was basically just 2 questions from my side. One, a housekeeping one. But firstly, we have seen very strong growth momentum over the past 2, 3 quarters and especially driven by the Travel & Transportation as well as the BFSI segment. So just to basically get a furthersome color on that part. The Travel & Transportation, of course, there's a part of the business which belongs to the airlines, which get negatively impacted by the crude prices running up. So do you foresee any impact of that, maybe impacting the growth negatively from the segment? And in the BFSI segment, if you could just highlight as to which exactly are the specific areas? I mean, geography-wise, is it U.S. or Europe or maybe both, which are kind of driving the growth? Second question, of course, which I could probably just take on its own, is more of a bookkeeping number. If I could get the revenues and the EBIT numbers for the subsidiaries, Proyecta, NITL and the other subsidiaries that we have.
Absolutely, Vibhor, and thank you for the question. Let me start out with the first question that you asked, which was centered around getting more color around the growth that we have seen across Travel & Transport, Insurance and BFS. Travel & Transport for us, Vibhor, is not just airlines. Travel & Transport for us is airports, it is airlines, it is the hospitality sector as well. So it's not an industry segment that is necessarily dependent only on airlines. I think that's point number one. Point number two, if I were to look at that sub-segment across Travel & Transport, which is airlines, at least the short to medium term, demand profile from our client organization appears very robust, and the industry outlook is extremely robust. IATA normally comes out with a guidance around travel transport, especially airline industry outlook. And the latest one that came out in the 1st week of October talks about how revenue passenger kilometers, RPK, which is a key metric, has grown 6.4%, which is exceptionally solid, and how the outlook continues to be strong. The industry load factor across that subsegment that we talked about in airlines is the highest ever in the history of that metric being tracked from the beginning of the 1990s. And cargo load factors again are going up. So if I were to [ center down ], for us, the reliance is not necessarily on airlines. It is on airports, on hospitality as well, so we have betas. Second, within airlines, the external demand environment appears to be extremely robust. The other color that I want to add is that within the airline, airport and hospitality segment, given the newer digital engagements and the new digital push that has gone through, it has become extremely clear that technology is no longer a discretionary spend that necessarily goes up and down with the fortunes of these organizations. Most of the tech spend is now nondiscretionary and, hence, on this industry, the demand volatility again has gone down. Turning to your second question around BFS and where we see the growth coming from, we see material growth coming both from the U.S. and from Europe. We have fundamentally strengthened our Europe BFS presence that used to be relatively weaker earlier. We have hired a new Europe financial services head based out of London. He was earlier the Infosys group financial services sales leader. We have hired a global consulting head for the BFS business based out of London, who was the head of operations of MF Global at one point in time. So BFS, again circling back, the growth comes from both the geos. And the growth is again getting accelerated by the service offerings we have in capital markets, and it is getting led by the new leaders who are heading the market on a revenue -- on a constant basis. Third question that you posed, Vibhor, was around the breakdown of revenue by subsidiaries. And we'll give you the numbers in Indian rupee millions. GIS, that number was INR 351 million. NITL, the corresponding number was INR 491 million. Incessant was INR 1,244 million.
And Morris and Proyecta?
Morris, the growth is -- as we told you, it has bottomed out. It is now a small business, and we rolled up the revenues into the U.S. geo numbers that we reported. Proyecta for us was a INR 205 million business.
So Morris, we would no longer be voting it separately as a subsidiary because you've integrated it into the U.S. business, is it?
Absolutely right. And as we had indicated last time, the business has bottomed out. It is holding out at that level, and we now rolled it into the U.S.
Sure, sir. And would you be able to give the margins for these subsidies also, so GIS, NITL and Incessant, the EBIT margins, segmented margins?
GIS, the number was 23%; NITL was 28%; Incessant was 25.5%.
Sure, sir. The last question, related to my first question, just if I can squeeze in this. You mentioned that the Travel & Transportation segment is not just airlines for us. It also includes airports and hospitality. Would you be able to just give me a broad breakup as to how much of the Travel & Transportation would be airlines, 1/3 maybe or maybe more than that?
About 40% is airlines, Vibhor.
The next question is from the line of Pankaj Kapoor from JM Financial.
My first question is on the work that you have been doing in terms of transforming the vertical and the structures and all. Where do you find yourself now? I think it's almost a year into the role. So do you think most of the stuff you wanted to achieve are now complete and from here on what would be your incremental focus areas?
Thank you, Pankaj. I think the plans that we shared with this group earlier around verticalization have progressed very materially, and we have -- we've made very significant changes. As I noted in the comments earlier, all the 3 vertical heads have been hired over the last 4 quarters. They're industry consulting leaders. 2 out of the 3 were hired over the last couple of quarters, and they are in place again in the market. We have won one level further beyond what we've shared earlier over the last quarter. And the top 3 clients are now headed by client partner equivalents who again has been hired laterally from the market. So very material progress has made -- been made, and that progress has translated into some of the metrics getting accelerated, as you would have noticed. This, as you can imagine, Pankaj, is work in progress. Every threshold that we reach is a threshold that we intend to sustain and grow from. So we will continue to augment leaders. But the basic structure, the basic framework and the basic leadership core is already in place, though we will continue to add and augment it in the future.
Okay. So any plans of expanding the vertical focus now and look at some of the other verticals, which you so far, obviously, have been consolidating on these 3? So any plans to look into verticals like telecom going forward with -- in a way to probably beat us the business?
So Pankaj, we see a lot of headroom in growing the business in the 3 verticals that you identified now. At the revenue level threshold that we are, if we are to maintain the revenue momentum, hopefully, accelerate the revenue and the profit and the margin growth momentum, we see enough headroom in these 3 verticals for us to be able to grow for quite some time. So that's the current outlook and that's the current trend.
Sure. And just next is on the SG&A side, where we have been doing a great job in terms of controlling it as a percentage of revenue. So I'm just curious that given that you have your -- as we continue to build out the new leadership as well as your stated plans of incentivizing and improving the incentive for the sales team, how do you see the SG&A trajectory could be? Do you expect it could be materially large in the fourth quarter when the sales incentive gets paid out?
Pankaj, this is a question that normally comes up every quarter, and I think the proof lies in the pudding. Over the quarter, what we've done, our approach has been to hold the SG&A line in absolute dollar terms, which will help. Revenues, obviously, are on an accelerating curve, so SG&A as a percentage goes down. 6 quarters back, quarter 1 of last fiscal year, SG&A was 19.8%. This quarter, as you've noticed, we got 17%. The way in which we've been able to add very senior and also expensive Tier 1 talent into the front end and at the back end has been by a process which involves inducting new leaders and, at the same time, culling people if they were not performing. So it's been a simultaneous process. Our intent is not to make any material augmentation to the entire SG&A cost pool. We will continue to hire and we will continue to cull at the same time. So I don't expect material changes to the SG&A at a level that you have seen. The point that we've made outright at the outset and the point that we made in our testimonies also was that we expect these metrics and nearly all the metrics will be the new threshold on a go-forward basis for us.
Got it. That's helpful. Just last bit on the cash flow conversion, any numbers on OCF or FCF, if you can share, please?
I want to request our CFO, Mr. Mal, to take that question.
So this quarter, we have added on cash balances about INR 707 million. This is leading to a free cash flow about INR 108 crores.
And what will be the operating cash flow for the quarter?
That's about INR 164 million.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
Just a couple of questions. How one should look revenue growth trajectory and how one should look margin equally? If I look H1 performance, we are ahead of our margin [ experience ] when the year started? So if you can help us understand, over medium term, how one should look optimal margin trends, where NIIT Tech like to operate it? And if any benefits coming because of currency or operating efficiency, which will flow back into developing capability and driving further growth? So if you can provide some contour around it, that would be helpful. Second question is about the CapEx and depreciation. If I look over revenue trajectory, it substantially improved over the last few quarters. But CapEx as well as depreciation, if I look at it, is broadly stable. So now do you expect we reach to some stage where CapEx cycle should start to reflect improvement in the growth trajectory?
Thank you, Mr. Mehta. Let me just take the first question first. And your first question was really around how sustainable is the revenue and the margin profile and when are we going to use some of the currency statements to drive capability and growth. And let me make -- and let me answer it in the inverse order. We have every intent of investing in capability and growth because we are materially wedded to the idea of augmenting and significantly augmenting both capability and driving growth. We have been on that journey. We will continue to invest there, and we will continue to do that in a manner that the SG&A numbers or the margin numbers do not degrade. If I were to take out the currency implications from our business and address it minus currency tailwinds or headwinds in constant currency terms, if you look at our results, at the end of the first half of this year, in constant currency terms, we have grown 15.8% constant currency growth over the same period last year. When this year began, we had shared our plans to grow at least double-digit organic this year. Now that 15.8%, as you can notice, is significantly ahead of the plan. And the commitment and the plan that we had shared was at least double-digit organic. As we said at the outset, it is our intent to make this the new operating normal. So we will try our level best to sustain performance where it is. But of course, we do not offer guidance on a go-forward basis. On margins, the thing that I would like to point out is if you were to take out all the tailwinds around margins, we have a very fascinating story, we believe, because our H1 margins versus H1 margins of last year in constant currency terms, which means we take away the hedge loss and we take away the currency tailwinds, is actually 180 basis points over the same period last year. So this is not a story that we are sharing around margins, which has been an increasing story because of currency fluctuation. This is a structural uplift of the margin profile of NIIT Technologies. And as we commented at the outset, we would like to make this a new baseline, the new normal and hopefully drive up further from here. I'm going to hand over the floor to our CFO, Mr. Mal, to take the first question around CapEx and depreciation.
So the CapEx for the quarter have been INR 109 million (sic) [ INR 119 million ], which is in many quarters the lowest number. As far as volume is concerned, I think we are, looking at the number, around INR 70 crores to INR 75 crores on quarter lag. And depreciation is hardly an increase. It's about INR 27 million increase, which is in the range of 3.5% to our last 12-months revenues.
So the question was whether this is the new normal in terms of CapEx also for the business, the revenue of transport business?
Yes, we expect this one, but I think this is the new normal, right.
Yes. And just one, first part of the question about margin. Concerning the changes which we have made in [ auto ] engines and have started firing, so what would be the new normal of margin for NIIT Tech? If you can provide some color there, maybe a broad range would be very helpful.
Mr. Mehta, 18% would be the threshold that we expect. This is the threshold that we are at, and we intend just to grow marginally from here. But 18% should be the threshold, and we've called it out as the new operating normal this way.
The next question is from the line of Govind Agarwal from Antique Stockbroking.
I would just ask you, on the other margin thing, because we have revised a lower rate of exchange rate because of accounting treatment, should we expect the currency benefits to further flow into margins in Q3 and Q4?
So Govind, you know how we present our results. We actually net out hedge gain and loss from the revenue itself, correct?
Right, right.
This year, we have recognized about INR 12 crores of hedge gain-hedge loss in the first half versus INR [ 20 ] crores of hedge gain in the first half of last year. I think those metrics give you a broad indication in terms of where we are, minus the hedge gain or loss piece and how sustainable the margin profile is. Did I answer your question or did I get it wrong?
No. My question was going forward, if we get currency benefits, currency tailwinds, should that lead to margin improvement or ex of hedging gains?
No, no, absolutely. It will definitely lead to a margin improvement and even if we don't get currency tailwinds, on a constant-currency basis also, we expect margin to go up. That's our stats. [ As it happened in the mix ], so it'll go up, hopefully both ways.
Okay. And another thing on the order intake, it has been going up every quarter over the last 5, 6 quarters. So what could be our number and what we should target in terms of order intake?
We -- it's a difficult question Govind, very difficult to give a hard number to that. But see, I mean, we have the leadership and leadership of a caliber that we feel is one of the strongest in the industry. We have put the compensation incentive mechanisms in place. We have risen for 6 consecutive quarters. We have an extremely sound large deals velocity and flow, right? If you look at the last 6 quarters, the point that I said was 6 quarters back, the order intake, you will recall, was 110. It went to 122, it went to about 130, it went to 145, it went to 151, and it's now 160. So the trend is positive. The large deal flow is accelerating and we will at least hold on to that 2 large deals, $20 million-plus per quarter, which we've been targeting. So we feel very positive around maintaining an upward momentum around order intake. I don't see this going down. I see it as being extremely sustainable.
Sure, sure. Okay. And one bookkeeping question on the state purchasing the subsidiaries. How much they will purchase now and in FY '20?
In May of next year?
Through to '20, yes.
May of next year, we're going to acquire the remaining 10% of Incessant and another 12.5% of RuleTek.
Okay. So that would be full acquisition then by May in next year?
Full for Incessant, and it will take us to 80% for RuleTek.
[Operator Instructions] We move to the next question from the line of Madhu Babu from Prabhudas Lilladher.
Sir, just regarding the margins, I think so that would put us at the -- nearly the upper end of the mid-cap IT companies. So if you see, our onset has been gradually going up. And obvious -- when you're talking of digital, I mean, there's obviously higher onset investments. So don't we see any challenges on that front, which can be a challenge for your margin aspiration?
At this point in time, the answer is no. We see no challenges, Madhu. On margins at 18%, the one that I talk about, we see leeway and we also see clear levers to improve gross margin through the automation and the AI induction that we are doing at the back end, right? We are investing in on-site in order to make sure that margins do not degrade. We're also investing in near-shore capabilities adjacent to our on-site markets. That is helping us. And as we look at our on-site, offshore, even revenue mix, it's held at 64% right now. We feel very confident that there are going to be no headwinds in the foreseeable future which will degrade margins from the levels that we already raised.
Yes. And second question, sir, on BFSI -- BFS, if you see our annual revenue yield will be around $80 million, kind of. So when we are winning this kind of new deals, I think we mentioned a $23 million deal in existing customer in U.S. So whom are we competing against in getting this deal? Or is it just, I mean -- and what is the kind of service lines where you're working on this, just BFS deal, which we mentioned in the press release?
This deal that was won against one of the largest Tier 1 firms in the world, Mr. Babu. And the nature of work had a component of dev ops to it, which would largely be bracketed around digital. It also had a clear element, which was centered around new-gen infrastructure and monitoring.
Okay, okay. And even the last one from my side. The top line, I think, have shown a strong momentum. So do we see, I think, considering the -- no, kind of, obviously, the replacement of the vertical headwind on, do we see a big potential to grow the existing top 10, 20 accounts?
Yes, absolutely. And if you look at the current quarter also, the business was growing at 10% and the proportion -- and the revenue, the contribution across 10 clients continues to be at 28%, which implies that the top 10 clients also quarter-on-quarter have grown 10%. Top 5 clients, I beg your pardon, have also grown 10%. So we see that continuing. And beyond the top 5, even the next 15, which is the top 20 or the next 5, which is the top 10, also have material revenue momentum happening. So we feel good about the entire mining story right now.
And just one question, sir. The team has been new, I think, 1 year around the system almost. So how is the current attrition at the top level? I mean, the existing -- the new guys who came into the system? So are we going to say that they are going to be stable and...
Go ahead, Mr. Babu. Sorry to interject, go ahead.
Yes. So any attrition at the top level, I mean, the new joinees over the past 1 year?
There has been zero attrition, Mr. Babu. The new joinees have integrated, they have settled down, they are in charge and they're actually leading the charge. The culture of the firm and the -- more of the leadership is, if I were to use a word, it's an extremely hungry leadership. It is a very high-caliber leadership and it is a leadership team that is very intent on making an impact and driving aggressive profitable growth for the firm.
The next question is from the line of Sandeep Shah of CGS-CIMB.
Just a few questions. If I look at the restructuring, so these you have done under your leadership for the go-to-market strategy on the sales. On 2 parameters, when you need to evaluate how you're performing, can you quantify the deal pipeline expansion which is happening on a Y-o-Y basis 4 quarters back? And what is your hit ratio in terms of conversion of this deal pipeline into deal wins? That's question number one.
Sure. So I mean, the metric that we look at when we look at our senior leaders, Mr. Shah, is focused primarily on revenue growth and bottom line growth, both of them have equal weight at the time period. The way in which we test the robustness of the pipeline is, this quarter, it was $160 million. If I go back to the same quarter last year, that number would have been around $122 million or $130 million. So we see about a 25 percentage growth in terms of risk of the pipeline. In terms of the third aspect of your question around win ratios, I think they are exemplified by the change that happened in terms of the large deals that we are winning. In terms of the confidence with which we are able to stake a claim and say that we will win deals. And if you look at just the current quarter, when the quarter started, we said we'll get 2 large deals, which we did. In addition, we got 3 $10 million-plus deals as well. So qualitatively also, we feel very good about large deal and revenue momentum.
Okay, okay. Just question on in terms of digital services. Is it possible, Sudhir, to give us some color whether -- between digital, how widespread is your service mix across different towers of digital, which includes cloud, dev ops, AI or core digital? Because I believe software-as-a-service, where we may not be that strong. So just I want to get, are we more diversified within the digital services individually? And will that be our new entry drivers, which will further improve your -- actually the client relevance going forward?
I think it's a great question, Sandeep. Thanks for posing that. And let me give you some color around our digital business because for a firm our size compared to mid-tier players, we believe we have an extremely strong bouquet of services that we take to the market. And it's not just the laundry list of service capabilities, it's actually very pointed, very deep capabilities that we've built. So for instance, let me just run you through it. Automation for us is not just plain vanilla BPM, automation for us is an RPA business that is multiplying this year over its revenue numbers last year. Automation for us is a very large practice around digital process automation. Automation for us is this entire cognitive in AI spectrum where last quarter, illustratively -- and I think I talked about this, we actually gone down to creating custom scripts to drive automation. So that's one bucket and one piece of that overall digital bouquet that we address. The second piece for us and a fast-growing piece for us is the entire data services piece. So data services -- and we've talked about this again in the past how we hired a very senior leader from the industry to drive this for us about a year back. Again, an extremely fast-growing business, service line from our point of view, service lines in which we looked back and we focused on data modernization, data monetization and machine-learning based data services as differentiated points for us to lead with. The third bucket where, again, we see growth under a new leader who has been hired from Microsoft about a year back is the entire cloud services spectrum where, again, we are crafting very interesting strategies and helping with app transfer, infra transfer on the cloud to some of our largest clients. That's number three. Number four for us has always been integration and there has been very interesting work that we've done, particularly around Winsoft. Number five would be digital experience, where most of what we've done has been cycle centric. Number six would be the DevOps piece that I talked about. And number seven, even though it's not digital, is an ancillary space, which is the entire software space where we have an insurance product for the Lloyd's market in U.K., and we have a revenue accounting product itself for the mid-tier airline industry. So that, Sandeep, is a quick flavor in terms of what we do in digital. We're very proud of what we do in digital. We understand that the service offering is extremely deep, is extremely wide, but what we are particularly pleased with is the depth and the capability points that we have in digital.
Okay, okay. So it fair to say that we will have a well mix now across most of these services where going forward, the reselling capabilities or mining capabilities could be further sharpening?
Well, absolutely, yes. For instance, an uptake of, I believe, the data services that I told you about where we have a new leader coming a year back was responsible for us opening one of the top 10 banks in the world in Europe, using data services as a lever. The robotic process automation that I told you about, one of the 10 clients that we've announced this quarter actually came in because we led with an RPA-led value proposition. So these service lines are now not just growth vectors, they're also spearheads in some ways around global acquisition.
Great. Great. This is helpful. Just few things, if I just look at vertically, my sense is the BFS, which is a capital market business, relatively it has not grown in line with the company average. Any specific issues here on a...
No issues at this point in time. No issues at this point in time, Sandeep. As I've noted, BFS for us is largely a capital markets business and even within capital markets, it tends to have a very strong capital markets by site flavor. This is also a space where we have now consciously started investing in Europe. And as I said, in Europe, not only do we have our BFS global leader sitting in Europe, we have our global consulting head who's recently joined, who now is based out of London. And we also have the Europe sales head coming from a Tier 1 firm and lead the charge for us. So Europe is a growth vector for BFS for us. And to the point that I made earlier and the data point I shared, 6.2% quarter-on-quarter is actually fairly -- is very robust growth. And we think we will be able to accelerate this component of the number of our vertical mix also in the quarters to come.
Okay, okay. Just few qualitative stuff. If I look at your growth rates, I think it has been improving and surprising on a Q-on-Q basis because you always alluded that it's because of the senior leadership team which you have recruited and restructured. So do you believe your review process has enough incentive program? Or do you believe that could be a worry going forward where attrition can disturb your growth momentum going forward?
We have the most aggressive large deal incentive program possibly in the industry as we speak right now, Sandeep. I -- we had shared this a couple of quarters back. The incentive that a sales manager makes for signing a $20 million-plus deal is almost 4x of what he or she was making last year for signing the same deal size product. So it is an extremely aggressive sales commission plan that we've instituted. There's also very aggressive differentiation that's being done across the organization. We have talked about this a couple of quarters back. We have doubled the range of increments across the organization in line with the performance that we see individuals churn out. So just getting back to your question, I don't think compensation or commission is going to be any issue, is going to be a material issue which we, at this point in time, would worry about. And to the point that I said earlier in response to an earlier question, we've had zero attrition in the senior leaders whom we've hired over the past few quarters.
Okay, okay. Last 2 questions. One bookkeeping. The treasury income, despite the cash generation and the cash balances going up, has declined on a Q-on-Q basis. What's the reason? And the second, out of the $70 million worth of PCB for the large deals, can you quantify what is the percentage of new business?
Sure. I'll request Mr. Mal to answer the first question.
So the treasury income has not really come down, apparently the number looks like that. It includes tax -- interest from tax refunds which we have received in quarter one, which was the higher number of $55 million. And this quarter also we have received where there's a interest component on that tax refund, which is a little lower number. So on a steady state, actually it has increased the treasury income.
And getting back to the second question that you had, Mr. Shah, the answer is close to half of the large deal PCB that we talked about is new business. Incidentally, 1 out of these 5 large deals was a new logo which started out with a straight $10 million-plus sign-off and that was a digital-led logo where we worked with a commercial lending and leasing major. We looked at digitally automating, orchestrating the entire KYC process for that organization itself.
[Operator Instructions] The next question is a follow up from the line of Vibhor Singhal of PhillipCapital.
Sudhir, I just had one question. I mean, if we look at our performance this quarter, I think it's been a great performance all round. I mean, there's hardly anything that we can pinpoint in terms of being negative with strong growth margins, clients, everything. But as a habit, if I were to just basically -- if I were to basically find something which is kind of it might be contained of a small concern, and if I would just ask you to maybe pacify that to us. So the deal flow that we have seen has been very, very strong for the past 3, 4 quarters, and as we see that 360 -- around $360 million of deals, obviously, is supposed to be executed over the next 12 months, which gives us a good visibility for the next 2 to 3 quarters. I just wanted to ask you basically a bit more on this that, right now, we are basically winning so many large, so many deals of shorter duration which are also helping us for revenue growth. That gives us visibility for the next 2 to 3 quarters. Do you have enough visibility in terms of this deal flow kind of continuing for the next 4, 5 quarters, which could give us the visibility on terms of revenue growing at the rate that we are at this point of time. I mean, it shouldn't be the case that, okay, at this point of time, you're getting good deals and that's subsiding into revenues at a much faster rate. And suddenly the deals dry up and we are not able to grow that much, so anything specific about the nature of the deal flow that could be a cause for concern at this point of time?
My crystal ball turns increasingly cloudy as I see more than beyond what is the lower budget. So just to answer your question, right, the 5 pieces that I talked about. Each one of them, and I'm just trying to think through those, 3 out of the 5 were $10 million or $20 million-plus deals signed over a period of 3 years. 2 out of the 5 have been PCB deals over 5 years, so to that extent that is protected revenue and honestly, at this stage, we're only disclosing $10 million-plus deals. There are $5 million-plus deals also that are getting signed. So I mean, like any other organization while we can't comment, the macros are very good, the trend is very good and the leadership team that we keep alluding to we think is of a caliber which is best-in-class now. It's taken us a while to get there, but we now believe that we have the leadership, we have the macros, we have the track record and we have the deal flow to make it happen in the quarters to come.
That's great to hear. Just a related question on the other side of this deal flow, do you foresee any delivery issues in terms of availability of talent to had viewed the kind of deals that we are seeing? I mean, I know talent is a connect at this point of time. Are we getting enough kind of people -- new hires of people that are -- people that you hired in maybe the last 3 months in the digital space. Are we getting enough people in the domains that we want and that the clients are asking for? Are we getting enough full start developers? Or is there a problem on that front that we are facing?
So we are very fortunate to have a DNA from NIIT, which has a very core learning component to it, right, which makes us somewhat atypical compared to our mid-tier players. We started off as a firm focused on training and learning. To that extent, the training, learning, ramping up engine that we have, we believe is superior to most. Second, we also have a brand in the Indian context, which is a pretty strong magnet for attracting good talent and you've seen that in terms of the caliber of people who joined us. And third, there's always been a culture which has been extremely people centric. So to that extent, attracting talent, ramping up the engine has not been an issue, as I said. We've added 1,000 net people over the last 9 months, and utilization number has stayed where it is. So we don't see adding more people or training more people or upskilling current employees as a big issue given where we are. We've also very recently launched a new reskilling and learning training platform called proSapient across the organization. And as we speak, out of the 10,000-plus folks that we have across the firm, close to 6,000 have already become active users of that and that again is in line with I talked about, a very deeply engrained training culture, learning culture, strong brand. And more than all of this, the proof lies in the pudding that last 9 months, we added 1,000 people. For a 10,000 people company that's a material augmentation, and we've been able to do that without anything tweaking in the process.
So that speaks volumes about the capability of the company to attract talent and reskill and retrain them. My question was more on the supply side. Are there enough people in the market available with the kind of requisite skill set that the clients today are asking for the project?
We believe -- given our scale right now and given the competencies we are focused on, we don't see an issue, right? We're not really going out there and looking for the next 20,000 people for us. We added 1,000 in the last 9 months. Even if we have to add 20,000 -- 2,000 in the next 9 months, we don't see that as an issue.
So as our scale, we -- at our scale, we don't see a problem at all?
That's always correct, yes. We don't see a problem at all.
The next question is from the line of N. Puranik from ENAM Securities.
I have a question about the new hires you have made. I think you have created a totally modern NIIT Tech, the hiring of key vertical, hiring vertical market consultants. How do you integrate them into the company? Because a lot of them are -- come on board recently. How do you integrate them on to the company? And the next question is about the agile and dev op maturity curve, how has that evolved over time? On the maturity curve of 1:10, where are you in agile and dev ops?
Perfect. Let me take the first question first, which is in terms of new hires and the extent to which we've been able to integrate them. I think there's 2 things. One, the new hires, at least the senior-most ones, have come in as leaders. They haven't come in as folks who are operating under someone else, may or may not be aligned to the vision that they craft. Second, structurally, we restructured the organization. We made it vertical-centric from being a geo-centric organization. And once you have a vertical organization, once you have folks who come from outside and head that organization and these leaders report directly in to me. The challenges inherent in agendas being across purposes goes away and have structurally gone away. So to address your first question, that's how we've handled it. The new leaders who -- I mean, of course, have been brought, have been made completely aware of our values and vision, of the heritage of the organization, of the people centricity of the organization and the teams that have been formed have been composite teams. So it's -- while we do talk about the 10, 20, 30 senior lateral one hires. If I were to look at travel, we have a very senior lateral hire who's running the front end and the business globally, but delivery at the back end is being delivered and led by a lady who's been with us for 25 years. That equation, that balance is a good balance to have and we have thankfully not had any issues at all, which is why the numbers have looked up and they've looked up sustainably for a while. Coming to the second piece around agile and dev ops, I think it's a journey. It's a journey for all organizations and there are only certain elements of the 10,000 people factory that we will have across on-site and offshore that need to be upskilled and upscaled on it. Most of the large development projects that we have, have some flavor of agile in them and dev ops also in some ways ends up being a hybrid flavor of dev ops. The agile flavor that exists across the organization has multiple aspects to it. There are versions of agile that are being pursued by travel tech players, which are materially different from the extreme agile or the extreme dev ops environment that the cap market's buy-side firms are pursuing. So we have an agenda. We have a leader. We have a framework around agile that is us. But that framework ends up getting customized and adjusted, depending on the specific client task that we end up having. If I were to give you a top -- I'm sorry, if I were to give you a top of the head number around how many of the 10,000-odd folks would be conversant with agile at this point in time, I would take away the BPO folks, I would take away some of the infrastructure folks and I would say about 60% to 65% of the ADM factory would be conversant with the principal and about 35% would be extremely conversant with the principal with some of them being active practitioners.
That's a good number. And then in terms of agile projects, what's the largest agile project that you have implemented?
The largest agile project that we've implemented is for a travel tech player which creates some of the largest travel industry product offerings for airlines, airports and is actually somebody who threads it together. The size of the project was in the ballpark of about 20,000 function points. Now increasingly, the world is going to story points, et cetera, but it was, at that point in time, roughly about 20,000 function points and that project has been delivered. So it's not in the process, it's been delivered.
It's distributed agile.
That's correct.
That's interesting. So in terms of delivery teams, have they been sufficiently incentivized as of yesterday? Not as much, but sufficiently?
They have. And to the point that I made earlier, the range of increment has been doubled.
Doubled, okay.
So for the outstanding performance, they're recognizing close to double of what they did as increment is a lot. And we've always had a culture around recognition which has mechanisms outside it, but the most material piece as you and I can both relate to is the increment. The increment for the best performance got doubled starting this year.
And what is the role of these 2 consultants from -- for deep domain capability of higher capital market and insurance?
So there are likely 3 consultants. 3 consulting firms, we call them transformation leaders. There's 1 for insurance, 1 for BFS and 1 for travel. The intent here is that these folks come in; a, they come in with a point of view around what is happening in the industry. They funnel our capability build into spaces which are relevant and important for the industry. They work with our horizontal technology capability leaders to create point solutions or the intersects. And they will also, over time, become hopefully rainmakers for us when it comes to large deals, standing up along with the pursuit teams and presenting a point of view. Illustratively, to your question, in the IR accountants that I believe I spoke about earlier, this month, our Travel & Transportation leader who's there in Greece. He's the one who actually rolled out a blockchain-based model for the airline industry, which was compliant with the data model that IATA has recommended for the travel industry. So it wasn't just about any blockchain model. He understands and his team understands what the IATA-mandated data model is and the blockchain framework was constructed around it. So that's illustratively the kind of work that we expect these leaders to be doing for us.
So in aggregate, going forward, so you've -- NIIT Tech will look a lot more scalable in terms of deal wins? Can you bid for larger deal wins and more $10 million, $20 million deal wins? And what's the way forward? Because you have structured a very nice organization.
So if you look at it, we've been winning on an average about 2 $20 million deals per quarter on an average and the deal flow has doubled over the last, I'd say, 3 to 4 quarters. A lot of it -- in today's market, a $20 million deal isn't necessarily a deal where mid-tier players play. Everyone and their uncles jumps on to those deals these days and almost all of them had a mix of Tier 1, Tier 2 players competing. We won them on basis of differentiation largely, and given that we've reached a sustainable velocity of roughly about 2 large deals per quarter, we believe we will definitely maintain it and of course, the effort is going to be to go beyond 2 on an average and then take it to 3 in the short term. Did I answer your question?
Yes, yes, you did answer. So you talked about the headcount of 10,000-plus you have. So if these headcount, unlike the large players, the -- who are -- some of them have become legacy players, so they have the legacy disadvantage. You don't seem to have that kind of a disadvantage in terms of creating a middle, which is not as productive, as functional going forward and that will disrupt the traditional pyramid structure. So you -- how do you keep it relevant and modern as the time go by?
I'm sorry. I don't think I understood the question. Could you repeat that, please?
No, what I meant was, see, typically large players have -- been having hundreds and thousands of employees. And so they will have a lot of mid-level management who are not relevant, who are not building, and they have to be upscaled in terms of that capability metrics. So you don't have that disadvantage. You have lesser number of people and you also have a lot of mid-level people. How do you handle them? Because you have a better functional pyramid structure.
Yes. So we've always had internally a culture, and I talked about this earlier also, right, which is more focused on learning, more focused on training and more focused on what we internally call producing managers. So we -- culturally and from an overall legacy perspective, we really haven't had any, for lack of a better word, the dead wood that you're referring to. It's been a function of the legacy that we have, it's also a function of the flex that we have, given our clients, right? We were just 9,000, 2, 3 quarters back, so we don't really have that overhang that you're referring to. And hence, it is not a material issue for us.
The next question is from the line of [ Ganesh Shetty ], an individual investor.
And it is really delightful to listening to you regarding company's positioning in global market. And all the best, sir. All my questions are answered.
Thank you very much, Mr. [ Shetty ]. And given that we are overtime, we'll regard that as the last question for the day. I would like to thank every one of you for the interest and the time that you've taken to spend with us today. If I were to quickly recap, I would pull some of the views that I've heard from some the questioners. It hasn't been a quarter where only one metric did well. This has been broad-based growth across almost all, and I would venture out to say, across all operating parameters. We have very clearly articulated that we regard this as a new operating normal for the firm. And where we sit today, we have given our deal pipeline, our order flow, the deal velocity, we have visibility to living up to the expectations that I heard some of you articulate. Thank you very much for your time, and for your interest. Good night.
Thank you very much, sir. Ladies and gentlemen, on behalf of NIIT Technologies, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.