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Coforge Ltd
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Ladies and gentlemen, good day, and welcome to the COFORGE Limited Q2 FY '21 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 COFORGE Limited. Thank you, and over to you, Mr. Singh.
Thanks, and a very warm welcome to all of you to the Q2 FY '21 earnings conference call COFORGE, which was also widely known as NIIT Technologies. You would have received our results by now. Those are also available on our website, www.coforgetech.com. Present along with me on this call are our CEO, Mr. Sudhir Singh; and our CFO, Mr. Ajay Kalra. We will start this forum with opening remarks from our CEO. And post that, we would like to open the floor for your questions.With that, I would now like to hand over the floor to our CEO. Over to you, Sudhir.
Thank you, Abhi. And a very good evening, and a very good morning to you across the world focus. I hope that your family, your loved ones, your team members and you are safe and healthy during these times. And I sincerely appreciate your taking the time and joining us for this conversation today.Today's post results call is our first since we began operating under our new name COFORGE Limited. Our new name COFORGE stands for working together to create lasting value. And it reflects the deep client, employee and partner centricity in grains within our operating culture.Over the past few years, we have accelerated the growth trajectory of the firm by affecting a change in the leadership, the operating culture, the strategy and the capability matrix of the firm, and we are excited about our new name that marks this transition. As planned, I shall now share details of our quarterly performance and our perspective on the outlook going forward.With that, I will now proceed to the revenue analysis segment for quarter 2 performance. You will recall that at the end of quarter 1 in a similar post results call, I had shared that we will grow revenue by at least 7% sequentially and grow margins by at least a 150 bps sequentially. As a firm, given our exposure to the travel sector pre-pandemic, we faced headwinds that were considerably higher than what our peers in the industry faced. Our performance has come despite the very specific and the very significant headwinds that we encountered and are now convinced we have overcome.In the quarter under review, quarter 2 FY '21. Consolidated revenue grew quarter-on-quarter by 8.1% in constant currency terms. In U.S. dollar terms, revenues grew 10.7% quarter-on-quarter to USD 154.9 million. In reported terms, the revenue increased quarter-on-quarter by 9.1% to INR 11,537 million. The quarter saw all-round growth. The growth came from all verticals, common geos and from all account size-based cut. Despite the pandemic-related headwinds, all our businesses with no exceptions, grew sequentially in quarter 2.During this quarter, our insurance services business grew 12.6% quarter-on-quarter, contributing to 34% of the quarter's total revenue. Our BFS business grew 6.5% sequentially and contributed to 17% of our revenues. The Travel vertical recorded a quarter-on-quarter growth of 5.4% and now contributes 19% to the total quarter 2 revenue called out.Other segments collectively expanded 5.6% quarter-on-quarter, and they now represent 30% of the overall revenue. On a geographical basis, Americas grew by 13.2% sequentially, contributing 48% of the revenue mix. EMEA grew by 5% sequentially, contributing 36% of the revenue mix, and the rest of the world grew by 3% sequentially, contributing 16% to the revenue mix. The top 5 clients of the firm now contribute 24.9% of the total revenue, and the top 10 and the top 20 clients contribute 36.4% and 52% of the total revenue, respectively. The broad-based growth that I referenced is reinforced by the number of $1 million-plus clients, which stood at a $109 million at the end of the quarter under review, up from 95 accounts a year ago and from the number of 107 clients at the end of the preceding quarter. Our on-site revenues represented 64% of total revenues, up from 62% in quarter 1 FY '21. Moving onto the margin analysis. Now -- I shall now talk about the margins and the operating profits for quarter 2. We are pleased to report that margins have expanded by 174 bps quarter-on-quarter. We have delivered an EBITDA of INR 2,172 million before RSU costs, translating into an EBITDA margin of 18.8%. After baking in the impact of RSUs granted to the leadership team in March 2020, EBITDA post-RSU costs for the quarter stands at INR 2,048 million. The effective tax rate for quarter 2 was 19.9% of PBT. Our net profits increased by 51.1% over the last quarter to INR 1,207 million. Moving onto the order intake aspects. The order intake during the quarter was exceptionally strong. We secured fresh business of USD 201 million during the quarter under review. Our order book executable, which, as you know, is the booked order over the next 12 months now stands at USD 489 million, which is up 21% year-on-year. Out of the USD 201 million order intake that I referenced, the U.S. geos contribution stood at USD 121 million. EMEA was USD 58 million, and we secured USD 21 million from the rest of the world. The large deal signing momentum continued. Two large deals were signed during the quarter. The first deal was in the Insurance vertical where we signed a $32 million multiyear deal. The other deal came from the BFS vertical. Through the quarter, we signed 12 new customers.I shall now talk about the delivery operations and the capability-build aspects that the company continues to be extremely strongly focused on. Within the broader full spectrum digital and platform capabilities, there are 3 specific areas that continue to markedly differentiate us as an organization and act as spearheads in opening new conversations and relationships. These 3 areas are: one, platform engineering, where we derive around $100 million of our revenue from. Two, full spectrum AI plus automation that delivers another $100 million in revenue. And finally, three, digital integration capabilities, which contribute around $50 million of revenue. The product engineering and digital portfolio of the firm has crossed the threshold of 50% of total revenues last quarter. That large and growing portfolio has been the principal driver of improving revenue productivity and hence margins over the past few years.I'm happy to report that we had -- we have had another quarter of stellar quality delivery, and I move the needle upward on our digital, automation and client transformation capability build and client journals. One of the same largest banks in the world, we are developing an AI solution, leveraging our in-house accelerator to create unstructured contained from multilingual policy documents and map them to downstream risk management processes. This will lead to straight-through processing of risk scoring, improved cycle time and productivity. For a leading global specialty provider of P&C insurance and reinsurance, we increased the underwriter productivity by 3x, and we scaled that case handling capacity by a factor of 5x by building an AI-based automation engine that extracted unstructured content from Office 365 main and enables faster underwriting processing. This was built on our COFORGE's proprietary AI solution accelerator, SLICE and IDP using cognitive technologies. And here, I quote directly from the client. The project was a difficult undertaking as the technology is unproven. However, its success is a testament to COFORGE's, artificial intelligence and machine learning capabilities.Moving on, we have built additional capabilities in AI and ML-powered IT ops with machine learning, Big Data and AI. We have also built the capability for one-click migration to the Cloud, significantly lowering the cost of Cloud enablement. As you are aware, we have a material $40 million insurtech platform AdvantageGo. Within that suite, our exposure management solution Exact Max was shortlisted in the Insurance Innovation of the Year category in the Insurance Insider Honours Awards 2020.For a new and another client, COFORGE delivered a new rules engine-enabling faster deployment, flexibility and maintainability of new code releases for an IT architecture firm. The highlights of these were 0 core business tool management, externalizing business rules and hosting the engine in the Azure cloud. For a very large automobile brand, we have launched a sales force based new lead and inquiry system for all its 4,500 dealers. The system digitizes the previously paper-based lead management practice and reduces the processing time from 3 days to real time.To conclude, our push to engage with the emerging technologies that we always talked about and have in bind, continues to differentiate our solutions, and it underlines and powers our successful attempts at wallet share increase in current accounts and reinforces our differentiated position in the marketplace.I'll now talk about the people metrics. Total headcount at the end of the quarter was 11,162, which represents a net addition of 564 employees. Our headcount, you might note, is now slightly higher than what it was in quarter 4 FY '20 when the pandemic began. Utilization during the quarter was 81%. Attrition fell further to 10.5% and continues to be one of the lowest across the industry.Highlights of the balance sheet metrics are as follows: cash balances stood at INR 4,147 million, which is a decrease of INR 1,310 million over the previous quarter. During the quarter, the firm bought an additional residual stake in RuleTek of which we paid INR 722 million, and RuleTek is now a wholly owned subsidiary of COFORGE Limited. The firm also paid buyback tax of INR 781 million during the quarter. CapEx spending during the quarter was INR 214 million. The debtors at the end of the quarter stand at 75 days of sales outstanding.Very quickly, I'm going to share subsidiary information. This is what we are normally asked for. For AdvantageGo, the quarterly revenue was INR 762 million at an EBITDA of 31%. For Whishworks, the quarterly revenue was INR 572 million at an EBITDA of 20%.Moving onto hedge positions. Outstanding hedges in U.S. dollars are USD 74.93 million at an average rate of EUR 76.89 to the U.S. dollar. In British pounds, we have GBP 22.23 million outstanding, and that's at INR 97.11 to the pound. In euro, it is EUR 4.66 million at INR 87.1 to EUR 1. And in Australian dollars, it is AUD 3.92 million at INR 49.86 to the Australian dollar.To conclude, I will now step into the outlook section. As a firm, we have stayed away from offering a guidance in the past, but given the exceptional circumstances during the pandemic, we have made an exception this year. Last quarter, during the post results call, I had indicated that we plan to deliver a sequential revenue growth of at least 7% in constant currency terms with a material margin expansion of at least 150 bps sequentially in Q2. We have delivered on both revenue and margin fronts against those plans in Q2. Underlining, once again, the performance and the execution intensity that is now firmly embedded in the firm's DNA. With the first half now behind us, I would like to reiterate that we remain confident of maintaining the annual growth guidance and the annual margin guidance that we had shared earlier. We believe that our organic growth for the year will be at least 6% in constant currency terms during the current fiscal. This assessment is based on our plans to deliver sustained growth rate performance in both quarters of the second half as well.In addition to organic growth, we have demonstrated the ability to acquire and integrate bolt-on targets in specific areas, and we will continue to look for inorganic opportunities, too. Our margin trajectory also remains on track, and our margins continue to be best in PFF. Last quarter, in the post results call, we had revised upwards our annual EBITDA margin guidance from 17.1% to 17.8% pre-RSU cost. We maintain that guidance, and we expect our EBITDA margin for the full FY '21 before RSU costs to be the same as last year FY '20 margins at 17.8%.Overall, you would have noted that over the last 3 years, the firm has delivered against revenue and profit plan in every quarter with no exceptions. COFORGE is hyper-focused on execution against plans and is committed to maintaining an unpremised record on this count in the quarters and in the years to come. We also remain committed to our intent to attempt to set the pace when it comes to the growth rate for the industry. Our growth framework, which we built 3 years back when we started the process of changing the firm's leadership, its organization structure, its operating culture and its capability metric has now been tested and has proved itself repeatedly over these years. The growth framework of COFORGE is based on 3 aspects. Under our growth framework, we believe that the firm's performance has to be one, robust; two, predictable; and three, profitable. Our record referenced earlier over the last 3 years speaks to the sustained, robust and surprised pre-growth that has been delivered on the back of immaculate executions. Importantly, our growth during this period has also been delivered while simultaneously delivering increasing margins.Finally, our performance during the pandemic, despite our significant exposure to the travel business attest to the resilience of the firm's operations, attest to our ability to risk wallet share in large accounts and to our commitment to delivering surprise free growth against any and all odds.That, ladies and gentlemen, brings me to the end of my opening remarks, and I look forward to hearing your comments and to addressing your questions. Thank you very much.
[Operator Instructions] Our first question is from the line of Shashi Bhusan from Axis Capital.
Congrats on a strong quarter, sir. Our award book has been expanding. Any color on renewal versus new deal composition for the same? And any quantification of the deal pipeline, given that we have closed so many in this quarter compared to, say, 3 months or 6 months back?
Shashi, thank you very much for your questions. The order book, as always, has been a healthy mix of both renewals and new revenue streams that have come in. Illustratively of the 2 large deals that I talked about in the current quarter, the $32 million insurance deal that I referenced is completely new revenue for the firm. And the other large deal that I referenced from the BFS vertical had more than 50% in new component to it. From a deal outlook perspective, despite the pandemic, as you noted, Shashi, over the last 2 quarters, we closed 3 large deals last quarter, 2 in the current -- in the quarter under review, quarter 2. The large deal pipeline continues to be robust, and we continue to plug away at making sure that we realize as much of it and as soon as possible.
Sure. And given challenges faced in Travel vertical and our performance is commendable there. What are the initiatives taken to retain and expand market share in the verticals?
Thank you for the question, Shashi. As you know, Travel is now only 19% of the firm's revenue. And within -- and if you look at the composition of the firm, only around 5.5% or 6% comes from airlines. We saw the impact of the pandemic on the travel industry as a challenge that we had to address by, a, looking at short-term efficiency measures; and b, also exploring opportunities to expand our wallet share in a regimen where overall spends at client levels were falling. That approach of not giving us on the larger client relationships that we had and structuring solutions that addressed their productivity and cost save asks has worked well for us. A significant portion of the growth that you see this quarter, which was roughly around 5.5% odd sequentially has come from wallet share expansion that we have experienced as a consequence of the approach that we've taken.
Okay. And last one from me, you can comment on bearing plant, given that they have consolidated IT services portfolio with 2 IT companies taken private. What's their plan with the company, if you can help me and comment on that?
Shashi, that is going to be bearing prerogative, and I just -- and that it's going to be a decision that the Board will take. At this point in time, we have no indication from bearing around any such plans.
All the very best for the year, sir.
Thank you, Shashi.
The next question is from the line of Sandip Agarwal from Edelweiss.
Thanks for giving me the opportunity for the questions. First of all, congratulations for a great quarter. I also wish good help to all the NIIT people. Sir, I -- COFORGE people, sorry. Sir, I have only [Technical Difficulty] question. You have done an excellent job on all with the last 12 quarter-related equity [Technical Difficulty] ordering -- signing the growth we think that [Technical Difficulty]?
Shashi -- Sandip, you're cutting up a little. I heard the first half of your question. You might want to repeat the second half.
Yes. So my only question is, sir, in spite of such a great performance, which you are doing across BFS vertical is the reason that we are still not bifurcating the other segment because I believe that your strategy of bringing very senior people from different verticals -- for different verticals have played out extremely well. So why still others is clubbed as one vertical? I understand maybe for reporting purpose it is fine, but are you still planning to do something different in those verticals within the other? Because that is the area where I think a lot of growth can come, particularly the high-tech piece or the health care piece. So what is your strategy on that side? Because I believe that a big growth delta, which can come in the overall growth could be possibly in those areas. So any thoughts if you would like to share in those areas?
Sandip, thank you for the question. And I agree with the approach. The firm also agrees with your approach. We have been very actively examining the potential of carving out a new vertical. Health care is one space that we are very sharply focused on. And we have already closed, as I had communicated last quarter with a new client relationship, which we believe will ratchet up significantly. So the immediate response to your question is health care is clearly of interest, and it's something that we've been examining. As you can imagine and as we've learned from our own experience, it takes about a 12-month path for an investment and for leadership to come in and settle down in a space, that process has already been initiated for attempting to create and carve out a new health care vertical, which can be a growth driver for us.We also continue to look, Sandeep, at some of the other verticals that you referenced, including high tech, and we continue to see if there are opportunities that we think will allow us to start constructing teams, leaders, capabilities, proof of concepts to get into those verticals as well. So the short and related answer is health care definitely is a space that we are foraying into as the fourth vertical for the organization. And since others represent roughly 30% of our revenues, we continue the scout around and sniff around other opportunities that might exist.
Sir, thanks for the detail. And sir, I would like to squeeze one small question again. So sir, what is your view on the insurance, particularly platform side? Because if you see that is an incredible business, and it's a very, very valuable business. The kind of mix you are running there, it is very, very good. So do you think that in next 2, 3 years, you will look at it as carving it out from the current company, getting it separately listed? Will that be the [indiscernible] -- I'm not asking exactly whether you will do it, but maybe the parent missing matting on those direction because it will create an immense value for the shareholders because the kind of deals, the valuations, which has happened in that space in past, they are mind blowing. So I was just wanting to have some view on that.
So Sandip, the insurtech platform for us, the AdvantageGo business has almost doubled over the last 4 years. You're absolutely right. The business has been growing at a scorching pace. The margins, and this is a platform business are extremely high. It's a very differentiated capability within our aggregate insurance mix. So we will continue to very strongly invest in that space as we have been doing. And which, in turn, has been driving the growth and the differentiation of the AdvantageGo platform. Any decisions around carving it out will obviously be taken by the Board, and we will defer to them. But in the interim, the investment, the focus and the support for that business continues to be intense from all of us across the management team. And we do recognize, you're absolutely right. We do recognize that this is a very high-value asset, a very differentiated asset, a high-growth, high-profit asset that has been created. And we'll continue to power it ahead moving forward.
Sir, I will come back in queue because I have one more question, but let others ask the question.
[Operator Instructions] We take the next question from the line of Sandeep Shah from Equirus Securities.
Yes. Thanks for the opportunity, and congratulations again on a very great execution. Sudhir, just wanted to understand the demand outlook for the various subsegments within the transportation, starting with airline, airport and the ground surface transport as a whole? And do you believe wallet share gain will help you to grow or continue this kind of momentum despite the incremental spend may be difficult for the next 2 to 6 quarters as a whole?
Thank you for the question, Sandeep. Demand outlook in the airline and airport segment continues to be depressed, Sandeep. And as we've been projecting through the era and as we've been planning going forward, we have assumed that it will continue to be depressed. At this point in time, the growth that has come sequentially is essentially on the back of wallet share expansion of the clients that we had pre-pandemic. Our belief is that on a sequential basis, the vertical will continue to grow because it -- the revenues from the vertical, as you know, had collapsed significantly in quarter 1. So sequentially, our revenues from the segment will continue to grow is our outlook. However, the aggregate demand of the travel sector broadly and airlines and airports, at least over the next 2 quarters till the end of this fiscal year, as we see it, is going to be depressed, and. That's what we baked into our planning, into our investment cycles and into the projections that we've been sharing.
Okay, sir. And just a related question in terms of the order book intake. Do you believe we now have enough pipeline under vision making is good enough to assume that this could be a new normal? If anything does not go wrong going forward in terms of crossing order intake about [ INR 200 million ]. And just last question in terms of the margins. Are you baking in wage hikes in the second half? Because the first half margins were close to around 17%. And you are guiding for 17.8% constant currency margins in FY '21. While the [indiscernible] last year was only 1. This year could be anywhere between 74% to 75%. So it looks like you are expecting a margin increase in the second half. So some clarity will help as it is.
Sure, Sandeep. Let me take the order book and take question first. We -- since we're already in quarter 3 from an operating perspective, the visibility that we have around order intake shows us that the order intake, at least for the current quarter and potentially into the next quarter will continue to be robust. It's difficult to put a hard number around order intake. But given the large deal pipeline, despite the deals moving with slight delays, despite the fact that decision-making has been in a bit of a holding pattern in some cases, we expect it to continue to be robust from our outlook perspective.As far as margins is concerned, Sandeep, in the first quarter, we declared margin to 17.1%. This quarter, as you've seen, the margin is 18.8%. On the aggregate, our margin is somewhere around 17.7%, 17.8% in the first half. Our guidance for the year is that we will deliver pre-RSU cost, 17.8%. So we are assuming that the margin profile of the second half will be broadly in line with the margin profile in the first half and the annual number that we will deliver, pre-RSU cost will be 17.8% EBITDA margins.
The next question is from the line of Ritesh Rathod from Nippon India.
Ritesh, here. Can you help us understand how industry growth rate would take place in the post- COVID ear. Would -- according to you, as industry growth taken an upward shift in core on a medium-term basis and as the addressable market expanded addressable geographies expanded for the industry. And within that industry, do you think NIIT Tech would be -- see further better growth rate within the industry growth?
I think what the pandemic has proven for the broader industries that is that technology spend is no longer being seen as a discretionary item that gets cut at the first sign of a crisis. That's the big learning that all of us across the industry have taken out of it. And I suspect that's the learning that all of us are planning against as we look at the future. From our experience, we found the trifecta of data, cloud and AI-based technologies and the demand that surround solutions based on those technologies to be really building up, not just being resilient, but actually getting augmented. Our assumptions are very strongly held believe is that organizations that can be innovative. And equally importantly, organizations that are agile and nimble will pivot fast and will be able to create a runway for themselves, which will allow them, hopefully, to get onto an accelerated growth curve from where they were earlier. That is our intent. That's what we are planning against, Ritesh, and that's what we sense and have picked up from the market.
And in terms of your ability to expand the addressable or addressable market or the addressable geographies or verticals. Would inorganic be a larger portion of it to pursue those clients and to get access to those clients?
Our view, Ritesh, is, and we've talked about this. Our plan internally post the rebranding the internal campaign that we've run is hyper-focused on creating a path to being a $1 billion organization. We believe that the current mix of geos that we operate in is sufficient for us to get to that goal with speed, and we do not add need to add more geos to the mix. As far as verticals are concerned, as I've noted earlier, health care is clearly of interest and more than being of interest is an area that we are actively investing in and committing to. That will be a new vertical that we are creating.Specific to the question around inorganic, as I've noted, we continue to look out as we have always in the past for inorganic bolt-on acquisitions because our experience and our record of integrating them has been immaculate. If there is a potential target that aligns with either our vertical or our horizontal strategy, we will, as always, very definitely and with speed consider it.
And maybe bookkeeping one on wage hike and payout policy, if you can just highlight?
Ritesh, the firm had instituted very early and very quick cost efficiency measures, with a very clear view around first ensuring employee health and safety when the pandemic came in. We will continue to assess the business situations, and we will take calls in the coming quarters basis how the situation evolves.
The next question is from the line of Vibhor Singhal from PhillipCapital.
Congrats on a super performance again. Sir, just 2 questions from one -- from my side. Sorry to build that on yet again. But just wanted to figure going on the Travel vertical, especially the airline vertical, not for us, but as an industry as a whole, given that we are a leader in that domain. What have been your experience in terms of conversations with the clients, this could help you conclude as to close the spend for the industries to be back to the pre-COVID levels? Is it going to be late '21 or going to be even further than that? And as I said, not just for us, but as overall clients, when do you think that they are feeling comfortable? And what is the kind of end lines that they are looking at? And also the second question is on the deal flow side. What is the kind of -- at this point of time, are we seeing any slowdown or, let's say, any pick up in the lease flow momentum, especially given the proximity to the U.S. elections?
I'm sorry, what was the last piece of what you said we were, especially given the?
Proximity to the U.S. elections.
Vibhor, thanks for your comments, and thank you for your questions. Travel vertical, let me just start off with the airlines vertical and our exposure to it. As you know, our exposure to the travel vertical has come down very, very significantly. And that piece, the airline side segment is now roughly around 5% only of our revenue compared to what it used to be. Given the conversations that we've had with the CXO suite of airlines across the world, the clear realization that we have, this is their input is that no one is baking in a revival in the current fiscal. So at least till the end of March, there is very low confidence that there will be any material turnarounds. There are 2 key trigger points, which is when travel normally peaks, airline travel normally peaks in a year. One is around the summer season across North America and Europe. And the other one is the holiday season. At this point in time, as we look at the world and as they look at the world, all the way till March, we expect demand to continue to be very muted. Depending on how vaccines and the safety perceptions around vaccines and the adoption of vaccines and the timelines thereof happen, we might see some kind of demand recovery, either around the summer holiday season, next calendar year or around the holiday season next calendar year. All the executors we've spoken to are operating under that assumption. There are varying timelines around when the airline demand will come back. The more optimistic timelines assume them by end of next year, calendar year. Airline travel levels will start coming to within sniffing distance of where they were pre-pandemic because of what the industry calls revenge travel. And the more pessimistic estimates extend all the way down to calendar year 2024. As far as we are concerned, Vibhor, as I pointed out earlier, from our planning perspective, we are assuming short to medium term. The demand for the airline subsegment will continue to be depressed.Coming to your second question around deal flows and any slowdown or pickup that we anticipate? The answer is no. At this point in time, given the specific context of the deals that we are pursuing, we believe that the deal velocity should continue in the coming quarters.
The next question is from the line of Dipesh Mehta from MK Global.
Congratulation on very strong execution. My first question is about the Whishworks operating margin now. Now it's okay if I look overall margin trajectory, Whishworks is still trending much lower than their user margin trajectory. So if you can provide some perspective, what is playing out or whether we are increasing our investment to drive future growth? So some comment would be helpful. Second thing is about the -- how one should look optimal utilization and revenue growth reflecting into employee hiring? Now we are at around 81%. So if you can provide some color whether this is where we are closer to optimal? Do you think we have further scope to expand it? And how one should look outsourcing? Most of your peers seemed sizable outsources this quarter. So if you can provide your perspective, how one should look onsite offshore considering remote working environment?
Thank you for the question, Mr. Mehta. I just want to make sure that I got the first question right. Was your first question around the Wishworks EBITDA. Is that correct?
That's right.
Okay. Mr. Mehta, the Whishworks' EBITDA, as I've noted, is 20%, which is ahead of the firm's EBITDA numbers. And Wishworks is an acquisition that we regard as a clear success. The integration has happened. The performance is exactly on track that we had anticipated and built into our plans. And the leadership team of the Whishworks' organization that build that organization has been fully integrated and more than being integrated, has been extremely participated in the broader from COFORGE's [indiscernible]. So Whishworks' EBITDA is not a concern as we see it. It is ahead of where the firm's EBITDA is. And we expect that business to continue to do well.As far as your second question around utilization is concerned, Mr. Mehta. 81% is a number. You're absolutely right, which we recorded in this quarter. We normally target a utilization number of about 80%. Most of the 564 people that we got on board have been billable. And any number around 80% is a number that we will feel comfortable with on a go-forward basis.Third, your specific question around offshoring. Our offshoring number percentage has always been around 65%. It had fallen very significantly in the last quarter, and it has recovered partly in this quarter. We expect the offshoring number in the coming quarters to come back to broadly where it used to be, which is roughly around 65%.
The next question is from the line of Abhishek Shindadkar from Elara Capital.
Sir, thanks for the opportunity, and congrats on great execution. My first question is regarding the sales SG&A expense ...
Mr. Shindadkar, I'm sorry to interrupt. But we can't hear you very clearly. If you're using a headset, request you to use the handset?
No, I'm using a headset and a mic. Is it still unclear? Or is this better?
It is better, Abhishek. Let's continue.
Okay. So my question was regarding the SG&A cost. So the peers, which have reported until now have seen good savings on the -- on this line item. But it seems we still have a -- on an absolute basis, running at the same Q1 level. So your comments on that part could be helpful. And the second question is on the cash flows. Despite a strong quarter because of the receivables, the cash generation was weak. So anything or your comments again could be helpful?
Thank you, Abhishek for the 2 questions. I will take the first question down the SG&A cost, and I'm going to request our CFO, Mr. Kalra, to address the second question. Specific to the SG&A cost, over the last few years, if you look at our profile as an organization, Abhishek, our SG&A cost has come down. And I'm talking off the top of my head by roughly about 250 to 300 bps. At this point in time, as I had noted, we continue to plan for growth. And as I said, at least 6% growth this year as well. We do not plan to bring down in absolute terms, our SG&A numbers [Audio Gap] to drive growth for the rest of the year and in the subsequent year to come. So that's the approach that we are taking, Abhishek, towards SG&A cost. We brought it down significantly. Where we are, we feel very comfortable with it. Specific to the second question around cash flow. Ajay, would you like to address that?
Thank you, Sudhir. Just to talk about this cash flow, we had approximately $28 million of operating cash flow in the first half. That is approximately 53% of the EBITDA for the H1. There, the cash -- the receivables, and the DSO is higher, as you have noted. It is because we have given extended credit terms to certain of our clients. And also, as a percentage of revenue, EBITDA as a percentage [ OCS ] to EBITDA. The fourth half is lower than the second half as we see our variable compensation in the first half of the year.
The next question is from the line of Manik Taneja from JM Financial.
I just wanted to pick your brains with regards to what you're seeing in terms of the increase in sales and marketing headcount in a significant manner over the last few quarters? Do you think or the short -- is there a -- is it a class meeting issue or there is some significant investments from a headcount senior hiring perspective that would yield result for us going forward?
Thank you for the question, Manik. As I noted earlier, we had paired a headcount initially in the past few years. At this point in time, given the order executable, which as I pointed out, is about 20% more than what it was at the same point last year, given the large deal pipeline that we see. And given the fact that our earlier investments in sales have resulted in both the farming and the hunting engine doing well. We are investing, not going overboard, of course. But we continue to invest because we continue to see clear growth opportunities that the additional leaders can bring to fruition if they were to be onboarded. So that's the approach we are taking. We see growth ahead of us. We see growth not just for the second half, but clearly for the next year as well. And hence, we are making these investments while managing margins as you've seen as well.
If I can ask one more. When I'm looking at your cost pickup from the exchange feelings [indiscernible] expenses have jumped up sharply in the current quarter from Q1 level. If you could help us understand what are some of those costs, as you said?
Yes, Manik, the costs that you are talking about and the ones that you're seeing the fact sheet are direct project-related expenses. These are not nonproject related expenses that we're looking at. There has been an increase in subcons on site, and that is getting reflected also in the data that you're seeing in the frac sheet right now.
The next question is from the line of Rahul Jain from Dolat Capital.
Congratulation on great performance. Just as you indicated, some of the deals that you have noted, AI-based of management for the bank of underwriting improvement for insurance and digitalization of dealer channel [indiscernible] company. So I wanted to understand what are the find of the size of such deals? And what are the scope of state up on sets opportunities since we have successfully demonstrated these capabilities.
Thank you for the question, Raul. Those 3 spaces where we see significant traction building up and has been us or cloud data and AI. And all these 3 segments have different nuances to the deal size and structure that comes in. Cloud is lending itself to the larger deals. So when I look at the pipeline and when we look at the deals that -- large deals we've consummated as well, the cloud demand is bulbous, and it's a large deal-ish, if I can characterize it as that. Data is something that is rendering itself to still, in some cases [Audio Gap] downstream revenues coming in. And increasingly, that deal size also around data services is building up. AI, which is the third part of the trifecta where we see clear demand is not a tech area where the deal size is very important or where deals are only AI-based. AI is increasingly, and you would have seen it reflected in the commentary that I shared as well, increasingly becoming an ask for every deal and is becoming the differentiator that allows us to win it. But as a stand-alone, revenue from the AI service line is not significant. That's how I would characterize the deal demand across cloud, across data and across AI.
Right. And just some thoughts in terms of what all partnerships, we would have done to strengthen our capabilities in these 3 areas? And how much of this is internal led and how much of it is through partner channels, like, for example, if we think -- AI, we said [indiscernible] phone for directory system? But when we talk about using our structured is it data -- do you have a data source partner or these are all data provided by the client themselves and we work on their internal data or how these things clear?
Thanks for the question. Our partnerships and alliances has been central to our growth, particularly over the last 3 years. At this point in time, close to 1/4 of our revenue comes off the back of partnerships and alliances, and that's a very important and a growing sales channel for us. If you look at some of the partnerships and the revenue streams that we constructed around these, they are very, very significant. Not only are they significant? the partnership is at a CEO-to-CEO level, the status in almost all cases, where we have a material partnership is that of a platinum and in some cases, of a gold partner. We approach partnerships in 2 ways: one, the nurture at all levels, and I mean all levels. The partnerships, since they are such a big component of our revenue stream, which are large, under our defined partnership and alliances, governance framework. The second thing that we do is that we keep a very keen eye out for structuring partnerships with product and platform players who are just starting off, but when the platform as per our assessment, has legs and has a runway for growth. So it's a mix of both. We keep looking at the fintech, the insurtech, the travel tech space to keep structuring alliances and partnerships. And then we keep looking at the enterprise partners. In the case of Cloud, Google, Azure, Amazon, illustratively, where we continue nourishing enterprise level partnerships. That's how, Rahul, I would characterize our approach to partnerships and alliances. That continues to be important, that continues to grow, and we continue to scout around for new opportunities.
The next question is from the line of Sandip Agarwal from Edelweiss.
Yes. Thanks once again for the opportunity. Sir. I wanted to just ask one follow-on the insurance platform side. So we have immense success in AdvantageGo in the U.K. market. What is your plan for taking the platform to the U.S. markets? Specifically, I want to know how will you balance the fact that if you go aggressive on that platform in the U.S. market, maybe some of your service relationship with the large platform providers there could have some impact? Or you think that you intentionally want to do it a little more gradually by investing gradually to repurpose it for the U.S. market? So what is your thought on that?
Thanks, Sandeep. And congratulations for getting into the into the queue again. Let me take the question around AdvantageGo. AdvantageGo and our insurance services business over the last 3 years have grown concurrently. We have been expectedly extremely transparent around our plans around AdvantageGo, and we have been very conscious of making sure that the growth and the geos that the AdvantageGo product operates in does not intersect with aspects that might stunt the growth of the insurance services business. That's a balance that we strike with our partners, SI partners in the insurance services space. And that's a balance that we feel very confident we will be able to continue to maintain, as we scale up AdvantageGo and also continue to scale up insurance services, which we have.
That's all from my side. And best of luck for the current quarter.
Thank you, Sandip.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities.
Thanks for the opportunity for asking the question again. Just in terms of now RuleTek, Incessant has been fully integrated with our 100% subsidiary. And also Whishworks you are saying, Sudhir, has been fully integrated. So do you believe -- is there a risk in terms of integrating the sales organization where even if the attrition happens within the senior leadership of the acquired capabilities? Now the integration is so tight that we should not worry about. So how is the joint selling happening with these acquired capabilities, some light, if you can throw? Or you believe no, attrition can continue to remain a risk in these acquired capabilities as a whole? And I have a second question, I will ask later.
Thank you, Sandeep, for that question. We take a lot of pride in the fact that all the acquisitions done over the last 10 years across the firm, whether it was room solutions, whether it was Incessant, whether it was RuleTek or more recently, Whishworks have all been successful. And we continue to maintain that it is the culture of trust and respect that permeates the organization, which really allows in the end analysis, an acquisition to be successful. And for the people who are onboarded as part of the larger COFORGE family to feel both trusted, respected and welcomed.Now specifically your question around RuleTek and Incessant, the front-end sales has been 100% integrated. An enterprise salesperson leader or manager within COFORGE, he or she is absolutely equipped, empowered and compensated and incentivized for selling RuleTek and Incessant services. WhishWorks, again, has been a great story for us. The founders of Wishworks continue to maintain their own enterprise sales channel, but they've done a fantastic job of working collaboratively with the COFORGE enterprise sales channel to cross-sell both ways. We already have stories in the short time that the Whishworks' family has been part of the broader COFORGE family of, of the COFORGE capabilities bleeding into the earth while Wishworks-only clients and vice versa. That's how we look at where the status -- at what the status currently is, Sandeep.
Perfect, perfect. And just a second question on the guidance. Sudhir, you are saying on an organic basis, the constant currency growth would be close to around 6%. And if I'm not wrong, if I add the Whishworks for the full year, it will add another 1% growth. So are we indicating a total 7% growth? And even if I assume consol growth at 6%, the ask rate in the 3Q and 4Q based on my maths, still looks like a very healthy number, close to around maybe anywhere between 4% to 5%. So despite seasonality do you expect this kind of growth momentum likely to continue?
I'd like to defer to Ajay Kalra, our CFO, to make sure that we give you a sharp answer on that. Ajay, would you like to address that?
Sure. Thank you, Sudhir. Last year, we had [indiscernible] that had moved out. So knocking of both those numbers from the last year from an organic perspective, it will be still 6%, and that's how the math works for -- from an organic revenue prospect. And -- so if you kick off every one quarter and add the Whishworks 1 quarter, the number should be still the one same on the continuing business.
Perfect. And Sudhir, can you comment about the growth momentum on the second half in terms of the numbers which I'm getting for achieving 6% growth?
I expect -- and the firm expects that Q3 and Q4 will be growth quarters, and we will get to the 6% with the math that Ajay just called out. I am not sure if the number is going to be necessarily 4% to 5% quarter-on-quarter. But we do expect the number to be robust. Quarter 3, as you know, is a slightly shorter quarter for the industry. As in aggregate, both quarters will be clear growth quarters. The exact math straight of the bat, I might not be able to confirm.
No, that's fine.
The next question is from Manik Taneja from JM Financial.
The questions have already been answered.
[Audio Gap] question in queue, I would now like to hand the conference back to Mr. Sudhir Singh, CEO, COFORGE Limited for his closing comments.
Thank you very much. I know it's very late evening in India, and it's not a -- and it's not an easy time anywhere in the world during these days. As I said at the outset, our wish, our players are that to your families, your teams. And all of you are safe and continue to be safe, and that we see the end of the pandemic soon. We very sincerely appreciate the interest that all of you have taken over the years to listen to us and to share your insights and your comments that we've always found very useful.We remain committed to execution, and we look forward once again to speaking with all of you in the next post investor call for the next quarter. Thank you, and stay safe.
[Audio Gap] on behalf of COFORGE Limited. That concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.