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Good day, ladies and gentlemen and welcome to the NIIT Technologies Limited Q4 FY 2019 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded.I now hand the conference over to Mr. Abhinandan Singh, Head, Investor Relations and M&A at NIIT Technologies. Thank you. And over to you, Mr. Singh.
Good afternoon and welcome everyone to our Q4 FY 2019 earnings conference call. Thank you certainly for joining us on a Saturday afternoon, on a weekend. You would have already received our email with the results, financial results. The same are also available in our website, www.niit-tech.com. Present along with me today on 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 forum with opening remarks by our CEO, Mr. Sudhir Singh. And after that, the floor will be open to your questions.With that, I would now like to hand over the floor to Sudhir.
Thank you, Abhi. And a very good evening and a very good morning to you wherever you are, folks, in the world.At the outset, let me state that the year gone by has been one of the most successful years in our firm's history. The new financial year has also begun with some significant actions, which included signing of the definitive agreement to acquire 53% stake in Whishworks IT Consulting Private Limited and divestment of our GIS business. I plan to return to these transactions. And post that, I shall roll on to the end of year and the end of quarter review.Moving on. Starting specifically about the acquisition of Whishworks IT Consulting Private Limited. As you're aware, the company signed a definitive agreement to make a strategic investment in Whishworks IT Consulting, which is a MuleSoft and a big data specialist. This transaction will strengthen the company's digital capabilities, complement its existing competencies and create a powerful offering combination in the digital integration space. This agreement, which was signed in April, is to acquire a 53% stake initially with the remaining equity to be acquired over the next 2 years through payouts that will be linked to financial performance. The transaction closure, of course, is subject to fulfillment of certain government approvals. The second transaction was a investment in GIS India Technologies Limited. In April 2019, the firm also signed a definitive agreement for the sale of its entire 88.99% stake in ESRI India Technologies Ltd. ESRI India has been an exclusive distributor of ESRI, Inc.'s cutting -- of its cutting-edge GIS products in India, and it has been supporting customers since 1996. The distribution agreement was expiring on the 31st of March 2019, and ESRI expressed its desire to directly manage the distribution of its products in India. The divestment of a stake in GIS India will allow NIIT Technologies to focus on its core verticals and global markets. Please note that as the GIS business is being [ hied ] off, all our future analysis and outlook will be excluding the GIS business going forward.I shall now address first the year's performance and then the quarter's performance. I'll start with delivery analysis for fiscal year '19. This was, as I said at the outset, an exceptionally successful year for the firm. This year's revenue at INR 36,762 million represents growth of 22.9% over last year. The constant currency growth for the year was 17.6% on the back of growth across all businesses. Insurance expanded 35.7% year-on-year, contributing to 28.7% of the revenue. BFS expanded 18.2% year-on-year, contributing to 16.1% of revenue. And Travel and Transport was up 20% year-on-year, contributing to 26.9% of revenue. Others segments collectively expanded 17.1% year-on-year, and they now represent 28.3% of overall revenue.The geo-based growth cuts also showed sustained growth. Americas, which contributes to 49% of our global revenues, grew by 21.8%, due to higher revenue in all 3 verticals. India revenues grew by 32%, once again due to growth across all our 3 verticals, and they now represent 33% of the revenue mix. APAC revenues grew 15.3% (sic) [ 14.9% ], and they contribute 10% to the firm's total revenue. India contributed 8% to the firm's total revenue and grew by 7.4%. You will note, folks, that APAC and India have declined to 18% contribution together to the firm's revenue from 20% at the start of the year. We do want to point out that we achieved a significant acceleration in revenue growth, which was accompanied by a material uptick in operating margins during the year as well.Talking of margins, operating profits increased by 28.7% during the year and stand at INR 6,452 million. Operating margins stand at 17.6% for the year. Strong growth allied with very strong operational rigor were the key drivers of the margin growth. SG&A for the year is down from 19.1% to 17.4%. As we mentioned earlier, on an average going forward, we are expecting to maintain the SG&A at around these levels despite a material injection of investments in domain central content sales capability, a consulting organization that's been created and very sharp capability augmentation that's being done across cloud, automation and data at specific investment areas.Finally, our net profit increased by 43.9% over last year to INR 4,033 million. The tax rate for the year stood at 24.9% of the PBT. Having talked about the fiscal year '19 revenue and the margin analysis, I will now roll over to the quarter 4 analysis, starting with revenue first. During the quarter, revenue grew 23.2% over the same quarter last year to INR 9,722 million. Quarter 4 has always been the strongest quarter for our GIS business. For this year, the GIS business, which, as I said, has been divested, declined 14% in quarter 4 over quarter 3 because of the code of conduct before the general elections which has been impacting government procurement. Sequential quarter-on-quarter revenue growth in constant currency is 1.3%. And excluding GIS, it is 2.1%. In reported terms, revenues remained flat due to adverse impact of currency.For this quarter, BFS expanded 5.3% quarter-on-quarter and contributed to 16.2% of revenue. Travel & Transport was up 2.5% quarter-on-quarter, contributing to 27.1% of revenue. And Insurance declined 6.5% quarter-on-quarter on lower product revenues in NITL because contracting of a licensed sale got delayed. Insurance now contributes to 27.7% of the revenue for the last quarter. Other segments collectively expanded 1.7% quarter-on-quarter, and they now represent 29% of the overall revenues. Geo-based cuts for the quarter, Americas, EMEA, APAC, India will continue to contribute 49%, 33%, 10% and 8% of the revenue mix, which is exactly what they did last quarter as well.The top pipeline now contributes 29% of the total revenue and the top 10 and the top 20 contribute 41% and 54% of the total revenue, respectively. Last year's growth is reinforced by the number of million dollar-plus clients, which stood at 90 this quarter. On-site revenues represented 66% of total revenues. That was the revenue analysis for the quarter. Moving on to market analysis.Before I begin the margin analysis, I would like to first explain the exceptional item that has been booked during this quarter. Now consequent to the recent judicial announcement in Australia with respect to royalty tax, the company reassessed its position pertaining to applicability of fringe benefit tax, GST and royalty tax in one of our acquired entities in Australia. Based on this reassessment, the company has filed voluntary disclosures with the Australian tax authorities. The impact of the same has been booked as an exceptional item amounting to INR 56 million, and you'll see that in the results we've shared with you.Operating profit stood at INR 1,706 million for the quarter, representing a decline of 5.5% and an improvement of 20.4% over the same quarter last year. The quarter, and it's important to note this, also included nonrecurring expenses relating to FBT in Australia, that's the fringe benefit tax, and an increase in legal and professional expenses due to the M&A activities that I cited at the beginning of this call. Excluding the impact of these nonrecurring expenses, operating profits stand at INR 1,763 million, representing a decline of 2.3% and an improvement of 24.4% over the same quarter last year. Operating margin has declined 102 basis points quarter-on-quarter to 17.6% for the quarter. Excluding the impact of the nonrecurring expenses that I talked about, operating margin has improved by 16 basis points over the same quarter last year, and it has declined by 44 basis points quarter-on-quarter to 18.1%. Constant currency margins for the quarter are at 18.3% as against 18.6% in quarter 3. The decline in operating margins is due to the decline in the GIS and the NITL businesses that I just referenced a short while back. Effective tax rate for the quarter stood at 21.2%, and net profits for the quarter are INR 1,055 million, which are up 22.5% year-on-year, and they're up 5.2% quarter-on-quarter.I will move on to an order intake analysis and the delivery operations analysis now. The order intake story remains positive. We secured fresh business of USD 170 million during the quarter. This number represents a step jump in the order intake numbers that we have seen in the recent quarters. Overall, this is a number that we've seen in the recent quarters. Out of this USD 170 million order intake, the U.S. contribution stood at USD 94 million, India was at USD 45 million, and we got USD 31 million from the Rest of the World. The cumulative order intake for this year is USD 646 million, which is 27% up over the previous year. The large deal signing momentum continued. We signed 2 large deals in this quarter as well. One was in the travel domain and the other one was in the BFS vertical.New customers. We signed 11 new customers during the quarter, which was a good number. With the sharpened market focus over the last 2 years, we have now banked 14 new clients during fiscal year '19, and we've opened 71 new clients over the last 8 quarters. The total number of our clients now stands at around 335, out of which the million dollar-plus clients are 90. Moving forward, we are trying to -- continuing to focus on select but highly scalable pursuits alone. We have also repurposed some of our [indiscernible] to drive accelerated growth across existing accounts.Order book executable over the next 12 months has expanded again and it now stands at USD 390 million, and that number is up 15% year-on-year. I'm going to give you a bit of flavor of the delivery operations at the firm now and the capability generation at the back end. Delivery operations at the firm delivered key milestones for our clients across verticals. The BFS team successfully completed the migration of more than 7,000 advisers from a legacy to a new platform in one of our key clients. In the travel domain, we pushed through and delivered on an AI-based testing engagement for a new client. And we now institutionalized that AI-based testing framework across the enterprise.Our newly incubated data services business worked in conjunction with our technology R&D center. We call it the TRC. We rolled out the SLICE Framework, which uses cognitive technologies to roll up unstructured data as semi-structured and/or structured data to facilitate automation and [ site leverage ]. Furthermore, using our proprietary DONE Framework, DONE automation framework, and Microsoft AI technologies, we successfully delivered 3 automation engagements. We have incidentally also reapproached some of our previous RPA implementations and structured new engagements to create a cognitive layer on those implementations.This quarter saw our cloud service practice migrate approximately 250 workloads for a key European customer to the cloud successfully and completing on time. Finally, from a capability perspective, we have augmented our domain consulting organization by incubating a technology consulting arm as well in the last quarter.The product platform and partnership strategy agenda is being formalized and will be driven by the next [ Microsoft regime ]. Investments in RPA, data, cloud and intelligent automation have started yielding results, and they are expected to assume material scale and size in fiscal year 2020.I will step on to the people [indiscernible]. There was an increase in headcount by 119 during the quarter. Total headcount at the end of the quarter was 10,263. Utilization during the quarter was 79.3%. Attrition stood at 12.2%. In line with our recent strategy to add senior lateral talent from Tier 1 providers, we onboarded 2 EVPs as my direct reports to manage 2 key businesses of the firm. One, V. Rupakula, who was an MD in Accenture, joins us as the Global Head of our Infrastructure & Cloud Services Business. We also hired Sreekanth Lapalla as an EVP to lead our Incessant business. Sreekanth was the global delivery leader of Virtusa. A quick callout around some balance sheet aspects. Cash bank balances stood at INR 9,758 million, which is an increase of INR 1,498 million over the previous quarter. And it's an increase of INR 1,701 million over the previous year. CapEx spend during the year was INR 143 million -- for the quarter, I apologize -- for the quarter was INR 143 million. Debtors at the end of the quarter stand at 62 days of sales outstanding. You will recall that number was 69 last quarter. DSO, including unbilled, was at 75 days, which is easily one of the best in the industry. Hedge position, outstanding hedges in USD are $68.48 million at an average rate of INR 72.74 to the U.S. dollar. In British pounds, we have GBP 13.05 million outstanding, and that's at INR 96.51 to the pound. In Euro, it's EUR 4.5 million at INR 86.18 to a euro.Finally, concluding with the outlook. Overall for the financial year, the firm clocked very robust revenue and margin growth and also reported improvements across all material operating parameters. The fundamentals of the business are strong. As we noted in the past, we continue to plan for robust, predictable and profitable growth in the quarters and the years ahead of us. That brings me to an end of my opening remarks.I will hand it back to Abhinandan now.
Operator, we can now open the floor for questions.
[Operator Instructions] The first question is from the line of Pankaj Kapoor from JM Financial.
Congratulations for a good execution in FY '19. Sudhir, my first question is on the FY '20 outlook. Do you think the kind of growth that we had in FY '19, you think with the kind of [ result ] that we have achieved in terms of quarter wins, is this something which we can aspire to repeat? Or you think that we get to a more normalized curve in FY '20 on an organic basis, sir?
Pankaj, thanks for the question. You, I know, of all people listening know that we don't offer guidance on a go-forward basis. But as I noticed -- as I noted, as we look at our business, we are absolutely convinced that the fundamentals of the business are strong. As I said, our intent remains and continues to be that we drive robust growth and that we drive predictable growth in the quarters to come and the years ahead of us as well.
So just a clarification then on the new order intake that we had. Will it be possible for you to give a sense of how much of that would be net new business so there can be, well, some clarity as we try to model for FY '20?
We -- our overall order intake number that I gave you of $170 million, Pankaj, geographically it was spread almost evenly in line with the numbers that we carry, $94 million in the U.S., $45.1 million in India and $31 million in the Rest of the World.The mix is broadly in line with the numbers that we've been reporting in the past and we've been recognizing in the past over the last 4 to 8 quarters that we've been talking about. We don't classify order intake as necessarily new and renewals. So it's broadly been in line with that number and the quarter numbers around order intake and the executable that we talked about at the end of the year.
Okay. And although, I mean, it's probably early days but any sense in terms of -- with Baring coming in, what is the conversation that have progressed on? Do you think that -- any reaction from the -- from your larger accounts in terms of the change of ownership? And secondly, with them onboard, do you see any difference in the way they want to monitor or may want to approach the business?
So the larger accounts were made aware of the change, and that's been very clearly communicated to them. The message that's gone to them from Baring and from [indiscernible] has been that Baring is coming in with an agenda to help support and drive growth of the organization on a go-forward basis. They're really appreciative of it. They -- and they -- at this point in time, we've picked up absolutely no issues or concerns from their end at all. So things continue to be on the up-and-up. Baring, obviously, is not directly engaged with clients, as we speak. Only the firm in terms of execution at the current point in time.
The next question is from the line of Ravi Menon from Elara Securities.
Congratulations on a good quarter [indiscernible]. You said that you added now a technology consulting layer to the domain. Could you just elaborate a little bit on that? What's the -- are you looking at some specific [ proof points ] being developed for the tools? Or what sort of technology consulting are you talking about?
Thank you, Ravi. So Ravi, the technology consulting group that we've really kicked off in quarter 4 is step 2 of the process that was kicked off about 6 quarters back when we started our business. That's initially called transformation, and we later on renamed it to being domain consulting. That's a group of about 27 individuals at this point in time who have driven very material impact for us across the 3 chosen verticals.What we're attempting to do with technology consulting is to create a set of client-facing technical architects. We moved one of our [indiscernible] to the Princeton office in the U.S. and the intent there is that the initial set of architects will either help drive enterprise architecture framework creation across technologies or they will be very sharply focused and -- on data, cloud or automation as practice areas. So at this point in time, if I bring this back and just try to sum up what I said, the bunch of folks that the technology consulting leader will have under him is going to be a bunch of enterprise architects or a bunch of data, cloud, and automation architects on a go-forward basis, which is where we see the demand and which is also where we think material impact can be driven on the same lines as the impact that was driven by the domain consultants, what we had found at the group across the areas and 27-odd practitioners that we'll today have in the market.
Sudhir, this seems to be a fairly ambitious attempt. I mean I don't think that any [indiscernible] doing something like this. And if I'm not mistaken, India really doesn't have too many enterprise architects, right? So are you looking at between completing new kind of models, and how you're able to redefine [indiscernible] in the marketplace?
So the architecture carrier flag that's been created under this particular franchising group, Ravi, is we'll have a bunch of project architects, program architects and enterprise architects, so there's going to be a relation as there is across any other technology track.We believe, and just as we've been able to start 27 paper domain consulting business of whom at this point in time I would rate a number of 9 at exceptionally senior. A group of about 25 to 30, if they were able to create that over the next 4 quarters. And of all that group, about 10 could be enterprise architects and the others configured as data cloud and automation architects. That would be a good number to have, and more than the number of the direct revenue that these folks create, we think there's a downstream that can come in from some of these engagements can be significant for us. Did I answer your question?
Great. [indiscernible] I think that this will be very interesting to watch, and I hope that will succeed.
I hope so too, Ravi.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Congrats on a great execution in FY '19. Sudhir, first question. I wanted to understand the letter to the insurance product decline, where you said the license agreement got delayed. So what has caused that? Largely related to Brexit? Or some other reasons?
Sandeep, thank you for your initial comment. Insurance, as you know Sandeep, as a business has owned more than 35% on a yearly basis. This quarter, there's been a blip and you see the 6.5% quarter-on-quarter decline that I talked about. This was -- this is fundamentally a contracting closure ratio. When you do a license sale, if you have a license sale that is almost on the boundary when it comes to quarter closure, and you do end up in some of these situations where the sign off normally gets extended. And this was more to do with contracting than to do with any macro economic factors like Brexit and such.
Okay. Okay. So overall, for NITL as a business segment, you continue to remain positive for FY '20?
Yes. Yes, Sandeep. As I've said, we signed with all businesses. If you look at our performance this year, all businesses have grown, as we consider all our businesses next year, obviously, GIS is not going to be in the mix anymore because it's been divested. We think that growth again will be...
Okay. Okay. Second, just in terms of capital market, how we're building on outlook because there are mixed arguments are coming from larger vendors are cautious and smaller vendors are seeing some demand action. So how are you looking at that segment in terms of FY '20 versus FY '19?
So if I look at it more from an immediate-trends perspective, this quarter, our BFS business, which really is a surrogate for being a buy-side capital markets business grew 5.7% quarter-on-quarter, Sandeep. It's very difficult to predict on a quarterly basis what the variations will be, but if I were to look at the year ahead, on an annual basis, we think that the capital market buy side, which is where we operate is a space that we should get good growth next year as well.
Okay, okay, okay. And in terms of the margin commentary, earlier you alluded that 18% is your comfort range, so effectively, would it be possible at the current rupee dollar entering into FY 2020?
On an annual basis, as we've referenced earlier, Sandeep, 18%, we've always said is a new normal. We think we will, on the portfolio that we had at the point in time when we made that assertion, deliver on 18%, as we've always said. Of course, the GIS business has now been divested. So net of that -- net of the effect of that divestment, the indication that we'd given around 18% being the new normal is an indication that we continue to stand by.
Okay. Okay. Just a related question, last time you said that the dilution, because of GIS, both on the margin or on the EPS, would be compensated by the WHISHWORKS. So is it -- one can model that? Are you standing what you are saying last time?
So at this point in time, Sandeep, the WHISHWORKS, we've signed a definitive agreement. There are regulatory approvals that are required for the WHISHWORKS entity to actually get integrated on the revenue and the financials front. Once that is done, as we indicated last time, the broad lease revenue -- the revenues of WHISHWORKS are broadly comparable on an annual basis to the revenue of the divested GIS entity and the margins also are broadly compared. Of course, we're now waiting for -- we need to know when the integration will happen and when the regulatory approval process gets closed.
Okay. Okay. Just a broader question for FY '20, Sudhir. If I look at FY 2019, in dollar terms, you have delivered almost a high-teens kind of a growth despite an issue which was coming within one of your accounts, which was in the export front within media business. Now if you enter FY 2020, you have order book, which is much higher than your order book in FY 2018, plus these client-specific issues is largely behind. So one can say that if there are no macro issues, the incremental business that you have done in FY 2019 should be at least maintained or could be higher in FY 2020. Is it the right way of looking at it?
You are -- clearly a very high -- a very intelligent question, Sandeep. And you sound like my boss right now. But as I've said [indiscernible] -- as I said, I feel very comfortable with the fundamentals of the business. You have noticed some of the lead indicators that you just talked about. So looking at those lead indicators, looking at the fact that the fundamentals of the business are strong, we continue to maintain that the growth should be robust, and the growth should be predictable moving forward as well.
Okay. Okay. And sorry to squeeze last 2 questions. Sudhir, what, according to you, can go wrong in terms of an [ integration ] if we keep apart the macro issue, if macro issues are not there? What can go wrong in terms of your execution plan in the next 1 or 2 years, or especially for FY '20?
Outside of execution, if I look at the capability team, the pre-sales team, the sales team, we think we've actually been able to blend together a team that's best-in-class. If there aren't client-specific issues or macro issues like these are all integration specific, we find it very difficult, as an executive team, to point to aspects that might jeopardize growth plans. Unless something really breaks apart on the immigration front macro level or the economy shrank massively or there's a huge client-specific issue. We don't really think -- we can't really think of anything in an operational level that can be a showstopper for us, Sandeep.
And last question, Sudhir, any attrition have you seen in some of your senior leaders, which you are recruiting for the last 4 to 6 quarters?
Zero attrition, Sandeep, 0. Any one [indiscernible] last 8 quarters, 0 attrition.
The next question is from the line of Madhu Babu from Centrum Broking.
The top line's growth has been steady over the last 3 quarters. So is it the cross-selling or which other factors [indiscernible]? Or is it market share gains within the tougher comps?
It's a mix of both, Madhu. It's a mix of both. And there are, obviously, different things that apply across the topline client. But if I were to think through it, cross-sell has been a very conscious focus. The new service lines that we created, data cloud and automation, specifically, we've been very focused in terms of making sure that the top 10 clients develop [indiscernible] around selling days. That's clearly been one driver of the growth. The other thing that happened is, in some other clients, we've actually been able to secure a higher wallet share as well, over time, and that, again, has been a growth driver in the top 10 accounts.
And second thing, on the infrastructure, we have added [indiscernible]. I mean would we initially -- is it like fulfilling on selling it to the existing clients? Or are we able to try…
So the intent, at this point in time, Madhu, is to go into the 330-odd clients that we have and sell an infrastructure to the service because we believe that IMS, as a service line, is relatively underpenetrated in the U.S., especially. And in the U.S. and in Kenya, we plan to make sure that, as many of the 335-odd clients that we have, we start penetrating those. Of course, if there is a material opportunity, which is a standalone new client opportunity that presents itself will go after it, but for the most part, the intent [indiscernible] to cross-sell into what we already have.
And last one, for the...
At this point in time, our guess is it'll take at least the end of the quarter. And I suspect we might roll into the early part of next quarter, but I will keep you posted as the quarter...
[Operator Instructions] The next question is from the line of Shashi Bhusan from Axis Capital.
Congrats on a great execution. So do you think the quarter panned out below your expectation? Or in line with your expectation, excluding GIS? Insurance business impact which is -- which we witnessed in this quarter is the only weakness, otherwise the quarter was largely in line with expectation.
Well, the way I look at it is, if you look at the last quarter, it was 4.2%, the previous quarter was 7.1%. I would have been happy with a 3% quarter. And had it not been foresee numbers that I shared on the GIS front and the NITL front we would have hit 3%. So getting back to your immediate question, am I happy with not doing 3%? The answer is no, I'm not happy with the 1.3%. Could we have 1% to 3% after [indiscernible], the answer again is yes.
Do you think part of some of the execution in that is also because of M&A-related news in the media that could have led to some of the slippages?
So I would not really say it had a direct link, I mean, a contracting closure wasn't certainly impacted by the M&A activity that was going on. And the GIS issue was really more to do with '20 elections in India were announced. And the -- endowment procurement were impacted both there. So I wouldn't really pin it on the M&A activities at this point in time.
So -- and would it be safe to assume that given the strong getting closer in FY '19, we can see growth in FY '20 to almost like in FY '19. And any major headwinds that we see in the near term?
So as I said, Shashi, other than -- I mean, the only possible headwinds could be macro headwinds coming in -- the headwinds coming in because of macro factors, or if something were to drastically change at one of our leading plants. Other than that, no material headwinds. Growth policies, it has been an exceptional year for us. The fundamentals are strong. Difficult for -- you need to put a hard number out there. But we think the fundamentals of the business are strong, and the robust predictable growth should [indiscernible] in.
The next question is from the line of Govind Agarwal from Antique Stockbroking.
Congrats on a very good execution in FY '19. If you could just shed some light on that digital portfolio post reinsurance acquisition, and the opportunity to close [indiscernible] to our existing clients? And also, as a portfolio, which was a long way to…
Sure. So Govind, this year, at the end of the year, digital, and we tend to have a very strict classification around digital revenues. It contributes to 30% of our revenue. The business has grown about 45-odd-percent over last year, the digital portfolio, which was, for us, is the kind of capability that we've been waiting for, for a while. I think our team has been waiting on for a while, and our clients having been waiting on for a while because when we look at the world, digital for us, is an aggregate of cloud capabilities, data capabilities, automation capabilities, and both digital integration and digital experience.MuleSoft, today, in many ways is the gold standard when it comes to digital integration across enterprises. In areas like insurance and travel, digital integration is, obviously, key to running an effective shop. And MuleSoft capabilities, to that extent, are in significant demand.We think that WHISHWORKS coming in is going to aid fulfillment and unmet demand and also allow us to go to other clients who may not have expressed it directly and file factors refusing to adapt. The second piece is, [indiscernible] as you know, is more than what these days is called, a digital process transformation space but was the more classical BPM space earlier on. So it tends to be, in some ways, an orchestration platform, having integration tools and being able to work across both of them will allow us to structure the kind of enterprise architecture frameworks and solutions that I was talking about in response to an earlier question around technology confinement.So we think the Incessant and the WHISHWORKS competencies are complementary. They will help us structure end-to-end distributions and have a standalone MuleSoft, which is the gold standard around the whole DI, digital integration space is something that's going to meet an unmet and a very explicitly stated demand from our clients for a while now.
Okay. So you mean there's already a demand, a lot of demand, among your top lines business of the skills?
Clear demand and high demand, Govind.
Sure. Sure. Okay. Okay. And another question that we have, see the large deal which is signed in the current quarter and a very healthy new client, additional 11 clients. So if you could shed some light on that deal wins in the nature of large deals in the current quarter?
Sure. Sure. Absolutely, Govind. So let me talk about the large deals, first. The large deal in the banking, financial services space that I've spoke about at the outset. The first one was a deal that was structured around cloud migrations for one of the financial measures, and taking over the entire mandate to orchestrate that over the next 5 years.The second piece was for a key airline in North America, and that was work which was essentially structured around complete consolidation of the non-infrastructure, which was the essential ADM work that the client plans to undertake over the next 7 years. So these were the 2 large deals.And as is the law these days, it wasn't the overall technology that was in the play. This was a mix of technologies across on both of these. The 11 new clients that we have, the broad mix of these, the [ geo-wide spread ] these clients, there were 6 roughly from North America. There were 5 from Asia Pacific, and the 11-odd actually were spread across the 3 verticals materially. So there was no bias towards any vertical. Almost evenly spread across.
Okay. Okay. And if you also, again, mentioned about maintaining SG&A around current levels. So there's been dollar terms and will it lead to somewhat of a margin tailwind?
Percentage now is going to be at around the number, overall, the reported number that I talked about. So it's net of the GIS business that we divested that would roughly translate to about 17%, 17.5-odd-percent.
Okay. Okay. And last, on the insurance deal, which was delayed, has it now been signed?
It's about to be signed right now, Govind.
The next question is from the line of Dipesh Mehta from SBICAP Securities.
It is Dipesh Mehta. I have a couple of questions. First is about data related. Can you do or start revenue, or an idea [indiscernible] revenue and margin, which we usually set? Second question is, of this quarter and year-end, I think maybe then the announcement was not -- and especially driven, I think I could not find out the dividend you announced for the period. And if you can help us about the payout, how does capital allocation and NPL, if one should look, going forward?
Let me just take the dividend question first, this is Arvind Thakur. What we have seen is, there is customary -- there's various annual results, which happens between signing of a definitive agreement and the closure, and it is customary to postpone the announcement of dividend so that's the reason why there has been no dividend announcement.
And what would be the -- sorry what would be the typical period once this -- if you can help us, once these things get over?
We can't say because after closing, it would be the new Board which will decide on what the dividend is.
Mr. Mehta, the first part of your question around NITL revenues and operating margin, the revenue in Indian rupees million was INR 442 million and the operating margin was 19%.
Okay. And about Incessant?
I'm sorry. Can you repeat that?
The digital business, Incessant Technologies?
The Incessant business, the revenue in Indian rupees million was INR 1,334 million and the operating margin was 24%.
The next question is from the line of [ Shamar Drut ] from PhillipCapital.
[indiscernible]
I'm sorry to interrupt you, Mr. [ Drut ], but can you please speak on the handset mode? Sorry, your voice is echoing.
Congrats on a good set of numbers. So 2 questions from my side. One, is in the shift in our client base from $1 million to $5 million and $5 million to $10 million on that, so there are declines also at 4 clients from this $5 million to $10 million and a similar addition in $1 million to $5 million. So is this like an aberration in this quarter? Or you are seeing some of the declines in the budget, like a reduction in budget for us? And secondly, just on the offshore proportion of net revenue, so our offshore has been declining from the last 6, 7, 8 quarters. So what are the reasons for the change?
So let me just take the second question first, Mr. [ Drut ]. The individual portfolio is expanding, and you will have seen the number that we talked about. Digital engagements tend to be short term in nature, and they tend to be on-site heavy. Of course, they're also accompanied by being higher-margin engagements. So that's really what's been causing, over the past few quarters on a running basis, the on-site revenues increasing to 66-plus-percent. I know I said that it was about 65%, that we expected to hold it around that level, but 66%, I suspect that it's recently closer to 65%. We think it should start holding around this pattern moving forward. Can you please repeat your first question, what the first question was?
The first question was on the client, so $1 million to $2 million -- $1 million to $5 million, client as, excuse me, additional 4 clients from 62 to 66? And similar with the reduction in $5 million to $10 million clients from 20 to 60. So it is, just an aberration in this quarter? Or we are seeing the shift from a few of our large clients and [indiscernible] lower spending?
No. It's -- I would really classify it as more of a blip in this quarter. We're really not seeing any structural shift in terms of the number of $5 million fast clients, Mr. [ Drut ]. I think it's a good observation, but in the market and structurally, we're not really seeing a decline on that.
Thanks. All the best for the coming quarters.
I'm sorry I didn't get the last question.
No. I said all the best for the coming quarters.
Thank you so much, Mr. [ Drut ]…
The next question is from the line of Rahul Jain from Emkay Global.
From the supply side perspective, what are the challenges that we see in terms of availability of cost improvements? And what are these potential impacts, obviously, in terms of the site incentive and subcontracts for us?
Well, Rahul, thank you for the question. On the supply side, overall, you would have noticed that we successfully managed to add more than 1,000 people on a base of 9,500 people, employees, at the beginning of last year. So clearly, the supply side, in terms of fulfillment, has been processed very fast. You're absolutely right. There has been pressure when it comes to talent supply. So these are costs, immigration costs that have been a significant source of inflation for us. This year, we ended up paying almost to the tune of $1 million more than the previous year when it comes to immigration-related costs. Well, we've been able to build those costs into our cost structure and take out cost from elsewhere to maintain margins, as you would have noticed. When it comes to wages, we expect the wage increase this year to be broadly in line with the basic difference we saw last year. And from a supply-sourcing or talent-sourcing perspective, we continue to run initiatives that we think are not just kind of any initiative because of the way that they've been run and the way in which they've been monitored, like open houses, to have people just walk into the campus and get hired, the retraining of the re-scaling initiatives that we run as part of our standard operations. We've been able to do a pretty good job in terms of managing and evolving the digital reality that we have. We're also doing some very interesting pieces of work in terms of how we monitor and created digital capabilities as keys by running our master's program with -- anew, where we employed 120 people enrolled in a master's program as we speak, over the last 1 year, have been getting trained in cognitive and data-related technologies. So overall, it's always been only in one step that has brought us to where we are. There clearly are challenges when it comes to getting the right set of folks in. But it's either being able to manage the recruiting channel or then bear the cost into our modeling structures and our cost models and being able to manage so far.Subcontracting numbers, we have kept the numbers as where they are. There has been a very active culling of tenured subcontractors and replacement of those tenured subcontractors by our own FPCs. So while margin pressure because of subcontractors continues, some of the off-placement measures have allowed us to manage the cost or at least contain it and hence, manage margins. So a very long answer, but that's how we're looking at practically managing this stat.
Now that's [indiscernible] also in [indiscernible] shared global [indiscernible] customer experience [indiscernible] trying to raise the amounts in base revenues [indiscernible] So are there any facts there that you've observed are on those end points? [indiscernible] new…
So I'm not sure I got the whole question, Rahul, but I think what you were asking was in the aviation space, are there any key trends that we are seeing. Is that correct?
In other words, yes.
Right. So I mean in addition to the one that we talked about, which was more around the firm sign to generate a lot of ancillary revenues, there are clearly -- there's clear interest that's actually coming in terms of looking at a few technologies that, in a few years back, were regarded as being Horizon 3 technologies and actually naturalizing them. Very interestingly, from one of the largest airlines in the world, in the last quarter, and I don't think I talked about it in the conversation that I had right at the outset of the call, we completed a very, very interesting project wherein we have helped them completely roll out a set of kiosks, check-in kiosks, which will not just allow somebody to check in but also been configured under a design process where there will be a lot of interventions possible, which might allow for the passenger to try to upgrade their travel experience and hence, generate ancillary revenue for those airlines. That's one. Aligning that is something which was just done in the last quarter, which ties into your question. There are a few other things that are very interesting that are happening in the travel space. IoT which, for a long time, was a technology that a lot of airlines were playing with because of recent [ IFRS ] standards, is something that is being actively considered when it comes to baggage management and tracking across a customer's travel cycle. There's also some very interesting work that's being done when it comes to biometric technologies, and using of those biometric technologies when it comes to government system controls and access controls at airports and at the airlines. So in addition to what we're talking about, about a year back, which was more around ancillary revenue, the work around IoT, the work around biometric. Again, it's very interesting work that is evolving very fast. Did I answer your question, Rahul?
Yes. Yes. Just a bit more on the airports. And like one example there is around the kiosks, are there some more [indiscernible] at least in some new [indiscernible] constantly improve [indiscernible] experience to the next level? Somehow that could be -- I think that somehow it could be [indiscernible] in near term or these are just [indiscernible] technologies…
So Rahul, you're right. Even in the airport side, there seem -- there are some very interesting opportunities and they are emerging across the multiple accesses around. For instance, most of the airports, we've seen the airport holding some that you will speak to. They will actually tell you that they look at themselves also as a retail mall doing some raise because all the retail shops in the airport seem to be generating more money for them than the landing rights of airlines.The second thing that's happening, and again, you'll reassess here a lot of when we speak to some of our airport clients, again, how to be an airport of the future. You have multiple airports that are competing to do almost rebrand themselves as the most intelligent airport in the future. The idea is to make travel as functional and seamless as possible. So that's the thing that's emerging.We also see other interesting things that are coming in. Actually, as we speak, one of the largest airports in the world, one of the largest transit airports in the world is planning for the next 5 years not to do any capital expenditure in physical infrastructure and yet managed to push through close to 33% to 40% more passengers using the existing infrastructure. That, of course, will again call for very high levels of automation in almost every point.So in addition to the things that you've said, the retail mall evolution and some of those interlinkages the intelligent airport on construct, increasing throughput without a -- passenger throughput without increasing physical infrastructure are other interesting things that you're seeing right now. And the space continues to evolve, it continues to be very, very interesting, especially in the Asia Pacific and the Middle East regions.
The next question is from the line of Sandeep Shah from CGS-CIMB.
I just wanted to understand the EBITDA margin. Can the EBIT margin impact margin impact because of the accounting standard which has come? Just some color on that.
I'm going to request our CFO, Mr. Sanjay Mal, to answer your question around the impact on EBITDA because of these new accounting standards.
So these accounting standards 116 is going to be implemented, expect possibly 2019. We are in the process of basically evaluating and implementing several systems. It is yet to be firmed up, but we do not seem to have too large an impact because it's more likely to render positively, which will have really -- confident which will be -- as impacted by this. Other than that, there can be limited opportunity where you have such kind of [indiscernible] we have on the campus and that's why things are going to be limited to that.
Okay, okay, okay. So even at the EBITDA and EBIT level, you are saying it would be having a limited impact because of your own facilities.
That's correct.
Okay, okay, okay. Second, Sudhir, just one I wanted to understand. Incessant, in Bombay, we will acquire the full control. And in that scenario, are you hoping that this will cause some attrition within the Incessant? And if yes, how will you tackle because that may lead to some -- in moving, that may lead to some growth disruption in the Incessant as well?
I think it's the best question. And as you might have guessed, we have obviously been expecting all of this for a while. As we've shared with you, about a year, 1.5 years back, we've elected the founders to stay on for another additional year, which they have very gracefully agreed to. End of May is when they will, I think, start fading out from the organization. As I said at the outset, [ Spekan Hana ], who was the ex-global delivery leader of [indiscernible] joined us. He's based in [indiscernible]. He has now been in place for more than a couple of months, and he's taken over the rein. Operationally, the rein had been with NIIT Technologies leadership for a while now, for about the last year. So at this point, and at this stage, we do not anticipate any attrition, any blip in operations on a go-forward basis post the end of May and acquisition being completed.
The next question is from the line of [ Akshay Ramnani ] from [ HTAC Securities ].
Just one quick question on the supply side change. So based on basic economics, one would expect in the tight supply and good demand environment. [indiscernible] is a trend. So what sense are we getting from -- based on the client interactions which we are having like are the clients willing to pay higher [indiscernible] stable, or are they are willing to move offshore [indiscernible]? Any color on that aspect would be helpful.
I just want to make sure I got your question right. Was your question around revenue productivity and are rates holding? Was that your question?
Yes. Yes.
At this point in time, I mean, you have your business annotation around the price inflation, but we're not seeing a trend and we're not seeing any active pressure when it comes to the BAU operations and BAU relationships around that.
Okay. So you mean to say that the pricing is stable?
Yes. I think you summarized it perfectly. It's the next thing you operate, but you're right, sir. Yes.
The next question is from the line of Ashish Aggarwal from Principal Mutual Funds.
So I just wanted to understand this increase in other current assets. Is this mainly on account for higher [indiscernible] revenues in the quarter?
Yes. It is in quarter cycles.
The next question is from the line of [ Rami Manna ] from [ Grehan Capital ].
I just wanted to ask on your attrition rate. It was more or less stable in the, I mean, Q2 FY '19, around 10%, 10.5%. And then from last quarter, I noticed you have seen substantial increase in attrition rates. In the last quarter, it was 11.7%, and this quarter, it came around 12.2%. So going forward, I mean, if you can throw some light, I mean, how you were able to and then a reduction is going up? In the -- and then light also on the acquisition of a statewide building and all?
So [ Rami ], as we discussed earlier in the call, the talent [indiscernible] is in high demand. 12.2% is the number that we cited, which is the number for the quarter. It's still best-in-class for the industry and possibly one of the lowest across the industry. So [indiscernible] will of course be to get this back down to a lower number, but 12.2% is the number that we think we can live with and are comfortable with.
Okay. So going forward, there are 40 subsequent quarter. I mean do you think this is the new normal? I mean do you think the macro environment [indiscernible] in mind?
We don't expect it to go up from there. We'd like it to go down. It's a little difficult, of course, to predict the exact efficient numbers and the [indiscernible] and number of employees. But the intent is going to be to tighten a little bit down. At this point in time, we don't think it should go up.
Okay. Okay. And then the second question is, I mean, what do you see in the outlook on the margins? Because in the earlier, I mean, [indiscernible] that, I mean, 18% is the new normal going forward in margin you should be. And then I do agree in this quarter there were some blip in the GIS and all this. Due to that, EBITDA margin, they also suffered a little bit. So I think going forward, I mean, what do you see, I mean, since FY '19 was an exceptionally good year for your people? So going forward, can we expect then, I mean, it should be around the 18, 19 -- I mean, 19% range? Or it will be in this range only?
[ Rami ], as we said earlier, we really think 18% is the new normal, and we sure hope to deliver on that. This quarter also, if you look at last quarter, reported last week, they were 18.6%. From same currency terms, this quarter, it could be 18.3%. 18.3%, I think, will always [indiscernible] from our side, is best in class. So getting back to that earlier, [indiscernible] 18% is the, I believe, the new normal, including the GIS business. We'd have to remodel the margins post the GIS divestment of cost. Moving forward, we expect to take up, I think, what we talked about in the margin.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Sudhir Singh, CEO, NIIT Technologies, for closing comments. Over to you, sir.
Thank you, folks, for joining us on a Saturday evening. We recognize, all of us at NIIT Technologies, that you -- know about the interesting things to do than to listen to us on a weekend evening. But we really respect the fact that you made time for us. We respect the interest that you've shown in us, and we look forward to interacting with you in the quarters and the years to come. Thank you again.
Thank you. On behalf of NIIT Technologies, this concludes this conference. Thank you for joining us, and you may now disconnect your lines.