Coforge Ltd

NSE:COFORGE

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to Q4 FY '22 Earnings Conference Call of Coforge Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Ankur Agrawal, Head, Investor Relations and M&A at Coforge Limited. Thank you, and over to you, Mr. Agrawal.

[Ankur Agrawal;Coforge Limited;Head of M&A and Investor Relations, executive]

Thank you, Niro. Good morning or good evening, everyone, and thank you for joining us today for the Q4 and full year FY '22 earnings conference call of Coforge Limited.

As you know, we announced our Q4 FY '22 results today, which are already filed with the stock exchanges and also available on the Investors section of our website, www.coforge.com.

Present with me today is our CEO, Mr. Sudhir Singh; and our CFO, Mr. Ajay Kalra, for the call. As always, we'll start with the opening remarks from our CEO, post which, we will open the floor for your comments and questions.

Are we still assembling? If we are, then I would want to wait for 30 seconds and then Sudhir, all yours to begin.

[Sudhir Singh, executive]

All right. We wait for 20 seconds, and then I'm going to start this off.

I believe we are about 2 minutes over time, and I'm going to kick this off. My name is Sudhir Singh, and a very good morning, good afternoon, and a very good evening to all of you across the world, folks. I hope all of you and your loved ones are keeping safe and healthy. Thank you for joining us for the conversation today as we share our full year fiscal year '22 and quarter 4 FY '22 results.

Before I delve into the quarterly and the annual results, I want to preface my commentary with a set of quick reflections on the FY '22 results. FY '22 was a landmark year for the firm. As I walk you through our results, you will recognize that in fiscal year '22, our revenue has grown 38%, our EBITDA has grown 42% and our PAT, profit after tax, has grown 45% over fiscal year '21. It was a landmark year.

You will also notice that the Coforge growth story in fiscal year '22 is not just one of the robust 38% growth that I talked about. It is equally importantly, the story of how we have delivered this 38% annual revenue growth while simultaneously and significantly expanding our adjusted EBITDA margin by 90 bps in what was a severely cost escalatory environment through FY '22.

In addition, this Coforge growth story in fiscal year '22 has seen a set of other notable achievements as well. These achievements include the fact that in FY '22, the new order intake of the firm crossed USD 1.15 billion. Not only did we sign 11 large deals in fiscal year '22, but more importantly, we've ensured that the median large deal size through this year went up appreciably.

Of the 11 large deals we've signed in fiscal year '22, those deals have included $105 million deal and $350 million-plus TCV deals.

In fiscal year '22, our operating profile continued to be derisked with the top 5 clients contributing only 22.9% to our aggregate revenues. And yet at the same time, that derisked cohort of top 5 and top 10 clients grew 30.2% and 36%, respectively, through the year.

The other big structural change in the firm's profile over the year has centered around how the contribution of offshore revenues as a percentage of aggregate revenues has jumped by 8% from 39% to 47% of aggregate revenues over the last 4 quarters itself.

Our ability to grow margins in a tough year like fiscal year '22, and I talked about that growth, 90 bps, arose primarily from our ability to sign large deals. And those large deals in turn have allowed us to materially scale up our offshore operations factories.

Finally, the Coforge story remains one of a firm that has powered very significant growth through changing almost every facet of its functioning over the last 5 years. And yet, it continues to evoke one of the highest levels of employee commitment and hence, one of the lowest employee attrition levels, even at times like this across the industry. With that preface, let me start with the quarter 4 performance analysis.

The last quarter, Q4 FY '22 of the year was marked by another large USD 50 million-plus TCV deal win. It was also marked importantly by the highest ever quarterly EBITDA margin recorded in the history of the firm. In Q4 FY '22, the firm's revenues grew 5% sequentially in CC terms. In INR and USD terms, that sequential growth number was 5.1% and 4.9%, respectively.

The revenue recorded for the quarter was USD 232.4 million. On a year-on-year basis, Q4 growth was 35% in U.S. dollar terms and 38.2% in INR terms.

The vertical-wise revenue growth breakdown was as follows: the BFS vertical clocked 128% year-on-year growth and contributed 27.7% of the firm's aggregate revenue. The Travel, Transportation & Hospitality vertical continued its very strong recovery and registered 46.8% year-on-year growth in the quarter. The Insurance vertical experienced 13.9% year-on-year growth, while the Others segment, which includes health care, high-tech, manufacturing and government outside India, grew 10.5% Y-o-Y during the quarter.

Our top 5 clients and our top 10 clients grew year-on-year by 25.8% and 32.4%, respectively. Our top 10 clients contributed 35% to our overall revenue in quarter 4. The growth in our top clients is reflective of not only our preferred partnership status with them, but also our increasing wallet share and a very productive client mining engine at work.

The continued and accelerating success of the client mining engine is also borne by the fact that over the last 4 quarters alone, the number of $10 million-plus client cohort has jumped from 11 to 18. At the same time, as noted earlier, from a client concentration perspective, we remain substantially derisked.

In quarter 4, our offshore revenues were 47% of the total revenues which is a substantial increase from over 39% just a year back. As you would recall from the color provided throughout the year, this has been one of the key drivers of sustainable margin expansion for us. It is closely tied to execution of our large deal wins and our expanding book of managed services contracts.

Moving on now to the margin performance for Q4. The firm reported an adjusted EBITDA margin of 20.6% in CC terms and 20.4% on a reported basis during this quarter. As noted earlier, this is the highest ever quarterly EBITDA margin in the firm's history, and we all know times are tough.

Adjusted EBITDA was USD 47.3 million for the quarter. The effective tax rate for Q4 was 13.2% of the PBT, while normalized tax rate was 21.4%. The current quarter reflects tax benefit on account of dividends received in India from foreign subsidiaries.

Our consolidated PAT for the quarter was an increase of 12.7% quarter-on-quarter and was an increase of 52.5% year-on-year. The quarterly PAT stood at USD 27.7 million.

That brings me to the end of the quarterly analysis. I shall now move on to the annual results. In FY '22, the consolidated revenue of the firm registered a growth of 38% in U.S. dollar terms, 37.6% in constant currency terms and 37.9% in INR terms.

Consolidated FY '22 revenues stood at $866.5 million in USD terms. On an organic basis, revenues in FY '22 grew at 24.9% in U.S. dollar terms and 24.1% in INR terms. You will recall that at the beginning of fiscal year '22, we had guided to an expected organic CC growth of 17%, and we had been revising the guidance upwards in every subsequent quarter.

FY '22 proved to be a stellar year for our BFS business, which clocked 102% growth on the back of multiple large deal wins, including the USD 105 million plus TCV contract won in Q1. BFS constituted 25.5% of FY '22 revenue.

The Insurance vertical logged another strong performance after 4 years of continued strong performance and grew 20.2% and constituted 28.3% of the firm's revenue.

The Travel, Transportation & Hospitality vertical recovered smartly in FY '22 to grow 36% over FY '21. We believe it is important to note that the TTH vertical revenue in FY '22 was 5% higher than what was recorded pre-pandemic in FY '20. It constituted 19% of the total FY '22 revenue.

Other businesses, including health care, retail, high-tech, manufacturing and public sector outside India collectively grew 21.6% year-on-year and represented 27.2% of the overall revenues.

Looking at the geographic split of the revenues. The Americas grew 49.7%, EMEA grew 32.5% and the rest of the world grew 14.6% during the year. [ GoI's ] revenue contribution for fiscal year '22 stood at Americas 52%; EMEA, 35%; and rest of the world, 13%.

We experienced strong growth across our entire offering spectrum during the year, and all our service lines are scaled businesses today. Our digital portfolio, which comprises of product engineering, intelligent automation, data services and integration service lines made up 51.5% of aggregate technology revenue.

Digital and cloud infra services combined is 71.3% of our tech revenue, and it grew at 24.5% in FY '22.

In addition to the remarkable top line growth, we had also embarked on a journey to improve our profitability during the year under review. Adjusted EBITDA before ESOPS and acquisition-related costs increased by 43.7% during the year, translating into an EBITDA margin of 18.9% in CC terms for the year.

The ability of the firm to expand margins at a time when the industry has grappled with higher retention and hiring costs merits a quick comment. Significant margin expansion during the quarter and actually progressively through the year has been driven by the following factors: one, a progressive and significant enhancement in offshore revenues, and this came, as I said earlier on the back of the large deals signed right through the year; two, an expansion in gross margin as pricing power has increased; three, operating leverage from the very strong growth that we witnessed; four, from an induction of 6.7x the number of graduate training engineers compared to any previous year, thereby significantly flattening the delivery pyramid; and five, by a phased return towards normal pre-pandemic gross margins for our travel business.

I will close these observations with a comment that our exit adjusted EBITDA margin in Q4 last year was 18%. And as I've just shared, that number this year is 20.6%.

Finally, our net profit for the year came in at USD 89.1 million, and they reflected a 45% year-on-year growth. The effective tax rate for the year stood at 17% of the PBT.

That ladies and gentlemen, rounds out the revenue and the profit analysis for quarter 4 and for the full year. I shall move on to the order intake section next.

In terms of order intake, fiscal year '22 has been the best year in the history of the firm, once again, in terms of the size and the velocity of large deals won. In the first half of the year, we had already secured a $105 million TCV contract, which was for 4-year, 8 months. And we had also secured in the first half 2 $50 million-plus contracts. That momentum has continued in the second half wherein we signed another $45 million-plus TCV contract in Europe in quarter 3 and in the current quarter in quarter 4, we followed that by another $50 million-plus deal in the BFS space.

The order intake for quarter 4 was $301 million, including 3 large deals that were signed. And out of these 3, as I referred to earlier, 1 was larger than $50 million in TCV terms.

The order intake for the quarter comprised of $158 million that came from the Americas, USD 104 million that came from EMEA and USD 40 million that came from the rest of the world. I would like to call out that your total order intake during fiscal year '22 was $1.15 billion, crossing the $1 billion mark for the first time in the firm's history, and this was up 47.3% over the order intake of $781 million that was recorded in the previous fiscal FY '21.

As a result of the strong order inflows, booked orders for the next 12 months now stand at USD 720 million. This number stood at USD 520 million at the same time last year.

This robust order book for the next 12 months, the order intake of $1.15 billion over the last 4 quarters and the track record of repeat business from clients of over 93% now imparts a high degree of confidence in our plans to drive accelerated growth to the next key milestone of $2 billion in revenue that we have set for the firm. 12 new logos were signed during the quarter, taking the total count to 47 for the financial year.

I shall move on very quickly through delivery operations and capability build activities through the quarter. In line with our vision of Engage with the Emerging, we continued to strengthen our positioning across existing and new partner ecosystems such as AWS, Kong and AppDynamics to enhance our capabilities and to provide a differentiated offering to our clients. During the quarter, Coforge became an AWS Travel and Hospitality Competency Partner, reflecting the firm's demonstrated experience of helping travel and hospitality clients transform their businesses, working in partnership with Amazon Web Services.

We also announced a global partnership with Kong which is a Gartner 2021 Leader in Full Life Cycle API Management. The firm once also announced the extension of its partnership with the Cisco AppDynamics, which is a leading full stack business-centric observability platform. The extended collaboration will see the launch of a new Performance Monitoring-as-a-Service offering for business critical applications by Coforge.

As a testament to our delivery capability, Coforge also earned the Global Elite distinction in the new Pega Partner program, where we are among the only 9 elite partners globally. The Global Elite distinction is reserved for the top-performing partners with demonstrated capabilities in Pega technologies, engagement strategies or vertical markets. In addition to the Global Elite status, Coforge also earned specialized distinctions in customer service, delivery and manufacturing.

The Coforge sales force business unit won the JAPAC Breakthrough Partner of the Year Award from MuleSoft for its excellence in enabling clients to accelerate their digital transformation initiatives. We continue to execute seamlessly against the large banking mandate that we won in Q1. We are now also partnering with the client. In addition to the original mandate to drive data-driven transformation and in developing their next-gen data and analytics platforms.

Our sales force delivery to the client has been identified by Salesforce as the largest European implementation of Salesforce Financial Services Cloud. The Coforge digital consulting services are now part of a steering committee at one of the major European central banks to meet a multiyear transformation and modernization program. In this role, we work directly with the CEO and the core leadership team who are driving this agenda.

During the quarter, we implemented the life data foundation data ecosystem on a modern AWS platform for an American insurance and investment management organization. And this was done to integrate the data from key functions. The initiative resulted in benefits valued over USD 10 million to the customer.

Our MuleSoft integration delivery to the client was nominated for the 1 IT award for adaptability for future digital integrations by the same client. On the travel side of the house, we continue to grow our existing relationships, and I think our growth is the best evidence of that.

We are also focused on cross-selling our cybersecurity offerings to our travel clients, where our teams are already engaged in delivering security vulnerability and incident management services across 80 airports around the world.

For a large U.S. headquartered global enterprise information management services organization, Coforge has been providing artificial intelligence services for their customers across geographies using our own Coforge Quasar Artificial Intelligence Accelerator.

Moving on to the people section and metrics around people. During the quarter under review, we added a net 722 people to our headcount in the IT business. For the overall firm, including the BPS business, our total headcount at the end of fiscal year '22, stands at 22,500.

Utilization, including trainees, during the quarter was 76.1%. Excluding trainees, the utilization during the quarter was 80.1%, and the number of trainees added was 6.7x compared to the number in fiscal year '21.

Attrition during the quarter increased marginally to 17.7%, but continues to remain one of the lowest across the industry. We continue to focus on this as a critical operating metric reflective of the Coforge culture and an engaged and committed workforce.

Before moving on to the balance sheet and the outlook for the fiscal year '23, I want to emphasize our strong belief that growth in an IT services business is largely predicated on a firm's ability to hire and retain the best talent.

For us, this was a year for a firm our size, where we added nearly 10,000 net new members to the Coforge family despite the tough testing environment.

A couple of quick indices around the balance sheet metrics, as you would have seen from the fact sheet. Cash bank balances at the end of FY '22, stood at $62.2 million after payouts towards an interim dividend declared in January. CapEx spend during the last quarter was USD 3.4 million and the debtors at the end of the quarter improved, and they stood at 62 days of sales outstanding.

Finally, summing up and outlook for FY '23. Over the past 5 years, Coforge has completely and successfully transformed itself through changes effected across several vectors. Key changes that have enabled our pivot to robust, sustained and profitable growth have included a change in leadership, the change in the center of gravity of that changed leadership to the markets, a change in the performance ethic of the organization to a can-do attitude, a change in the strategy to focus on select core verticals where we have deep domain differentiated expertise, and last but by no means the least, a complete recreation of the technology capability stack to engage with our clients across the emerging technologies continuum.

These changes, aligned with an intensely execution-focused culture, and we pride ourselves on our ability to execute and to deliver on commitments, have driven our financial performance.

Two weeks back, we concluded a leadership offsite, where we reaffirmed our commitment to robust, sustained and profitable growth in the years to come. In the typical Coforge execution-focused operating style, we vetted once again our growth plan for FY '23. And we've also created an aggressive time-bound plan to get to USD 2 billion revenue milestone.

I shall share our outlook for FY '23 based on our discussions in that offsite. Given the $1.15 billion order intake over the last 4 quarters, given the already locked-in 12-month executable order book of USD 720 million, and given the ground drop conversations that we are having with our clients, all of us, we are planning for around 20% constant currency revenue growth in FY '23.

On the margin front, we expect to maintain adjusted EBITDA, between 18.5% to 19% in FY '23. Coming up, we are on track to deliver yet another year of strong operational and financial performance as the firm continues to enhance its capabilities, invest very strongly in them and scales up its delivery resources to fulfill the very rapid pace of growth planned.

With that, ladies and gentlemen, I wish to thank you for your attention and your consideration, and I conclude my prepared remarks. I look forward hereon to hearing your comments and to addressing your questions. I look forward to questions.

[Operator]

[Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss Financial Service.

[Sandip Agarwal, analyst]

Congrats on a good set of execution. Sudhir, when you say 20% constant currency number for FY '23, is it at least or you think it is realistic or a conservative number, number one? And number two, when you talk about margins, you have taken into consideration a scenario which can further deteriorate from here on attrition? Or do you think that you are guiding that range considering the current attrition situation. That is number one. And number two question which I would like to ask is that even what you are seeing today and given the uncertainties on global macros and what, most of the economics are talking about, what is your sense that -- how critical is our take operations to the client? And how much they are enabling the revenue growth and margins of the client -- profitability of the clients that this will be the last [ purse ] to cut? What is your sense on that?

[Sudhir Singh, executive]

Thank you for the 3 questions. Sandip, let me take them in order. I mean if you look at our record last year, at the beginning of last year fiscal year '22 we had offered a growth guidance of 17% in CC terms. We concluded between organic and the acquisition that we did during the year at 38%. This year, we're starting the year, we're not offering an at least this time, as you noted, we are offering around 20% organic CC, which we think is a realistic achievable number.

We will, of course, as we did last year, we started with 17, ended at 38. Key revising numbers basis, change in market conditions or any changes or acquisitions that we might consummate whenever we do that. So that's how I would put it. At the current point in time, we believe it's realistic. Of course, we've always had a conservative bias, and that's fundamentally why we've always met and, in most cases, exceeded [ forecast completion ]. So that's the answer to question one.

Question 2 the adjusted EBITDA guidance of 18.5% to 19%. We feel confident around this, assuming -- and we've done most of the scenario modelings around worsening attrition, significantly worsening attrition, everything under the sun. We believe that if we are walking -- if we have an exit EBITDA margin of 20.6%, when at the same time last year, we had exited at 18%, there is a significant cushion available to us. And at this point in time, we are calling out a margin that is broadly in line with what we've already delivered while our exit rate is significantly higher on the margin front than it was when FY '22 started.

The third piece -- the third question around global macro conditions, the changes that we've been observing. All of us have been tracking in critical [ set up ] operations. I think the short answer is varied. Tech operations continue to be critical and over the past few years, not just the last year, we've seen increasingly that tech spend is no longer regarded as the first discretionary item or even the second or the third discretionary item that gets pulled off.

A lot of our growth projections are also not based on macro conditions moving up or down on a sliding scale. A lot of it is also based on the order executable that is already signed, and I talked about $720 million. A lot of it is also based on the fact that repeat business has climbed up to 93% from 89% last year because of the hits that we saw in travel.

A lot of it is based on the fact that the travel industry, which is, as you know, a material industry for us is seeing clear evidence of a bounce back, and we have a lot of tailwinds building up there. A lot of it comes from the fact that we've been really investing. If you look at our sales team, when last year ended, we had about 180 people. Today, we have 280. The pipeline that is getting built globally. And a lot of it is also coming from the fact that our growth, as you would have noticed, is broad-based. It's not 1 vertical, 1 tech service line that's driving it or 1 or 2 clients. It's broad-based growth, low client concentration, a derisked model. And in just about every scenario that we could model 2 weeks back in our leadership offsite, these numbers feel extremely achievable to us. I'm going to pause right there, Sandip, and I want to thank you again for the question.

[Operator]

The next question is from the line of Vibhor Singhal from PhillipCapital.

[Vibhor Singhal, analyst]

Congrats on a strong quarter yet again. So Sudhir, just 2 questions from my side. One is just wanted to check what is the overall outlook on the Insurance segment. We've been doing really great in that segment. Some of our peers are not able to catch up. So overall, how is it looking, especially in the European market? And how do you see Insurance vertical playing out for FY '23, specifically?

And my second question is, any time line that you could probably provide for that $2 billion revenue target that you mentioned in the press and the opening remarks today?

[Sudhir Singh, executive]

Thank you for the questions, Vibhor. Let me take them in order, once again. On the insurance outlook, as you've noted, Insurance as a vertical for us has been a very strong growth driver over the last 4 years. This year, again, we've clocked at 20-plus percent growth.

When we look at the market and we look at the industry, we see momentum continuing in insurance in fiscal year '23 on the back of the strong economic recovery or the economic recovery we've seen so far, the rising risk awareness and the accelerated digitalization that is now happening in insurance, which has been a laggard compared to other industries.

I mean if you look at insurance as a composite, global insurance premiums are also expected to grow between 3% to 4%, depending on who you speak to in 2023.

The flip on the insurance side that they're monitoring is that high inflation and the significant catastrophic event, what they call the CAT losses, may impact insurer earnings and put pressure on their discretionary spend. But I mean if you [ bake ] the pluses and the minus, we see very strong -- we see significant demand for Coforge services, including digital experience, including accelerated underwriting, including claims optimization, call center transformation, core platform organization.

So given what we've already built up, given the fact that Insurance at the end of FY '22 is still the largest vertical for us, we do expect outlook to be strong, positive, robust going forward as well as we do. So that's the answer to question number one.

Question number two, around the $2 billion plan that we've created. As you can imagine, in the leadership offsite that we had, we named the year internally when we expect or we want desperately to get to $2 billion. We're not going to be sharing those numbers right now. At this point in time, the outlook that we are sharing, as we've always shared, is only for the next fiscal. But we do understand that we will -- should hopefully be materially north of $1 billion by the end of this year. Hence, the focus has pivoted to $2 billion and to getting there, hopefully, with accelerated speed.

[Vibhor Singhal, analyst]

Got it. Got it. Just one small bookkeeping question, if I may. What is the ESOPS cost that we are expecting for FY '23? ESOPS/[ IEC ] costs?

[Sudhir Singh, executive]

Vibhor, I'm going to request Ajay to step in for that. Ajay, can you take that, please?

[Ajay Kalra, executive]

Sure. Thank you, Sudhir. Vibhor, we are expecting between 60 to 65 bps of ESOPS after next year.

[Vibhor Singhal, analyst]

Sorry? What is that sorry?

[Ajay Kalra, executive]

Vibhor, I repeat myself, it's 60 to 65 basis points of revenue for the next year, financial year '23. That's the outlook for the MIP program.

[Operator]

The next question is from the line of Dipesh Mehta from Emkay Global Financial Service.

[Dipesh Mehta, analyst]

A couple of questions. First of all, so we just want to get your perspective, how you think Q4 played out in line with your expectation? Or there is some if any [ less ] or some positive surprises? If you can highlight considering so much macro uncertainty and a cross sector performance. Plus it seems some marginally versus what you indicated.

Second question is about the BPS headcount decline. This quarter, it is Q-o-Q down. So is there any seasonality in the SLK business or any other seasonality in BPS business?

Third question is about WHISHWORKS. Typically, WHISHWORKS has very strong Q4 and then taper off in Q1. Do you expect that seasonality to weigh on our Q1 performance.

[Sudhir Singh, executive]

For the questions Dipesh. I just want to reconfirm question number 1. Question number one, as I understood it was you wanted us to opine on how the year has stand out versus our expectations. Is that correct?

[Dipesh Mehta, analyst]

More fourth quarter [ rather than new ]?

[Sudhir Singh, executive]

Understood. Quarter [ rather than new ]. Understood. Fantastic. So let me take all 3 questions once again in order. In the quarter panned out, it was the last quarter, we had set a stretch goal for ourselves. Clearly, the number that we were aiming at for the -- on the revenue side were exceeded given the tailwinds that we've seen because the outlook that we had offered for the full year was 37% at least growth in dollar terms, and we ended up at 38% for the year.

So revenue has been slightly ahead of what we had called out. On the margin side, we had indicated that we'd end the year between 18.5% to 19% margin for the full year, and we've delivered on that. And we've delivered on that after taking margin to 20.6% for the quarter, which as I called out, was the highest ever.

So the interesting thing is last quarter, quarter 3 was the highest ever when we hit 19.5%. This time, we've aced the highest ever by a very significant 90 bps more. And in today's environment, our former size hitting 20.6% CC, 20.4% reported quarterly margin, obviously, is something that we are very pleased about. So the quarter stand out in line, slightly ahead of our expectations.

Second, as far as EPS headcount is concerned, -- we've been -- if you look at the BPS headcount progression over the last 4 quarters, Dipesh, we called out at the beginning of the year itself that we expected the acquisition to be margin accretive for us. And it's been significantly margin accretive because of the operating efficiency and the synergies that we've been able to create, especially on the nonbillable headcount front.

So moving forward, we had talked about the fact that we expect the BPS business to grow in Q4 over Q3, and it has, and we expect that growth momentum to continue in the coming quarter as well.

Third, as far as WHISHWORKS is concerned, there is no material seasonality within that business, Dipesh. As you're aware, the WHISHWORKS business is now fully integrated. It operates under the Coforge Salesforce business unit name. We merged the new soft capabilities with the Salesforce capabilities, and it's been a huge capability and force multiplier for the firm.

Given the contours of the new business, there is no longer material seasonality in WHISHWORKS in Q4. So we should not be seeing a material tapering off in Q1 in the -- what was WHISHWORKS and is now the Coforge Salesforce business unit now.

[Dipesh Mehta, analyst]

Understood. And last data point from my side, can you give the SLK Global revenue for the quarter?

[Sudhir Singh, executive]

Sorry, which global revenue, Dipesh?

[Dipesh Mehta, analyst]

SLK Global, the acquisition.

[Sudhir Singh, executive]

Yes. We're not calling out individual -- all acquired entities, which have been fully merged and the SLK entity is now the Coforge BPS business. We have merged the earlier Coforge BPS business with the SLK business and put it all under the same leader who was running this unit for SLK earlier. So we are calling out the BPS business revenue product engineering revenues, but we're not calling out revenues on a go-forward basis for individual entities that are now fully merged, and SLK is now fully merged with Coforge.

[Operator]

[Operator Instructions] The next question is from the line of Manik Taneja from JM Financial Service.

[Manik Taneja, analyst]

Congratulations for the steady performance. So we just wanted to pick your brains on a couple of things. We've seen significant offshore shift for us happen over the last 12 months. And as you alluded, this will also be helped by the large deal momentum that we are seeing.

If you could talk about how do we see this dynamic over the next 12 months? That's question number one.

The second question was a clarification on the SG&A head count. That number came off in 3Q and has reduced marginally in 4Q as well. If you could help us understand what's driving the optimization there.

[Ajay Kalra, executive]

Sure. So let me take both the questions in order. We believe the offshore shift is largely structural. Of course, for the quarter, offshore revenues at 47% for the year, the overall offshore revenues 44% and we believe now we were fairly sensitive about it and did not call it out, but given the continued offshore momentum, we believe the number is likely to sustain in FY '23 at broadly the levels that we've seen in FY '22.

[Sudhir Singh, executive]

That's answer 1 to question 1. Answer 2 to question 2 on the SG&A is we've actually very, very significantly enhanced numbers on the sales and marketing side.

As I said, when FY'21 closed, we had about 180 folks across sales and marketing. Now that FY '22 has closed, we have somewhere close to 280. I wouldn't worry too much about whether the number has gone up by 3 or gone down by 3 as is the case over the last quarter. The broad direction is what was a 180 member team is a 280-member team. And our intent, and you can, I think, deduce this from the margin guidance also, especially given the exit margin rate is to really very aggressively continue to invest in the S&M and the solution in headcount going forward as well because we are crystal clear. Growth is the primary imperative and getting to $2 billion with speed is something that we're really fixated on.

[Manik Taneja, analyst]

And if I can ask 1 more. This was on our segmental margin performance. So if you could help us understand why our margin profile in India essentially continues to be negative. And what drove the segmental margin improvement in case of the European geography?

[Sudhir Singh, executive]

Ajay, would you like to address that question?

[Ajay Kalra, executive]

Yes, thanks, Sudhir. In India, we continue to have a negative margin. But if you look at the India segment, it's a very small segment and it's a competitive segment. So we continue to improve our margins there. But again, given the onetime impact, it is negative in the current year and quarter.

[Sudhir Singh, executive]

Let me just add to that. While the margin is negative at the current point in time, the trend is it's been reversing. The intent is not -- even though India is a very small portion of our revenues, and you would have noticed the rest of the world has been declining as a revenue contribution for us. The intent is not to keep it that way forever.

One of the things that we take great pride in is the fact that we believe we execute very well and our margins are a testament to that execution ability. You will, over time, find us turn India, which is the last bastion where margins have been under pressure and do a complete and an effective turnaround there as well.

The other question that you had, I understood was segmental margins. Segmental margins continue to be strong, which is what is playing into the aggregate margins having increased during the year. Something that's helped us in FY '22 and will likely help us even more on the margin front in FY '23 as being the clawback on margin that we've been able to see on the travel industry side.

Not only has travel expanded significantly as a vertical in revenue, gross margins there have also gone up.

And the one thing I do want to point out is if you look at our gross margin progression, our gross margin has gone up 340 bps between Q1 to Q4 of FY '22. A lot of it, at least a major chunk of it has come because of the positive reversal that we've been seeing on the travel side as well. Of course, insurance, BFS, the new deals that we've signed have all been solidly margin accretive. And that is the other nuance that is important to us. There's a lot of -- a lot of times

[Audio Gap]

have come in at good rates and have been margin accretive for us. And I'm going to pause right there for any other follow-ups that you might have.

[Manik Taneja, analyst]

So this one last clarification. So is the travel rebound also helping with regards to Europe's segmental margin?

[Sudhir Singh, executive]

Significant Europe bias. So it would be playing into the Europe turnaround as well. Of course, Europe is a geo outside the 3 verticals, again, is doing well. Also, if you recollect the large deal that we signed in BFS, the $105 million deal was with a European bank. And that also, to the point I made earlier, that large deal is margin accretive and that's also helping both Europe and the firm.

[Ajay Kalra, executive]

And Sudhir just to add, the offshoring also is helping there in the European margin as well.

[Operator]

The next question is from the line of [ Abhishek ] from InCred Capital.

[Unknown Analyst]

Congrats on a good quarter. A couple of questions. The first one is on the sales headcount growth that you alluded to. So we are seeing a commensurate increase in the bookings number on a Y-o-Y basis. What I'm essentially trying to understand is the increase in the bookings number is a reflection of headcount? Or we are yet to see the efficiency benefits from increasing the sales number?

The second is on large deals. It seems like our commentary is contrary to the perception, what we heard in Q4 that large deals are fewer in the market, but we have been able to kind of [ stitch ] them better. So any color in terms of what we are doing differently would be helpful.

And the third is on wage hikes. When do we plan to give wage hikes? Any quantum for the same could be helpful.

[Sudhir Singh, executive]

Let me take them in order. Sales headcount growth and the tie-up that you did to booking numbers takes about -- my experience, practical experience, and I started my life as a sales manager in Hindustan Unilever more than 2.5 decades back. It takes about a year for a person to come and settle down and start producing. Most of this is increased from 180 to 280, comprises of folks who haven't finished that full year. So a lot of that growth, the impact creation by that cohort, I suspect, is still awaited and hopefully, will start playing out in FY '23.

I also would urge you not to conflate bookings with headcount numbers. It's -- I think as all of us know, it's less the number, more the caliber of who we bring on board, and that plays into that piece into the bookings and the headcount correlation.

The second question around large deals and the fact that our commentary is different, my submission to you would be, it's not just our commentary that is different, our performance is different compared to what you're hearing. So our commentary is different and we keep calling out large deals because we our performance supports the fact that we are closing large deals. We closed 11 large deals through the year. And almost every quarter, there has been roughly about 3. There was a quarter where we had 2.

So it's been very consistent. And also, it's not just large deals where you're scraping through the threshold of what we call a $20 million TCV. This has been a breakthrough year, not just in terms of numbers and velocity. It's basically been a breakthrough year in terms of the median size of those large deals having gone up, $100 million-plus TCV large deal, 350 million-plus TCV large deals, including 1 in quarter 4 itself. It's why the commentary that we are offering backed by facts on the ground is working for us.

So your question around what are we doing differently? I suspect not much. It's fundamentally execution. It's fundamentally the collective decision that was made at the beginning of the year when it was very clear to us that there was a lot of business, short cycle business for the asking. We did step back and take a conscious call to continue to focus on large deals because if hypothetically, the market were to go south, short cycle deals go away almost immediately, large deals do not. So we've always had a bias about 3 things that you will always hear me talk about robust growth, sustained growth and profitable growth, and that sustainability largely comes if the deal velocity around large deals is consistent. That's the answer to question number two.

Question number three, wage hikes, quantum wage hikes have already been affected. In our case, they are effected -- effective the first of April, and that change has happened about 1.5 months back. Given what's happening in the market, wage hikes are substantially higher than what they were last year.

And that cost escalation has already been built into the model basis, which we've come out and talked about the margins that we are likely to deliver upon. As I said earlier, we're walking in with what we believe is material question because an exit rate of 20.6% makes it that much easier for us to absorb a lot, lot more on cost in the worst-case scenario and still deliver to the numbers at least that we've called out. So I'm going to pause right there, Abhishek, but those will be the 3 answers to your 3 questions.

[Operator]

The next question is from [ Shara ] from Asian Market Securities.

[Unknown Analyst]

Congratulations on the great guidance.

What would be my question, when I see of fresh order intake that number for us has been lower Q-on-Q. So how are we looking at demand environment in Europe as such?

[Sudhir Singh, executive]

So Europe has been a very happy hunting around for us. The largest deal that we closed FY '22 was in Europe with the banks, the $100 million-plus deal. If -- so at this point in time, despite what's happening on the Eastern European side, Europe for us, across the travel space, which -- and for travel, Europe is a material market. Europe for us on the BFS side, where it has now become a material market is doing extremely well. I wouldn't even say doing well. It's actually doing extremely well for us. So fresh order intake number, notwithstanding, the momentum in Europe continues to be strong as we see it [ pull up ].

[Unknown Analyst]

Right. And secondly, on our Insurance [ vertical ] growth the license number would not great in the first 9 months. How did the license revenue performed this quarter?

[Sudhir Singh, executive]

Indaba, we've grown about I don't remember the exact number, but more than 13% sequentially in Q4 over Q3.

[Unknown Analyst]

Right, sir. And any outlook on the travel hospitality sector that you would want to give us for FY '23? And what are the considerations for margin guidance for '22? What are the key levers that will be available for us to defend the salary hike of which we have given, which is higher than what we have given in historical years.

[Sudhir Singh, executive]

Sure, [ Shara ]. Let me take both the questions in order, travel outlook. Now travel, of course, given the bounce back is a space where our travel leader, I personally have been meeting almost every client across the world, and we've literally been traveling to meet our travel clients. So if you look at the Travel segment, particularly Europe, what's very clear now is that the global travel industry recovery is clearly happening, and it's on a significant upswing.

And we've seen this almost from January 2022. Most of the major airlines, and I have spoken to most of the leaders in airlines personally, in person, around the world are predicting double-digit profitability for the current quarter itself, April to June and for the rest of 2022 as well.

What's been very interesting in a lot of my conversations is there don't seem to be demand constrained. They're more supply constrained around actually having the right number of pilots and [ cater ] to the staff airlines and efforts.

Europe is showing your question, very similar trends in travel of increased bookings now and a significant upswing in travel, both domestic and international. International, of course, is important for Europe. And so far, there has been no noticeable impact from the war in Ukraine.

European commercial flights, we keep monitoring that. They've increased by 150% in March 2022, for example, compared to March 2021. And across the conversations, all of us have had within Coforge's travel plans, this improved revenue and the profitability outlook is leading the travel industry to increase investments and we see it and we sense it and we benefit from it significantly in cloud, in cybersecurity and in digitization initiatives focused around touchless travel.

Last quarter, again, [ Shara ] the same question had come up and I had cited a metric from SITA, who had spoken to almost every CEO and CIO in the travel industry. And 85% of them expect IT spend in FY '23 -- calendar year '23 to be significantly and materially higher than CY '22. So that's -- that's a quick update around travel.

On the margin side, your question was around what are the levers that give us comfort that despite the supply issues, despite the retention hiring costs, we will deliver at a minimum to what we've talked about. And I think there are multiple levers. The first one is, and I've talked about this, we are on an exit adjusted EBITDA margin of 20.6%. Right?

Last year, the exit EBITDA margin was 18%. The margin in Q1 for Coforge adjusted EBITDA was 16.1%. So through the year, our ramp has been from 16.1% to 20.6%. That exit gives us a big cushion, that's lever one. Lever 2 is the fact that offshoring for the year is at 44%, but for the quarter, quarter 4, we're exiting at 47%. Last year -- compared to last year, that's 8% higher. We believe it's a structural shift in the cost structure and margin profile, so that will sustain.

Third lever around margin that we feel very good about is in FY '22 -- and this has impacted our utilization in some ways, in FY '22, we've hired 1,680 graduate engineered trainees, which is 6.7x more than what we did in the previous years, any previous year.

Now a lot of them are not billing, but they will over time start billing and that becomes a significant margin driver. Fourth, of course, margin driver should the natural operating leverage from what we think is robust growth ahead of us. Fifth is AdvantageGo, which you talked about. That business had 2 quarters of sequential decline last year. We don't expect that to repeat in FY '23. And finally, a big lever, which I've talked about is a recovery in the travel business. That's significant, not just from a revenue perspective, but also from a margin perspective and an upside perspective. So those will be the answers to the 2 questions that you have.

[Unknown Analyst]

That's very helpful. If I can chip in, any pricing increments that we can factor in for '22, especially from the Travel vertical?

[Sudhir Singh, executive]

Yes. I mean, I've been asked this question over the last 4 to 5 quarters and I've always been shy about committing to margin being a material lever. But while it may not be a very material lever, clearly pricing power is definitely back with partners like us, and we do expect that to be -- well, if not a major lever, a clear minor lever on improving margins going forward now.

[Unknown Analyst]

Okay.

[Ankur Agrawal;Coforge Limited;Head of M&A and Investor Relations, executive]

This is Ankur again, guys. I know there are a few more questions lined up. Then we will be happy to take those questions on a one-off basis post the call, but we'll need to wrap it up, operator. So please conclude with the closing remarks.

[Operator]

I would now like to hand the conference to Mr. Sudhir Singh for closing comments.

[Sudhir Singh, executive]

I would like to thank everyone, ladies and gentlemen, all of you for joining us at this early hour in India and for the folks in the States and in Europe for what is a very late or in the U.S. for now. Thank you very, very much, as always, for your interest, for your insights.

I've always said this, and I've always meant it. We learn a lot from your questions, and we do try to bake in your insights and improve our performance, which has always been our intent and continues to be a very strong intent or very strong intent going into the future as well.

Thank you once again, and I look forward to speaking to you 3 months from now. Thank you. Good night.

Bye-bye.

[Operator]

Thank you very much. On behalf of Coforge Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.