Eclerx Services Ltd

NSE:ECLERX

Earnings Call Transcript 2019-Q3

[Operator]

Good day, ladies and gentlemen, and a very warm welcome to the eClerx Services Limited Q3 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.I'm now glad to hand the conference over to Mr. Rohitash Gupta, CFO, eClerx Services Limited. Thank you, and over to you, Mr. Gupta.

[Rohitash Gupta, Chief Financial Officer]

Good evening, and thank you for joining eClerx earnings call for the third fiscal quarter of FY '19 ending 31st December.In Q3, we saw very modest sequential increase in dollar revenue by about 0.3% to $50.2 million, while our Y-o-Y dollar revenue increased by 2.7% in Q3. The sequential and Y-o-Y growth in constant currency stood at 0.7% and 3.3%, respectively.We saw a minor decrease in offshore dollar revenue on Y-o-Y basis, although on sequential basis it remains flat. On the other hand, the onshore revenues have shown healthy Y-o-Y growth of about 21% this quarter.This Q3 was our fifth consecutive quarter with Y-o-Y dollars revenue increase after 5 prior quarters of continuous Y-o-Y declines. Q3 INR operating revenue increased by 6.1%, Y-o-Y, while it increased by 0.5%, Q-o-Q, to INR 3,576 million.The margin metrics saw significant adverse movement in Q3 due to several extraneous factors, onetime cost and onshore investments. The operating margin for Q3 stood at INR 548 million, a decrease of 25% sequentially.Profit after tax in Q3 was at INR 390 million, witnessing a 44% decline since last quarter. Other income for the quarter decreased sharply from INR 193 million in Q2 to a loss of INR 4 million in Q3 due to INR 218 million decrease in quarter-on-quarter revaluation and realized gains caused by INR 3 appreciation in last 2 quarter ending dates.Our forward hedge book of about INR 146.5 million stands at an average rate of INR 71.7 to $1, a rate that has increased by about 1.20 paise since last quarter, primarily due to recently booked hedges at higher spot rates.We have hit our lowest hedge realization rate in Q2, and this realization rate will remain at a low of about INR 69 until Q4 and is likely to consistently increase with each passing quarter of FY '20.The operating margin percentage decreased by about 500 bps this quarter, out of which about 260 bps decline was due to our increased upfront investment on onshore delivery and the remaining increase was due to SG&A and depreciation.The biggest increase in G&A was due to Pune facility consolidation project, which will see elevated levels of costs due to onetime overlapping rents and OpEx during Q3 and Q4.This quarter's G&A increase also reflects the full-blown impact of our Fayetteville facility expansion completed during last quarter and also the recruitment cost of onshore consulting employees, both of which -- which are likely to continue in near term.We had increase in depreciation in Q3 due to accelerated depreciation of old Pune facilities, and depreciation is likely to peak around Q1 of FY '20 when new facility assets go live.We had about INR 7,219 million of cash and cash equivalents at the Q3-end, which increased sharply by INR 688 million since Q2. The net operating cash flow during the quarter was INR 1,051 million, which marks our highest cash conversion ratio in last many years.We have spent around INR 77 million on CapEx in Q3, which is higher than Q2, due to ongoing Pune facility projects. Our CapEx will keep increasing over next few quarters, with balance onetime CapEx on account of Pune projects of about INR 300 million coming during next 2 quarters.We have spent about INR 17 million on various CSR activities during the quarter, and we are tracking well to exhaust our budgeted amount by Q4.ESOP Trust, which began operations way back in 2016, has accumulated about 834,000 shares at an average price of about INR 12.45 until end of calendar year 2018.In line with our stated approach on capital allocation, we have distributed about 55% of our last 12 quarters cumulative PAT as well as cumulative net operating cash flow in form of dividends and buyback, and we will strive to maintain that in medium term.The DSO for the quarter was at 85 days, showing improvement over the last quarter. Most of the revenue concentration and utilization metrics have remained similar to last quarter.In addition to the continued growth in onshore revenue share, managed services growth has shown satisfactory increasing trend this time.One of our newer cable clients has moved from $0.5 million to $1 million-plus bucket during this quarter. Revenue of top 10 clients has shown further acceleration in Y-o-Y growth terms, from 0.5% to 2.5%, after many quarters of continuous decline. Emerging clients growth, however, has moderated temporarily to single-digit, Y-o-Y.Our company employee strength has increased by 429 Y-o-Y to 9,520, however, with a marginal decline of 63 since last quarter. Our onshore staff, mainly in Fayetteville and consulting, has increased by 67, in line with the actual and expected onshore revenue growth. Our sales and business development staff count has marginally increased from 86 in last quarter to 87 this quarter.The India attrition has increased sequentially to about 43.5% with most of the increase at execution level due to increasing demand in certain skill areas and increasing offshore business churn.Our effective tax rate for Q3 was slightly above 28%, and we expect our FY '19 ETR to be at the lower end of previously guided 28% to 30% range. The demand environment for our services have been showing consistent improvement as our 9 months of new sales has increased by about 20% Y-o-Y, while the roll-offs have decreased by about similar percentage in Y-o-Y terms.Almost 3/4 of our new deal wins come at the back of past good service and relationships, demonstrating great partnerships between offshore and onshore teams. We are also seeing some early signs of dollar price increases across several clients after a lull of last few years.Our revenue per employee has been rising continuously, mainly due to growing onshore digital consulting practice. Our hybrid delivery model and digital has seen significant success with revenues tripling in these 9 months on Y-o-Y basis.The growth in managed services is very broad-based, showing desired result of tax strategic imperative enterprise-wide. On services front, avoidable truck roll and digital analytics was the biggest driver of Y-o-Y revenue growth this quarter.In a significant achievement in Q3, we added 2 new client logos in Fortune 500 league with one coming from apparel industry and another one from electronics industry. Average deal size won this quarter was at a multiyear high due to one of our largest offshore deals in financial markets from a top U.S. bank and a large creative asset management onshore project for a U.K. retailer, both won in competitive RFP situations.Such offshore deal wins can help us grow our offshore revenue mix in more balanced manner in near future. In fact, we are seeing increased RFP activities across the board. Compared to FY '18, we have seen twice the number RFPs in this YTD, showing that our participation rate in the market opportunities have increased due to the improved branding and marketing. This quarter also saw our largest-ever independent RPA implementation project win from a new Fortune 100 tech client, and this project would start in Q4.Growth in large clients has been very satisfactory this quarter, with 5 of the 7 clients in $5 million-plus category growing both on sequential as well as Y-o-Y basis, leading to improvement in top 10 client revenue trend.In another success of our investment leading the revenue approach for $5 million, we have increased confidence now to make that site serving multiple clients in FY '20. However, on the adverse client-side events, 2 of our clients in $1 million to $5 million revenue category outside of top 10 have undergone change of control, and we have witnessed significant de-growth in them in Q3 as they changed their strategic course under the new leadership. This uncontrollable event has hurt both our emerging clients as well as form level growth in Q3 and we expect this impact to diminish with the next 2 quarters. Our revenue across the geographies is becoming much more diversified. While we have expanded some of our existing clients into new territories like Hong Kong now, we have also bagged our first client in Scandinavia. At the same time Switzerland-, Canada- and Australia-based client revenues have increased at double-digit CAGR over the last 2 years.To summarize, our increased participation in the market opportunity, slowly decreasing impact of roll-offs, improving hedged and spot currency trajectory and completion of Pune facility consolidation will help us improve dollar revenues as well as operating margin in the next FY.With this, I hand over the call back for Q&A.

[Operator]

[Operator Instructions] The first question is from the line of Pankaj Kapoor from JM Financial.

[Pankaj Kapoor]

So can you quantify the impact of these 2 clients that you spoke of in the $1 million-to-$5 million bag? What was the impact of those clients on the revenue for this quarter and how do you see it panning it out in the next couple of quarters?

[Rohitash Gupta, Chief Financial Officer]

So, Pankaj, thank you and -- for the question. The landscape is fast evolving as these events were announced itself during Q3. We have seen early signs of realignment in those clients, and we have already taken some bit of degrowth in Q3. And we expect that Q4, the picture will be relatively much more clear. And as I mentioned, in terms of quantum, these clients -- both of these clients were actually in $1 million-to-$5 million category on LTM basis. So we expect that these clients, hopefully, will be retained into FY '20, but with much lower revenue trajectory.

[Pankaj Kapoor]

Got it. And, Rohitash, can you give some sense of your -- in which you're saying it looks to be far better than what you have done in the last few years? So any kind of a quantification or color that you can give on those?

[Rohitash Gupta, Chief Financial Officer]

Pankaj, I missed the initial part. Can you repeat?

[Pankaj Kapoor]

So on the order booking that you have done, which you mentioned has been one of the better ones in the last few quarters, can you give some quantification of that in terms of how the size would be of the order book?

[Rohitash Gupta, Chief Financial Officer]

So I think we have discussed often on in the previous calls. So typically, if you take 2 or 3 years' trajectory, the new sales in any year have been upwards of 50 million. At the same time, we see almost equivalent roll-offs, and that's why the revenue trajectory has not been in high digits. So, this year, obviously, 9 months itself compared to last 9 months, we have seen 20% increase in those new sales. So I think you can get the quantum because the full year is averaging around 50 million upwards.

[Pankaj Kapoor]

Got it. And, Rohitash, you mentioned the initial hit will continue to be there from the G&A because of the Pune facility in Q4 as well, maybe partly in 1Q. But at the same time, we have now seen signs of price increases coming back, which I'm probably hearing, after several quarters. Also, there seems to be some migration on the overall cost pressures as well. So what kind of outlook can one build in for margins going forward? Do you think the margin should be stable with the headwind/tailwind normalizing each other? Or you think that there's a possibility of an increase, especially given that on Q2 onwards you have in this year better realizations as well.

[Rohitash Gupta, Chief Financial Officer]

So, Pankaj, this quarter was obviously a low trajectory for our operating margin, about INR 55 crores. And if you exclude the one-offs on account of a Pune consolidation project, about INR 5 crores was due to that. However, that INR 5 crores will continue into Q4 and will only wane off in Q1. So if you were to project current financials into Q1, probably you can add 5 million -- sorry, INR 5 crore OPM onto INR 55 crores just because of that. On top of that, rest of the factors are currency and offshore revenue growth. If you see this quarter, the offshore revenue of about 38.5 million was almost flat as Q2. So once we start seeing a pickup in that, hopefully in early part of next year, then I think that will be a very, very material organic event for uptick into the operating margin trajectory. The other event, obviously, being the hedge rate, which I think you can model for.

[Pankaj Kapoor]

All right. So, in fact, you mentioned 3. You mentioned the, obviously, the hedge rates, which are going to be positive onwards. Also, the pricing increases, which you are seeing. The third is the good quantum of orders with a high offshore component, which I am presuming will start kicking in from Q1 onwards. So what I'm just trying to figure out is that we seem to be having some good tailwinds developing for our margins, so is it fair to assume a decent margin expansion next year on a normalized basis?

[Rohitash Gupta, Chief Financial Officer]

If all of those events pan out and the currency one being relatively much certain than the other ones, I would say that we should be up next year compared to the YTD operating margin percentage.

[Pankaj Kapoor]

Right. And just lastly, on the on-site investments, are we probably again normalizing over there? Or you think that the Fayetteville center may continue to require a few more -- some more investments as well as whatever you're doing on the sales front that may continue?

[Rohitash Gupta, Chief Financial Officer]

I was more referring to the consulting as well as Fayetteville resource cost, and that's primarily due to a long gestation or training period required in both the businesses. So, for example, in Fayetteville, because we do little -- relatively complex end work, it requires almost 3-plus months of training. And our approach in Fayetteville has, since inception, has been that we will get the resources and infrastructure first, and then we will get the project revenue, and this has been working quite well, just that revenue trails 3 to 6 months compared to the cost. So that's on the Fayetteville side. On the consulting, for example, digital consulting practice, very similar trend with a different nuance, which is that because these opportunities typically are short-term projects requiring onshore scoping and consulting, especially in the analytics and creative area, we require people on the ground to back such opportunities because we cannot afford to ask for 3 or 4 months for those resources to be available. And this hiring is obviously local in U.S. or U.K. or elsewhere, so we require some bit of upfront estimation-based hiring to continue to be able to participate in such opportunities.

[Operator]

[Operator Instructions] The next question is from the line of Madhu Babu from Centrum Broking.

[Madhu Babu, Research Analyst]

On the attrition, can you elaborate a bit more on why the offshore attrition has been so high?

[Rohitash Gupta, Chief Financial Officer]

As for -- as I mentioned in my prepared remarks, the topmost reason is actually the churn in offshore business. So as I was referring to Pankaj's question, our offshore revenue has remained flat quarter-on-quarter if we just take that horizon for a moment. However, under the hood, lot of new things have come and lot of old things have gone away, right? So there's a change in business and some bit of churn. And the additions and drop-offs not necessarily match in terms of skill areas or locations or things like that, right? So that churn, continuous churn, is causing attrition to be at elevated levels. And secondly, I think, in certain skill pockets, there is a good demand, still, in external markets, which I think is also a contributor.

[Madhu Babu, Research Analyst]

Okay. And second, on the on-site delivery, 520 employees, so how do we see that headcount moving in the next 1.5, 2 years in terms of the headcount and hiring there?

[Rohitash Gupta, Chief Financial Officer]

So, Madhu, we don't prepare very long-term plans on that. But as I indicated in the previous comment, I think you can anticipate similar trend in future, at least for next 12 months. However, as I mentioned, we also expect revenues to increase at the back of people or resources that we already got on board very soon.

[Operator]

The next question is from the line of Devanshu Bansal from Emkay Global.

[Devanshu Bansal, Research Analyst]

So my question is again on the on-site headcount. So we have seen increase in on-site headcount by nearly 70 people. So is it in anticipation of increasing pipeline? Or is it that we have won certain contracts, on-site contracts, which are due for ramp-ups? And so your comments on that.

[Priyadarshan D. Mundhra, Co]

This is PD. So just to respond to that, I think if you're referring to headcount onshore for delivery, yes, we've seen relatively strong demand for onshore services. And in most of those areas, we sort of need to hire a little bit ahead of where we expect to deploy those resources because, typically, some degree of training is also required before those resources can become available. So you are right, most increase in headcount, some would be for projects that have already gone live and others would be for engagement that we expect to go live in the forthcoming weeks.

[Devanshu Bansal, Research Analyst]

Okay, right. So can you quantify the -- in terms of improvement in pipeline, in on-site pipeline?

[Priyadarshan D. Mundhra, Co]

I think we disclosed in our quarterly metrics the percentage of revenue that's coming from onshore delivery. And if you look at that number, it's somewhere around 22%, 23% of revenue currently that comes from onshore. If I look at our outstanding pipeline today, probably, the mix of onshore projects is a little higher than that. So that number may move a little bit north of 23%, but shouldn't change very dramatically in the near future.

[Operator]

[Operator Instructions] The next question is from the line of Vishal Desai from Axis Capital.

[Vishal Desai, Assistant Vice President of IT Services]

Just in terms of the demand environment from the commentary that Rohitash gave, it seems like roll-offs are easing off and it seems that overall pipeline as well as the wins are shaping up well. Could you give us some color in terms of going into the next 6 months how we are seeing growth pan out? Do see an acceleration from here? Because, typically, what we heard from you guys over the last few quarters has been that visibility beyond, probably, 2 quarters is difficult to predict. So something from 6-month perspective as to how demand is shaping up would be better in terms of commentary.

[Priyadarshan D. Mundhra, Co]

This is PD again. I confess that it's hard for us to give a longer-term outlook on demand because things change very quickly. And again, on the small size of our P&L, single event can have material impacts in terms of affecting net growth outcomes. With that said, I think, as Rohitash said, we've seen an increase in gross sales of between 15% and 20% this year compared to prior years, which is a healthy sign for us because it shows what we're pitching is still relevant to clients. And I think roll-offs have eased a little bit compared to what we were last year. So, qualitatively, it seems to us that net growth outcomes should improve over calendar 2019, but I can't put a number to it because I -- still, we don't have that degree of visibility.

[Vishal Desai, Assistant Vice President of IT Services]

Sure. And in terms of the verticals, what we typically call out in terms of our segments, which do you think would probably continue to do better or could be under pressure going forward?

[Priyadarshan D. Mundhra, Co]

Actually, I think we are seeing net growth across the 3 businesses. Again, on a quarter-on-quarter basis, one business might do better than the other. But on a Y-o-Y basis, I think all 3 businesses have grown compared to last year.

[Vishal Desai, Assistant Vice President of IT Services]

Sure, so fair enough to say that the net new wins, which we -- new sales, which is up around 20% on a 9-month basis, it's fairly balanced across the 3 businesses, is if I'm going for that from what you're saying?

[Priyadarshan D. Mundhra, Co]

That's correct, that's correct.

[Operator]

The next question is from the line of Suryanarayanan M. from DSP BlackRock.

[M. Suryanarayanan, VP, Fund Manager & Analyst]

So I just had one question on that same aspect of roll-offs versus deal wins. So if you look at that map of 20% increase in new deals and a similar decrease in roll-offs, one, should I really be looking at a growth of around 10%? But I am -- is that a timing issue? And how do you expect that to play out because -- how do you think about this? I think you've explained that, but could you just explain that once again?

[Priyadarshan D. Mundhra, Co]

I think that you're right, there are 2 elements to it. There's, obviously, some degree of timing, but also importantly, I think, these numbers, the percentages you're putting, are all with respect to the prior year. And actually, in FY '18, we saw some de-growth over the course of the year in terms of top line, right? So when you say that we are going to add 10%, that 10% is from a base of whatever it was last year, minus 2%, 3% in revenue terms, right? So I think there's that angle to it because the base itself showed a de-growth last year was also higher than gross sales. This year, gross sales are definitely higher than roll-offs, so will show growth rate from this 10% magnitude.

[M. Suryanarayanan, VP, Fund Manager & Analyst]

Got that. And just in terms of your investment plans, be it in terms of onshore headcount, can you give us a sense of how much further this is likely to continue at? Just given the current sort of pipeline that you have or the current expected business that you have, at what pace would you have to continue these investments going into the next year?

[Rohitash Gupta, Chief Financial Officer]

Surya, this is Rohitash. So we are in the middle of our budgeting cycle for the next year, but based on the early discussions and plans, I think the further investment from this level will happen in FY '20 in certain small package, if I will. So for example, in Fayetteville, we don't add hundreds of people upfront. We add in certain small-sized lots, and as they become billable, then we take the bet on the next lot of hiring and training, right? And I think same approach is in the digital consulting also. So while we have plan of adding certain number of people in FY '20, which is getting firmed up, I think the hiring will actually happen in small chunks. And as we see the first chunk of resources getting billed, we will start hiring for the second, and so on and so forth. So if the plan goes successfully, then it will be a straight line. If the plan sees some delays then, obviously, there will be less investments during the FY '20 compared to our plan.

[M. Suryanarayanan, VP, Fund Manager & Analyst]

Got that. And just related to that, so since you were speaking about revenues coming from other geographies as well, you mentioned Scandinavia, some deal wins, Hong Kong, certain other places in Europe. So would that mean that you will have to set up your nearshore or offshore -- onshore delivery centers in those locations as well as the business scales up?

[Rohitash Gupta, Chief Financial Officer]

Yes, so that may be a consideration for FY '20. At this time, it is too early because the revenue quantums from some of these geographies that I mentioned are not significant enough to justify for that. Plus, we also expect that some geography has to have multiple clients to justify our investment in nearshore or onshore delivery or setting up a subsidiary. So early days, but you are right. But if things go well in certain geographies then, in FY '20, that might be a consideration. Obviously, we will start very small because it will primarily be led by consulting type of engagements to start with. Unlike our Fayetteville, which was a U.S.-specific approach.

[Operator]

The next question is from the line of Sarvesh Gupta from Maximum Capital.

[Sarvesh Gupta]

I had 2 questions. One, if you see the trajectory of the margins, even if I exclude the one-offs, it looks like a pretty low number. So can we assume that this is the bottom of what we -- what our margin trend is going to look like in the coming 4 to 6 quarters?

[Rohitash Gupta, Chief Financial Officer]

So, Sarvesh, only from one-off standpoint, as I was mentioning in the previous question, this looks like a bolt-on. But in that answer, I'm not including or excluding any business-related factors or currency. So if you add currency, then, obviously, it will go up from here, bleed into next year. If you remove one-offs, it should go up. So the only relatively uncertain element is how much of offshore growth will happen from hereon in absolute terms and how much of onshore delivery investments that we have made in last 3 to 6 months will get monetized in next 3 to 6 months.

[Sarvesh Gupta]

Correct. So given they are trying to stand right now, I mean, what can be the guidance for the margins? So excluding one-off, we are at 17% now, so where can we be in the next 4 to 6 quarters as things stand now? Of course, it is subject to change, this is the business dynamics.

[Rohitash Gupta, Chief Financial Officer]

Yes, so difficult to give our guidance on either percentage or the absolute number. But as I indicated in the previous question, if on the business side the offshore growth happens, then I think FY '20, even in percentage terms, should be slightly upwards of -- compared to the YTD of FY '19. That is predicated mainly on the currency, which is almost certainty in terms of hedge rates, and the removal of one-offs and subject to some further recovery in the offshore trajectory of revenue.

[Sarvesh Gupta]

Understood. The second question is regarding this ESOP. So what is the mandate and how much more can we loan to them? Is there a limit we have put to the amount of loan that we will be giving to them?

[Priyadarshan D. Mundhra, Co]

Yes. So this is PD. The loan limit, as it stands currently, is INR 150 crores. The mandate to the trust is basically to acquire shares in a staggered manner from the market so that whenever employees exercise options, the exercise can be settled using shares in the inventory of the trust without the company having to issue new shares, so that's the basis of it. The trust was set up in 2016 and has been buying stock since then and currently holds just over 800,000 shares, cumulatively, and will be eligible to fulfill exercise on that occurring after April 2019. The trust, the loan limit is INR 150 crores. Current holding of the trust is about just over 800,000 shares.

[Sarvesh Gupta]

Yes, but given that this is already like 10% of the network, is there a chance that this can increase further to maybe -- will you be interested to increase it further or -- because 10% is -- looks like a substantial number.

[Priyadarshan D. Mundhra, Co]

So, basically, given the rate at which we grant options, at about 800,000 to 900,000 shares, that is more than enough to meet 3 to 4 rounds of grants. So on a rolling basis, I would not expect that the loan amount goes beyond what we currently mentioned as the limit, INR 150 crores. But from here onwards I would expect that what happens is employees exercise, the trust settles again that exercise. Repeat the exercise consideration from the employee and that capital then can be recycled into future purchases. The company's exposure to this trust from whatever, just like we would project, should not need to exceed this INR 150 crores.

[Sarvesh Gupta]

Understood. And, finally, on your capital allocation, so given that we have 75% of our net worth in cash, so is there plan to continue giving back to the shareholders in the form of dividends and buyback, as we have seen in the past 1 or 2 years?

[Rohitash Gupta, Chief Financial Officer]

Yes.

[Operator]

[Operator Instructions] The next question is from the line of Ruchi Burde from Bank of Baroda Capital Markets.

[Ruchi Burde, Research Analyst]

I have 2 questions. First, on Rohitash, the comment regarding the billing rate increase. Could you talk us through where are we in the cycle for pushing billing rate increase? Is it just a start of the conversation or we already have some committed contracts where this will be implemented? If you were just to quantify a ballpark number as a percentage of portfolio, how much would be that? Would be appreciated.

[Rohitash Gupta, Chief Financial Officer]

Ruchi, so I think it's all of those. So with some clients, it's just early discussion. With some clients, it has already materialized over last couple of quarters. And with some clients, we may have managed services contract, where such discussion is not warranted because it's based on per transaction or things like that. So I think it's a mix of all 3 things. But in terms of quantum, I think what will get shown in the financials as well as what may pass-through to the margin will depend on how many of such conversations actually convert and to what degree, right? So it's very hard for me to put a number, but we are seeing some early signs of both conversion as well as discussions.

[Ruchi Burde, Research Analyst]

That's good. Second question that I had was if I interpret your commentary, you sound very confident about particular growth in on-site demand. However, regarding your offshore demand, your comment comes with the qualification if that happens. So is it the offshore revenue growth, the disclaimer that you are conveying, is it more to do with you see more leakage from the existing offshore book? Or is it because the offshore contract in your pipeline are lower? How -- some light around this would be helpful.

[Rohitash Gupta, Chief Financial Officer]

So, Ruchi, there are 2 things. One, that offshore revenue has remained flat or, even on Y-o-Y basis, it may have actually slightly declined in absolute terms, right? Which clearly indicates that there is a roll-off pressure on the offshore business. And obviously, we are winning new deals, but ultimately, we are remaining or standing still in terms of offshore revenue. So as far as future is concerned, I think I already gave an indication, but it's a one-off kind of event as of now that we have won our largest offshore deal. So if that kind of conversion continues in future, then I think there is a good hope of offshore revenues growing in absolute sense from here. But if that event remains like a one-off and the roll-off pressure continues in foreseeable future, then I think that's the qualification I was referring to.

[Operator]

The next question is from the line of [ Gopinath Radhi ] an individual investor.

[Unknown Attendee]

Sir, I didn't understand this ESOP's concepts and the trust acquiring those shares. Will it continue irrespective of the employees remaining there year-on-year, they'll continuously -- the trust will continuously acquire the shares or how will it work? Can you just elaborate on that part?

[Rohitash Gupta, Chief Financial Officer]

Yes, so -- Gopi. So trust was set up in 2016, and 2019 April will be the first period when the vesting under the trust will happen, which means that last 3 years up until March 2019 was the accumulation period for trust, where -- when nothing was getting exercised from the pool that they have collected. From April 2019 onwards, there will be outflow also from that pool, right, as people exercise. And then, I think, there will be a net. We have to see how much is getting exercised and how much we have to replenish and how much we have to carry as a continuing pool for forward 3 years. Why 3 years? Because 3 years is the vesting period when we give the ESOP to a person now. Only after 3 years, it's vest. So, I think, after April, the further growth in the PT net accumulation will depend on how much gets exercised, that will also become an important input.

[Unknown Attendee]

Okay, okay, okay. Coming to this margin that we are expecting, we can't reach to a decision to reduce our margins going forward, like maybe, 3, 4 quarters back. And are we able to see at what level we'll be okay with the commitment? To what level of free margin that we'll be okay with? And where will you settle -- in terms of margins, where this business may sit, at what level, is there any visibility on that part?

[Priyadarshan D. Mundhra, Co]

Yes, this is PD. So I think it's hard to predict precisely, but if I draw your attention back to Rohitash's answer to a previous question. At least in terms of factors that we can see on a go-forward basis, currency seems to be more supported because our hedges from the second half of this calendar year are at much more attractive rates and certain one-off costs that we are seeing both this quarter and we'll see next quarter we'll receive by the time we come to the first quarter of the next financial year, so the April to June quarter. So all else being equal, we should see some improvement in margin from where we stand right now, but it's hard to put a number to that.

[Operator]

[Operator Instructions] As there are no further questions, I now hand the conference over to the management for their closing comments.

[Rohitash Gupta, Chief Financial Officer]

Thank you, everyone, for joining for this quarter's call. Look forward to talking to you next time. Thank you.

[Operator]

Thank you. Ladies and gentlemen, on behalf of eClerx Services Limited, that concludes this conference call for today. Thank you for joining us, and you may now disconnect your lines.