Firstsource Solutions Ltd

NSE:FSL

Earnings Call Transcript 2024-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to the Firstsource Solutions Limited Q1 FY '24 Conference Call. As a reminder, all parties will be in the listen-only note. And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Maheshwari. Thank you, and over to you, sir.

[Ankur Maheshwari, executive]

Welcome, everyone, and thank you for joining us for the quarter ended June 30, 2023 earnings call of Firstsource. On this call, we have Vipul Khanna, MD and CEO; and Dinesh Jain, CFO, to provide an overview on the company's performance, followed by Q&A. You'll note that the results, the fact sheet and the presentation have been in e-mails to you, and you can also view this on our website, www.firstsource.com. Before we begin this call, please note that some of the matters we will discuss on this call, including our business outlook, are forward-looking and as such, are subject to known and unknown risks. These uncertainties and risks are included, but not limited to what we have mentioned last prospectus, filed with SEBI and subsequent annual reports that are available on our website. That said, I now turn the call over to Mr. Vipul Khanna to begin the proceedings.

[Vipul Khanna, executive]

Thanks, Ankur. Hello, everyone. Welcome, and thank you for joining us today. I'm happy to state that the performance in our latest quarter was in line with the guidance. This quarter, our revenues were INR 15,292 million or $186 million, declining 1.6% year-on-year in constant currency. Operating margins improved by 375 basis points year-on-year to come in at 11.7%. The diluted EPS came in at INR 1.8 for the quarter. Our growth strategy, as outlined previously, is centered on 3 key vectors: one, reduced exposure to macro ciclicity and drive the next phase of growth by broadening our BSS offering and scale in new segments in health care, common media tech and utilities. Second, drive growth in our chosen verticals by building addressing capabilities by systematically adding new clients and by growing existing strategic accounts. And two, leveraging our digital tools and services to create more cost efficiency and build new digital power solutions, including harnessing rapid development in AI, especially generative AI. I'm very pleased with the progress that we are making want each of these. There are some quick updates. We made competitive strides growing our U.S. CMP and more utility standards over this past year and highlighted the FY '23 when in both these segments. These are all [indiscernible]. This is helping us to expand the share of utilities in [indiscernible] in our overall business mix. At the same time, we continue to carefully recalibrate our mortgage business into purchase financing, servicing and compliance operations while expanding into new products like reverse mortgages. For this quarter, mortgages was around 9% of revenue, down from 17% a year ago as we build other BFS segment. Our new client additions remain strong. In this quarter, we added 10 new clients with 4 in BFS, 5 in health care and one in CMT. We expect these new relationships to scale gradually over the next 12 to 15 months, depending on the process complexities. And lastly, our pipeline in digital and platforms, automation and analytics are the clients across industries continues to expand, especially in the areas of digital input, digital collections and our process automation. Over the last 6 to 9 months, generated AI or GI has commanded significant mind share. We believe this new technology will accelerate the digital agenda across our client ecosystem. We are actively working with our tech partners and our clients to corporate multiple use cases with this new tech. Currently, we have more than a dozen implementations in various stages from proof of concept, to pilot, to production across [indiscernible] others in-house use cases. Let me highlight a couple of use cases where we have leveraged GI and machine learning to develop efficient and cost effective solutions. In one of our large media clients, they needed to quickly scale native-speaking agents to support sales but weren't able to achieve the growth due to lack of talent supply. We solved this by implementing an ML-based machine translation solution over chat and e-mail, providing services across multiple languages from India. We've achieved over 98% accuracy in comprehensibility of the translated language, enabling customers at similar to that expected with native speakers but at a faster pace and obviously, at a much lower cost. In another instance, we help one of our new Edtech clients manage the inbound inquiries by implementing a [indiscernible] solution that identifies the customer's intent. Our solution powered by GI again, understand what the customer is looking for and put together a response that is comprehensive, accurate, timely and actionable. We have reduced the turnaround time from 2 weeks to 1 day, helping students of this client meet their admission and other travel heated time constant requirements on time. Then to share a positive update on our top line relationship. I'm pleased to inform that we have further cemented our relations with this risk client and have extended our contract to serve as the primary partner for another 10 years. This is a huge testament of the relationship we have built over the years and the value we provide to our clients. During the last 3 years, there have been certain strategic changes at our clients' end, including change in ownership. Business volumes have been volatile owing to both macro environment and the talent situation in U.K. as we all know, technology has significantly evolved over these year. To all these changes and [indiscernible], our performance and strategic intent has helped us strengthen this relationship. And the client continues to leverage us as their strategic partner for growth as well as change and efficiency. A core part of our thesis for this next leg of our journey is to enable our clients to offer cost-effective services from offshore locations. We are in the process of moving the considerable portion of our operation in the U.K. to various locations in India for this account. This is a big part of the 3% revenue headwind we had estimated at the start of the year. We now estimate the onshore to offshore impact to be 3.5% to 4%, including some movements in health care and BFS. As a part of this transition, we will now have complex and sophisticated processes from India. Overall, the underlying portfolio work remains the same, and there is potential for growth. Let me now provide some color on the operating environment. Among our major markets, the U.K. economy is experiencing a slowdown that has affected volumes across our core portfolio. In the U.S., however, the economy has been relatively resilient, Clients are taking their time to decide in large transformation deals. The positive theme all across is that engagement on cost optimization program remains strong across industries. Let's talk in detail about the key trends in our industry segment to give you a bit of color on our growth drivers.Let me start with DSS. Our BFS segment declined by 13.6% year-on-year, primarily due to the mortgage base effect. Sequentially, the revenues were down 1.5%. Overall, our mortgage business has now stabilized. We believe that the worst of volatility in this business is behind us and volumes have bottomed out, unless there is a significant shift in the macro environment from here. We continue to engage our market clients and strategic cost saving programs, and we had a very solid sales quarter, the latest quarter was a good third quarter. The origination volume is up slightly in the last 2 months. Our clients expect refi activity to pick up only after the fed reversal direction on interest rate movement. Home purchase volumes are steady to drive in new home project starts by homebuilders. Purchase demand for existing property [indiscernible] in the U.S. continues to be strong. However, the interest rate swap to higher mortgages is a roadblock for sellers. We continue to make solid progress on diversifying our portfolio. Here are some examples. In one case, we used our mortgage quality control as a lead offering to open a large bank in a target account list. In another case, we meaningfully expanded our relationship with a leading originator with extensive presence in the wholesale mortgages. Our overall outlook for mortgage for the year remained unchanged. In the collection segment, the macro indicators continue to suggest an increase in business activity in the near future. U.S. credit card delinquencies continue to rise and were at 2.43% versus 2.25% last quarter. CAGR of 2.9% versus 2.54% last quarter, the sixth consecutive quarterly increase post-COVID. And we are [indiscernible] in the latest earnings of the large banks. Normalizing for higher seasonality of Q4 of fiscal '23, we are seeing encouraging trends in this business. We maintain our assessment of gradual recovery in this business through the year, especially in H2. The early state collection segment will start to reflect this sooner than the legal collection, which you see an uptick from Q4 of this year or perhaps seen in Q1 of next year. We continue to make good progress in acquiring new clients and cross-selling into our existing portfolio. In this quarter, we added 4 new clients. Last year, I spoke about our intent to diversify BFS into other segments beyond cars and the mortgage industry. On such area we identified was expanding into auto finance segment. We are seeing green shoots of success and have added 2 new clients and expanded 3 existing auto plant clients in this quarter. On the U.K. BFS performance remained strong. However, the pace of growth is slower than last year due to a combination of lower volumes across the industry given the challenging economic environment and some movement from on to offshore, which I earlier allude to. We've added new lines of work across our key relationships, including expanding the collections, as I mentioned a minute ago. Also, the trend of increasing user that instead of calls, service offshore continues nicely. Overall, we are pursuing 7 new ramp opportunities within our existing client [indiscernible] for which we expect quick closer. There should be -- we should further augment our growth in H2. For BFS income rates, our outlook remains steady. We are making good progress in diversifying into newer segments. We already seen success in auto finance, and we are now focused on expanding our DUCX for the digital call center and some kinds of capability for the U.S. Bank segment. Healthcare. This segment remained steady. Year-on-year growth was flat in constant currency. As previously discussed, our provider business has been impacted by the public health emergency communicated by the U.S. government at the start of COVID. After nearly 40 months, the PSC was finally lifted in May ‘23. The headwinds from Medicaid auto enrollment reenrollment, et cetera, are now subsided, and we expect deal activity to pick up meaningfully.We expect growth in the business emerged from H2 of this fiscal, as [indiscernible] and help systems start dealing with the new reimbursement environment. Expanding offshore capabilities in the provider has been a key focus as we build adjacencies. We are pleased with the progress thus far. We've added 1 new client and on existing onshore client for offshore in this quarter. And while these will scale gradually, it will help us create strong referenceable case studies to help accelerate the auction growth with a [indiscernible]portfolio. In addition to this, our overall deal pipeline remains healthy, and we are witnessing an increase in business activity. Beyond the new offshore clients, we've added 2 new clients this quarter. In the FTP segment, we continue to witness a slower-than-expected scale-up of volumes in our recent does. These dealers stocked with the onshore to offshore moment in some of our processes are resulting in near-term softness in the state business. We strongly believe this is transitionary, and we are confident of getting growth back as we saw in early parts of last year and this year. Zoom out, our [ SPH ] growth thesis is based on landing and expanding top 10 health plan, expanding our digital intake offering and building [indiscernible]for the mid-market. We continue to make excellent progress in penetrating and growing top 10 Health plan. About 18 months ago, we talked about a digital intake win for the top 5 health plan in the U.S. We have since closed 3 additional engagements at this point and have a strong pipeline targeted to close for rest of the fiscal. The client rates as the strategic partner, and this account is now on track to become a top 5 account for the [indiscernible].This quarter, we added a top 20 health plan to our roster with a significant digital intake win. This deal should add meaningful revenues once fully ramped up. And more importantly, a strong execution will pave the way for expansion and other functions for this client. The pipeline for Digital intake is strong with core active opportunities in play with new and interesting clients. The progress on this strategy, the YTD wins and the pipeline give us the confidence for a strong growth for HTH in H2. Overall, for health care to reiterate, we are focused on reversing the revenue decline in provider and growing our share of wallet across top 10 health plans and [indiscernible], while strongly executing on the opportunity, the big intake opportunity. We are confident in achieving both these goals. Shifting to CMP. This segment saw 7% Y-o-Y growth in constant currency. This is not withstanding the onshore to offshore movement in our top client relationships. As I mentioned earlier, we have extended the contract with a top client for 10 years. This is a great validation of the working relationship between us for the last 22 years now. Considering the strategic priorities of our client, we are actively balancing the ability system across onshore and offshore to offer the most cost-effective solution [indiscernible]. Outside of the top line, our growth traction remains strong. In a short span of time, we have made solid progress in scaling our Edtech [indiscernible]. During COVID Edtech company has disrupted the way learning was consumed globally. We saw this as an opportunity to target these companies and help them build leaner or better learner experience yes. This is a white space opportunity. We are creating and delivering offerings that enable both traditional and new Edtech companies to focus on providing greater learner experience to improve both stickiness and learning efficiencies. We have designed journeys for end-to-end learning and have in payment tech solutions, including GI-based solutions to provide better access and experience. Our consultative approach has enabled us to enlarge analytic deals that are truly transformative and a referenceable case study for the largest PX go-to-market story. As we speak, we are finalizing the contract and commenced hiring for sophisticated operations for a strategic active client. We estimate this will add between $15 million to $18 million in annual revenue, and we expect to go live in Q3 and ramp up by Q4 of ‘24 later by Q1 of ‘25. Finally, I would like to comment briefly on the guidance for fiscal '21. We remain confident in our revenue growth guidance of 2% to 5% for fiscal '24 with an operating margin range of 11% to 12%. This revenue guidance continues to include a headwind of about 3% from last year's base effect in the market business and a headwind of 3.5% to 4% from the onshore offshore portfolio rebar. Let me now hand over the call to Dinesh to give an overview of the financial results.

[Dinesh Jain, executive]

Thank you, Vipul, and good morning, everyone. Here is quick snapshot for financial for the quarter gone by. Revenue for Q1 FY '24 came in at INR 15,292 million and $186 million. This implies an year-on-year growth of 3.9% in rupee term and a decline of 1.6% in constant currency terms. On the margin front, operating margin came in at INR 1,789 million or 11.7%, which is up 52.8% year-on-year. Profit after tax came in at INR 1,260 million or 8.2% of the revenue for the quarter, which is up by 48.1% year-on-year. Vipul talked about the extension of the contract with the top client. It is a great outcome for our continued relationship with the client. With part of businesses moving offshore, we should start the margin expansion gradually as the transition completes. For this contract, we'll be making an investment of about GBP 50 million. Of this, GBP9.5 million will be gained in this financial year and balance will get paid in FY '25. The total contract acquisition costs will be amortized over the contract duration of 10 years. Some other financial highlights. DSO came in at 63 days versus 60 days last quarter. Net debt stands at INR 7,133 million as of June ‘23, versus INR 6,159 million as of March 31. Increase due to the higher working capital drawdown this quarter, this also led to the higher interest payout for this quarter. On the cash flow from operations in Q1 was lower due to annual bonus payouts, higher receivables and the first tranche of the payment for contract acquisition costs, which we paid in this quarter. We expect this to be normalized by next quarter. Our cash balance, including investments, stood at INR 2,207 million at the end of the quarter. Tax rate for the quarter was around 18.9%, which is within the guidance range of 18% to 20%. On the Forex front, we have coverage of GBP 59.9 million for the next 12 months with an average rate of INR 102 to the pound and coverage of $72.5 million with average rate of INR 24.1%. For the next 12 to 24 months, we have coverage of pound of $56.9 million with average rate of 106.7 to the pound and dollar coverage is around 2 million with average rate of INR 84. And for more than 24 months, we have coverage of INR 46.4 million with average rate of 111.6 to the pound. In addition, we also taken some of the option products to increase the battery realization on these days. Let me also introduce Pankaj Kapoor, who joined us as the Head of Strategy and Investor Relations this quarter. He comes with our 25-year experience across corporate and financial markets. Please join me in welcoming Tankers, and I know he's looking forward to getting to know all of you in the days ahead. This is all from my side. We'll now open up for the Q&A.

[Operator]

[Operator Instructions] We take the first question from the line of Mohit Jain from Anand Rathi.

[Mohit Jain, analyst]

First, good quarter overall. First question is related to the extension of the contract. So one was on the margin front now that this is moving offshore, how much impact or benefit do you think you should have -- while we do have cancellations or margins on overall in the context repayment that you are making? And a similar question, not related to numbers. How do you -- like because you've already spent a lot of time with the top client, how do you get to sort of sign such large deals, say, 10 years or something in the current environment?

[Vipul Khanna, executive]

So look, the Sky movement and as you said, there is an amount of payment that we are making as part of the investment in the deal. After amortizing for that over the deal done, starting from this year, this deal will be both will be margin accretive as well as EPS accretive. The movement -- so at the healthy margins getting added to the bottom line. How do we find such large deals? Obviously, look, the percentage of work we do for them is a big chunk. This is a long-term relationship that has been big private across the value chain and across product lines. It's a collection of 4 or 5 product lines that we cover. A lot of them are managed sort of reasonably independently while well there is governance at the top level. And to that extent, as they think of their long-term plans, right, they take a long view, right? So even this negotiation and the fact that we'll kind of do this offshore has taken us a while to kind of think about it. It didn't happen overnight. They tested for a few things gradually and we reached this point after several longest of working through the details. So the strategic outlook that we took best for the work that we do for them. I think that is what we've seen the runway and the confidence to take a long-term view of the deal. -- right? And given the fact that we've already got for 22 years, it gives the confidence that, hey, I can take a 7- to 10-year below. Even otherwise, right, the large strategic deals that we are signing, as I guess most of the industry, we are looking at a sort of a 5-year plus extension of outlook. So to that extent, for large state deals, I would say this isn't unusual.

[Mohit Jain, analyst]

Okay. And in terms of revenue, like we saw the slight drop in revenue in this quarter. So I'm assuming that is on it on the offshore shift that you spoke about. Now from going ahead standpoint, is that shift more or less then? Should we expect some more decline in any top client -- where is it like stable?

[Vipul Khanna, executive]

Sure. So your question on the revenue decline was overall or just for the top line –

[Mohit Jain, analyst]

for the topline side. Because overall, we'll come rating later. But on the top client side... Because you are also talking some shift towards offshore

[Vipul Khanna, executive]

Yes. So that journey has started in Q1. That's kind of a big reason why we've seen a decline. There was obviously some softness in volumes as well. As I mentioned, the U.K. volume to the U.K. economy is going through some softness. So both factors combined. However, I would also say that a big chunk of the onshore to offshore moment will come through in Q2 and Q3 and then kind of as per current plan then will stabilize. So we expect the top line revenue to decline over those 2 quarters on top of what we saw in Q1.

[Mohit Jain, analyst]

Right. And a related question is like if they're looking further decline, which I assume will impact the telecom vertical TMT vertical growth at the company level and your guidance suggests sequential growth from here on. BFSI, you spoke about some softness in U.K. So which vertical are we really positive on here to deliver a complete able growth of 2% to 3%.

[Vipul Khanna, executive]

Yes. Yes. So we do expect growth from this point onwards after baking in the decline that I talked about, we expect good growth from our CMP segment, other parts of CMP. I talked about the large deal in asset that we have signed. That will start to go live in October and slowly build up scheme for the rest of the year. will be a good growth driver given what we signed and what's under implementation as well as coming up to closer there. So these will be the 2 sort of relatively chunky growth drivers. And as I look at the other 3 businesses, collection, mortgage and provide the big businesses. All of them have had varying levels of headwinds and sort of volatility up till now. That headwind, I think, for most of them are pretty much gone now. In fact, some element of tailwinds, building up for collections, we'll see how those mortgage out. And then the big friction for providers, which was the PSC, et cetera, has gone. -- something we'll expect steady growth in all these 3 segments. So that's kind of the environment that we look at for us to kind of get confidence on sequential growth from this point onwards, leading up to the guidance that we get.

[Mohit Jain, analyst]

Right. And last is on margins. So we have done, say, guiding for -- I'm taking the upper in for convenience, say, we are close to 12% odd. Now as you mentioned, business is stabilizing, where do you think we can operate in a steady situation given that offshore shift is likely to increase for the company? Because historically, we have been in this range at the EBIT level for quite some time. So do you think there is a chance that your margin structurally may go slightly higher versus what we have done in the past?

[Vipul Khanna, executive]

So now we're keeping the 11% to 12% outlook. We have some, obviously, some investments also lined up, given GI and other things on the horizon that we need to kind of play away and can stay on top of -- as I've been saying historically that outlook remains unchanged, that once this year kind of gets to a steady state, we should start to see that 25, 30 bps improvement year-on-year. That still remains the medium-term goal. And I think at this point, even with this offshore shift, we'll continue to look at sort of rebalancing the portfolio, right? I've been talking about growing other near locations, Philippines, Mexico City, South Africa. That's our focus to continue to grow that portion of the portfolio. But for now, the margin outlook is this 11% to 12% and then from that point onwards, improving by 25, 30 bps per year.

[Mohit Jain, analyst]

As a follow-up, so the nearshore locations you count in onshore when you report the percentages or is it counted as offshore.

[Vipul Khanna, executive]

They're counted offshore.

[Operator]

[Operator Instructions] We'll take the next question from the line of Manik Taneja from Axis Capital.

[Manik Taneja, analyst]

I had a couple of questions. Question number one was with regards to the consolidation that we've seen amongst the mega customer care companies in the course of last 12 months. How do you think this impacts the landscape for midsized players like us? That's question number one. The second question was with regards to the significant offshore shift that almost the entire customer care industry which we've been talking about over the course of past now 12, 15 months, and we are seeing this change significantly. How should we be thinking about our margin outlook given the fact that we should also be benefiting from significant swing in terms of offshore delivery.

[Vipul Khanna, executive]

Sorry, Manik, your second part was CC landscape change in the last 12 to 15 months from what technology?

[Manik Taneja, analyst]

No. So the first question was with regards to the consolidation that one I see amongst the mega customer care company.

[Vipul Khanna, executive]

Yes. And what was the second part of that question?

[Manik Taneja, analyst]

And the second question was with regards to our margin outlook. Now we can -- the sense that we are giving essentially is that margin expansion should be far more gradual while from some of our bigger competition or bigger peers, we are seeing much more confidence in terms of margin improvement. So what's driving the status quo from [indiscernible]. Okay.

[Vipul Khanna, executive]

So the big center consolidation that we've seen or at least announced, -- it is interesting of these guys. So big volume industries, right, tech, retail, communications, energy government as well. And they run sort of global portfolio serving multiline. And I think that rate to kind of be bigger [indiscernible] all geographies, all languages, I think that seems to be the primary door. As opposed to that, our primary focus is more niche heavy domain-focused call centers, right, that it's health care, whether it's mortgage, whether now targeted parts of tech or affect the learner experience that we talked about. And even for our CMP client, we work with a few, but we work across more sophisticated sort of client acquisition, retention and those kind of things, it then the [indiscernible]. So I think we're talking slightly different markets there. Clearly, we don't operate at that level of scale or that level of multilingual capability. So to that extent, I don't think or worry about the impact from those big mergers. In fact, some of the conversations that we've had in the last few weeks with a couple of clients is that the larger clients, especially the mega client, the tech one, they kind of worry a little bit about the concentration risks such mergers kind of present to them. And to that extent, there might be some opportunity for them to expand their portfolio of suppliers so that they're not exposed to a few very large providers. So we'll see how that plays out from a concentration standpoint. On the margin, I think clearly, last year was an aberration, right? We had the massive revenue shock from mortgage and the collection is not kind of picking in that's normally do. This year, we come back to normal margin. Even with the move that we are talking about, right, with a large client in a couple of smaller times in health care and BFS, if you look at our onshore/offshore mix, it is still broadly 70-30, right? Our intent is to slowly and strategically move our clients as well as new deals with a heavy offshore build, right? That should help the margin. As this movement starts and it starts to reflect in our results, we'll give you better guidance on sort of how we see that. But please do keep in perspective, it is still a 70-30 onshore/offshore by what you might be comparing it has very different portfolio mixes. So within that reality, we do think we can eke out this 25, 30 days every year for now from the 11% to 12% guidance.

[Manik Taneja, analyst]

Sure. And just to told you further on the margin outlook. From a segment margin standpoint, we saw the big drop in terms of BFS margin through the quarter FY '23 and has been a recovery over the course of last couple of quarters. Should we see the segmental margins in [indiscernible] go back to the 17%, 18% level over the course of next [indiscernible].

[Vipul Khanna, executive]

I don't know where they'll go up, but we'll definitely continue to see improvement. Clearly, as our mortgage volumes had dropped, there was a significant impact on the margin given the scale. We made great progress in the last 2 quarters, and we've been confident that over the next 2 quarters, we'll continue to keep out sort of more margin from mortgage. I think collections is in a good run, especially the increase in share of digital. And our diversification in the banking is still relatively sort of young and nascent. Right now, is all about market share and landing accounts there, we kind of deal with sort of margins once we have the digital market. But overall, directionally, we should see a continued positive movement in the FSI margin.

[Manik Taneja, analyst]

Sure. And the last book keeping question was with regards to our health care business, you could provide a split of the HPS and the health care provider business both for FY '23 as well as Q1 FY ‘24.

[Vipul Khanna, executive]

So this quarter, we were at about 55-45, 5% HPFS, 45% provider. And for full year last year, we were let just call it off for a minute. Our full year number was kind of in the same ballpark, maybe sort of a percentage movement here or there for the full year as well as for this quarter.

[Operator]

We'll take the next question from the line of Dipesh from Emkay Global Financial Services.

[Dipesh Mehta, analyst]

A couple of questions. First about, I just want to get a sense about the new service offering, which we, I think, highlighting over the last few quarters. So progress made on those things. First about trust and safety standard offering, which is for content modes and which we are highlighting for the last couple of quarters? And second is Fin crime, financial crime operation. If you can provide some sense about overall market is how we plan to play in these things? And what kind of, let's say, 3-year, 5-year kind of time horizon scalability of some of these offerings? Second question is about the guidance asking it. If you can run towards what would be the asking security year based on 2 5, which we require for next 3 quarters? And last question is about the finance costs. Finance cost seems to have increased substantially quarter-on-quarter. So if you can give some sense, what led to that increase and whether it is here to sustain?

[Vipul Khanna, executive]

Dinesh, do you want to answer the question on why the finance cost is higher this quarter?

[Dinesh Jain, executive]

Yes. So because I think finance quarter 2 components. One is that normal on borrowing, the interest cost, which we pay and the second is on accounting on leases because as you have a facility, our interest cost and the depreciation gets split on the lease rental -- so this year, there is no material change in the finance cost purely on the borrowing. There is a borrowing increase, so there's a slight increase. Interest rates still remained between around 5-odd percent for our borrowings. So that's not significantly changed. I think larger component is as we are growing the offshore book, we have new centers coming into. And that place, when you do the capitalization of those centers, the interest component is higher in the initial few years and then it produce it. So I think that is the largest deal. But we see that next quarter onwards, it will be normalized, it will not be at that high level. Hope that answered your question.

[Dipesh Mehta, analyst]

Just on the number of centers where we report in India Center and those data, it is showing on reduction rather than one increase. So from 11%, now it is 10%.

[Dinesh Jain, executive]

Yes. So there is a reduction and there's increase. So the previous cold center, which was in the process of going out that as long. So net is the decrease, but overall, we have added 3 centers in this quarter.

[Vipul Khanna, executive]

On the new offerings, the base customer stats a big market. Market has come up in the last 5, 6 years, made a little bit longer. -- bearing estimated [indiscernible] of about $5 billion, up until, I would say, '21, middle of '22, is growing strongly north of 20-some percentage. Obviously, since the text slowed down in H2 of last calendar in this year, that growth rate has come down. But we still believe that the market is ready for maturity. It has been the first wave of offering, right, which was just pure content moderation. But now beyond the big platform company, we see the offtake of custom safety by various users and far more sophisticated and far more targeted use case usage of custom safety from privacy to ad integrity. And obviously, even governments starting to look at it from a different angle that they kind of look at it from a content standpoint. So we are still early in the game. We've come into a mature market, but we do think there is room that is going to bring in a partner driven or a tech-powered sort of solution there. We've had a couple of small but sort of symbolic wins -- and we have -- we are kind of still building up our pipeline of this market. So it's still very early, but it's a long game. And as you said, if you take a 4-, 5-year view, the threshold generally rule of thumb that we use is that if you're starting a new practice in 5 years, we should see like a $50 million sort of outlook for that business, right? That's for from an aspiration standpoint. But we're still early in this game. And this year is a year when the [indiscernible] market itself is kind of relatively flat as most tech companies have recalibrated their stuff. So I think this year will be a year when existing players will be aggressive, deal making will be more price driven. And we'll see sort of how much we want to play and how addressee want to pay out there. Fin-crime, starting with banks and then potentially going to more of the fintech-oriented payment products. That's the market which has grown really rapidly in the last 2 years. earlier from an AML KYC and now increasingly from an online payment and a fraud standpoint. Our name stay there today is an extension of our DCX offering, where from our government experience, we're getting into more broader and more specialized calls there. We've had great success in U.K. where we work with now 4 of the top banks. And that offering is what we are now as we kind of start to enter the U.S. banking market beyond mortgage and collections. This is one of the more mature offerings that we are taking up and building the pipeline and interest in that market. I don't have very good estimates from different areas. But from what I've seen, the estimate for this market also range from between $2 billion to $4 billion -- and there are a variety of ways in which customers are going from very heavy systems kind of offering, right? Plus offering to more scale or more operational offerings that we're trying to play from a call center, which is identifying solving and even servicing sort of those rate calls and then working our way backwards into the left side of the [indiscernible]. So that's on that. And then I already offered comments that tech that we take for the last 12, 18 months, we've had very good wins. And I think this large deal that we just announced kind of validates the thinking that we've had of entering this segment. And now we have a pretty healthy portfolio. Now some meaningful revenues as well to kind of play with and kind of take the next level of sort of GTM focus for this particular market. As far as rest of the year goes, we do expect sequential growth -- we expect that Q2 will be relatively modest growth given the impact of higher impact of the onshore to offshore. And from there on, the growth will accelerate into Q3 and Q4. That's how we currently model to kind of get to our guideline that we have.

[Dipesh Mehta, analyst]

Understood. Just one question about this tech deal. Now if I look non-topline exposure to CMT, it seems to be almost 1/3 of the revenue coming from the single client kind of thing once it starts getting ramp-up. So what is the mix in this on loans, I think if you can provide some sense at tech, obviously, whether it is fairly concentrated, it seems so far. But if you can give some color on which area we are and how we expect some of those segments to grow for us.

[Vipul Khanna, executive]

You're saying within CMT, what is the share of top line? And then what is the other low...

[Dipesh Mehta, analyst]

The top client is obviously we report or we can calculate for the remaining piece of the business, how it is divided.

[Vipul Khanna, executive]

The remaining CMP is do you have a growing I'm going to say about I don't want to say 1/3, more closer to 1/4 sort of U.S. portfolio that we have built up on that. This is without the effect the new growth that I talked about. Within that, there is a decent concentration of clients on the U.S. side obviously is the big one and a few small ones. EdTech, once it builds up by Q4, I think we'll be in a better position to kind of tell you in the overall CMB scheme of things where it will land. But I think we need to think a little bit about this before I give you the answer. I can give you more directional answers if you want to double take on any of that on the CMB side.

[Operator]

The next question is from the line of Shradha from Amsec.

[Shradha Agrawal, analyst]

A couple of questions. First is on the decline in the collection business that we saw. So can you quantify what was the extent of decline because we understand that Q4 is a seasonally strong quarter. From that base, what was the kind of decline that we saw in Q1?

[Vipul Khanna, executive]

Your voice skated off a little bit, I'll try to answer. Tell me if I don't. So collections, you know that Q4 is seasonally high quarter for tax. This fourth quarter was not as high seasonality as we saw in the past, but there was still an impact from seasonality Legal collection is still taking its time to build up. There isn't a decline, but legal collection from where it was in Q4 to Q1, it was relatively flat. However, early-stage collection barring the impact of seasonality, was solid, right? The new wins as well as the volume from big clients helped. So if I take out the seasonality impact, we're happy with sort of where the core or the early-stage collection band.

[Shradha Agrawal, analyst]

Would it be possible for you to quantify the revenue for both the quarters in collections for that Q4 and Q1?

[Vipul Khanna, executive]

We are starting to give more vertical level from this quarter or this year onwards, you're trying to kind of focus on BFS Healthcare and CMT and kind of give you a PAT level. But happy to give you more qualitative comments help.

[Shradha Agrawal, analyst]

Sure. And another thing is this extension of relationship with the top client for another 10 years. So does it come with any increase in commitment of annual budget from this account? And if yes, is it more because of the shifting from in-house to outsourcing? Or is it more as the result of share or wallet share gains from some other vendor that they have been working with.

[Vipul Khanna, executive]

Yes. So there obviously are a giant corporation in multiple businesses. At this stage, where we have started off is that there is no capacity reduction. It's the same capacity despite the movement that will run -- now obviously, it's a very dynamic portfolio across product lines and across the life cycle from acquisition to service to retention to even collections in some cases, right? So in that life cycle, number of variables keep changing. From a strategic direction of how they run the business, obviously, they're also into a cost-efficient environment. As we have moved, they have also done some retooling of their core portfolios themselves. At this stage, we continue to expect incremental growth opportunities as we've seen in the past 2 years, right? Some programs come in some kind of a volume drop off or as campaigns at over some volume go away. So we are fully on the table with them on every set of their annual as well as their quarter strategic plan. There is no thematic at this point to say it will go up or down, it will be constant and incremental growth opportunities will come as their priorities kind of change and they adapt it. That's where we'll kind of understood each other's sort of business requirements and we'll place it.

[Shradha Agrawal, analyst]

Okay. And sir, just last question. I know it's too early to call out the impact of Generative AI but a BPO company has called out that expect a 20% cannibalization impact over the next 3 years because of Gen AI. So how do we feel net-to-net Gen AI impact on our business.

[Vipul Khanna, executive]

Look, it's very topical. We don't spend a day these days without talking GI 5 times. And all of us are experimenting at home and all of us are experimenting in businesses like on-tap planning to how to make dishes to sort of how to respond to that. I think, firstly, it's very early. Market is still in the phase of testing of different things of taking the technology and bringing into the enterprise world. All of us are testing our pilots and those pilots give us a point of view to say, if I take 100 people to do this chat and then put GI, I could do this 80%. So yes, we could get to those pilot level sort of estimates of productivity or human either effectiveness or reduction. But to extrapolate it across the portfolio, I think that's the fallacy that we saw during the time of RPA launch as well like 7-8 years ago. Everybody thought, if you can get 30% in men process, you could get 30% across the entire operational state, but that never happened. So I'm very circumspect of giving that sort of estimate. But at this stage, everybody wants to experiment new specialized partners are emerging every day, where bringing [indiscernible] to an industry not as opposed to collections as opposed to health care, right, in the ring of the regulation requirements of is industrial. So right now, the focus is to test it out, see how it works and then see sort of how much material you can implement and how much of this goes out. Also, keep in mind, demand keeps changing as well, right? The GI are patterns that consumers will also change. So there is a demand side and there is a supply side effect in the Between the 2, I kind of hesitate to make the long-term prediction yet.

[Shradha Agrawal, analyst]

Got it. And just if I can squeeze in one last question. The health care segment, we reported a 4% decline. So is it more to do with the exposures? Or did we see some weakness even in the provider segment?

[Vipul Khanna, executive]

So wider was very seasonal. There were 1 or 2 programs which we will come to an end. So there were some decline from there. But thematically, as I said, providers seem set for sort of steady growth as market activities pick up and as more deals happen in pick up. HPS had more declines, again, partly some because of 1 or 2 accounts that were coming to the end of their implementation phase, especially the BPAS account that we had. And then there were some minor volumes sort of corrections in one of the accounts. But -- it was more where we expected growth to come in faster. It's kind of running behind from a deal project, that's kind of what's impacting it more. But they had more index to SATS than providers for this quarter

[Operator]

ladies and gentlemen, that was the last question. I would now like to turn hand the conference over to the management for closing comments. Over to you.

[Vipul Khanna, executive]

Great. Well, thank you, everyone, for your engagement, for your great questions and your continued support. We look forward to coming back and reporting to Q2 to you in 3 months' time. Thank you again, and have a great day ahead.

[Operator]

On behalf of Firstsource Solutions Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.