Firstsource Solutions Ltd

NSE:FSL

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, good day, and welcome to the Firstsource Solutions Limited Q2 FY '23 Earnings Conference Call. [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]

Thank you, Faizan. Welcome, everyone, and thank you for joining us for the quarter ended September 2022 earnings call for Firstsource. On this call, Vipul Khanna, MD and CEO; and Dinesh Jain, CFO, will provide an overview of the company's performance followed by Q&A. Do note that the results, factsheet and the presentation have been e-mailed to you and you can use this on our website, www.firstsource.com. Before we begin the 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 in our prospectus filed with SEBI and subsequent annual reports that are available on our website.

With that said, I now turn the call over to Mr. Vipul Khanna to begin the proceedings.

[Vipul Khanna, executive]

Thank you, Ankur. Good evening, everyone. Welcome, and thank you for joining us today. I hope you were able to find some quality time during Diwali festivities. Let us take a deep dive on how the quarter panned out. Revenue grew by 1.8% year-on-year in constant currency terms and came in at INR 14,882 million or $187 million. Organic revenue, excluding the impact of mortgage decline, grew by 12.8% year-on-year in constant currency terms. And operating margins were at 8.4%, and EPS degrew by 6.1% year-on-year and came in at INR 1.84.

Since we last spoke, the overall macro environment has further deteriorated. The pace of Fed action on interest rates have been much faster than we expected and continue to impact parts of our business adversely. Considering this movement, we are aligning our growth outlook to a range of minus 2% to 0% in constant currency for this quarter. The impact of these factors is also flowing through to the margins. Considering these headwinds netted against the benefits of our cost actions, we now expect operating margins to be in the range of 9% to 9.5% for fiscal '23. The guidance adjustment is primarily due to additional pressure on our mortgage business, the unique situation in the collections market, and some deal delays in our health care business. We will discuss the rationale for this change of guidance as we walk through the industry segment.

This isn't the outcome we had anticipated when we started the year. But given parts of our portfolio highly correlated to the macro environment, the near-term outlook for our business has been significantly impacted. Notwithstanding, we strongly believe that these headwinds to our business are transitory, and it's important to take a step back and put the current concerns of the business in a longer-term perspective. First, I continue to believe that the business momentum has been strong and will continue to remain so in the medium to long term. This is validated by the 12% to 15% growth we expect this year, excluding mortgage and impact from last year's acquisition. Second, as the revenue has come under pressure, prudent cost management is critical. We are sharply focused on achieving an efficient operating model. The actions taken are yielding results, and we expect to achieve our normalized operating margin by Q4 of this year.

Third, our strategy remains focused on investing in our core and adjacent industry segments to deliver consistent growth and build a more balanced portfolio. I'll expand on the strategy a little bit at the close of my remarks. Talking about industry outlook. Our BFS vertical degrew 7.7% year-on-year and 10.2% in constant currency terms.

The mortgage industry's outlook continues to worsen given the aggressive interest rate stance by the Fed to counter inflation, the sharp downward movement in home sales and the collapse of refinance market. Rates are at 20-year highs of 7%, resulting in year-on-year declines of 86% in refi volumes and 42% in purchase volumes. This will result in degrowth of approximately 55% in our mortgage business in this fiscal, implying headwinds of almost 50% of our overall business. Based on discussions with our clients and the assessment of the market outlook, we were expecting this business to bottom out by Q3 of this year. However, taking the increased headwinds into account, we believe the bottom will now shift by a quarter or 2.

Amidst all the gloom, we see several systemic upsides in this business. Housing demand is still structurally strong. Total home sales outlook for the medium term, while off from their 2021 peak, is likely to be about 10% higher from '24 onwards compared to the 2011 to 2020 annual average. Home prices are correcting. Some markets have witnessed as much as 10% to 12% correction from the recent highs. Market participants are experiencing significant margin pressures. While our clients are reacting to the situation by aggressively reducing capacity and headcount, we are simultaneously realigning their operating structures and evaluating transformational cost solutions, either by themselves or with partners like us.

We continue to believe this will be a strong growth driver once origination volumes improve from the current lows. Within our portfolio, we see the following opportunities. We continue to maintain our market leadership [indiscernible] we've added 12 new clients, and we have a strong diversified pipeline. While volumes are low in this current market environment, we are well positioned to take advantage of the upside once the current market activity stabilizes. As a testament to our market leadership, NelsonHall also rated us as a leader in their Neat Mortgage and Loan Services 2022 report for the overall market. While the StoneHill Group acquisition has also been impacted by the adverse market condition and will miss its earnout target, the quality control and Due Diligence Services segment is starting to find its footing with the increase in capital market transactions in the industry. We're building an aggressive go-to-market push into mid-market for these services.

To summarize, the purchase finance market is soft and the refi market is down to a trickle. Our servicing business has held up reasonably well. And then as and when the mortgage market stabilize, we are positioned well to capture the volume and the wallet spend. Let me shift to Collections. Historically, our Collections business has been a strong hedge against the down cycle in the mortgage industry. This time, however, we are going through a unique economic phase. Delinquencies are rising at a slower pace despite the rapidly rising interest rate environment. We believe this is primarily due to still very low unemployment rates and the strongest household balance sheet U.S. has seen in the last 40 years. However, it's a question of when, not if. For several reasons, delinquencies are expected to rise over the coming quarters. Total outstanding credit card revolving debt, which is more prevalent to our Collections business, take a high of $1.15 trillion, up 18% from a year ago. Delinquencies are still lower than historical expectation [indiscernible]. The Fed recorded the most recent quarter at 1.81% versus the prior quarter of 1.66%. Average U.S. credit card interest rates are inching close to 19%, the highest on record since 1996. These rates are expected to continue to rise. The nature of our client conversations are increasingly around capacity augmentation. Incidentally, the top 5 U.S. banks increased their credit loss provisions by 35% to 80% quarter-on-quarter in the September '22 quarter.

So while we wait for the volume pick-up, what have we been doing? We continue to diversify our business consciously and actively beyond the big card issuers. Our Digital Collection platform is the primary go-to-market vertical to expand into Fintech and utilities. And the more we do, the better we become. We are now able to onboard a new client every 6 to 8 weeks versus 12 to 14 weeks earlier. We had a strong quarter, adding 9 new clients. We are excited to announce that we now work with top 3 [indiscernible].

The strong portfolio of early, late state and Legal Collections underpinned by the market-leading Digital Collections platform and a strong win momentum this year, all position us strongly to harness the likely volume growth in this market over the coming quarters. And as a reminder, our Legal Collections business acquired last year runs a multiyear recovery cycle in [indiscernible]. The impact of lower placement volumes in calendar '21 and '22 will have a lag impact on the future revenue growth of this segment. Notwithstanding, it's a strategic addition to our offerings. It extends our target market, and we are pleased with the cross-sell win thus far.

Shifting to the U.K. BFS segment. The growth story in this segment continued with a growth of 11.9% year-on-year and a pipeline that continues to grow across broad mortgage and customer experience. The demand environment, pipeline activity and digital adoption remain strong despite the political uncertainty and tough economic conditions. Despite high inflation and [indiscernible], unemployment rates remain stubbornly low, in fact, near 50-year lows. This is possibly the toughest stable market we have witnessed in the U.K., putting pressure on fulfillment. Our investment in sales and solutioning made over the last 12 to 18 months are yielding encouraging results. We continue to expand our existing relationships and add new clients. Currently, we are finalizing operational strategy and capacity planning for the next year with our clients. I want to highlight 2 notable wins this quarter, both illustrate diversification and expansion of our client base. One, we are helping an international payment Fintech to automate their lead generation, third-party recovery, KYC, payment screening and sanction screening processes. And two, we were selected by a specialist new brand neobank, Shawbrook as their operations partner to deliver best-in-class customer experience through our digital first solution and people-centric approach. We are pleased to make meaningful windows into the increasingly important U.K. Digital Banking segment.

Our Healthcare segment continues to grow consistently at 21.2% year-on-year and 12.9% in constant currency. As some lingering weakness in the provider business, have been more than offset by the strength in [indiscernible]. The key themes permeating through the U.S. health care ecosystem currently are a holistic consumer-centric orientation [indiscernible] analytics and integrated digital technologies, integration of virtual tech-enabled [indiscernible] and traditional service offerings, reimbursement incentives for providers to use this innovation for managing health quality and cost risks and fourth, strong partner and vendor relationships have increased residents. Investment in these segments by health plans and providers will continue to fuel the spend in the areas we operate. Our strategy to focus on top 10 head plans, growing our digital intake business and creating bespoke BPaaS solutions for mid-market health plans continues to yield good results. We have seen the trend of strategic vendor consolidation from the larger health fund. These are large deals. And after [indiscernible] ranking as a leader in payer operations segment, we are now often a part of [indiscernible].

This quarter, we were awarded a meaningful back-office deal with 1 of the top 10 health plans. We won this against top 3 competitors in the industry on the strength of our solution and our credibility to execute sophisticated transformation. This give-and-take business is seeing good traction, our investments in modernizing the platform and building the right AI and digital partnerships have allowed us to build a healthy pipeline in this segment. The recent health care payer digital services, [indiscernible], a leading advisory and consulting firm, upgraded Firstsource from disruptor to innovative, a step away from leadership on their scale. There have been some deal closure delays, especially on larger opportunities, which we had to factor in the guidance for the rest of the year. The provider segment continues to struggle as the industry deals with the residual impact of COVID. The public health emergency has been further extended until the middle of January, again [indiscernible] normalization. And more importantly, hospitals are grappling with significant hikes in medical care costs, extending the buying cycles in our team and other administrative services [indiscernible]. Longer term, it should lead to more outsourcing and globalization.

On the positive side, as [indiscernible] to come to an end, we expect strong demand emerging from Medicaid redetermination services. We are currently building a digital solution to capitalize on the demand in the next few quarters and have signed up first couple [indiscernible]. Our CMT business continues to grow strongly. This quarter, we grew 7.4% year-on-year and 14.2% in constant currency. We continue to witness steady growth from our top line across the products and service lines and expect to keep ramping up for this demand. We are focused on building our U.S. comms business, and I'm pleased with the progress thus far. I expect reasonable growth in this segment next year from our investments.

There is increased interest for off-shoring amongst our clients given the talent situation in onshore market. All our offshore locations, India, Philippines and Mexico are growing segments. Additionally, we've been incubating digital media and [indiscernible] segment for the past few quarters. We have secured meaningful market runs in both these segments. We expect our DECC and intelligent back office offerings will help drive healthy growth in this segment, primarily from secular changes in consumer preference for consuming media and higher education. Also, difficult economic times to provide tailwinds for change in these sectors.

Again, it's been hard to forecast in this environment, given our business mix, and I'm genuinely disappointed to revise the growth and earnings guidance down again. I'll reiterate this is a year in transition. If you zoom out and click on our strategy for a moment, we consciously chose to grow and pursue market leadership in Mortgage and Collections as the 2 end of think of like a barbell naturally hedged against each other. And notwithstanding the current market impact, we have achieved market leadership in both segments. In addition to the investment and resulting market success in HPSS over the past 3 years, we are now adding a portfolio of adjacent less cyclical businesses to supplement mortgage and collection and to drive the next phase of our growth. One, we are moving into other consumer lending products and broader retail and SME banking, leveraging our mortgage Collections and U.K. BFS expertise. Sameer Ahluwalia joined us recently to lead their efforts into adjacent BFS segment. He's a renowned financial services executive with deep experience in building and scaling BPO businesses across all BFS segment growth. Two, we're targeting select additional CMP segments, as I mentioned, the digital media assets and part of it. And three, we are diversifying Collections into Fintech utilities and communications through our digital collection platform. You've all seen the BPS market continues to operate in a strong demand environment driven by the twin client teams of cost efficiency and digital. With these adjacent expansions, we intend to participate more broadly in this market environment.

Now let me hand over the call to Dinesh to cover details of our financials.

[Dinesh Jain, executive]

Thanks, Vipul. Let me just walk you through some of the financial highlights. Revenue for the Q2 came in at INR 14,882 million or $187 million. This implies a year-on-year growth of 4.2% in rupee terms and 1.8% in constant currency terms. On the margin front, operating margin came in at INR 1,254 million or 8.4% of the revenue for the quarter. It's implying a year-on-year margin decline of 411 basis points. As we mentioned earlier, we have been driving several tracks across the organization on direct cost, operations costs, support cost as well as on physical and tech infra alignment to help expand the margins.

Profit after tax came in at INR 1,294 million or 8.7% of the revenue for the Q2 FY '23, a year-on-year margin decline of 76 basis points. In this quarter, we have a gain of INR 578.6 million in other income relating to the fair value of the liability for the variable consideration linked to the revenue performance on estimation done in FY '22. These liabilities are expected to be settled in Q3, Q4 of FY '23. And this equipment, which is the other income is in line with the technical requirement of Ind AS 103 and also ICI guidance notes.

During the Q2 FY '23, we have generated INR 2,128 million on cash from operations, and our free cash flow was INR 2,028 million after adjusting for CapEx of INR 100 million. Closing cash balance as of September 30 was approximately INR 2,472 million. DSO came in at 56 days versus the 59 days last quarter. Net debt as of September 30, '22 stand at INR 655 million or $74.4 million in compared to INR 7,333 million or $92.9 million as of June, a reduction of INR 1,278 million. Tax rate for the Q1 was around 17.4%. For FY '23, we expected it should be within the range of 17% to 19% for the year. On the FX hedging, we have coverage of GBP 30.7 million for the next 12 months with an average rate of INR 104.7 per pound and coverage of USD 75 million with an average rate of 81.7 per dollar. Considering the current market scenario, we are also exploring some of the long-term hedges on some of the client contracts which we have.

With this, I open up for the questions.

[Operator]

[Operator Instructions]

The first question is from the line of Manik Taneja from JM Financial.

[Manik Taneja, analyst]

I had a couple. The first 1 was a bookkeeping question. If you could help us understand what was the contribution of mortgage revenues in the current quarter? And the second question was basically just wanted to get your thoughts as to the fact that while we are seeing some of that global competition, global peers continue with the beat and raise phenomena. Why are we struggling on a related basis? And if it is a portfolio issue, does this underperformance continue into the next year as well, given there are concerns about macro recession and both are getting to economic environment?

[Vipul Khanna, executive]

Manik, thank you. So mortgage this quarter was about something between $24 million to $25 million. So that's kind of the mortgage number, about 13% of the overall business. On the other question of relative to market, I mean, obviously, as I said, we expect this year, excluding mortgage and excluding impact of acquisitions, purely organic, excluding mortgage, we expect growth of 12% to 15% this year. As far as next year is concerned, look, structurally, we expect headwinds should kind of ease out, right, especially what we've seen in mortgage. The portfolio will be reduced significantly as we go into next year. Collection should be in a different place than what has been this year. And all the growth investments in the different areas that should start to line up. So I think that's kind of my commentary in terms of next year. But I do believe that we see kind of negate out the impact of mortgage decline this year, we've had good healthy growth of 12% to 15%.

[Manik Taneja, analyst]

Sorry to draw you a little bit further on this, Vipul, even on this growth that you're talking about ex mortgage and extent of acquisitions, this number has been scaled out over the course of last 6 months. So that essentially tends to raise questions around the level of confidence in terms of the growth because when we guided at the end of FY '22, we were looking for a certain amount of growth. This number was pulled down after the first quarter and has been pulled down further after second quarter. So in that context, given next year, one is worried about the macro, should we expect this part of the business to be start growing at a slower pace next year?

[Vipul Khanna, executive]

So Manik, it's a fair question. They've had to bring down the guidance for non-mortgage as well. I had mentioned something [indiscernible]. But clearly, if you look at non-mortgage, we expected higher growth from Collections this year given how traditionally when economic cycles turn, what happens to Collections. But this time is unique, right? We have the balance sheet, the average cash balance with people is much healthier than what we've historically seen in the last whatever ex recession cycle coming in. And that's got everybody by surprise, including our clients in terms of how protracted the delinquencies and its impact on collection volumes has been. So that's been one big reason.

Second, just practically between last and this quarter was impacted that business is that we've had some delays in deal closures in HPSS, which has made us kind of adjust the forecast down for health care, still very healthy growth, but some adjusted the top end of that growth. And then third, given the base of U.K. labor market and given the kind of work we do there, which is mostly offshore contact centers, it has put pressure on this fulfillment and extended some of the ramp timing. So those 3 factors from last quarter to this quarter has kind of made us pin down the forecast for rest of the business. You're right. There will be some element of uncertainty going into next year. So it's hard for me to kind of play out at this point in time, how exactly how next year will play out and its impact on financial services and potentially the recovery cycle and providers. But in general, I feel much better about next year compared to where we have been this one.

[Manik Taneja, analyst]

Sorry to bother you further on this. So is there a difference in terms of the portfolio mix for us compared to some of our global [indiscernible]?

[Vipul Khanna, executive]

Sure, right. I mean you know that our mix has been something around 45% banking, of which big chunk has been mortgage U.S. market as well as the Collections market and the U.K. BFS market. We obviously do not participate in some of the other sectors in the economy which have been growing, which is travel and hospitality, manufacturing and logistics, utilities and set of things like insurance side. We don't participate in those markets. We put into these segments in BFS and then we play in health care, which our business has grown very well, I think, better than the market. Providers, which not a whole lot of mainstream [indiscernible] where we have a unique niche. I think that's been subdued from the COVID. So that's been a little bit of a limit of dampness. And then finally, CMT is something which decides comp, something we are building up, tech has been a growth driver for many of the players in the market. That's been our focus to grow. We've seen a slow base. But slowly and steadily, we're kind of making inroads into that. So kind of that how we kind of look at the different sectors of the market us versus where the mainstream players are going into.

[Operator]

[Operator Instructions]. The next question is from the line of Dipesh from Emkay Global.

[Dipesh Mehta, analyst]

A couple of questions. First, just trying to understand the health care business, I think, payer, you indicated about some deal closer velocities softness. So can you provide some more detail what is playing out in the market? And what drives slow deal closer? And how you expect it to change? Second thing on the provider side, business remains soft for us for some time. How do you expect it to evolve over next few quarters, considering some of your peers are indicating healthy growth, and I think they are delivering for last couple of quarters. Second question is about client addition. If I look, our client addition is very robust over the last few quarters, but it is not getting translated into revenue performance. Can you help us understand quality of client, which we added maybe in the last 2 years outside of mortgage business? How the ramp-up is happening in those clients in terms of pace of growth because we don't sell more than 1 million, 2 million, 5 million kind of different buckets. So if you can help us understand some qualitative sense about how the progression is happening. And last question is about tech business, if you can provide some sense how the progress is happening?

[Vipul Khanna, executive]

Dipesh, thank you for the questions. I'll try to answer, and if I forget some components, please come back. So health care deal velocity, I think, as I mentioned, very consciously when we reinvigorated this business a couple of years ago. We said we'll target the top 10 health plans, very competitive space. They are mature buyers, they're into their third, fourth generation of contracts [indiscernible] in some cases and additional areas that we're looking to outsource. I think we've made very strong progress. We've entered those accounts in 8 of the 10 now we have entry -- what we are seeing is that as they get into more strategic RFPs, more contract renewals, obviously, they run pretty resilient exercises, pretty adopted exercises for RFPs and stuff like that. And the fact that we are now into them, and we are on the panel, we are now participating in those. So these exercises tend to be long. They start with the time line, right, multiple things come in and they kind of extend the time line. It's not structural, it's not unusual. What we have -- what we had forecasted for growth, especially in sort of Q3, Q4 from some of those, that's kind of slowed down for us from a time line to what we expected to where they are and that's kind of pushed out some of the growth for next year. Q2 was strong. We expect some moderation for that in Q3 and then come back in with a reasonable amount of growth in Q4. So again, nothing structural. It's just the timing of the deals on how we had forecasted in our pipeline and how it's playing out in the market. The good news is that we are now participating in top 10 health plans. The good news is the digital intake market is looking strong. This will make sense to have a little bit of a longish implementation cycle. If it's complicated, it's kind of critical for the client. So I think that's what it's kind of getting [indiscernible] because we play in a certain niche of eligibility services and receivables management. It's 100% onshore business, very profitable. We are the market leaders. But this is exactly the segment which has been impacted by public health emergency, where the government has kind of through the public health emergency put automatic re-enrollment right, for people, as a measure of saying, hey, regardless of what economic segment and coverage you have, you are now eligible for this program. But that goes away, normal volumes will return in that business. Hardly play out. I think we had 2 or 3 strong quarters of wins. The implementations are in progress for that.

As we go into the future, as I mentioned in the past, last couple of quarters, we've been expanding the scope of our offerings and going mix cycle in the RCM, which is about coding AR follow-up, et cetera, with our traditional services very amenable to offshore. So we have seen growth in the off-shoring market for those services. It's a new segment for us. We are at it. We have a couple of irons in the fire because the new practice, it takes a while to build up -- but as it starts to build up, I think we participate in an additional market segment that historically we haven't.

On your second question of client addition, robust numbers. I think couple of factors there. One, mortgage, we continue to add a healthy clip of new clients across the market segment. The challenge is volume, right? The clients have signed up, but the volumes are very low. So obviously, there have been reductions in volume from existing clients. But even in the new deals that we signed late last year, early this year, volumes are slow on the mortgage side of it. Second, the acquisition that we did of StoneHill, because of the services [indiscernible] the ticket size for them tends to be smaller, right? So while you get the number of clients, the ticket size per client is lower relative to what we've seen in the traditional mortgage business. That's kind of one factor. The second factor is that as we grow more digital, especially the collection business, and we've been expanding beyond just the big card issuers into Fintech and utilities.

Again, they tend to be smaller companies, they are growing their businesses. Collection cycles also take longer to build their length now that the delinquencies [indiscernible]. So we see more wins because of digital. The ticket size is less. So in general, I think the quality of clients is great, some due to market conditions, we haven't seen the revenue come to and some inherently tend to be smaller ticket sizes given it's digital or narrow services like [indiscernible] we play in. That's the second one. And the third question you had was on what are we doing on tech? So tech, it's been a build in a competitive market. As I mentioned, we are focused on 2 or 3 segments. One is digital media, which is media going to digital media. Decent progress in U.K. and U.S. in that. Second 1 is ad tech. So we've been focused on the ad tech segment for the past 2 or 3 quarters now. We've had good 2 or 3 wins there in kind of building up the ad tech business, especially when the market is tighter for some of the start-ups. I think we see a good healthy demand [indiscernible]. And then within the big tech sector, we are focused on a couple of service areas, and I'm pleased with the development there. I think we'll be able to share some good milestone wins for that in the third quarter as we go along that. So lower than what I expect it to be at this stage, but reflects the competitiveness of the market, but we continue to chip away in it, and I think tech will become a decent growth driver in the short to medium term as we go into the next year.

[Dipesh Mehta, analyst]

Understood. If I can ask you one question. If I can sneak one more question just to get overall sense. Now we have given a revised guidance. Now we cut obviously for last couple of times. So I presume we are now very conservative when we guide for next 2 quarters. What would be the upside risk and downside risk in your opinion, considering some of the moving items like collection velocity, HPSS deal closure momentum, plus some of the moving items like mortgage and other things, if you can provide just some sense about upside and downside risk.

[Vipul Khanna, executive]

Yes. Yes, Dipesh. Our forecast is a muscle that I acknowledge we need to better up or beef up. One is the market conditions, the second is we need to get better at forecasting and get a guidance. On the downside risk, I think we have factored in all that you can see. And for us to hit the downside, it's pretty much flat quarters all the way through until the end of the year. By the way, Q3, we do expect will be kind of flattish compared to Q2 because of the further mortgage decline that we are seeing in Q3 relative to Q2. So the growth from other sectors will be kind of washed out by that mortgage.

On the upper end of the guidance, what we expect is that traditionally, Q4 or the March quarter tends to be strong for us in collection because of tax refunds and stuff, which people get and then hence higher selection. So that's one upside that we have baked in. We baked in that our health care business, especially HPSS, will continue to get back on to the go-to-get rate, right? The ramp will happen and some of the deals that we talked about, they come to. And we are also expecting better fulfillment on the European business. Demand is there, and we hope that we'll be able to get more revenue from there on the upside of it. So between 3 businesses, that's where we go from our low side on the forecast for the high side of the forecast. Ankur, am I missing anything or Dinesh? Am I missing anything on that?

[Ankur Maheshwari, executive]

No, no, [indiscernible].

[Dinesh Jain, executive]

I think it has been covered very well. These are the main factors.

[Operator]

The next question is from the line of Mohit Jain from Anand Rathi.

[Mohit Jain, analyst]

Sir, one small question on the other income. So you told us that there were some earnout [indiscernible] during the quarter. So if you could give us some more color on which acquisition and how much was reversed, is it one or both together? And second part was, are we expecting any impairment given your estimate today versus the [indiscernible]?

[Dinesh Jain, executive]

Mohit, I think we are considered for both [indiscernible] one of the parameters, which is [indiscernible], which is now closed. The second 1 is going to be the assessment by -- so we have factored current way of looking what are we going to achieve. And accordingly, we have recognized as income, which is, I think, value already be given in the notes, which is INR 56 crores , INR 56 crores, which we have given in the notes already, too.

[Mohit Jain, analyst]

Individual amounts like most of them have been reversed? Or is it only one? Do you think both have been reversed, if you could give us some allocation like -- is it broadly should I assume half for each acquisition? Or how does it work out?

[Dinesh Jain, executive]

It's higher on the PSC, which is the external acquisition is the higher side and the collection acquisition is the lesser [indiscernible]. As far as the impairment of goodwill is concerned, I think when you acquire, you do the assessment of the allocation of the site segment, goodwill and other -- and with the current assortment that we got, we don't see any reporting any impairment for it because when you're acquiring, you're also already charging of some of the intangibles there. So as of today, there is no risk on the goodwill and looking the year, which is we are forecasting for March, I don't think there'll be any risk on the goodwill.

[Mohit Jain, analyst]

And can you give us some number of how they are trending now in the revised estimate?

[Vipul Khanna, executive]

In terms of the revenue run rate?

[Mohit Jain, analyst]

Revenue run rate for the '23 at the time we acquired and now what is the [indiscernible]. The historical numbers, I think we have, but if you could help us with Q2 number or even expected numbers that you have on there, so that we understand in the sense how much decline has happened in [indiscernible].

[Vipul Khanna, executive]

Yes. So on the mortgage acquisition, obviously, you all saw that we -- I mentioned, we lost about 55% of our core business compared to last year or will lose for it by the end of the system. On the acquisition, we've seen softness, there is a small portion of fulfillment on the origination business, which obviously has been similarly impacted. But if I was to say from what we acquired now, I would say we've seen about -- I want to say, correct me if I'm wrong, it's about 25% to 35% [indiscernible] somewhere on the StoneHill acquisition. And on the RP acquisition, which was legal collection, the fall has been less because the fall and prices tends to be more lagged and exaggerated over a long period of time. There we've seen a reduction of about sort of 5-odd percent, I would think. But the thing is we expected somewhat growth and it's kind of on the other side.

[Mohit Jain, analyst]

Right. And is it fair to assume that on this the [indiscernible] will sort of increase as we proceed because usually you have a lag between delinquency and before it goes for the legal thing?

[Vipul Khanna, executive]

What was that? I did not understand. You're saying we expect what...

[Mohit Jain, analyst]

Currently, you're trending 5% down because as you mentioned, there's a lag between vendor delinquency happens and when it goes for the legal evaluation. So should we assume that this 5% gap may actually increase next year?

[Vipul Khanna, executive]

Yes, so on the acquired portfolio for the big client, obviously, because they are placing less because of the healthy collection situation because placements are less, that will be a downside to future growth. But obviously, we continue to add new clients on that and we've done 3 or 4 good cross-sell deals there. That will be upside. And I think both those factors will play out differently next year. But you're right on the first question. Part of it will be expected, Mohit. [indiscernible] out that we were in the environment in '21, we were already seeing lower placements. But it's a little bit more exaggerated than that.

[Operator]

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

[Shradha Agrawal, analyst]

A couple of questions. Would it be possible for you to give the run rate of the Collections business now? And how much are we down in that business on a Y-o-Y basis?

[Vipul Khanna, executive]

Collections run rate. We are about -- between both businesses combined, we are at about somewhere between $31 million to $32 million. And compared to last year same time, obviously, acquisition is set. But by this time, we were about $14.5 million.

[Shradha Agrawal, analyst]

Is it all organic, I mean, $14.5 million.

[Vipul Khanna, executive]

That was organic, yes.

[Shradha Agrawal, analyst]

[indiscernible] what is the portion of organic and organic? Just a broad split.

[Vipul Khanna, executive]

So I think it's on a Q2 basis, our -- the inorganic is about 17%. And I think -- the core collection business is also about 16%, 17%. So actually, it's more about more closer to about, I think, $33-odd million is a run rate.

[Shradha Agrawal, analyst]

So the $17 million business has come down to $14.5 million on a Y-o-Y basis. Sorry, $14.5% has gone up to $17 million, right?

[Dipesh Mehta, analyst]

Gone up, gone up, gone up.

[Shradha Agrawal, analyst]

Okay. Right. And sir, within mortgage, what is the split of servicing and origination now?

[Vipul Khanna, executive]

So as I said, the servicing business has held up strong. There have been some reductions as clients pulled back in source, right? Then they have reductions on that. But despite that, the mix is now closer to like 35-65 between origination and servicing.

[Shradha Agrawal, analyst]

But servicing has also declined on a Q-on-Q basis?

[Vipul Khanna, executive]

On a Q-on-Q basis on absolute dollars. Yes, it has.

[Shradha Agrawal, analyst]

And did I catch you right when you said that you had earlier.

[Vipul Khanna, executive]

Go ahead, please. Finish your question, then I'll answer.

[Shradha Agrawal, analyst]

So did you indicate that you had earlier expected mortgages to bottom out in 3Q and now you expect that to get extended by another quarter or so?

[Vipul Khanna, executive]

Yes. Yes. I think given the way market is sliding and given the Fed has very unambiguously said that they'll continue to raise interest rates until they have a better handle on inflation and unemployment rate starts to go up. Given that, the market is now expecting that the interest rate hike will continue into calendar '23. And hence, will continue to dampen the mortgage market from where the earlier expectations of the market were.

[Shradha Agrawal, analyst]

Right. And sir, just one last bit on the CMT bit. Most of the IT services companies have sounded a bit cautious on the traditional media company of IT budget, but we seem to be maintaining a relatively positive stance on our growth position. So why are some divergent views here from what IT companies have been talking of IT services companies as the process from CMT vertical?

[Vipul Khanna, executive]

I won't know fiscally, but I could offer you some broad comments. If you look at our portfolio, obviously, our large client is a big component, and we have good visibility on where we land on that client in the next 2 quarters and going into next year. The Digital Media business as well as the U.S. comms business have been building, it's relatively small. And I think on a small base, we expect we'll be able to eke out good expansion and sort of win new businesses there. Our tech business where, obviously, it has become a big part of the market over the last sort of 5 or 6 years. We obviously have a very small base. And we only have upside. But the bigger players with large portfolios, maybe they have challenges on how that portfolio plays out when the tech companies start to kind of look at we've seen all of them getting very cautious on cost and margins and stuff like that. So I think that's my sense of what could be the divergence.

[Shradha Agrawal, analyst]

But you are not seeing any signs of concerning your top account in CMT?

[Vipul Khanna, executive]

No.

[Shradha Agrawal, analyst]

Apart from the delivery of the fulfillment challenges that you've spoken about?

[Vipul Khanna, executive]

Exactly. In fact, we are seeing good signs of more offshore growth there primarily driven by the fact that the clients -- our key clients also realize the tough market condition in the U.K.

[Operator]

The next question is from the line of [indiscernible] Institutional Equities.

[Unknown Analyst]

I have only one question. Can you give some outlook on attrition trend? And what...

[Operator]

Mr. [indiscernible], your audio is very far from your line. Please use the handset.

[Dipesh Mehta, analyst]

Now it's proper?

[Vipul Khanna, executive]

Yes, sir.

[Unknown Analyst]

I would like to know your outlook on attrition rate and when you feel that it will soften?

[Vipul Khanna, executive]

Sorry, outlook on attrition rate and when do we think what was that, can you repeat that portion?

[Unknown Analyst]

It will come down, I mean, in meaningful ways.

[Vipul Khanna, executive]

I think attrition we've seen moderation of our attrition onshore especially. This is outside of the capacity reduction that we've had to do in the mortgage business, but this is purely voluntary attrition. We've seen a good [indiscernible] quarter-on-quarter on that. We've seen a minor creep-up in the offshore attrition as the market continues to be strong offshore for BPO, right? Manik, you asked about market a strong demand environment is strong. So we're seeing growth there. I think for rest of the year, I think we'll see similar trends. I don't expect material movement down or up in this market for the remaining 2 quarters, which should be in the broad range of 50-ish odd and the 40-ish odd for onshore and offshore, respectively. And by the way, this doesn't -- I think this is fairly in the middle of where the market operates for our kind of services.

[Operator]

The next question is from the line of Manik Taneja from JM Financial.

[Manik Taneja, analyst]

Just wanted to confirm on the aspect of the implied for second half with regards to the guidance that you provided of now minus 2% to 0% growth for the full year. Does the math imply now close to about 0.6% to a 2% [indiscernible]?

[Vipul Khanna, executive]

Manik, I lost the last line. Could you repeat that please?

[Manik Taneja, analyst]

Yes. So actually, I just wanted to clarify again. With the outlook that we have provided now for the full year of minus 2% to 0% kind of a growth in terms for the full year. I was just asking it implies about 0.62% or 2% CQGR through 3Q and 4Q? Is that arithmetics correct?

[Vipul Khanna, executive]

Yes. So as I said, to the [indiscernible] question. At the low end, it will be flat through Q3 and Q4. At the high end, I think Q3 will continue to be flat, but we expect good upside in Q4 from pick-up in collection, health care and Europe. Yes, pretty much the growth will be sort of back ended in Q4 at the high end of our forecast.

[Operator]

As there are no further questions, I would now like to hand the conference over to Mr. Vipul Khanna for closing comments.

[Vipul Khanna, executive]

Thank you. Look, again, thank you for your interest. Thank you for patiently listening to. It's been a tough quarter, but I'm very encouraged by sort of the growth adjacencies that we've been investing, the wins that we've had and as economic environment moderates, we should see better times. But thank you for your continued interest, and you guys have a great evening.

[Operator]

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