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Firstsource Solutions Ltd
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Ladies and gentlemen, good day, and welcome to Firstsource Solutions Limited Q3 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 from Firstsource Solutions Limited. Thank you, and over to you, sir.
Welcome, everyone, and thank you for joining us for the [indiscernible] December 31, 2022 Earnings Call [indiscernible] On this call, Mr. 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, fact sheet and the presentation have been e-mailed to you, and you can also use it on the website. www.firstsource.com.
Before we begin the call, please note that some of the matters we will discuss on this call, including our reset outlook are forward-looking and assets are subject to known and unknown debt. These uncertainties and risks are included, but not limited to what we have mentioned in our perspective with [indiscernible] subsequent annual reports are available on our website.
That said, I now turn the call over to Vipul Khanna to begin the [indiscernible] Thanks.
Thanks, Ankur. Good morning, good evening, everyone. Welcome, and thank you for joining us today. Let me start [ looking]. I'm pleased to share that our revenue and operating margins for Q3 were in line with our expectations. This quarter, our revenue was nearly flat with 0.3% degrowth year-on-year in constant balances and came in at INR 15,049 million or $183 million. Organic revenue, excluding the impact from mortgages and acquisitions grew by 18.6% year-on-year in constant balancing.
Operating margins have improved 100 bps over Q2 and came in at 9.4%. In Q3, we realized other income of INR 598 million due to the write-back of the variable consideration linked to performance of 2 acquisitions and [ structured ] contracts in our market business. The variable payout thresholds were not met due to the above market commitment because of markets and collection businesses. And EPS grew by 17.2% year-on-year and came in at INR 2.25 for the quarter.
As we come towards the end of the year, we are narrowing our guidance range. We now expect revenue growth of minus 3% to minus 1%. Excluding mortgage and acquisitions, we expect growth of 12.5% to 14.5%. We expect operating margins to land in the range of 9.25% to 9.5% for the fiscal year. We are on plan to hit a normalized margin in Q4 fro the revenue growth and the net impact of our year-to-date cost actions for [indiscernible]
I'd like to reiterate that this year has been an outlier on the market changes in the broader macroeconomic environment made it difficult for us to predict accurate outcomes for our business. As we look forward to wrapping up this year and planning for the next, I continue to strongly believe that our business is very well positioned to capitalize on the growth opportunities in the medium and long term.
Our strategy has been and remains sharply focused on one, growth in our chosen verticals by building adjustment capability, systematic client acquisition and by growing [indiscernible]. Two, strategic diversification within the BFS protocol and continued growth into the select subsegment of [indiscernible] and convenient tech with the overall goal of building a less cyclical portfolio and driving the next phase of our growth. Three, [ legging ] our digital tools and services to create more cost efficiency for both [ hardlines ] and as the [indiscernible].
For instance, we launched a managed services constructor automation which has been received by a plan. This is an all [indiscernible] solution from licensing and lending and maintaining of automation and all the way to meeting automation sustainable [indiscernible] enterprise.
With the global economy battling recession body, we expect accelerated adoption of proven value levers of digital outsourcing and offshoring [indiscernible] consistent, thereby resulting in significant growth opportunities for us.
Let me give you some [indiscernible] commentary. Our BFS vertical [indiscernible] minus 10.1% year-on-year and minus 14.1% in constant currencies. Excluding mortgage and acquisitions, the BFS segment has grown by 30% year-on-year in constant currency. The mortgage market remains a [indiscernible] along expected one. This business segment contracted by another 20% sequential [indiscernible]. We continue to believe that this market has to [indiscernible] extent despite the unprecedented [ correction ] this year. Housing demand is still strong. And despite the market industry focus on bond production, large gaps in comparability remain.
In calendar [ 2022 ], the mortgage industry has the unenviable task of going -- bringing costs from further while prioritizing the right investments for future growth. We continue to be uniquely positioned to drive this shared purpose with [indiscernible] Our [indiscernible] in capabilities, broadlines access and [indiscernible] across the designation servicing title and default enable us to customize and provide delivery locally as well as hybrid.
Our sales assets and pipeline continue to real positive results with good closures in this quarter. Having said that, the mortgage segment contributed only about 10% of our Q3 revenue and will be between 8.5% to 9% in Q4 from a peak of 31% in Q1 of FY '22. And any further sharp movements in the business are unlikely to have a material impact on our overall business.
In the Collection segment, recovery remains on track, but the pace is still taking its way up. Overall, U.S. card back delinquencies rose steadily [ 15. 08% ] versus 1.85% in the last quarter and charge-offs over at [ 2.02% ] versus 1.82% last quarter. These are still lower than historical assets despite rising interest, high inflation and high outstanding debt [indiscernible]. This is primarily due to the still very low unemployment rate and the strong housing balances in the U.S. have been seen in the past 40 years. The U.S. economy is slowing down and delinquencies expect to provide, we are seeing increased market activity and the clients need for capacity clients.
Our [ deal ] pipeline for collection is at its highest and possibly the most diversified it has been across the [indiscernible] segments. In this quarter, we added 7 new clients across fintech, [indiscernible] finance and [indiscernible] Diversifying beyond credit cards and BFS has been our focus in the last 18 months to 24 months, and we are pleased with this outcome. The strong portfolio for [indiscernible] with [indiscernible] collection underpinned by a market-leading digital collection platform and [indiscernible] in momentum this year, all position us strongly to harness the likely volume growth over the coming quarters.
While our early stage segment has witnessed steady uptick over the last few quarters, we are now focused on strengthening the growth market of our [ media ] Collection segment. As we mentioned before, legal collection operates a NAT from the early state bank and the full finding is bottom from the lower early sale debt to the go cycle. As we start to see the uptick in delinquencies in charge-offs across our [indiscernible] system, we are ensuring that our leading collection business is ready to capitalize on the growth momentum as a main obstacle to the leading side of it.
I had shared that [indiscernible] the user business has been a [indiscernible] I'm pleased with the progress we continue to make in our U.K. BFS, [indiscernible] of our portfolio. U.K. BFS continues to deliver strong growth. With the recent meaningful [indiscernible] we now have top partner data with another top 10 [ metal ] bank in the U.K. The demand environment, pipeline activity and digital adoption remains strong despite the political uncertainty and tough economic conditions. As BFS clients [indiscernible] goes in [indiscernible], we see more opportunities [indiscernible] and offshore solutions. We expect this momentum to continue to the next year with sharper focus on [ inland ] tax and more offshore business activity for us.
Our Healthcare segment continues to grow consistently at 17.3% year-on-year and 7.2% in [indiscernible] '22. The rate of growth has slowed down due to some of the [ lenders ] that we talked about earlier. Although the sales factors are [ rental ], the deal activity remains strong. We continue to execute on our strategy to focus on top [indiscernible] plan, grow our [indiscernible] business and creates [indiscernible] solutions for the mid-market has done.
In the medium term, growth is driven by vendor consolidation, acceleration of [indiscernible] across the care, [indiscernible] and provided adoption of [indiscernible] solutions. .
On the foundation of the primary [indiscernible] last year, we are seeing real [ traction ]. We have been selected by another top [indiscernible] plan for building their membership admin platform. This is our second [indiscernible] indeed will be partnering with product companies to delivery solutions. Once again, [indiscernible] that helps us be [indiscernible] integrated players.
On the provider segment, there hasn't been a meaningful change in the outlook. The latest direction from the new administration is that the public has more to provision on compulsory Medicaid involvement will end in [indiscernible] and the respective state governments can make individual decisions and then on how to adopt this requirement. As the states start the goal of compulsory involvement, we expect demand for Medicaid redetermination services to come. We continue to develop a digital solution to capitalize on new demand and we signed up to the first [indiscernible] .
Structurally, hospitals continue to gather the significant hikes in the Medicaid costs [indiscernible] pending the buying cycles in our core on our [indiscernible] other admin services. Longer term, it should lead to more outsourcing and offshoring [indiscernible] industry.
Our CMT business has delivered another strong quarter. This quarter, we grew 14.8% year-on-year and 17.5% in constant currency. We continue to witness steady growth from our top clients across our products and service lines with [indiscernible] even. I'm pleased with the progress we are making in our U.S. CMT segment and the momentum we are witnessing, particularly in the tech segment. Our U.S. CMT segment has grown by [ 6.8% ] year-on-year in constant currency.
We launched our [ Idea services with sand for insight, ] design experience and advisory, leveraging our [indiscernible] customer service experience to address the market opportunity of designing [indiscernible] and the [indiscernible] to ongoing run of outsourcing.
We added 4 new clients this quarter including 2 major tech companies. Our focus on segments such as [indiscernible] and [ data integrity ] for machine learning are ending strong results. A few months ago, a [indiscernible] for a consulting assignment to design our customer journey and an operating model for the contact centers. That engagement has now evolved into a large-scale build and 1 of the [ CF ] organization, with the charter of [indiscernible] and increasing their market share. This was initially an [ ID ] engagement.
And as we plan for the next year, our [ BPMP ] will provide a strong anchor and the U.S. CMT grow [ disproportionate ] to the company's growth rate.
In summary, this has been clearly a difficult year. Having said that, I'm extremely proud of the [indiscernible] of [ 22,000 ] of [indiscernible] who set up in the [indiscernible] times and have helped offset the unprecedented decline in amortization rates. We had to take some hard calls in our costs to create a more efficient operating structure. The momentum we have established in a [indiscernible]
Let me now hand over the call to Dinesh to cover details some of our financial [indiscernible] Dinesh?
Thank you, everybody. For the financial performance for Q3 FY '23, revenue for the Q3 came in at INR 15,049 million or $183 million. This implies a year-on-year growth of 2.8% [indiscernible] and flat in constant [ currency up ]. On the margin front, operating margin came in at INR 1,409 million or 9.4% of revenue for the quarter, implying a year-on-year margin decline of [ 267 basis points ].
Profit after tax came in at INR 1,579 million or 10.5% of the revenue for the Q3 FY '23, a year-on-year margin improvement of 124 basis points. Our recent acquisition of Stonehill and [ RSI ] did not met the revenue target at the end of [ unhealthy year, ] which have closed in December this year. This has resulted in other income of INR 279 million in Q3. No further contingent consideration is stable on these acquisitions. We also have a contingent payout of [Technical Difficulty]
Sorry to interrupt, sir. We cannot hear you now. Mr. Dinesh Jain? Ladies and gentlemen, the line of Mr. Dinesh Jain has been disconnected. Kindly stay connected while we try to reconnect him. Ladies and gentlemen, the line of Mr. Dinesh Jain has connected. Over to you, sir.
I think I'll start with the last item, which is our recent acquisition of Stonehill and [ Era ]. It did not met the revenue target at the end of the earn-out period. This has resulted in other income of INR 279 million in our quarter 3. No further contingent consideration is stable on these acquisitions. .
We also have contingent payouts for our mortgage client as part of option purchase agreement closed last year. This is the current visibility of the revenues against the target, the liabilities have been fair value this quarter that has resulted into other income of INR 319 million in this quarter. We also came in at 61 days versus the 56 days last quarter.
During Q3 FY '23, we have generated INR 800 million of cash from operations, and our free cash flow was INR 653 million after adjusting for CapEx of INR 147 million. We also have a closing cash balance, including investments, stood at INR 1,927 million. Due to higher DSO this quarter, our operating cash flow and free cash flow are lower in Q3 and will get normalized in Q4.
Net debt stands at INR 5,891 million or $71.2 million as of December 31, 22. [indiscernible] INR 6,055 million or [ $74.4 million ] as of September 30, 2022. Tax rate for this quarter was around 14%, but we expect FY '23, it should be within the range of 16% to 17%.
On our ForEx hedging, we have coverage of [ GBP 38 million ] for the next 12 months with an average rate of [ GBP 101.1 to the pound. ] And coverage of USD 68.5 million with average rate of [ INR 82.6 ] On our ForEx hedging, we have coverage of GBP 15.8 million for the 12 to 24 months with average of [GBP 102.9 to the pound ] and coverage of $9 million with average rate of INR 83.9 million for [ the dollar. ]
In addition to these forward, we also taken some of the option on this forward to better our realization rates. I'm pleased to announce also that Board has become an interim dividend of INR 3.5 per share or 35% for the financial year. Total table expected on account of this going to be around INR 2,439 million.
With this, I will hand over to moderator for the Q&A.
Thank you very much, sir. [Operator Instructions] We have the first question from the line of Mohit Jain from Anand Rathi.
Sir, just 2 questions. First is on the mortgage business. So any thoughts there on the metabolic you guys are seeing, say, over the last 2 months or so? And if you could have some outlook for the year of the [indiscernible]
And the second is on the margins now. Margins clearly surprised this quarter. So what kind of recurring margins are you looking at? Is there any one time cost that we should be aware of from a [indiscernible] standpoint?
Your line seems to be unclear. So I'll repeat the question. One was on the mortgage volume outlook in the last 2 months in the next few months. The second was on margins. What's the outlook? And is there any onetime costs to take into...
Correct. Yes.
Okay. Okay. So I think mortgage volumes continue to be soft. Market volumes are low. Our clients whatever reductions they had told us over several months, some of them continue to kind of [ fact through ]. The interest rate looks like -- the interest rate peaked they have been coming down for the past several weeks now. And even you saw yesterday's announcement was at [ 25 basis points ] at [indiscernible] for a rate increase, which is below than [indiscernible] since March. So generally, the market sees that this should start to bring some of the buyers back into the market as we come to the spring season and schools, et cetera, et cetera start so some volumes to come there.
But from what we've seen thus far and potentially after the end of this quarter, we expect to see sort of weak volumes in the mortgage business. In fact, we do expect that our revenue for Q4 for mortgages will be lower than Q3.
On the margin side of it, I think we made strong gains of all the cost focus and the actions we've done. And we do expect that by Q4, we come back to our -- to the last year average of [ 11.5% to 12% ] on a run rate basis, and that should be a good base for us to kind of take forward.
Sir, can you repeat the margin for 4Q? You're saying sort of we will get [indiscernible]
We should be -- we think we'll come back to run rate of between 11.5% to 12.5%.
Okay. And then that will be the new base for FY '24?
Yes.
We have the next question from the line of Dipesh Mehta from Emkay Global Financial Services. .
A couple of questions. First, about the guidance. I just want to get your sense about what this guidance implies from Q-o-Q growth perspective for Q4.
Second related question is just want to get your sense about confidence on maintaining and sustaining [indiscernible] growth trajectory into calendar '23. If you can provide some perspective, considering all the buckets of the business, how one should look Q-o-Q growth trajectory, calendar '23, are we confident now flattish or declining phases over for us and Q-o-Q [indiscernible] entering into calendar '23?
Third question is about BFS. BFS segment margin is much bigger than what we used to operate in the past. Mortgage has played some role, but if you can provide considering now mortgage weakness is largely behind, how one should look recovery in that margin?
Dipesh, your first question was guidance for Q4 growth? What does it imply in terms of Q-o-Q, quarter-on-quarter? Yes?
Yes.
[indiscernible]
Dipesh Mehta?
Yes, yes. I said yes, the Q-o-Q growth, what it includes.
So look, based on the [indiscernible] guidance that we've issued, we think this implies to 1% to 5% Q-o-Q quarter-on-quarter growth. We do realize it [indiscernible] at the broadband, but it's a quarter where [indiscernible] see some seasonality coming in from a collection business. But given the continuous sort of situation we have in our mortgage somewhat in the collection business, we think this is the right number to have at this stage.
And in terms of calendar '23. Okay. So the calendar '23, if you're talking about the future, we are kind of right in the middle of the budget cycle and kind of gathering data from the market and our teams. So something we'll come back, but at this stage, given the fact that while we do expect mortgage will decline in Q4, we expect decent growth to continue in [ Europe ]. Collection, obviously, with stronger [indiscernible] that we typically see from the tax season. So overall, we think we feel good about what we forecasted in terms of [indiscernible] growth to deliver to the revised margin.
On the margin for BFS, clearly, as we highlighted, mortgage has taken a heavy toll on the margins and also they are sort of cost lag the revenue declines. We have taken some pretty hard actions across the cost structure that is a cost overheads, [indiscernible] et cetera, et cetera. We also had some impact from the margins of our [ ARC ] acquisition. They were lower than us when we acquired and we had shared that. But -- and we expected the revenue to decline. The decline has been more than we anticipated because of the macro conditions. And that has also taken pressure on the margins because there is a more fixed cost business. So once the volume comes back on the legal collection, we should see good gains on the margin recollection. So these 2 have been heavy [ diverse ] on our margin for this year.
Otherwise, the core collection business, the [indiscernible] collection and U.K. BFS has delivered strong growth and some of the cost pressures that we saw in U.K. from labor cost [indiscernible] payment, we seem to become kind of coming in part with that. So that gives us confidence in the margins for Q4. That kind of give you a color on the [indiscernible]?
Yes, it is. Maybe we can get more clarity once we finish the year.
The next question is from the line of Shradha from Asian Market Securities.
Couple of questions. Within Mortgage, what is the current mix of origination and services? And do we also do the home equity [ biting ] market?
So the mix of origination to servicing is now a little bit to [ 35%, 65% to 35% ] at the [indiscernible], [ 65% ]. So [indiscernible] between [indiscernible] and servicing. We've seen some downward pressure on servicing as well, right the clients have pulled back in [indiscernible] to offshore sort of cannibalization has happened. Some of our clients have started to home equity line and we are supporting impact as we're starting those in [indiscernible] And we have some early start in that home equity segment.
Yes, because one of our competitors was talking about expected downtick that you could see in their mortgage home equity portfolio because most of the harm that had to happen in origination is already done. So are we off the saying view that origination decline probably would now get stalled and we would see more servicing decline in the mortgage portfolio?
No, I would think that -- sure, the refi activity has obviously come down very, very drastically. There is still some purchase activity, which was also for a couple of quarters impacted with the high interest rates. The market expects that interest rate stabilize and kind of stay below the [ 5.5% ] -- between the [ 5% to 5.5% range, ] then we will start to see pickup in the home purchase market, especially in our geography like [ Florida ] is a success. Some of those other markets, Colorado, et cetera. So over time to this calendar, we should see a return of the -- some of the return of the origination volumes to purchase, not as much to refi.
Home equity on equity, I think, is a smaller business, right? You see the [ phaseout ] for the consumer . The servicing business, I think, has declined for us this year, but I don't expect any more decline -- significant decline on that from where we are because whatever cost action time you take, they have taken the first to waive the cost actions. Now impact some of them are looking for like how do get out of it and with more [ upstoring ] and sort of more structural solutions having this tactical answers. So at this stage, I don't expect any significant decline in the coming year on servicing portfolio. But keep in mind, as I said, overall, the portfolio is now down to about 8% to 9% of our overall business.
The other question is this time around, we saw improvement in margins. That was mainly led by SG&A coming down. But on the gross margin, it was actually still down 150 bps sequentially. So when we say that we expect 4Q margins to revert to the last year average quarter and [indiscernible] so do we expect that to be led by improvement in gross margins? Or do you expect further cutoff in [ G&A ] that we help margin next quarter as well?
Yes. So obviously, we've kept away tight and very judicious line on our SGA, both for [indiscernible] and for growth [indiscernible] Our gross margins obviously continue to be impacted by one, [indiscernible] reduction and to the change in mix as well because in mortgage, a bigger chunk of the reduction happened in the more higher margin offshore portfolio [indiscernible] So it's the mix of sort of location also, which have played a part, and you've seen that our onshore percentage has gone up. Our onshore percentage has gone up just by deduction, right? Not that we consciously choosing that business, we say that offshore will reduce more. So that kind of put pressure on the margins. .
As we go into Q4, I think it has helped to have higher revenue that will help to have the more profitable collection business kind of kick in. But I don't see disproportionate action between the [ red cost ] and HCA coming into the next quarter. And we are confident that we hitting our [ 11.5% to 12% ] for that quarter.
Right. And just 1 question, if I can squeeze in. The other operating income has come off quite significantly. So is it more to do with the ForEx loss? Or is there something else in there?
Dinesh?
The ForEx loss. But as the rate has moved up, that automatically, our forward rates became lower. So utilization will be gone into the revenue line itself that will be in other operating line. So there is no loss on the forward book, but the realization remains the same at the forwards, which we talked in the last quarter.
[Operator Instructions] The next question is from the line of [indiscernible]
I just had a couple of questions. So the first one, do we see any challenge in [indiscernible] the receivables on the client side concerning in increase the sales in this quarter? Anything of that, sir?
No, there is nothing on that front. Basically, the December quarter due to higher holidays, we also have -- our process is to take clients sign up before billing. So unbilled is also high slightly. But most of the money which is overdue December has been collected in time, already [indiscernible] collected.
Understood. Understood. And the second question will be, is the other income of INR 309 million related to [ source point acquisition ]?
That's right. That's the option agreement, which we have in the past with that 1 of the clients that [indiscernible]
Impacting the [ ASP ], the expense of the [indiscernible] as an exceptional item in March 2021 quarter, but the gains [indiscernible] we are showing in other income instead of exceptional items. I mean why is there a change in the presentation?
No, it's 2 different things. I think at the time, the transaction amount was very high and as was exception called out, now with the fair value accounting, all the fair value adjustment has to go through other income. So there is nothing with that sort of that it was acceptance, so it should be accepted, not that way. The [indiscernible] accounting has to be done. So the -- it has to be accounted fair value adjustment as to [indiscernible]
We do not foresee any other gains of us from whatever we have seen or any other losses about from whatever we have seen.
With the fair valuation, which we did, we see this is the amount going to be. It may be a small adjustment may happen in Q4, but I don't see the bigger amounts coming in. All the transaction flows.
The next question is from the line of Sachin Kasera from Svan Investments.
This previous query, you mentioned that you're guiding for [ 1% to 5%. We ] already in the month of [ Jan 1 ], 1 month is already going the quarter. So you still expect high volatility in the remaining 2 months to guide for such a [indiscernible] of 1% to 5% for Q4?
Yes. Look, as I mentioned, collection is coming off a very unusual period, right, very uncharacteristic how collection as [indiscernible] the last 18 months post all the COVID interventions which government has done and personal finances have gone through. Historically, it's high. We don't know how that will play out. So one, we are kind of watching it and keeping that range from collections. And especially now our collection portfolio also biller after the [indiscernible] Collections acquisition. So it's a much bigger share of our overall revenue than just our core collection business.
Two, some of the deals that we have closed in the previous quarters, we are kind of waiting to see -- we're waiting to see how these closures and implementation time pick up to see how much revenue we're able to look against that. So those are the 2 factors which have come into it. See, Q-on-Q, it kind of appears like that. But if you look at it, that's why we have taken the call to reduce our range and brought it to minus 2% to 1% for the entire year as well as for the non-acquisition range.
Sure. Second question is if I look at our operating expense, it has reduced from [ INR 344 crores to INR 310 crores. ] So is it mainly because we rationalize certain expenses as we are setting revenue pressure and is this a sustainable number? If you could give us some sense on that.
Sorry, second, can you repeat what line item [indiscernible]
In terms of the operating expense, that is reduced from INR 344 crores in Q2 to INR 310 crores in Q3. So is there some one-off in that? Or is this a rationalization and is it sustainable?
So I think, Sachin, the operating expense is also 1 of the component on our collection business, the legal collection business. So as the revenue drop that 1 expansion item is lower. As well as Vipul talked about the cost actions which we talked taken in Q1 and Q2, that has been certified now. So I think some part will be sustainable. Some part depends on the revenue growth, they may increase.
So of the close to INR 30 crores, INR 35 crores reduction we have seen, sir, can you give us some sense, approximately broadly how much was limited to revenue declaring how much was reset to the action that we have taken internally?
Should be around [ 70-30. ] 70%-30%, 70% is almost with [indiscernible] cost action, 30% is still linked to the revenue.
And is this 1 of the reasons why we are guiding for a sharp improvement in the Q4 margins [indiscernible] at [ 1.5% ]?
Yes, I think we did talk that I think all the facilities actions take 6 to 9 months. So there are cost actions which have been effective in Q3, there are some more debt in Q4. As well as I think that we are going to a higher revenue side, automatically margin profile will improve in Q4.
Sure. But any of the sections are not -- which will impact our long-term growth aspirations or investments for growth?
No. These are -- I think basically the mortgage businesses have the excess capacities. And you see the [indiscernible] have taken place. We don't see that these actions are going to impact any of the revenue growth side of it. It is more of a cost which were access line, which we have taken it.
Just to add to that. We've taken a judicious cost kept the sharp eye on our operating expenses in SG&A. Clearly, we've had to do some trade-offs. So I'll give you an example. Our [indiscernible] collection business is a growing business, right? You've seen the growth. So we continued our investment in the build of the platform on the road map. But since provider was soft, we took some calls to reduce the technology expense and further delay platform, right. So we had to do some trade-off given the revenue environment that we faced and as that picks up, we'll kind of [indiscernible] some of those expenses. But we've taken a call that our critical growth investments, we did not compromise them.
Sure. The next question, sir, was on the net debt side. So 9 months, we have seen a good reduction there. What are your thoughts going forward in FY '24 and '25, you would like to reduce it further? Or would you rather lose the cash flow for growth or maybe higher payoffs?
I think, Sachin, the working capital is the only debt which we have. We don't really have any long-term debt which we have taken and payouts than you already seen that we're going to pay around INR 243 crores as [ EBIT ] this quarter. And continue to the cash generation, it put [ print ] for a growth for sure. And what has been left out is always been adjusting to the working capital lines.
Sure. Just 1 question for [ repo ] basis. The acquisition that we have done, what has been our experience and what learnings? You did mention that 3 of them have not [indiscernible] at expected line. So what are our key learnings? And how do we intend to improve some [indiscernible] any further acquisitions in the future?
No, great question. So both these investments were on our strategy that while mortgage and colelction and cyclical businesses, we were consciously pursuing leadership in those segments, right? So legal collections extended our collections outreach from early late stage to [indiscernible] so that we can offer end-to-end for our clients. So to that extent it did -- so this kind of gives us a valuable capability.
Likewise, the PSG acquisition extended our value chain from not just origination and servicing at the [ QC and BD as ] well, quality control and [ due diligence ] which start with the capital markets and give us access to the mid-market segment, right? That was the business case. So the core hypothesis has played out.
However, the timing of those acquisitions -- one could argue that once the market sort of softened significantly after that, this also impacted potentially more impacted than we anticipated. And to that extent, I think the structuring of our deal worked that we did not have to pay the variable consideration. Now obviously, it did play [indiscernible] bit caused more challenges to our forecast and through the years and we kind of guided you on sort of how you had to take guidance down twice earlier this year. So this has contributed to that.
So I think learning is about timing. Learning is about really [ sinking ] to the worst case in terms of the economic environment on that. And while I think the purchases are still valid, and I think they will absolutely pay out in the medium to long term. At least from a forecast on how we kind of bake that into our numbers and kind of build our business on around that. That is something that we need to kind of do much better on that.
But overall, I think one of the other strategies that I've identified and I'm [indiscernible] to earlier is beside these businesses, we now need to build a portfolio of [indiscernible], right? So that is our [indiscernible] going forward. But how do we [indiscernible] some of the capabilities in that part as well.
[Operator Instructions]. The next question is from the [ P. Rajesh from Banyan Capital Advisors. ]
Most of my questions have been answered, but I missed what you said about your fiscal year '24 outlook on the revenue side. So if you don't mind just repeating that and give us some guidance on that .
Sorry, your question was on the guidance for...
Yes, for fiscal year '24.
I'm sorry to interrupt, Mr. Rajesh, I would request you to use your handset to ask a question. We are not able to understand what you're saying.
Is it better now?
Please proceed.
So my question [indiscernible] that what is your guidance for fiscal year '24. You made some comments earlier about that, which I missed.
So Rajesh, no, we haven't offered any FY '24 guidance yet. We just gave close the guidance for FY '23. FY '24, we are in the middle of the budgeting and planning cycle. So as usual, when you come back in end April, early May for Q4 results, then we'll give guidance for next year. [ Directionally ], I would say that the demand environment is good. Demand environment is good. Some of the businesses like mortgage, collections and providers, which faced headwinds in FY '23, those headwinds will ease off. So that [indiscernible] remove some of the friction that we've seen in the growth in those businesses, while our Europe and our health care businesses, they continue to operate in good set of demand environment as well as CMT. So that should continue in good scale.
There is a follow-up question from the line of Dipesh Mehta from Emkay Group Financial Services.
A couple of questions. I just want to get sense about health care business. Now the growth trajectory seems to be softer than maybe we expected at the beginning of year. If you can provide some sense what played out across player and provider business. .
Second question is about the top line growth [indiscernible] It is doing well for the last couple of quarters. So if you can provide some sense about the sustainability of this growth trajectory and what is driving it? Third question is about the new service, which we mentioned [ idea ]. If you can give some sense about what we exactly try to do and what would be the market potential you see? And last question is on M&A. Do we plan to do, let's say, M&A in near future, maybe next [ 3, 4 quarters? ] Or you largely believe now organic business is where the focus lies? And M&A will be maybe incrementally but not in near future?
[indiscernible], fee. So health care business line software. So with [ HP ] has been on a strong growth trajectory last 2 or 3 years. This year also, [indiscernible] had good wins. One reason that the growth has been softer than we anticipated at the start of the year is mostly been delayed. Now that we've opened 8 of the top 10 health plans, these are very big mature buyers. They have sophisticated buying processes. They are into their third or fourth generation sort of contracts. So their evaluation process tends to be longer and definitely longer than [indiscernible] also articulate and guides in the combining motions on where they end up.
And even after decision-making, because we are using the vendor consolidation of vendor switching typically the implementation cycles are longer than if you were doing like a [ first gen ] or an organic set of condition of sorts. So I think that's played a big role in terms of the delays in booking of the revenue. That's 1 reason.
Second, the cost of our business as we get into digital intake in [ DAS ]. These are longer implementation cycles, the volumes kind of incrementally come to [indiscernible] because we're dependent on some of the technology implementations. So that's kind of the second factor that's kind of played out. Overall, I still feel very good about the health care business. The market has [ been strong ], not as much impacted by macro factors. And now we have established a good [ beachhead ]. We have a focused strategy. So I still feel good about the long-term prospects of [indiscernible].
Provider, we play in a very narrow segment, and that segment was disproportionately impacted especially the eligibility business is disproportionally impacted by [ PHC ] and the fact that the [ PSC ] and Medicaid enrolment compulsory, right? So if the states were to get this federal funding, they have to [ compete enroll people in Medicaid ]. And you saw some of the data coming through that the Medicaid enrollment through COVID went up by like something like 27%. And that is almost automatic reenrollment and that impacted our volumes.
Now that we finally start to see that in the coming fiscal April onwards states in a target manner will take off the [indiscernible] We expect some amount of normalcy as well as demand for the Medicaid redetermination services coming back. So providers has been [indiscernible] through the year, largely impacted by [indiscernible], you say, in a narrow segment. And we are focused on broadening that capability. It's a little bit of a build cycle that we [indiscernible] through. We haven't seen meaningful results yet, but something we are focused on to make sure our [indiscernible] field the playfield in which you operate in provider is [ borrow ]. So that's the first question.
Second was on our large client. Yes, we've seen a good strong year. We've grown across their product lines, their service lines. As we look into the future, I think one, the U.K. labor market continues to be [ pipe ] and expenses. So we've seen in the last couple of quarters, strong growth offshore, which is good for margins. But as we see more of that sustaining through in the future, it will have some amount of onshore revenue cannibalization, right, because it's lower yields but higher margin. So that is 1 factor which will play out. I think as you go into the next year on the large accounts.
But overall, the fact that they are also grappling in a competitive market in a different economic situation where people need more support in some of those payments, as we launch new programs and new initiatives to deal with that, we played antithrombin integral part in that, which makes both of us pretty happy and sort of confident about the future [indiscernible] relationship.
The idea is more a very focused consulting offering that we have launched to help clients design customer experiences. Since you do so much of the digital contact centers. It's taking those operating business learning, translating into a structured design and consulting framework to take to clients. It only a massive revenue but it's kind of superior [indiscernible] strategy like the example that I gave of the tech company where through a consulting engagement, we identified opportunities and then we won that opportunity competitively and that now gives us ongoing outsourcing revenue.
So it's kind of -- you're seeing that starting to play out amongst most of the players when you use that as a type of this tier. So could -- targeted consulting offering to open up get inside the tent and the [indiscernible] business.
Last question was M&A. So I think, obviously, we've taken some learnings, right? We've taken some time to consolidate these acquisitions. They had some impact on our financials, which I think we mostly work through as we come into Q4 and go into next year. So we obviously have our defined strategy of building adjacent capabilities in health care, some capabilities in CMT, some capabilities in parts of the BFS business. We'll continue to absolutely evaluate both organic and inorganic set of opportunities there. At this point, there is no [indiscernible] or a policy decision to do or not to do one of those still continue to keep our stance. And look for the right opportunity and build our learnings from the last 2 [indiscernible].
As that was the last question for today, I would now like to hand the conference over to Mr. Vipul Khanna for closing remarks. Over to you, sir.
Thank you. Thank you, everyone, for your continued engagement, really enjoy your questions and the deep understanding about you have about our business and the insightful question that you ask. We feel good about Q3. We feel [indiscernible] bit about coming into Q4, and I look forward to coming back in April, May and giving you an update for Q4 as well as guidance for the next year. Thank you for your time and interest, and have a great day here.
Thank you, everyone.
On behalf of Firstsource Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.