Firstsource Solutions Ltd

NSE:FSL

Earnings Call Transcript 2023-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Firstsource Solutions Limited Q4 FY '23 Earnings Conference Call. As a reminder, all participant lines will be in a listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, [Operator Instructions]. Please note, 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.

[Ankur Maheshwari, executive]

Thank you, Vikam. Welcome, everyone, and thank you for joining us for the quarter ended March 31, 2023 earnings call for Firstsource. To take us through the results and answer queries we have with us Vipul Khanna; and Dinesh Jain, the CFO. Do note that the results, the factory and the presentation have been e-mailed to you, and you can also view 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 alone. These uncertainties and risks are subject to -- are included but not limited to what we have mention of our sector, files and subsequent final reports that are available on our website. With that said, I hand the call over to Mr. Khanna to begin for today.

[Vipul Khanna, executive]

Thanks, Ankur. Good morning, everyone. Welcome, and thank you for joining us today. Ankur and Dinesh coming across clear and okay? Okay. All right. Very good. All right. Let me start by giving you an overview of our fourth quarter performance. This quarter, our revenues grew 2.8% year-on-year in constant currency and came in at INR 568 million or USD 190 million. This implies a growth of 2.5% quarter-on-quarter in constant currency. Operating margins improved by 21 bps year-on-year and 220 basis points sequentially to come in at 11.6%. I'd like to reiterate that our margin performance in H1 was an aberration and the corrective actions that we've taken have brought us back to a normalized margin range. The diluted EPS in Q4 grew by 7.3% year-on-year and came in at INR 2.02 for this quarter. For the fiscal '23, we recorded revenues of INR 6,223 million or $750 million, implying a constant currency degrowth of 1.1% over fiscal '22. Excluding mortgage and acquisitions, we achieved constant currency growth of 13.7% year-on-year. Operating margin for the year was 9.4%. These numbers are firmly in line with our recent guidance. This year was clearly challenging as a unique business mix was negatively impacted by unprecedented macroeconomic cyclicity. We define the long-term strategy to ensure that our go-forward business mix is more balanced and can better manage these external variabilities and also position us for more sustainable longer-term growth.As a quick reminder, the key components of our strategy are: one, to diversify within the DSN and CMT verticals and expand into select new subsegments of health care and CMT with the overall goal of reducing exposure to macro cyclicity and driving the next phase of our growth; two, drive growth in our closing verticals by building a different capabilities by systematically at finding new clients and by growing in existing strategic accounts; and three, leveraging our digital tools and services to create more cost efficiency and build new digitally powered solutions. We are as much focused on harnessing the rapid development in AI, especially generative AI. Against this strategic chamber, we had a number of critical achievements during fiscal '22. Let me first start with a theme of diversification. In BFS, we made good progress in growing the collections in U.K. BFS segments. We are pleased with the organic constant currency growth of 18.3% in our BFS portfolio ex mortgage. In CMP, we reduced our concentration of our top client from 80% of CMP revenues in fiscal '22 to 70% in Q4 of fiscal '23 but consciously growing the other parts of this segment. Excluding the top line, this portfolio has grown strongly at 44% year-on-year, led by growth in tech and collections in the communications segment. We continue to build new capabilities in adjacent areas, for instance, Sinchi ops in BFS and extending our digitally empowered contact center solution for the tech world to drive a better learner CX. We launched a consulting practice idea and our data integrity practice. In the first year, we converted 4 consulting engagements to annuity contracts. The Utility segment within the diverse vertical grew nicely 43% year-on-year, albeit on a small base on the back of our DECC or digitally empowered contact center offering its maturity and digital collections. Let's talk briefly about the delivery ecosystem. We expanded our delivery footprint to 2 new geographies, Mexico and South Africa and further strengthened our Philippines operations to help address the increasing challenges sourcing the right talent and the plant need for greater value extraction. Now we are present in 6 countries. And finally, driving growth through new client additions and systematic account mining. We added 73 clients -- new clients this year, and we did test withstand most of our key relationships across non-mortgage, BFS, CMT and HPHS. Our approach for fiscal '24 continues to refine these building blocks. As we look forward to the start of the new fiscal, I'm confident that we have reduced cyclicality in our business even as the global economic environment and sentiment is increasingly uncertain. From a current vantage point, we are expecting to achieve constant currency growth of 2% to 5% in fiscal '24, with an operating margin range of 11% to 12%. This factors in a sequential decline in Q1 followed by steady growth from Q2 onwards. This guidance assumes a 3% revenue headwind from our moderate business given H1 of '23 Q3 was higher than H2 of '23. A 3% revenue headwind from our onshore-offshore estate rebalancing.I have spoken previously about our intent to grow offshore more meaningfully. I'm pleased with the progress. We are in advanced discussions with a couple of key clients to realign their onshore-offshore footprint during this stage. While the absolute revenues realized will decline due to billing rate differentials, we expect the margins to expand. Operating margins will benefit from the multiple initiatives in fiscal '23 to take cost out and protect margin erosion. We are now back to our normalized margin range. The key levers that we have factored in our operating margin guidance are margin recovery across mortgage business and the acquired businesses. Onshore/offshore rebalancing and growth in our digital service lines. Operating margins should remain in our desired edge through this year. Let's talk in detail about the key trends in our industry segments to give you a better color on our growth drivers. Starting with mortgage. The last 12, 18 months have been turbulent for this industry to say the least. The Martie segment clearly took the bulk of the mindshare for both new and alike. We believe that the industry has moved past the worst of the volatility triggered by this unique economic cycle. Interest rates have been moving within a narrow range, and the industry expects a modest pickup in volume over the next 12 months. We are confident that we can manage any further volatility without a material impact on our overall performance, especially considering that this segment now contributes less than 9% of our overall revenue.For our portfolio, we also believe that volumes have more or less bottomed out, and we should not see a material decline unless there is a significant shift in the macro environment. We continue to focus on adding new clients and scaling capabilities to accelerate diversification beyond origination. Most of the pipeline activity currently is around servicing and capital markets. For fiscal '24, we are suggesting market to operate closer to our Q4 fiscal '23 exit run rate for H1 and then moderate growth in H2 based on recent wins and current pipeline. In the Collection segment, the consumer credit metrics continue to soften, which is a positive for our business. Overall, U.S. carded delinquency grows to 2.25% versus 2.09% in the last quarter and the charge-offs were 2.55% versus 2.11% in the last quarter. Over the last couple of weeks, most of the large U.S. banks declared their Q1 calendar '23 earnings. The consistent themes across these commentary were: One, consumer debt is now higher than pre-pandemic and credit tightening has begun. Two, consumer balance sheets are still quite strong and remain near all-time high, driven by low unemployment rates and high wages. And three, delinquencies, while still below 2020 levels are expected to rise. The provisions made for credit losses by these banks have carte timing each quarter. Considering the bar trend, we expect the collection business to witness a gradual recovery towards beer. The sales activity and the new client additions remain strong and we added 6 new clients in Q4 of fiscal '22.For fiscal '24 are key priorities for the collection business are one, we continue to diversify collections as a multi-industry offering with penetration into Fintech, auto and across telecom and utilities. Expanded diversity to the U.K. Please stay focused on the digital collections platform road map and reduce new client onboarding timeline. And fourth, drive revenue and margin growth in our legal collection segment. U.K. BFS continues to deliver strong growth. We are actively foreseeing expansion across our key banking relationships by penetrating into new divisions and focusing growing offshore. There is continued focus on digitization of contact centers through quality flection to self-serve and chat. We continue to see good growth in Fincanoperations as well. The growth in U.K. BFS has helped us diversify in the broader BFS segment and derisk common concentration. We expect the momentum to continue well into fiscal '24, with a sharp focus on new client additions and more offshore business. Shifting to health care. This segment remained steady. The business continued to grow well and dropped an 8.7% year-on-year growth for fiscal '23 constant currency to. The growth rate has slowed down primarily from conclusion of profit base engagements, delays in declosure and continued softness in the provider segment. Our provider business has witnessed significant headwinds over the last couple of years due to the public health emergency for standing U.S. government. As for the recent government notification, the PHE on public health emergency will finally be listed on May 11, 2023, so a week from now in its cost. Ending the automatic Medicaid enrollment provision that has been placed that has been in place since '22. This change is expected to result in an estimated 5 million to 14 million people using their Medicaid coverage. A large part of this segment is likely to be uninsured, a segment or disability services and patient access practice focus on. We expect strong growth factors to emerge from this change in H2 of fiscal '24. In the health plan segment, we are witnessing somewhat of a slowdown in deals, especially where the solution involves significant transformation or digital intervention. Having said that, the deal pipeline remains strong. We're seeing good traction to actively working declines in moving parts of value chain offshore. We continue to scale our capabilities and have made small starts in the higher value of games and grievances and claim automation partner. For fiscal '24, our focus for the Healthcare segment is to reverse the revenue decline in provider and scale offshore across both providers and HPHS. Over the last 12, 18 months, we had several market business in our digital intake practice in HPHS. Now the focus is on ramping up these engagements and further strengthening the digital intake platform. And the last piece I mentioned is that we are going aggressively in the primers market to build on the couple of wins we've had in the last 18-odd months. The CMT segment continues its strong growth trajectory. In fiscal '23, the segment grew 14% year-on-year in constant currency. We've done well on 2 areas: one, scaling our newer CMT business, which we've been integrating and building from scratch organically. This segment is now more than 4% of the overall revenue and growing nicely. This remains one of our key priorities for fiscal '24, and we expect to see meaningful growth in this segment; and second, adding new capabilities and markets. Over the last 2 years, we've successfully made inroad into et digital media and tech verticals. We've added several market clients and are witnessing good growth momentum here. And finally, our relationship with our top line remains strong. During the year, we added by value or offshore underpinned by increasing client confidence in our capabilities. We continue to explore bigger growth opportunities in the state.It's been a while since we spoke about a diverse business segment. This segment primarily focuses on utilities in other industries, which are still early stable for us and where we are evolving our strategy and offering. You would be means with one of the proxy related to mine in the U.K. 2 years ago. Our relationship has significantly standing we have today want to say top 3 outsourcing partners. We expect this relationship to grow considerably in fiscal Q4 on the bank facilities mine. We are in the process of expanding our delivery footprint to Southern Citation and then expand to other U.K. investments. Seems good that we now serve 2 of the company permit companies. In summary, while fiscal '20 was a challenging year for our cyclical businesses. We are pleased with the progress in building rest of the business, diversifying our portfolio and progress in our digital options. We look forward to updating you over the coming quarters and progress as stance. Let me now hand over the call to Dinesh to give an overview of our financial results.

[Ankur Maheshwari, executive]

Thank you, Vipul. Good morning, everyone. Here is a snapshot of financial for the quarter and full year ended March 31, 2023. Revenue for the fourth quarter came in at INR 15,568 million or $190 million. This implies a year-on-year growth of 0.8% in revenue terms and constant currency terms growth of 2.8%. For the full year, revenue came in at $60,000, INR 223 million or $50 million implies a year-on-year growth of 1.7% in rupia and constant currency growth of 1.1%. On the margin front, operating margin came in at INR 1,799 million or 11.6%. This is an expansion of 220 basis points quarter-on-quarter. For the year, margin came in operating margin came in at INR 5,633 million or 9.4%. Profit after tax came in at INR 1,413 million or 9.1% of the revenue for the quarter, a year-on-year margin improvement of 50 basis points. For the year, paid profit after tax came in at INR 5,137 million or 8.5%. Our cash generation always remained strong. We generated INR 7,634 million cash from operations, and our free cash flow was INR 7,120 million after existing for CapEx of $54 million. The closing cash balance, including investments, stood at INR 2,000 or INR 2,111 million. Net debt stands at INR 6,159 million or $75 million, which compared to last year, almost a 26% lower. Last year, our debt was INR 8,013 million or $106 million. DSO came in at 60 days versus the 61 days last quarter. Tax rate for the full year was around 16.5% for the FY '24, we expect to be the range of 18% to 20%. And in that, we also factor that you guys are aware that U.K. tax rate is moving from 19% to 25%. So that will have also some percentage increase in the tax rate, which we are seeing. On our Forex hedging, we have coverage of GBP 44 million for the next 12 months with an average rate of INR 102 to the pound and coverage of $60 million with average rate of INR 84 base to $1. For 12 to 24 months, we also done some coverage on pound pork, which is GBP 12.5 million with an average rate of INR 105 to the pound. In addition, we also take some of the option product, which to realize it better forward rates and those are the option products. We did not have any impact due to the currency movements to the negative side. This is all from my side. Now I'll open up for the Q&A and move back to the moderator.

[Operator]

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions]. We take our first question from the line of Rahul Jain from Dolat Capital.

[Rahul Jain, analyst]

Just wanted to take a little bit clarity on the operating margin side outlook that you have shared. Based on the kind of savings that you have done in this closer quarter, and you're seeing growth coming back into the business. And so from that perspective, you think this 11% to 12% margin is a bit on the conservative side? Or you think some more cost factors that would to take during the course of the year, which makes you think that this is the ideal margin for you for the next year?

[Vipul Khanna, executive]

If we look operating margin, as we said, we've suddenly been improving after a very rough was H1. Q4 was11.6% and we guided to 11.1% for the year. I think we've done well on the cost discipline and aligning our cost to the business volumes that we had, especially mortgage. As we go into the next year, as you said, there will be some growth, decent growth sort of coming sort of virtually across segments. But we also want to be cautious against the uncertainties in the economic environment, right, the environment is fairly dynamic. So you want to make sure that we are cognizant of that. There were some elements of our growth investments that we had moderated out in the last year. I think we'll also kind of go back to some of that. So that's kind of another put into it. And overall, I think we feel good that we're starting off a good base and if you can get the momentum through the year, we should be able to kind of meet this profit margin, the operating margin.

[Rahul Jain, analyst]

Right, right. And second question, you said about this public health emergency, I think finally picking up as. So from this perspective, is this -- is there any designing from past or any feel at you're getting from the conversation that how this could shape up you're expecting it to pick up in H2, but how is the general behavior and any reading on that, that how it should go back?

[Vipul Khanna, executive]

Sure. So look, I think the central government is making it evolving into the states to figure out how they want to roll back this roll back this requirement of automatic enrollment. So every state will take its own course, obviously, be driven by political and philosophical considerations of each state. So it will be kind of a gradual roll off. At a simplistic level, we think the demand will come in 2 ways, right? One will be a catch-up demand for people as they fall off, they'll be like a hit go and catch up that. And then there will be a more settling in of a new equilibrium or getting the equilibrium back to sort of the old pre-COVID data. So I think there'll be a little bit of a bumpy demand to catch up and then you settle into a -- we are having great conversations as state plans as well as providers get ready for this call on to start happening. Some of them are preparing. Some of them are proactively engaging. We've had some wins for getting ready for both health plans and providers to catch the follow so that they don't lose revenue, right? Because each time somebody follows of its revenue loss for them. So we see that sort of decent demand coming through. So we'll see wins we'll see traction, but I think the revenue will start to come more towards H2 in this segment.

[Operator]

We'll take our next question from the line of Mohit Jain from Anand Rathi.

[Mohit Jain, analyst]

3 questions. First is, if you could help me understand this growth in telecom outside top client and then other diverse segment. Is there a one-off or something that you have experienced this quarter given the growth guidance? Or do you think this can continue? So that's one and then I have 2 follow-ups.

[Vipul Khanna, executive]

So now in both, this has been a very ground up, as I said, ground-up organic build. So it started from small wins, like the example started with one-off and where they were one of the challenged partners. We've gradually earned the right to be like the main partner now and others kind of shift to the challenge thing. And it's the growth that we've seen is in the long-term sort of energy contract. So on the utility side, it's not one-off. And on the strength of that, we won a second top 5 client. It will again start small, but at least we can diversify with the mainstream offering out there.

[Mohit Jain, analyst]

Will it continue in 1Q as well?

[Vipul Khanna, executive]

The banks will kind of continue to look into the next fiscal. So there, the segments that we've been focused on, whether it's the non-U.K. communications or the tech and tech segments, that's been slow gradual build organic. So the wins are -- they started small, some of them are starting to look like one of the -- as I mentioned, one of the exec clients that we have signed in the education testing space. when I add up everything that we signed up, it's a good 5-year $15 million, $16 million TCV now. Just kind of coming to the big client and basis that we kind of go back to the market to sort the mean improvement.

[Mohit Jain, analyst]

Okay. So telecom outside top line, we should see more like U.S. growth than Europe growth?

[Vipul Khanna, executive]

There is some Europe growth as well, but more pronounced in the U.S.

[Mohit Jain, analyst]

Right, sir. And the second one was your guidance now. Why there should be a decline in 1Q? Meaning, I was just guessing could be collections maybe. But if there is no one-off, then what is giving us that decline Subsequently, the growth of relatively slow at, say, 4% midpoint for next year.

[Vipul Khanna, executive]

So a couple of reasons for that. One, there is an element of seasonality from collections and open enrollment from HPHS, which will taper down in Q1. Second, there were some project-based work, especially in health care, which has gone down is winding down. That will have some impact. And then finally, the large DFAS deal in HPHS that we had announced, it had an implementation phase, which had meaningful revenue. That sale has come to an end, and now we're into steady state. So that also has an impact on the start of the HPHS revenue. Those are the 3 main factors for Q1 being somewhat lower than Q4.

[Mohit Jain, analyst]

So mostly driven by health care decline. Rest of the verticals are fine?

[Vipul Khanna, executive]

Healthcare and some amount of seasonality interaction.

[Mohit Jain, analyst]

And sir, guidance at 4%, like we are coming off a very low base is like some render, et cetera, which are anticipating what the market is tough because it would probably do around 5% at least at the midpoint. And 2% is also a look flattish.

[Dinesh Jain, executive]

So Mohit, as I said, we have identified and called out 2 headwinds. One is the year-on-year decline from mortgage because H1 started strong, right? Right now, we are assuming Q4 run rate expanding with some moderate growth in H2 for mortgages. So that's about a 3% headwind year-on-year. And then we have the unusual almost revenue day of about 3% from the onshore to offshore movement. Now that's the practice strategy. We have been betting our growth -- new growth for offshore. But in our existing portfolio, we have this movement, which will -- which is most likely to come into this year. So we wanted to call it out at this stage that in a couple of clients will see this movement. So that's another 3%. And at this 6% to the midpoint that you, for instance, that you picked up, we start to get into sort of late single digit early double-digit sort of growth trajectory. But these are the 2 exceptional things which we are calling out.

[Mohit Jain, analyst]

Okay. And the last one for Dinesh. Is there any payout left for FY '24? Or are we more or less done with the payouts related to acquisitions and the subsidiary stake..

[Dinesh Jain, executive]

Acquisition-related all there was no payout done because we have already -- they are not achieved the targeted. So that has been closed for both the acquisitions. So there is no more pending on that. On the equity related, there is one more revenue target which there to achieve in FY '24. And on that basis, there is a payout for them. But as of today, I think it's a whole year available and where we still have discussion with them going on, how much revenue they will be going to bring on the table and accordingly, will come back as we get more during the year.

[Mohit Jain, analyst]

Some of this amount was $11.1 million for '24?

[Dinesh Jain, executive]

No, $24 million will be, I think, $4.5 million.

[Mohit Jain, analyst]

And then 25% will have another payout?

[Dinesh Jain, executive]

No, not very many. Only the FY '24 is the year which has been left.

[Operator]

We'll take your next question from the line of Shradha from Amsec.

[Shradha Agrawal, analyst]

Congrats on a good quarter. Just on the guidance with a gain. So what is the kind of decline that we are expecting in 1Q?

[Vipul Khanna, executive]

Sequential decline?

[Shradha Agrawal, analyst]

Yes, sequential decline.

[Vipul Khanna, executive]

At this stage, we think it will be between 1% to 2%. Yes, from that range.

[Shradha Agrawal, analyst]

1% and 3%.

[Vipul Khanna, executive]

Or let's call it 1% to 2.5%.

[Shradha Agrawal, analyst]

Okay. So this is primarily related to the project work rundown that we are expecting in health care?

[Vipul Khanna, executive]

Healthcare, the implementation phase being over for a large program and then the seasonality of collections.

[Shradha Agrawal, analyst]

Right. The top of a 2.5%, 3% decline in 1Q, then I think starting 2Q to get to the mid end of the guidance, you would have to do some heavy lifting. So what kind of visibility do we have to be talking of achieving the mid-end of the guidance this year, talking of a 3% planer decline in 1Q?

[Vipul Khanna, executive]

Yes. So the way we are looking at it, it translates to a TTGR of about 3.5% to 5% from Q2 to Q4, it in those 3 quarters. I think if you think about the collection, I think it will build up. We've seen signs for that. We have good traction in the healthcare segment from a deal closure standpoint, which we know is under implementation. And as we get into Q2, we'll start to see revenue kind of booked from there. I talked about growth coming back to providers, right? So we've been conservative for H1 for provider. We think it should result into something meaningful in provider. And then our new businesses that we are talking about, right? Now obviously, they're on a small base. So we are expecting pretty good revenue growth from them. So I think we add up all that. We feel pretty good about the guidance that we're giving at this stage. The newer business is obviously that they're still pretty young. The pipeline is building. So to that extent, the pipeline is binary in the sense you don't have a big pipeline that if you -- even if you lose 2/3 of the deal and you win 1/3 of the deal, you'll kind of get your numbers. Today, when you have pipeline and in binary. If we have some good wins, right, we should have better numbers. If you don't, that's what we're modeling at this stage on the 2% to 5% guidance. I'm trying to give you color of the different businesses and how we think it will play out through the year to get to that 3.5%, 5%.

[Shradha Agrawal, analyst]

But based on more of hope of recovery in second half because the seasonality-- collection business seasonality will play out and the health care provider segment growth will play out only in the second half. So maybe we are talking of very high growth rates in 3Q and 4Q, and that is just based on hope of-- rather than anything concrete in the deal pipeline as such currently?

[Vipul Khanna, executive]

No, I wouldn't say that. I wouldn't say that. What the growth even for provider when I'm talking about H2 growth, it will come in the deal, it will come on the conversation that we have-- they're having now or they've been securitized. We saw that in provided, the revenue build takes a while because your inventory builds up and then sort of when the collections or the revenue billing for that happens for our client, after that, we get done, -- so there's a win in a large deal, it takes a while. So we baked all of that in when we've given you guidance of 2% to 5%.

[Shradha Agrawal, analyst]

Right. And just for this quarter, the other expenses did see an increase, significant increase. So what was it related to?

[Vipul Khanna, executive]

I think other expenses is not a new collection business, which we bought, which is the legal as the revenue grows up, what we do with the business associate, which is part of other expenses. So that's the reason this expense is higher, but that is, along with the revenue with regard to that. So there is no exceptional asset.

[Shradha Agrawal, analyst]

Okay. And would it be possible for you to call out the exit run rate in the mortgage business and similar for collections and utilities.

[Vipul Khanna, executive]

[indiscernible] I don't know what we done between collections put together...

[Dinesh Jain, executive]

Corrective close to about INR 36 million. Okay. Keep in mind that today, because as we expanded collections, it's become like a still dominated by BFS, but there are components of that, which go into CMT and CMT is right and diverse, which is utilities. So to that extent, we look at it as a horizontal. But what you see when we go out to the vertical numbers, right, between banking, CMT and healthcare. So it kind of doesn't necessarily start up the on collection goes into BFS now.

[Shradha Agrawal, analyst]

The 36 is spread across the 3 verticals that you're talking about. Or is this only BFS collections?

[Operator]

We take the next question from the line of Dipesh Mehta from Emkay Global.

[Dipesh Mehta, analyst]

Just one clarification on the prior question. Collection when we said 36 million. It is only BFS collection or you include other things? Because I heard it is ex healthcare. So in a way, include utility-related collection business also. So there, we have seen 4 million swing quarter-on-quarter, but collection is not showing any kind of uptick. So if you can clarify that is first question. Second question is about healthcare. How you judge our performance in Healthcare for FY '23, do you think it meets your expectation or it is below expectation and or exit expectation? And what led to that deviation in your opinion? And how you expect it to evolve in next few quarters? Second thing is about -- third question is about margin. Now there are a few things which are very supportive to margin. First is about 3 percentage of sources, which you highlighted. Second thing is provider business recovery, which is more profitable than the rest of the business. And third is now no significant revenue decline kind of segment where we have challenges from a margin management perspective. Despite that, our trajectory is different than Q4. Ideally, it should be at least Q4 and above Q4 kind of trajectory. So what plays out in terms of the way you think buildup of margin over medium term. Fourth question is about more to understand this data integrated practices, which you launched during the Q4 for tech industries, how one should understand that practice, what we do? And what would be the potential term or sale kind of opportunities.

[Dinesh Jain, executive]

I'll take the first question, and then probably I'll hand over to Vipul. So on collections, the number that we see for includes PSS, ton, median test and [indiscernible], right, which is effectively all connections is captured in our selections number.

[Dipesh Mehta, analyst]

Then in that case, the 4 million swing, which we are seeing in diversified industries should also get reflected in collected revenue trajectory, which is not the case. So what explains that in.

[Dinesh Jain, executive]

So that was all entirely coming from the collection vertical. I think as upon talked about in the opening remark, that growth is a function of our efforts from the large client larger plant in the contract anteater, as well as new wins and some element of growth coming from collection to 3 clients. The entire for is definitely not from that segment.

[Dipesh Mehta, analyst]

Because if I remember correctly, last time, the highlighted collection is around $34 million, $35 million for Q3. This quarter, we are saying $36 million.

[Dinesh Jain, executive]

Yes. I mean we can go through the numbers. I mean that's... Based on... Can do the numbers, we can discuss... Sure.

[Vipul Khanna, executive]

Okay. On the healthcare question, Dipesh. Let me give you some color, and then I'll come to thing in terms of -- against my expectations. So let me take HPHS first right? HPHS in fiscal '22 and towards the end of '21 had some pretty meaningful wins, good trajectory, in good quality wins and digital intake, BPaaS and sort of classic member services, gain services, et cetera. A lot of them with very large health plans. I think H2 of this year, we've taken almost somewhat of a natural breather to make sure that we execute on those complex engagements, right, get the focus of the organization to deliver to them. That's kind of one factor to keep in mind. Second, now that we are serving 8 of the top 10, some with decent size relationships, some that we just opened, wherever meaningful growth will come, these guys are already on to their third or fourth generation of outsourcing. Their process is pretty sophisticated, pretty long. And if you even when you win a deal in a very competitive RFP environment, the switch out from their existing invariably another partner to a new one takes longer, right? It's not plastic. I have this kind of come and help you do that. So the pursuit timeline as well as the execution and the switch timeline is longer is one of the learnings that we've taken now that we go and play sort of head-to-head for the big health plans with the big boys. That's sort of one phenomenon, which has kind of played out for us in this year.The digital intake platform, which we took it as an entry strategy to raise into these accounts. It got us some wins, but it had some execution and execution cycle to develop that. And we still on that road back to kind of develop and complete that development. So when I put those 2 factors, I think it's kind of moderated some of the growth in a good way that it has allowed us to build the foundation more. I think the pipeline is strong. We're off to a good start in April in terms of the new deal wins. But overall, I would still expect that FY '24 for HPHS will be with sort of mid-single-digit growth and then sort of starts to accelerate there. Providers, we have talked enough what has ailed it, right? We play in a specific segment, which was the most impacted by PHE. Now we are hoping that once PHE goes away, the market comes back in a new manner, it looks for more digital solutions, looks for more automated solutions, and we are ready for that. But '23 was kind of a rough spike, in terms of the momentum there and lack of momentum there. So overall, we're kind of disappointed by how providers played out. But the team has worked hard. We've expanded our strategy. We've started off on a good note thus far in this quarter in terms of types of wins that we wanted. Some of it will come back and talk -- when we finish Q1 once we lock it out to give you sort of how that expanded. Overall, I'm still very bullish about this segment. If I take the next 2- to 3-year view, both payer and provider. I think there's lots of headroom for growth there for us and for that segment. This year for HPHS as a little bit of a moderated year, but it should pick up. That's the healthcare part.On the data integrity practice, this largely goes to the big value chain, right, at the entry-level end is the data labeling part and the top end, it starts to get into data architecture and sort of data guardianship and stuff like that. With the increase in sort of machine learning models everywhere, not just in the big tech companies and platform companies but even other business enterprise is starting to embrace it. We think it's an attractive opportunity. That's why he's come in. At the low end, there is obviously a lot of smaller players as well and distributors around the world, including Tier 3, Tier 4. But as we get into more sophisticated stuff in the middle part, not even the high-end IT work, but even the middle part, we think there is enough bulk there for us to kind of get in and make a jump. Also, this allows us to break into the tech segment, right? These guys are mature buyers, the world serve them. This becomes one of our strategies to get into the big fine vendors, big fan of client base and start to look around for the world. So those are the 2 drivers for us to get into data integrity. We'll segment out the time for you on this one and where we want to play and come back so that we don't give you the big blaze number, which a lot of consultants are showing about 180, onto come with a number which we are targeting and not go either to low end or too high end. On the margin question, yes, we had a hard work to kind of get into sort of where we did on our operating margin. Next year, we will obviously, as I said, we identified, we'll get some lift from mortgage recovery will get some lift from providers. The takes against that is we'll get some amount of marginal impact from the IndAS accounting benefit we had in fiscal '23, right? That's helped us in '22. So some of it will kind of not be there in '24. We have to work for that. But overall, I want to be cautious in terms of what we guide. It's early on, right? A lot of uncertainty in the market out there at this point in time. So we want to make sure that we start cautiously. And as things kind of play out, we'll see if we need to do anything else to the margin guidance at this stage. But for this number, 11% to 12%, we feel good. We see a good path to sort of achieving this number at this point in time. Anything to add on the margin question?

[Operator]

We take the next question from the line of Ruchit are from iWealth.

[Unknown Analyst]

Hello, sir. A very good morning, and congratulations on those numbers. So basically, I missed your opening statements. So if you could just repeat what was the guidance on the sales side? And if I heard it right, the operating margin is what you are saying is 11% to 12% guidance.

[Vipul Khanna, executive]

Correct. The revenue growth guidance at this stage, we are saying we'll be between 2% to 5% for fiscal '24. After making in a 3% headwind from the mortgage business year-on-year decline from Genethon was higher and about 2% headwind from the offshore, onshore estate rebalancing we expect with some of our key clients in later part of this year.

[Unknown Analyst]

Okay. And the operating margin, which currently in FY '23, you did around 13%, so that you're reducing it further...

[Vipul Khanna, executive]

No, no, no. We did 9.4% for the full year. Our quarterly run rate was Q4 run rate was 11.6%.

[Unknown Analyst]

The EBIT margin that you're talking about for depreciation?

[Vipul Khanna, executive]

Yes. Operating margin is the EBIT, yes.

[Unknown Analyst]

Okay. So that you're guiding for 11% to 12%? Got it thank you so much.

[Operator]

We'll take the next question from the line of Sameer Pardikar from ICICI Direct.

[Sameer Pardikar, analyst]

So what is the mortgage number for FY '23?

[Vipul Khanna, executive]

The full year number? Full year, we were more like $92 million, $93 million.

[Sameer Pardikar, analyst]

Against $116 million we put in FY '22. And what is the rough breakup of coordination and services in that number for FY '23

[Vipul Khanna, executive]

For Q4, it was more 1/3 origination, 2/3 servicing. For the full year, could you have for the full year at the distribution... Fiscal '20.

[Dinesh Jain, executive]

So for fully, I think you got 35 originations, $35 million or about $58 million...

[Operator]

We take our next question from the line of Dipesh Mehta from Emkay Global.

[Dipesh Mehta, analyst]

This is slightly medium-term question. Just want to understand potential impact from generative AI or ChatGPT on overall business. How much volume impact do you expect to automation over the next 3, 5 years? And can you highlight portion of business, which likely to get first impacted? Where it is easier to commit versus, let's say, very difficult to automate kind of processes?

[Vipul Khanna, executive]

Yes, sure. So this is a very hot topic everywhere, the best rightly so. we are thinking of generative AI impact in 2 or 3 dimensions. One is the external dimension in terms of how do we bake that into our products and services. In terms of where it impacts most logically from an outside in, if you look at it, chat is a good use case. Today, when we humans chat with the customer once generative AI is able to work within an enterprise boundary, right, and work through sort of extracting data from different systems like a building system, a customer activity system, a pricing system, whatever else that comes out of their right product databases, et cetera. Once generative AI is able to work and pull out data from very structured databases. Then I think it's a good use case for chat to become very smart and generative AI helping humans kind of do that. Likewise, theoretically, we could see at this stage, we'll get there medium term. But as you see more and more voice-to-text conversion real time and then through that text, you can use in data AI to help an agent answer or service a question better, that's a wide sort of better CX and obviously far more greater efficiency in service in that part. So those are sort of clear examples of using it. Then there obviously intermediary use cases are saying can I use it efficiently for doing after call work, right? So typically, if I take 10% after I finish the call to capture what happened in my conversation with Dipesh, so that the next time Dipesh calls, and I have referenced to that. That part, the 10% of the 15% work can be automated, right? That's kind of the possibilities. And then you can extend it further to say, I can use it far more efficiency for internal training purposes, training my folks and stuff like that.As far as impact on back-office system is concerned, I think that will be a little bit longer at this stage, it looks like it will be a longer haul because, by definition, what you're doing in back office is the exception processing. If systems could process what they were doing in straight through processing rates, it could have gone to, right? So if you look at claims, example, in healthcare. Today, most of our clients would have auto claim adjudication rate depending on who they are and sort of how their systems are set up, anywhere from 70 to best-in-class as 90-some percent of adjudication rates. What we do as an industry as Firstsource is the fallout, which is the 30% to 10% or the 5% fallout, which happens. Those are invariably pretty complex, require data that we will require adjustment, et cetera, et cetera, and empathy as well kind of doing that. There, for us to find the specific use case of generative AI which can work specific to a client environment and the route set that they would have done in their engine. That's a longer haul. And we'll see movement there. But it will require some specialized investments out there by industry players, and we are looking broadly to say who do we partner with? And where do we apply first. So an area to really, really watch hot. It's an important development, and we are on it both externally internally to make sure we use it as an opportunity and then do what is right for our clients to kind of convert to that. Sorry, long answer, but I wanted to give you a color sense of how you're thinking about it on stage.

[Operator]

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to hand the conference back over to the management for closing comments. Over to you, sir.

[Vipul Khanna, executive]

Great. Well, thank you all. Thank you again for your interest, your engagement and your great questions until the next time. Thank you, and goodbye.

[Operator]

Thank you very much, sir. Ladies and gentlemen on behalf of Firstsource Solutions Limited, that concludes this conference. Thanks for joining with us. You may now disconnect your lines.