Happiest Minds Technologies Ltd

NSE:HAPPSTMNDS

Earnings Call Analysis

Happiest Minds' Transformative Quarter Driven by Acquisitions and AI Initiatives

Happiest Minds reported a strong Q1 FY '25 with revenues of $55.5 million, up 16.8% year-over-year. The company highlighted three key milestones: the launch of its Generative AI Business Unit contributing $855,000 in revenues, reorganization into industry-focused profit centers, and two strategic acquisitions—PureSoftware and Aureus. The acquisitions expanded their market reach and boosted growth, contributing to a revenue increase of 20.9% from the prior year. The company maintains an optimistic forecast, anticipating EBITDA margins between 20% and 22%, despite some short-term impacts from pay hikes and fewer billing days.

Transformational Quarter Ignites Growth Potential

Happiest Minds Technologies Limited marked a pivotal moment in Q1 FY '25, describing the quarter as transformational and crucial in setting a foundation for achieving the best fiscal year since their IPO. The company not only demonstrated strong top-line growth but also proved its resilience by sustaining margins above its historical guidance for 17 consecutive quarters. CEO Ashok Soota highlighted three key milestones: robust growth in their Generative AI business unit, effective reorganization into industry-specific profit centers, and the successful acquisition of two companies, PureSoftware and Aureus, enhancing their capabilities in key markets.

Financial Highlights Reinforce Strength

Happiest Minds reported revenues of approximately INR 489 crores, reflecting a year-on-year growth of 20.9%. In dollar terms, revenues reached $55.5 million, indicating a 10.9% quarter-over-quarter and a 16.8% year-over-year increase. The organic growth engine, coupled with the contributions from recent acquisitions, drove this impressive performance. The EBITDA was recorded at INR 117 crores, which constitutes 23.9% of total income and represents a 13.3% increase year-on-year and a 7.8% increase quarter-on-quarter. Despite significant one-time charges related to acquisition costs, the company showcased a solid cash conversion rate, contributing to a healthy liquidity position.

Strategic Acquisitions and Market Expansion

The recent acquisitions of PureSoftware and Aureus are pivotal to Happiest Minds' growth strategy, providing entry into emerging markets in APAC and Africa. These acquisitions have been consolidated into their financials, contributing to the enhanced service offerings in the healthcare and BFSI (Banking, Financial Services, and Insurance) sectors. The integration of these entities is viewed as a means to realize operational synergies and is expected to yield beneficial results in upcoming quarters, contributing further to revenue growth.

Guidance for Future Growth

Guidance for FY '25 has been adjusted to forecast revenue growth between 30% and 35%, primarily due to delays in the closing of acquisitions impacting the number of billing days in the quarter. The EBITDA margin is expected to remain steady within a range of 20% to 22%, maintaining the company’s commitment to operational efficiency. The management also indicated plans for annual pay raises effective July 1, which may impact margins temporarily but reflect positively on employee retention and satisfaction.

Commitment to Shareholders and Long-term Vision

Ashok Soota reassured investors of his commitment to the company, expressing confidence in achieving a revenue target of $1 billion by 2031. Although he sold a portion of his shares to support other personal initiatives, he clarified that this move was strategic and does not signify a lack of confidence in Happiest Minds' future. The overall dialogue reinforced a commitment to innovative growth pathways while enhancing operational capabilities, engagement with current customers, and the strategic direction of the company.

Earnings Call Transcript 2025-Q1

[Operator]

Ladies and gentlemen, good day, and welcome to Happiest Minds Technologies Limited Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

I now hand the conference over to Mr. Smit Shah, Adfactors PR, Investor Relations. Thank you, and over to you, sir.

[Smit Shah]

Thank you, Steve. Good morning, ladies and gentlemen. Thank you for joining us today on the Q1 FY '25 earnings con call of Happiest Minds Technologies Limited. Today, we have with us Mr. Ashok Soota, Executive Chair; Mr. Joseph Anantharaju, CEO, Product and Digital Engineering Services; Mr. Venkatraman Narayanan, Managing Director and Chief Financial Officer; Mr. Rajiv Shah, Executive Director and Member of Executive Board; Mr. Ram Mohan, President and CEO, Infrastructure Management and Security Services; Mr. Aurobinda Nanda, President and COO, Product and Digital Engineering Services; Mr. Sridhar Mantha, President and CEO, Generative AI Business Services; Mr. Sunil Gujjar, Head of Investor Relations.

With this, I would now hand over to Mr. Sunil for safe harbor statement, and to take the proceedings forward. Thank you and over to you, sir.

[Sunil Gujjar, executive]

Thank you, Smit. Good morning to all participants in the call. Welcome to this conference call to discuss the financial results for the first quarter ended June 30, 2024. I'm Sunil, Head of Investor Relations. We hope you have had an opportunity to review the earnings release which we issued yesterday evening.

Let me quickly outline the agenda for today's call. Ashok will begin the call by sharing his perspectives on the business environment and our results. Venkat, Joseph will then speak about financial and operational highlights. After which, we will have the floor open for Q&A.

Before I hand over, let's me begin with the safe harbor statement. During the call, we could make forward-looking statements. These statements consider the environment we see as of today and carry a risk in terms of uncertainty. Because of which, the actual results could be different. We do not undertake to update those statements periodically.

Now let me pass it on to Ashok.

[Ashok Soota, executive]

Thank you, Sunil. A very good morning to all participants in this call. I'm pleased to share with you that the current quarter has been a transformational quarter for Happiest Minds, not only that it has laid the foundation for making FY '25 our best ever year since the IPO. We have begun the year with yet again industry-leading performance on both top line growth and sustaining our margins above the guidance for 17 quarters in a row. I will leave Venkat to provide you the specific numbers.

The reason I called the reported quarter and the year as transformational is because of 3 significant milestones for Happiest Minds. Our Generative AI Business unit has had a great start. With universal recognition now of the importance of GenAI, we are eying towards long-term leadership in this critical technology. I will let Joseph give some more color on how we intend to achieve this.

Second, the reorganization of the company with the industry groups as profit centers has taken off and has enabled us to be thought leaders in providing the main specific solutions and services to our customers. Each of these industry groups will be an engine of growth for long-term success of Happiest Minds.

Third and the most important is that we closed 2 significant acquisitions. PureSoftware of significant size, and Aureus, the company which has got deep capabilities in reinsurance space. These developments will propel the growth this fiscal to our best year since IPO. I am happy to share that we have expanded our Board of Directors to include Mittu Sridhara and Rajiv Shah.

Mittu is one of the most strategic minds I've known for many years, and he is a seasoned executive, renowned for his strategic acumen in the technology sector and brings in extensive experience in serving market-leading technology companies.

Rajiv Shah, who has been a key leader at Happiest Minds, as a member of the Executive Board, is now inducted to the Board of Directors. Rajiv has played an important role in driving the expansion of the company's digital business unit over the past 4 years.

The induction of Mittu and Rajiv will add considerable depths to the Board's expertise. With these additions, Happiest Minds' Board of Directors now comprises 8 members.

Moving on to other updates. I'm happy to also share with you that during the reported quarter, Happiest Minds won the CNBC_TV18 India Risk Management Awards for 2024, being normal research prestigious platform is a validation on our commitment during the year to plan and execute on best practices and risk management. Our Happiest Minds are an integral part of our business and our systems, policies and practices are crafted to foster an open culture, enabling our people to discover their potential, and participate in shaping their own work-life experience. Over the years, we have been recognized on people first initiatives on many forums. During the reported quarter, we were recognized as only one amongst top 30 Future-ready Workplaces of India by Fortune India.

A few of you have written to me enquiring why I have sold some of my Happiest Minds shares, particularly since the company has been delivering industry-leading results, and we have projected FY '25 to be our best year since the IPO. This was done primarily to fund my other 2 institutions: SKAN, a not-for-profit medical and research trust and Happiest Health, both required investments to fund their growth and be on their way to become great institutions.

In the past, I have also mentioned that I will not permit my shareholding in Happiest Minds to go below 40%. The current sale has dropped my shareholding down to about 45%, and I do not expect to make any further sale in the next 2 to 4 years.

I have also exchanged a mail with the shareholders explaining this reasoning. I'm happy to tell you that I've received over 500 replies, and I'm delighted of this engagement with our shareholders.

In closing, let me assure you that my commitment to you, the shareholders and investors, and Happiest Minds is unwavering, and I remain confident of achieving our vision of achieving $1 billion revenue goal by 2031.

With this, I conclude my commentary, and over to you, Venkat.

[Venkatraman Narayanan, executive]

Thanks, Ashok. I'm happy to start by saying that we had delivered a quarter of very good performance with revenues in dollars of about $55.5 million. That has shown a growth of 10.9% Q-o-Q and 16.8% Y-o-Y. Now that number in constant currency is even better at 11.4% Q-o-Q growth and 17.8% Y-o-Y. The growth is a combination of our organic growth engine with a strong impacters from our recently concluded acquisitions. We reported a total income of INR 489 crores, which is a growth of 20.6% (sic) [ 20.9% ] from the previous year.

As a result of the reorganization, our Investor Presentation and fact sheet have undergone a few changes. I'll just call them out so that you will see those numbers as you go through our fact sheet and Investor Presentation.

We are now calling out our Generative AI Business Services revenues separately. The GBS BUs revenues include AI services, which is embedded in our revenue from the analytics in terms of excellence. We now have Product and Digital Engineering services as a new BU, formed by the merger of the erstwhile Product Engineering Services and basically business, services business. Revenues of PureSoftware and Aureus have been consolidated into the PDES business, that's a new deal that I just talked about. And there we consolidated with effective May 22 and May 24, 2024, respectively. This means our results include 40 days of PureSoftware and 38 days of Aureus.

PureSoftware has taken us into new markets of APAC and Africa, while Aureus takes us into Hyderabad. These new markets that have been acquired -- that have come through acquired businesses have also been shown in our fact sheet.

Coming to the other financial metrics. We reported an EBITDA of INR 117 crores, which is 23.9% of total income, and has shown a growth of 13.3% Y-o-Y and 7.8% Q-o-Q. We continue to maintain our good margin profile, which includes the acquisitions and also by influencing the levers available to us, like utilization and other operational efficiencies. We also continue to make investments in new technology areas and the new BU of GBS that I just talked about. We reported an operating profit, which we define as EBITDA excluding other income, at 19.8% of revenue. This is similar to the previous quarters. At INR 92 crores, this metric showed a Q-o-Q growth of 9.6% and Y-o-Y growth of 3.4%.

A question that comes up from our results is the drop in our [ PBT and VAT ]. During the quarter, coming out of the 2 acquisitions from an accounting standpoint, we have taken significant increases on account of 2 noncash charges and one cash charge. The noncash charges are amortization of intangibles and unwinding interest cost on deferred payments. The onetime cash charge is acquisition-related costs. The noncash charges of amortization and intangible show an increase of INR 6.8 crores and INR 1.5 crores, respectively. This is -- remind you, there are 40 days of the consolidation, so next quarter, we will get a full quarter impact. We also had a onetime acquisition-related cost of INR 6.4 crores. This is a onetime -- real onetime cost and a cash surge, which will not repeat.

On top of this, we also had an exceptional write-back of INR 13 crores in the previous quarter. So if you consider the INR 13 crores of exceptional write-back in the previous quarter, take it, along with the cash charge of the INR 6.5 crores of acquisition costs, we are talking about a swing of INR 20 crores on account of onetime seasonal -- not seasonal, onetime exceptional costs from -- if you compare our financials of this quarter to the immediately preceding previous quarter. If one way to adjust for these costs, our PBT would have been similar to like that of previous quarters in absolute terms.

Coming to certain other metrics, we have improved our DSO from 87 to 84 days. Cash on our books is about INR 1,560 crores. This is after considering up-front payments of PureSoftware and Aureus, which have been funded through a combination of internal accruals and overdraft facilities that we have availed on our fixed deposits.

Cash expended on payments of up-front consideration for the 2 acquisitions that we talked about was about INR 712 crores. We continue to report solid cash conversion ratios, and our free cash flow -- free cash conversion was at about INR 116 crores and almost equal to 100% of our EBITDA. The return on capital metrics of ROCE and ROE are at 22.4% and 13.9%, respectively. These ratios are expected to gradually move up as the benefits of consolidation of the acquired entities start to trickle in.

Including PureSoftware and Aureus, Happiest Minds is now 6,600 strong with a strong net addition of 1,431. These numbers also include 112 campus hires that we made during the quarter. Our gender diversity ratio stands at 27.7%, attrition on a trailing 12 months basis has dropped to 13.5% from the 16.6% of the previous year. We expect these numbers to trend at these levels.

Our utilization for the quarter has inched up to 78.2% compared to 75.1% in Q1. Here I would like to say there was a significant influence of both PureSoftware and Aureus, which have a reasonably good utilization numbers when compared to Happiest Minds.

Utilization in the next quarter is expected to trend a little lower considering the campus joiners and also we have got lesser number of billing days.

There is an NCD press release that you would have seen that we are planning to raise nonconvertible debentures. We have taken an in-principle approval from the Board to raise up to INR 250 crores through a combination of NCD and term loans. These NCDs will be short-term debt instruments, and we have been tapping the group to raise funds for general corporate purposes and as these come at an attractive effective yields.

On the M&A part, we had a great start to the year with the 2 acquisitions that we talked about. Both the acquired companies are excellent businesses, which have complemented our capabilities, and strengthened our presence in the BFSI and health care vertical. It also has taken -- they've also taken us to the new markets. An integration team is in place, which is working with an immediate imperative of realizing operational synergies with the acquired entities. We are very optimistic that these efforts will start yielding positive results in the coming quarters.

Guidance or forecast for the rest of the year or quarter. My perspective is our growth for this quarter has shown significant acceleration from the previous year. This momentum should continue as we progress through the physical, and we believe we are headed for a strong growth in absolute terms.

Effective 1st of July, in line with our regular appraisal cycle, we have rolled out our yearly pay increases, which will have an impact of about 250 to 280 basis points on our margins. Q2 will also be slightly impacted due to the lesser number of working days. Interestingly, we are one of the very few companies who have gone ahead with the pay increases while we have seen the others making announcements or delaying those cycles. We continue to maintain our forecast on EBITDA of between 20% to 22% in the medium term.

With this, I conclude my commentary. Over to you, Joseph.

[Joseph Anantharaju, executive]

Thank you, Venkat. Good morning to all participants in the call. I'm very excited to present to you the results for the first quarter of the new fiscal. Our growth this quarter has accelerated. And as Ashok alluded, we're on course to achieve our best performance this fiscal since our IPO. The reorganization of our industry groups as profit centers, which is effective the 1st of April, has started giving us positive outcomes. And to begin with, [indiscernible] teams of sales, delivery and domain members within each industry group has increased customer focus and are building on our proven land-and-expand strategy by focusing on our current development plans to expand our footprint in each of these accounts. We have 279 active customers and the average revenue per customer has increased to USD 840,000, as Venkat has mentioned, which is a testament to this strategy of land-and-expand that we adopted. The number of customers which give us more than $1 million in revenues has increased to a total of $58 million, and we worked with $55 million corporation with a good increase over the previous quarter.

Let me share some noteworthy events during the quarter, which are both within existing accounts and in new logos. At Happiest Minds, we use our engineering pedigree and vibrant product innovation culture to help build platforms that are trying to meet the needs of the business today and tomorrow. During the quarter for a U.S.-based provider of sustainable solutions, Happiest Minds was chosen to enhance the data platform and visualization by providing data-driven, actionable and compelling information for decision makers.

We help health care customers build an integrated ecosystem to support the entire continuum of care from pre-hospitalization to post-discharge. Happiest Minds has been supporting health care provider entity in personalizing interactions, generating insights to facilitate scale, enabling semantic data exchange and reducing administrative workloads. During the reported quarter, for the U.S.A.-based professional Board in the health care sector, Happiest Minds was chosen as a strategic partner to migrate to our cloud-based CRM solution.

Our IMSS business unit has delivered a great performance in the quarter. Our customers trust us to support, maintain and protect the mission-critical systems. Our strong capabilities across cloud, data center, digital workspace and enterprise networking coupled with strong partnerships across leading platform providers has helped us position as a preferred partner for our customers in digital assets. For the U.S.A.-based professional organization of emergency health care providers, the strategic multiyear cybersecurity engagement entails Happiest Minds, providing managed security services to prevent, detect and respond to cybersecurity incidents. Our solutions in cybersecurity's zero trust access offers a paradigm shift in how organizations approach security and hybrid work culture.

I'm happy to report that in the reported quarter for the largest professional sharing member in India, Happiest Minds has been chosen to provide managed security services and security operations center, SOC services. In the reported quarter, we launched a complete 360-degree IT-managed service offering, Happiest Minds' WATCH360 designed specifically to help organizations manage the IT environment effortlessly powered by ELLIPSE, our AI-infused platform. We believe this solution has immense potential to positively impact our customers' infrastructure and help them build a robust and secure environment.

Now coming to Generative AI. Our new GenAI Business Unit has got off to a slight start, as alluded by Ashok, with reported revenues of USD 855,000 during the quarter. Our customers are leading the [ process ] of GenAI to drive productivity enhancements, realize new revenue streams and drive automation efficiencies, knowledge-based processes, customer success, intelligent conversations through content, making sense of document repositories and software engineering are some of the key use cases, which we are seeing for application of GenAI. We are currently having about 50-plus conversations with customers and prospects, and we completed 15 POCs during the quarter. Rapid acceleration and adoption of GenAI across our customer base has resulted in a pattern of opportunities, doubling in just 6 months.

We have also been leveraging a strong partnership with Microsoft to make roads into some of these conversations and engagements. Some of the customers we work in this space are the leaders in the adoption of GenAI. Take, for example, the world's leading beverage maker, Happiest Minds is enhancing the sales process through a generative AI-enabled chatbot for actionable intelligence ambition making. The work on GenAI for this customer comes with the backdrop of another engagement where we have delivered impactful outcomes using our intelligent automation solutions across 20 different processes. I'm happy to share that over 75% of our workforce is already trained in GenAI tools, and we hope to cover the entire workforce in this quarter and the next.

As a digital company, we have leveraged GenAI in our own functions like HR, legal and talent transformation, building further depth in this technology. Our model is now able to match, resonates the job description and enable to sharpen the recruitment life cycle by 30% to 40%.

Coming to acquisitions, continuing where Venkat left, we began the year with 2 back-to-back acquisitions, which have put us back to the growth trajectory of achieving USD 1 billion revenues by FY '31. PureSoftware and Aureus have given us deep expertise and strong impetus to our growth story in financial services, health care and the reinsurance segments. The BFSI Healthcare and Life Science vertical, because of these acquisitions are now in the top 30 industry groups for us -- top 3 industry groups for us with revenue contribution of 17% and 16%, respectively.

PureSoftware has also got us into new markets of Southeast Asia and Africa, while adding a nearshore center in Mexico. Aureus has a strong brand recall in the reinsurance space with access to the largest reinsurance company in the world as a key customer, along with customers in the elective health care segment. The teams on both sides are very excited to partner and have made much progress in establishing processes around sales, GTM and driving delivery excellence across the larger Happiest Minds group.

As Venkat alluded, integration is underway and making good progress, and we are spending time with the leadership of these countries, which include -- companies, which include delivery heads, sales leaders and support function to harmonize our share vision and get more business leverage in terms of cross-selling. Our domain and our IPs and COEs and our practices are very actively engaged with the sales team of both PureSoftware and Aureus, while the sales team of Happiest Minds are leveraging the domain capabilities of the PureSoftware and Aureus team in various conversations.

We already have multiple conversations with customers and prospects with a few joint ventures. I'm happy to report that in this quarter, PureSoftware has been selected by a leading American multinational investment bank to drive the digital transformation program. Recently, PureSoftware's Arttha banking platform was awarded Best Banking-as-a-Service platform of the year at the 14th Africa Bank 4.0 Summit. We are very excited by the potential of this platform holds to take our IP business to the next level.

Let me now share my views on the current demand environment. Our sustained growth is on the premise of resilience and agility of our business model and we will continue to be laser focused on our clients' needs and quickly adapt to market conditions. We continue to further our presence across our customer base with a land and expand strategy. With customers being careful about this spend and seeking very targeted interventions for better ROR investments, our ability to identify these priorities and quickly pivot is very critical. In response to the demand environment and market challenges, customers too are calibrating their approach and we are seeing more restructuring and reorgz in the customer organization.

With our agility and agile approach as well as the recently announced industry group structure, we are taking consultative approach, adopting a high-tech approach to account management, being attentive to customers' needs and making investments to strengthen relationships, which are allowing us to expand our footprint.

With this, I conclude my prepared commentary, and we can now open the floor for Q&A.

[Operator]

[Operator Instructions] First question is from the line of Manik Taneja from Axis Capital.

[Manik Taneja, analyst]

Just for the benefit of the audience, while you did allude through the number of days of consolidation of PureSoftware merger and acquisition that we made to get absolute numbers in terms of contribution from these entities.

The second question was with regards to the comment that you made around certain one-off write-backs that you had in Q4. Just trying to confirm if that was called out as a gain in Q4? And what does this pertain to?

[Venkatraman Narayanan, executive]

Yes. We had called it out as a separate line item, that was about INR 13 crores of write-backs on account of unwinding of payout -- when you make an acquisition payout or if you don't -- you make a provision product and you don't make a payout, the credit, if any, comes through the P&L. So that was about INR 13 crores, which came in through Q4 financial.

And in the Q1 financial, INR 6.5 crores of acquisition-related cost, which in the early days, we could capitalize no longer under Ind AS has hit our P&L as a nonrecurring expense. So between the credit of INR 13 crores and debit of INR 6 crores in the current quarter, we are at about INR 20 crores [ of fixed numbers ]. And we had called it out as an exceptional item in our financials. In our press release, we have just -- or in our investor presentation, we have just corrected that -- this portion.

[Manik Taneja, analyst]

Sure. So Venkat also give some sense on the contribution of acquisitions in the current quarter, although the number of days [ integrated ] in the absolute contribution?

[Venkatraman Narayanan, executive]

[ Business by asset ], EBITDA -- so we discuss about EBITDA and operating margins. EBITDA sits about 23.9% compared to 24.5% last quarter and 25.5% same quarter last year. If you take out the other income, that number is at about 19.8% compared to about 20% in Q4, and it was slightly higher, 20.6% if I'm right in Q1 of last year. So that's the operating income, EBITDA result [ has incurred ].

[Manik Taneja, analyst]

No, Venkat, I was actually looking for the revenue contribution of the 2 entities, basically.

[Venkatraman Narayanan, executive]

Pardon me. I couldn't get that part.

[Manik Taneja, analyst]

I think I'm looking for the relative contribution of the 2 acquisitions that were made because when I'm looking at your standalone numbers, those numbers still appear to be soft and that's why I was just looking to did absolute contribution of the 2 acquisitions for the quarter.

[Venkatraman Narayanan, executive]

Yes. So see, we have only talked about consolidated growth. Now the standalone numbers, for example, don't reflect SMI numbers, which is growing significantly, which is an acquisition that we did last year, and the growth is coming out of the work that we are doing with the client of integrated approach to the customer placements like SMI. Macmillan, for example, is an organic growth. It got structured as an acquisition. So unfortunately, that also does not come into the standalone numbers.

PureSoftware, like Joseph mentioned, we have only 40 days of revenues, but we were working very closely with the management. Both the PureSoftware and Aureus at the beginning of the quarter, even before the deal was linked in terms of additional selling that was happening. So it's becoming quite a complex scenario to pull out organic, inorganic. But both put together, we are doing 17.8% Y-o-Y growth and Q-o-Q of 11.4%.

[Joseph Anantharaju, executive]

And just to add to that, the approach we are taking is to prioritize market and opportunities and business, and we're encouraging the sales team to leverage capabilities we have on both sides. So right before the announcement of the acquisition, we had enabled knowledge setting sessions where we had teams, especially the Happiest Minds practices, COEs and domains present are offering that capabilities and start working on RFPs, on proposals, on customer discussions. We also started leveraging talent pool. We've enabled mechanisms for PureSoftware and Aureus to reach out and get people who are available or even who can be made available to kick-start engagement. So we want to look at this as one revenue stream.

[Manik Taneja, analyst]

Sure. And just a clarification with regards to the full year outlook that we've shared after Q4. I hope that stays intact both on growth and margins.

[Venkatraman Narayanan, executive]

Okay. There's a slight correction. I had used the word -- not to pick and choose on the words, but I had said forecast because we weren't sure about the closing date, and I was estimating that we will close from April -- sometime in the first week of April. But unfortunately, discussions and documentation went down and slipped and it went down till end of May. Basis, my estimate of the first week of April, we had set 35% to 40% in terms of forecast for the revenue growth, but now it is 30% to 35% is that number.

As far as EBITDA is concerned, I had talked about 20% to 22%. Now that we have closed the transaction, and we have seen through the flow-through costs and the benefits that we can get from the transaction. We have done 23.9% for this quarter. And so 20% to 22% on the EBITDA number continues.

As far as the top line is concerned, I'm still holding -- calling it as a forecast, it is 30 to 35, primarily because of the loss of number of days that we had.

[Manik Taneja, analyst]

Venkat, you may also want to mention the absolute revenue growth we're expecting, whereby we are seeing that this will be our best ever quarter. You don't give the exact number, maybe above...

[Venkatraman Narayanan, executive]

It will be -- at 30%, it would be upwards of $53 million. We closed last year at about $196 million. So at 50% -- 30% at the lower end of the rates that I'm giving, we should be growing -- we should grow more than $50 million, $52 million.

[Manik Taneja, analyst]

Sure. And if you can elaborate on the near term, how could you alluded to the lower number of working days coming in August, September. This is something that you might have known even on April 1 when we're forecasting because that is kind of...

[Venkatraman Narayanan, executive]

That is -- yes, you're absolutely right. That is more from the standpoint of quarter-on-quarter variation rather money -- rather than in the [ sense ]. So that's got nothing to do with what we are holding out as a guidance or a forecast for the year. That's more from a quarter-on-quarter basis.

As far as the pay increase is concerned, that's something we knew. But the industry is behaving differently. Or the other participants are displaying multiple in different approaches to that pay increase, many of them have deferred it, many of them are not even talking about it, but we have gone ahead and we have committed. What we committed, we have continued to pay, keeping in line with our own culture and the way we are doing business. These are the two things I've given as headlines. Only to do a quarter-on-quarter explanation.

[Operator]

The next question is from the line of Apurva Prasad from HDFC Securities.

[Apurva Prasad, analyst]

Venkat, just another clarification to what you cited earlier. This change from 35% to 40% for FY '25, coming down to 30% to 35%, is this only the timing of PureSoftware and Aureus? Or is this organic growth, which you see it to be lower basis the near-term outlook?

[Venkatraman Narayanan, executive]

No. Largely, it is only that, Apurva. Largely, it is only that. But as we come closer, you will see 1%, 2% here and there adjustments. Because in our business, you've got committed pipeline or you can view 2 quarters. So there is always a little bit of hesitation from the sales team in giving you a number for the fourth quarter. But otherwise, if you have -- if we look at our plan and the way we are building our own pipeline and PureSoftware is working the way we are working together, that's the only main difference, Apurva.

[Apurva Prasad, analyst]

Got that. And on the service lines, could you explain why there is some weakness in the analytics and AI and security solutions, especially when the GBS unit seems to be tracking well.

[Joseph Anantharaju, executive]

So let me take that. If you look at PureSoftware and Aureus, more of the revenues come from digital infrastructure and applications. They have less of analytics AI and security. And that's the reason you see this going down as a percentage of revenues. But on an absolute -- at an absolute level, all of these service lines have grown. And if you look at conversely, this is a selling opportunity. And as we speak, the IMSS business unit is very closely engaged with both Aureus and PeopleSoft on some of their existing customers to cross-sell infrastructure and security division. Again, another area that they're tapping -- another 2 areas that they're tapping very aggressively around the automation, both business and business plus automation, RPA, as well as on test automation and on the analytics and AI side, where we have strong centers of excellence.

So in summary, absolute numbers have grown for these service lines. As a percentage, it comes down because PureSoftware and Aureus have lesser revenues from these streams. It also affords us a cross-selling opportunity that we are actively working on.

[Apurva Prasad, analyst]

Got that. And Joseph, would the addition in the F2000 customers, would that all be inorganic coming in from PureSoftware and Aureus?

[Joseph Anantharaju, executive]

No, we would have had a couple also coming in from organic, Apurva. So it's a mixture, actually. As you would have seen from the press release, we've reported quite a few -- and then, logo wins as example of case studies. So it's a mixture of inorganic and organic.

[Ashok Soota, executive]

If I can just add to what Joseph said, you appreciate that this is really the first quarter for GBS. So many of the things we are doing at the moment are like discovery projects or proofs of concept, these will move in, in subsequent quarters into the final projects that we're going to execute. And to that extent, you'll begin to see those numbers even on a percentage basis beginning to change from quarter-to-quarter.

[Apurva Prasad, analyst]

Got that. And I had another one on the top account, which has come back to growth in after 3 quarters. Any outlook that you can provide there?

[Venkatraman Narayanan, executive]

I think the customer, the higher space has been a little challenging and these customers in the higher space, though there is a little bit more oriented towards professional development. And as you likely pointed out that they have stabilized in the last 3 quarters and we expect this to continue. And as -- now that they've level set their technology investment as and when they get growth or they make acquisitions, we expect that this will lead to growth in this account.

[Apurva Prasad, analyst]

Right. And on margins, Venkat, you called out the headwinds for next quarter, but with all the pluses and minuses, you think lower end of the band which you have given out that, that can be defended.

[Venkatraman Narayanan, executive]

20% to 22% EBITDA, we should do -- we should be between that -- and better than the lower end, Apurva.

[Apurva Prasad, analyst]

For even Q2.

[Venkatraman Narayanan, executive]

3.9% this quarter. So that's my expectation.

[Operator]

[Operator Instructions] The next question is from the line of Ankit from [ Aditi Ventures ].

[Unknown Analyst]

So on the net profit, you called out aspects for onetime charges for this quarter. But if I look at overall for this complete year, do we think we can deliver growth on the net profit line over the course of the entire FY '25?

[Venkatraman Narayanan, executive]

Yes. Look, the point I would like to look at in the year of any acquisitions, we looked at other -- we look at many other companies, it takes about at least 2, 3 quarters, but these onetime costs of amortization of intangibles, unwinding of interest, these kinds of accounting costs, if I call it, to get completely recouped from the business growth, it takes about 1 or 2 or 3 quarters. So we should be back to that kind of a number back to our typical PBT numbers, hopefully in about 2 to 3 quarters. That's assuming that all goes well with the growth of the acquired companies and our own organic growth. So that's one.

And I think as we grow larger, we should also look at the profit growth in absolute terms, EPS growth, cash EPS growth, these and the return on capital employed as a matrix, because sometimes getting stuck with this percentage of new profit could mean that we don't make investments in the right hand. For example, our financials also include about $1.5 million of investment on [indiscernible]. So if one were to not make those investments at the right time, we will not be able to grow in the future. You should afford -- allowances for those investments and these accounting costs in long term is [ connected ] that the acquired companies mixed efficiencies and start performing at similar levels or better levels than what it was [ at the end process ]. That's what I would suggest. So which is why I talked about EBITDA as a metric. And in fact, this time onwards I have also taken out the other instant part, talking about operating margins, because that really shows you the health of the business.

[Unknown Analyst]

And secondly, I've just been coming across some advertising by contractors like [ Etam ], which are hiring very aggressively in the Indian market or seem to be hiring in the Indian market. Is an increase in competitive intensity something that you're kind of seeing on ground, and is that something that we should be looking out for?

[Joseph Anantharaju, executive]

We really have not seen much of competitive intensity from some of our similar size or slightly larger resident. But what we are seeing is more of the GCC is getting established. And this has been a trend for the last 10, 15 years. And it's something that we have worked and we are working into our strategy mind.

[Operator]

[Operator Instructions] The next question is from the line of Ankit from Aditi Ventures.

[Unknown Analyst]

Just following up on the earlier commentary that, at this time we are not including the other income in the operating margin. So just for a clarification, what would be the operating margin guidance that we're giving of 20% to 22%. Does this not include the other income altogether?

[Venkatraman Narayanan, executive]

No, no. The guidance or the forecast that I'm talking is about EBITDA of 20% to 22%. Just to give you the health of the business, I removed the other income and gave you this number of operating margin with this EBITDA minus other income, which is 19.8%. So we are still working on to EBITDA 20% to 22% as other income.

[Operator]

[Operator Instructions] The next question is from the line of Srinivas Sampath, an Individual Investor.

[Unknown Attendee]

My question is to Mr. Venkat. Venkat, this is regarding your NCD proposal that you have put and you set your own [ array ] as around INR 250 crores. Is it additional debt that is coming on? Or is it that the replacement of all the overdraft you said you took on fixed deposits -- basically to know like whether finance costs are going to go up or it's a replacement in the yields are lower, so expecting the finance costs to go down.

And the second thing is, in your revenue, since you closed the 2 acquisitions around the end of May, this month would have probably captured only 34 days of revenue. So do you expect the revenues to be a lot higher considering that you will have full 3 months for the newly acquired entities?

And the last point is on the [ HCL ], this is for Mr. Ashok Soota. I appreciate that you needed to sell for investing in your new business. But to be very fair, and what was quite disappointing was that, the explanation of that did not come immediately after the sale, and it took a lot of time by which the -- most to the business channel had characterized it as the promoter reducing the stake and causing phenomenal damage to the stock price. And your explanation came quite late. And in the future, some of these could be avoided, it would have helped a lot.

[Venkatraman Narayanan, executive]

Yes. So let me talk about the full quarter, in fact, yes, the next quarter will have 90 days of the full quarter impact on account of PureSoftware and Aureus. That's right.

Second is on the NCD program. So we already have INR 125 crores of NCD at a certain price, which is treasury linked plus a percentage of increase on top of the treasury linked rate. So we will replace that or we'll replace the working capital lines whichever, because the rate of interest is currently -- we are getting it as much competitive rates as our credit profile is improving, and we're also having -- we're having the other revenues to put this money to use. So it will be used to retire existing debt or replace the existing debt. And it's also important to keep a chain -- a supplier of debt in the market because that keeps our papers available, tradable in the market, the debt market, as I speak, and that gives you an avenue tomorrow to raise capital if required for any acquisitions. But right now, we are not doing this for acquisition, but this is just to replace the existing debt.

And the third thing is, when you talk about any line of credit, a line of credit comes at a cost of about 0.75% of commitment cost. In India, we don't have this concept of line of credit. You only get a letter of intent, but nobody gives you a line of credit like in the U.S. markets. So instead of having a line of credit, finance people like us, what we do is we will raise this money, and when the markets are there, the liquidity is the market you raise it and you deployed into something like a fixed investment, fixed deposit, and there is a gap of some 0.6%, 0.7%, which is the effective cost of that credit -- line of credit available to you in case you need to do an acquisition or in case you need that to repay a certain line of credit or anything else. So that's the way we visualize and see these. And you borrow when the rates are good, and you take care of the -- you take advantage of the market momentum retardations. So that's on the NCD.

And if you look at it, our interest cover ratio is improving, our debt coverage ratio is improving. Debt-to-equity, obviously, the formula is, including working capital. But if you exclude that, we are at a healthy 0.3%, 0.4%. It brings in certain operating leverages into the company across post cost of -- post-tax cost of these debtors is really worthwhile to make sure that, that's used for capital formation in the new business like [ CKS ] that we are talking about. So there is enough reason for borrowing decent amount at an interest rates, which are compelling to make sure that you are investing that into business, which is giving you a lot higher IRR. Our return on capital employed is 22% and on equity is 13% -- or 14%. So return on capital employed, 22% means, I am able to generate that kind of an IRR in the business, fundamentally that are...

[Unknown Attendee]

The follow-up is that now that you said that your -- tempered the growth for the year to, let's say, 31% to 32%, you would have a fair idea of -- I mean, this particular year is going to be a little difficult for us to just work out what could be a profit after tax and all that. Would you have a ballpark figure of what would be end that earnings per share for the end of the year, not holding you to any number, just going by whatever ballpark figure that we have quote, what would we get? Because last year you ended with an earning per share of INR 16.75, INR 16.78, what would you probably end the year with?

[Venkatraman Narayanan, executive]

We're not -- I'm not guiding on that.

[Unknown Attendee]

I'm not holding you to that, but just a fair -- I mean assuming that you are also doing the guess work along with me. What would you say that would be the number?

[Venkatraman Narayanan, executive]

I would hesitate. Let me say [indiscernible] making that guess work, maybe after the Q2, we'll have a better fit on how this annualization works. Because typically, what people do is annualize 1 quarter into 4 and give you a number. But with this quarter having one-offs, we should not make such an attempt. But if you take that, maybe, an earnings per share of very similar to that of last year, which is why I said again, maybe EPS is not the right metric during the [ formally ] this year or other integration years, we should look at cash EPS. Because if our main INR 116 crores of EBITDA, almost INR 116 crores has dropped into my cash flows, which you can see in my cash flows as cash balance. So that shows the health of the interest or health of the company and the operations. My DSOs improved. My working capital ratios have improved. And obviously, the business metrics, Joseph talked about, they all improved.

[Operator]

The next question is from the line of Ankit from Aditi Ventures.

[Unknown Analyst]

Could you give the exact EBITDA margin this quarter are a little lower than the same quarter last year. And I do understand PureSoftware is a 40-day integration. But even if I look at from a 90-day perspective, do we feel the confidence that PureSoftware is actually [ GPW ] accredited and also that it has a similar or a higher margin profile to our organic business? Or can we expect a compression in margins from that [ company ]?

[Venkatraman Narayanan, executive]

No. I did cover this in the last -- their margin profile because see, smaller companies don't keep the kind of cash -- slightly larger companies like us do. So they were working on a 19%, 19.8% margin without the other income. So it's necessarily similar in terms of margin profile with us. And they -- other than the slight lumpiness because of the product business, they've got a good margin profile, and I don't think there's a huge compression risk on account of PureSoftware. And we have to, in fact, improve on that margin profile because through integration that will be quite a bit of cost integration benefits that have come out.

[Operator]

As there are no further questions from the participants, I would now like to hand the conference over to Mr. Sunil Gujjar for his closing comments.

[Sunil Gujjar, executive]

Thank you for joining us today. We look forward to hearing from you again. You can reach out to us on [e-mail]. Thank you.

[Operator]

On behalf of Happiest Minds Technologies Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.