Happiest Minds Technologies Ltd
NSE:HAPPSTMNDS
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
699.7
945.3
|
Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Ladies and gentlemen, good day, and welcome to the Happiest Minds Q4 FY '24 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Apurva Prasad from HDFC Securities. Thank you, and over to you, sir.
Thank you, Rea. Good morning, ladies and gentlemen. Thank you for joining us today on the Q4 FY '24 Earnings Call of Happiest Minds Technologies. On behalf of HDFC Securities, I would like to thank the management of Happiest Minds for giving us the opportunity to host this call. So today, we have with us from Happiest Minds, Mr. Ashok Soota, Executive Chairman; Mr. Joseph Anantaraju, Executive Vice Chairman and CEO, Product and Engineering Services; Mr. Venkatraman Narayanan, Managing Director and Chief Financial Officer; Mr. Rajiv Shah, President and Executive Board Member; Mr. Ram Mohan, President and CEO, Infrastructure Management and Securities Services; Mr. Aurobinda Nanda, President and COO, Product and Digital Engineering Services; Mr. Sridhar Mantha, President and CEO, Generative AI Business Services; and Mr. Sunil Gujjar, Head of Investor Relations.
With that introduction, I'll hand it over to Sunil for the safe harbor statements and to take the proceedings call. Over to you, Sunil.
Thank you, Apurva. Good morning to all participants in the call. Welcome to this conference call to discuss financial results for the fourth quarter and year ended March 31, 2024. I'm Sunil, Investor Relations. We hope you had an opportunity to review the earnings release 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 our financial performance and operational highlights. After which, we will have the floor open for Q&A.
Before I hand over, let me make 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 segments periodically.
Now let me pass it on to Ashok.
Thank you.
Sir, you're not audible.
Can you hear me clear now?
Yes, sir.
Okay. In FY '24, your company achieved industry-leading revenue growth of 11% in constant currency. We beat our EBITDA guidance for 16 quarters in a row, with an EBITDA margin of 24.6%. Not only has the year been excellent in terms of performance, but we, at Happiest Minds, are excited about the future due to the transformational changes we introduced in FY '24 and the acquisitions we have closed in the early days of FY '25. So much so that I may say that FY '25 is going to be our best every year since our IPO. These changes have enabled us to project with confidence that in this year, we will be back on track to achieve our vision of $1 billion revenue by 2031. We required 25.3% [indiscernible] that is compounded average growth rate when we announced as goal on September 2021. We envisage that we now need only 22% CAGR by the end of FY 2025 to achieve USD 1 billion in revenue by 2031.
The transformational changes I referred to above include several which will accelerate the future growth or Happiest Minds. First, we established a business unit focused on generative AI which was called GBS, an abbreviation. And I must mention that we are the only company which has created a dedicated business unit for this. And the reason is it's the most transformational change we've seen in the last 40 years in the IT industry, and we want to capitalize on that opportunity.
We created a new vertical organization structure contracting of 6 new industry groups. We then took the rest of our business, which was functioning as 2 separate business units, PAS and DBS and integrated them into a single business unit product and digital engineering services.
We have also acquired 2 strategic assets, PureSoftware and Macmillan Learning. The GenAI business unit, GBS, under the leadership of [indiscernible], President and CEO of the unit, is generating many new business opportunities. We already have 14 active customers across various industries covering 20 projects which shows you that when you enter a customer account, you get multiple use cases in those accounts. The [indiscernible] include contextual chatbots, learning simulators, contract management sentiment analysis and content generation. Building on the learnings from such engagements, we are also creating replicable solutions across industrial technology streams. So therefore, in all of these areas I just mentioned, we can replicate the same solution for multiple customers.
Our growth in the plan includes training all our engineers in GenAI. The GBS business unit is already 70 people strong and expect it to grow t 250 by the end of this fiscal.
I mentioned the 6 new industry groups. This is really structured under 6 leaders, but we actually cover many, many more industry verticals. These include Industrial & Manufacturing and Energy & Utilities under 1 leader, healthcare and life sciences, retail, CPG and logistics; and then we have BFSI, which the industry is aware what it stands for; high-tech and media and entertainment under [indiscernible]. And then we have [indiscernible]. So each of these clusters will operate as independent profit centers led by experienced industry managers and have dedicated teams with deep domain expertise, aligned for customized solutions and faster response times. So you can see that this is 6 new growth engines that we've created.
The Executive Board has facilitated the realization of 2 significant acquisitions, each strategically aligned to enhance organizational profitability and productivity. It has taken us some time for us to complete these acquisitions as we have been very selective with our choices. The wait has been worthwhile as we have acquired complementary and very valuable assets.
These new acquisitions have cumulatively added 1,250 Happiest Minds to our team and have further strengthened our key [indiscernible] of BFSI, healthcare and EdTech.
I'm coming now to the unique capability that we have built in Happiest Minds, and this has been going on over the last 2 years, and I believe it's, again, another transformational change. We've built the capability in bioinformatics, which no one in the industry has. This comprises experts in molecular biology, data scientists, data engineers and health care domain specialists. The team is working closely with the medical research community from prestigious medical institutions in India and abroad. The team is also working on finding solutions using metagenomics on gut microbiome, anomaly detection in MRI and CAT scan images and conducting large cohort reserve studies to identify early predictions in stroke, cardiovascular diseases, et cetera.
You won't hear about this or see about this in any other companies portfolios. And not only are they unique, they're also transformation for us because they are very significant value-added areas, which will be a great value to the entire -- I'd say the entire population.
Joseph Anantharaju, the Executive Vice Chairman, who's been responsible for the consistent success of the DAS business since inception has taken responsibility for the integrated PDES business units, which will continue to focus on investing in cutting-edge digital technologies and engineering skills. And we've made a lot of progress in our ESG efforts, and we have been recognized as the ESG Champions of India 2024 by Dun & Bradstreet. This has been possible due to the leadership of Aurobindo Nanda, our President and CEO for PDES, supported very much by the team under Venkatraman, our CFO.
Happiest Minds places sustainability at the forefront of its strategy, striving for accelerated programs in the ESG realms. A significant portion of the CSR budget is dedicated to supporting environmental causes, including tree planting and adopting the goal of becoming carbon neutral by 2030.
Rooted in mindfulness, our culture emphasizes being mindful and doing mindful. Central to our identity are of Smiles values seamlessly integrated into our day-to-day operations. Embracing the mission, happiest people, happiest customers. We've prioritized the well-being and professional development of our team members, ensuring we have ample opportunities to enhance their skills and progress within the organization.
I'll touch on an area and that is our recognition under the, Great Places to Work Institute, for being a whole range of awards that we've got over the years, they are amazing when you consider both the range and the continuity of these awards, be it the Best Places to Work. Overall, the best places for women, the best places for health and wellness. Joseph will give you more details about these and the other awards that we have won.
I extend my sincere appreciation to our customers for their continued trust and confidence in Happiest Minds and to our delivery teams, which have consistently delivered customer happiness.
I want to thank all of the support teams, which will make the results possible. I am thankful to our Board of Directors, shareholders and all stakeholders for their supportive guidance in creating an organization designed for perpetuity as inclined articulated in our Vision 2031.
Let me conclude by wishing you all good health success and happiness. Over to you, Venkat.
[indiscernible]
Can you speak directly.
[indiscernible]
It's muffled, sir.
[indiscernible]
Can you speak directly to the laptop, please?
[indiscernible]
There is some disturbance, Venkat.
Is Joseph on the line?
Yes, sir.
I think Joseph can start while Venkat sort this out.
Can you hear me now?
Very loud and clear. Very good, Venkat. Go ahead.
Sorry about that. Ashok, and apologies for slight [indiscernible]. Good morning to all of you.
Let me begin my commentary by giving you an update on the fiscal and then talk about the quarterly numbers. We ended the year with a total income of INR 1,710 crores showing a growth of almost 14%. Operating revenues in U.S. dollars was $196 million, showing a growth of 11% in constant currency and very close to our guidance of 12%.
Our EBITDA at INR 421 crores grew by about 11% and stands at 22.6%, meeting the upper band of our margin guidance range of 22% to 24%. We have now beaten our guidance range on this front for the 16th straight quarter. We were able to sustain our margins despite pressure on account of increases, strong net additions, campus hires and continued payout of our committed variable pay.
Profit before tax, PBT, was INR 335 crores and at 19.6% of revenues. PAT grew by about 8%, while profit after tax, PAT was INR 248 crores, 14.5% our revenues and also showed a growth of 7.5%.
While we have all along been reporting and guiding on EBITDA, we would like to start reporting our operating margins as well as we go forward as I believe that will be relevant in an environment of rapid growth and investments both organically and inorganically. Our cash conversion remains strong with a free cash flow of about INR 411 crores for the year. It's about 97.5% of our EBITDA.
At year-end, we held cash balances of about INR 1,364 crores, including the INR 500 crores raised through QIP and the INR 125 crores that we had raised through an issue of nonconvertible debentures. We are now deploying part of these reserves into acquisitions, 2 of which have been announced during the past few weeks.
Our return on capital employed, ROCE stands at a healthy 22.3% while return on equity is at about 17%. As I have mentioned during our prior interactions, our return on equity has dropped mainly due to the capital base, and we should now start improving on that front as we integrate the acquired entities, which are synergistic, profitable and cash generating.
Now coming to the highlights for the quarter. We have reported revenues for the quarter of $50 million, a sequential growth in constant currency of about 1.4% and year-over-year growth of 9.5%.
Total income was INR 443 crores, a sequential growth of 1.9% and 14.5% over the previous year. EBITDA quarter was INR 108 crores, which stood at 24.5% of revenues and showed a growth of 7.6% over the previous year.
PBT was INR 96.2 crores, which is 21.7% of revenues and showed a growth of 21.8% over the previous year. So as you can see, all the metrics, whether it be for the year or for the quarter, have been growth focused in growth of [indiscernible].
Let me now switch gears to provide you some operational highlights. We ended the year with 250 customers, a net addition of 13 during the year. We crossed a significant milestone of 5 [indiscernible] Happiest Minds, our people. This is only organic numbers. We have not added the inorganic. Ashok during this talked about adding 1,250 from the 2 acquisitions that we [indiscernible].
At the end of the quarter, we stood on an organic basis at 5,168 people and showed net additions of 251 Happiest Minds during the year.
Our utilization for the quarter was 75.1% compared to the 76.7% in Q3. The drop was mainly due to investments in hiring for the GBS business unit and recent campus sites who are going through the training [indiscernible]. Adjusted for these, our utilization should have been closer to 76%. This is a definite lever that we have for improvement as we look into the next year.
Attrition on a 12-month basis dropped to 13% from 19.80% in the previous year, and we expect these numbers to continue trending at these levels.
Happy to state that keeping in line with our progressive dividend policy and capital allocation discussions, our Board of Directors of the company has a meeting held on May 6, have recommended a final dividend of INR 3.25 per share, subject to shareholder approval. This would take our total dividend for the year to INR 5.75.
Now looking ahead, we'll continue to fuel and focus our organic growth through investments in people, capabilities and essentially the generative AI business service. We will put into actions all efforts to pulling business and deliver value to our customers by integrating our business first through vertical approach.
Our COEs of automation, analytics, security today stands on their own merit and are significant in terms of size and capabilities, and we will continue to invest in that.
Growth through inorganic means has been our stated objective and forms an integral part of our vision to be in $1 billion enterprise by 2031. As Ashok mentioned, we are on track to achieving that goal by us starting to grow at a CAGR of approximately 22%.
We have recently announced 2 acquisitions, Macmillan Learning and PureSoftware, we have closed the first one while hoping to close the second during the current month. Plans are already [ effort ] to integrate our businesses to harness the value coming from the synergies.
I'm almost at the end of my commentary, and before I hand over to Joseph, I'm sure the one question that is looming large in all your minds will be our thoughts on growth and profitability for the next year of FY '25. While not giving out the guidance, we are estimating a growth of between 35% to 40% in terms of revenues for FY '25 with margin being in the range of 22% to 24%. These are estimates that consider significant investments and acquisitions and the resultant drop in cash reserves and other income investments in GBS and time taken to pulling synergies coming out of the acquisition.
Before I hand over to Joseph, just restating the obvious, the acquisitions that we have made are of profitable companies and have grown EPS and capability [indiscernible]. Thank you. Over to you, Joseph.
Joseph, we're not able to hear you. Joseph, sir, we're not able to hear you.
Operator, is the line active for Joseph?
Yes, sir. I guess he's on mute. Joseph, sir, could you please unmute yourself? Joseph, sir, your line is on mute. Could you please unmute yourself?
Hello.
Yes, sir, you're audible. Joseph, sir, your line is on mute. Could you please unmute yourself?
Maybe [indiscernible]. So not able to unmute.
Sir, now you're audible.
No, that was Ashok. I don't think Joseph is audible.
Sir Joseph is connecting back. 1 minute, please. Joseph or is connected.
Yes. Can you hear me now?
Yes, sir.
Yes.
Okay. I don't know if I'm sure I could hear you all, but sorry to [indiscernible]. Thanks, Venkat, and good morning to all of you all.
The results for the year reflects the 360-degree value we create for our customers and the ability to do that with rigor and discipline. I'm very happy to share that in the reported quarter, we crossed a significant milestone of USD 50 million in quarterly revenues and USD 200 million on an annualized basis. This has been possible due to our focused efforts on account planning, ability to win new logos of consequence while investing significantly in our business to realize new channels of growth for Happiest Minds.
The sustained growth comes against the backdrop of an uncertain macro due to economic, geopolitical and industry-specific conditions. At the same time, tailwinds such as universal recognition of the importance of AI and GenAI.
Our razor-sharp focus on land and expand coupled with quality execution has led us to penetrate deep into our customer strategic spend as can be seen from the increase in our customers' cohorts. The number of USD 10 million customers has increased by a total of 2, and the $1 million to $3 million cohort has increased by good 5 to a total of 37. And again, the number of USD 1 billion customer increased by 9 during the year.
This year's annual customer happiness survey showed an increase over last year's impressive Net Promoter Score of 60 to reach our highest-ever score of 65 and an overall satisfaction level of 7.97 on a scale of 9. Results of this survey reflects our efficient and quality delivery, engineering excellence and product account management practices.
As a technology-driven organization, we are constantly learning and growing to stay ahead of the ever-evolving digital world.
During the year, our learning platform enabled 4,900 Happiest Minds to complete over 1,44,000 hours of training, averaging around 33 hours per Happiest Minds.
Our concerted and sustained people engagement programs have led us to consistently be recognized by various forums or multiple categories as alluded by Ashok. Some of these are top 50 India as Best Workplace in IT and ITBPM in 2023. Top 50 India's Best Workplaces for Building a Culture of Innovation in 2023. Top 50, India's Best Workplace for Women Paying [indiscernible], and this is 3 years in a row. Top 50 India's Best Workplaces in Health and Wellness for 2023 and 2 years in a row.
Some other notable awards that serve as a testament to our inclusive culture and proactive initiatives include 100 Best Companies for Women in India by Avtar and CareMount, ranked #2 in top 30 Future at Workplaces 2024 by Fortune India.
Let me now share my perspectives on the demand drivers. All strategies continue to lead to technology and reinvention with customers remaining committed to their digital transformation journey, be it modernizing the core, reimagining user experience, using data and analytics for better decision making or securing technology investment to a robust security layer. Enterprises are increasingly looking to deploy AI scale and leverage generative AI to solve business problems, automate processes and improve productivity while launching new products and solutions. Customers look up to Happiest Minds to guide them in this journey from ideation to execution.
Let me give a few examples here. For EnerCom, which is championing sustainable energy generation from onshore wind since 1984, Happiest Minds was chosen as a strategic partner to build a platform, which optimizes wind energy generation. This also enables us to impact environmental and sustainable causes. Recently, MindSculpt Analytics, a health care solutions company that uses advanced artificial intelligence and machine learning techniques to deliver tailored medical diagnostic solution has chosen us to build their Preventive & Diagnostics platform with the end goal of providing accurate and early detection and prevention of many ailments.
We strengthened our relationship with a global hyperscaler by expanding our presence into a second business division to design and configure an end-to-end secure and scalable connected vehicle platform on their cloud platform.
We have been rapidly building our GenAI capability and business with much success as mentioned by Ashok. The Southeast Asian bottling operations of one of the largest soft drink companies, Happiest Minds is engaged in building GenAI solutions that allow employees to convert in both local language and English against enterprise knowledge bases.
Happiest Minds is the largest global PIMCO partner with more than 350 dedicated practitioners and brings 10 years of successful implementations to global and mid-sized enterprises. During the reported quarter, a global movie chain chose us to provide digital transformation services relating in the PIMCO platform.
Coming to the other significant development on M&A that Ashok mentioned, we're pleased to announce signing of a definitive agreement to acquire 100% equity interest in PureSoftware Technologies and Macmillan Learning India. PureSoftware acquisition strengthens our capability in BFSI, health care, and life sciences and will allow us to target more new logos in these verticals while expanding with existing customers.
We are excited to -- by the potential to cross-sell analytics, GenAI automation, infrastructure management and cybersecurity services to PureSoftware their customers and drive accelerated growth for Happiest Minds.
In addition to augmenting our presence in U.S.A. and India, Happiest Minds will get an offshore development center in Mexico and offices in Singapore, Malaysia and Africa.
Macmillan Learning India Private Limited, a wholly owned subsidiary of Temecula Group, has been operating as an offshore development center providing software services to the Macmillan Group. This acquisition strengthens Happiest Minds at the virtual and deepens the existing relationship with the company, making us a strategic partner for the Macmillan Group, a global leader in learning, education and publishing.
As we cast our gas forward, while the demand environment continues to be affected by macro and geopolitical situations, our pipeline continues to be strong, though with elongated deal cycles.
In growth markets like India, where we have a sizable presence, the pipeline of opportunities is at a record high.
The recent result, as mentioned by Ashok, has helped us to fine-tune our market approach and engage in deeper discussions with customers on their business problems and plans on a new technologies like GenAI automation, AI, et cetera.
The newly formed industry groups are working closely with the GBS BU and our COEs to incubate solutions that are targeted for a particular domain or customer problem.
To summarize and conclude, we will continue to fuel our long-term growth aspirations through continued investments to enhance our technical capabilities and venture into new markets through acquisitions.
With this, I conclude my commentary, and we can now open the floor for Q&A.
[Operator Instructions] The first question is from the line of Apurva Prasad from HDFC Securities.
Congratulations on the quarter. So my question is on the demand environment and really the growth visibility on the organic business. And I'm asking, especially in the context of high variability last year in the organic growth. So could you expand on that gap between the lower end and the top end that you're looking at for next year when then you said 35% to 40%, especially on the organic side?
Venkat, go ahead. The estimates that Venkat has given, I think the important thing is given the fact that we've done these acquisitions and you can't be quite sure exactly whether everything will work out as planned, we have not really -- and even in the past, actually, we never really segregated our guidances. But your question is very valid. We really do want to see the organic momentum, given the fact that many of the leading players have obviously shown much lower growth rates than we have done in the past. So it's good to know where we see the market heading for our environment and Venkat will add on that.
Thanks. A quick back [indiscernible] calculation, will suggest that there is a very good element of organic growth taken into those numbers because we know what's the top line of PureSoftware, Macmillan is if you can call it, it's such a roll-up. It's nicely integrated. It's actually gone into our business. It's nicely impacting. I would actually say that that's an organic growth basically because we were working with them and then we were able to expand our footprint into Macmillan through this acquisition. And this only opens up new go for us within that account, and we're just keeping in line with our land and growth strategies -- land and expand strategy.
So there is a good element of organic growth baked into the 35%, 40%. Why I mentioned estimate rather than a guidance is because closing of a recently large size acquisition like PureSoftware will take some time while we have guided for closing by the [indiscernible], we are hoping that we are able to do it earlier. It could also slip by 15 days of [indiscernible]. And that will have a reasonably significant impact on the revenues, which is why we have used the word estimates, both for margins and for the bottom line.
Just to understand on the variability at the lower end than the bottom end, and I'm assuming that would be driven by the outlook on the organic business. Is there a certain set of assumptions which keeps the organic business estimates as why is that?
Not really. That is if you get into saying that the entire variability is attributed to organic, that's when you come to that conclusion that we are hoping that organic growth is being wide. Of course Both business, PureSoftware has also taken certain ambitious targets, certain targets. We have also taken upon targets both of them and the existing base is baked into this number of the estimate that we are giving for the next year, which is by I'm trying to keep a larger range.
Just to add, Venkat, there's also a bit of a bit of cross-selling that has been incorporated out here. And it will depend on how quickly we close and come together and able to reach out to each of those customers. So that adds also a little bit of variability out here to the 35% to 40% range that Venkat has mentioned. So it's not all attributable to organic.
Apurva, if I can also add, actually, our organic outlook has never been stronger. But you can see that what have we done, we've created 6 new growth engines in the industry groups. We created GenAI GBS apart from the acquisitions, which will create this cross-selling opportunities. So when you see the growth that you're going to get, and then I will add the bioinformatics capabilities that we're building, I mean it's not small because and you see that reflected in the growth of our health care vertical practice when you see those numbers next year.
Most of those orders that we are talking about in that field actually came in last year but which will expand in the coming year, and that's all organic growth. It's a very, very unique growth opportunity. So I don't see anybody having the sort of momentum on organic growth that we have in the industry today.
Even with whatever may have happened last year, it was still an industry-leading growth, and I think we'll do significantly better than that in the next year.
Next question is from the line of Dipesh Mehta from Emkay Global.
Just one question. If I look of our Q4 growth in FY '24 laid out weaker than what we expected, do you expect some of the factors which impacted, let's say, last couple of quarters growth trajectory, are changing and improving entering into FY '25 for industry as well as for us?
Joseph?
Sorry, just coming in Venkat, I missed that question out. Hello?
Should I repeat it?
Yes, please.
So Q4 FY '24 and FY '24 growth, if I look at it, it played out weaker than what we expected. We guided 12, we came at 11 because of softness in Q4, and I think some softness we witnessed even in last couple of quarters. Are we seeing any change factors changing from organic business perspective for us as well as the core industry which is incrementally more confidence about organic growth trajectory improving apart from some of the factories you highlighted specific x and we have taken.
Yes. I think if you just look at the overall market, I think there are 3, 4 bright spots that give us quite a bit of confidence, I think the opportunities and the pipeline and business from the India market, which you would observe a revenue share from India market is among the highest, if you look at the other Indian IT service companies. And we think that it's -- right from inception, we always felt that it's a deal that we should be focusing on, and it's really borne out, well if you see the percentage of revenue has been consistently increasing quarter-on-quarter, and we are doing it at a good margins. We're not compromising margins out here, and we continue to see opportunities. So that's one area that we see as being an area where we would be able to get business and growth.
The second one is from a sector segment perspective. Ashok talked about health care. And again, you see on a quarter-on-quarter basis, the share of revenues in health care and at the absolute level also has been growing. And the multiple areas, Ashok talked about bioinformatics. There's a lot of demand and work going on, on the digital side of pharma in the med tech industry, again, you're having some really new technologies and convergence of hardware and software, making -- creating a lot of opportunities out there. And so we think that health care will be an area that will continue doing well for us.
If you look at retail CPG part, there's a lot of investments going on in automation, in leveraging the AI and how you reach out to customers and build networks. And that's all part of the digital journey that we are helping customers out with.
The third point that I wanted to talk about was on GenAI. And again, Ashok talked about the number of customers that we have. But, along with the 14 customers, there are multiple conversations going on right now with both existing customers as well as with a lot of new logos that we -- a couple of the new logos that we've reported, we've actually opened them this quarter with our GenAI offering. And we have a full team that we have in place with some of our best leaders.
We have the sales, the very technical, all of the whole team in place. And we're seeing a lot of traction out here. And as the year progresses, we expect some of these conversations to move into POCs and then quickly into implementation and large projects. So that again gives us the confidence that the year would be good.
And the last point that I wanted to make is that our pipeline is at almost record high. And as the year goes by, we expect this to translate as it moves through the funnel into more new orders, whether it's with existing customers or new logos. And IGs, the industry groups have become kind of the center point of all the interactions and value adds that we're doing to customers both in terms of reach outs and once we sign logos, to see how we expand our presence, and that should continue leading to increased opportunities and business.
Did ask in your question on how we serve the industry outlook versus us, we can't really comment on it. You've seen all the guidance which has come from most of the -- many of the players have already announced, and I'd say you can see a mix. You can see really the larger players giving very muted guidances, and we don't need to have to talk about them because you go by what we've seen and stated themselves.
There is a more positive outlook through the, I'd say, smaller or the larger players. I think we are really unique out here because of all those changes that we've done in the last year, 6 new growth engines in terms of industry. You can see this in GenAI. If we're saying we've already got 14 active customers, those customers have just started, right? So they are the ones which are going to grow. The bioinformatics customers are just about started. They are the ones which are going to grow.
So we were in a somewhat unique position in terms of having unique drivers for growth, which is why we are very confident of our organic growth numbers.
[Operator Instructions]
Next question is from the line of Apurva Prasad from HDFC Securities.
My question is on PureSoftware in terms of one, from a capability standpoint, which are the areas that are complementary. And therefore, what are the kind of revenue and cost synergies that are being looked at?
You take the areas that are complementary Apruva. As we mentioned earlier, the 2 domains or industry groups in which PureSoftware has deep capabilities are on the BFSI side among health care and life sciences, right? And especially on the BFSI side, we are working with -- which is majority of their revenues, they have some large banking and financial services customers and built capabilities in this area that we would be able to take to some of our customers. But more interestingly, we see a lot of scope to cross-sell some of the fees and service offerings that we have around AI, around GenAI, infrastructure cybersecurity where they have little to no business automation. So the platform and digital engineering side, there's -- we have quite a few capabilities that I've shared.
Again, things like our PIMCO offerings and capabilities is something that we could cross-sell. So we see quite a lot of cross-selling opportunities that should lead to additional business with PureSoftware.
On the margins, I think we will talk about cost optimization. We will see -- we'll look at areas and ways of doing that. As we start the integration of the 2 companies, and that will be something that has benefactor, that's the reason why we've given a range in terms of the margin guidance. perfect.
And, on the ad tech vertical, what is leading to this continuous decline in last 2 quarters, seems that the impact is beyond the large clients. So what is happening there? And any outlook if you could provide on that?
Sure. So before I get into providing outlook, I want to give another number, if you look at on a year-on-year basis, both at a percentage of revenue and absolute level, there's been pretty good growth. Having said that, I think this is a space 2 factors, right? One is this is a space that's going through a little bit of challenging time. And here, again, I'd like to break it up into 3 subsegments. We are the higher ed, we have the K-12 and then you have the workforce and development and professional development. Right, three. And you can even probably break it up into prekindergarten and out things, but these are 3 substantial subsegments in this vertical.
A lot of our revenue was coming from higher ed, and that's an area that is going, especially in the U.S., and I would say even in many of the developing, developed countries is going through a slightly challenging time because of factors like decrease in fertility rate, the number of high school students graduating, cost of education, et cetera. So having seen this, we've been impacted by a couple of our customers. who've either done some strategic restructuring, selling of their businesses, which has led to reduction in business or budget cuts.
We're looking at diversifying within the space, and we are looking at K-12, where one of our larger customers now, I would say, second or third largest customers is in this space, and we're looking at additional customers that we could acquire. We're also looking at professional development and workforce development investment subsegments. We have a few customers out here and developing offerings and reach out -- market reach outs in these areas. So that's what -- and I think we would be able to diversify our risk.
And the second point is a couple of the engagements that we had where we're developing platforms for customers more on a programmatic basis and in a fixed-price mode. They sort of started ramping down in Q3 and Q4, and some of that also is reflected in the numbers in Q3 and Q4.
But as I mentioned on a year-on-year basis, there was a good growth in this vertical. It is having a little bit of a challenging time, and we are looking at how to mitigate the risk and diversify.
And on the recent revamp the org structure, any early success that you could talk about? And what are the markers that we can track to assess how that's progressing, if have to see beyond revenue per client metric?
If, the 3, 4 things, again, that I would say are markers. Just one is just the industry groups taking ownership for both new logo acquisition and expansion of customers, and we are seeing that happening. As I mentioned, a lot of the business development activities are getting funneled through the industry groups. And again, Ashok talked about some of the capabilities we built in bioinformatics. Again, in the CPG space, we are seeing good traction. We have closed some of the largest, or the leading CPG players. All of this is happening because of the ability of our industry groups to bring the various capabilities that we have together and present united front to the customer, putting on a layer of domain understanding or consulting. So that's one part of it.
The second part of it is to look at how many -- the movement of large customers because of the ownership on account expansion, account development plans, which the industry group should be taking on. And again, we are seeing, as I mentioned in my commentary that we are seeing a movement, an increase in the cohorts of large customers.
And the third is part of the restructuring was the creation of GenAI business unit. And as both Ashok and I have mentioned, we're seeing a lot of success and early traction out here, both in terms of prospect discussions and customer wins. And these customer wins that we have, they will automatically -- many of them would transition into larger engagements while the prospect discussions, they would close into POCs and act as a pipeline for larger opportunities, which is what gives us the confidence about our organic growth.
Perfect. And just finally, from my side, Venkat, you gave full year margin outlook but have to look at margins over the next 2 quarters, if you could just help us with the puts and takes and also the impact on the depreciation and amortization line item.
That's right. So when I talked about margins, EBITDA has other income but that will be a reasonable amount of cash that will go out to fund the acquisition going in the EBITDA down. But at the same time, if you take operating margins, our operating margin and the company that we are acquiring both are at recently -- they have a similar operating margin levels, shown of the [indiscernible]. So we do what I said we'll start focusing -- or we start calling out operating margin as well as a number at EBITDA will continue to be an area of focus for us.
And as we go down to the PPP, that would be based on the allocation that we do to goodwill or the intangibles and the amortization that comes into our financials, it will affect our EBITDA -- sorry PPP to -- by that number while also getting certain tax advantages for that, for the borrowing. Quite a few puts and takes here on the profitability front, which is why I've given margin why the margin is not to accommodate for a company which is lower than us in margins, they are reasonably close to us. And you did allude to that, there will be cost synergies as we go on. But all of that takes 1 or 2 quarters to into the financials. So this is why we're just taking the -- out of building a larger gains this time. In fact, I would have said margins of 20% to 22% and then go back much better than that.
Next question is from the line of Sumit Jain from CLSA.
So the question is for Ashok. Ashok, you mentioned that you have created a separate business unit for GenAI. So will those revenues start reflecting in your analytics AI service line or the digital infrastructure cloud service line the way you report?
I'm not sure I really got the thrust of your question. But for whatever we've got a new GBS and this one is actually got end use cases, and we've given examples of these across wherever you see -- and we mentioned many of them, if you look at cloud and a lot of people emphasize cloud, to me, actually, cloud is a pipeline. And you put everything to days on the cloud. So that was the thrust of your question, yes, everything is on the cloud because all solutions are being delivered in that fashion. Everything we're doing is digital.
What is really important is that all of these are really new and use cases. And because it's new, virtually everybody needs them. So if you find 1 use case in 1 company, you could say, yes, I can do this in the next company also, which we've seen in 1 use case, which just came up recently. Certainly, overnight, we had 4 prospects because 3 or 4 different other players suddenly said, why can't we also use that. And that is why it becomes so interesting as a completely new market being opened out, thanks to GBS. I don't know whether that answers your question.
Actually, my reason for asking this question was twofold. One is it will help us to understand how the GenAI is scaling up in the market because you are probably the only one who has at unit? And secondly, I mean we can see hyperscalers growth revising back in the last 2 quarters where almost all 3 hyperscalers are seen a revival in growth from a Y-o-Y perspective. But I cannot see that reflecting in your digital infrastructure cloud service line, particularly. So that was a 2-way question. I was trying to come.
I can answer that. Srini will just respond to that here. So if I can just take the question third question Yes. It's business, see we have been reporting revenues and margins by business units. That's the aggregation that we've been following, the GBS and IMS. Starting this year, we are consolidating SBS into one that's called PDS.And we'll have IMS and GBS. It's just not that it will all get off to stated in the overall numbers. GBS will be called out as a separate revenue line item in our segmental reporting. It will be shown as a segment.
The second question that you're asking is when it comes to technology, where would that go that is something which Ashok was trying to mention it will go into cloud, it is going to, it could go into platform development or going to other parts of the technology slice than we look at it. But from our segment of reporting, it's a new segment.
And in fact, in a manner of speaking, we are actually sticking our neck out by saying that we have probably have a segment because there will be some time, if you will get to see the number in the next quarter and the next quarters as we progress. It's not going to get up to stated inside the technology and get very unique in the numbers.
Right. That is my follow-up question for coming that in terms of the markers for how the GenAI practice is scaling up for you in which digital offering service line or by business unit, we will actually be able to see that ramp-up?
No, best unit is -- it is a separate business unit for you. So it is a segment. When you see the segment reporting, we had 3 business units, we will continue to have business units. GBS would be one of those, and we will report the numbers at that level. So that's what I said, we are sticking our neck out. It's not -- we are not [indiscernible] those numbers into the technology and the overall new general landscape and all of those things that people talk about [indiscernible]. But when it comes into a technology slice of what is GBS and what are the constituents they will go to the technology space that we have been traditionally talking about that will be [indiscernible].
Other to the response. So is where which vertical the first question was on the horizontals and cloud. Then the second one you're saying, which verticals is it likely to impact more and where you quantify those use cases. I think Sridhar can talk about that.
I think already Venkat has given the clarification, when we reported, of course, as a business unit that be a stand-alone number. And of course, the use cases that we are doing for all into multiple verticals that there are industry groups, for example, they're doing general use cases for health care, that revenue will be reported within the verticals of the IG site [indiscernible]. However, when it comes to the horizontal technology, right, so this is where like it becomes a little trickier. Like for example, if you are developing a customer solution for health care using ChatGPT within Microsoft Azure, as Ashok framed it, now this solution is going to live in Micsoft as your entity it cloud. And this solution leverages heavily the multiple technology. So from that point of view, like we'll make sure that like it is going to be reported at proper horizontal technologies where the GenAI itself currently leverages cloud and inherently leverages yes, and that's how the genesis of the overall states happen. So that way, there will be a clear understanding about where it stands out and how it is contributing towards various industry groups and what horizontal technologies that are going to actually create a leverage to create the solution.
Right. So you are hinting that the GenAI revenues will reflect under multiple horizontal line, not in just one single service line. That's what you are mentioning, right?
Verticals, no.
Yes. verticals are business. stand out as a business as well as a standout as a business unit as Venkat said. So you'll get all taxes. So you will start reporting that unit from next quarter onwards, right?
That's right.
But let's not commit ourselves to how much debt we're going to get for this new BU . We don't have to slice and rise that BU in horizontal vertical. We'll give you a number there, you see the grand total house numbers. We'll see the grade the industry numbers. We're not going to say out of those industry numbers so much has come to deal -- through DBS because I'm successively pricing it for the market. What we give today, frankly, is not in anybody else in our data.
But internally, exactly what you're saying will measure it, in cost of time, we may even find it worthwhile to announce it, but it will be the wrong thing for us to start announcing that in the very beginning. Because what we have on 1 order and 1 month will get completed and they'll say, this one has gone down. hey, how is it naturally it will go down because we don't have critical mass at that stage.
So the degree of reporting, I think we will highlight which of the areas in which we may have got some new use cases. But we're not going to slice and dice it to that extent.
PDS also in that extent. We're giving new business credit results, and we're giving you house results and vertical results. Within that, of course, there's cover, which you can always ask for and get clarifications, but it's not going to be published.
So maybe you can highlight the pipeline or the order book, the way your bigger peers are highlighting off late?
Yes. Okay. We'll take a look at it and see how we want to change our approach towards some of this reporting in terms of pipeline in particular. And hopefully, when you see it getting reflected. At this moment is diluted to commit to there's so much transition. There's new acquisitions, they are new business units, new verticals. So we'll have to get down to it progressively.
Ladies and gentlemen, that was the last question of the day. I now hand the conference over to management for closing comments. Over to you, sir.
Thank you all for joining us today. We thank HDFC Institutional Securities for hosting this call on our behalf. We look forward to interacting with you. You can reach out to us on IR at happiestminds.com. Thank you.
Can we get Joseph and in, thank you.
On behalf of HDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.