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Ladies and gentlemen, good day, and welcome to the L&T Technology Services Q2 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pinku Pappan, Head Investor Relations. Thank you, and over to you, sir.
Thank you, Stanford. Hello, everyone, and welcome to the Second Quarter FY '20 Earnings Conference Call of LTTS. I'm Pinku from the Investor Relations team. Firstly, I would like to apologize for the slight delay in the filing. We would obviously want to be on time, but forgive us for the delay this time. I hope you've had a chance to go through the Investor Relations press release and the financial statements. These documents are available on our website, www.ltts.com. Today on the call I have Keshab Panda, our CEO; Amit Chadha, President, Sales & Business Development; Abhishek Sinha, Chief Operating Officer; and P. Ramakrishnan, CFO. We will begin with Dr. Panda providing an overview of the company performance and a commentary on the business outlook. Amit will then provide an update on the large deal wins and the deal pipeline. PR will then walk you through the financial statements. And after that we will open the line for questions. Let me now hand over the call to Dr. Panda.
Thank you, Pinku, and thank you all for joining the call today. Before I start, I want to congratulate Abhishek, our COO, who joined our Board today, today onwards. I will start with the highlights of Q2. We grew by 2.5% quarter-on-quarter in constant currency. Growth was very strong in excess of 20% in process industry, medical devices as well as transportation. Digital and leading-edge technologies, we grew our growth there for the year and we contributed 39% of Q2 revenue and grew from 32% year-on-year. We did well in margin. Our EBIT margin is 17.0 in spite of wage hike in Q2. Our deal win traction continued. We closed 8 deal wins across sectors. Let me now talk about 5 industry verticals. Transportation, we grew 2.3% sequentially in Q2, which is on the back of 7.6% growth we delivered in quarter 1. We expect better growth but deal decision-making delays and ramp-up delays and a few customers impacted the growth in this particular quarter. In Automotive and Truck and Off-Highway, we had good wins in the area of electrical -- electric Powertrain, autonomous driving and electric car charging -- electric car charging infrastructure. In Aero, we own deals in avionics and digital engineering area. The pipeline is growing, and we are seeing a few large opportunity in them, although there is uncertainty in the timing of the sale. We expect a muted growth in Q3 on account of delays we are facing in terms of deal closure and ramp-up and better growth from Q4 onwards as we close some of the large opportunities soon. Moving on to Telecom and Hi-Tech. We had a 6% quarter-on-quarter decline in Q2 on account of the weakness in semiconductor as we disclosed last quarter. The quarter-on-quarter decline was lower than in quarter 1, which was as per our expectations, and we did talk about this quarter in our Q2 -- Q1 call as well. In semiconductor, we are ramping up in several programs that we own recently, although the ramp-ups are happening at a slower pace and not enough to offset the ramp down in some programs. We own deals in VLSI design for graphics, connectivity and camera chipset. We believe this is a area which is going to grow as well. The overall pipeline is increasing, although the sales cycle are getting longer. In media and entertainment, we had a slight growth post and ramp down at one customer. We are seeing interesting opportunity in chip design, legacy equipment modulation and end-to-end support and enhancement across the entire chain of set up, set-top box, IDM system, video equipment and content distribution network. Overall, for Telecom and Hi-Tech, we are expecting flat trends in quarter 3 and acceleration in quarter 4 onwards.Now let me talk about medical. We had a very strong quarter with 13% sequential growth on the back of 16% growth in Q1 driven by some of the large deal wins that ramped up nicely. Demand is being driven by remediation work, regulatory compliances, IoT and connectivity solution as well as process validation for manufacturing services. We are seeing interesting opportunity to integral digital transformation for device OEM, giving them the ability to capture trends insight analysis, all on demand on the cloud. We expect the growth to continue on the back of deal wins and good pipeline. Moving to the Plant Engineering. We had another quarter of strong growth with 7.5% sequential growth in Q2 on back of 6% growth that we delivered in quarter 1. The growth outlook continues to be robust in all 3 segments -- subsegment of Plant Engineering, CPG, oil and gas and specialty chemicals. Customers are investing in programs like smart platforms, 4D modeling, productivity enhancements and sustenance projects. We are seeing demand for digital regulatory compliance, plant health check studies like HAZOP, Hazard and Operability, machine safety, et cetera. We're excited about the pipeline with opportunity across the value chain and expect growth to continue strongly. Moving to Industrial Product. Growth was a bit soft at 1% quarter-on-quarter. We are seeing a bit of slowdown in spending at few of our large accounts and deal closure delay. Although deal wins at some of the similar accounts have been ramping up very, very, very well.In Q2, we own deals in smart building consultancy, IoT platform work and cybersecurity consulting. Some of the product we design for the customer, we are making them smart product, that's also a great opportunity for us for moving forward. The pipeline looks interesting and opportunity in power distribution products, electrical automation and IoT. We continue to do a lot of innovative work in this space, which is visible in a number of patents that we add every quarter. Out of these, a major sale of contribution comes from our industrial product too. We expect the newer logos to continue to drive growth going forward and some bit of acceleration from quarter 4 onwards as some of these deals in the pipeline close out. Now let me talk about our platform and solution. As we discussed last quarter, we engaged with a consulting firm to formulate the way forward for our platform. Currently, we are working on the recommendation primarily around the structure of the new unit that we are likely to create and how best we can leverage our platform to win newer engagement and scale up license revenue. We are now seeing traction in engineering connected platform and -- which addresses energy management, predictive maintenance, and the second platform is IDM. Multiple customers conversations and for POC and pilot are ongoing today. We're also doing some smart hospital using our IBM platform. We believe that's a great opportunity for us moving forward. Currently, we are in the phase where POC projects are being initiated by customer as a first step, and we are awaiting full-scale deployment.Finally, let me discuss the outlook for FY '20. We had to face tough condition this year, starting the year with loss of $30 million plus at a telecom customer followed by slowdown in semiconductor, which further weakened the outlook in Telecom and Hi-Tech segment. In the second quarter, our performance could have been better, but we were hurt by overall trade-related [ uncertainties ] leading to slow decision-making and deal closure delays. As you will see, the revenue share from our top 20 customers has declined from a year back largely driven by slowdown in the few customers across telecom and hi-tech. This customers are going slow on spending in new projects, given the weakening economic outlook in developed countries, and they have been manufacturing in 10 city. Outside of these customers, we are seeing an increase in pace of spending in areas like autonomous, electric and automotive. All 3 segments in Plant Engineering, medical devices and consumer electronics and telecom infra within telecom and hi-tech. In addition, the investment we have been making in newer areas like ISV, rail, OTT, pharma, upstream oil and gas, broaden our industry exposure. And we are making further inroad in the top-level segment we serve. This is [ sewing ] up a growth in the next 50 clients, which is the setup to our clients beyond our top 30 customers, where we are growing in excess of 20% on year-on-year basis. This is helping us continue the path of double-digit growth overall despite lesser headwinds. Our aim is to continue building competency like AI platform, where manufacturing plant, health care and transportation, I think we are providing relative position in this segment so that we can quickly capitalize on the areas which are seeing uptake in spending. That way even in a tough year, we can deliver double-digit growth and our business model is more resilient. With greater visibility into the second half, we revise our FY '20 U.S. revenue growth guidance to 10%. This guidance back in a muted Q3 followed by growth improvement in quarter 4. Overall, while we could have like to do better, the demand environment is robust, and we are confident about our competency and continue to see significant opportunity for the growth. Our large deal wins and the broad-based pipeline that is growing [ air of ] the company growth reflects the solid positioning and net gain in market set. Our digital and leading-edge technologies growth mirror the trend in the [ market plays ] towards increasing [ newest spend ]. I now hand over to Amit.
Evening, and thank you, Dr. Panda, and congratulations once again, Abhi. I will cover 2 things. The large deal updates as well as our deal pipeline. Deal updates. We have won large deals across verticals and geographies. Let me share details on a few transformational deals. In the hi-tech segment, we have won a program involving connectivity solutions for the clients’ worldwide network. It will require us to expand our existing global labs and enhance end user experience on behalf of our client. Second, in the Transportation sector, we've been awarded 2 large deals: one from an OEM and another from a Tier 1. In the areas of autonomous and intuitive driving controls involving our homegrown AI platform and the second case, the electric Powertrain design. Third, in the oil and gas and petrochem sector, we won a deal to set-up an engineering value center for our European refiner in one case and in the second case to support detailed engineering efforts for the customers' greenfield expansion in Europe. Before I go on and talk about deal pipeline, I think it is worth for us to take a step back and share our assessment of what we're seeing on the ground in transportation and telecom, where the performance is below our own expectations. In the Telecom segment, out of the 6 large deals that we were targeting to close in Q2, 4 have closed in our favor and 2 are still in decision-making mode. We are seeing a delay in decision-making and delayed starts as customer become more conservative with uncertainties around trade negotiations. This coupled with the ramp down from a few programs in the semiconductor space, which we spoke about in the last quarter, is creating a temporary blip. The good news is that our acquisitions in VLSI have given us end-to-end capabilities in semiconductor space which is helping us win new programs. Now onto the Transportation segment. We closed both the deals that were in the pipeline for closure in Q2. Again, deals are taking longer to start, and we see a few customers holding back on spending, which is constraining our growth. The good news is, spending on autonomous driving and electric vehicle continues strongly and our differentiators in this space is helping us win new programs, 2 of which I covered in the large deal update. Net-net, we do see delayed decisions and conservative spending on behalf of few customers, but the demand continues to be robust for our services and solutions. Moving on to our large deal pipeline. We continue to see a build-up of large proposals to engage with our clients. For the Telecom segment specifically we are seeing 5 deals in the area of Semcon, media, hi-tech and ISV. In the Transportation area, there are 2 deals in automotive and one in aerospace that we're working on. In the Industrial Product segment, we're in discussion on 3 deals in the areas of electric drives and industrial machinery and finally, in medical there is one that we expect closure for in digital manufacturing shortly.Finally, to sum up, the deal pipeline continues to grow and the scope of large deal discussions are increasing, and we are winning against competition. Two, we do believe that our widespread T30 and next 50 customer base, multiple geography and vertical expansion will help us continue increasing customer penetration going forward. And finally, to achieve that, like Dr. Panda mentioned, we will remain focused on building competencies and talent pool. With that, I would hand over to PR.
Thank you, Amit, and good evening, to all of you. I will summarize the financial performance of the company for the quarter ended September 2020 financial. You must have gone through the advertisement of -- for the press release and the advertisement and also the earnings fact sheet. For these are convenience of all, just summarizing the overall financial performance. Our revenues for the quarter was posted at around INR 1,402 crores, a growth of around 4% Q-on-Q and around 11% Y-on-Y. In dollar terms, we posted a revenue number of around $198 million for the quarter, a growth of roughly around 2% Q-on-Q and 11.6% Y-on-Y. Our EBIT for the quarter has been reported at INR 239 crores odd, a growth of almost 4% Q-on-Q and EBIT margin is marginally lower when compared to Q1. We are posting EBIT margin of 17.0%, a drop of 0.1%. The PAT for the quarter was INR 206 crores, a growth of almost 1% Q-on-Q and around 8% at Y-on-Y. The PAT to revenue stands a shade below 15%. Coming to EBIT, the overall from a cost structure perspective, we don't -- we're not seeing any major move between Q1 and Q2 from a cost perspective. If you see from the gross margin, the gross margin for Q1 was 32.9% as against that we're having a Q2 gross margin of 32.3% and the EBIT margin for Q2 at 17-odd percent. Now from an overall performance perspective, as I had articulated during our earnings call of -- for the first quarter, we were -- we did a compensation revision during this quarter, which impacted our EBIT almost by 1.6%. This was partly offset by a favorable dollar-rupee movement, which enabled us to offset it by almost 0.5%. And in Q1, we had a onetime visa and travel cost, which was almost 1.4% benefit which we have got. So overall, in a -- at a very high level, the increase in compensation benefit has been offset by savings due to visa and travel, which hit us in Q1 and also a favorable dollar rupee.Coming to the other part, other income. We have reported an overall other income of around 378 -- INR 37-odd crores or INR 378 million. The breakup would be as follows. Treasury income that is the income which we earn from surplus investments is around INR 10 crores. We have a net foreign exchange gain, which is a comprising of 3 broad elements of hedge cash flows, translation transaction differences that was a net of INR 7-odd crores, and we had filed for our SCS licenses for the year '18, '19 in this quarter, and we have taken an overall credit of INR 29 crores as a mark-to-market for this quarter. Coming to the segment performance. As you may have seen, the Transportation segment still comprises a major part of our overall growth. It is 35% of our revenue and followed by telecom hi-tech. The share of telecom hi-tech has dropped this year as Dr. Panda articulated during his speech that is standing to around 21-odd percent followed by industrial products at 19, plant engineering 16 and medical devices at 9. In terms of the other parameters like revenue by geography, North America continues to be around 60-odd -- 60% plus at 61.7% of revenues for the quarter, followed by Europe at 14.4%, India at 13.1% and rest of the world at the balancing 10.7%. In terms of on-site off-shore revenue mix, as you may have seen through the earnings factsheet, they largely are the same. No major, I would say, parameter difference when compared to Q1. And coming to net income. The tax, just to convey, post the recent government announcement in the reduction of tax rate, the company still continues to be under the earlier tax regime in view of the high MAT credit which has accumulated over these years. We believe that we probably will consider going into the new tax regime, maybe at earliest 2 years from now. Now from a balance sheet perspective, our balance sheet summary is also there in the advertisement. I would say the major increase in the balance sheet is nothing but the Ind-AS impact because we are now classified all the long-term lease rentals into increasing it on the asset side on the intangibles as a right of use and also a corresponding lease liability on the liability side. From a overall other metric, I would like to say here that the DSO, that is the customer receivables and the work in progress, continues to be in the 100 days range for the quarter.So with that, that's the overall flavor of performance for the quarter. And I will now give back to Stanford for any questions.
[Operator Instructions] The first question is from the line of Vimal Gohil from Union Mutual Fund.
Sir, my first question is on, when you -- is on your claim that your pipeline is pretty robust. When you say pipeline, are these executable orders that you're talking about? Or are these some of the negotiations that you are having with your customer which are still to [ fructify ] into orders?
There are 2 component there, right? The first part is, there are deals we own in quarter 1, quarter 2 when we are starting it and that's going to give us future revenue. And the second one is, some deals we are going to win, the pipeline we talked about, right? Deals we are going to win in this quarter. Every month, there are some new deals. So there are 2 components. So both looks okay. The Q1, Q2 wins what we own that is going to deliver revenue in quarter 3 and quarter 4. We expect some deals to close in this month and next month and this quarter, that is going to give us quarter 4 revenue. So I think the pipeline, there are cases where we are very close to signing it. There are cases where it's going to take some time and all mix of all that.
Right, sir. The second question is actually on the balance sheet, sir. If you see on the semi disclosure of the consolidated balance sheet, on the current asset side, there is an additional entry for loans which is about INR 262 crores. Can you highlight what is that about?
Okay. As part of -- as I talked about the press release surplus, no? Instead of some part of the investments, the short-term investments were given as an ICD to another corporate house.
Okay. So these are ICDs basically.
Yes, yes.
And what rate would these be at?
That would be at arm's length, do not -- I mean -- in fact, it has been placed with our parent itself just to manage the short-term surplus. And so investing in mutual fund investments. We have invested in that. That money will come back, and it's at arm's length prices, in fact, better than prevalent interest rates from the mutual fund.
And Dr. Panda, final one for you, sir. The -- I mean engineering services -- Indian engineering services is expected to outpace software according to me and correct me if I'm wrong. Do you see this trend changing now in the long term? Or do you see these changes or the slowdown that you're seeing as slightly more structural in nature because of more captives coming into play? Or do you still expect that Indian engineering services has a very, very long rope for growth going forward, and we'll be able to participate in that?
Yes. I think captive is nothing new now. It has been there for last 20 years -- continue to be there. As you know, India does $24 billion of engineering services, altogether captive and service provider like us. So I think the problem what we talk about and you have to remember, ER&D spend globally is high as what IT spend globally. Engineering by nature, there's opportunity in the market. There is no doubt about that, but there are 2 things happening today. Number one is the conventional engineering what is what companies have been doing it and new-age technology area business coming in. Now the growth in new age technology, CAGR if you look at it next 2, 3 years, it's much higher than the conventional engineering people have been doing it. So I think it's -- I'm very bullish about what happened last 2 years and I was going forward and captive is not a threat to any of the business we do. And there are -- we have learned to work with them. There are many deals we do sizable deal we work along with the captive plus their corporate office in western world. So this is a nonissue at all. Now some of the large deals we own -- we got recently, many large deals we own recently, captives are there. They have been there for a long time. So I don't think captive is going to be a threat for us and I would think opportunity is always there in all the segment. You can look at 3 segment, 20-plus percentage you have growth. All the segment you list down and 80% of them, they are captive as well. So I don't think captive is an option, although captive is a threat for us. And we need to continue to work our business model can handle this. More and more what is going to happen is, I think we need to have a business model where you can deliver globally from any locations. Like we have center in California, or Israel or in Europe, plus India, altogether, your business model should be able to support that, number one. Number two, your innovation engine should continue to innovate in new technology and we should never slow down. And number three, the sales engine what we built, we continue to stay in the sales engine. The people who have been selling all type engineering and can you refine them and can you get new blood into the system? And this is what we do regularly. So I think any problem I see today is delaying decision-making because, as you know, uncertainty when it comes to in the market while the trade war is going on and this is a temporary issue, I don't think it's a long-term issue and engineering opportunity is always there and I'm very bullish about that.
Actually, sir, the concerns were dropping off from fact that Q2 -- we said that Q3, I mean, Q3 and Q4 will be much better now against our expectations. Is that against our data now that we have incremental data that we are getting in? Q3 is also not really playing out as per our expectations. What is the risk that you see that it will probably be worse in the near term, that is Q3 and Q4, as things have happened in...
So I think what we do -- one thing we rest assured that we want to build -- communicate to you what we know 100%, any time when we have some information we communicate to you. The reason we said, in quarter 3, we communicated in Q1 call, we said that quarter 3 is telecom hi-tech, quarter 2 is going to go down that we did that now. But if you see, the percentage are down from Q4 to Q1 to then Q1 to Q2, it is less. That also we did in Q1. So -- and again we are saying, quarter 3 this particular segment is not again going to go down, it is stabilized. So worst is behind us in quarter in telecom and hi-tech. Now look at it, quarter 3 is a segment -- quarter 3 is a quarter where a lot of holidays happens, right? Keeping all this in mind, we want to make sure we communicate and some of the decisions signing on this, right, some of the deals signing, we want to be extra careful, making sure this is not going to go away. This is not going to go away. It's a delay what is happened. Keeping that in mind we believe this is what I think we're going to achieve now quarter 3, quarter 4. What we did H1, we'll do better in H2 for sure. There is no doubt. We're confident about that. And looking at that what we see, we did our math and given the data.
The next question is from the line of Pankaj Kapoor from JM Financial.
Dr. Panda, what's the visibility that you have for the third quarter? You have been saying that probably you expect a muted quarter. What are the chances that we might even have a decline, a Q-on-Q decline in the third quarter, given the kind of near-term headwinds that you see?
See I think, Pankaj, we look at all 5 segment when you look at it, and we have 3 segments which grew 20-plus percentage year-on-year. I think those segments we're very bullish and continue to do that, right? And you see, Telecom, Hi-Tech segment is not small, a sizable segment. And uncertainty in that segment, it could have some impact. So overall, the reason we said muted because I think manufacturing in some areas where they go on, customer will close this manufacturing for 1 week or 10 days. So there is on-site that might impact. Keeping that in mind, we wanted to make sure, let us say we have a deal where offshore, we have to continue for long time and would have said, yes, go ahead. Some of the deals we own, customer said that in quarter 3 because of holiday, we'll start it later because the transfer of again, knowledge in what happens from on-site to offshore that particular time. So I think this -- keeping all this in mind, we said we'll have a new Q3. Well, I think, Pankaj, one thing I would clarify though, [ negative ] is not an option. I can only tell you not that quarter 3 is going to be -- otherwise I would never say neutral quarter. I would have said that it's decline quarter. That's not something will happen.
Sure. So if I understand you right, you're saying, I mean you have taken a fairly conservative view when you're talking about a commentary of a muted 3Q and you have factored in most of the potential negatives?
Pankaj, it's like this. We have taken a realistic view. I -- not a conservative, I don't say that. But one thing realistically what I say, you should know that. That's why I communicate it.
Sure. Got it. And PR, just a question on the margin outlook then given the kind of visibility that we have on the volume growth in the second half. Do you think maybe for us to improve on margins will be difficult on a constant currency basis? So is it fair to assume that there could be margin headwind as well coming in into second half?
Pankaj, as you know that we normally don't give EBITDA guidance. But yes, you are very well aware that our EBITDA, the margin is dependent on the fact of constant currency, that is the dollar/rupee remaining where it is and also the mix of revenues. But to answer to your specific question, Dr. Panda did talk about the opportunities in the pipeline. There are possibilities that some of the deals which we're talking about in 1 or 2 segments are going to see a little more increase in the on-site share, at least for Q4, I would not be even in a position to comment on Q3 because Q3 on-site could be largely the same as what we have demonstrated in Q1 or Q2. But Q4, some of the large deal ramp-ups, which could be a little on-site centric, there could be some amount of a margin dilution because of that share of revenues coming from on-site at a higher clip. But we have reasonable offshore levers which we will be able to deploy to ensure that there is not much of a margin volatility.
Pankaj, be rest assured that we are a bottom line-driven company as well. We want to make sure any deal we do if it's either -- if there is an impact on the margin, it is a temporary impact that we have levers to bring it back. That type of deal we always look at it and that is how it is.
The next question is from the line of Apurva Prasad from HDFC Securities.
Dr. Panda, what's just driving your confidence of acceleration in fourth quarter? I mean if I'm just looking at the guidance, it pretty much implies a flat trajectory for the next 2 quarters. So what is it giving -- what is that, that gives us confidence of an acceleration in 4Q? It will be helpful if you can share any TCV-related data in terms of pipeline or deal signings?
Apurva, it's like this. I think we have the deals what we own recently and a deal we expected to win in quarter 3, that gives us comfortable that -- we're comfortable that we're going to hit that. Trust me, these numbers when we give it to, we go to the board and write it what is available by account by account, customer by customer, region by region, and we look at that, then we give a guidance. So realistically whatever number we see, we have given this. I think quarter 4, the reason I'm saying is what happens in quarter 3 because of holiday or any delay there, but quarter 4 is supposed to be a good quarter. And we give some confidence that we already have order in-hand, which is going to give a growth in quarter 4. A major part of this order in-hand will give quarter 4 growth. So keeping that in mind we have given this.
So I wonder if I can add. This is Amit. So one, Apurva, we are -- we have won orders and our TCV wins and I'll defer to Pinku and PR on the exact numbers, but we have won TCV orders that are greater in Q2 as opposed to Q1. So we've seen that happen. That is point number one. Somebody had earlier asked the question what do you call a pipeline and what do you call orders? So order backlog is order backlog. Pipeline is orders not won, right? So we do see that the wins have increased in Q2 for us. That is point number one. Point number two is that in Q3, like Dr. Panda talked about that there is pipeline across segments that we are pursuing. I in fact mentioned the number of deals also. And we do see a healthy pipeline. In fact, our pipeline is as it would be at correct time in the year, and we're fairly bullish in terms of what we'll be able to close. It is only the number of working days that's doing a play in Q3. But we are bullish as we move forward, we don't see [ this being offered ] any of that.
And again, on a slightly more medium-term perspective, I mean, we clock 24% last year, about 10% you're guiding for this year. How do you see more like a medium-term outlook, especially the fact that we operate multiple verticals that being a U.S. piece? How do you see that maybe low teens? Is that a level to look forward to if I am looking more on a medium-term perspective, considering both the puts and takes?
Apurva, I think that just -- last year, if you see last 2 years, we did 20%. The one year 24%, it came now this year. Would have continued one customer issue which we talked about. And then you can see a trade war between what is going on in China and America, if I don't mention that is no impact, of course there is impact, there's no doubt. And is that going to be going away? One thing I can assure you, if anybody can do it, we can do it because more and more the competency what we've built and the customer base what we have created, it gives me confidence that not last 2 years or 2.5 years, we'll continue to have the same journey moving forward. And if -- it's like, for example, some of the large deals which we win -- we have right now sizable deal. So we win this and the whole game changes again. Decision-making, as Amit said, some of the deals decision-making getting delayed, we expect that before coming to the call, closing the quarter, we expected 3 deals or 4 deals to be closed and they -- that pushed to the next quarter. Is that going to go away? No. Till this companies close there if everything -- the whole world changes, nothing you can do. But we are certain about the way we have gone about it and the competency we have and the customer relationships, we believe that I think that's going to give us a good long term. You should look at engineering point of view. We have continued to grow market share. We always look at that. What is a market share growth from customer point of view? If a customer we are doing business, are we increase -- the spend whatever spend, are we increasing market share or not? This is something can give us confidence that not only 2 quarters, so we don't look at those 2 quarters, we look at what happens to next year, what happens next to next year. At least we look at 24 months every time when you do business, next 24 months how does it look like, and we always play accordingly.
The next question is from the line of Vibhor Singhal from PhillipCapital.
Dr. Panda, if I could just basically drill a bit more on this outlook that we're looking at. So you'd mentioned that U.S. Telecom & Hi-Tech is what we're seeing the weakness at this point of time. So I mean, keeping that aside, that's like 20% of our revenues, if all our other verticals are able to deliver, then I think not talking about Q2, Q3, Q4, but let's say going forward, I think we should be able to sustain that kind of growth momentum. But in your comments in the presentation, you also mentioned the Transport vertical. So what kind of exactly the kind of weakness or delay in decision making are you seeing in the Transport vertical? And specifically which part of Transport vertical in terms of either is it aerospace or basically automobiles, which segment is something which you -- we are kind of looking weakness in terms of?
I think it is not a sectoral issue, I would say some of the customer issue which happened. And I talked about the trade war and what is the impact of the trade war in ones -- one particular customer. The exposure of some customer to this area, in a broader area, and that is what is impacting. It is not just everything changed now. Transportation as a whole, I think, not everything in transportation is happening there, right? So no program has been canceled so far. That is one positive thing, right? Nothing is canceled. I think this gives us confidence now the top customers we have, [ now ] that they are canceling the program, that did not happen. So in the medium term if you see, I think, medium term, there is no reason why you should not come back again to what we did in the past.
Sure, sir. Sir, is European auto a source of concern for us at this point of time? We are kind of seeing some global weakness in that segment as many of the peers have called out. Any specific -- I mean, I know Europe is small for us. But have you seen any kind of delay in decision-making in that special segment?
We won a deal in Europe in automotive. I think it was Transportation that you talk about and one deal we own and second deal we've just announced last week. So I think Europe as a region is not doing bad for us. We're doing reasonably well. If you see last 2 years, our revenue Europe contribution has gone up. So there's no question of Europe slowing down. But what happens is automotive Europe, we have some of the marquee customer there. And we own -- the 3 names -- 3 customers that you talk about, all 3, one one deal we own this quarter. So I don't think automotive Europe has an impact on the revenue going forward.
Sure, sir. That's good to hear. PR sir, if I could just harp a bit on 2 things. On the margins, as I think, in the earlier question there was, that we're looking at, let's say, weakened, slightly muted numbers in Q3 and probably a pick up from there in Q4. As you mentioned, we do have levers. But do you see some impact on the margins maybe temporary because of the operating leverage coming down? Or do you believe we have enough levers to be able to mitigate that in the next couple of quarters or so?
Actually Vibhor, I think specifically to that question you just asked previously, I did mention that as we see it, that margins will be a function of how the revenues come up. And if you really see the 5 segments, which -- where we have -- from the segment result, which is the old EBITDA structure, there are -- the 3 segments will continue to have that 25% to 26% EBITDA and the other 2 Transportation, Telecom Hi-Tech in the 15% to 17% EBITDA. Any of the large deals which come across in any of these segments and mostly which happens probably in Transportation, Telecom Hi-Tech could be in the position of initial on-site -- slightly higher on-site kind of, I would say, share. But it has always been our practice in the past also, it's not that large deals only keep once in a while. Maybe in a quarter it may have an impact, but later on, we do have a plan to ensure that the margin trend comes back to what we have.
Apurva, if you look at it...
Vibhor.
Vibhor, if you look at our last year, we have few deals we own and you see immediately on-site component has gone up. Then we brought it to stability now. So let us say, some of the deal we scale up again and in that particular quarter, a month or whatever timeframe we do the knowledge transfer, it might impact. But our intent is successfully we've been able to do that, sort of balancing and we'll do that. That's a big lever for margin.
Sure, sir. Sir, my last question on the cash flow statement. I think PR sir mentioned, so there is this INR 293 crores of entry in the cash flow statement that you mentioned is probably an ICD to the parent company. So I would assume this would be probably a onetime thing and we are not looking at something like this coming back again. And what could be the basically the time tenure of when the money comes back to us and some of the details if you could highlight on?
Vibhor, let me clarify. This is actually an inter-corporate deposit forming part of our deployment of short-term surpluses. Let it not be construed as a loan being given to a parent from a longer-term perspective. We have various options like investments in liquid mutual funds and so on and so forth. We also invest with our parent at -- very often at points of time. And sometimes it so happened that we had a proposal where we could be in a better position to earn a better yield than what was available at that point of time. And from a safety perspective, I think our parent exposure is as, in fact, if not, better than the investment which we do in other, I would say, investment areas. But let me clarify to you, this is part of our short-term investment plan to park our temporary surplus as these are technically money callable on demand from anyone. So it is in no form of any long-term exposure. So probably I think by now, we may have also taken back that particular money. Unfortunately, because of, I would say, accounting disclosures, it has to be classified in a separate bracket.
Sure, sir. That's reassuring to hear that.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Just wanted to understand that besides Telecom & Hi-Tech, now we are calling out Transportation and a bit of Industrial, which is also pain areas. So just wanted to understand on Hi-Tech & Telecom, I think Dr. Panda you said that most of the worst is behind and you do not foresee any decline in that segment. Here in Transportation and Industrial, within the subsegment where we witness the pain, wanted to understand the nature of the slowdown. Is it the leakage in the existing revenue? Or is it the growth which is not coming within that revenues as a whole?
No. I think Transportation as you see, year on basically 20% growth we have shown. It's not that it's not growing or degrowth there. 20% growth happened in Transportation in addition to Plant Engineering as well as the Medical. So I think this happened, continue to be -- we also said it will continue to be the same. The Telecom Hi-Tech we talked about, there's no segmental issue again. It's an issue with a customer because of the trade issue what we had, got delayed. So that's the reason we are careful about what we're going to talk about. But there's no issue about any particular segment which is going to slow down. And I don't think 22% growth if you do year-on-year, what else we expect. We will continue the -- we see the pipeline we have, the order we own. We continue to see growth in this segment.
Okay. The point I was driving is, if there is a leakage in the revenue, then it should not lead to a drag in terms of next year's growth. So that we don't foresee? It's just the new growth is not coming while the existing revenues are still stable as a whole?
No. The way I look at it, I think the what -- next year, I'm not looking at right now. I am seeing that make sure that whatever I'm communicating to you and committing to you, I must deliver in quarter 3 and quarter 4. And we think about when we do it, how does next year look like. Today, I think the issue, global scenario which is going on, what is going on, if this continued for 3 years, it will have some impact. But in spite of all the headwind and we still say that we're going to do growth. I think one thing remember, as I said in my call and I'm already getting the bidding, what happens is, the engineering what you're doing earlier, the engineering today is different. CAGR in new-age technology which is increasing more and more. And our investment via the artificial intelligence for manufacturing, healthcare and these areas what we've been doing it and that's -- and medical area as well, this is going to give us much more traction in the marketplace. And that's what gives us comfort that we'll continue to grow. Is there any way that how next year will look like and when you come to quarter 3, quarter 4 beginning, and we'll give you how does it look moving forward.
Okay. And just in your initial remarks, you said most of these pain portfolios will start growing in the Q4. So one can say that most of these pain portfolios, the worst would be behind by 4Q?
No, I think you can look at this. Quarter 1 to quarter 2, Telecom Hi-Tech went down, if you see in million terms the rate -- number we went down. We said last quarter that Telecom Hi-Tech is still going to go down in quarter 2, which happened. We also said it's not going to go down the same ratio what happened to Q4 to Q1. Q1 to Q2 go down but less than Q4 to Q1, that's the reality. And we are seeing today, quarter 3, it is not going to go down at same level, it will stabilize in quarter 3 and start growing in quarter 4 onwards. So this particular segment is a big segment. It dragged us for last 2 quarters. And we believe quarter 3 after that, worst is behind us, and we'll see growth again from quarter 4 onwards.
Okay. And even we are also expecting that Transportation and the Industrial where there is a bit of ramp downs or the spend delay or decision-making delay, those things may also recover by 4Q.
Yes. If you're looking at the pipeline, it will see Transportation pipeline, is healthy. So it's a nonissue. Industrial is a segment, again, a number of patents we have, we have filed so far, I would say 60% of patents were filed by the engineers. So the type of work we do Industrial, very few companies can do that in the world. So the pipeline, the order win which we had -- what happened in Industrial that our customer, 1 or 2 customer issues that slowed down. They slowed down because of exposure to China, exposure to somewhere. So it is not that it was segmental. Every segment -- at the same time, same segment, we own some large deals as well. So combination of both, it is unfair to say that Industrial is slowing down, Industrial is not going to do well. This segment, one thing to remember that Industrial segment is a segment, growing the same level at 20% year-on-year or other thing, it doesn't happen. Let's be very clear. But Industrial is going to grow for sure. Even though this quarter we have grown 1% or 2%, we have grown this quarter. There is no degrowth. See Telecom, if you would have grown at the level what we did in the past or we remain no growth, then our revenue would not look good, right? Telecom growth -- degrowth happened. That's one segment would have remained flat, would have shown a much better growth this quarter as well. So as long as this comes to flat even so growth later, I think we will show a better result.
Okay. And just 2 things. PR, just wanted to understand the wage inflation for the whole year is done and over? Or some may be coming in Q3, Q4? And second, on the DSO, this time, there is a quantum jump from 95 days to almost like 102 days. So is it also to do with some slowdown? Or is it more to do with the quarterly aberration where recovery will be there in the coming quarters?
I think you had 2 questions. So the answer to the first question is yes. Our wage revision has happened full in the Q2 itself. No other wage revisions are at least there in the [ anvil ]. Okay? And number two is, coming back to the DSO, both for receivables plus work-in-progress accruals is, I would say is a temporary thing for this quarter. There's no structural change per se for -- to merit some different kind of, I would say, explanation. We -- as I explained -- as I summarized during my call, that we will come back to better cash flow in Q3, Q4.
The next question is from the line of Madhu Babu from Centrum Broking.
Sir, hiring has been a bit strong despite a kind of medium-term softness. So any reason? Or is it more like a fresher hiring we have done or...
Good that you pointed out that. I always look at it how many people we add and what confidence we add and what level we add. This is very, very important. Today's world is new technology. We hire a lot of people who are in this new technology area, which is going to [ the future stage ]. And it also gives comfort that we keep adding people, that means we have a pipeline. Otherwise, wage costs will go up and it will have impact on margin, right? So it should give us confidence that what is the number of people we hire in Q1 and Q2 is quite a good number. So we have crossed employee, now today, crossed 16,000 plus, 16,700 employees now globally. And it's -- one interesting thing we did is we believe it is not necessary the employees should be added only in India. We should add globally based on the demand what we have and the business model can support for the margin point of view. So keeping that in mind, we hired in different locations as well.
And just one lever which I could see was the offshore shift on -- for the margins this quarter. Utilization has been down. Hiring has been strong. Wage hike has been there, but still I think the margin execution had been very strong. So was there any big on-site cost reduction element which also supported this because we had multiple headwinds but only offshore shift looks like the only tailwind on the metrics side.
No. I think if you look at it today, I think if you have to increase your margin, you need to look at the new-age technology and you should get a better rate than what you do. Some of the education what we did, if the project -- 39% of the business comes from new-age technology and that percentage has to continue to grow. That's the biggest lever again. On-site to offshore, regular utilization, I'm not concerned about the utilization today. The 2%, 3% we increase next quarter, we will continue to do that. That's our goal as well. But remember, in engineering, if you continue -- if you go beyond 80%, I'm concerned about it. Because where is innovation going to happen? This is not IT, ADMS infrastructure we are talking about or enterprise ERP we're talking about. This is a -- somebody is doing a engineering design and he is thinking about innovation, it is important to keep below 80% as the utilization. I always tell people somebody comes back and say, I crossed 80%, I said, no, I am not happy about 80%, go into 81%. I think we should keep that in mind for engineering services, 80%, we should not go beyond that. You should always remain within that. We have lever. Today, if you see quarter 1 to quarter 2, there is a 2% drop in utilization. There is a reason we know why. And there are people who are going through training, we hire people, they've gone through training. They were not invoicing. And I would look at next quarter, there should be improvement on utilization. Our quarter 4, we should hit that -- the highest number I talked about. This lever is an important lever that is not -- this is not the only lever. On-site to offshore, utilization, then we also look at new-age technology, that also is important. Altogether, these levers have to be paid. And again, look at this, if you see our segmental growth, a part of business we have, there the operating margin is very high and those part of the business, we've continued to grow, you see our percentage revenue growth in these different segments, if you see, the segment where revenue has grown are more profitable compared to other segment. Right? If that is the lever which you played right and that automatically impacts our margin growth.
One more question on the Medical side. It has seen very good growth over the last 2 quarters, though it is on a small base. What is the outlook? Is it a very -- you want to see much more momentum there?
We did say that. I think in my talk I talked about. And Medical is something which we are -- continue to be leading in that segment. And the opportunity on hand, we said not only Q1, Q2, medical is area continues to grow for the coming quarters as well. So we believe that's the case.
Any on-site acquisition on Europe which you would be targeting because after Graphene, we had not done much on the acquisition front? So any...
[indiscernible] Yes, go ahead, go ahead. Sorry. Go ahead.
So any boutique acquisitions in Europe where there are good shops on the engineering side, especially on the ADAS and some of the new areas? So any targeted acquisition on Europe which we are liking here to do?
See, one philosophy we have in -- as a company that we acquire a company where it's going to help us on technology any time we look at it and also we need to -- always we are conscious about, when we acquire a company, can we manage the company. Europe -- if a company is available, do I need this company or can I deal that? But our philosophy has been always buy a small technology boutique company which we can integrate successfully. We did couple of them that has gone very well. And we look at multiple other opportunities as well. Not specifically -- see today's world, there's nothing called a Europe only we should look at it. We globally look at it. Globally look at it, it's going to impact here. Then we look at -- can you have it -- we have -- we set up a development center, we are looking at right now Eastern Europe. Eastern Europe region, can I have a small company or create a small center which is directly going to support some of the language issue in that segment. Technology if you have, Europeans don't insist on that we should have European to support them. I think there is a lot of shift there in last few years.
The next question is from the line of Aniket Pande from Prabhudas Lilladher.
Sir, my question is on the communications sector side actually, and globally, we are seeing that optical fiber prices are going down. And we are reading the -- I mean, many news also that there is a lot of inventory which is there on the semiconductor side. So till when we can a recovery in communications sector? And if, for example, communications sector take time for -- I mean, takes time for recovery, so which sector for you will provide a strong tailwind for growth? I know, I mean you have provided better prospect for Q4 FY '20. But if still global macro uncertainty that time also remains, so which other sector can provide tailwind for your growth, sir?
Thank you. Amit, can you take this question, please?
Sure. Can you repeat your question, please?
Yes. I -- yes, so I think globally we are seeing that optical fiber prices are going down. Secondly, we are reading news also that there is a lot of inventory which is there into semiconductor side also and which is there also into communication equipment side. I know that you have mentioned that there would be a recovery happening in communications sector in Q4 FY '20. But if still till that time also if there is a -- and if till that time also, there is global macro uncertainty and if still there is slowdown in communication, so in that case, which other segment can provide revenue tailwind for you rather than Telecom sector?
Sure. So if you look at the Hi-Tech segment, we call it the Hi-Tech segment. There are subsegments there. So semiconductor is where we are the strongest. Second is consumer electronics. Third is telecom infra and then media entertainment and ISV, right? Those are technology service providers, those are 5 broad segments that are there. And we are present in all these segments. Our offerings today, Dr. Panda talked about it, the 2 acquisitions we did were in the semiconductor space, and we are seeing growth in that area, new programs, new chip development, et cetera. So that -- we expect that to continue and help us in overcoming the decline that you are seeing. Second consumer electronics, we are, again, market leaders in that space. Given our background in the merit systems, software, hardware, firmware, the entire 9 yards, and we believe that, that again is a segment that is growing for us and will continue to show the growth to us in Japan as well as in the U.S. The third segment that is the [ TSP ] segment or ISV segment is starting to show growth for us. So we do believe that once this decline of this a particular customer completely goes away, we will be able to start showing the growth and any -- the stuff that we talked about, about trade wars et cetera, we do not think that, that will negatively impact this bounce back that we are expecting coming in the coming quarters. In fact, the large deals we're pursuing also, we're putting special focus on this segment to see if we can get the closures faster.
That's helpful. One more question, sir. On your revenue conversion of deals, so basically I mean, the peers in IT services segment have mentioned that global macro uncertainty is reducing their revenue conversion of deals. Okay? Similar kind of situation, are we seeing in the R&D space? And what is the kind of demand situation in the R&D space at present?
So one thing is that -- the good news to share is that we are not losing deals to competition. Right? So it's not like competition is gaining mind share or client share over us. So we are -- that's not happening. So we are converting deals. What Dr. Panda mentioned at the beginning of the call, and I am reiterating is that some of the decisions that we expected would happen in quarter 2 are getting slipped off and delayed. But there is a hold pattern, wait and watch pattern. I don't even want to put it a hold pattern because things are moving along. I mean instead of doing a due diligence and then signing up immediately, they are doing a little bit extended due diligence. And that's why we're seeing a little bit of a slip that we are seeing right now. But it's more a wait, watch and we like you, we want to work with you, but can we hold on for just a bit, let's start these proof concepts. See, the reason we are still optimistic about our future is because we're starting proof of concepts where we would have expected to start the big bang. So it's not like the clients are gone, the opportunities are gone. It's just that they are stretching along. And that's what we've been mentioning so far.
And sir, I will just squeeze in one last question, sir. I mean previous 2, 3 calls, you have mentioned about trajectory of your IP revenues or IP-influenced revenues. Okay. So if you can give a direction in that, it would be great?
I did talk about it when I spoke about the platform revenue or the IT revenue. Right? And we thought we -- revenue, the way we -- the decent way we are attempting now, the 3 million, 5 million, all that is going on, so we thought, can you do a big bang in a long run having created this platform, looking at what is happening worldwide some of the startup that they work on, will identify 2 platforms which, as we call, is our the main backbone, I would say 3. I think we did one customer smart campus, we delivered and that campus opened last month. So it gives us a lot of comfort. And there is one smart campus our parent is building and that is where we are using our platform again. So it is -- it's happening there. And similarly we talked about the maintenance, energy management, [ predictive ] maintenance. On that we built a secured layer now and all these platforms. So we believe these are all going to give us long-term relevance in the market, and it's going to give us value in the long run. But what we decided, the exercise we did with one of the consulting companies, we said how do you go to market if the services and this is different, and we have a plan, and that [ education ] I presented in the Board today. And we said this is how we're going to do it. I believe this is -- has a much more value in the long run than what we are getting today. So I think that's work in progress. One further part is, we have 300 plus patents, right, 416 patents we have and 300 owned by customer, 116 owned by us as a company. One thing we have not been able to do and demonstrate still, this patents monetization, how do you go about doing it. So we are tempted to do that. We're working on this to some extent, and I always look at it, what is the investment I do, what is the ROI I get and how soon we can get. So that process is on. I'm more bullish about the platform solutions what we have in the long run and I'm sure -- one thing remember, engineering and technology services company when you do, if you don't have patent, if you don't create the atmosphere where people are more innovative, it is difficult to be relevant in the long run. If that engine I don't want to stop, every time I talk about that don't worry about monetization, that's something which is going to happen. And we have number of patents today, is -- many -- you don't seen that in many services company. So I think that DNA will continue to build on that. And I'm sure we also have a team working on the monetization path.
The next question is from the line of Mukul Garg from Haitong Securities.
Dr. Panda, first I -- sorry to again hop on the guidance issue. But if you look at last 6 months, the upper end of the guidance is down almost 600 basis points. There are 2 parts to this question. First, do you think this is mostly because of a few specific large clients getting impacted by the macroeconomic conditions and our exposure to them? Or is this more broad-based across the Transportation and Telecom and semiconductor space? And the second issue, in terms of our learnings, what do you think we are doing or we will be taking care of which can kind of prevent this kind of cut in guidance?
I think if you look at one segment, we announced last time 30 million plus, there is one issue about semiconductor 10 million, 40 million or so impacting one segment itself. That 40 million for the guidance what we gave that time, this other semiconductor issue of 10 million was not very clear at that time. So I think it is not a issue with other segment. The other segment as per expectation is going as per expectation. But this segment had a big impact on the margin -- on the revenue side. The guidance when we give it, whatever visible, we have given that. But please remember, when we look at it, the customer base, we focus on the 50 customer. So top 30 which contributes 62% of the revenue and the top 80 contribute 84% of the revenue. So I think we spent time, looked at this customer. We said how do we take care of the drop which happened in this particular segment? Let us say it gets delayed, how do you take care of that by next 50 customer. So I think the focus on the other 50 customer has made up -- you can see growing -- down by 40 million in a year and you still continue to grow, it is not a easy task to do. Right? We have been able to do that. And the order book is what we have. Only thing I'm -- we are working hard to make sure there's no drop anymore in this segment. This particular segment doesn't grow, it doesn't drop. Then I don't think it's going to be an issue from the overall growth point of view. So what we gave last time we talked about [ a ways ], we talked about and we looked at the numbers. This is the only segment which is impacted in a big way. If you add 40 million, do the math and you will get the number what we have said, right?
And if I like kind of correlate it to your commentary about stability in the semiconductor space, I think one thing which is still a concern especially because of the U.S. China issue is that semiconductor companies are still under stress. So how confident we are that this has bottomed out? Near-term deals might help Q3. But is there a risk that it might recur in Q4 onwards?
Mukul, I think, semiconductor, when you look at it, the chip design, now its applicability in automotive, applicability in different areas, right? So this is what the camera chipset we are building now. We are building for the connectivity. We are building for graphics. So this is not going to go away. This has nothing to do with semiconductor side. Aim to and design for the chip design, if you have a strong VLSI capability working on the segment, that itself is going to take us. And the reason we are saying -- only thing I am saying is, we should not drop the revenue anymore in Q3. Okay? If you don't do that, then we are back in business again. And looking at the -- in semiconductor segment, the chip design, we had a couple of wins recently. In spite of what is going on, people have to do that. And if you see automotive segment, healthcare segment, every segment that needs a chip set. If you have the competency, we will continue to do that. So in VLSI, don't look at always semiconductor companies alone. Do not look at the fabrication of that. Design has to be done for different application. And if you have competency -- trust me, there are not many companies in the world, the design of this can do it. If you are there and you have relationship with the customer which you do and we believe and the win we had recently, not that the 0 win, if it didn't happen, then I would not have said the stability has come to system. Now only thing we are saying is, I look at to date, in quarter 3, Telecom Hi-Tech as much remained at the same level, without growth, no drop. And then worst is behind that. That's how we look at it.
Got it. And in the Transportation sector, the weakness which you're seeing, is it more due to automotive? Or is it aerospace? And is it fair to assume given the decline in Europe that this is more pronounced in Europe than in North America?
I did mention about Europe. We got couple of deals we own in automotive segment. Right? It is not fair [ for ] in my part to say, it is -- after all the wins we had in Europe, Europe is a problem in auto, no. I think that's not the issue. We own the orders. And there are 1 or 2 orders in pipeline. Hopefully, we'll close it soon as well. See, we got to be clear about there are areas where we should work, where opportunity is there. And that we keep changing. We keep changing. If something is not happening, what else we can do, so we can do that. So one point is, the transportation, one particular customer, because you can imagine who has exposure to China and face the war between China and U.S., who has exposure to that, not everything. Not every companies in one particular segment. There are companies we have, which is not -- doesn't have a huge exposure to China and there whatever is required, transportation one particular customer where the exposure to trade path, that had some impact.
Understood. And one final question from my side on the trade issue. If the trade negotiations kind of move towards a success or resolution, how fast can these projects come back or scale up? Anything which you've heard from clients, whether they're just waiting for a confirmation or a confidence on this side and they will be back in business because underlying demand is still there? Or will it take a bit of a time from them to be confident enough to do it?
The customers have money. It's not that like -- unlike what happened in 2008 and earlier, that's not the issue today. Customers have money. They are a little careful about, I think, what's going to happen. But the -- as soon as this is done, the sentimental issue is going to improve. At once it improves, then we are back in business at the same level. So it is not an issue. I would not be worried about these customers are not -- doesn't have money, if they have a problem, what they have gone through in 2008, those days. But that's not the case today. So I -- keeping that in mind, I think the day this issue is resolved, that is going to open up more opportunity there.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Pinku Pappan for closing comments.
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