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Tech Mahindra Ltd
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Ladies and gentlemen, good day and welcome to the Tech Mahindra Q1 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. C. P. Gurnani, MD and CEO for Tech Mahindra. Thank you, and over to you, sir.
Good day. This is C. P. Gurnani. Welcome to the Connected World. Connected Experiences. Tech Mahindra Q1 revenue, you all have seen the highlights in the press release, so I'm going to straightaway go into more of the details. From our perspective, when we do our budgets and planning, Q1 is traditionally a slow quarter. And that's really because our product base revenue in Q4 tends to accelerate and Q1 tends to become slower. It hasn't come in as a surprise to us. Hopefully, it don't -- it didn't come in as a surprise to you. Overall, I think, from our perspective, we have reiterated that we added 13 clients quarter-on-quarter. We also reiterated that our business has shown a healthy growth in the enterprise side. We have reiterated that we have been selected by various businesses, various clients around the world, mainly in digital transformation; mainly in Blockchain; in data-based services; analytics-based services; and more importantly, in digital 4.0 or Industry 4.0. We continue to invest in makers, labs, which is our innovation centers, which are a [ positive ]. Technological centers closer to the market, and we have done it now in U.K. We have now done it in Plano, Dallas. We have in Munich, Germany. I think I'm very, very proud that our[Audio Gap] gaining a traction. They are finding a lot of footprint from our clients and our prospective clients. Our business in digital transformation continues to grow as we have innovated and built our business together. The other notable focus that we have done is on [indiscernible] India and particularly on cybersecurity. We set up our Managed Services center in Andhra Pradesh. That's, again, doing very well. I think there are opportunities. We are seeing requirements coming in from the banks, insurance companies and many corporates around the world in cybersecurity.In terms of our operating metrics, I think, considering that we had few areas where we have focused on. As you recall, Q1 of last year, we were at 12.7% EBITDA. And this quarter, despite of the few headwinds, the seasonality of the Telecom business, the Visa costs, the headwind of lower utilization or the headwind of wage hike, we're still being able to maintain or be able to arrest degrowth in EBITDA by taking into account that my management team has focused a lot on productivity and efficiency improvement. Our Chief Operating Officer, L. Ravi, is here with me. At an appropriate time, he will take questions regarding the efficiency and productivity improvement, and similarly, I mean, when Manoj Bhat shares the other positive impacts, particularly the currency, he will give us more details. In constant currency, enterprise business has grown 3.8%. Year-on-year basis, it will be seen as almost an 18.5% growth or 17.8% in constant currency. So I think, overall, investments in IP, whether it is in Blue Marble in communication sector, building a platform on artificial intelligence and communication sector called Acumos, all investment in IP, which -- on the Altiostar, I think is the right trajectory. I'm very, very happy that the TechM Nxt platform, as we had envisaged, process as a service, product as a service is taking good shape. And it's -- overall, I think the growth is good in enterprise business. Growth is coming back into the communication sector. Particularly, communication sectors has done well towards the end of the quarter. They signed a few deals, so I am more confident about the overall trajectory, the overall play. And though the -- on pen and paper, the performance highlights may look a little tepid, but in general, it is in line with the way our business works, and it is actually an improvement. So to take you through the operational highlights, to take you through some of the numbers, I'm going to invite our CFO, Manoj Bhat. Please, Manoj.
Thank you, C. P. I think in terms of the numbers, clearly, C. P. alluded to the revenue decline, and in constant currency terms, it was a 0.3% growth, so the cross-currency headwinds were about 1.9% during the quarter. In terms of the EBITDA, the EBITDA went down about 110 basis points. C. P. did mention what are the factors. And I think, looking at it loosely, I think the mobility business, which is Comviva, contributed about 90 basis points. The wage hikes were about 40 basis points, and Visa cost was about 60 basis points. And then we had lower utilization because we actually added some campus recruits, who are in training just now, so that's another 50, 60 basis points. And on the positive side, currency was about 80 bps positive. And the remaining came through operating efficiencies and improvements during the quarter.If I really go below the EBITDA line, I think other income has dipped very sharply. I think, if I look at it in dollar terms in Q4, it was about $70 million. And it's down -- dropped to about $16 million. Two major factors there. First one is that, in Q4, we had a onetime sale of land of $14 million, which is not there in this quarter. Secondly, Forex gain was about $27 million in quarter 4. That's down to $2 million so -- and that's happening because rupee has depreciated during the quarter. While on the topic of Forex, I think we did increase our hedge position during the quarter by about $260 million, so our total hedge is about $1.46 billion on the books as of today.In terms of hedge accounting, I think the P&L is a hint of about $9 million or $10 million during the quarter. Sorry, a gain of $10 million during the quarter and a loss of about $7 million on the balance sheet as of today based on mark-to-market.I think moving on, I think, in terms of the other areas, other income was also lower because of some of our investments in ultra-short-term funds and so on and so forth. There was a mark-to-market impact because of the yield curve strengthening during the quarter and that had a lower returns, which we saw during the quarter as part of reason for lower net income.I think -- moving on to cash flow. Cash flow was about $109 million CFO, as in cash flow from operations is about $109 million. And FCS, free cash flow, was about $82 million during the quarter. I think, in terms of percentages, that is roughly comparable to what it was in Q4. Cash and cash equivalents were about $1.23 billion, and debt was about flat during the quarter. I think, to summarize, as C. P. mentioned, clearly, the 4- or 5-quarter journey, I think there's been good margin improvement. Enterprise continues to show growth momentum. Telecom, where we are today, I think communications vertical, while the numbers don't represent -- because the ex of Comviva and ex of currency, probably the decline in comps is about 1%, and that is clearly something which we think that, during the course of the next few quarters, we will rectify and go forward from that. I think with that, I'll throw the floor open for questions. Please reach out to -- please ask your questions, and we'll get them answered by our management team.
[Operator Instructions] First question is from the line of Viju George from JPMorgan.
Just wanted to understand a little bit about Altiostar. What is the kind of -- I guess this is going to be a recurring loss during the time that the company records losses. So you have any sense of how it is going to pan out going forward?
So first of all, I think, let's step back and understand what this loss is coming about from, right? So we own about -- slightly about 20% stake in the company, so it is a strategic investment, and this is an equity pickup because of that. So I don't think it is in the nature of anything which we do operationally or control operationally. But the current accounting treatment requires us to pick up the -- our share of the loss. Now from Altiostar itself perspective, I would require -- request Manish to comment on both the investment phase which Altiostar is going through, and what was our strategy in acquiring a stake in this and striking this partnership? Manish, if you can, please?
Absolutely, Manoj. Viju, thank you for that question. So as you know, we probably described it in sometime back that we would continue to invest in what we like to call as network of the future, technologies and business models. What Altiostar promises to do in the industry is to disrupt both, the technology in the RAN space. And if you look at the entire network spend worldwide, one of the largest areas where CTOs will continue to spend a lot of money on their -- bulk of the 5G investments will happen will be in the access technologies or the RAN space. So Altiostar looks to disrupt that by virtualizing most of the functionalities that fit on a very large hardware-centric radio technology to a more cloud-centric virtual technology. So that's part 1. And the part 2, something that -- and while that is already playing out in the market on the technology side, the other interesting thing that will happen is this is also going to disrupt the business model. By that, I specifically mean it will provide a lot more flexibility to the service providers to source and procure their infrastructure from multiple parties rather than just a few because the entire technology and the architecture is built on what is called a disaggregation of hardware and software. And between these 2 and the fact that the networks have to be modernized as we speak, 4G and above and 5G, this is a great opportunity for us to participate in it via Altiostar investment and like Manoj said, it's a minority investment, but we are going to market with them. It has created an opportunity where we now have a seat at the table at multiple CTOs across the world, who discuss the road map on the strategy, not just on the integration and the Managed Services part, which, in years, will come and is the strength for TechM. So I would say this is -- these are still early days. It's a startup by initiative of imagination and because it was in early stage, we decided to take pole position and experiment with this investment. I remain very confident that over the next year or so, this story will play out very interestingly for Altiostar themselves, and obviously, from our vantage point, we will be seen as somebody who is a part leader and the sponsor of innovation and disruption in the industry. So I guess, at this point, I would love to just say that.
So just a couple of follow-ons from that if I may. So how does this -- so if you think that this is a play on the RAN for the 5G technology, is it going to be -- is the potential going to be unleashed closer to the time that 5G goes mainstream, which will be still some time away from what I understand and, therefore, are we still going to build strategies to ideation phase before full-scale implementation, part 1. Part 2 is that -- other large minority investors also in this company.
Yes, so I think that is your first question about -- is the potential going to be unleashed more closer to 5G? Answer is yes and also no because there will also be some network that are still in the process of expanding or deploying 4G where it seems they are pretty set. Also, there is a third type of an opportunity besides 5G and 4G that we have started looking to address, which is, I would call them, the use case scenarios, also net use case scenarios, whether they are small cell, whether they are IoT related, whether they are smart city related, so they will be able to create because of the agility and the relative size that they have, they will be able to build offers that will be customized for very specific needs and these needs, by the way, are very large in the marketplace in totality. So there are some -- it's not just predicated upon the 5G timeline and 5G rollout. It is also much before that and which is exactly what is happening right now. There are a couple of interesting opportunities that Altiostar is engaging. On your second question, if I got it right, is are there other minority strategic partners? Yes, there are couple of other people. One of them, of course, is Qualcomm, who invested pretty much together at the same time as we did.
Sure. And despite -- I mean, even excluding the Comviva seasonal ramp down, I think comps declined Q-o-Q. What's the trajectory going forward for maybe Q2 and Q3?
Manish, you want to pick that up?
Yes. Sure, sure. Yes. So I think -- Viju, I think the decline is only seasonal to a great extent. Even ex Comviva, there are couple of other small businesses, which also have that impact, even if you go back. But that said, I'm confident that the trajectory is looking positive. Just in the first 30 to 40 days -- of the 30 days this quarter, we have now signed some significant deals. As we go along, we can then share more details with you over the next several weeks, but I'm positive that the deal flow is very robust. The deal wins have been robust in recent times. And also, as we speak, we are engaged in some very advanced level conversations on concluding the other deals as well, so I am positive about how the trajectory will look like from second quarter onwards.
The next question is from the line of Sandip Agarwal from Edelweiss.
C. P., I just wanted to know one thing that you know we have -- am I audible, please? Hello?
Yes. You are. Yes.
You are loud and clear.
Yes. So my question is that we have been -- since the acquisition of Mphasis, we have been piggybacking on the growth of enterprise and that has helped us to a great extent. It has delivered quite a industry-leading growth. So I just wanted to know if this journey of enterprise reached a level where you know this kind of growth may become a little tepid. Or you think that this growth would continue? And secondly, how much more pain you'll see in the comps, as there, I understand Manoj already tried to explain the seasonal variation. Where do you think we are in the upcoming cycle if any grade shortage will -- could come from 5G? And finally, one question to Manoj. Manoj, on the margin front, we have done extremely well in last 3, 4, 5 quarters to recoup a lot of lost ground. Do you think we are almost done on that journey ex of currency, or you think we are still long way to go on that journey?
So Sandip, I'll try and make this answer directed to Manoj and Manoj. So Manoj Chugh, do you want to share your perspective on the enterprise business?
Yes, C. P. Sure. Thank you very much. Sandip, first of all, thank you for your very kind comments on the enterprise business. The credit entirely goes to the team. If you just look at our Q1 numbers on a year-on-year basis, purely organically, we have grown upwards of 9%. And consistently, we have attempted to grow on a quarter-over-quarter basis. You would have noticed that different verticals performed differently depending on the seasonality. And of course, in Q1, our 2 major verticals, financial services and manufacturing, both of them 0, I think we, obviously, are going forward in the future. We'll continue to put in the efforts that we have as we'll continue to do so. The results could be mixed depending upon which quarter we are in. So I think quarter-by-quarter, we'll have to play it as the same cricket ball by ball. But clearly, our goal is to continue to head in the positive direction that the enterprise business has been for the last several quarters. So I'm afraid it will be difficult for me to do crystal ball reading on saying so, therefore, [ I will be doing Q2 in specific or Q3 ]. I think if you look at the balance of our performance across geographies, across verticals, I'd say that we are in a reasonably good shape.
I think your question, Sandip, was about margins. And really, I think there's no new message from my side. I think even 4 quarters back, if you go -- or 5 quarters back, we said we are going on a journey of 6 to 8 quarters, number one. Number two, we said that first focus will be operational efficiencies. Second would be around AI and automation, and we have the EQT platform as well as a lot of other initiatives, which are doing both for internal as well as external customer-facing engagements. Third, we spoke about the portfolio companies and how do we synergize for better revenue growth as well as for better margins. And the last thing is, I think, how do we move to higher-yielding revenue streams. And I think on each of these, if I look at the first one, clearly, with utilization at -- excluding trainees, at about 84%, and we had said last quarter so that's something which was the flavor we first utilized. I think going forward, I think we are seeing gains now starting to come from AI and automation, both on our internal processes as well as with customers. The last bit about portfolio companies, I think last year, I think there was an improvement in performance, but I don't -- we don't believe that it is anywhere close to full potential. And there's a little bit of efforts we are putting in and trying to make sure that those come back to what I would consider a base case profitability. And in terms of higher-yielding services, as a proportion of some of the newer service offering goes up, we do discover that the ability to price and the ability to generate margins is there, even net of investments. So I think that's the way I look at it. The other thing is, of course, the pyramid. We have started, again, adding campus recruits, which about 3% of our process in training right now. They just joined us. Clearly, that will also start being adopted into the workforce probably Q3 and Q4. That should[Audio Gap]deliver. So multiple things going on and -- but the journey and our goal would be to improve margin sequentially. Now, of course, the pace of the initial margin recovery was quite dramatic and fast. Obviously, it will slow down a bit, but I think the journey continues to be in the positive direction. That's what I would think, and that's what we are all striving towards.
And my question has been -- on telecoms still remains.
Sandip, can you repeat the question on telecom?
Yes. I was just trying to understand how visible any green shoots of 5G which are visible to you right now? And how much more pain ex of LCC and the quarterly variations of some of the acquired companies or products are there, but ex of that, we will see comps on its own coming back to at least mid-single-digit or high single digit in -- during 2 quarters on a year-over-year [ basis ]. I'm not asking for any kind of guidance but directionally, what is your sense?
So let me make a couple of comments and hand it over to Manish. So clearly, and we have said multiple times that comps will grow this year, and that is coming after 2 full years of negative growth. And there are multiple reasons, so I don't want to go into the past. But as we stand today, I think and I'll request Manish to expand a bit more in terms of how we are thinking of it. But clearly, comps, we believe will grow this year. Now, obviously, there is a currency factor and so on and so forth, so we'll have to adjust it a bit downward in terms of reported, but I would say that the growth possibility and whatever we were talking about in the past, that's still achievable. And Manish, do you want to expand on it and also cover 5G and how you see that evolving?
Sure. Absolutely. Sandip, there are 2 things I would say. One, a direct answer to your question that are we seeing activity and green shoots around the network modernization and 5G? The answer to that is yes. We are hopeful that over the next quarter or so, I may be able to share more details about a few interesting projects that we are going to be doing. They are currently in the confidentiality phase. That said, I do want to take you back to something very important that C. P. had said in the last quarter earnings call that -- and we maintain that. The industry maintains that. 5G is nothing like what 4G was or even before. The rollout, the deployment and the implementation of the technology on the 5G is going to be very nonuniform. So the strengths, it is not just about network, it is about the entire infrastructure, process, systems digital and services that will all come along to justify and to make the power of 5G really work. And the reason I'm highlighting that one more time is so that all of us recognize that one thing that we have always architected our comps practice is around what we call as the diversity and comprehensitivity of service offers. So the good news is that we remain very focused on that strategy. And the initial feedback that we are getting from the market is indeed in the direction that we will benefit from across digital to network to upstream services as the 5G rollout happens. But I'm hoping that over the next couple of maybe quarter or so, we'll be able to share more specific -- the deals that we will be doing whether it is in the video space, whether it is in the digital transformation from a customer experience standpoint where companies are looking to be ready for 5G and beyond or from deploying some new core network assets for 5G. So we will be sharing more of those details, but the teams are working relentlessly right now across the board to try and become a prominent partner with service providers in the network of the future journey.
The next question is from the line of Sumeet Jain from Goldman Sachs.
I think my first question is just an extension of the telecom vertical growth potential. So if we look around 5G and look at the results from Nokia and Ericsson recently, they have got a very big order from particularly U.S. telecom operators around the 5G here and largely around the non-standalone version. So I wanted to understand from firstly, Manish, what -- are you seeing the uptick on the network side from this telecom gear, uptick from the hardware guys?
Yes. I think if you look at these announcements, they are strategic partnerships that have been announced for the clients, and the strategic partners to go ahead and complete what is very necessary both from a testing and from a trial standpoint, and the 5G rollouts will happen in both the forms. The traditional form, which will be built around the conventional engineer type of a model and particularly in the radio space. And then there will be the new, where -- like I was telling earlier in response to Viju's question, that there will be opportunities, which will be very unique, very customized for specific cases because 5G is not going to be just about conventional voice and data. It's going to be about IoT. It's going to be about data analytics-driven services. It is going to be about video and enhanced video and those kind of things or even smart cities and in building kind of capability. And that is where there will be more innovation and more, I will say, procurement that will happen in time to come as the strategy becomes more and more clear. But yes, I think this is very exciting with what is going on with some key decisions made. We believe that the spend in the network phase will come back as the business cases also start climbing up on its own feet as we go forward.
So can you also comment on the part of that, our margin profile in the telecom vertical per se? I mean, once you start having growth in this vertical, what kind of investments and cost profile it has? I mean, in terms of operating leverage, what kind of margin improvement can we get for the overall company?
So Manish, let me pick that and, Sumeet, let me try, really, look at long-term cycle on the communication vertical. And the last, I will say, 12 years, we have seen 2 cycles. In both these cycles, as the growth started coming back, I think it was margins have improved, and I would assume it's the same in the cycle. Given that what's happening is that a lot of the investments we are making are already baked into the numbers we are reporting because it's not that -- because actually, our strategy has been that whenever there is a little bit of muted growth as clients look at the next changes they are about to make, that's the time we continue our investments into the vertical. And that then starts resulting in better margins as we go forward. So that's the perspective for you, and it might not be quarterly perspective but probably a more longer-term perspective on how margins behave.
Yes. And I also wanted to know on your top 5 client revenue this quarter, I mean, anything to call out there or -- I mean, how should one look at that?
So out of the top 5, 4 are telecom, and then that kind of ties back into the overall stock around 2 things, right? So one is, of course, we share common customers with Comviva, so part of that is baked in that. And the second thing is that we also have cross-currency impacts because there are -- I think there are about 3 European and/or non-U.S. customers in there, which the U.S. dollar has done really well against most of these currency flow. Well, ex that, it will still be a decline, but it's a much, much lower decline than what seems visible on the top 5 kind of metric. Yes.
Got it. And lastly, on your tax rate guidance, I mean, we saw the tax rate was quite low for this quarter. So what should be the tax rate guidance for the full year?
I think I can only give a normalized tax rate guidance of about 24-odd percent. I'll tell you the reason because, clearly, you know taxes are subject across many countries. There are various refunds, and we have been very, very conservative in our approach overall. Where we have actually taken a view that we will file for a refund and as we realize and as we get a judgment, that's when we account for some of the savings. So our normalized rate will be 24. I would expect the actual reported will be lower than that. Now by how much, we'll have to see, but it'll be lower than that.
Next question is from the line of Pankaj Kapoor from JM Financial.
Manish, you mentioned about an improved deal flow as well as a strong deal pipeline in telecom. So just if you can give some contradictive feel of it, either in absolute terms or in relative terms? How does it compare with what you have seen in the past? That's the first question.
Manish, can I pick that up, and you can add some more color?
Yes, yes. Go ahead. Go ahead.
Yes. So -- and I think Manish did allude to it. If I really look at the first 30 days of this quarter, we have -- signed LOIs was in excess of $200 million of TCV across 2 or 3 deals, right, in communication. So -- and I think that compares very, very well with the previous quarters of -- across multiple quarters, and I think some of them will come into execution quarter 2 and quarter 3. I think -- and Manish, you want to comment on the kind of deals and what kind of transformation and changes we are driving for customers through these deals?
Absolutely. I think these deals are completely aligned with the strategic road map that we have set out, which is built around focusing on the customer line of businesses. So we have looked at the enterprise B2B business transformation for clients, their enterprise B2B business, where we are putting in some large digital transformation practices to transform their customer experience with their medium-size as well as large enterprise clients. In the process also helping them transform their back-end operations so from a network and from a service management standpoint, so we can help build a platform for them to start adding new digital services going forward. So that's one variant of the deal. The other is, I think I was alluding earlier that getting ready for 5G is going to be getting -- it's also going to be about getting ready in other parts of the telco life cycle. So we are also picking up responsibility to put a complete new customer experience and the BSS stacks, which is going to be 5G enabled, 5G ready, going to be built more around partly open technologies and partly leading edge, very disruptive technologies. And something else that we are doing is more built around in robotics and transforming the processes from a customer experience standpoint. We are also looking at a deal on the network side. So some of these 2 or 3 deals we've got -- we've already gotten from LOIs in the last 30-odd days, and we continue to engage in some advanced conversations with the others that we see.
Got it. That's helpful. So Manoj, then tying it up with the hiring that we have seen so, obviously, in the last quite a few quarters, we have been very, very cautious in terms of adding to the headcount. At this time, probably things are just stable. So given that you had a pipeline ahead, should we expect the hiring to start picking up from maybe next quarter onwards?
I think, again, it's a demand-based hiring. Pankaj, again, I'm only going to repeat what we have said in the past. A, there are 3 factors that are happening, number one. Hiring is now no longer linear to the growth. Number two, a lot of digital transformation deals I -- depend on the subcontractors to help me out as they are short-term projects, need to be delivered. There the Visa-ready people are available. And that's why you will notice that we do track subcontractors, and we do employ subcontractors. And the third is that we do take pressures but now pressures -- we have started doing distributed in a center in Plano or a center in Munich or a center in U.K. are as important for us to do the hiring as India is. So I'm just saying that I'm repeating all what we have said in the past, but the focus is more on demand-based hiring instead of creating an inventory. Ravi, you want to add? Ravi is our Chief Operating Officer.
Yes. We actually continue to keep focusing on automation. And the way we are looking at it is a stream of people coming out of the current engagements because of automation, they get rotated back into the growth projects. And so in addition to what C. P. mentioned, that for the digital new age kind of projects, we are looking at kind of subcontractors. And there's no doubt, they're also starting hiring the [ freshers ], and that is what Manoj Bhat talked about, the 3%. And there also, we are looking at a different kind of training, very specific online-based training and so that they can become billable very, very quick and come back to the previous years. And so you're now going to see huge number of headcount increase. And we continuously hire some specific skills, both in India and overseas. But like C. P. said, I don't want it to become kind of linear, and we want to push ourselves to deliver more with less number of people. I think automation, a lot of work we have done in the last 18 months are actually started showing benefits, and that also will help us to reduce the number of hires.
The next question is from the line of Sandeep Shah from CGS-CIMB.
Just the question first is on communication. Just wanted to know the deal flows and the deal wins, which has been improving. Manish, is it coming across geographies as well as across your client set? And do you believe that because this looks like deal flows outside the 5G, and 5G continues to remain like a catalyst, will you call that the company has now entered into a growth turnaround in the communication starting from 2Q?
Yes. Sandeep, great question. The deals are coming across all geographies, which is a good news from our vantage point because it's pretty broad-based like C. P. mentioned in his opening remarks. And the deals are very transformational in nature. I do want to emphasize maybe one more time that when we look at transformation for a service provider hereafter, it is going to be built on 2 or 3 key pillars. The transformation that happens on the network infrastructure per se, the transformation that happens on the underlying software architecture, whether you call it digital, you call it the new age delivery models or the new systems, and the third, it's going to be around the market size or the market type, whether it is enterprise or consumer in terms of the line of services, and the deals that we are now fighting and winning are across the 3 broad areas and the 3 broad pillars. So I guess that's where the positivity is. That's where the deals are, excited about the strategic position that we enjoy with not only having access into all the major service providers worldwide but now increasingly having the seat at the table from designing and deploying new technology on the network to new software and digital to also working on the front end of their business, whether it is the consumer or the enterprise.
Okay. Okay. Helpful. Just extension. Manoj, if you are saying that communication will grow for the full year and looking at the slow start in the 1Q, the ask rate for the next 3 quarters, even for a flattish or a marginal growth, would be higher. But we feel confident looking at the deal flows and the deal win and its ramp up starting from 2Q. Is it the right way to look at it?
I think that's the right way to look at, Sandeep. Now, of course, quarter-on-quarter, things might vary a bit, but that's what we have goaling ourselves for. And as I said, there is a momentum. There is activity on the ground for us to have that view, including what Manish said, including what I mentioned in terms of the first 30 days of this quarter. So I think a lot of things pointing in the right direction, and that's why we are saying what we are saying.
Okay. Okay. And just last question on the enterprise side, I think manufacturing has been doing consistently well. So what we are doing because this trend has not been visible across most of the companies? So what kind of a demand trends happening and how different we are in this sector, which has started giving us a consistent growth? And second question, the others part, the other segments within the enterprise side, I think a lot of growth is coming through acquired entity of CJS, so do you expect that growth momentum can continue going forward, just outlook on these 2 segments?
I'll pick the second one first and then request Manoj to talk about manufacturing. So CJS, I think -- inherently, I think their main offering is implementation, training, go live, enabling customers to onboard onto the EMR/EHR platforms in the market. So inherently, it's a volatile business. So it has shown sharp growth over 3 quarters. And of course, on current visibility, that might slow down in quarter 2, but as I said, the slowdown is something which we believe is cyclical, again, and it will start to grow again. So there is a little bit of volatility, which we expect in CJS revenue. Manoj, you want to pick up on the manufacturing bit?
Yes. Thank you, Manoj. On the manufacturing side, clearly, Sandeep, from our perspective, Factory 4.0 [ growth ], and C. P. alluded to that in his opening commentary, continues to gain traction globally in all key markets. Again, manufacturing analytics is a bet that we have focused on. Really, our core strategy has been around digital manufacturing and particularly based on the success that we've had on the engineering and IoT side, helping us to build smart products and thereby overlaying analytics on top of that to drive differentiated offerings to customers, I think, are playing out well. So I think our new offerings underpinned by digital customers' journey to building smarter factories, smarter products, leveraging analytics to deliver newer services and also converting CapEx to OpEx models are helping us.
The next question is from the line of Surendra Goyal from Citigroup.
Manoj, could you share the TCV of deal wins in Q1?
Q1 is about $270 million in total TCV. What we reported in the press release all net new.
Yes, sure. And is there a particular skew here towards communication or enterprise which you could share?
I think, in Q1, it should be probably close to 50-50, give or take.
Sure. And secondly, Manoj, the comment which you made earlier, again, in response to Sandeep's question a few minutes back. So are we talking about growth and communications Y-o-Y or mid-single-digit growth and communications Y-o-Y because if I recall, the earlier indication was that you should get to mid-single digits? I just wanted to be clear on that.
Mid-single digit, whatever indication was, obviously, if you adjust it for constant currency, there's about a 2% impact. So 3% is what the view. And I think we think more in reported numbers. So I think what I'm now saying probably is that our base case, including probably whatever we have won, I think we are seeing growth. Now whether that's 3%, 2%, 1% remains to be seen. And it depends on all these deals, which are in the pipe, coming into execution.
Sure, sure. And lastly, the tax write-back in this quarter of INR 90-odd crores, what was that due to?
That was a MAT credit.
So that was a MAT credit. Okay. Sure.
The next question is from the line of Ashish Chopra from Motilal Oswal Securities.
I had a couple of questions on the enterprise, primarily as follow-ups to the earlier questions. So firstly, in manufacturing, Manoj, if you could elaborate a little bit more in terms of the subsegments within that which are seeing traction. As to would it be spread across maybe in autos? Or I guess, you also have energy within that segment. So could it be a couple of subsegments that are driving it, or would it be spread across the subsegments that you cater to?
Yes. Happy to answer that, Ashish. So absolutely, auto continues to be an important contributor, auto and aero both. I think both of these subsegments have been doing well. In terms of energy, certainly, based on where the oil and gas industry is, we have seen an improvement in that business as well. Our entire industry has gone through challenges because of what's been happening in that sector over the last few years. So I think, clearly, we are seeing amend out there. We're also seeing a tremendous amount of traction on the discrete side, where customers are wanting to leverage digital technologies to improve operational aspects of the business and then also to leverage the same to build new services for their customers. So it is more broad-based, I am saying because of the growth across multiple subsegments.
Okay. And Manoj, how would you characterize BFSI in terms of expectations for growth this year? I mean, it's been a fairly good start to the fiscal as compared to a sort of flattish trajectory the last time around. So just what has been driving it? And would you expect this to kind of sustain going forward?
So if you look at our BFSI performance over last several quarters, I think if you look at the secular trend, it has been a good positive change for us. Yes, there are some quarters which have been more challenged than the others, but I think if you look at the numbers overall, over 4, 5 quarters, you will agree that this sector has shown growth for us. I guess what you will find during the course of this year is some quarters doing better than others. And again, this depends on the projects when they kick in and when the ramp downs happen. So yes, we've had a great Q1. And it could be a mixed set of quarter numbers for the BFSI sector. But again, I'd say, if you look at it over 4 quarters, our attempt would be to continue the good trend that we have shown in the past. But again, everything depends on how you finally execute and how the deals -- the deal flow occurs and then how the ramp up and ramp downs balance each other out.
Sure. And just lastly, one clarification, so as far as the other vertical goes, in this quarter also, the bulk of the weight of growth was pulled by CJS like the last quarter, or was there any other puts and takes to it?
Yes. So health care life sciences was an important contributor and clearly, our acquisition, they had played the role, as you said. But we also are seeing good growth coming in, again, in different parts of the world from sectors like public sector. We are seeing spending happening in different parts of the world, so that's also helped us. So as you know, others is a clutch of emerging verticals. So I'd say, certainly, the health care life sciences did well for us in Q1, but we were also aided by work that occurred in the public sector space as well.
The next question is from the line of Ravi Menon from Elara Securities.
Finally, your headcount have started draining again, could you share the total number of fresh graduate hires expected to join for FY '19? And also, how many have joined this quarter?
I can share that this quarter number, about 1,800 or so. I think over the next 3 quarters, I don't have a ready number, but my -- our estimate would be about 4,000 people roughly, but it could vary a bit so don't take that as a number, but it's just an indicative view.
Right. And -- okay. And attrition, its gone up again this quarter to 19%. So that's about 200 basis points higher than Q1 of last year. So should we actually expect a wage hike in FY '19 to help stem this?
As of now, there is no such plan in FY '19. Clearly, if I look at attrition, there is a little bit of a pattern in terms of wage hike cycles and attrition. Also compared to last year, obviously, the industry is in a different kind of cycle, so those 2 have contributed. But are we concerned about key talent? Yes. But is it something which we don't believe can impact our ability to execute? As of now, that is still probably under control, and we will continue to monitor it closely.
Okay. And Manoj, just one more clarification. So you mentioned earlier about when the top 5 declined. Part of it is cross-currency, and you have about 4 clients who are non-U.S. in that, but I thought that the public perception is that you have 2 clients who are from the U.S. who are in your top 5. Isn't that -- there are others who have grown even beyond those 2 or we've had some significant...
No, no. I think -- let me clarify, right? I said, out of the 4, only one is in the U.S. The remaining 3 are non-U.S. and the U.S. dollar has appreciated against all those currencies. Maybe -- I think -- if it's not clear, that's what I said.
The next question is from the line of Vibhor Singhal from PhillipCapital.
Just a couple of bookkeeping questions. Most of my questions have been answered. On the salary hike part, in this quarter, the salary hike impact you mentioned was around 40 basis point. So there seems to be quite, I mean, a significantly lower number than we historically had in terms of salary hike impact. So could you just take us through how we managed to pull that off and if you could actually, help me also with the magnitude of salary hike that we gave on-site and offshore, please?
I think I cannot comment on the magnitude, but this is part 1 of our salary hike. Part 2 of our salary hike will come in this current quarter, which is quarter 2. And I expect it will be maybe slightly lower than 40 basis points. So when you add the 2, I think you should probably get to the number -- higher number, which is what -- probably your question is that why is it such a low number.
Okay. So is the salary hike that we gave in this quarter, and that we're going to give in the next quarter kind of divided by the experience or...
Yes. It is divided by grades, yes.
By the grades. Fair enough. Just one more last question. Would you be able to share the share of digital revenue in this quarter, and what was the growth in that?
I think if I look at the digital revenue -- and our percentage will be in the mid-20s. I think 26%, 27%. Now clearly, I think, in terms of growth, I think we are seeing very good growth there. I would say if I take the last 4 quarters, we must be closer to 30% growth. I don't have the exact number, but it should be in that zone, yes.
Not. You wouldn't be able provide that for this quarter itself?
So I said if I take the last 4, which is the same quarter, 4 quarters back sort of year-on-year.
Aman, can we have last question, please?
We'll take the last question from the line of Madhu Babu from Prabhudas Lilladher.
Sir, I just want the outlook within the top accounts because I think 5 quarters behind, I thought there was a pricing discount and all. So how are we placed within the top account in terms of growth and within the vendor landscape, within the top account?
I think we don't typically talk about specific customers, so I would refrain from answering that question, really. Suffice to say, whatever we took calls in terms of long-term strategic direction of the customer and how we are assisting them, I think we are on track, and we continue to be a preferred vendor and a preferred supplier. And I'll just leave it at that without specifically commenting on a single customer.
And sir, the subcontracting expenses, which is around 11% of the revenues, so is it mostly onsite, or do you have any offshore also in this?
It's a combination. Large portions of it will be onsite.
Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Manoj Bhat for closing comments. Thank you, and over to you, sir.
Thank you for joining our call. I know we had to cut it short because of shortage of time. So if you have any questions, please feel free to reach out to us off-line, and we'll try to get your questions answered. Thank you once again for joining the call.
Thank you very much. Ladies and gentlemen, on behalf of Tech Mahindra, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.