Tech Mahindra Ltd
NSE:TECHM
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
Abbvie Inc
NYSE:ABBV
|
Biotechnology
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Realty Income Corp
NYSE:O
|
Real Estate
|
| US |
|
Walt Disney Co
NYSE:DIS
|
Media
|
| US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
Technology
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1 103.5529
1 656.05
|
| Price Target |
|
We'll email you a reminder when the closing price reaches INR.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
Abbvie Inc
NYSE:ABBV
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Realty Income Corp
NYSE:O
|
US |
|
|
Walt Disney Co
NYSE:DIS
|
US |
|
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
This alert will be permanently deleted.
Tech Mahindra Ltd
You don't have any saved screeners yet
Ladies and gentlemen, good day, and welcome to the Tech Mahindra Q4 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.
So good evening, good morning, and welcome to FY '19 and Q4 '19 results. FY '19 was clearly a continuation of improvement in EBITDA margins, very happy with the increase in the TCV of the deal wins and more importantly, increased our footprint with the higher digital revenue. I do believe that your company has now laid the foundation for a journey where we will not only cross $5 billion revenue mark, but we will go beyond and beyond. The FY '19, in rupee terms, we had a growth of 12.9% year-on-year and we also saw EBITDA increase year-on-year, in rupee terms, approximately 35%. In dollar terms, we clocked $4,970 million, and we had a 5.8% year-on-year growth on constant currency business. Enterprise business was almost 10% year-on-year while the comms business was 0.8% year-on-year in constant currency terms. I am also very happy to report to you all that your company manufacturing, as a vertical, crossed $1 billion in annual revenues, and it has also shown a steady growth, about 10% growth annually. So finally, comms has always been the billionaires, but now we are manufacturing also as the next billionaire. Growth in digital revenue was very, very significant and now the 31% of FY '19 revenue is digital. The growth on digital revenue was almost delta 41%. Your company is very, very proud that we were ranked 15th on the Forbes Digital 100 List and was a highest ranked non-U.S. company on the list of FY '19. Our EBITDA for the year at $906 million, profit after tax for the year at $615 million, cash and cash equivalent at almost $1.4 billion. Overall, the Board is -- was very, very pleased, and we did discuss our capital allocation policy with you last quarter when we came and met you. We talked about that your capital allocation policy is #1, keep sufficient cash, but do not keep excess cash on your balance sheet. We also discussed with you on capital allocation that we will earmark sufficient results for M&A. And we did a buyback and we also showed you -- the Board has also been happy to maintain the dividend level at INR 14 a share. So overall, continuation of the capital allocations, despite of a buyback of $218 million, despite of INR 14 a share, we will have healthy cash balance through the year.Again, FY '19, happy with the digital revenue, happy with the focus on few select verticals, happy with the margin-enhancement programs, happy with the overall performance, particularly excited that the manufacturing vertical has shown steady recovery and now you have seen it in this quarter, they have grown 4.5%. The TCV has almost grown 33% over the previous year, TCV in Q4 was 408 million active customers that we all have a chance to serve has grown by 25, and currently, our active customers are at 938, 450 million plus customers added in FY '19 over FY '18, and 2 of them has come in Q4. So I can only say that your company is showing stability and a continuous improvement. I know that a bit disappointed with the enterprise degrowth because we had a degrowth of 2.2%, but, in general, Q4 also proved the point that digital revenue is growing. My digital revenue for this quarter was at 34.1%, up 4% quarter-on-quarter. Also when annualized revenue mix, we are getting a good mix on cybersecurity, engineering services, in the device ecosystem, in IoT and in Blockchain and cybersecurity -- I'm sorry, already covered cybersecurity, and we're getting a little more traction in 5G also. So overall, indication of TechM Nxt as a strategy, Jagdish Mitra had explained to all of us what TechM Nxt means. The recent order that Sujit Baksi has signed up in Indian Navy, the order was really approved for TechM Nxt. We are now giving a whole new SI solution on RFID to the Indian Navy. So Telangana government, we're doing a new Blockchain operating system. We are doing an incubation center in Telangana. So overall, as we look forward, I think our growth outlook remains unchanged since we last met. The good news is the composition of growth may actually be more evenly balanced, and I do realize that -- and Ravi, as his job, cut out on improving operational excellence, Manish, Jagdish and Ritesh will collaborate with all of us to focus on growth and Harsh, our CPO, is committed to skill development, committed to provide us the best supply chain in the world. So I'm now going to request Manoj, our CFO, to take us through the financials of FY '18, '19, and particularly Q4 '19. Thanks, and over to you, Manoj.
Thank you, C. P. What I'll do is let me focus on[Audio Gap]So I'll go back, I think I went on mute accidentally. If I look at -- firstly, on profitability, I think the margins reported were about 18.4%. Now that does include an element of a charge, which we don't expect to replete. So on a normalized basis, EBITDA margins around 18.7% to 18.8%, give or take, and the decline in margins is largely attributable to currency headwinds during the quarter. I think moving on to some of the cash flow metrics, I think we have had our highest free cash flow ever in our history at about $173 million, which is about 109% of PAT. Overall, for the year, if I look at it, the free cash flow is about 87% of PAT, so clearly, a lot of improvement has happened in terms of some of the metrics that are on conversion to cash and that's something which we want to keep a continued focus on. DSO days are down to about 102 days. Quickly moving on to some of the hedge book. Hedge book is about $1.6 billion and our accumulated gain, because the rupee has appreciated on the balance sheet, is about $50 million. So net-net, I think in addition to what C. P. said, while there are pockets of weakness on the enterprise side, I think there has been a strong growth in comms. Our operating metrics look very, very healthy even now and, of course, that's something, which we want to keep a continued focus on.So without further ado, I'll open the floor to questions. Thank you.
[Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss.
C. P., I have a couple of questions. One, on the enterprise thing, although you gave some insight, but I'd like to know what is happening there? Is it a quarterly phenomenon? Or do you say that there is some kind of issue we are seeing? Or is that anything to do with any clients? Or -- some clarity on that. And secondly, on the Telecom side, if you can give some more clarity on how we should see the demand going forward? Although you mentioned that the growth will be more even, but if you can give more clarity whether if there is a real pick up. How strong the real pick up is? How much of this pickup is laid by 5G or anything like that?
So Sandip, my -- I'm just going to give it -- let Manish Vyas come in and respond to you on the Telecom side and between Jagdish and Ritesh, let them cover on the enterprise side. So Manish, why don't you do some heavy lifting today?
Sure. Thank C. P. Sandip, thank you for the question. I think we have been saying it for a few quarters now that there will be repurposing of some of the capital dollars, as the Telecom service providers, either start doing some trials, which will be small expenses initially, but more importantly, as they start modernizing the system process and the technology overall. So clearly, the strategy that we've build around helping people continue to drive automation and cost down and at the same time start doing transformation, that is what is at play. It's nothing new, nothing dramatically different, though, this itself is something, which is, we believe, a sustaining -- a long-term, sustaining-type of a strategy coupled with the broad-based portfolio that we have been building painstakingly over several years now. So not just dependent on IT, but IT network, BPO, the value-added services and so on and so forth. So that is what is going on. And we believe that we had said from quarter 2 onwards that our focus is going to be on large deals, our focus is going to be on the larger relationships that we have across the world and we will continue to stay focused on executing our -- this simple strategy. So we are pretty positive about the feedback that we have received. The TCV deals that have happened in the last 3 quarters at one level are a good testimonial to the success of this strategy. And the teams and your teams are very busy continuing to do a noncore of -- from an execution standpoint as what we have done in the last 3 quarters, in the subsequent quarters as well. So a lot of work to do, but we're looking -- the brand is getting more and more established as a leader brand as far as Telecom is concerned.
Okay. Sandip, this is Jagdish. So on your enterprise question, I think a couple of points. Firstly, I think the Q4 '19 degrowth was really at the back of the higher Q3 '19 base revenue as you will recognize and with some deferral of project commencements may have watered in our health care business. So you would recognize that we had, in Q3, a growth in excess of 4% largely contributed by growth in manufacturing. And, obviously, the retail seasonality is playing on. So that's one of the reasons where we had not one normalized Q4. Having said that, I think it's a reasonable confidence with the TCV wins that we've had and the fact that the pipeline development is quite focused, which has been one of our focus areas. And third is, recollecting the year, we had set ourselves a growth -- or rather a pretty much a higher goal in terms of setting our profitability choice, so we did exit a few not so profitable deals. So that's primarily the reason for Q4, which I think is a onetime impact. Ritesh you want...
Yes. And Sandip, if I can respond on the BPS side, we had a strong quarter. Sequentially, the quarter -- the revenues grew 5.3% quarter-on-quarter. And on an annualized basis, in reported currency terms, we grew the business at about 25% year-on-year. So this has been a good year in terms of momentum. More importantly, I think our focus in terms of client to be the provider occupying the spot of one-office transformation and essentially providing a frictionless conduit between front, mid- and back office, leveraging automation, analytics and AI, is resonating well in the marketplace. And we're able to win deals on a broad-based fashion across not just the communications media and entertainment segment, but also across some of the enterprise portfolio, whether it's in the new-age companies, whether it's in retail, banking, financial services and insurance, all on the manufacturing side as a case in point. And I think what is helping us out there is the fact that we are using technology effectively to provide and deliver superior business outcomes for our customers.
So if I may squeeze one more so to get some clarity. So are we disclosing the momentum in the TCV, but separately on telecom and enterprise? Number one. And number 2, can I conclude that the next quarter onwards the enterprise will pick up quite strongly and we will see the growth that doesn't last few quarters in the enterprise business?
So Sandip, this is Manoj. So 2 or 3 things, right? So I think if you look at our enterprise segment performance, it has been volatile, right? So I think it has been swinging quite a bit. So on a full year basis, we do believe we will catch up in terms of some of the growth expectation. The second thing is, I think, from a perspective of overall growth for the company, I think what to be said also is that the funnel is building up. I think there is a good chance that we should be able to convert, but that's something, which is a function of some of the things, which happened during the quarter that there were certain deferrals into potentially Q1 and Q2. So to me, I think that's the things in play. As we said that overall, I don't think we're changing our view on growth, maybe the composition of growth might change a bit in favor of communications.
The next question is from the line of Ashish Chopra from Motilal Oswal Securities.
Manoj, just a question on the enterprise growth on the back of your comment. So when you say that the composition of growth might move in favor of communications, I would've expected that if there are deferrals within the health care into 1Q and 2Q, which impacted 4Q, then perhaps FY '20 should have seen the benefit of that growth, which was one. And the other question that I had really was that the other driver enterprise has been BFS for some time. So what would be your outlook on that?
So I think two or three things. I think if I look at BFS, of course, and we have said this before, if I look at the composition of the business, we don't have too much run the business, I think we have a lot of change the business kind of work. And clearly, there are deals in the pipeline, which are potentially large and that's something we'd need to close to put BFSI back on the growth track. Overall, I think for the full year, we do expect that BFSI will grow. Now the rate of growth will depend on some of the deal conversions, which will -- we expect to happen in 1 quarter or 2 and that's something we are looking at. What was the other question?
Yes. My question really was that if there was a spillover of deals in health care into the first half of FY '20, then should FY '20 not have maybe a better growth and the impact in FY '19?
So I think there are 2 or 3 points, which we're making and maybe I'll summarize that so that we are all on the same page in terms of Q4 enterprise, right? So partially, it is because Q3 was a very strong in retail and that's come off, right? So that's -- because it's the seasonal kind of variation. Second is that some of the projects have ended and new projects, which were supposed to be signed, that is getting moved to the subsequent quarters. And third is you're talking about health care and there is an impact of that also. So the health care will definitely come back, though, other 2 is something, which we are looking at in terms of gradual recovery in growth rates in enterprise. That's the way I would look at it, yes.
Got it. And secondly, maybe, to Manish. So you mentioned that the focus was on larger customers and larger deals. But if you look at the top 5 and top 10 clients this fiscal, so the revenues overall have been down marginally in FY '19 over FY '18. So are we saying that this should be much better basis the deals that we have within these customers or do we have any...
Yes, Ashish. I'm so happy you asked that question, I was hoping you would when I said that line. When I said large customers, we have put -- in fact, it is based on your feedback and a lot of other discussions, we have been broad-basing our account strategies. We've identified about 52 companies that we consider large and by large doesn't mean only our existing real estate being large, it is basically their spend patterns being large and we have invested across these. So actually, it's a positive thing that, your observation, that growth has actually come from not the same conventional few large companies, but even the other larger companies that we have started focusing on and we would actually like this trend to continue. I'm not saying we'll degrow anybody, but we want to continue to grow in this paradoxical world where the revenues of service providers will still take some time to get an uptake and this has been the future for a very long time in the telco industry. What we are trying to do is to continue to; a, garner larger market share from others; and b, to continue to be part of the transformational programs and some of the deals we have announced in the last few quarters, including Q4, were part of that. I hope that answers your question?
Yes, that's helpful.
The next question is from the line of Abhishek Shindadkar from Equirus Securities.
The first question is regarding the growth across the fourth quarter. So how do you see the seasonality in FY '20? Do you still believe that the H2 would carry the momentum or otherwise?
Abhishek, this is Manoj. So I think H2 has been seasonally strong for us and will continue to be and potentially more so this year because I think from our perspective, as we look at our funnel and the maturity and potential trends in some of our larger customers, I think whatever -- for example, some of the wins we're seeing now, probably will start translating into revenue second half of Q2, right? So some of these numbers, which we'll see flowing through will come through then. So in a way, it is going to be similar to -- so Q1 will be muted because you know that the Comviva business goes down, Q2 will be better, Q3 and Q4 will be qualitatively much, much better and also in terms of the growth rate. So that's the way I see this year going from a growth perspective.
That's helpful. And second, a bookkeeping question for you, Manoj, the fourth quarter of '18, segmental results have seen quite a restatement. Could you help us understand what could be the reason for the same?
What do you mean by restatement? I didn't get the question.
The fourth quarter margins as per the last year's filing and this year filing, the unallocated expenses have gone the...
Sorry, sorry. I got the question now. So what we have done is we've actually looked at our allocation methodology once again and then actually drilled down to the level of how much to be allocated to each segment. So that's the change. But that does not change it directionally much, I would presume, but was there a question behind it? Was there an issue?
So the point is the margins -- segmental margins, we now see a lot of change in terms of what you reported last year and this year. So I'm just trying to understand what could have changed in the unallocated expenditure so much? Maybe we can take it offline if you want, but your answer would be helpful.
I mean just a flavor and now we have frozen this allocation methodology. Based on that, this margin is the way we would calculate going forward. To me, of course, the normalized margin for the BPS business is in that 19% to 21% zone, has been historically. And obviously, there will be transition blips up or down as we go through this growth phase. That's the way I would look at it, if that is helpful. But of course, you can connect with me offline and we can discuss further.
The next question is from the line of Nitin Padmanabhan from Investec.
So if we look at the attrition rate, it continues to remain sort of elevated. And in that context -- and I think we have compensation increases next quarter, so I just wanted to get your sense of how one should think about margins going into this year? And whether the compensation increases will be higher than what we have seen in the previous year? Any sort of color or sense you could give there, please.
So Harsh, I'll invite you, but before that, I think 2 comments only. I think -- and Harsh will talk about the measures we have taken. Actually, attrition has come down on a quarterly annualized basis. And secondly, of course, wage hikes have been announced effective April 1 and they are higher than last year. So -- and Harsh, if you want to expand on what are the measures we've taken on all of these areas where the question is asked from Nitin.
Yes. Thanks, Manoj, and thanks Nitin for asking the question. So what we've seen is that, as Manoj mentioned, if you take that quarter 4 annualized number, our attrition actually came down in excess of 200 basis points or thereabout, and our best solutions, which are the top talent, continues to be much lower. And this has, obviously, been a result of some of the action we took to retain our top talent and also -- so the -- there were 3 specifically that we did, one, of course was that we did a deep dive into specific segments and we addressed them over the last quarter or so. We also introduced many career transformation programs, which actually helped our associates to meet their career aspirations, one of them is -- I can give an example, is Talex, which is our AI-based career development marketplace. And of course, apart from that, as normal, we've also been very sensitive to critical talent and long- and short-term incentives. So we've seen a good indicator in Q4 and hopefully, it will continue as we go forward, but we'll have to watch.
Sure. There's one more question, if I may. Manoj, earlier in the -- I think on the Analyst Meet, you had basically highlighted that this year could be a 5% kind of growth for Telecom and 8-odd percent kind of growth for the enterprise business. Now if we look at the exit revenue run rates annualized, it looks like the Telecom itself gives you 5-odd percent, whereas the enterprise is a marginal decline. So how was that thought process changed versus what you had highlighted then?
So Nitin, that's where I said that if I look at my overall view on growth, right, it's probably not changed, but the composition might change because, clearly, when we spoke then I think we had only 1 quarter of communications growth behind us and now we have had 3 solid quarters of growth. And I do remember the questions around sustainability of comms growth. And of course, from our perspective, given the offerings, given the coverage, given the areas where the telcos are spending and our investments in the right areas, I think we do believe that something -- that is something, which will continue to grow in a meaningful way. So that said, I said at the beginning of, maybe what, 15 minutes back that overall growth view might not change, but what might change is the composition because, of course, telcos' comms will grow better than what we thought. Enterprise might be a tad bit lower than we thought, but that's where we stand today, right? And all of these are subject to change because I did say that we have a funnel out there on the enterprise side, which potentially -- we did announce one of the deals today in terms of the naval RFID deal. There are a few others in the funnel and that could change the outlook in terms of enterprise, again, upwards as and when we land those deals. So that's where we are today. But as I said, overall growth view has not changed, yes.
Sure. Manoj, I think, one thing you missed on the previous question was how should one think about margins for this year versus what we have achieved in the previous year in the context of, obviously, the higher compensation and everything? So how should one think about overall margins?
So Nitin, I think baseline this as March 31 exchange rates and then top because the rupee keeps moving. So what -- when we look at the margins from that perspective, I think we still probably stand by that statement that from our perspective, the goal would be to hold or increase margins. And we do believe there are enough levers out there. Now obviously, Q1 margins will dip because of seasonality in Comviva, the H1B fees and the wage hikes, it's all coming together in 1 quarter and then we will recover as we go along with some efficiency improvements. If you look at utilization, for example, it's down to 82%. If I look at portfolio companies, we've started the journey. So the levers have not changed, I think we are just approaching it from a fresh perspective in terms of what else can we do. And overall, from a perspective of some of the untapped levers, maybe during the later quarters, we can look at offshore as a lever. So to me, that's the way I would think of it, the baseline would be -- margins would be flat, the goal would be to increase margins, which is in line with what we said even last quarter.
The next question is from the line of Shashi Bhusan of Axis Capital.
We've been basing our growth in lot in FY '20 on communication side. Now, do you think the recent restrictions on Huawei and ZTE both in terms of market access and supply chain could impact 5G rollout worldwide? And how does it impact Tech Mahindra?
So I think, Manish, I will let you answer the 5G rollout question, but from a Tech Mahindra perspective and we have -- obviously, these are early days, but from our evaluation, it has no impact on us and something, which we don't foresee it will be an impact on us unless something changes again. But that's the short answer for the Tech Mahindra, but in terms of the global 5G impact, Manish, do you have a view?
Yes, absolutely. No I think as far as our -- I think it's almost the same answer as Manoj gave, it's in 2 parts. There will be some impact because we don't know how exactly will this manifest itself in certain parts of the world where some of these companies are much bigger players than otherwise. As far as the next 12 months are concerned, anywhere a lot of the 5G activity was going to be, if I may, headquartered out of the U.S., and some of the other countries, they're going to follow in some time. That has always been the projections and the planning. And but -- and these companies have not had a big play in the U.S. anywhere for the oracle regions, number one. Number two, as far as our business is concerned, the way we are playing from a software-led type of a transformation, we don't believe there will be, from this year's planning standpoint, we don't see much of an impact. But again, I think it's a good question, it's an important question that we also, like you, everybody is just about learning, about what exactly could happen as things unfold. For all you know, it could even present itself as a good opportunity for us to collaborate with some of these telcos and helping them mitigate the risks that come out of this kind of situation. So all in all, I guess, if there is one positive thing out of this, it is maintaining our access rights that we have inside all the major operators, so we do have our inside view of what is going on, and hence, our ability may be to respond to the challenges that people throw at us could be better than most other people. I mean that's all I could say at this point, but early days at best.
Okay. All of this for FY '20.
The next question is from the line of Srinivas Rao from Deutsche Bank.
First, just wanted to get -- again, if you could reiterate, what's your thought on the overall growth for the company? I know you have mentioned the potential change in the mix, but what's range on the growth you're looking at? That's number one. The second, again, just taking it forward on the Huawei issue, I just wanted to get a sense as to -- given that you touch so many telcos, what's your sense on the potential outcome in -- let's say, in the U.S., of course, it looks blocked? But in other parts of the world where the equipment is still being used and if telcos don't think they're are following in line with the ban. So does that have a potential impact for you?
So let's take a breather for a minute. And I'm fully aware these calls are recorded and I need to be sensitive that what I say. Huawei, yes, we do business with them, but they are not our top 20 or top 30 customers. Number two, that if I go back and look at the ZTE situation, I mean, I think it did hurt ZTE, but eventually in the U.S., as you have seen, everything, whether it was the BP Oil Spill or whether it was any kind of -- Deutsche Bank, you name it, I mean, there have been reasons where the U.S. authorities have gone after the companies, but they have always, always and 100% track record that they always settled. I'm not saying you that Huawei is at fault or not at fault because I'm not an authority on that. So by that definition, this particular situation will hurt Huawei, but I do believe that they will settle. The third part is that in networks, Huawei was never present in the U.S., which is their substantial part of the business, they used to sell devices, but I don't think devices also they were very big in U.S., but what will hurt is on devices, saying, there will not be any upgrade of Android or they will not allow you to further upload x, y, z, but knowing China, they will always have a substitute ready anyway. Now -- but it will definitely hurt the devices' market because I would not -- even if I was an Android user, I would not -- I would buy a Xiaomi, but I'm -- I mean, Xiaomi also eventually will get hurt, but I would not buy a Huawei handset if the standard features like a Google Maps is not available. So the net-net is Huawei will get hurt, as of date, our work should not get impacted because we participate with them in a few network rollouts, and all of them are in Middle East and Europe and they're not in any sensitive territory at the moment.
Understood. This is really helpful. On the revenue and growth so...
So Srini, I thought we clarified a couple of times on revenue growth, so I'm not sure what were you thinking?
I'm just trying to -- you mentioned that the communications will probably go faster than what you had initially indicated on the Analyst Day...
What I said is that our growth outlook and -- has not changed, it's just the composition potentially, which has changed. So I mean if I look at some of the numbers I think we were talking about 8% to 10%, which is about industry growth and whereabouts on enterprise and about mid-single digits on comms. So what I'm saying is that from our perspective that overall growth number might be constant. I think the composition might favor more on the comms side. That's -- I don't know whether that's clear, Srini, or...
Yes. This is helpful.
The next question is from the line of Sandeep Shah from CGS-CIMB.
I think if I look at the order book split for the whole year, it looks like the enterprise order book on a Y-o-Y basis for the new business is flat while entering this -- with this fact in FY '20, does this bother in terms of expectation of even growth in communication as well as in the enterprise? Or do you believe the order book built-up would be strong and achieving this even-out growth will not be a big challenge?
I think -- without getting into too much of the stats, I think, Sandeep, the way to look at it is if I look at the deal wins, potentially, right, in the enterprise, there's been a spacing out of the large deal wins, right? So that's one of the reasons you are seeing some kind of volatility in the growth. And as I said, there is a funnel there and we feel pretty good about converting. Now clearly, only after we convert can we talk about it, but that's something, which you need to wait and watch in terms of Q1 and Q2. As I said that it will be a recovery, which will be gradual in Q1 and Q2, yes.
Okay. Okay. And just a follow-up in terms of our chosen subsegment within the enterprise. Do you believe that there is still a capability mismatch where we may have to focus on M&A? Because some of the large few M&As has helped us in terms of ramping up the subsegment specialty or in terms of the growth. So do you believe the M&A may be revived incrementally in FY '20, especially in the enterprise?
So Sandeep, the way to look at it is we were always looking, right? So it's not that we've shut down M&A, but we have not found the right targets. So as we -- as and when we find the right targets and the focus will be largely on the enterprise side because, of course, there is a wide area of opportunity. And the second element, which is probably common across communication and enterprise is the digital side, which will be -- we are also actively looking. So to me, the fact that there was less M&A in FY '19 is a function of we were not able to find the right target rather than a change in direction or a change in strategy.
Okay. Okay. And just in terms of when I look into the growth within IT service versus BPO, I think versus the growth in the digital, it looks like most of the digital growth is driven through BPO and that move through markets outside U.S. and Europe. So am I wrong in terms of interpreting this that most of the digital growth is coming through BPO? Because the IT services growth across 4 quarters has been really dynamic, or in which only 3Q, we had shown a positive growth Q-on-Q while rest of the 3 quarters, there is a decline in IT service in dollar terms.
Well, I would like to look at it slightly differently, right? So within the IT portfolio, right, traditional is something, which is being replaced by digital, right? That's one way to look at it and so that's the reason you see that. So what's happening is when digital grew 41%, probably traditional declined, and I'm guessing probably give or take 8% to 10%, I don't have the exact number with me, and that's the right way to look at it. And to me -- and I do expect that trend to continue because what is happening is that as people go through their journey on digital transformation, more and more bigger buckets get crowed out and, maybe, for example, if the architecture is being tuned to micro services, to me, doing work on a micro services architecture for changing the client's portfolio is something, which you would classify as digital, right? So that's the way I would interpret it.
Okay. Okay. And Manoj, just last thing in terms of the lead accounting change. How this impact your EBITDA and EBIT margins and the PAT margins?
Initial preliminary view is less than $2 million impact on EBITDA.
Okay. Okay. Okay. Because we largely operate through own premises, that's why.
Absolutely. Absolutely. You're right.
Okay. Okay. Okay. And just Manish Vyas, if you can give us a color in terms of looking at the announcement, which had been made by some of the telcos in the Europe as well as in the U.S. about the 5G rollouts in some parts of the countries or these towns within those countries, do you believe 5G will become a more catalyst in terms of a growth acceleration in communication in FY 2020? Or it may be still a FY '21 kind of reality?
No. I think it will -- it is already, since you used the word catalyst, I'll steal that, it is indeed a catalyst already. And just like you said, it will be built up. It has started slow, it will remain -- this train will pick up some speed towards the end of this year as more and more trials happen, more and more experiments happen around cities and more companies participate in this. For example, Middle East, as a market could, for all you know, it latched onto 5G faster than maybe Europe or some other parts. And these are -- there are early talks in those markets, but who knows? So yes, it will be a catalyst. And -- but some of the wins that we had in last quarter weren't -- on a given day, you need not classify them as 5G, but the long-term view of those deals when these operators gave us those responsibilities were indeed 5G because they wanted to be ready for 5G. So the booking of 5G is going to be much wider and larger in terms of the type of things that one can do. But catalyst is a great word, honestly. I think that's exactly what it will turn out to be.
Okay. Okay. And just -- sorry, last question, Manoj, just wanted to understand the share of profit and loss from the associate. This year, that loss has been INR 65 crores, INR 66 crores, which is 1.5% of the PAT, which is materially higher than the last year. So what is it exactly? And how should one model that?
So this is predominantly because of our technical stake in Altiostar is about 20%. So we're picking up share of loss for Altiostar. And that's what is causing this thing. Now that's just accounting thing because they are actually investing heavily into the product and clearly, there is success coming in that part. So that entire difference is pretty much due to our stake in Altiostar.
The next question is from the line of Vibhor Singhal from PhillipCapital.
Just one question from my side. Manoj, we've seen 7 consecutive quarters of strong margin expansion for the company over the last couple of years. A large part of that, I believe, would have been driven by basically margin expansion in the subsidiaries performance. So just wanted to get your perspective on how does it look from here on? Do we have any more juice left that we can squeeze out of these subsidiaries, which will help us expand on -- I mean expand or maintain our margins in view of the headwinds that we have? Or is it going to be primarily a stand-alone gain itself in terms of whatever the margins move?
Yes, Vibhor. On a lighter note, we don't want to squeeze any juice out of any subsidiaries.
And that's not what I meant, of course.
So -- but I think if the question is that overall as we think about both revenue and cost synergies and bringing about certain degree of rigor into the process of the entire lead to cash process, I think that's a journey, which will still continue. To me, there is potential there, which I did mention I think as once and even in this conversation that clearly that's one of the things we believe that we have done a good start, but that's something more to be done. And the second thing is I think at least in some of the subsidiaries, we are seeing synergy revenue streams come through, which will hopefully, one, minimize volatility; two, create a more sustainable offshore base of revenues over a period of time and give this kind of revenue stream of -- almost all of the subsidiary companies, a more permanent and a sustainable model of driving business performance. So that's the -- our goal. And as part of that, I think we will see some margin improvements also come through.
Sure. That's helpful. Just last one thing, if I -- I think I have missed the number, I don't know if you mentioned it before. What was the cross-currency impact in this quarter?
About 40, 45 basis points, give or take.
The next question is from the line of Sumeet Jain from Goldman Sachs.
So I just wanted to explore the 5G opportunity in slightly more detail with Manish. I remember in the last earnings call, Manish, you start off that Tech M is getting involved in the rollout of fixed wireless access in the U.S. So I wanted to understand where are we in that stage. Secondly, Samsung, like, launched their S10 version, 5G-enabled, last week. So are you hearing any initial use cases from your customers how that will pan out? And the last question on 5G is, let's say, if 5G is more of a FY '21 story for you then what does that imply for your enterprise vertical given that the industrial IoT would be a big booster part of the 5G? So three questions in all.
Sure. Absolutely. So I think the first one, as far as the fixed wireless is concerned, yes, I mean that's an area that we are engaging with right now with one of those deals and the customers that we signed up with. The uptick on that is low because of the stability of the technology that they are -- that the customer has chosen to deploy. I mean that is probably running may be at least 1 quarter, may be 4 months behind schedule, but I don't think that's an extraordinary situation because that usually will happen in a turnkey program like this. And while we do that, there are tons of other activities that are going on in preparation for that from design to plan to other things. So yes, I mean that's an area that we should watch for in time to come because as that operating model and that architecture settles down, there will be more people latching onto that bandwagon. Specific to Samsung, we are and it's an important relationship that we have across the device and the network footprint. And I can't give specifics right now, but we are clearly working with them as well in some of the interesting tie ups that they have made, particularly in the U.S. But maybe we can talk about that in time to come and offline, but at this point, we are clearly closely watching that and building a practice around their technology. 5G industrial IoT will clearly be an opportunity in the enterprise, but that will always going to be following the, at some level, a couple of cycles behind what will happen in the service provider. The network will have to be in place before any use cases start are getting deployed. But what we are going to be busy within the next several months is preparing, unlike the conventional IoT of past, what we are doing is to focus on -- and Jagdish and I have out a task force together to identify specific things we will do and the things that we will not, including which verticals we are going to be focused on and more importantly, with whose partnership or partnership with whom. So -- but yes, I mean the revenue side of this is going to be following a little later than the 5G rollouts happen and that shouldn't be a surprise.
So in the nutshell, would we see the deals in Telecom vertical continuing to be robust in FY '20 similar to what we saw in FY '19?
We are clearly working towards that.
Okay. Okay. Okay. That's helpful. And one question for Manoj. I think you said your normalized EBITDA margin is 30, 40 bps higher than your reported margin. So is there something one-off in your SG&A expense this quarter, which should normalize?
Yes, yes. That's what I meant. Yes.
The next question is from the line of Rishi Jhunjhunwala from IIFL.
So if we look at your headcount in software services or IT services, it's at a 17-quarter low and over this period, we have seen your revenues go up by almost 50%. Of course, the large part could have been coming through utilization as well, but we've seen utilization peaking out for the past 6 or 7 quarters. So I just wanted to understand how do we expect this to play out? First of all, what's the reason for this continuous decline? And we're not seeing an incremental hiring. When do we see that starting and how would that play out into your outlook for margin?
So a couple of things, right? So if you look at same quarters, potentially, you will see subcontracting expenses also go up in line, right? And within this, I think there are 2 categories. There are obviously, what I would call headcount-based subcontractors, where we direct and then there is the other one, which, if I look at an expansion of what we are trying to do with TechM Nxt, as an ecosystem play, I think we are actually bringing in partnerships and partner capabilities of both -- in both models, in both -- in headcount models as well as in turnkey models. And that's the way we have kind of structured ourselves. So part of the answer lies there and if I look at sub-con expenses, is I think 13.3% of revenue this quarter. The second thing is, of course, we believe that we took some time to develop the AQT framework in a very, very robust manner, gathering the best practices across multiple business units as well as external sources. But at the moment, which is -- it's built up over a period of time, I think that has come only in the last few quarters in a way and that's the momentum, which we believe will still continue. Thirdly, as you rightly said, revenues have gone up quite a bit from there. And so from an overall perspective, I think the model stands that there is a certain degree of potential nonlinearity, which is coming into the business and that's something, which is, in a way, positive. And clearly, I think we do have this ability to ramp-up as and when required. But we follow all models together including -- depending on our partners as well as depending on our own people. So it's a very long answer, but it -- the reality is it is a complex subject, which cannot be just used -- answered just using one metric.
Great. And secondly, on capital allocation. So you're ranging it around 35% to 45% payout including taxes on dividends. Just wanted understand you have recently done a buyback, do you consider that as allocation as part of FY '20? And as a result, it will see a consequent decline in dividends? Or this is something, which is over and above that?
So I think our policy is, we don't want to keep excess cash, right? So I don't want to say this is against this year and that year. So if you look at it when we thought we have excess cash, we did the buyback and now we have done the dividend, which is the same as last year. We want to keep this buyback almost as a policy decision and do it at periodic intervals and that's something we intend to do consistently. And then the dividends and how much cash is required for investments? Those are all other subjects and other topics. You must also understand that our cash flow increase has been quite a nice number and I think it's about 30% increase in free cash flow in dollar terms, which is a substantial increase. And we are hoping that we can drive -- continue to drive some operational efficiencies and discipline around some of the working capital management and the balance sheet management and that will continue to drive higher cash flow. So that's the way I look at it that we want to be consistent in the buyback program. Dividend is also a function of the cash needs of the company. And the investments are predominantly I think M&A, which, as I mentioned, could happen, could not happen, that are multiple. But broadly speaking, we don't want to keep excess cash. Hope that answers.
Thank you. Ladies and gentlemen, due to time constraint, that will be the last question. I now hand the conference over to Mr. Manoj Bhat, for closing comments. Thank you, and over to you, sir.
I thank you all for joining the call. I'm sure there are unanswered questions, so please do write to Jadhav and his team and we will try to answer them offline as soon as possible. So thank you, once again, for joining the call. Thank you.
Thank you very much. Ladies and gentlemen, on behalf of Tech Mahindra, that concludes this conference. Thank you all for joining us. And you may now disconnect your lines.