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Tech Mahindra Ltd
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Ladies and gentlemen, good day, and welcome to the Tech Mahindra Limited Q4 FY '21 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, Tech Mahindra Limited. Thank you, and over to you, sir.
Good evening, good morning, and welcome to Tech Mahindra Quarter 4 '21 and Financial Year '21 Results. Thank you all for joining us today. I know for some of us who are in India and in many different parts of the world, this is a very tough period owing to the wave 2 of the COVID-19. I sincerely pray for you and your families to remain safe and healthy. We are meeting again after 3 months. While things have changed, but it is also more important to remember is that the priority of Tech Mahindra has become more about safety and wellness of our employees, their families, our clients, our partners, and that has become our top most priority as we speak. Your company has taken ownership of vaccination drive for our employees across multiple locations. We have rallied together with Mahindra Group to make sure that there is availability of caregivers, thanks to some of the work our Tech Mahindra Foundation has done on the health care academies. We are working not only with Mahindra Group, but also with the state governments and the local governments regarding medicine availability, plasma donors, doctors, quarantine centers, and essential supplies like oxygen cylinders. We are also working with some of the leading hospital chains to convert our facilities into COVID-care businesses or COVID-care units. Over a period of time, you start realizing what a small contribution can make a difference. We have the voluntary program, which is really very small contribution we started 5 years ago, called Associate Welfare Trust. In the last 1 year, the trust has now provided majority of funds to families or dependents or associates who have got impacted. Tech Mahindra Foundation, I'm particularly very proud because they've been helping over 2 million people and they have run more than 350 COVID relief programs. So all I want has to remember that we are committed to individuals in the company, we are committed to our customers, we are committed to the society and to the nation. And we are doing everything possible to help fight this pandemic together. Though from an operations perspective, I mean, the impact is very minimal. Because statistically, a number of absenteeism of people who were either impacted by COVID or who had family members who were impacted, Pune and Mumbai, which are going through the worst wave, the maximum absenteeism or planned leave was only up to 1.5% of that centers or that area's total number of employees. As you know, Tech Mahindra has global delivery centers in Philippines; in Asia; in India, we are in Trivandrum, we are in Chandigarh; basically in all Tier 2 cities also. Europe, U.S., Canada, Latin America, we had development centers. As a matter of fact, when Vivek Agarwal talks about some of the acquisitions, you would realize that we also have now expanded our reach in Mexico. So in general, Tech Mahindra is able to give seamless continuity and is able to serve all their customers, but always its wellness of the employee, wellness of the customers first. Quarterly performance. I know we have already shared with you that the revenue of almost $1,330 million, quarter-on-quarter growth of 1.6% for quarter 4. EBITDA at $266.1 million, quarter-on-quarter 3.5% growth. And overall, satisfying quarter, satisfying year. Because last year, if you remember, we had spoken to you and said we will have a 3-year plan. First year was what I had called the Repair phase. Second year was what I called Rally. Third year is what I had called Rise, which is acceleration. Your company has focused on balancing the growth between communication and enterprises. We have worked very hard, and L. Ravi, who is our Chief Operating Officer; and Simmi Dhamija, who is our Chief Transformation Officer, both of them are on the call, but they have done an incredible work at looking at our margins, looking at an EBITDA improvement program. I think our operations team has also worked very hard to focus on the free cash flows. So overall, focus on operating metrics, focus on balancing the growth, the company is now poised for a much better year as we go into FY 2022. What makes me feel a little more confident is really the uptick in the amount of deals that we have signed. We did about $1 billion-plus compared to the previous 3 quarters where we were more like $400 million, $450 million. So TCV of $1 billion as we go into FY 2022 to be delivered. Potential deal signing in the next quarter also of the same magnitude only says that there is a pipeline, there is a deal momentum, there is execution momentum, and hence, we feel confident that our growth will be double digit. And clearly, the company is also focusing on improving our customer success rate. We are also looking at further levers for profitability. We are also overall happy that your company continues to be focused on being a company with a purpose. We had talked about our focus on CSR; ISR, the individual social responsibility. Your company will continues to be one of the most recognized companies as sustainable corporation around the world. We are particularly proud of the internal movement of sustainability and also getting recognition as Global 100 most sustainable corporations. So it is definitely a pride that your company on ESG meets some of the world's best standards. I know there is a lot to be done, all of us together, both on growth, operating metrics, improving some of our areas, particularly on what I call revised and regenerated focus on hyper-personalization, human experience management, customer experience management. And that is one of the reasons you have seen some of our recent acquisitions, and I will let, like, Vivek Agarwal carry the rational and how it fits into our focus to increase our reach and momentum in customer experience management, human experience management, cloud and cybersecurity. So overall, I will summarize by saying we had a steady quarter. We remain optimistic of growth acceleration or rally as we get into FY 2022. I'm going to request Milind, our CFO, to take us through the financials. I'm sure he will share with you record dividend that we -- the Board authorized us to declare today. Milind, over to you, sir.
Thank you, C.P. Good evening to everyone. Let me now cover the financials for the quarter and for the year ended March '21. So as C.P. alluded to, we closed the fourth quarter with a revenue of $1,330 million versus $1,309 million in the Q3. And reported currency -- reported growth -- currency growth of 1.6% and a constant currency growth of 0.7%. What is satisfying is the growth was distribute -- equally distributed across enterprise and communication. And in enterprise, our stress vertical, especially manufacturing, has started growing again, and that's -- this is the second quarter of consistent growth. As you know, the first half, it had really taken a hit because of the COVID. The -- as C.P. alluded, the new deal wins that we had in this quarter are about $1.04 billion, $1,043 million to be precise. And again, they are also divided equally between enterprise and communication. And it's also spread, I mean, both across Europe as well as Americas. So now $1 billion, the deal wins are like -- which were like $250 million in quarter 1, $400 million in quarter 2 and 3 have jumped to about $1,043 billion (sic) [$1,043 million].The EBIT for the quarter is $219 million as against $209 million quarter 3. So the EBIT margin is 16.5%, which is an expansion of about 60 basis points. And the increase has come on the back of operational efficiency; delivery transformation, comprising of offshoring, increased utilization and automation; and lower depreciation because of the conservative capital expenditure that we have had over the last 1 year, partially offset by SG&A. And increase in SG&A is also contributed by increase in the recruitment costs as we have spruced up our recruitment engine in the last quarter. Now the 16.5% EBIT margin is the highest that we have reported in the last 6 years. Our net profit after tax was $147 million -- $147.7 million as against $177.7 million in quarter 3, and that's primarily for 2 reasons. Our tax provision in this quarter is higher because of onetime charges -- tax charge in 2 of our subsidiaries. Our effective tax rate normally is in the range of about -- around 25%, but the tax rate for the quarter, because of this one-off, is at about 32.4%. But going forward, we expect the rate to be in the range of 25%, 26%. The other reason for that is also our lower other income, which we have seen in this quarter. And that's because of the lower ForEx gain or actually a ForEx loss, but as I will come to in the next -- these -- actually, it's not a realized loss, it's an unrealized translation loss. So it's not a cause of worry for us. Our cash flow for the year -- cash flow for the quarter is $187 million, which is about 127% of PAT. And this is aided by our continuous focus on bringing down the debtor days and we have brought down the debtor days from 95 to 92 at the end of March. Moving on to the full year performance. Our revenue stood at about $5.1 billion, which is a constant currency decline of 2.5%, but that is an impact of COVID impact in the first half that we have seen. In the second half, we are back on growth track, and that's quite satisfying. In rupee terms, our revenue is INR 378 billion, which showed a growth of 2.6% over the previous year. During the year, enterprise business grew by 1.2% constant currency term, while communications business declined by 7.6% in constant currency terms. And this was, as I said, because in the -- what we have actually experienced the decline in the first half; second half, both the engines are on the growth track. In enterprise, we have seen a growth in BFSI, technology as well as retail verticals. And manufacturing and communication, which declined in the first half, are also back on growth track, as I had alluded earlier. EBIT margin for the full year stands at 14.2%. In absolute terms, the EBIT for the full year is $729 million. The positive for margin was operational efficiency -- largely operational efficiency, higher utilization, higher offshoring and reduce -- our focus on reducing the subcons. Of course, there were some tailwinds, which came from the currency our way and lower SG&A for the full year. And as you know, because of the COVID impact, we have seen some -- I mean, savings in travel and some of the utilities cost because of the work from. This was, of course -- this was partially offset by the revenue reduction that we have seen, as I said, in the first half. Now we ended the full year with an EBITDA margin of 18.1%. Now going forward in the next year, so we have already rolled out salary hikes effective April. And as we start the increment -- salary hike letters are being rolled out. And this will have some impact on the margin, but we have plans in place to recover the salary increase impact through operational efficiencies. There may be some increase in the travel costs, especially in the second half with increased vaccination in the world over. But given our exit margins as well as our initiative around delivery transformation and cost optimization and tailwinds, which will come from revenue growth because the leverage that will come -- we will get because of revenue growth, we are quite confident of achieving our EBIT margin of above, say, 15% for the next year as well. Going below the EBIT line, as I mentioned, the other income for the year also was low. Other income is low because of there were some onetimes in FY '20. Some of the profit that we have made from our couple of investment that we have made in Altiostar as well as one of the investment in our subsidiary from Comviva, that -- those were not there. And ForEx gain for the year is lower at about $13 million as against $42.7 million. Our free cash flow for the full year is $965 million, which is 162% of PAT, and this is primarily a result of reduction in DSO days by 20 days over the year. Our debtor days are down from 112 to about 92 at the end of March. So we think we have reached the optimum level of DSO. And there may be marginal increase in terms of debtors, especially in absolute number, as we get into a growth phase. The Board has recommended a dividend of INR 30 per share comprising of INR 15 as normal dividend and special dividend of INR 15. This will take our total dividend to INR 45 per share. Now this dividend is our highest in the history of the company. And it's a kind of indication about how we approach the future. So this is in line with our dividend policy that we have, where we have said that we will return the excess cash generation after taking -- after retaining the money for acquisition and for the internal improvements. Our hedge book is at about $2 billion with an MTM gain of about $38 million, of which we have take -- $8.7 million have been taken to P&L and balance $31 million to the reserves or what is now called other comprehensive income, OCI. We continue to follow our hedge policy, which has served us well in the past.So to sum up, it's been a -- FY '21 has been a challenging year. However, we have come back quite strongly during the course of the year. And we look forward to continue our journey of operational efficiency and delivery transformation and deliver a good set of numbers. I think we can open the floor for the questions.
[Operator Instructions] The first question is from the line of Pankaj Kapoor from CLSA.
C.P., you had a fairly good deal win in the quarter. So I was just wondering with this kind of a conversion, has your pipeline got depleted or have you been able to replenish it? If you can give some color on the size and maybe distribution of the deal pipeline, that will be helpful.
Pankaj, I'll probably start off and C.P. can add. This is Rohit.
Pankaj, so when you look at the deal wins, about $517 million from comms, $525 million from enterprise, we expect a similar deal momentum or other deal wins over the next quarter also. So evenly balanced and in the right direction. But maybe Jagdish or -- and Manish, you want to add more color to the deal pipeline and answer overall, what you see as a mood in FY 2022?
Sure, sure, C.P. So Pankaj, this is Jagdish. I think as C.P. said, from a deal pipeline perspective, we have a pretty strong deal pipeline going into FY '22. And we think that the -- it will primarily be driven by a lot of transformation deals from a cloud transformation perspective. So we are working very closely with all the 4 hyperscalers. And the revival of some of our verticals, and hopefully, with the Q3 seasonal downturn of retail going off, we should see a much better pipeline getting -- conversion getting developed here. So pretty strong pipeline, and hopefully, that this is a start to get -- to do a better set of result. Manish?
Yes. Thank you, Jagdish. Pankaj, like C.P. said, the deal flow will continue to remain strong. As you know, in the comm sector, we always focus on deals which are spanning across what we now call as legacy modernization. The deal that we announced last quarter is probably the largest across the world that any company has signed to take this customer onto a journey where they will transform their both business process as well as their underlying IP infrastructure and systems to be ready for 5G. We are similarly working on deals -- continue to work on deals around customer care and transformation using AI machine learning, and these are all becoming part of the large deal construct. Jagdish said about cloud that continues to remain a very strong theme. We signed a very large deal last quarter with an OEM to continue their 3-year journey on cloud. We are also looking at some interesting deals around the network space as we speak. So across all our portfolio, the portfolios that are capable to do large deals, we continue to remain very engaged.
I have just one small follow-up question on your capital allocation. So the total payout this year, of course, was close to 40% of the free cash flow as you had alluded in the past also. Is it fair to assume that this is going to be the base going forward?
Pankaj, can you hear me?
Yes, Rohit. We can hear you.
Okay. Fine. So Pankaj, 60% or 61% of free cash flow that we've done this year, and I guess the cash flow will be good given the...
Mr. Anand, sir, sorry to interrupt, but we are losing your audio in between, sir.
Okay. Anybody, if your line is better, maybe you can answer.
Sorry, Milind, are you taking up the question.
Yes, yes. I will take the question. So Pankaj, the question was in terms of capital allocation, right?
Yes. So let me just repeat that. What I was asking is that the payout this year is close to 70% of free cash flow, which is similar to what the range you've indicating in the past. My only question is that, is it fair to assume that this is going to the base going forward?
So I mean, Pankaj Ji, our policy is that we would like to return the cash generated during the year to the shareholders after considering the needs for acquisition and for the internal usage. So yes, I mean, unless we see a major acquisition during the course of the year, we should -- we hope to maintain that ratio.
The next question is from the line of Sandeep Shah from Equirus Securities.
Congrats on a good deal flow. I just wanted to understand, if you look at Q2 deal wins, Q3 deal wins...
Mr. Shah, sorry to interrupt, sir, maybe request you to move to a better reception area, please?
Yes, is it better now?
Yes, sir. Thank you.
Yes, yes. So congrats on a deal flow. So just a question in terms of Q2 and Q3, if you look at the new business TCV wins being between $420 million to $455 million but the same is not translating into the revenue growth in line with the industry. So the question is, it looks like from our quarterly average of $450 million, $500 million worth of TCV wins each quarter may not be enough with an increasing base. So how are we making sure that our deal flows each quarter continues to remain above $500 million in terms of the threshold? So we are pleased to see that happening in Q4 may happen in 1Q. But will it become a recurring feature going forward because then only, it looks like your growth rates may be better or inch up to what the industry growth rates are?
Yes, Sandeep. Thanks for the question. Can you hear me now clearly, operator?
Yes, sir. We can hear you.
Okay. So Sandeep, from a deal flow and pipeline perspective, I think already Manish and Jagdish and C.P. added that we are looking at a strong pipeline and even with the -- this quarter's $1 billion of deal wins, the deal pipeline still, we are pleased, looking stronger than ever. So from that perspective for the business, comparability is there and we're looking at [indiscernible]. As we go forward, even for 1Q, and we have the visibility right now, and what we're seeing, we're seeing significant closures coming through for us across the regions and the verticals. So be it health care or BFSI, we're seeing that across the board. So as we go forward, we will continue to see better conversion, then we position the organization in a way that we will benefit, as has C.P. mentioned, we focused last year a lot on the repair phase. So we put the structure in the processing phase, where we're now seeing the deal flow even better, the conversion being there and also the quantum of value that you see coming through not just in this quarter, but we see that continuing as we move forward.
Okay. Okay. And just on terms of margins, if you look at Q4 deal win is better; 1Q, we expect a similar deal flow. So our margin threshold, which we indicated earlier of 15%, will change with some large deal ramp-up-related costs? Or it may be even better with the better exit rate of Q4, which is 16.5%? And a related question, does it -- the supply side issue worry you because in FY '21, we are the only company which may not have an announced wage hikes and the attrition across industry has been going up?
Yes. So let me first take the first one on margins. So Sandeep, you're right, we exit Q4 at a 16.5% EBIT rate, right? That's -- that when we look at next year, we have a couple of things that are playing as headwinds and then there are tailwinds for us.So from a headwind perspective, you're right, there will be salary increases, there will be some ramp-up cost for the large deals that we will see. At the same time, we've factored all that in a model. We're also looking at, as C.P. mentioned, all the operational efficiency that we've been driving this year. We still have headroom as we move into next year for that as well as some optimization at the portfolio company level that we're working on. So between all of those levers, the interplay is giving us confidence that we will be able to get to the commitment that we have made earlier in terms of driving to 15%.
Okay. Okay. Understood. Yes -- just the last question in terms of looking at utilization, which is at very high levels of 87%. And at the other hand, the attrition also going up for the industry, it's like a catch-22 situation. How will we manage this going forward?
Yes. So I think utilization is currently at its peak and with the deal flow coming in, you see big deals being announced, hiring is going to be picking up. So there will be some normalization in the course of the year. But still there are other operational levers that we have on margins so that we kind of optimize it. In terms of measures for attrition, we've taken multiple from our side, and I invite Harsh, who is our Chief People Officer, to articulate some of the things that he's been driving from an organization perspective that gives us confidence on how the [indiscernible].
Yes. Thanks, Rohit. Great question. And I think most of our peers have also seen an uptick in attrition. But we've actually taken a few steps really stem it. Of course, first thing was that we reinstated variable pay in quarter 4 itself, which was a very positive move. But as C.P. had and Milind had illustrated, we have already sort of announced salary hikes with effect from first April for all bands in the company and the letters, as we speak, are getting rolled out. But what we also did is a few other things. One is a special additional variable payout. We had actually, as you know, not given the variable pay in the first 3 quarters. So an additional special variable pay of 1 quarter as bonus to band P&E because we did see an uptick of attrition there as well as taken some cash and stock-based retention plans for key talent and especially in niche skills. And that will really help our attrition to come down. So we have actually gone ahead and also added some skill-based allowance from these skills and project-based bonuses for key performers. So we do believe and we are very confident that with all these steps in place, we should be able to stem the attrition.
The next question is from the line of Rishit from Nomura.
Just one question from my side. C.P., as you alluded the intention to reach double digit, could you just help us understand the split between both telecom and enterprise? And because we've mentioned the telecom is likely to grow only 6% to 8%, right, earlier as well, are we seeing a pickup of 5G that's driving us -- giving us that confidence to hit double digit?
I don't know whether the...
Can I take that? Go ahead. Go ahead, please.
Again, yes, why don't you go ahead. Whose -- Vivek, you wanted to take it?
I think it's Manish.
Yes, Manish, go ahead, go ahead. Let Manish take that.
Yes, I was answering that question on 5G that if you really look at this deal, that we've announced this quarter -- last quarter. This is -- what are we trying to do here, and this is an indication of what kind of discussions we are currently busy with across the industry. This is about modernizing their entire customer engagement platforms, particularly on their consumer side of the house, including the underlying the cloud-native architecture so that it starts giving them the flexibility and the hyperscalability like what is needed for 5G. So we have always said that 5G is not just about network modernization. It is also about the system and the back end process modernization. So most of our dialogue across the board, across the world, it is largely driven by the 5G narrative. There's no -- barring maybe 1 or 2 regions, everywhere, the primary driver for the conversation is 5G and how they need to modernize their network and hence, rest of the infrastructure. So to answer your question, that indeed is correct. You will see maybe as we prepare for this quarter deal announcements, the next one that we are doing, at the outset look like a -- more like an operational deal, but the underlying theme is about getting ready for serving the customers in the new modern 5G type of a world. Again, a very large -- a very interesting operator that we are working with. So I think that trend will continue to be there for the next year or 2. At the same time, we've also continued to start adding deals or increase our both funnel deal closure and revenue from the network side of the business as far as 5G is concerned. It is still a smaller deal. But however, these engagements do start small. It's a sub $10 million deal at this point, that one of the greenfield operators in the U.S. have find us for helping them integrate and test their 5G O-RAN type of a network. Again, it's an indication that the kind of conversation that we have been saying that we are busy with, will continue. So that's really the type of stuff going on in 5G. I hope I answered your question about that. Jagdish can help you with the enterprise part.
Sure, sure, Manish. So on the growth prospects, I think fairly very confident with the coming back, one of the things that actually did not work for us in last year in our vertical was manufacturing, and banking was doing very well. So for us, I think this year, we see definitely 2 -- not only 2 quarters of steady growth of manufacturing, but also in terms of our focus around aero, defense, the steel as well as process. And as we're having a scale in auto, which we don't think will be too big, but amongst the 4 subverticals, we've launched one more subvertical in manufacturing. And then retail and health care, which are the top 4 key verticals under enterprise, we expect all 4 of them to start showing us double-digit growth. So that should pull the enterprise numbers more towards a double-digit number and pull it out.
Okay. Understood. So just -- Manish, just to confirm, you mentioned that incrementally versus the last quarter, there's an acceleration in terms of the time line for 5G, is that a fair assumption?
Sorry, can you repeat that question?
What I'm saying is that from a 5G, incrementally versus last quarter, there's an acceleration in terms of the time line, is that a fair assessment of it?
Okay. That's right. That is correct.
Okay. Got it. And just 1 small question. Could you just talk about the hiring trends for the next year?
So we don't really give specifics around it, but as Harsh mentioned that we will see -- and you look at the demand pipeline and the deal wins, right, you can correlate it. So I think from our perspective, that trend will have to go along with the business and the double-digit growth that C.P. mentioned, which is correlated, right? But we won't give a specific guidance here.
The next question is from the line of Manik Taneja from JM Financial.
Am I audible?
Yes, sir. You are.
Yes. So my question was with regards to the fact that you've spoken about double-digit growth aspirations for the full year, how should we be thinking about it from a quarterly standpoint given the fact that typically, 1Q has -- 1Q is generally weak for us because of the Comviva seasonality. Given the kind of deal flow that we've seen this time around, should we expect that this growth will get more translated going forward?
Manik, this is Rohit. So you're right, if we look at our last 2 or 3 years data, you will see 1Q seasonality and typically, except probably last year when it was COVID, it went down quite a bit. Before that, it will be around 1.5% to 2% seasonality impact, going down. As we move into next year, I think with the deal wins that we've announced and the view we have, they will obviously be a quarterly ramp up that we will see. But 1Q, at least, currently, the way we're looking it is a little bit more favorable than what we've seen in the past.
Sure. And if I can [slot] you on the margins front, you suggested that you're looking at 15% plus EBIT margins in FY '22. So if you could give us some sense of the wage increment that we've announced and the potential impact of wage increments that we should be thinking about from a margin standpoint in wages?
So Rohit, you're taking that question?
Can you hear me? Hello?
Okay. So this, of course, is considering the wage increase that we have announced, we have factored that in. So we're quite confident that with our operationally improvements that we have planned, we will be able to absorb that and report a margin upwards of 15% -- EBIT margin of upwards of 15%.
The next question is from the line of Diviya Nagarajan from UBS Securities.
I think to an earlier question, you talked about the first quarter seasonality, avoiding some of the negative trends that we've seen in the past. How do I reconcile it with your headcount that you ended the quarter with in the last quarter? So should we expect that the headcount will ramp up as the quarter goes in? And the other related question to that is that in addition to wage hikes, you also, therefore, as you ramp up your headcount, do you expect to see your supply costs increasing? And how have you factored that into numbers?
So given...yes, Rohit.
Yes, so...
Go ahead, Rohit.
Yes, yes. Can you hear me? Sorry, my line is patchy, that's why I'm asking. Can you hear me?
We can hear you.
I can hear you.
Yes, we can. We can. We can.
Okay. Okay. So if you think about headcount, the quarter ending position we're compare with. But as we look at the trend, we see monthly trend to get better in terms of numbers and similar trend will continue as we move forward. So I think that gets correlated as we move forward in 1Q in terms of the offset of the seasonality that I mentioned. In terms of -- sorry, what was your second question?
So I was talking about, given that you had a negative headcount addition at the end of 4Q, would you then have to ramp up headcount addition as the quarter picks up? And what kind of an impact it would have on your hiring costs as the quarter and the year progresses?
Yes. So that's all factored in when we've done the modeling and we're talking about that deal for next year. So it would have some correlation. And even in this quarter, we see some recruitment costs go up with that factoring and increment, headcount, hiring and offers and all that is going in. So there will be and we've all factored that in the model when we're talking about the comfortable view that we have on this day.
If I can add, Rohit, this is Harsh, that we are actually, for example, have already hired about 5,000 interns at the bottom of the pyramid. So we actually see that making a pyramid even better. And that's obviously been factored in, like you very rightly said.
Got that. And just as a follow-up, did you quantify your telecom's growth for the year? I believe you did talk about double-digit growth on the enterprise side. [indiscernible] specifically targeting on the telecom side, too?
So right now, the view is double-digit on enterprise and digital telecom that blend, as C.P. mentioned, double-digit overall. That's the current view we have. And if 5G accelerates to what Manish mentioned, if that picks up to the year, then we'll kind of see how that plays out.
The next question is from the line of Rishi Jhunjhunwala from IIFL.
Just one question on FX losses this quarter. Now if I really look at the FX movement, Q-o-Q end-of-period rates are flat, so it can't be translational. And on a year-on-year basis also, rupee has been appreciating. So just wondering why hedges would also have a ForEx loss. So just wanted to understand why such a large ForEx loss this quarter?
Yes. So basically, what we have is, we have certain currencies that have moved versus the U.S. dollar in a depreciation of [BRL] and some other currencies as well as we look at our subsidiaries. So that's caused the impact for the current quarter and it had the opposite impact on the last quarter. So it's translation for those currencies vis-à-vis their movement. Milind, do you want to add anything there?
Yes. Rishi, this is Milind. And as I clarified, this is actually -- last year or last quarter also, we have had a foreign currency translation gain, okay? And it's in terms of the subsidiaries that we have, we have about 160-odd subsidiaries, most of them overseas. And this quarter, some moved against us. So it's a translation currency loss in this quarter. It's not a realized translation, but it's just a quarter -- quarter-to-quarter volatility, which hits us some time. And as far as hedging is concerned, as I have mentioned, we have a mark-to-market gain of $38 million. So I wouldn't really give much of importance to the translation currency gains or losses.
Okay. And just very quickly, can you elaborate a bit on the impairment that we've taken in this quarter? And we had a pretty large number last quarter -- last year, this quarter as well. So just wanted to understand what are the nature of these of restructuring or acquisitions have we taken?
Rohit, you want to take this? Or you want me to answer?
Yes, yes. Sure. I can take it. So this time, you -- what you see as an impairment is -- as we've already said in the past also that we continue to look at geographies and pockets wherein we want to normalize and rationalize the business there, it doesn't make profits and all. And that we may continue to look at one of the geos and specifically that impairment that is rationalized, restructured and take [indiscernible] and future growth in terms of what deals we will pursue, has been normalized to make profitable growth. So because of that restructuring, we've taken them on specific countries where we had whole acquisition because of the change in business redemptions and the rationalization that we did.
Sorry, I didn't get you, which acquisition did you name?
This was in Brazil that I'm talking about, and this is almost 7, 8 years back. And as part of strategy we mentioned that we continue to look at geos there. We want to be more prudent on what business we take and as a part of that, as we get into Brazil as a geo.
The next question is from the line of Ashwin Mehta from AMBIT Capital.
I had one question on the performance in this quarter. So if I adjust for the acquisition contribution, we possibly did not show any organic growth this quarter. So what were the negative surprises and which segments did we see them in this particular quarter?
So I wouldn't say there's negative surprises. But yes, I mean, from a timing perspective, the way the deals are closing and playing out that we saw and -- had been factored into revenues going to trickle down as we move forward. So probably that's timing is all it takes. So we should see that come through as we move forward. So nothing more than that in terms of any vertical that may be volatile [indiscernible].
Okay. Okay. And the second question was in terms of like what Milind mentioned that you have operating levers at hand to manage the margin impact of wage hikes or the hiring pickup that we seen. So if you can elaborate in terms of what are these operating levers at hand because we've not necessarily done hiring for some time, our utilization seems to be at peak. So in addition to these, what are the other levers that we are looking at?
Yes, sure. So you have mentioned a couple of them. I'll add again. So if you think about from a delivery and operations standpoint, from an off-shoring perspective, we still have room, and we'll continue to drive that lever as we move forward to compare our numbers. So that's something that we will continue to drive. From second area that we continue to look at is portfolio G&A centralization. And we're driving that effectively through a central team working with each other as the portfolio company. So that should also give us some headroom there. And similarly on the operations that we said, we will continue to drive other operating levers on managing each and every account and driving operation leverage as we move forward.
Rohit, can I just add something?
Yes, Milind sir.
Another thing is the growth leverage, and we talked -- C.P. alluded to that we are looking at a higher growth rate. And that growth rate itself will ensure that our SG&A gets spread over a larger base. And that could be a good lever, a lever which we didn't have last year.
Okay. Okay. And just one last modeling clarification. So in terms of wage hikes, we are looking at only one wage hike this year? Or there is a plan that given that almost every peer of yours is giving out wage hikes over a 3-quarter duration, we might also possibly have to do some interventions towards the second half of the year?
It's difficult to answer because a lot of it, if we come up with a second wage hike, it will be mainly because the company's growth or company's performance would be better than what we have envisaged. And so I'm not ruling out a second wage hike. But at this stage, we have not budgeted or planned for it.
The next question is from the line of Vibhor Singhal from PhillipCapital.
Yes. So just 2 questions from my side. What is your hiring target for this year in terms of either lateral or freshers or the combined number that we are looking at?
We specifically don't give numbers around that, but looking from what Harsh, our CPO has alluded, we're looking at lateral hires, we're looking at adding freshers at bottom level and ramping up the workforce. So I think it's in the right trend, moving upward, that we specifically don't call out numbers at.
Okay. Sure. Just wanted to -- just 1 more question from my side. Given that this year, specifically in the last 4 quarters, there has been a net reduction in our employee force, and we are looking at a double-digit kind of a growth next year. So do you see that -- I mean, maybe if the hiring is not ramped up in time, the level of subcontracting costs might go higher, which have been stable for good part of this year. But do you see that number rising from the current level at around 13% of revenues or maybe something higher? Or do you think that should remain in that same range?
So I think subcon, we continue to monitor closely, and it's something that we will look very closely. But it's also a function of what the customer asks and what the customer needs and the need of the business. So we will continue to monitor subcon costs and will continue to drive that leverage on the last year. And there might be some quarterly variations as we move forward. But on a long-term basis, that's a trend that we want to continue when we look at subcon as a percentage of revenue.
And just to add, Rohit, this is Harsh. As I've said earlier also that we are trying -- we are infusing interns at the bottom end of the pyramid and upskilling them and keeping them ready for any position that would come as we -- to fuel growth. So it's not that we have not taken steps. It's already there. And hopefully, those people at the bottom of the pyramid would actually spur the growth numbers.
Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to Mr. Rohit Anand for closing comments. Over to you, sir.
Yes. Thanks a lot. Thanks for all the participants for joining us today. Just we -- all of us hope that everybody keeps safe. It's safe that we have to be home. So be safe and take care of the family. Wish you all the best. And thank you for joining us.
Ladies and gentlemen, on behalf of Tech Mahindra Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.