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Zensar Technologies Ltd
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Ladies and gentlemen, good day, and welcome to the Zensar Technologies Q3 FY '23 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Amit Chandra from HDFC Securities. Thank you, and over to you, sir.
Well, thank you, Michelle. So good morning, everyone. On behalf of HDFC Securities, I welcome you all at Zensar Quarter 3 FY '23 earnings call. We have with us today, Mr. Manish Tandon, CEO and MD of Zensar Technologies; Mr. Sachin Zute, CFO; and few other members of the senior management team. Before I hand over the call to Manish, I would like to highlight the safe harbor statement on the second slide of the analyst presentation and is assumed to be read and understood.
With this, I hand over the call to Manish. Thank you, and over to you, Manish.
Thank you, Amit. Hello, good morning, good afternoon and good evening, everyone. I hope I am audible to everyone. Thank you for taking the time to join us today to discuss Zensar's financial results for the third quarter of FY '23.
As we all know, it has been just over 1 month since I joined Zensar. I have always had a healthy admiration for Zensar, its people and its executive. I'm proud to be leading a team of 10,500 plus talented and committed Zensar employees. It is indeed honor and a privilege to be able to lead from the company's lead iconic RPG group.
As an organization, we are positioned very well with strong investments in our service lines, our vertical debts and our leadership. I'm prioritizing my time to meet with our team, [indiscernible] to understand how we can create a stronger and resilient organization to serve our clients. I am working closely with the Board, the senior leadership team and everyone at Zensar to prepare ourselves for sustainable growth by delivering high-quality services and fixing the boundaries and creating value for all our stakeholders.
With me on this call are a few other from Zensarians: Sachin Zute, CFO; Mr. Vivek Ranjan, CHRO; Mr. Samir Gosavi, Global Head of Consumer Services; Mr. Nachiketa Mitra, the Global Head of Banking, Financial Services and Insurance; and Mr. Ankush Akar, Global Finance Controller.
The third quarter FY '22 is seasonally a soft quarter as we all know, for the industry. We registered a revenue of nearly $145.9 million with a sequential decline of 12.9%. On a constant currency basis, that decline is 5.3%. This represents a year of -- year-over-year growth of 3.6%. As we called out in the last earnings call, the softness was due to the deceleration in the demand environment, where we have seen a segment of our clients, particularly in the HTM and CS vertical, deferring or optimizing their discretionary spend and scaling back to our budgets.
Let me walk you through the performance of our geographies and verticals for the quarter. All growth numbers that I provide are in constant currency. Banking, Financial Services and Insurance reported sequential Q-o-Q decline of 1.3%, but a year-over-year growth of 19.8% in constant currency. In coming quarters, EFS grew for us. However, insurance verticals are declined due to delay in decision making at some of our customers and right shifting of milestones that impacted us as one of our large customers, and we expect this to stabilize going forward.
Hi-Tech and Manufacturing, including emerging registered sequential Q-o-Q decline of 9.2% and year-over-year decline of 2.5% in constant currency. This is due to higher than usual impact of furloughs and planned reduction in pass-through revenue.
Consumer Services have registered a sequential Q-o-Q decline of 2.3% and a year-over-year decline of 6.8% in constant currency. [indiscernible] continue to see softness due to multiple demand uncertainties, coupled with reduction of the strategy spend at the customer site. As far as geographies are concerned, the Europe region posted sequential Q-o-Q decline of 8% and year-over-year decline of 2.1%. The Europe region registered sequential Q-o-Q growth of 2.2% and year-over-year growth of 18.7% of constant currency.
Our strong relationships with our key clients helped us deliver growth in this rating despite the uncertainty. We are witnessing some softness in demand, particularly around digital spends and equity as clients are delaying their decision-making in the near term.
The South Africa region saw a slightly muted performance, with a year-over-year growth of 15% and nearly flat Q-o-Q growth. Our growth momentum in Banking and Consumer segment growth was offset by sustained softness in our insurance vertical. We expect steady performance on that of new project ramp-ups at some of our key clients in this region. Our gross margin stood at 27.4% in Q3 FY '23, representing a sequential Q-o-Q increase of 200 basis points while our EBITDA stood at 11.3%, a substantial Q-o-Q increase of 270 basis points. This growth in margin despite decline in our top line was due to our focused efforts towards identified levers, which we shared earlier.
The order book for Q3 FY '23 stood at $113.5 million. I think that the group's Q4 FY '22, stood at $130.5 million, supported by [indiscernible] and multiple wins across verticals. We have seen 2 clients to the 10 million plus bracket, bringing the 4 clients in this category to 15, which is a very positive sign.
I'm pleased to share that for the third quarter, our last 12 months accretion declined to 22.8%, a sequential improvement of 250 basis points. On account of various measures we have taken over the last few months, coupled with even supply side issues. Our big debts in service line continues to reward us positively. Our focus service lines, advanced engineering services, data engineering and analytics and platforms are scaling up well, making up to 35% of our total revenues from 32% a couple of quarters ago.
Our integrated solutions leveraging multiservice lines like experience and engineering approach obtaining good traction with our clients. Finally, to stay true to our ESG mission and vision, we have been continually advancing our sustainability efforts. Towards the Environment Connect, our global level and green energy component for our premises have increased to 11.6% as compared to 7% last year.
In FY '23, we are also water positive with the amount of water conserved exceeding almost twice the quantity of water consumed in bank or corporate premises. In terms of CSR, we supported [ 39,024 btu ] compared to [ 69,231 btu ] from '20 to FY '22, integrating exponential growth in community reach and development. All initiatives were supported by enthusiastic volunteers and leadership from Zensar.
In closing, I believe as a company, we are on the right path in terms of strategy. Execution of strategy is going to be a priority. We are seeing some green shoots in service line penetration across our clients. The network economic uncertainty continues. However, the tech spending outlook in the long term remains robust. Laser sharp focus on strategy execution to deliver sustainable, profitable growth while keeping our customers at front and center will remain our goal.
I look forward to interacting with you all going forward. With that, I will now invite Sachin Zute, our Chief Financial Officer, to provide an update on critical financial data, after which we will open the floor to questions.
Thank you, Manish. Good day, everyone. Welcome to this call. In addition to Manish talking about the business, I will take you through some of the key financial metrics.
In constant currency terms, the revenue declined for the quarter is 5.3% sequentially and growth of 3.6% year-on-year. In U.S. dollar terms, the reported revenue was $145.9 million for the third quarter of FY '23, reflecting a decline of 5.9% sequentially and 0.9% year-on-year. The U.S. dollar realization during the quarter has been INR 82.1 per dollar against INR 79.6 in previous quarter.
Our gross margin for the quarter stood at 27.4%, 200 basis points higher than previous quarter and EBITDA stood at 11.3%, 270 basis points higher than previous quarter. Increasing EBITDA was primarily driven by positive impact of currency, ongoing operational efficiencies, including optimization of employee costs, improved trade mix, better realization and benefit from reversal of provision for doubtful debt, which was partially offset by volume and utilization, improving overall EBITDA by 320 basis points.
Our disciplined program for margin improvement through majors such as increasing [indiscernible] Deployment, improving commercial, optimizing operational matrices and rationalizing costs have helped us in improving margins in Q3 in spite of it being for the quarter. We see weakness in certain business verticals due to macroeconomic factors as described by Manish. At the same time, we continue to create room for investment in newer areas of growth.
For the quarter ended December 31, 2022, DSO including on bid stood at 80 days, in line with the previous quarter. For the quarter, cash and cash equivalents, including investments in mutual funds and NPD stood at $179.4 million, $17.3 million increased from last quarter. The effective tax rate for the quarter was 26.1%. With that, I come to the end of my presentation and open the house for questions.
[Operator Instructions] We have the first question from the line of Mukul Garg from Motilal Oswal Financial Services.
Manish, first of all, welcome and wishing you all the best for your innings at Zensar. I know it is still fairly early days for you, but I just wanted to get your sense since you are taking over the company at a relatively preferred environment for the business and revenue, can you share your initial thoughts on what will be your top areas of priority during the initial period and the steps which are required to rejuvenate a big growth from the current environment, which is there?
Yes. I think -- first of all, I think thank you for the warm welcome and asking the question. So as you rightly pointed out, this is early days for me and just 1 month effectively into the job. I see a lot of positives with -- in Zensar in terms of the investments that we have made in service lines, in, terms of the leadership that we have, in terms of the attitude of people and the quality of people.
So I really strongly believe that all ingredients are in play. And my first strategy would be to say, of tweaking the strategy to focus on strategy execution because I think all the ingredients of -- the main ingredients are already present and that will give us some immediate results while the longer-term strategy is being worked up.
Overall, I am very bullish with the direction of the company. And I also feel that this is a tough environment as you rightly point out. So a lot of effort will be going more on the margin side to improve margins because that is an easier win, in my opinion, in this environment rather than trying to just buy more business. I hope I answered your question, Mukul.
Right. Just to take this first step forward, what's your view in terms of the respective strategy between growth and profitability. The profitability I think you just highlighted remain relative priority in the near term?
Yes, as I pointed out, Mukul, I think profitability is all internal, right? Mostly, we have to take certain internal steps and manage our costs better, while the demand environment remains tougher. So as I said, we'll get better results if we focus at least this quarter on getting the bottom line up rather than going indiscriminately after the unprofitable business.
Great. And just one question for Sachin. Sachin, I think the margin improvement this quarter was quite impressive. How should we see the impact, which probably came in this quarter due to the seasonal factors like absence of pass-through. I think you also mentioned the impact from reversal of provisions. If you can just help quantify that? And how should we see the trajectory of improvement over next 3 to 4 quarters? Do you have enough believers to continuously move towards the mid-teen number which you have highlighted? Or will there be a near-term falls after the sharp improvement in profitability?
Thanks, Mukul. Mukul, obviously, we saw 320 basis points improvement this quarter as far as EBITDA is concerned and was also helped by currency. But it is majorly into the 6 levers which we have spoken with you on a couple of quarters past and the significant growth which has happened within the organization. And that is the reflection of that in this profit margin, be it improving the service mix, be it improving the commercial with the customers, be it [indiscernible] support costs and also improvisation in our talent acquisition costs.
All these things have contributed to this 270 basis points increase, which we have seen in this quarter. What I can say is that we think that trajectory of them are sustainable. And as I said, that we have created a trajectory towards great toward mid-teen margins over the next 3 to 4 quarters. And I think as long as the macroeconomic factors do not deteriorate significantly. I think our way towards that will continue.
We have the next question from the line of Mihir Manohar from Carnelian Asset Management.
First of all, congratulations, Manish, for the role and wish you a lot of wishes for your new role. I think as you wanted to understand, I mean you understand that we are earlier days, but still given an experience, which has been done at Infosys [indiscernible] CSS Corp, so just wanted to understand, do you see the turnaround service selling which are acquired at Zensar. I just wanted to understand around the deficiencies around that. And also on the pyramid structure which is there, do you think more rationalization is required at the pyramid level.
And also I wanted to fundamentally understand, I mean, in this situations, where there has been more of a macroeconomic concern, typically, Zensar historically have seen more contraction in margins. So what is your thoughts over that? And how do you see this regarding subsidy? [indiscernible] questions.
Mihir, thank you for the warm welcome. if you don't mind can you repeat a bit slowly the questions. The line is not very clear. So the first question was around -- can you clarify that question, please?
Manish, I wanted to understand, I mean, given your experience Infosys and CSS Corp, do you think that there are any service offerings which are yet to be filled up, have you guessed which are yet to be filled up at Zensar. So that was under a service offering side. And secondly, I think [indiscernible] pyramid side, do you think that more rationalization is required on the pyramid. And question in concurrence to that was with respect to the fact that whenever there have been more macroeconomic concerns, the Zensar has seen more correction in the margin. So what is your thought on that? And how do you see that going on a structural basis?
Okay. So first question on service lines, I don't think we need any more service lines. I think we have a pretty complete set of offerings, which enable us to target, I would say, most of the technology spend on services that most of our clients have.
On [indiscernible] rationalization things always can be improved, and we will continue to improve both [indiscernible] and the utilization. The first part was on margins. You said that in a recessionary environment, margins usually fall and we are trying to improve margin. Was that a question or something else.
Yes, that was the question.
Yes. I believe that -- I strongly believe that margins are a function of internal efficiency more than external markets per se. And as Sachin said, we see opportunities for including internal efficiencies even in the recessionary environment. So we believe that shareholders can benefit much more by us working on improving margins in this environment, while I'm assume we trying to grow our portfolio. What I'm trying to say is we will not be indiscriminately buying revenues.
[Operator Instructions] We have the next question from the line of Sandeep Shah from Equirus Securities.
Thanks for the opportunity. And Manish, welcome, and congratulations for the new role. The first question is for any mid cap to flourish in this industry, which is competitive, mature needs to have some USPs and standards and needs positioning in front of peak lags. So what according to you at Zensar differentiated versus most of the peers. And you believe does that require some investment before you can expect some sustainable growth around going forward, so which may lead to some amount of compromise on margins, but there could be a sustainable profitable growth over medium to longer term?
No, I don't think -- we make -- we have made -- Sandeep, we had made a lot of investments in service. And that is one of the reasons for the margins coming down over the last couple of quarters. And I don't think -- please understand that this is my fifth week in the company. So based on what I have seen, I don't think that we made more investments, but we definitely first need more return on investments that we have already made. And that will drive immediate benefits for the company, for shareholders and for our clients. Rather than investing more money, I have first like to see the returns on the investments that we have already made.
Regarding right to win your first question on depreciation and licensing, I think there are good profits of excellence that I have seen that can be converted into the right to win for Zensar. But it is a bit early for me to put a stake in the ground and say when these will support things. I believe we try to do to differentiate and have a right to win in the market.
Okay. Okay. And just a follow-up. In your initial remarks, you said you want to make Zensar a more resilient organization. And the investor perception is Zensar is more execute on a project-based revenue, which leads to volatility in growth at a regular interval. So how do you plan and strategize to change this model to more annuity sticky kind of a business? And will it lead to a longer-term turnaround? Or do you believe things can turn around at a shorter to medium term itself?
So Sandeep, my belief after being in this industry for 30 years, that it is the relationships that are target period of energy base. It is not project that are annuity based or on this thing. So the basic premise is that if you invest in client relationships, if you build a deep relationship and relevance to your clients, then most of the business that you are going to get from that is going to be repeat business, which can be called relatively sticky overall. So yes, annuity revenues are a priority, but [indiscernible] to those annuity revenue is through building the client relationships, and that is what Zensar is going to focus on.
We have the next question from the line of Amit Chandra from HDFC Securities.
Welcome Manish to Zensar. And my first question is on the vertical focus. So if I see, apart from the banking and the insurance vertical or the verticals are seeing the pressure in terms of delays in [indiscernible] and in terms of drop in revenues. So when we can expect a more stable and more broad-based performance and also in terms of the kind of pressure that you're seeing from the top line in high tech? So are the -- is that behind us or we can see some more impact from the open revenue from the top line?
Thanks for the welcome, Amit and good talking to you again. I think as to when we will see -- when we will see turnaround in HTM and CS. Personally, I feel that from a portfolio perspective, the worst is behind us. But from a macro headwind perspective, your guess is as good as mine. So there are -- essentially, there are 2 factors, right? What have you seen in our portfolio and what are we seeing in macro terms?
So as I said, macro, we'll see how the situation [indiscernible]. In terms of our portfolio, I think personally that the worst is behind us. So we will -- I am hoping that we will perform as per market or slightly better going forward in these 2 verticals than what we have been doing in the past.
Okay. And sir, as you mentioned that the focus initial focus will be on improving the margin. So the initial margin target that are set in terms of mid-teens margins by the mid of the next financial year. So this is the target as of now or we are comfortable with the levels we are at on the current levels? And can you see more investments post that in terms of investing more in growth areas? Or the strategy laid out by the previous CEO, we are -- as of now, we are as of now sticking to that in terms of another focus of the [ NGOs. ]
So if you look at -- if you look at the strategy being followed, it was -- the strategy was primarily on capability building, right? So the service clients, et cetera, was more around building a set of capabilities that are relevant in today's market. The time has been to build those capabilities. Now the time has come to take them to the market in a more effective and efficient cost, right? So that's what I keep saying that it's -- from strategic perspective, I don't think any radical strategy is required. So new strategy might be required and it is required, but I don't think any radical strategy is required as of when I stand here 4 week into the organization. I think the interest of the shareholders will be better served if we first derive the return on the investments that we have made and check up [indiscernible] making no investments.
Are we happy if it's -- if the target remains in mid-teens, as Sachin said. And the -- the aim is to achieve it as soon as possible, but to achieve it on a sustainable basis.
We have the next question from the line of Nitin Padmanabhan from Investec.
Welcome, Manish, and congratulations on the role. First, we wanted your thoughts on 2 aspects. So one is I think we have very large customers in every vertical. And typically, we struggled for growth when they are under pressure. Your thoughts on how you plan to sort of broad base that sort of element on a going-forward basis?
And the second, your comment on margins. But is it a situation wherein I think the finance teams are sort of finding it sort of difficult to sort of pitch for a particular deal because of our cost structures at this point in time or -- and once we sort of improve margins you become more competitive when your ability to complete improves. Is that how you're thinking? Or is it some other way? And so those are the 2 questions, and then I had one for Sachin as well. And so what is the provision for doubtful debts reversal this quarter? Is it a large quantum or it is a small number?
So I think the first question was budget shrinking. See, Nitin what has happened is that we -- by adding service lines to our armory, we have actually increased our addressable spend. But previously, with the service lines that we have had, if we were addressing 30% of the technology budget of operation, then with the addition of these service lines, I believe that we have nearly doubled that on that front. So while there is the downdraft, obviously, because of budget cuts in our areas. But there are other areas that we are now able to address. And I am relatively positive about that factor.
Secondly, I think you asked about margins. I don't think there is anything that is -- in the last 4, 5 weeks that has come to my attention, which the team has felt that our margins are -- we are not competitive on the margins -- because of the margin. So I don't think that, that is a correct interpretation of focus on margin. The focus on margin means I don't want -- example pass-through revenue. Okay. If I just want to increase the revenues then I won't focus on trying to reduce the pass-through revenues.
As you see, in between Q2 and Q3, the pass-through revenues have decreased from 6.9 to 3.9 or something to that effect, right? That revenue is that's actually not [ quantitative ] right? So it is more to do with those things and efficiencies rather than loss of competitiveness.
As far as your question on the PDD is concerned, we had made the provision last quarter according to the policy of the company, and we could collect that during the quarter. So we have to [indiscernible] that. And the impact of that has been palpable since it is baked into the margin.
We have the next question from the line of [ Nikhil Chaudhry ] from [ Nuvama Wealth Management ]
I want to understand from growth perspective, exactly how it has now been doing during last 10 months -- last 12 months, if you see it grew by 10% Y-o-Y. While your commentary is a bit negative in terms of growth in coming periods. So I just want understand would we be able to grow in a similar trend, what we are seeing in deal wins. Or do you think there is going to be higher furloughs or delay in implementation which will impact the growth in coming weeks?
Sachin, can you take that because it pertains to last 12 months or whatever, can you please answer that?
So obviously, last quarter, we had the impact of furloughs on the revenue. Part of this furloughs will be -- we are expecting that will be reversed during Q4, and we will see appropriate impact of that on the growth.
And what about the -- so we will be spreading in the trajectory, what we have been dealing with first implementation, I believe, will happen in coming quarter? But I just want to understand in terms of growth perspective.
Actually, I didn't get your question correctly. I don't know what the point is.
Is it better now, Sachin?
Can you repeat that, please?
So Sachin, basically our large deal win growth, if you see in the last 12 months grew by 10% Y-o-Y. So I want to understand, would the revenue growth will be in similar trajectory given the implementation will start or will go through in the coming quarters?
So normally, we don't give guidance, as you know. So from that perspective, I won't be able to comment on that aspect that how the revenue will come back over the next few quarters. What I can tell you is that in Q3, we had impact of furloughs and this year, there were above normal furloughs. So given that, we will see partial rollback of those furloughs during Q4. And through that extent, we will see the impact on revenues.
Just one additional question. Your hi-tech vertical, we have seen quite a bit of churn in -- basically in the last couple of years, even the contribution has declined by about 900 basis points. So how should we look in this vertical vis-a-vis overall company growth? That's it from my side.
So as you said, hi-tech has been facing, hi-tech manufacturing has been a beneficial vertical for us, has been facing headwinds from the macroeconomic factor. The vertical is very much stabilizing for us going forward.
So we think that the investments which we have made in the service lines will help us -- across vertical growth will stabilize as Manish mentioned earlier. Thank you.
[Operator Instructions] We have the next question from the line of Dipesh Mehta from Emkay Global.
Just a couple of questions. First, just want to get your perspective about how to accelerate revenue growth over medium term. I understand some macro challenges which you highlighted for short term, but your thoughts about how you want to accelerate revenue growth trajectory for Zensar? If you can help us understand about the large deal participation, portfolio adjustment, [ hunting-minting engine ], whichever way you can try to give some sense about what is the thought process. And second question is related to the first one. Considering all the steps required to accelerate revenue growth, by when do you expect Zensar to effectively participate for growth opportunities from a growth trajectory perspective compared to some of its peers?
Yes. So I think, again, this is a fairly simple industry. And as I mentioned before, the greatest growth is improving both your hunting and farming capabilities. Today, I see a lot of opportunities in the way we are farming our portfolio of accounts. And to do that effectively, you have to build a good -- A, you have to increase your -- deepen our client relationship, which comes through increased client relevance. And I think that with the service line expansion that we have done, we should be in a position to increase our client relevance and with a focused effort to deepen our client relationships, that will be -- that will be the growth trajectory besides creating some -- creating a few differentiating things that we can go to market with.
As far as getting back to growth track is concerned, I don't know. This is perhaps the only quarter where it has declined, right, Sachin, over the last 7 or 8 quarters?
Yes. In constant currency terms, yes.
Yes. So it is not that we will let go any growth opportunity. Even as we speak, we are talking about 2 or 3 very interesting deals, which are in the buffer. So we will continue to push for growth. It is not that -- you can't run a business by just focusing on either the top line or the bottom line. We have to deliver both. So we will continue to focus on growth also. But the -- the results of that will come in slightly later. The results of margin should come up earlier. That is the point that I was trying to make.
Understood. My question was slightly medium term. Last 5 years, if you look at your organic revenue growth, it was largely flat from'18, '19 onwards until now, even this year, 550 to 600 is ballpark range where we operated. So I was looking from that perspective.
Yes. I mean we -- what can I say? I think it's my job to put in value proposition and differentiation in front of the clients where we can get sustainable growth as an organization. And that's what we will do over the next few quarters.
We have the next question from the line of [ Rajat from InCred AMC ].
So Manish, I'm very new to this. So my question is going to be more qualitative. Firstly, could you just talk a little bit on -- actually, when you joined, there was a press release mentioning that you led the turnaround at CSS Corp. Could you talk a little about what was the turnaround how -- what was the company about? Was it a Zensar-sized company? Could you talk a little bit about that?
Okay. No, I think CSS was about 1/3 the size of Zensar. And it's a privately held company. So I don't know how much I'll be able to share with you about what the turnaround was, et cetera. But the publicly available litigation says that the investors appreciated the turnaround, and we've got -- even though the company was sold in the middle of COVID, we've got a very good multiple and the investors got very good returns. I think that's about what I can disclose, given that CSS, which is now called Movate, which is a privately held company.
Sure. And secondly, on the supply side, also, we are hearing a lot of tech layoffs happening across the globe. So are we at Zensar seeing any significant supply-side pressure easing out?
Yes. The supply side pressure -- yes, the supply side pressure is easing out. Talent is more available today than what it was 6-9 months -- 6 to 9 months back. Yes, we are seeing the pressure easing out.
Sure. And also on service line additions, I think at Infosys, you spent a considerable amount of time looking at the health care vertical, which seems to be missing at Zensar. Will that be a new service addition which you'll be looking to add at Zensar? That's my last question.
Too early for me to comment on it just now. I think I'm looking at all possible opportunities in front of us. We are evaluating everything which includes which verticals we want to be. And just wait for the strategy session, which hopefully we should be doing in next quarter sometime.
We have the next question from the line of Sandeep Shah from Equirus Securities.
Manish, as you said, the margin turnaround will come first, followed by the growth turnaround. So in pursuit of that, do you believe some more rationalization is required in the business before you plan to do the growth turnaround as a whole? Or you believe most of the portfolio is earning margins which you are satisfied at?
So are you talking about rationalizing clients or something like that?
Rationalizing low-margin portfolio or some of retail accounts as a whole, which may have some impact on the growth in the near term?
Look, my belief is that pricing is determined by the market and margin is determined by execution. So we -- I don't think -- I mean, opening a new account, new logo is a very intensive long-term target. So we are not really looking at rationalizing accounts at the main margin level. We are looking at more of internal efficiency on margin levels. And obviously, if there are [indiscernible] accounts and so on, which are not giving us the right result, we will not focus too much on them. So we will make sure that we are focusing on the appropriate resources, which commensurate with the returns those relationships are giving us or can give us.
Yes. Second, Sachin, can you refresh in terms of the target to achieve a 15% EBITDA margin and the timeline to achieve the same? And second, in the deal wins of $130 million, what is the proportion of new business within the same?
Thanks for that. We are currently working on creating a trajectory to reach somewhere around mid-teens in next 3 to 4 quarters, and it's based on a very systematic program which we have implemented, which I called out as part of plan we had earlier. And we are hoping that we should be able to reach it around mid of next year. But if the economic conditions significantly deteriorate, we may have to relook at that. But as we stand today, we are making good progress towards that.
As far as our order book is concerned, historically, we've been around 45% to -- 45% and 55% mix of deals or left behind existing new deals. This time, the reflection of economic outlook actually shows that almost 35% of my order book is net new and balance is existing new, anything with the renewal basically.
We have the next question from the line of Manish Mehta from CP Investment. So Manish has left the queue. We move on to the next participant. The next question is from the line of [ Chirag Kacharia from Ashika Institutional Equities ].
[indiscernible]
I'm sorry to interrupt Mr. Kacharia. I would request you to please kindly use your handset to ask a question.
Am I audible now?
Yes. Please proceed.
Congratulations for taking the charge. So I have a broad question in terms of demand outlook and also vertical specific comments that which are the areas where you feel more concerns are there and it will take a longer times than execution to back to normalcy. So that's the 2 questions I have.
Sorry, I couldn't hear -- I could not understand the first part of the question, if you could repeat that.
Can you share vertical-specific outlook? And the first question was that. And second, which are the areas where you feel more concerns are there and will take longer than expected time to back to normalcy?
I think I mentioned within the commentary that we have seen a lot of headwinds, macro headwinds in Hi-tech In manufacturing and in [indiscernible]. While banking and financial services remains strong for us. And insurance also, we are seeing some amount of headwinds -- from a geography perspective, we are doing well both in South Africa and in the U.K. I mean, as far as which verticals, I personally feel that consumer services and retail is a much tougher vertical to focus on in a recessionary environment if the recession actually happens. Hi-tech, I expect that if we improve our execution, it will take us to be more easier to get it back on track.
We have the next follow-up question from the line of Amit Chandra from HDFC Securities.
So I have one follow-up on the margins. So the margin expansion that we have seen, as you mentioned, that it also has the impact of the lower pass-through. So can you please quantify, sir, what is the exact impact from the lower pass-through that we have seen on margins? And I think this is like a one-off for this quarter, so how the trajectory will look from the next quarter onwards? Are we expecting a dip and then only on an expansion? Or is it going to be on a linear trajectory?
Sachin, can you take that question?
Yes. So I pass through this -- in the pass-through had a 0.4% impact on the margins in Q3. But given the very structured cost optimization program which we are running, I think the current level of margins are sustainable for us in the near term as we create trajectory for further margin improvement over the next 3 to 4 quarters.
We have the next question from the line of [ Dinesh Shetty ], an individual investor.
Congratulations for decent set of numbers, especially margin improvement that was very much expected, needed by investor community. So my first question is regarding whether we are going for an inorganic acquisition considered this lower cash balance of around [indiscernible]crores.
So you are asking about our M&A strategy, as I understand...
Yes, yes. Yes, sir.
Yes. So I mean we have been reasonably acquisitive in the past also. And we continue to -- we have a structured M&A program, and we continue to look at opportunities to add shareholder value through inorganic means. And we have reasonable cash on the balance sheet to be able to do [indiscernible] inorganic acquisitions if we need to do that.
Sir, my second question is regarding the attrition level for last 3 months. And going forward, how do you see the attrition picture? Can you please throw some light on that?
I think we have dramatically reduced attrition. I'm, in fact, very pleased that between previous quarter to this quarter, there was a 350 basis point reduction in [ YTD ] attrition. And I think that [ YTD ] attrition based on what I have seen of other results is one of the best-in-class. Vivek Ranjan is our CHRO, and maybe Vivek, you want to provide some more color?
Yes. Thanks a lot, Manish, and Dinesh. Yes, Manish, you said it perfectly, the kind of investment which we have made in our people regarding career progression, learning, compensation and recognition and building connect. We see that we are getting significant return on that. And while macro environment states that attrition has gone down everywhere, but we are proud of the fact that ours is one of the best. Thank you, Dinesh, for the question.
RPG group is known for creating happiness among people. I think, sir, your inclusion in Zensar Executive Board will definitely increase happiness for all our investors.
Absolutely, sir.
Thank you. As that was the last question for today. On behalf of HDFC Securities, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.
Thank you, everyone, for giving me a warm welcome and asking some very pertinent questions. Thank you.
Thank you, sir.