Ladies and gentlemen, good day and welcome to the Birlasoft Limited Q1 FY 2026 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Abhinandan Singh, Head of Investor Relations at Birlasoft. Thank you, and over to you, sir.
Thanks, and welcome everyone to our Q1 FY20 26 earnings call. You already have received our results, you've seen it on our website. The members of our team who are present on this call along with me here, we have our CEO, Mr. Angan Guha, with us. Along with him, we also have our CFO, Ms. Kamini Shah, and along with her, we also have our CFO designate, Mr. Chandrasekar Thyagarajan, or Chandru, as we call him. We'll begin the call today with opening remarks from both Angan and Kamini as usual, and after that, we'll open the floor up for your questions and responses to those.
Before I hand over the floor to Angan, a quick reminder that anything that we say on this call on the company's outlook for the future could be a forward-looking statement involving significant uncertainty, and therefore that must be heard or read in conjunction with the disclaimer that appears in our investor update, which you would have received, and is also uploaded on our website as well as filed with the public agenda. With that, let me hand over the floor now to Mr. Angan Guha, our CEO and MD. Over to you, Angan.
Thank you, Abhi . Good evening and good morning to everyone, wherever you are, and thank you for joining us today as we share some perspectives of our performance during the first quarter of the financial year FY 2026. As you already know from our announcement a couple of weeks ago, Kamini, who has been serving as our company's CFO since April 2023, has decided to move on for personal reasons. I would like to take this opportunity to thank her for her contribution over the past two odd years in driving the efficiencies and ensuring strong cash flow generation. Thank you, Kamini. I'm also pleased to welcome Chandru, who will take over as our CFO effective tomorrow, which is the 8th of August, back to Birlasoft. As many of you may recall, he served as the company's CFO earlier during the period of 2020 to 2023.
Chandru is a highly accomplished and seasoned finance leader and is also very familiar with our business. We are therefore pleased that we were able to find in him the possible person to step in and take on the role of the company's next CFO. Now, with that backdrop, let's delve into our Q1 performance. You may recall in our last earnings call, I had mentioned that we were witnessing some ramp-downs as well as some insourcing amongst a few of our customers, which was likely to affect our growth performance in Q1. That was mainly on account of the prevailing macroeconomic environment where customers are still focused on cost optimization, cutting back on discretionary spending, and are maintaining a hold and wait approach with regard to large transformational programs.
Consequently, the revenue for Q1 has been sequentially lowered by 1% in dollar terms and has come in at $150.7 million. However, three out of our four verticals have actually shown growth: BFSI, Life Sciences & Services, and Energy Utilities have delivered sequential growth in dollar terms during the quarter. However, our Manufacturing vertical, which is our largest vertical, has registered a very soft performance due to project completion, ramp-downs, as well as insourcing, which has more than offset our growth that has been contributed by the other verticals. On the margin front, we entered Q1 with a base effect headwind because in Q4 we had a significant amount of margin tailwind due to some one-offs that were happening in Q1. In that backdrop, I believe we have managed to minimize the margin contraction sequentially and delivered an EBITDA margin of 12.4% for the quarter.
Kamini will share more on margins and net earnings in her remarks. Coming to deal wins: more than half of the TCVs secured in Q1 comprises the prices of new deals that we have won during the quarter. The quantum of TCV deal wins in Q1 is at about roughly $141 million. However, this is lower than what we had delivered in Q4 because, as you know, the second half of the financial year, which is the third and the fourth quarter, are very renewal heavy. Traditionally, the Q3 and Q4 deal wins are higher. In addition to that, there was one deal that got right-shifted to Q2, which is why you saw a little bit of a softness in signing deals in Q1. We are hoping that we will cover it up in the third quarter, which is the quarterly concern in Q2.
I would also like to point out that we have secured some marquee deal wins that demonstrate our enhanced tech capabilities, particularly in emerging areas such as GenAI. For instance, we have partnered with the leading players in the U.S. energy sector to deliver cutting-edge Agentic AI use cases within the supply chain, accelerating intelligent automation and operational resilience. Similarly, we won another engagement with a global technology leader for a landmark enterprise-wide quality engineering transformation program, wherein we will be integrating Agentic AI-driven automation. These engagements will add to our growing base of existing customers, where we are already deploying advanced AI-powered capabilities, including Agentic AI. Now, looking ahead, as I've observed earlier in my comments, the demand environment continues to be difficult.
This has resulted not only in a prolonged period of time during which customers have been reluctant to take up long-term transformational projects, but also in delayed decision-making and cuts in their discretionary spending. As a result, while our pipeline remains strong, conversion to deals has been relatively tepid. While we expect sequential growth in Q2, we do anticipate that the challenging market conditions will reflect in our performance through the course of the current year. At this point, I will ask Kamini, our Chief Financial Officer, to share her perspective on the quarter-end review. Kamini, over to you.
Thank you, Angan. Good day, everyone. Thank you for joining us. It's a pleasure to talk to you again. Let me take you through some of the financial highlights for the first quarter of FY 2026. Our revenue performance for Q1 reflects the challenging demand conditions that we are operating under. On our last call, we had indicated that we have seen some project closures and ramp-downs, and on account of that, our revenue for the quarter declined 1% quarter on quarter in dollar terms to $150.7 million. As Angan has observed in his remarks, three out of our four verticals have registered sequential growth during Q1 in dollar terms. Energy and Utilities sustained its growth statistics during the quarter under review, growing 1.9% quarter on quarter.
BFSI has also grown a bit marginally, and Life Sciences & Services verticals have returned to growth during Q1, recording a 1.4% growth quarter on quarter. The Manufacturing vertical harbored a 4% quarter on quarter degrowth, which is for the reasons that Angan had mentioned. If you really look at our service lines, our ERP business saw a sequential decline, reflecting its correlation with the Manufacturing vertical. The Infra business, which is a much smaller piece of our overall business, also witnessed a degrowth due to completion of a project. The Digital and Data business, however, has registered a growth of 2.6% quarter on quarter. This is on the back of new engagements and incremental revenue from existing accounts.
You would recollect that in the last call, we had mentioned that our Q4 2025 margin performance had some one-time benefits pertaining to currency benefits, leave encashment, and variable pay for our senior executives, amounting to about $200,000. We had also indicated that we were confident of offsetting half of the margin headwind coming into Q1 through operational efficiency. We have been able to minimize sequential margin contraction in Q1 despite a subdued top line and delivered an EBITDA margin of 12.4% in Q1. The effective tax rate, which for us has historically been in the 25%- 26% range, saw a rise during Q1 to 35.9% on account of a provision made for higher tax. We have been engaging with tax experts and are transitioning our terms of engagement with key customers to more accurately align with our operating model.
With this, we expect to limit the impact of the incremental tax to the current financial year. Thereafter, we expect the ETR to come back to our historical level. Adjusted for the incremental provision for tax, CAC for the quarter would have been at $14.4 million and basic EPS at $4.39 per share. We are within the new financial year with a robust balance sheet. Our cash and cash equivalents at the end of Q1 stood at $266.6 million. This is up by about 15% year-on-year and 2.8% quarter on quarter. Our DSO was at 58 days, while it is higher than what we normally reported in the earlier quarters. This has been primarily due to delayed collections that have come in earlier July. As these collections come within the timeframe of June, our Q1 DSO would have been at 53 days.
We remain committed to staying focused on sustained robust cash flow generation. While we are still navigating through the challenging demand environment, I believe our ongoing efforts to drive operational efficiency, generate healthy cash flows, and invest prudently in the business positions us well to benefit from a recovery in demand as and when that happens. Thank you very much. Back to you, Abhi.
Thank you, Kamini. Thank you, Angan. Moderator, can we please open the floor for questions?
Sure, sir. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, you may press star and one on your touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking your question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. We have our first question from the line of Girish Pai from BOB Capital Markets. Please go ahead.
Yeah, thanks for the opportunity. Angan, you mentioned that 2Q is going to be a growth quarter on a QoQ basis. Will that continue into 3Q and 4Q?
Girish, thank you for your interest and thank you for asking me that question. Since we are working towards a sequential growth in Q2, and our focus currently is Q2, we are working with our teams and with our clients to see how we can deliver sequential growth in Q2. It will all depend upon how my order book stacks up for Q2. As I'm sure you've seen, and I mentioned in the call, our Q1, we delivered about $141 million worth of orders. One order slipped into Q2, which is now getting styled. Hopefully, Q2 we'll have a larger order book, right? If we really deliver a larger order book, then barring the furloughs, I think operationally we can show some growth, but that will all depend upon how the Q2 order book looks like.
It's hard for me to say whether Q3 will really be a growth today because of the uncertainty that we are facing. Our job is going to be to focus on order book and deliver higher order book, which will make sure that the revenue growth comes in touch with the quarter.
Okay. In the previous calls, you've been saying that you would want to lower the exposure to discretionary business from what I think was 70% to about a 50% mix. Where are we on the journey? Is the new business coming at lower margins compared to the discretionary business that you've been bidding?
Yeah. Girish, you know our quarter one and quarter two are quarters which generally are a little lower in terms of order book because that's how our seasonality works, right? Q3 and Q4, the renewals are very heavy. We are not anticipating at this point in time, and again, I stress at this point in time, that our renewals will be at a lower margin. Our renewals will be at our current margin at the minimum, and in certain cases, we may get a little bit of an extra margin even in our renewals business. However, what will happen, though, is in our new deals, and I also talked about two or three big deals that we are working on in the range of about $30 million- $50 million, those deals will definitely come at a lower margin.
For us, as a management team, it will be important to, first of all, win those deals, secure those deals, and deliver, and also work on our overall cost team so that, you know, we can sustain the margins at the current levels, I guess.
Just two more questions on salary hikes. When will they happen, the quantum, and the impact from a basis point perspective? Which particular quarter will it hit you?
We are not making a decision on salary hikes just yet. I mean, we've just started the first year. I mean, as you would recollect, even last year, we gave the salary hike only in Q3, 3Q of our financial year. It's just been about a quarter, so we've not taken a decision on that yet, Girish.
Yeah, just to add to that, Girish, our senior leadership salary hikes were done at the beginning of this year, around January, the quarter four of last year. At this point in time, we will review the situation and take a decision on whether we would do it.
Lastly, I had a question on the industry, and there's a lot of talk about, actually, visa process change that can happen from a lottery to something else. Should it change from a lottery process, you know, from an industry standpoint, would that be an additional margin pressure that an industry is going to see?
Yeah. Girish, we'll have to wait and watch in terms of how it shapes up, right? Currently, we don't have a comment on that because we'll have to see the new regulation, the way it comes out, and only then we can assess the situation. Currently, for us, the way our business is shaping up, we have enough H-1B resources ready to travel if needed, and we are also localizing our workforce by hiring locally. I think we are covered at this stage unless the visa situation changes dramatically, which we can't comment on at this stage, Girish.
Okay, thank you.
Thank you. We have our next question from the line of Priyank Chheda from Vallum Capital. Please go ahead.
Thank you for the opportunity. I'm sure in this challenging time, there are a lot of things that, you know, outside the macro, something that the love of the team and the management team can manage so that we emerge out much more stronger. I want you to highlight the key learnings that you have had in the last 12 months or four quarters with every board chairman and any corrective action plans that you have undertaken from those learnings.
Priyank, again, thank you for the question and thank you for your interest in our company. One of the biggest learnings for me and my management team in the last one year has been the fact that our order book has not been very strong, as you all know, right? There is an enormous focus on building the pipeline and driving order book. I think if you remember, in FY 2024, we delivered about $850 million worth of orders, which came down to almost $750 million last year, right? One of the big learnings is, unless we have an order book, obviously, the revenue growth becomes a challenge. The entire team is focused on driving order book. That is one. Second is, we also realize that we need to be more domain-oriented.
As a result, our new hiring that we are doing is building on more domain-oriented hiring rather than generalist hiring. That's number two. Number three, and we talked in our commentary, how do we drive a lot of delivery through our Agentic AI platforms? We have some marketing platforms which are really, truly amazing platforms, if you will. How do we use those platforms to deliver to our customers and win new deals? We are focusing on that as well. We've also undertaken a company-wide transformation on all parameters, whether it is customers, how do we serve customers better, what are the capabilities we build, and finally, on the cost side. In a situation where there is so much uncertainty, we will obviously work a lot more on the cost. I want to make it very clear, it's not that we will fire our employees or anything.
That's not the idea. The right roles need to be done in the right geographies, which is what we will focus on, number one. Number two, we will continue to invest in the areas that we see growth, right? As we have seen, our digital and data business has shown a lot of growth. We want to continue to invest in that kind of business. We need to kind of move the workforce in the right geographies where they actually need to be. While we are looking at the cost side significantly, but keeping the long term in mind, we also want to invest in the right places. I guess broadly, Priyank, these are the big learnings. If you ask me, our biggest job right now is to get the order book fixed. If we can get the order book fixed, then the revenues will follow.
Very clear. Please ensure implementation is getting properly put into order, as you mentioned, from the first large deal that we're already working on and discussed. From Q2 onwards, the PM mandate would be to first get the order book and its accuracy, and then we would go to the delivery following.
That is exactly right, Priyank. I'm hoping that we deliver more order book in Q2 than what we did in Q1, for sure. Q3, Q4, obviously, the renewals come in. If we can swing at least one out of the two large deals, in theory, the year will be good in order book. I'm hoping if we can deliver a strong order book for the year, then next year we can commit to a larger growth.
Okay. Just to summarize this, this year, the more focus on order book there is the revenue recognition. For this year, should we consider that we would be aiming somewhere around single digit growth and then follow on for FY 2027, we should start accelerating to double digit growth?
Yeah, you know, I don't know whether the growth will be single-digit or whatever. It's hard for me to now say because we, you know, we faced enormous headwind in Q4, as you know, Priyank, right? Our degrowth was in a mark deeper than what we had anticipated. I can't really comment for the year. Now, my entire focus is the quarter on quarter. What we can say is we are working at least for a sequential growth in Q2. That will be our focus. Apart from that, our only focus is to drive better order book. Mathematically, I will tell you that if we can deliver upwards of $850 million worth of orders, then definitely next year we can show much more growth. I don't know whether it will be double digits or whatever. That time will tell.
This is all keeping in mind, Priyank, that the uncertainty is at some point in time settled down because we don't know what we don't know.
Very clear. Just last question, and I'll come back in a few. After the delivery of whatever strategic action that you have undertaken, you also mentioned in your opening commentary that we start this year with a very robust balance sheet. At the same time, when you are implementing internal, do we need to look into the external, you know, acquire better capabilities, diversify, and build a much more sustainable organization for the coming year?
Priyank . Done a lot in building a solid organization per se. As you know, we have zero debt. We are generating positive cash flows. From that perspective, I think we are world-class. We need growth in the company, right? Now, you know, an acquisition currently, at least to my mind, is going to be a distraction. We will not look at an acquisition today. We need at least three or four quarters of sustained quarterly growth performance, then look at something. You know, we always are in the market looking at assets at any point in time, and if something really shows up which adds good value to us, we are open to looking at it. Right now, the management actions are very clear.
We need to focus on building pipeline, delivering order book, and at least start delivering sequential revenue growth even before we think about an inorganic acquisition.
No problem. Just on that, it's a request from the minority shareholder to focus better on the capital allocation for this year, maybe. I'm not talking for a permanent change, but in this year, we can think for a better dividend yield or a buyback so that, you know, our return on equity and the return ratio become much more attractive. As we start FY 2027, again, the capital allocation as per whatever the deepest policy can go on. Thank you.
Thank you, Priyank.
Thank you. We have our next question from the line of Dipesh Mehta from MK Global. Please go ahead.
Yeah, thanks for the opportunity. A couple of questions. First, about the outlook. I think last time you indicated about quarter two to be a growth quarter, and then I think for the full year also, you made two observations. First, about our aspiration to deliver at least positive growth in FY 26, and secondly, roughly around 13% for the year. If you can provide your broad observation on some of these two things, whether we continue to aspire to reach our positive growth and 13% EBITDA for the year. Second question is about you indicated about right-shifting of some deals. Can you help us understand whether those deals are already closed or we are yet to see that closure happening? Whether it would be a large size in terms of the relatively chunky deal compared to our usual size of the deal?
If you can answer this question, then I have a couple of follow-up. Thanks.
Yeah, absolutely. Dipesh, first of all, on this Q2, I'll answer it on Q2 first. Q2, our endeavor will be to deliver some positive growth. I can't comment on the quantum because the situation is very fluid. All I can tell you, the management team is working on delivering some amount of sequential revenue growth in Q2. Now, Q3, like I said earlier to Girish also, if I deliver a strong order book in Q2, then maybe Q3 we can continue our growth momentum. For the year, it is hard for me to say whether we will be positive or frankly defeated because we are starting from a lower base. If you remember last year, our base was at $160 million. Now you know where our base is. Mathematically, it will tell you that delivering positive growth may or may not be possible. It is quite difficult at this stage.
I will not comment for the year, and you know we don't give a guidance. We would like to take one quarter at a time. That's point number one. Point number two, on your deals construct, we have one, two reasonably large deals. One deal is getting signed in the month of August. We have reasonable momentum on the deal flow. The two big deals that we are referring to, like I had said even in the last call, those are Q3, Q4 decisions. We are working on it. Hopefully, we will be able to close one out of the two. If that happens, then at least we will be able to deliver robust order book for the year, if not revenue.
Dipesh, our entire focus this year, because of the fact that we are starting from a huge headwind position, is to really focus on quarter on quarter growth and delivering the order book rather than looking at year on year because year on year, obviously, we will look very, very muted.
Great point. On the margin side, you can comment?
Yes. Dipesh, I mean, our first quarter, as you've seen, that our margins were at 12.4%. Last year, for the entire year, we delivered a 13% margin. Our endeavor is at least to keep the margins at that level. Now, I don't know whether we'll be exactly 13 or 12.8 or 12.6 or 13.1. I don't know. It will be in that range. Our endeavor will be to keep the margins in that range.
Understand. Now, I have a couple of follow-ups. First, about the manufacturing, if you can provide some sense, how one should understand manufacturing growth playing out. There are some headwinds. If you can give a broad sense, if you can slice and dice into some subsegments, how you are seeing demand trends there, and whether this thing is likely to be prolonged or you expect it to see rebound entering into the second half. Second, similar question for ERP segment. ERP, if you can give some sense, a couple of quarters back, I think you were hopeful about recovering ERP. Now, again, ERP is seeing challenges for the last three quarters. If you can give some sense there. One question for Kamini: ETR increase, I think you provided some statement, but I missed it. If you can help us understand what led to this increase in effective tax rate.
Thank you.
Yeah. Dipesh, I will talk about the manufacturing and the ERP situation, and then I will hand it over to Kamini for her comments on the ETR. Look, manufacturing is a manifestation of what we are seeing in the market. Now, you know, while we work with some really marquee names in manufacturing, the reality is we also work with a lot of mid-sized manufacturing companies in the U.S. as well as in Europe. With everything that is happening on the tariff side, you know, there is also a little bit of uncertainty, uncertainty in terms of decision-making and prolonged decision-making. As you also know, our manufacturing business actually sits in two areas. One is the pure manufacturing, and second is in the healthcare space also. We work a lot with med devices customers, which is also manufacturing.
If you look at it, I'm of the opinion that our med devices business is now turning around. That will continue to show positive momentum. Our discrete manufacturing is going to continue to be under pressure, which is why that has an effect on our ERP business because the ERP and manufacturing business go hand in hand. It is hard for me to comment with the way the world is moving and the way the tariff situation is playing out in terms of when this business will move around, only because you know it is a wait-and-watch policy in terms of our customers' decision-making process. We will watch this space, and as the quarters go by, I will give you an update when the clarity comes in.
Our endeavor on the ground is also to kind of turn the manufacturing business around and see if we can deliver growth in the coming quarter. On the ETR, I'll hand it over to Kamini.
Dipesh, like I had mentioned, if you look at our typical effective ETRs, we've always been in the range of 25%- 26%. This quarter, we've had to take it to about 36% because of the provision that we have made. What I had called out was that we are engaging today with our tax expert, and we have started transitioning our terms of engagement with key customers. Our current assessment is that this impact is going to be for this financial year. Going forward, we expect the ETR to come back to our historical level. That's really our current outlook at this point of time. We are working through this, engaging with the experts.
Understand. Broadly, I'm not very clear. Let's say both led to this increase because you said certain clients you are in conversation and all those things. This 35%+ kind of number is likely to be there for the next three quarters at least. If you can provide some sense, what led to increase?
I think it's also the factor of some of our engagements, Dipesh, that we are looking at, which is why I said we are engaging with our tax experts at this point of time. What we really need is to do this work with our customers to realign the contract terms, which is the reason why I'm saying that I know this is much higher than what we've had historically, but we do expect to get this back. I think our focus right now is to make sure that we take on the necessary steps to get back to this level.
Okay, thanks.
Thank you. We have our next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks. Thanks for the opportunity. Angan, in terms of whatever you explained till now, it looks like even after two and a half years of effort in terms of turning around the ship and the build-up of growth profile, it still looks like our restructuring and turnaround efforts are undergoing. What is not executing as per your plan? Is it more to do with the capability gap? Is it more to do with the execution aggression? Or do you believe it's more to do with the macro advantages impacting us?
Yeah. For me, look, if I were to make an honest assessment in terms of what is going wrong with us, there are two big things that are going wrong with us. Macro is where it is. That is not in our control, so I will not talk about it. It is our top 24 customers or top 40 customers, which essentially gives us 93% of our business. If you look at their performance over the last four quarters, they have not matched up to the kind of growth that we have seen probably four, six quarters back, right? They have slowed down. Now, one can argue whether this is because their spending has been going down, which clearly it is. It is also because some of this work is becoming insourced.
That's why we said our upgrades have gone over, which has impacted us in the last six quarters tremendously. Clearly, our focus needs to go back into mining these accounts, winning more in these accounts to get back the business on track. That's number one. Number two, from a capability perspective, again, if you look at our digital and data business, they have done reasonably well. Our infrastructure business has grown significantly. If you were to compare it over three, four quarters, our one big issue that we are facing is ERP. ERP is very puckered with our manufacturing business. If I were to now look forward four quarters, what will be our plan? Like I was telling Dipesh earlier, Sandeep, my plan will be very simple. Go back to the basics on mining the 24 and 16 accounts. That's important. The 40 accounts we have to mine.
We have to start adding more and more newer logos in that, in the bucket of 40. That is number second. Number three, how can we work with our partners like SAP, Oracle, etc., and invest in more leadership to turn around our ERP business? If we can do these three things, at least in the medium term, we can get back the company into a growth mode. External economic factors, like I said, are not in our control. Hard for me to comment how that will move. At least internally, these are the three things that we have thought of in terms of investments, in terms of post-focus to get the overall company back on growth. Because remember, ERP still contributes with all the headwind that we have faced over the last three, four years.
It still contributes to $200 million out of the $620 million, $630 million that we have. That's a big business.
Okay. Okay. Angan, sorry to stretch on this. In the review process, we should be having some amount of lead indicators about these things happening in the next one quarter, two quarters, or three quarters. Why is the execution more on the reactive approach rather than a proactive approach? The way you are explaining, it looks like the second half could also be a difficult period for us in terms of our growth.
Yeah. Sandeep, it's not reactive. We know exactly what is happening, right? There are a lot of specifics. I can't discuss specific customer issues, but we know exactly which vertical, which account, which markets are really not doing well, and we have a plan to fix this. The only reason I'm not giving a forward-looking guidance, one is because we don't give a guidance, and second is because the uncertainty is so much, you know, I shall not be able to pinpoint something. What I can tell you, Sandeep, is this. The entire management team is focused on those two things that I spoke about. One is creating pipeline, delivering the order book. I will tell you, if we deliver the order book, the revenue will follow. We have a plan in multiple levels.
We have a plan for our top 24 clients, the next 16 clients, what we call as the attack accounts, which are 16 clients that we want to have in our portfolio. There is a proper plan, account by account, people by people, service line by service line, which aligns to our long-term growth strategy. Now, it will be all about execution. Execution from your perspective will be higher order book, and if we can deliver higher order book, then the revenue will follow.
Thanks for the detailed answer. I think in the last term, it's called, I think, 25 or 30 people. Plus, we are expecting another closed deployment from Q2 to Q3. Besides that, you also spoke about a couple of other large deals that are in the pipeline that needed to be closed in the second half. Am I understanding this correctly?
Yes, absolutely correct, Sandeep. As you know, we closed Q4 already. Another deal we closed in, the deal that was in Q2 will also close. That is not closed in our office at a minute about $165 million, but that will close in Q2. The three options that you're talking about are in offering, but you know, those, like I had said in the earlier call, are a little bit of a loss. I think the floor phase is also more likely to be Q4. We will actually work on them, and we will see how we can convert. More importantly, we also have to build our pipeline. We have to get more deals on the table, which this deal is also working on.
Okay. Okay. In terms of big margin targets, which is flattish this year we could reach that, plus or minus in a small range. From a 597, there could be an uptick in the margin. Is this the right way of understanding?
Yes, Sandeep, because you're coming at the end of the day, if the revenue is so muted. From the cost side, of course, we have done a lot on the cost side, and we will continue to do a lot on our overhead side and the cost side. At the same time, we will invest in the right areas. Our overall position now is that if our margins will be in the current range, zero pay per view, which we spoke about. As revenue growth comes back, the market will automatically improve because the operating leverage will come in.
Yeah, last thing, I just wanted to understand the higher tax rate which we expected at 597, will have a cash flow impact, or we are doing that we can provision certain tax rates? The higher tax out will be later.
Sandeep, it's a combination of both points. This is why I said that cash flow would happen on account of it. I'm seeing experts to see how we can work around it, right? It could be a combination of both.
Okay.
Thank you. Our next question from the line of Ravi Menon from Macquarie Group. Please go ahead.
Thank you for the opportunity. If you ask about the spec, I think customers, which verticals that classify them. At least three of your key deal events are from that segment. Is that in manufacturing or is that in the services side?
It is on the services side, Ravi.
In Life Sciences & Services, I noticed that, you know, we haven't seen any wins. Could you talk a bit about that? Is that, you know, apart from medical devices, is that still solved?
Yes. Predominantly, almost 80% of our business is medical devices. While we have not seen any winning cases, there are a couple of deals that we are working on, even in the Life Sciences & Services space that we hope to close between Q2 and Q3. We are working on them. I would say it's the medical devices industry. I wouldn't know how the tariff situation will play out for them. We'll have to wait and watch. At least the momentum is picking up in that area. The only reason we did not win a deal is we have been selecting globally. Some of the deals should be coming out of that over the next two to three. If you ask me, you know, we obviously don't work with any provider, and we don't have the capability to work with any provider.
Working with some of the payers, and as we spiral out some new parts of that game, I'll cue with an update, Ravi.
Thanks. For a couple of wins in insurance, it looks like that's also picking up. How about the banking segment?
Ravi, again, as you know, while we call our business BFSI, we don't really work with any banks, right? I mean, we work with asset managers, we work with payment providers, and we work with a little bit of insurance. Insurance is a very small business for us. We are winning some positive deals that will continue to show growth. On the payments side, we will see some softness going forward. It will be seasonal until Q2, with a little bit of growth again in payments. Q3, because of furloughs, will be flattish. In the long term, I think the payments as well as the asset management space will grow for us, Ravi.
Yeah, I noticed that this quarter, you know, we've seen a bit of shift offshore. Should we expect that to continue, and will that help margins? Do you think that new deals can be coming through? We will have to keep the offshore mix more or less in the current balance?
Ravi, our expectation is it will be more around the current level. I think the shift has been so drastic because some of the rebroad has happened at the market side. That's the reason that we expect it to remain at the same level.
All right. Thanks. You have a nice luck.
Thank you. We have a next question from the line of Shradha Agrawal from Asian Markets Securities. Please go ahead.
Yeah. Hi, sir. See, you know, our sales and support had gone up within our quarter. If you look at it on a YOY basis, it's down almost 17%, 18%. What is happening there? Is it more the overhead staff that is going down? Are we also looking at rationalization of the sales team?
Shradha, our going in position is to invert in sales. You should not take this as a fan of sales force who amps margins. That's not the idea. We will continue to. Very, very, very strong. I can't say that it is the last. It is in terms of sales. That will be driven by productivity, and there is a big exercise that is going on. Another point that I made, I think, to Priyank or Dipesh is we will have the right tools in the right geographies, right? From that perspective, you know, we are rejigging a little bit. In sales, in the right kind of a route that you have to go to continue.
Yeah, to add to what you said, investment in this area, the reason why you see that we are seeing that the personalization and automation is on the general process is support has started a declining trend. While it's just together for you from your standpoint, it is production is not in the sales area. It's largely in the support area that we are.
Sure. My related question is any progress on the deplacement?[audio distortion] Any update on that?
There is some thought process that we are going through at this stage. At an appropriate time, Sharada, we will come back and update you on this.
Right. Just last one question from my end. Many companies have been talking of getting incremental market share in vendor consolidation deals. What is our status on such consolidation deals that come up in the pipeline?
Yeah. Some of the deals that I talked about, that we have won, part of it, of course, is vendor consolidation, and some of the other deals are also deals which are part of stick AI. Part of the deals that we are delivering to our clients with A
gentic AI solution is a part of a consolidation deal. We're winning our fair share of consolidation deals as well. Like I said, our focus, rather than just driving vendor consolidation, is to kind of win new transformation deals for our clients, which is more AI-centric and where I will be able to use my AI platforms to deliver.
Right. Just one last question. ROW saw a steep decline for the manufacturing decline, and ROW decline are related?
Yeah, it is related because there are some manufacturing clients staying. These clients are really global clients, so we cannot classify whether ROW or in the U.S. You're absolutely correct, Shadha, that aligns with the manufacturing decline. Our overall ROW outside of the manufacturing has done reasonably well. In fact, the two or three deals that we are signing or about to sign are actually in the ROW area.
Okay. Thank you. Thank you.
Thank you. We have our next question from the line of Sudheer Guntupalli from Kotak Mahindra AMC. Please go ahead.
Hi. Hi, Angan. Thanks for the opportunity. My question is, I think, a follow-up on what one of the earlier participants asked on Q3 growth. You're saying the deal that the right shift is almost signed in the upcoming months. If this thing, especially on the macro side, I understand that the situation is very fluid. If things, let's assume things stand status quo, and you know, given that you have the comfort of that deal signing and the deal signing happened to be higher than what they were in this quarter, is it fair to assume that September quarter will also be a growth quarter despite, let's say, another 150 basis points of headwind due to furloughs? If that's the right mark to assume?
Yeah. Sudheer, I will break this up for you, right, so that you know I communicate it clearly, and I'll also ask Kamini to step in on this one. Look, if I can sign more deals in Q2 than Q1, roughly about anywhere in the range of $162 million, $165 million in that range, if I'm fine, then clearly Q3 will also be a growth quarter. The only reason I am not being able to say that way something on the table is because I don't know how much furloughs will my customers come back with. The growth operationally, I can tell you I will grow in Q3. The problem is, how much hitch will I take because of furloughs is too early to comment because, as you know, 30% or 40%, not 30%, 50% of my business is manufacturing.
Depending upon how the tariff situation goes, it's too much amount of discretionary cut they will have. As a result, how much furloughs they will ask us to take, which is the only reason I'm saying this. Operationally, if you ask me, we'll absolutely grow in Q3 as well. The only caveat here is if the furloughs are more than anticipated historically, then obviously we'll have an impact. Otherwise, we will go.
Sorry, Angan. That's why my question had a predication that broadly in the historical range, given that it is too early to predict furloughs. Otherwise, you don't see, I think this is regarding asking for some more clarity on one of Sandeep's earlier comments that says that H2 is sounding, we are sounding a bit weak. I'm just trying to get some clarity on his comment because I was not there to the full extent of the talk. Just that part.
Yes, Sudheer, let me clarify, and I think Kamini clarified this to Sandeep as well. We are entering Q1. As you know, we entered Q1 with a lot of headwind, right? Earlier, our revenue base was roughly about $160 million. We ended Q4 at about $152 million base. We had a huge headwind because of closures of projects, ramp downs, and a lot of the work going to the customers. In order to take that base, if we have to do the math, we need a substantial amount of sequential growth to show growth from there on, right? This is why I'm really disappointed because I think it's also crucial for performance rather than year-on-year performance because with that kind of headwind, your performance may not make too much sense.
My entire focus and my management team's focus is first deliver growth in Q2 and then deliver growth in Q4 in the month of Q4.
Thanks, Angan. [audio distortion]
Go ahead.
Thank you. Just one question. Started early when we have had a hunting and a mining team restructuring. I think when things start to run in the pipeline, especially the hunting, any color.
I'll say the industry. Yes, I see the customers are old and the floors. The floors, the floor to be in a dollar of revenue, it is $60. That is one more thing on a hotel building, and I say this is why we can finally get this to the next steps.[audio distortion]
I'm getting to the end. Is that the headwind?
Yeah, that's a headwind.
Thank you.
Go ahead.
Why is the insourcing happening? Is it that the clients can do the same work at cheaper within the captives, or any specific reason why the insourcing is happening?
You must not look at it. We come out regulatory in nature, which needs to be within their four walls. I will not read too much into that. It was more to explain in terms of the fact that we have not lost those deals to competition. We've lost those, actually, lost is the wrong word. We've given up those people or that piece of work to an insourcing arena, is what I was referring to. It's nothing more to do with price. .
Are these more than two key clients?
We will not talk client-specific, but yeah, it is more, I mean, it will be a couple of clients. It's not more than two or three clients, but it is in that range.
Okay. One last question on pricing. How does the pricing in the market today compare to, say, three months back or six months back on discretionary work, the so-called discretionary work?
Yeah. Look, the pricing is going to come under a lot of pressure, right? Which is why, at least if you remember, my first comment was at least to get my renewals done at the current price level and not give discounts on the renewals. That itself is a lot of effort considering the macroeconomic situation. Now, as far as new deals are concerned, on discretionary or even non-discretionary, there is an enormous amount of pricing pressure at this stage, which is why we are taking two strategies, actually three. One is trying to get the renewals done at the current pricing, number one. Number two, getting our organization cost structure corrected to reflect the new reality of the pricing pressure that we will go through.
Third, of course, we will also be aggressive in the market to gain some market share, but strategically win some deals at a little bit more competitive pricing.
Thank you.
Thank you. We have another follow-up question from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks for the follow-up. Just a bookkeeping question. If I just look at the intangible assets, both mentioned as other intangible and intangible assets under development, it has gone up on a year-over-year from $1.4 million to $3.1 million, and largely because of the intangible assets under development. I agree as a percentage to revenue, it's not very big, but what is leading to this increase?
Sandeep, it's actually a few particulars. We had mentioned, you know, about our own in-house transformation program that we have been doing a couple of quarters back, Optimus. As we are building it up, it's very requested to do it.
Optimus is one of the solutions or tools that you have just developed?
Yes, absolutely.
Automation or?
It is actually, you know, an entire platform that we are creating in-house for our own internal purposes, in terms of transforming our organization.
Okay. Thank you.
Thank you. We have a next question from the line of Debashish Mazumdar from SVAN Investments. Please go ahead.
Good evening. Hi, Angan. Thank you so much for taking my question and Kamini, all the best for your future endeavor. Angan, I have a little bit of a strategic question in my mind. If I see your journey in Birlasoft once you joined after we faced a huge headwind from Invacare, which was kind of managed well, then we came back into the growth mode for two to three quarters because some of the changes have been done, some strategic changes have been made, trend consolidation has happened, hired new people. If I see over the last two to three quarters, we suddenly kind of collapsed from that growth journey, and obviously, because of that, the margin also got impacted. According to your analysis, what was the reason of this impact? It was like just half a turn when we were kind of changing strategically three, four quarters back.
Was it more of a macro impact that we have faced, or was it more of a client-specific or vertical-specific issue that we have faced? According to your analysis, among all these three, what is the main reason, according to you, in your mind that has impacted us the most? The second is at what level of transition that we are in, and according to you, how much time it will take approximately to get back into the growth phase?
Yeah. Let me switch first of all. Thank you for this question. There are a lot of questions in one question, but I'll try and summarize and answer them, right? Look, there is fundamentally, there is nothing wrong with the company, right? The company is strong, and that shows up in our balance sheet. That shows up in our cash flow generation. The very fact that we have no debt, we've been able to generate positive cash flows every year shows that we are a fundamentally strong company. What we need is growth. Now, where did growth go wrong? It went wrong in two or three areas. One is, like I was mentioning in earlier things, some of our customers have insourced a lot of work. Some of the projects have finished, and they have not got renewed. This has happened in about two or three clients, not too many.
Maybe I'd say four clients out of the 250 clients that we have served. Over the last four quarters, we've lost a lot of revenue because of that, correct? Equally, we've won a lot of business, which is why, though we've lost a lot of business, we are still being able to stay at the current levels, which is the commentary that you made that in the last four quarters, we have worked to only be in the same place. I feel personally that this is an ongoing journey. We've made a lot and a lot of changes in the organization. When I make changes, I don't mean people changes alone.
In the way we work, the way we serve our customers, the kind of capabilities that we build, the kind of capabilities we want to build for the future, even in the years that we did not do well, we've given our people salary hikes, promotions, and everything, right? We are investing in our people. We're investing in our capabilities, and we have a long-term view about all this. It's hard for me to say how many more quarters it will take for consistent growth to come back. See, we are attempting to deliver growth even in Q2. Technically, in Q2, we will deliver growth. Hopefully, if the furloughs are not too much, we should deliver growth in Q3 as well. If the furloughs are way too much, then I can't obviously comment. It's an uncertain world.
I will have to focus quarter on quarter, take one quarter at a time, and then build on it. Of course, our endeavor is to get consistent quarter on quarter growth. Four, Five, six, seven, eight quarters, sooner rather than later. It is sort of half a job, half done. We continue to do the job, and we are clearly committed to our customers, to our people, and we will build a strong, robust company in the long term.
Sure. When you said that building a robust company in the long term, from your recent experience at least, where do you think that the maximum gap is? Is it like depending on a single vertical, which is very volatile in nature, or kind of depending on a few single customers you can have, going forward? According to you, what are the areas which need to be addressed very, very urgently?
Both. What you said, both. Traditionally, we have been an ERP company, which is our strong growth. We are big in manufacturing, which is our same growth, right? We have to do both. We have to acquire new customers. We have to also mind our existing customers. All the time, we have to build our manufacturing back to growth path while Life Sciences and energy utilities and all of the other businesses continue to grow.
Sure. Understood. Thanks, and thank you so much for answering my questions.
Thank you, Debashish.
Thank you. Yeah, our next question is from line of [Duva Shivo] from Nuvama Institutional Equities. Please go ahead.
Yeah, hi. Thanks for taking my question. I'm sorry. I know there's a faster review time. I'm sorry to harp on this question again. I'm just trying to wrap my head around the tax thing that you mentioned. First of all, just for the lifetime, you are saying that for the next three quarters in this year also, we will have 35% tax rate? Is that correct?
Yes, that's absolutely right. For this year, we're looking at a tax range in this range. Yes.
Got it. I just want to understand the nature of this thing. Is this some sort of a tax demand that has been raised by the department that we are trying to fulfill? Is this some kind of reevaluation that we are doing? You mentioned there's some of the projects that you're trying to work on. What has a project got to do with the tax? I think that is a different kind of thought. I'm just trying to understand the nature of this expense that we are looking at for the two years.
At this point of time, like I said, since you're engaging with our tax experts, we are actually really looking at our models that we work with our customers to be able to align to our operating models, which is the reason why I think we are kind of giving you very limited information at this point of time. We're working through this. What we can say with a lot of certainty is that, given the work that we've done so far, we believe this has an impact for the current year and not beyond that. Allow us some time to work through this, and probably we will come back to you later on.
Got it. Sure. Thank you so much for taking my question, and I wish you all the best.
Thank you.
Thank you. Ladies and gentlemen, that would be the last question for today, and I now hand the contents over to Mr. Angan Guha, CEO and MD, Birlasoft Limited, for closing comments. Over to you, sir.
Thank you. Thank you so much. To begin with, I would like to thank each one of you for your interest in Birlasoft and for your insight to questions. At Birlasoft, we've undertaken and initiated several actions over the past couple of quarters to secure our long-term profitable growth objectives. We've discussed this in the last one hour, that while the macros are unfavorable for Q4, we believe that we are well positioned to benefit from the emerging market conditions. I feel our first goal will be to deliver for Q2, and we are working on delivering some growth in Q2, then take it forward from there on. Like I've mentioned multiple times, we will take one quarter at a time, and our focus clearly this year is going to be to deliver more and more funnel and more and more order books. Thank you once again.
I look forward to speaking to all of you again next quarter. In the meanwhile, please feel free to reach out to Abhinandan for any clarifications or feedback. Thank you, and have a great evening.
Thank you. On behalf of Birlasoft Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your line.