Ladies and gentlemen, good day and welcome to the Q4 FY25 Earnings Conference Call hosted by Birlasoft Limited. 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 a touch-tone phone. I now hand the conference over to Mr. Abhinandan Singh, Head Investor Relations, Birlasoft. Thank you, and over to you, Mr. Singh.
Thank you and welcome, folks. By now, you would have received or seen our results that were announced last evening India time. Those are also available on our website, www.birlasoft.com. Joining me on this call this morning are our CEO and MD, Mr. Angan Guha, and our CFO, Ms. Kamini Shah. We will begin the call today, as usual, with opening remarks from both Angan and Kamini. After that, we will open up the floor for your questions. 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.
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, as I said, on our website and also filed with historic changes. With this, let me hand over the floor now to Mr. Angan Guha, our CEO and MD. Over to you, Angan.
Thank you, Abhi. Good morning and good evening to everyone, wherever you are. Thank you for joining us today as we share some perspectives of our fourth quarter and full year FY2025 performance. Before I begin, I just wanted to apologize that I am slightly under the weather. My voice modulation may be an issue. If you have any questions, I will step in and answer as and when the time comes in. At Birlasoft, you will recall that over the past couple of years, we have undertaken and initiated several actions aimed at securing our long-term profitable growth objectives. The key among them has been investing in scaling up opportunities and capabilities that will drive our future growth.
A classic example of that is our early adoption on emerging technologies like GenAI, where we have created a solid framework and a tool that helps us to deliver to our customers. We are also using our specialized domain expertise within each of our verticals and sub-verticals, together with our technology capabilities, to create an offering and use cases that are very relevant for our customers and prospects. Another key element of our culture has been to drive greater accountability and swift action. Towards that end, we've obviously changed a lot of leaders who have not delivered for us. We are willing to make further changes to our teams if the need comes in. We will become a very performance-driven organization, which we have always been, and we want to continue that scale.
Now, some of the changes that we have had in the past few months is we've refreshed our leadership in manufacturing. In the med tech segment under life sciences, we have had a new leader. We've also promoted a new leader internally to take up our digital and data business. The GCC opportunity clearly presents a very big opportunity for us. We've hired a senior leader in India to look at the GCC opportunity and how can we drive that as we go forward. Our investments in the ROW business are finally paying off. As I'm sure some of you would have noted from our deal flows, we've been able to win one large deal, a reasonable size deal considering the size of our company in the ROW region. We have a couple of more deals in the offering that are looking very, very good.
With that, let me talk a little bit about our full year and Q4 performance. Now, FY25 has been a steady year for us, but it has clearly been disappointing, as I'm sure all of you have noted. In the face of a soft demand environment owing to sustained macroeconomic challenges, and as a business, we've structurally seen a lot of project-based businesses come under a slight amount of pressure because the discretionary spend is very, very muted at this point in time. With that backdrop, our consolidated revenues for the year have grown 1.8% from the preceding year to about INR 5,375 crore. In dollar terms, this is about $635 million, which is, as you will notice, flattish over FY2024. You may recall that we witnessed a large amount of furloughs that we've ever witnessed in Q3, and that also was in Q4.
In addition to that, as I had mentioned in our last earnings call, we also saw some project closures and ram-downs in a couple of customer accounts. I would like you to note that we have not lost any customers. Some of our large customers, we have seen ram-downs. We have seen some insourcing. We have not lost customers. We still continue to serve those customers and work with those customers for their future tech spend. As a result, our revenue during Q4 has declined to INR 1,316 crores, which translates to $152.2 million. On the margin front, however, actions on the operations front and some one-offs have enabled the EBITDA margin to rise to 13.2% in Q4, a sequential expansion of 119 basis points. As a result, our post-tax profit was up 4.4% quarter on quarter to INR 122 crores.
For us, the year under review also continued to be characterized by strong cash flow generation. Kamini will provide more color in both the margin uplift and the cash flows in her remark. On the deal front, I am pleased to observe that after a significant spike in total TCV volume in Q3, we recorded another quarter of sequentially increased TCV during Q4. We have signed deals worth $236 million during Q4, which is 4% higher than what we signed in Q3. More encouragingly, the quantity of new deals in TCV is up 75% quarter on quarter in Q4, showcasing the fact that we are winning new logos and new deals. Almost half of our Q4 total deals in TCV have come in from new deals, which augurs well for our future growth trajectory.
Among the deals that we have closed during the quarter is a significant multi-year engagement with a new customer that we've added in the U.K. that comes under the ROW region. You may, since being secured, that is reflected in our Q4 deals TCV. For this global communication major, Birlasoft will deploy advanced AI-powered capabilities, including Agentic AI and Intelligent Diagnostics AI, to deliver the next-generation IT services model designed to transform the customer's global technology operations through the integration of AI-driven innovation across Americas, EMEA, as well as the APAC regions. As we look ahead, and as you know, over the past few quarters, the demand environment has been challenging, marked by a lot of macro uncertainty exacerbated by the recent news flow around the trade and tariffs. There have also been some project closures that I talked about in my earlier discussion.
We have seen ram-downs as well as some insourcing, which could affect our growth performance in the coming quarter as well. However, we feel our growth will be back in the company starting Q2. At this point, I will ask Kamini, our Chief Financial Officer, to share her perspectives on the quarter and the year under review. Kamini.
Yeah. 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 the financial highlights for Q4 of 2025 and then for the full year of FY2025. As you would recall, that in our last earnings call, we had called out a couple of factors that were expected to have a near-term impact on our performance. One was a higher-than-usual furloughs that was extending into January and having some residual drag into our Q4 revenues. Secondly, as Angan mentioned, we have witnessed project closures and ram-downs in a couple of customer accounts. Given the soft demand conditions, where customers have been tending to hold back on discretionary spend, it has been challenging to meaningfully mitigate the impact of some of the headwinds.
Consequently, for the quarter under review, we have registered a 5.4% decline quarter on quarter in dollar terms to about $152.2 million. Among all our verticals, energy and utilities registered a sequential growth of 1.8% during the quarter. The other verticals witnessed a degrowth on account of the reasons that I just mentioned. Margin performance has been better. It has also reflected some actions that we have taken to drive operational efficiencies, as well as some tailwinds on account of currency and certain one-offs. The margin tailwinds have largely been on account of lower variable pay and leave encashment for our senior executives and currency benefits, together accounting to about 200 basis points. As a result, EBITDA for the quarter increased to $20.1 million from $19.3 million in Q3. This translates to a 13.2% EBITDA margin, which is an expansion of 119 basis points quarter on quarter.
This has been achieved as we continue to invest into our business and demonstrate our commitment to optimizing and overall trying to improve our margin profile. Consequently, PAT for the quarter has increased from $13.8 million in Q3 to about $14.1 million in Q4. When we reflect back on the full year's performance, we have reported a consolidated revenue of about $635.4 million, representing a flattish growth and a marginal degrowth of about 0.3%. In rupee terms, the revenue for the year was up by about 1.8%. As you would recall, during the course of the year under review, we have made significant investments in our business, successfully secured some consolidation deals that required pricing flexibility. We have also grown our intra-business that takes some time to catch up on the overall business-level margins.
This has had a tempering effect on our EBITDA for the year, which stood at $82.4 million, translating to an EBITDA of 13% for the year. PAT for the year stood at about $61.1 million, lower than $75.3 million in the preceding year, where we also had the benefit of a one-time insurance claim. The effective tax rate for the year was 25.8%. When I reflect back on the balance sheet, I'm happy to note that we entered the year with cash and cash equivalents of $259.9 million, which has grown by 24% year on year. Compared to the preceding quarter, our cash and cash equivalents were up by 8.1%. This reflects consistent good cash generation, which is evident by our operating cash flow, which for the year FY2025 has been at about 88.3% of our EBITDA.
You would agree that our DSO at 54 days is probably among the best in class. We remain committed to staying focused on sustained robust cash flow generation. In continuation to our track record of prudent capital allocation and rewarding shareholders, the Board of Directors has proposed a final dividend of INR 4 per share, subject to shareholders' approval. This, combined with the interim dividend that we had paid out after our Q2 board meeting, takes our total dividend for the full year to INR 6.5 per share, translating to a payout of about 35%. We have ended the year with a robust balance sheet. We are generating strong cash flows given our ability to make more investments necessary in the business to drive growth going forward. Thank you very much. Back to you, Abhinandan.
Thank you, Angan and Kamini. Moderator, can you please open up the line for questions and answers?
Yes, sir. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Our first question comes from the line of Ravi Menon with Macquarie. Please go ahead.
Hi. Thank you for the opportunity. Again, good deal wins. We have seen this offshore revenue decline from Q2 to FY 2025, where we were expecting this sharp shift on site to actually start reflecting in an offshore revenue increase. So far, that does not seem to have happened. Could you talk a bit about this? This is because we have seen some other deals that are ramping down. Is it still a margin benefit that we expect later on? Could you talk a bit about why we have seen this decline? That is fairly broad-based across the three verticals and even top five, top six to ten, and beyond the top 20 customers.
Okay. So Ravi, let me pick up your question in terms of offshore that we've seen, in fact, some of our discretionary demands largely in onsite. That was coming into play, which is the reason why you've seen in this current quarter an increase as far as our onsite. We largely remain equally balanced between onsite and offshore in terms of the differences. We had mentioned earlier saying that our offshore would increase as we translate, as we kind of consolidate. I think that consolidation has taken a little bit of time in terms of moving work offshore, which is why you see us operating in this range at this point of time.
Just to add to what Kamini said, Ravi, for us, this trend will continue for maybe one more quarter. Towards the back end of Q2, you will start seeing the movement back to offshore, Ravi.
All right. Thank you. That, I guess, should be margin equitative. Again, kind of revenue hit, it will be a revenue headwind, right, at that point?
Yeah. On the revenue, it is hard for me to comment right now in terms of how things will shape up because there is uncertainty. Ravi, for us, the two big issues that have hit us, one is, like I was saying in my commentary, we've not lost an account. In some of our larger accounts, especially within manufacturing as well as healthcare, we've seen some amount of insourcing and some amount of project closures because our clients are also looking at the situation with a little bit of caution. That has resulted in our revenue downtick, if you will. We are watching the space. We feel currently, as we stand, our Q1 revenues will also be muted. We are trying to keep it flat. There could be minor degrowth as well. We do not know that yet.
Our end of our would be that we get growth back in the company by Q2.
Thank you. One follow-up question to Kamini. The unbilled revenue is up a little bit by about $3 million QOQ. Should we see this come down over time? What could have led to this?
No. I think the reason why unbilled revenue has come down is also, Ravi, we are really pushing a lot of our fixed price projects. We have started reaching our milestones and liquidating that as far as our customers are concerned. It is more in terms of increasing the efficiency from a milestone delivery standpoint and also cash generation, eventually converting into cash. That's the only reason.
Kamini, but this quarter it is up, though, right? QOQ?
Sorry, Ravi, we couldn't hear your question properly.
Yeah. Isn't it up? Unbilled revenue, isn't it up QOQ this quarter by about $3 million?
No. Okay. I was looking at it from a year-on-year basis. Sorry, Ravi, when I explained that to you, right? Yeah. It is part of a normal trend, Ravi, nothing to be very specific about, right? We will essentially liquidate the revenue as we go along, right? There is nothing very exceptional from that standpoint.
All right. Thank you.
Thank you. Our next question comes from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Yeah. Thanks for the opportunity. I just want to understand first about margin. Now, I think you indicated about certain one-off in the margin. If I look at your employee benefit expenses, absolute commit has declined slightly. If you can provide what were the one-off in the quarter four, and do you expect it to continue in quarter one, or it can provide headwind to quarter one margin? That is question one. Second question is about the overall revenue growth trajectory. Let's say if you look FY2025, out of four, three quarters, we have sequential decline. Exit is also fairly weak for us. Now, entering into FY2026, are we confident about, let's say, growth to resume for full year perspective?
Considering whatever pipeline we have seen built, conversion, and overall client conversation, what you have with the major clients, if you can provide some sense about the growth trajectory. Last is about now we have a sufficient case. Payout is still 35%. We are generating good case. How do you plan to use it, particularly for M&A perspective, and what is broad thought process around it? Thank you.
Yeah. So Dipesh, let me talk about the deal flow as well as let me talk about the revenue, the way you see it today. Then I'll hand it over to Kamini to talk through the cash utilization as well as the margin. So, Dipesh, if you really look at it, and you are right, in the last one year, three-quarters out of four, we saw revenue declines. Some of them were a little unexpected. We could not expect that at the start of the quarter, and it happened because we got ram-down notices from our clients. I feel that this quarter two, the quarter one, we will have muted revenue growth. Now, the deals that we are winning, that will start generating revenues from Q2, which is why, Dipesh, I said, we at least believe today that Q2 onwards we will get some growth.
I don't know how much, but Q2 will see some growth. Overall, from an FY2026 perspective, our endeavor would be to deliver FY2026 better than FY2025. Dipesh, you must also realize, which you said, you yourself said, that our base revenue starts at $152, right? We have a lot of headwind. For me, even to stay flat for the year, it'll need exceptional quarter-on-quarter growth going forward. How much of it we can deliver Q2 starting, I don't know. The management team's endeavor will be to at least have FY2026 better than FY2025. That could be only slightly better because of the headwind that we see getting into this financial year. On the margin front, I will ask Kamini to talk about what we have done and what we intend to do going forward.
Yeah. Dipesh, on a specific question, right, as far as the margins are concerned and overall on the employee benefit cost, you would see a reduction in our overall employee base. I think that's a reflection of that benefit from a lower-cost standpoint that we have seen. Of course, I've also mentioned the one-offs that we had in terms of reduction in variable pay. That is a one-time benefit to which we are seeing a reduction as far as our employee-related cost is concerned. Some of it is structural in terms of the fact that they will continue as long as our employee base remains at the same level to that extent. Some of that may come back as we restore variable pay to the normal levels.
From a margin standpoint, our endeavor would be to remain flattish as to where we are at this point of time. Given the current revenue profile that we are in, we're really working to make sure that we take actions on other places to keep it at the same levels. As far as cash is concerned, sorry, on the third question, as far as cash is concerned, see, we have, if you really look at it from our cash allocation policy, capital allocation policy, our dividend ranges typically between 25%-35% of our payouts. And that's what we have done over the last two years. We do intend to retain cash for our business investments at this point of time. I think we will continue to operate in this policy unless there is something, if there's anything different that comes into play.
That's where we would be at this point of time.
Two follow-up questions. First, on EBITDA margin. Now, earlier, we always used to aspire to operate 15%-16% EBITDA margin trajectory. We are lower this year. Even, let's say, your commentary indicates we will be plateaued. Roughly around 13% is what we aspire to deliver in 2026. By when do you expect, let's say, to revert back to our aspirational margin trajectory, which is above 15%? Second question is about case approval. Now, investment is obviously there are two ways investment happens. One is organic. Second is inorganic. Where do you expect intensity to increase in terms of next 12-24 months? And the area identified to make those investments. Thank you.
Correct. So Dipesh, first, let me tell you on the margin front. See, the reason we want to keep the margin at a flattish level is because the entire company's focus is now to win deals and get revenue. We have really, really lacked in terms of revenue growth. We have to get the company back to growth. That will be our endeavor over the next three to four quarters. We will try and keep the margins at the 13% because we want to win more market share. I feel if we can get back to good growth trajectory, which, of course, as you can tell, arithmetically, it cannot happen in FY2026. It will happen in FY2027. FY2027 onwards, as the growth comes back, you will see an uptick of margins.
Though we do not give any guidance, we feel that in FY2027, FY2028, you will see far more increased margins once the growth comes back. Second is our entire intensity will be organic, correct? We will continue to make investments. We are changing a lot of leaders. We are looking at newer capability. We are looking at newer partnerships. Those will deliver a lot more organic rhythm. From an inorganic perspective, Dipesh, we are obviously generating a lot more cash, and hopefully, we will continue to generate cash. At some point in time, when we get a great asset, we will definitely look at it. Our endeavor, first rhythm, will be to organically fix the company even before we look at an inorganic kind of a buy.
Thank you.
Thank you. Our next question comes from the line of Harsh Chaurasia with Vallum Capital. Please go ahead.
Good morning, sir. I have a couple of questions from the vertical perspective. First of all, on the BFSI, where the broader IT is very positive on BFSI, and this is the only vertical which is growing for most of the players. Why has the growth started to deaccelerate for Birlasoft? That was my first question. My second question is about the healthcare licenses. You mentioned earlier about the insourcing as well. In the prior quarter, you called out that there will be some quarter of softness. We have even hired senior leaders for MedTech and some other verticals beneath healthcare. I wanted to understand when this will start to kick in for growth in healthcare licenses.
Yeah. Harsh, thank you for that question. First, let me talk about BFSI. If you recollect, Harsh, our BFSI business predominantly is a cards and payments business and an asset management business. We do not work with banks, or we do not work with meaningful insurance companies. We probably have just one or two insurance clients, right? The majority of our focus and our client base is either banks, cards and payments, or asset management companies. Twelve months ago, fifteen months ago, when all the other companies were not doing well in BFSI, we were doing well because the banks were not spending, whereas the cards, the card companies, etc., were spending. Now the situation is reversed because the banks' spending has gone up, which is why you will see all the other companies who serve banks doing well.
A specialized company like ourselves is having a couple of quarters of degrowth or a couple of quarters of muted growth. Harsh, you will also remember, even in the last call, I had said that BFSI now has grown for us for almost nine quarters sequentially. It will see a couple of quarters of little muted performance, and then even BFSI will come back to growth. Now, on life sciences, Harsh, you must also appreciate that, again, just like BFSI, life sciences for us is predominantly a MedTech business. I mean, we do not work with payers or providers or any of them. We are a very specialized MedTech company.
MedTech, more often than not, is a manufacturing business rather than really a life sciences business, which is where, because of the trade as well as the tariffs, etc., we have seen a little bit of cautious spending by the customer. Harsh, look, we have not lost a single account. That is a positive. I hope that over the next two quarters, healthcare LSS will also start showing growth. You have to give it a couple of quarters. We hired a very new leader from a tier-one company. Give him a couple of quarters to settle down. I'm reasonably confident that we will drive growth in our MedTech portfolio very soon. Just to let you know, we've been down-selected as a preferred partner for a large MedTech company in America.
I'm very positive that as quarters go by, you will see some good uptake there.
Got it. Thank you. Thank you very much, sir.
Thank you. Our next question comes from the line of Sandeep Shah from Equiris Securities. Please go ahead.
Yeah. Thanks. Thanks for the opportunity. I mean, the question is more strategic. I think you joined two years back, and we have already done a significant amount of restructuring in terms of turning the leadership, investing in capabilities, expanding partnerships. The revenue growth has been really marginal over the last two years if I compare FY 2025 with FY 2023. In your analysis and postmortem, what is going correct and what is going wrong, and how do we plan to change? I think leadership churn has already happened in the last two years. Is it more industry-specific, or is it more Birlasoft-specific where correction is still need to be done in a significant fashion going forward to avoid such kind of a year ahead? FY 2025 has been one of the weakest years for Birlasoft.
Yeah. Sandeep, thank you for that question. Look, FY2023 and FY2024 were reasonably good years for us, right? I mean, we delivered good growth. It is only in FY2025 that we had a flattish growth. Of course, since the operating leverage did not play out, our margins showed a negative trend, as you know. Sandeep, I mean, I'm here to only build a company for the long term. We will continue to invest. We've made a lot of changes. We've made a lot of changes at the leadership level, at the account manager level, at the capability level. We are also building a lot of partnerships. It will take a little bit of time. Unfortunately, because of everything that is happening in the macroeconomic situation, all our investments are not yet playing out.
Like I said, some of our customers, and I can't name them, but at least three of our customers between manufacturing and healthcare have decided to ram down a lot of projects, insource a lot of work that is affecting us. I still feel our investments are in the right area. Of course, we have to continue to hire some leadership, as you know. I mean, we have some leadership vacancies that we will continue to hire. We will not cut back on investments, Sandeep, because I feel our investments are in the right area. We may take a little bit of a hit on margins for a year or so, but our end-to-end endeavor is to get the growth back. That is what we'll be focused on. I hope Q2 onwards, the growth comes back. We will see. We will see how this thing shapes up.
Just a related question. If I look at the deal TCV this year in terms of both total as well as new business, it has not been that great, though Q4 has been really good. Do not you believe we need to be proactive in terms of, A, increasing the deal pipeline, B, in terms of converting the pipeline into deal wins, which will help us in terms of compensating a leakage in the existing book? Are we doing any restructuring in terms of creation of large deal pipeline, converting pipeline into deal wins, and to actually avoid such unforeseen circumstances?
Yes. Sandeep, very good question. If you look at our Q4 deal wins, out of the $236 million that we delivered, almost $112 million is new, new, right? That is unprecedented. We've never had almost 50% of our deal wins with new, new. That gives me a lot of confidence that the future will look bright. Not maybe the immediate future, but over time, we can fix the company because structurally, we are a strong company. To your second question, we've identified an existing very senior leader to take the mantle of opening accounts. We've identified about 19 or 20 accounts that we're going to go after so that we can create pipeline and close them. Obviously, that will take a little bit of time, but we are well within that direction.
Sandeep, our entire endeavor over the next four to eight quarters is just to focus on the market pipeline and deal closures. That is important. If we can get that right, the others will get fixed.
Okay. Okay. Just a last follow-up question. I think in the earlier quarter earnings call, you said there are two or three larger deals. One we have already closed in the fourth quarter. Any update and progress in the balance one or two large deals which we are chasing?
Yeah. Sandeep, thank you for asking that question. I want to make it very clear. See, another large deal with a high-tech company in the US we have closed. That is also in the range of about $30 million-$40 million. We are very close to closing another financial services deal in Europe, which will also be another $25 million-$30 million. These two deals, you will see in Q1. The only thing I will say is in Q1, since we do not have any renewals, the overall TCV will look muted, right? For example, overall TCV in Q4 is $236 million. I do not believe in Q1 overall TCV will deliver $236 million. If you remember, typically in our kind of company, the first quarter, we deliver about $140 million-$150 million kind of deals.
This year, it may be slightly better because of the two new deals that we have closed. I am reasonably confident that this year, my overall year TCV will be better than last year's TCV. Last year also, Sandeep, we delivered about $735 million worth of TCV to FY2024 at $837 million. That was pretty much one deal, $100 million deal that we had got. I am confident that we will do better than $735 million for the year when it comes to signings. It will gradually ramp up. Q1 will be slow. Q2 will be better. Q3, Q4, like always, will be much better.
Okay. Thanks. I will come in the follow-up if I have more.
Thank you, Sandeep.
Thank you. Our next question comes from the line of Abhishek Shindadkar with InCred Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. My first question is regarding we historically had a high percentage of project nature of the business. Can you quantify what that number is today? Is it also a reflection of our revenue volatility because of the discretionary spending challenges?
Yeah. So Abhishek, look, if you look at our overall business, right, roughly our discretionary spend and project-based business contributes to about 70% of our overall revenues. Now, that is why when the discretionary spend gets cut, we are in the situation that we are in. If you look at the last quarter, I mean, we won a lot of multi-year deals, right, which is more annuity-based deals. The two deals that we will win this quarter will also be annuity-based deals. It will change our situation a little bit. Our project-based business will not go away. It will still continue at that 50-60% range. It is 70% today. Our endeavor will be to take it down to at least 50% and 50% business, which is more annuity-based, right? That will be our endeavor. That will be a journey, Abhishek.
It will take a couple of quarters to get there. At least the initial indications are the kind of deals that we are winning are all multi-year annuity-based deals.
That's helpful. Just a follow-up to the answer. If I remember it correctly, around 2021, the numbers that were shared that the annuity component has slowly risen from 50% to 65%. But the number that you are sharing today is that project is 70%. Did I miss anything, or maybe those numbers don't time?
Yeah. So Abhishek, look, 2021 was a very different year because of the COVID year. We got a lot of annuity work at that point in time. It all depends upon how you classify. Today, we are classifying annuity work more in terms of where we will be using agentic AI to kind of disrupt and deliver new age delivery to our customers to help them. I was more different from that perspective, right? Over 2021 to 2025, absolutely, our annuity business has actually gone down. The project business has gone up. If you remember, even in 2023 and 2024, we talked about the projects that we were able to win, which are short-term projects where we would deliver for about six months to nine months and walk away. Now, slowly, we are trying to get away from that and win more annuity work.
It is also a manifestation of the kind of clients we serve. If the clients want us to help them in a particular project, which is six to eight months, then we definitely go in and work with them. You have to give it some time, Abhishek. We clearly understand that we have to get more annuity work and probably get it back to the 70-60% that we once were. We are working towards that.
Very helpful. Just the last question from my side. Given that you are reporting now, you must have seen the first two months. How have they played in terms of conversion in the pipeline? Many of your peers, when they reported in April, highlighted that from March onwards, they have seen a material slowdown in terms of conversion, or there have been pauses. Given things have improved both from an administration perspective, given that they are more reconciliatory right now, what is your assessment of the past two months, especially the month of May? Has it seen any changes in terms of conversions of the booking, maybe for you and also for the industry?
Yeah. Abhishek, again, thank you for asking that question. See, like I was saying, our manufacturing business is roughly about $160 million-$170 million. And our medtech business, which is also manufacturing, is roughly about $100 million. Technically, about $300 million, give or take, is very manufacturing dependent, which is prone to tariffs and everything. Which is why I said that for us, at least the clients that we serve are trading cautiously, though the administration's views have softened a little bit. It is a wait-and-watch policy because people have not seen it. Which is why, Abhishek, we also felt, considering that we are already closer to 1st of June, I do not see Q1 being a growth year for us. Like I said, I think to Dipesh earlier, we will try our best to stay flat. I must say that we may also deliver slight negative growth.
I'm confident that Q2 onwards, the growth will be back only because, based on our client conversations, people are hoping that in another couple of months, things will become far more clearer. The projects that we have won or are winning will start showing revenues Q2 onwards.
Very helpful. Just a quick follow-up. For the industry, you think that the pipeline conversations would be high, but are the conversions changing after the administration or the soft stance of the administration, especially in the U.S.?
Yeah. I feel for us, U.S. is very important because it's 87% of our business. I feel that that will probably take a couple of more months to get a lot of clarity on. I can't talk about the industry in general because it also is a manifestation of the clients that they serve. The 40-50-60 clients that we serve, which are our bigger clients, and the other 150-200 smaller clients that we serve, at least the sense that I'm getting is that there is some amount of cautious optimism, it will take a couple of quarters to get full clarity.
Perfect. Very helpful. I'll get back in touch with you. Thanks.
Thank you.
Thank you, Abhishek.
Ladies and gentlemen, a reminder to all participants. If you wish to ask a question, please press star and one on your touchstone telephone. Our next question comes from the line of Girish Pai from Bob Capital Markets. Please go ahead.
Yeah. Thanks for the opportunity. Angan, you mentioned that there are still some gaps in leadership and gaps in capability building. Where exactly are these gaps?
One is, Girish, we are spending a lot more in our front-end sales. We will ramp up our SG&A a little bit, though we will look at the cost reduction in our functions. We will clearly be investing in sales. We will put in more focus there. I think, like Sandeep was asking, we will focus on net new. We are hiring a team to focus on accounts that we are not present in. We have identified about 19 or 20 logos in the US and some logos in Europe that we will go after. Some of the deals we can talk about as we close between June and July. That is another area that we are going to keep investing in. From a capability perspective, clearly, our ERP business has not done well. The two businesses have done reasonably okay, our digital and data and infrastructure.
Infrastructure is a margin diluter. It is very important that our ERP business comes back on track. We are making some more investments on our ERP space. When I'm ready to talk about it, we'll announce it.
Okay. I had a question for Kamini. You mentioned about 200 basis points of positive impact in the quarter, if I remember that number correctly, because of lower pay, currency, and I think some pay due to senior employee-related senior employees. Can you kind of break this down as to what is one-off and what will kind of be there in one Q?
Thank you for the question. If you really look at it from a currency benefit standpoint, it's about 50 basis points that we're talking about. Currency has been a little soft. Maybe part of it would continue into Q1. If you look at the remaining part of it, it's by virtue of low variable pay to senior executives. We do expect half of it to be one-off, and maybe half of it may come back on it. Some benefits on leave encashment that we've also got in the last quarter, that may actually be one-off in the true sense. If you ask me, effectively, I would expect that we might be able to recoup back maybe 50%. The balance of it would be truly one-off.
Okay. There was also some mention about consolidation deals that you won because of some pricing flexibility that you've shown. Does this mean that project profitability on these deals will be lower than corporate margins, at least say for the next few quarters?
Yes.
Yes. Yes. Girish, and we had spoken about that in one of our earlier calls, right? Because from a consolidation standpoint, we had taken in some of these deals in place. It would take us some time. That was one of our strategies to move them a little bit offshore to improve the margins. That has been a little slow. Yeah, for the next couple of quarters, it would be a little soft compared to the overall corporate margins. We do expect to use Agentic AI and some other technology to be able to recoup the margins back.
Okay. My last question. Angan, US has changed the China tariff from 145% to 30%. Has that changed anything in your customer conversations? Is there a slightly higher amount of optimism around demand?
Yeah. Girish, obviously, it is cautious optimism because the trade tariffs are also limited to a particular time. We need to see how it goes. Again, like I said, the companies that we serve, some of the companies who have got a larger China exposure are feeling a little better about it. We believe that demand will come back in Q2. Girish, we have to wait and watch because these things can change dynamically very, very quickly.
Okay. Thank you.
Thank you. The next question comes from the line of Manik Tanejan from Axis Capital. Please go ahead.
Hi. Thank you for the opportunity. While you clarified on the one-offs in Q4, you're talking about the intent to essentially invest in your sales team to essentially open certain must-have accounts. In that backdrop, Angan, basically just wanted to understand, should probably we be thinking about further dilution in margins in FY 2026 from the current levels? That's question one. The second question was in regards to the client metrics. Over the course of the last few years, you kept on cutting the long tail of your customer accounts and trying to focus on a smaller subset of customers. Now, with that intent to essentially once again open certain must-have accounts, should we be thinking about an expansion in terms of the client base? And how should we be thinking about it?
Yeah. Manik, from our perspective, we still serve almost about 200 or 250-odd accounts, right? The new must-have accounts that I spoke about is a combination of certain accounts where we have an MSA already. We have to just go and mine those accounts. We integrate the MSA and start doing business with them. That is one. Second would be that some of the large logos that we do not work with, we want to start working with. The overall set of accounts will still come down. I do not think we want to serve more than, let's say, 250 logos in the long term. While in the short term, we may add some logos, we will also drop some logos which are unprofitable. Like you mentioned, over the last 24-36 months, we have really pruned down our account list.
Almost we had 600. Now we have 250. We will continue to prune them down. Certain logos that we think that we want to work with, we will add onto our list.
Sure. Just one last.
The overall list will not change. Overall number will still keep coming down, Manik.
Okay. Okay. If you could ask for that question on margin outlook, I have another follow-up question as well.
Yeah. Manik, I think your question was, as we invest, would there be a dilution of margins? There might be a temporary dilution. What we do here is to create space for these investments within our current margin profile. We are not going to let that significantly impact our margin. Maybe a quarter or so, it might take us some time where the investments happen while the reductions happen elsewhere. Largely from an overall philosophy standpoint, it will not be at a dilution of margins. That is what I wanted to call out.
Just to add to what Kamini said, Manik, we do not want to dilute margins further. Like Kamini said, we may have some margin impact in the immediate quarters when the deals come up and we start executing. Our overall direction is clear, and we need margin upliftment as we go forward.
Okay. The other question that I had, if I'm looking at your client metrics, if I'm looking at your revenue performance by vertical, it appears it's almost a very broad-based revenue decline that you've seen across industry segments over the course of the second half of this year, as well as in terms of your top client revenue performance. It would be great to understand what exactly is it, some amount of faltering in terms of execution that's caused that? Because in the course of the last 18-24 months, when you were doing well for a certain amount of time, you credited the success to your in-quarter execution. Where have you basically faltered in the course of the last two-three quarters to essentially put up a broad-based decline across industry segments or across client performance?
Yeah. Manik, again, a great question. Let me clarify this. I do not think we have lost any client or any project due to execution issues. I mean, of course, there are delivery challenges, which happen in every company in various areas. Broadly, at a company level, I think most of our customers are very satisfied with the way we work with them and what we deliver to them, right? That is point number one. I also mentioned that while projects have come to a close, the rundowns have happened. In certain cases, as companies build up their own GCCs in India, some of the work has got insourced. That is because of their strategic reasons, not because of our execution reasons.
On the topic of broad-based revenue rundowns, that is, like I said, about $300 million out of our $650 million is really manufacturing in nature. In fact, a little bit more, even in our high-tech business, probably some of the accounts that we work with are manufacturing. And manufacturing is a large part of our business, which has had the biggest headwind, if you will, in their own businesses. Now, BFSI, I feel, is a spot problem. Over time, BFSI will be back to growth. Energy utilities, like Kamini said, are still growing. We just have to fix this manufacturing bit to get this back to growth. If we can get that back to growth, I think our voice will go away. That is what we are focused on.
Sure. Thank you. All the best for the future.
Thank you.
Thank you. Before we take the next question, a reminder to all participants, you may press star and one if you wish to ask a question. Our next question comes from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah. Thanks. Thanks for the follow-up. Kamini, just a clarification. So out of 119 basis points impacted on the margin in the first quarter, we are saying roughly half of that could be a headwind and may not repeat because of one-off nature in the Q1 of FY 2026. Is it right?
Sandeep, just to clarify that, I was talking about the 200 bids that we said were one time. Out of it, maybe 100 bids may not reoccur from a structural standpoint, though we would see how we can make that up as far as Q1 is concerned. It is not out of 119, it is out of the 200 bids.
Okay. Okay. So directionally, one Q margin could be slightly lower on a Q1 because of this.
Yes.
Yes. Yes. Yes, Sandeep, as of now. Like I said, we are driving operational efficiencies to see how we can make that up.
Okay. Okay. And Angan, just a last question. If I look at the practice-wise revenue growth, the major drag in the revenue in FY 2025 has been through ERP, which has declined by closer to 6.4% on a YOY. While most of your larger peers are talking about increasing demand in terms of upgradation of on-premise to the cloud version of the ERP, both on SAP and Oracle, why is the same not witnessed by us? Is it a portfolio-specific issue, or is it we work with more of tier two, tier three in terms of ERP versus tier one accounts, and that is not driving the growth?
Yeah. Sandeep, it's a combination of both. First, you're absolutely correct. We work with tier two, tier, well, not tier three, but tier two and slightly lower than the tier one manufacturing companies. The uptick that you see in SAP and Oracle moving to cloud like S/4HANA or Oracle Fusion is probably helping the larger companies to begin with. I can tell you, slowly over the quarters, over the next year or so, it will start affecting, it will start improving the smaller companies like ourselves, which are very heavily ERP-focused. That's point number one. Point number two, while our ERP business for two years has actually degrown, not one, two years, we are making some structural changes here. Sandeep, I would like to probably take that offline in terms of what we will do.
There is a lot of focus to get the ERP business back on track. Over the next two, three quarters, I will come back and update you what we are doing there.
Okay. Thank you. All the best.
Thank you. Our next question comes from the line of Ravi Menon from Macquarie. Please go ahead.
Thanks for the opportunity. Again, the whole Invercar deal had been, I think, a great client reference possibly at that time. That was the largest multi-year deal that you guys had won. Are you looking at something like this where the significant cost takeout, total IT outsourcing kind of opportunities, even if that is with these companies outside the Fortune 500?
Yes. So Ravi, we have a couple of deals in the hopper where we are doing cost takeout deals. Look, our endeavor right now, apart from cost takeout, is to do a lot of domain-related deals. I do not think we will have too many deals in the $100 million-$100 million range. The industry is also changing. We have lost $30 million-$40 million deals now, which is in our sweet spot, which we are winning, where we are working with our customers to deliver services using Agentic AI. The customers are going to pay us on story points rather than pay us on fixed price outcome of people. That is a big shift that we are seeing. To answer your question, we have got a couple of deals which are large and which are cost takeout.
I don't know whether we will win them or not, but at least we are pursuing them.
All right. Thank you. With this one.
Thank you. Ladies and gentlemen, that was the last question for the day. As there are no further questions from the participants, I now hand the conference over to Mr. Angan Guha, CEO and MD, Birlasoft Limited, for closing comments.
Yeah. Thank you. First of all, I would like to thank each one of you for your interest in Birlasoft, for the time that you have taken to spend with us today, and for the questions, which I always find very, very insightful. The only message I want to leave on the table is, look, I know that FY 2025 was a bad year. We accept it. My only commitment to all of you is we will try and make FY 2026 better than FY 2025, even if it is slightly better. The other message I want to leave on the table is that fundamentally and structurally, we are a solid company. Our cash flow generation year over year proves that. Our DSOs are at a meaningful level. We have no debt on our books.
Fundamentally, we are a very, very strong business. All we need to do is to get the growth back into the company. On behalf of the management team, I can commit that that is the only focus that we have going forward. Thank you for your time. I look forward to speaking to you next quarter. Thank you.
Thank you. On behalf of Birlasoft, that concludes this conference. Thank you for joining us. You may now disconnect your lines.