Q1 24/25

Jul 31, 2024

Summary

Q1 revenue grew YoY but fell QoQ as customer spending tightened and ERP project starts slipped, weighing on EBITDA margins. Management expects a stronger Q2, while emphasizing execution, pipeline conversion and continued long-term investment.

Ladies and gentlemen, good day and welcome to Birlasoft's Q1 FY 2025 post-results 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 Investor Relations, Birlasoft Limited. Thank you, and over to you, sir. Thank you, investor folks. By now you would have received or seen our results. Those are also available on our website www.birlasoft.com. Joining me on this call today with me 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. But 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, and therefore that must be heard or read in conjunction with the disclaimer that appears in our first quarter FY 2025 investor update. Which, by the way, also you would have received and is also uploaded on our website as well as file with the stock exchanges. With that, let me hand over the floor now to Mr. Angan Guha, our CEO and MD. Over to you, Angan. Yeah. Thank you. 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 on our performance during the first quarter for the current financial year. I trust all of you have seen the results. Our Q1 performance reflects a couple of key aspects. One, the operating environment that remains quite challenging. The tightened discretionary spends by our customers and some delay of projects that were expected to start in Q1, which has got delayed beyond Q1. An expansion of our footprint in areas where we have so far not effectively tapped. Like I have always said, a sustained investments in capabilities that will enable us to better capitalize on the turnaround and demand conditions as and when that happens. With that context, let me share some perspectives of our Q1 performance. You will recall that I had mentioned in my earlier call as well, that we are seeing some of our customers pushing decisions out and some pullback in discretionary spends. We saw that sustained during our quarter Q1 as well. To add to it, some projects, especially in the ERP segment, got over during Q1 in their natural course, while programs that were supposed to ramp up or get started during the quarter got delayed. Consequently, there was a quarter-over-quarter decline in the ERP business and therefore in the manufacturing vertical, where much of our ERP business actually comes from. We have teams ready to engage on the projects that got deferred and the cost associated with that, combined with the lack of corresponding revenues, led to the decline of our margins quarter on quarter. But the good news is, at the end of July, some of the programs which had got delayed beyond Q1 have already started coming back. With that, we expect a recovery in Q2 and hope to deliver a stronger Q2. I am also pleased to note that some areas that have high growth potential for us have performed well in the quarter. For instance, our infrastructure business has delivered yet another quarter of solid growth. Similarly, our rest of the world business has also registered a strong growth in Q1. BFSI in the Americas as well as globally, has registered strong growth for the quarter. But traditionally, all of these businesses have been relatively smaller contributors to our top line. But we have been making investments in the past one year, and that is now showing results. To conclude, while we have had a subdued quarter, this comes on the back of five consecutive quarters of sequential growth. Even the quarter under review, although sequentially we had degrowth, our year-on-year growth has been comparable to the industry average. So on a year-on-year basis, our revenue for the quarter grew 5.1% in rupee terms and by 3.8% in constant currency terms. Similarly, our profit after tax has grown 9.2% year-on-year in rupee terms and 7.6% in dollar terms. Another noteworthy achievement for the quarter was our total contract value booking, which was higher by 10% year-on-year and stands at $160 million for the quarter. Now to add to it, our net new TCV in the same period is up 17% year-on-year. Quarter under review, we characterized strong collections and that has resulted in very strong cash flow generations. As a result, our cash and cash equivalents Its revenues are up 46% year-on-year to INR 1,914 crores. Ms. Kamini Shah will provide more color on this in her remarks. At this point, I will ask Ms. Kamini Shah, our Chief Financial Officer, to share her perspectives on the quarterly review. Kamini, over to you. Yeah. Thank you, Angan. Good day, everyone. I hope you are doing well. Thank you for joining us. Let me take you through the financial highlights for the first quarter of the current financial year, FY 2025. As Angan mentioned, in Q1, we saw a continued impact of sluggish customer discretionary spend in some segments, as well as deferment of new project ramp-ups, primarily in our ERP service line. In the face of that, we have still registered a year-on-year growth in revenue, though on a sequential basis, there has been a decline. We have reported consolidated revenues of $159.1 million for Q1 2025. Revenue for the quarter saw a decline of 2.7% quarter-on-quarter, and a growth of 3.8% year-on-year in constant currency terms. In rupee terms, Q1 revenues have been at INR 13,274 million, a sequential decline of 2.6%, and a year-on-year growth of 5.1%. Our top accounts, top 5, 10, and 20 accounts contribute 36.2%, 62.6%, and 65.1% respectively to total revenues. As you might have already noticed, from this quarter onwards, we have realigned our reporting on service lines in a manner that better reflects how we are driving our business. Accordingly, this has now been organized as digital and data, ERP, and infra. In the Q1 fact sheet that we have published, we have provided comparable data for historical quarters too, reflecting this alignment. During the quarter under review, BFSI and energy and utilities have recorded sequential growth among verticals, and infra has grown among service lines. BFSI has grown by 8.4%, E&U by 3.7% quarter-on-quarter. This growth has been led by a combination of some new deals ramping up and successful account mining. Infra is a new service line that we are trying to build, which has scaled up and has recorded very strong growth on the back of some fresh engagements during the quarter. The manufacturing vertical has had a tepid performance after a strong run during the preceding year, and the life sciences and services vertical witnessed a sequential decline, reflecting that some of the projects were getting over and the new projects were getting delayed in terms of ramp-up and tighter discretionary spend. Some of the projects that got deferred in the ERP business during Q1 were part of the manufacturing vertical's performance. However, as Angan mentioned, we are seeing some green shoots on this. We expect our life sciences businesses to revert back to growth mode in the second half of the year, with a modest growth likely in Q2 itself. Moving on to our EBITDA performance. Our EBITDA performance for Q1 was at $23.4 million versus $26.7 million in Q4. EBITDA margin stood at 14.7%. These reflect the costs associated with the delays mentioned, delayed projects where we already had teams in place to execute, which is also visible in the lower utilization levels during the quarter. This impact has been partially offset by reduction in some provisions pertaining to rewards for a select group of senior leaders. Our PAT stood at $18 million, up 7.6% year-on-year. In rupee terms, PAT has been at INR 1,502 million, up 9.2% year-on-year and down 16.6% quarter-on-quarter. Coming to some key balance sheet items. Our cash and bank balances at the end of first quarter stood at about $230 million. This has been up about 44% year-on-year. This reflects our ability to consistently generate strong cash flows. Our operating cash flows was at about $17.8 million, which is about 76% of our EBITDA, on the back of sequential improvement of our quarterly collections, which stood at INR 169 million. Consequently, we are happy to say that our DSO stands at 52 days, which is one of the best in our industry. In conclusion, I would like to say that we have started the new financial year with a robust balance sheet and healthy cash flows. This will enable us to keep investing in capabilities for future growth. We remain focused on execution even as we navigate through the current challenges in the macroeconomic environment. Thank you very much. Back to you, Abhi. Thank you, Kamini. Moderator, can we please start the Q&A? Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Krish Kanwal from Nomura. Please go ahead. Yeah. Hi. Thanks for the opportunity. I had three questions. First, on growth. Given that we have seen a sharp fall in revenue this quarter, Angan, did you see any change in client behavior versus the previous quarter? How much of the fall do we expect to recover in 2Q? There also seems to be a large pass-through element in revenue. Can you please quantify this, and do you expect this pass-through element to continue going forward? Second, on margins, if I take out the INR 220 million odd one-off, our EBITDA margin has fallen by about 220 basis points sequentially. With possible annual salary increments cycle ahead of us, how should we think about full-year margins? How do you plan to keep it in a narrow band going forward? Lastly, on deal wins. Just wanted to get a sense if you are happy with the current level of deal wins, and can you share details on your pipeline? Krish, look, you've asked four questions, so let me try and answer all of them one by one. First of all, on the revenue side. Look, we've had a subdued quarter, and I will admit that the quarter was below par as far as our own estimates were concerned. But look, you must also appreciate that this quarter has come on back of five quarters of sequential growth and year-on-year growth. Even this quarter, if you look at year-on-year, we've actually grown 3.8% from a dollar perspective and almost 5.1% from a rupee standpoint. The good news is, and the reason for this performance or the subdued performance is because some of the projects that we expected to start this quarter were pushed out to the future quarters. Since we are already in 1st August and one month has gone by for this quarter, we are happy to state that some of these delays that had happened earlier are already back on the table. Not maybe all of it, but some of it is already back. Look, we cannot give a complete guidance, and we really don't give guidance. So I can't tell you how much recovery we will do for the quarter, but I can only tell you that quarter 2 will be stronger than quarter 1. By how much? That only time will tell. It will depend upon how we execute between July, August, and September. So that's point number one. Point number two is you talked about the pass-through. But look, I want to clarify this thing a little bit more. If you look at our business, our business mix is really changing. Our business mix is going from digital, which is a very strong business for us, to more of the infrastructure business. That is because if you look at our customers' spend pattern, it is moving from transformation engagements to more cost-based engagements. So naturally, our infrastructure business is really going up. As a part of the infrastructure business, we are doing contracts for our clients where we are doing end-to-end contracts, including services, including licenses, products, et cetera. So on a turnkey basis, when we do programs for our customers, we obviously do the entire nine yards. So that is the reason why you are seeing not only our infrastructure business growing, but some of the equipment that we buy, we just buy to service our clients. So that is answer number two. Number 3, you asked about the EBITDA performance. Clearly, quarter-on-quarter EBITDA is down. I accept that. But on a bank basis, year-on-year, again, we have grown. So that's a positive sign. How much of that EBITDA will come back in Q2, again, will depend upon how much revenue growth we deliver in Q2. Because as you know, our business is so high on operating leverage that unless you grow revenue, you can't make the money. So we'll be focused on revenue growth. From a perspective in terms of whether we will be able to keep our margins in a narrow band, again, will depend upon the investments that we will make. We will continue to make investments in our business. Because like I've always said, we are not here for one quarter or two. We are here to build a business for a decade. We will not hold back on investments. But what we will focus on is delivering quarter-on-quarter improvement in revenue, which automatically will have an impact on our margins. Last question you had was on the, I think you had on the deal wins. Three questions. Sorry, was there any other question, Krish? I had this last question on deal wins. Deal wins. Look, if you ask me, the deal wins were higher than the last year's same quarter. Last year's same quarter, we delivered $145 million of TCV wins. This quarter we delivered $160 million. Are we pleased with the current levels? Obviously not. I think we need to win much more deals. But the good news is our pipeline continues to grow. But the decisions are also getting delayed. I can only tell you that even from a deal win perspective, Q2 will be better than Q1. All right. Thank you. I will let that sink in. Thank you, Krish. Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead. Hi, thank you. Ayub, really good to see that BFSI is doing well for us. I wanted just a broad comment on how do you think about where your business mix is in terms of annuity versus more project-oriented, a broad concept of which dominates the business, and how would you like this to trend in future years? Second is, what have you done in BFSI and what sort of logos are we winning and what areas are we winning in? Third question is, in terms of your onsite revenue, that spot's come down significantly. Your offshore revenue has gone up. Structurally, are we looking at better margins once we see these deferred projects come back and onsite revenue picks up? Yeah. Thanks, Ravi. You are right. Our BFSI business is doing very well. It's been doing very well for the last seven quarters. This quarter is not an exception. I think we've done significantly well this quarter as well. Ravi, I will tell you this, that BFSI will also moderate, right? We've had seven, eight quarters of growth, so at some point in time it will moderate, but it will continue to grow. It will be a growth leader for us even in FY 2025, that much I can tell you. But the growth will moderate going forward, so don't expect an 8% quarter-on-quarter growth even in the BFSI business. As far as the business mix is concerned, in BFSI, it is more about project delivery, the projects that we win and we deliver to our clients, which is more on the transformation side. We do a little bit of discretionary work, which we are trying to strengthen. But we are happy doing more project-based work, Ravi, because that helps us also improve our domain capabilities, as you will realize. From that standpoint, with the current mix that we have, we are pretty satisfied with where we are helping our customers in their transformation journey. We have started to win some long-term contracts in financial services. What was the other question again, Ravi? I actually asked that the business mix more for the company overall and not just for BFSI specifically. Yeah. So, look, I mean, we are obviously seeing our customers who are having price pressures skew more towards offshore, right? Because from a customer standpoint also because of lot of discretionary pressures that the customers are having, they are working with us to drive a lot of work from offshore locations. So we see that continuing to improve. You are absolutely right. When the projects come back to the table, we will obviously see higher margins because higher revenue will deliver higher margins for us. But equally, the point that Kamini made in her comments earlier, one of the things that we have also seen is we had the people ready to go, but the projects did not start. So we had the people cost that came on our P&L. So at some point in time, deploying those people quickly will be the key for us. Like I said, some green shoots we are seeing already in the month of July because some of the projects are back on the table. But we really have to see how August and September pans out for us, Ravi. Thank you. One last follow-up. The offshore proportion has gone up. I mean, I guess that is partly because of these sharp climb downs. But structurally, are you seeing offshore proportion keep going up, and would that mean better margins? I think so. But Ravi, see, again, it depends upon the kind of work we win, right? If you look at the infrastructure business, and as we ramp up our infrastructure business, a little bit of more offshore movement is natural, so that will happen. But equally, remember, when the market turns and a lot of discretionary spend comes back to the table, you will see our onsite revenue go up again. So the phenomena that you are talking about may be for another quarter or two, but then it is hard to predict in terms of how the world will look like post-pandemic. Okay, cool. Thanks a bunch. Best luck. Yeah, thank you, Ravi. Thank you. A reminder to all participants, please restrict yourself to two questions. The next question is from the line of Mohit Jain from Anand Rathi. Please go ahead. Sir, two questions. One is regarding cost of equipment. There is also equivalent decline in your other expenses line item. That should be assumed that is because of subcon or is there any other reason for that? Yeah. Mohit, let me answer that question again like I was telling Krish earlier. See, look, our infrastructure business, we are seeing a little bit of a change in our business mix. So infrastructure business is really going up. We are now on the table working with our clients to do turnkey projects. As a part of the turnkey projects, you will see us delivering the end-to-end program or a project for a client, which could mean licenses, which could mean services, which could also mean products. The line item that you see is basically to serve our clients. On the other income bit, I'll hand it over to Kamini to talk about the other income. Yeah. Mohit, your question regarding other expenses. Yes, they've been caused. Other expenses, they've been caused by a reduction of subcon and some consulting services. As you would appreciate that when the projects take some time to ramp up, at that point of time, we do not hold subcontractors, and that's the reason why you're seeing that decline. That's purely a quarterly situation, as you guys mentioned. Yeah. Q2 will see some recovery, so this line item will also go up. Yes. It will get related to revenue, Mohit, as we- Mohit, as revenue goes up, if the revenue does go up, this line item will obviously go down. Right. Second one on your comment regarding TCV growth. You said Q2 is looking better than Q1, but Q2 is also seasonally very strong for us. Should we continue to look at it from a YOY standpoint, or do you think YOY it may still be a decline there? So look, I mean, from an order book standpoint, Mohit, your comment was more of an order book, correct? It is correct. TCV. TCV. Yeah, TCV. So look, currently, at least there are two things that I can state clearly. Our pipeline has gone up, right? If you look at our quarter-on-quarter pipeline performance, that is up. Now the question would be how much amount of orders can we convert within Q2? Right? So it will all be a matter of conversion. At least based on our initial estimates, I would say that it will be better. I do not think order book you should ever measure quarter on quarter. It should be year on year all the time. Because end of the day, it is how much amount of order book which you deliver in a year versus the order book that you deliver next year. I think that is going to be crucial. Yeah. Correct? If I can just add to that, Angan. Mohit, if you remember, we had the $100 million deal in last Q2 of last year. So I think we just need to normalize that and assume a year on year growth. Yeah. Which is why we should look at year-on-year, Mohit, rather than quarter-on-quarter. So 171 is the more comparable number when we look at That is right, yes. That's right. If you were to compare quarter-on-quarter, yes, that's the right number. Perfect. Thank you. Over. Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead. Yeah, thanks for the opportunity. The first question, Angan, if I try to assume the cost of equipment is also sitting in the revenue line or it is just in the cost line? It would be partially that we are talking about, right? Because some of it is. Obviously, if you are using the equipment to deliver services to our customer, there would be a quantum that would be sitting in the revenue line item. That means, Angan, the core services growth, the core business growth decline could be as big as 6%-8% on a quarter-on-quarter. No. Sandeep, you should not look at it like that because I will tell you, as you do more and more infrastructure business, and I am sure you know this already, you are delivering a turnkey program for a client. When you deliver a turnkey program for a client, we do not measure the way you are saying it. From a reporting perspective, we will report it like that. But from our perspective, we are delivering a solution to a client which is a combination of two or three lines, if you will. The lines could be a services line, it could be a license line, it could be any other line. From that perspective, for me, as far as I am concerned, I am delivering a client solution which helps a client solve its problem. From that perspective, we look at it as one program. We even measure the margin, which is a program level margin than anything else. Sandeep, that is the right way to look at it. No, accepted, Angan. My question is, this turnkey projects could be lumpy in the nature. When you say Q2 stronger than Q1, actually there is a possibility you may have to recoup this, which may not reoccur every quarter in terms of the- Sandeep, that's the right question. The way you just said it is the right question. My request, Sandeep, is do not look at the line item that you're talking about just as a pass-through. It could be a pass-through. It could also be services. You're right, it will be a lumpy kind of angle. When we have to deliver a better quarter, say Q2 over Q1, we obviously have to recover. Also remember, we will do more and more project related work or an end to end work for our clients. From that perspective, I can't really comment how many clients I will win like that because there are a lot of deals on the table that I'm fighting. If I win a large contract from a client, that particular quarter, you will see a lumpiness from a revenue standpoint. Yes. True. Okay. The second question is in terms of EBITDA margin, which is reported at 14.7%. If I adjust for INR 222 million write back then on adjusted basis it comes to 13%. Should we model 13% as a recurring margin when we enter Q2? Because on top of it there would be wage hikes and your commentary about update about full year margin on FY 2024 being 15.8% versus we may be starting at 13% on a recurring basis. Do you still reiterate that the full year margin would be in a narrow band? Yeah. Look, Sandeep, it is a manifestation of two or three things. First manifestation is you are absolutely correct that our margins this year obviously may decline. Now I am not going to comment on in terms of how much amount of margin can we recover in Q2. But our endeavor will be two things. One is we will execute for our customers and we will execute for our customers quarter-on-quarter. Execution will be key. The margin delivery is also a manifestation of how much revenue that I can deliver. Correct. Number two and number three, it will also depend upon the kind of work that I get from my customers. Look, last year we delivered 15.8. You are absolutely right. If that is the way you want to model it, you are right, you should model it. Going into Q2 our base margin probably is at 13%. But from there it will all depend upon how do I grow revenues and what is the kind of work that I do for my customers will determine the margin. Now I can not really give you a guidance in terms of what my margin will be for the year because it is hard to predict. But I can only say that our endeavor will be, barring the one line item that you called out, will be to improve margins and if the revenue improves, margin will improve outside of the single line item that you called out. Okay. Last thing, any commentary on wage hikes, when it would be effective? Look, we are looking at it. We have not decided on the timing yet or we have not decided on the quantum as well. We look at both the timing as well as the quantum as we go forward. Okay. Will come in the follow-up. All the best. Thank you. Thank you, Sandeep. Thank you. The next question is from the line of Dipesh from Emkay Global. Please go ahead. Yeah. Thanks for the opportunity. A couple of questions starting first on the hiring trend. We added over 500 people in last two quarters. Can you give some sense about fresher addition out of that? How many would be freshers? Second question about the $100 million deal which we signed in Q2, which you earlier also alluded from deal intake perspective. It was supposed to start from April. Two-part question to that. First, whether that ramp-up is as scheduled or we are seeing any changes there? And whether cost of equipment which we are seeing lumpiness, any contribution from that deal which is getting ramped up? Last question from my side is, I think you have provided some sense about the key deals during the quarter. In one of the deal you mentioned, won and executed vendor consolidation exercise kind of deal. So whether it is very short cycle deal where you signed and also started ramping up that deal in the given quarter. If you can give some sense about the deals signed and how you expect some of those deals to play out from medium term perspective. Thanks. Yeah. Dipesh, look, let me answer the big question that you had about the big deal that we won and that was supposed to ramp up starting April. That deal is on track. The reason why you are not seeing the effect of that deal is because there were so many other smaller deals that were supposed to give us revenue in Q1 that has got deferred. Which is why the impact of the large deal is not being clearly seen. But I can assure you that the large deal that we won is really on track and we are ramping up. The BFSI deal that I spoke about last quarter, if you remember, we said that almost 75% of that deal was a renewal deal. There was no question of ramp up. People were already there. The 25% of additional business that we won is currently getting ramped up. And the ramp up is probably complete now and we would start seeing revenues, going forward. Correct? From that standpoint, it is clear. Now, as far as the cost of equipment is concerned, I think we have spoken enough and I have given a clarification. That stands. Dipesh, I forgot your fourth question. Hiring. Oh, hiring. Yeah. Dipesh, we continue to add people, as you know, and we are adding people not only on billable headcount, but we are also adding people in terms of our sales and marketing area. Right? It is both, but from a billable headcount, a net headcount add has gone up and, hopefully that will start reflecting in revenue going forward. My question, Anan, was very specific. In 500 addition, how many were freshers? On the deal also- Oh, freshers you mean? Yes. Number of freshers? Campus recruitment. Yeah. Look, we've not had any campus recruitment, but we've had freshers. The freshers the way we define is below one year, and the number is 65. This is two quarters combined or you are saying Q1 number? Combined. Okay. The second question was also specific in terms of INR 100 million deal, whether cost of equipment is linked to that deal ramp up. It is not. It's a separate deal, Dipesh. Okay. Thank you. Thank you. A reminder to all participants that you may press star and 1 to ask a question. The next question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead. Yeah, hi. Thanks for taking my question. Angan, just a clarification. I do not know if you have mentioned this again. The project deferrals that we saw in this quarter and the project completion that we saw in this quarter again, which were probably not able to backfill by the new projects. Most of them belong to the manufacturing segment itself or were they kind of spread across other verticals as well? Manufacturing predominantly, a little bit of healthcare, but mostly manufacturing. Got it. To just correlate that, Angan, if I see our client bucket growth, almost all our client bucket growths have seen a very sharp Q1 decline. Be it top 5, top 10, top 20. Top 5 to 10 or top 10 to 20 also. If it was just only manufacturing clients which had those projects ramping down and delay in projects of manufacturing ramping up, the decline across all client buckets would not have been so sharp. Anything that I am missing here in terms of how we correlate these two sets of data? No, but again, my request is when you look at quarter-on-quarter client mining, that is the wrong way to look at it. You must look at year-on-year, right? The revenue is really LTM, it is a last 12-month LTM. From our perspective, when you talk about the top 5, top 10 and top 20 clients, look at our year-on-year performance. Our year-on-year performance has been 12% growth, and I think the top 10 was roughly about 10% growth, and top 20 was about 5.5% growth. That to my mind is strong performance. Of course, there will be a quarter-on-quarter seasonality in large clients. It is hard to control that. But year-on-year performance has been strong performance. You are trying to say that the client bucket data that we report, that is an LTM data, not a quarterly data? As of LTM. If you refer to the sheet, it is already mentioned there. I'm so sorry. Yeah, you're exactly right. Hello? Hello. Yeah. Sorry, I was laggy. Yeah. In terms of that. Yeah. Basically, what we're trying to say is that the decline and the pickup as well is both limited to the manufacturing vertical. As it picks up, I think the client buckets will also start reflecting that revenue growth as well. That is correct, yes. Got it. Just my last question on this front again. In terms of the outlook for the BFSI vertical, how are you seeing this vertical pan out for us? We've had a decent performance in this vertical for quite some time. The commentary by a lot of other peers in the industry has been quite positive in terms of green shoots and signs of recovery. Are we also kind of seeing that as well, and do you expect a change in momentum or, let's say, a change in direction or both maybe, in this sector in the coming quarters? Yeah. See, look again our BFSI business has been very strong for the last eight quarters, right? If you look at the eight-quarter data, BFSI business has continuously grown not only quarter-on-quarter, but year-on-year as well. In all fairness, now our BFSI business has also become very large, given the context, given our company size. From that perspective, BFSI will continue to grow, without a doubt. But do not expect the same kind of growth that we have seen in the past. The growth will be moderate, but it will still continue to grow ahead of the industry average. That much we can commit to you. But equally, we will expect the other verticals to also step in and start delivering growth. From that perspective, it will be very relative from our standpoint. Got it. Okay. Thank you so much for taking my questions. I think most of the other questions have already been asked. I wish you all the best for the rest of the year. Thank you. Thank you. The next question is from the line of Girish Pai from BOB Capital Markets. Please go ahead. Yeah, thanks for the opportunity. Angan, are you saying that the demand environment has turned for the worse, and is this specific to your company, or you're saying it's much more industry-wide? Girish, look, I can only talk about my company. Generally, from the industry-wide, you can get the data from NASSCOM or the commentary that is coming in from the various company leaders. See, demand-wise, we're cautiously optimistic. Nothing has really changed in the marketplace. Our Q1 results reflect that some of our customers, a handful of our customers, have delayed starting a program, which is reflecting in our Q1 results. But generally, in the industry, the industry is still cautiously optimistic. It is weak. Demand situation has not improved. Over the last three or four quarters, nothing has really changed on the ground. I can only tell you that our demand pipeline is strong. It is a question of converting the pipeline into orders, which will then obviously flow into revenue. That's what we are working on. Okay. My second question is, these deals that got delayed, any specific verticals that they belong to? Again, it is logically manufacturing because that is where you're seeing the majority of the downturn in terms of revenue. That is where we really need to step in and start converting those pipeline into deals, Girish. And if you kind of dig a little deeper in manufacturing, is there any specific subsector within manufacturing which is giving us pain? No, I will not classify it like that, Girish. I don't want you to also take away the fact that manufacturing cannot bounce back. We are very confident that the manufacturing can actually bounce back. In fact, like I said, even in the month of July, we are seeing positive green shoots, so we will see how that plays out. But we don't really report subsector revenues or subsector pipeline. But broadly, I can tell you, manufacturing is where the pain was. We also felt slight amount of pain in the life sciences business. But some of the programs, at least in manufacturing, we are seeing coming back in the month of July. Now that Q1 has been weaker than expected, are you still sticking to the statement around you will be among the leaders in industry growth in terms of growth in FY 2025? Look, again, Girish, it's a very difficult question for me to answer. Clearly, I admit that Q1 was a bad quarter. Correct? We could have done better. So Q1 is bad. Our endeavor will be now to focus on Q2 and make Q2 better than Q1. So that's our first port of call. If we execute Q2 well, then I will probably be able to give you a year picture. But quite frankly, now I'm not looking at the year. The entire management team is focused to deliver strong Q2. Okay. Lastly, any furlough-related issues in this particular quarter or in the September quarter or in the June quarter that you've seen across your client base? We do not see furloughs in 2Q. We only see furloughs in 3Q. Okay. Thank you. Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead. Yeah, Angan. Thanks for the follow-up. Just one broader strategic question. Since you have joined, there has been really a consistent growth journey within Birlasoft versus the earlier volatile growth history. But last two quarters commentary where we have started executing some of the change request projects which are small tenure, small deals, and now turnkey projects which could be lumpy. Don't you believe we are again moving to a growth profile which could be slightly unpredictable rather than consistent, and that makes us to change our view on the yearly growth quarter after quarter? No, Sandeep. I don't think you should look at it from that perspective. Let me clarify a couple of things. Look, we will be growth-oriented. We will be growth-focused. All I'm saying is, sometimes your product mix changes. Look, we've always stated, and Sandeep, you remember last to last quarter when we spoke. We said that we will invest in our infrastructure business. The reason we want to invest in our infrastructure business is because though infrastructure can be lumpy, but infrastructure can also give us annuity revenues, right? Our infrastructure business is the smallest business. That contributes about $50 million, $60 million in our $650 million. But as we continue to grow, our revenue stream has to be more homogeneous, right? We want to grow our infrastructure business. Infrastructure, while in the medium term will not make money, but in the longer term, we will make money. Which is why you're seeing this shift, correct? From being a more predictable application development kind of business to an application development stroke, an infrastructure business. That would also have been if we got into, let's say, an engineering business, for that matter. But it's an intentional move to get there. Getting the predictability back would be our endeavor going forward. As we continue to execute our infrastructure projects, we need to also grow our digital business, we need to grow our data business, need to grow our ERP business, correct? Which will give us the predictability. But we are never going to give up on our infrastructure business because that will be core to our business going forward. Sandeep, even if you look at the quarter that went by, why did we not do well? It was not because of infrastructure being lumpy or otherwise. It was also because some of the ERP work that was supposed to start did not start. We had the people. We could not start the program. As a result, we took costs, but we couldn't get revenue. Now, as those projects started, Sandeep, then you would have turned around and said, "You're growing infrastructure and still your revenue is so predictable." So I don't quite believe that predictability has gotten anything to do with infrastructure business being lumpy. Yeah, thanks for the detailed answer. Just a follow-up in terms of data and analytics and digital, there has been a decline. Is it again led by the manufacturing or healthcare client or some other clients? Yeah. That is more because of life sciences business. We've seen the decline in life sciences. Again, I want to decipher our business between digital and data analytics. Digital business has still been strong, but the biggest miss that we've had is in our data analytics business, which we are investing in heavily to get that back into growth. Okay. Thanks. Broadly, are you also positive about the ERP growth outlook? I do agree quarter on quarter blip could be there, but earlier you alluded you are bullish in terms of demand from upgradation, especially on-premise to the cloud side, be it new cloud implementation for the client on the ERP front. Yeah. Sandeep, I'm quite bullish. I continue to remain quite bullish on the ERP business. I know the quarter was bad, but we will ramp up growth going forward. I don't know when the growth will come back, but it'll come back sooner or later. The reason I believe that is because our relationship with SAP, our relationship with Oracle, has been stronger than it ever has been. From that perspective, I think we've got strong relationships with our partners. We've hired great talent. We are working with multiple customers. Our pipeline is looking good, and we are winning orders. The only thing is, we were not able to start executing on that order because customers told us to hold off. But at a fundamental level, I remain bullish on our ERP business. Fine. Done on the base. Thank you, Sandeep. Thank you. A reminder to all participants that you may press star and 1 to ask a question. The next question is from the line of Chirag Kachhadiya from Ashika. Please go ahead. Yeah. Hi, Angan. Just one broad question. Geo-wise, where do you see still concerns are prevailing and any improvement in any Geo you expect us in the quarter? So Chirag, you are talking about geography, different geographies? Yeah. Different geographies. Yeah. So look, our North America business, as you know, is our largest business that contributes to about 86%. While the North American business was a little flattish, and it had a little bit of a downward trend. We are confident that the business will continue to ramp up going forward, and we believe our North American business will continue to grow. The rest of the world business has delivered strong growth in Q1, and I continue to believe that that business will continue to deliver strong growth going forward. So I do not see a big difference between the various geographies. But our sharp focus on the four or five geographies that I have called out, Chirag, is where we will focus on. Okay. If I look at the net client addition, it is in decline and so Right Is it like technically, retaining certain client also? Yeah. So Chirag, as you know, I have said this even last quarter, we are cutting tail. So we are already at 259. We were at about 285. Last year. Yeah. Last year, same time, we were 285. We are already at 258. Sorry, not 259. So this number will continue to go down. But you must remember, at one point in time, we will be serving a set of clients, there will of course continue to be a tail, but I think the 250 number is the right number as we speak today at our size. And once we cross a billion dollars, we will relook at this number, Chirag. When do you see that we will cross through the billion dollars? I have no idea. I do not know. I wish I knew, but I do not. Okay. The clients which we just talked about, can you share which verticals they belong to? The new client addition you mean? No, no. The client which we are not focusing and that time we- No, no. Chirag, we don't measure it like that, right? It has not got to do with any vertical. If it is not strategic for us, then we cut the tail. It's not a vertical-based strategy. It is more a company-based strategy. Okay. And one final question from my side. What is net headcount addition apart from we have for the current fiscal year? Total net headcount addition? Yeah. Just one second. Do you have the data? Yeah, we have the data. It's about 300 people quarter-on-quarter that we have. Yeah. About 300 people quarter-on-quarter, Chirag. Yes. Okay. Thank you. All the best. Yeah. Thank you. Thank you. The next question is from the line of Dipesh from Emkay Global. Please go ahead. Yeah. Thanks for the opportunity. Just try to understand how one should categorize Q1 performance. Is it quarterly blip or you are seeing more cautious near-term outlook kind of thing, considering the delay in deal ramp-up as well as delay in decision-making, whether it is different than what we have seen, let's say, at the end of Q4. From incremental perspective, whether things are seeing some kind of more caution. Second related question is, you said Q2 to be better than Q1. Are we confident about Q2 to be positive growth quarter or yet not sure about that to play out kind of thing? Last question is, I think in some of the questions you indicated a deal intake kind of number. If, let's say, one look at your deal intake data on TTM basis, which obviously benefit from 100 million large deal is still 7% odd growth. Now, for company of our size, obviously considering the tenure increase because of focus on large deal, ACV-wise that growth would be even slower. Now it could have good bearing on the future growth on sustainability kind of thing. If you can give some sense about, because I think for last couple of quarters we are indicating deal intake numbers should increase to get confidence on growth sustainability, but somehow it is not playing out. If you can give your thoughts around it. Thanks. Yeah. Dipesh, again, I remember we spoke about two quarters ago also on this. Dipesh, let me say this very clearly. Quarter 1 was a blip, and I accept that Quarter 1 was a bad performance. We could have done much better in Quarter 1. Is it a manifestation of something deeper? I can tell you it's not a manifestation of anything deeper. I think we are a fundamentally strong company. We have to execute well, and if we execute well, I think we will deliver a better Q2. Whether Q2 will be positive growth, how much positive growth, am I confident? Look, I don't give guidance. I don't want to give guidance. I want to focus on execution, and we will continue to execute and see where we reach Q2 at. On the deal win standpoint, like I was saying earlier, deal win should always be measured year-over-year rather than quarter-over-quarter. If you look at two years ago, we delivered a TCV, if I remember, 868 million. Last year, we delivered 875 million. That's sort of 1% growth in terms of deal signings. Were we happy with it? I personally don't think we were happy. We should have at least delivered 5%-7%. There's a nuance there. You should also measure the net new deals that we are signing. This quarter, if you see the quarter that went by, we delivered 160 million of signings. Out of 160 million of signings, 96 million was net new. 96 million, 94 million. Kamini Shah corrects me, she says it's 94. 94 million was net new. If you continue to even get to, let's say, I'm just taking a number, let's say 875 or 900 million of signings for this year, if my net new is more than 50%, 60%, that tells me intuitively that next year will be a good growth year. Dipesh, there's a lot of analytics behind it. I can't really comment how future will shape up. But like I said, I think I was telling Girish Pai this, that our job as a management team is now to deliver Q2 and have a better Q2. Then take it one quarter at a time. Okay, brilliant. Thanks. Thanks. Thank you. The next question is from the line of Harsh Chaurasia from Vallum Capital. Please go ahead. Hello. Yeah. Hi, Harsh. Go ahead. Hi, sir. Thanks for this opportunity. I have two questions, more on the strategic side. So in Q1 FY 2024, we talked about we have very less presence in core banking segment. Could you provide more detail or any update, like what's the progress on that thing? Second is, you earlier made a statement about we are still investing in digital business. Can you elaborate more on that, like where are we investing? And third would be more from a data side, like approximately how much would be the Microsoft contribution in our total revenue? Yeah. Look, Harsh, let me first talk about the core banking bit, right? I want to make it very clear that, look, we will never, ever be a product company, right? As you know that we will drive services and we will create partnerships along with services uptick, right? That's our model. Currently, we don't have any core banking business. We work with payment companies, we work with mortgage companies, we work with asset management companies, but we don't really work in the core banking area of a bank. Now, technically, do we want to start serving a bank on the core banking area? Yes, of course, we want to. But we will work more on the periphery systems rather than the core banking system, because we do not have any capability, and I don't think we want to build capability on the core banking side. But we will work on the periphery systems, and that is where we are building strong capability on. That's point number one. Point number two, you asked about. What was your second question? I am sorry. Sir, my second question I wanted to know where are these investments going on? Is it sales capability or a hyperscaler relationship? So can you give more light on this? Yeah. So look, we have said that we will have two large partnerships when it comes to our digital business. So one is clearly Microsoft, and Microsoft currently is, and I cannot give a number, but Microsoft, safely to say, is almost 20% to 30% 360 degree relationship for us. So it is a very large business. We want to build a strong capability with a couple of other partners, like on the ERP side, we have partnerships with SAP and Oracle, both strong partnerships. On the cloud side, we want to build a strong relationship with ServiceNow. We are working on it. And those are the three or four select partners that we will work with. Now, I cannot really comment on hyperscaler-based revenue because we do not measure revenues that way. We measure revenue based on partnerships. And I can tell you Microsoft is a very key partner, and we will continue to invest in the Microsoft partnership. On the digital side, we are investing on all areas. We now have a digital leader who is running our digital data and AI practice. Under him, we have invested in new sales people. We are investing in architects, digital architects. We are investing in domain because it is important for us to understand domain so that we can use technology to solve a customer's domain problem. We have identified two domain per vertical that I spoke about even last time, where we are making all our investments. So there are a lot of investments that is going on in the digital data as well as AI business. Got it. Thank you, sir. Thank you very much. Thank you, Harsh. Thank you. The next question is from the line of Sudhir from Kotak Mahindra AMC. Please go ahead. Yeah. Hi, Angan. Just on the Microsoft part, they seem to have indicated on the call that they are seeing a big supply-demand mismatch in the Azure AI space. So how well are we entrenched in Azure and its adjacencies? Because historically, whenever they had that demand far exceeding supply, their subcontractors or partners always had seen great benefits. So how well are we entrenched in that ecosystem? If you can give us some color. Yeah. Sudhir, we are very well entrenched, which is why, when there was a broader comment of digital and data business not doing well, I clarified that our digital business has actually done well. The issue that we have is on our data business. Data business is where we want to invest in. Look, Microsoft is a big partner. We have manifestations with Microsoft around digital data, infrastructure, and everywhere. I cannot really give you specifics because I am under NDA, but suffice to say that our overall Microsoft business is growing upwards of 20% year-over-year. Fair enough, Angan. Just a clarification from Kamini Shah. In your prepared remarks, you essentially said that there is a cost and revenue mismatch, wherein you had people onboarded, but the project got delayed, and that has a negative impact on margin. That was partly offset by the provision reversal. The interplay of these two factors, you are still saying has negatively impacted you in the current quarter. Is that a fair assessment? Sorry, Kamini Shah. Let me answer your question. What Kamini Shah said, Sudhir, was, look, we already had staffed up for the programs. The deals that we had already won, we had staffed up. But we could not convert that into revenue because we could not start the programs. We took the cost of those people. Whereas to offset them, the line item that you are talking about was probably partially offsetting that. But the number of those people that we staffed up was much more than that line item. That is what Kamini Shah meant, Sudhir. Yeah. Absolutely, Sudhir. Yeah. Fair enough, Angan. I just wanted to understand. The net impact of these two is still a negative outcome for you, right? Yeah You had the first factor bigger than the second one. In that case, if I were to Much bigger If I were to tie it back to Sandeep's earlier question of whether we should be looking at 13.1% as the core margins for this quarter. Actually, in reality, the margin would have been higher than that number. Is that a fair calculation? Yeah. Sudhir, it will depend on the way the revenue programs start scaling up. Yeah, when they scale up at full force, then I think we should see the margin come in. That is right. Sudhir, look at it this way. The cost is already there, right? And whichever way you look at it, whether it is margin is 14.7%, 13.1%, is your prerogative the way you look at it. But from our perspective, the cost is already there. Now, the cost is to convert to revenue. As soon as the revenue comes in, automatically it will have a benefit on the margins. Fair enough, Angan and Kamini. Thank you so much, and all the very best. Yeah. Thank you, Sudhir. Thank you. Ladies and gentlemen, that was the last question for today. We have reached the end of question and answer session. I would now like to hand the conference over to Mr. Angan Guha, CEO and Managing Director, Birlasoft Limited, for the closing comments. Thank you. Thank you so very much. Look, folks, I would like to thank each one of you for your interest in Birlasoft. For the time that you've taken to spend with us today, we remain focused on execution. Our intent has always been to build an organization for the long term, which is long-term sustainability, and we will build and continue to invest in our capabilities. I look forward to speaking with you again next quarter. In the meanwhile, if you have any questions, please feel free to reach out to Arindam for any clarification or feedback. Thank you once again, and have a great rest of the evening. Thank you. On behalf of Birlasoft, that concludes this conference. Thank you for joining us. You may now disconnect your line.