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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Agrawal, Head Investor Relations and M&A at Coforge Limited. Thank you, and over to you, sir.
Thank you, Aman. A very warm welcome to all of you, and thank you for joining us today for our Coforge Earnings Conference Call. As you're aware, we announced our Q4 and full year FY 2023 results today. They've already been filed with the stock exchanges, and they are also available on the investor section of our website. I have with me today, our CEO, Mr. Sudhir Singh; our Chief Customer Success Officer, Mr. John Speight; our CFO, Mr. Ajay Kalra; and our Deputy CFO, Mr. Saurabh Goel. As always, we'll start with the opening remarks from the management team, and post that we will open the floor for your comments and questions. With that, I would now like to hand it over to our CEO, Mr. Sudhir Singh. Sudhir, all yours.
Thank you very much, Ankur. A very good morning, very good evening to all of you across the world. Ladies and gentlemen, thank you very, very much for joining us. I'm pleased to share that despite the uncertain macros, Q4 has been a successful quarter for the firm. Our growth in Q4 has not just been robust, it has equally importantly broad-based across our verticals, across our service lines, across regions, and across client size-based cohorts. We remain steadfast in our belief that organizations and teams that accelerate execution are always the best placed to face and negotiate headwinds like the ones that the industry faces today. We remain focused on execution. We remain committed to driving robust, sustained, and profitable growth despite the ambient challenges in fiscal year 2024 as well.
I'm also pleased to share that fiscal year 2023 was a milestone year for the firm, and we crossed the $1 billion mark. We believe that we shall look back at fiscal year 2023 as not just a year where we crossed the $1 billion mark, but also equally importantly, as a year where we laid the foundation for an accelerated growth journey towards the next revenue milestone of $2 billion through the very significant investments to enhance the firm's capabilities that we did make in fiscal year 2023. Our employees continue to be the architects of our growth journey, and their commitment reflected over the years in one of the highest employee retention and the lowest employee attrition rates that Coforge prides itself on, has driven us and will continue to drive us in the future as well.
To mark the $1 billion revenue milestone, the firm will, starting tomorrow, gift all active employees with an Apple iPad. With that quick context, let me start with an overview of our performance in Q4, fiscal year 2023. Starting off with the revenue analysis. I am pleased to report that during the quarter, the firm registered a sequential revenue growth of 4.7% in constant currency terms, 5% in US dollar terms, and 5.6% in Indian rupee terms. The growth, particularly important in an environment like this, was broad-based. The BFS vertical grew 4.5% quarter-on-quarter in CC terms. The insurance vertical grew 5% quarter-on-quarter in CC terms.
The travel vertical grew 2.54% quarter-on-quarter in CC terms, and the other verticals together grew 6.4% quarter-on-quarter in CC terms. Clearly broad-based growth. Our top five clients and our top 10 clients grew 23.9% and 26.6% year-on-year, respectively. They contributed 23% and 35.5% respectively to our overall Q4 revenue. As I've remarked on earlier calls, we derive a lot of our confidence in driving surprise-free sustained growth from our lack of overdependence on a single or a group of client relationships. Our strong sequential revenue growth performance comes despite headwinds in the BFS sector, particularly in our mortgages portfolio.
Overall, as a firm, we see the growth of the firm during the quarter as a reflection of the very strong execution engine that the firm has built, the deep client relationships that remain resilient, and our ability, even in an environment like this, to continue to identify, to chase, and to close large deals. I shall now move on to the margins and the operating profits commentary. Our Q4 gross margins sequentially increased by 71 basis points, following an earlier sequential increase of 133 basis points in Q3. The gross margin for Q4 was 34.1%.
Our Q4 adjusted EBITA margin sequentially increased by 109 basis points and was at 19.6% for the quarter. Our ability to not just hold the line, but to expand gross margin and EBITDA margin sequentially once again reflects the strong execution ethos of the organization. The increase in adjusted EBITDA was driven by a material increase in utilization, by a continued increase in offshoring revenue %, and the relative absence of furloughs that we incurred in Q3. The consolidated PAT for the quarter, excluding one-off charges, stood at INR 2,327 million. The reported PAT for the quarter was INR 1,148 million. The quarter saw two one-off expenses.
The first is on account of expenses linked to the $1 billion milestone celebrations, primarily the gift of an Apple iPad to each one of our 21,000+ employees to mark the occasion. The second is on account of provisions done against ADR expenses so far. Moving on to the annual performance, I'll start once again with the revenue analysis. We registered a consolidated revenue of $1,001.7 million, close to million. We have clocked a growth of 22.4% in CC terms for the year. In US dollar terms, that translates to 15.6%, and in Indian rupee terms to 24.6%. You will recall that at the beginning of fiscal year 2023, we had provided a revenue growth guidance of around 20% CC growth for FY 2023.
We had subsequently revised it upwards in Q3 to at least 22% CC growth. Our revenue performance for the year is in line with our track record of meeting and exceeding the revenue guidance every year for the last six years. Verticalized performance for the year was as follows. BFS grew 47%. Travel grew 21.5%. Insurance declined 3.7%. The other segment grew 23.1% in CC terms. Geographically, for us, Americas grew 16.3%. EMEA grew 37%, and the rest of the world grew 7% in CC terms during the year. Annual performance margins, operating profits, the commentary reads as follows. We are pleased to report that in fiscal year 2023, our gross margin increased by 55 bps to 32.5%.
The increase has allowed us to significantly expand our investments in sales and capability built throughout the year. The adjusted EBITDA margin for the year stood at 18.3%. It is important, I think very important to note that during fiscal year 2023, we incurred a hedge loss of INR 239 million versus a hedge gain of INR 224 million in fiscal year 2022. Just that adverse swing on the hedge gain loss has led to a negative impact of about 60 basis points on the EBITDA margin. Commentary around the order intake. One of the highlights of our Q4 performance was the continued clocking of large deals and a very high level of order intake despite the strong prevailing headwinds across our industry. The total order intake for the quarter was $301 million.
This is the fifth consecutive quarter where we have clocked an order intake of more than $300 million. With our performance in Q4, we closed fiscal year 2023 with the highest ever recorded yearly order intake of $1.3 billion. Equally important, particularly at a point like this and a time like this, during the quarter, we signed two large deals. They came from the BFS and from the travel sector, respectively. From an annual perspective, fiscal year 2023 was a landmark year in that we signed 11 large deals through the year, of which two were over $50 million TCV, and 5 were over $30 million TCV. Our deal pipeline continues to be both robust and resilient, as exemplified by our Q4 performance. We expect this deal momentum to continue in Q1, fiscal year 2024 as well.
The executable order book, which reflects the total value of locked-in orders over the next 12 months, stands at a record $869 million. This number was $720 million a year back. The confidence that you will see in our revenue forecast guidance for fiscal year 2024 in this commentary later also stems from the next 12 months' committed order book, which continues to be unimpaired. 10 new logos were signed during the quarter, taking the total count to 44 for the full financial year. Finally, as I round up the section, I wish to note that during the quarter we also signed up as a preferred technology partner with one of the largest retailers in the world.
This is not a large deal, but our partnership status now and the size of the wallet that we will address at this retailer is what makes this a material event for us. People front, good metrics again. Our total headcount at the end of Q4, fiscal year 2023 stood at 23,224, and we saw a net addition of 719. Which is an increase of 3.2% net to our headcount during the quarter. This net headcount increase has come despite a very significant expansion in utilization by 120 basis points. Utilization during the quarter stood at 81.5%. Our LTM attrition for the quarter fell further and fell again and is now at 14.1%. We remain, and we've talked about this with...
in the past, we remain one of the lowest, if not the lowest attrition firms across the industry. With those comments, I will now hand over the call to John Speight, Chief Customer Success Officer, for providing insights into our operations and our capability creation initiatives. John, all yours.
Thank you, Sudhir. I shall now touch upon the highlights of the quarter related to our delivery operations. In the insurance sector, Coforge continues to grow its core business, all on the back of successful implementations and upgrades across the US and Europe. A real positive move in this quarter has been the successful expansion into new areas, Australia and New Zealand. For a leading US life and annuity insurance carrier, we successfully completed a major enterprise-wide business transformation program to simplify their processes, drive operational efficiencies, thereby delivering significant cost savings for them. We also helped a top 100 US carrier successfully complete a multi-year tax compliance program, enhancing their legacy policy admin systems to ensure their life insurance products were compliant with the latest IRS regulations.
Our AdvantageGo business successfully launched its new ecosystem, leading with our proprietary underwriting workbench that connects the best agreed data providers to provide real-time exposure insights to underwriters. In our TTH business, we successfully enabled a leading airline's major transformation journey, involving one of the largest and most complex migrations of airline passenger service systems. We leveraged our travel domain capabilities, our global Amadeus certified engineering team, our proven agile delivery frameworks, and more than 12,000 business test case automations to execute the migration successfully and on plan. Moving to our BFS business. A tier one bank recently appointed us as their strategic data and analytics partner to help them accelerate their cloud adoption, analytics, and visualization initiatives across the bank. We are leveraging our strong partnerships with AWS, Snowflake, Databricks, Microsoft, to help drive their transformation programs by delivering best-in-class solutions.
Pega continues to be a strength of Coforge. Recently, we closed a major 18-month program of work for another global bank in which we are combining Pega, data, quality engineering capabilities to help drive their digital transformation agenda. We are also seeing sustained growth in our Salesforce business, underpinned by our new industry-specific solutions. For example, we recently rolled out our Broker 360 management solution for insurance customers. Built on Salesforce Service Cloud and Experience Cloud, this solution provides our customers with a complete view of the activities performed by their agents and brokers. The growth was recognized by ISG, with Coforge named as a leader in the Salesforce application managed services and as a rising star in Salesforce mid-market implementation sectors. We continue to explore and invest in our Metaverse Center of Excellence.
In collaboration with our technology partners, we've developed expertise that enables the creation of digital humans. We are now working with our customers to help them integrate digital humans along with AI and chatbots to create lifelike customer experiences within the Metaverse. Our continued focus on Metaverse and Web3 technologies was recently recognized by HFS when they awarded us Enterprise Innovator status in their 2023 Horizons report for Metaverse service providers. Recognizing the importance of cybersecurity, we have invested to extend our services in this area, adding threat intelligence services to our extensive portfolio. We can now leverage our advanced capabilities in areas such as dark web and deep web monitoring, brand protection, and cyber threat intelligence to help secure the safety and privacy of information assets. To conclude, I will update you on our constant endeavor to upskill employees globally.
We continue to invest in technical and domain training and certification programs. Our focus continues to be on core engineering skills such as AWS, Pega, Appian, Azure, ServiceNow, GCP, ISTQB. However, we have now also extended our learning programs to train teams in areas such as how to navigate leadership transitions and how to build digital excellence. With that, I conclude the update on our delivery operations, and I would now like to hand over to Ajay for further details on the financials. Over to you, Ajay.
Thank you, John. Let me briefly touch upon the key balance sheet items and tax metrics. Our cash and bank balances at the end of financial year 2023 stood at $73.4 million compared to previous quarter of $22.4 million net of working capital declines. The capital expenditure during the quarter was $4.3 million. Days sales outstanding were 61 days in Q4 versus 73 days in Q3 in INR terms. In US dollar terms, the DSO were 59 days for Q4 compared to 68 days in Q3.
The effective tax rate for Q4, financial year 2023, excluding the one-off charges which Sudhir mentioned, was at 18.3%. For the full year financial year, it was 20.4%. The operating cash flow for the full year 2023 was about 68% of the reported EBITDA. As you are aware, Coforge had filed an ADR for which we had incurred an expense of INR 523 million over the last 18 months. These expenses were reflected as recoverable from the selling shareholders in our balance sheet. The market conditions continue to be unfavorable for the ADR issue, basis accounting prudence, a provision of INR 523 million for these expenses has been made in Q4 FY 2023.
We will continue to watch market conditions to see if a favorable window opens for the ADR. Additionally, the board has approved an amount of $11.5 million towards gift to all the employees and celebrations across all locations for achieving $1 billion milestone. An amount of $9.8 million towards gifts has been incurred in Q4 financial year 2023. The balance celebration amount will be incurred in Q1 financial year 2024. With that, I will hand over the call back to Sudhir for his comments on outlook.
Thank you very much, Ajay. As I had mentioned exactly a year back, ladies and gentlemen, in our then quarterly conference call, we had started planning towards our next revenue milestone of $2 billion. Fiscal year 2023, the year that closed, was all about proactively putting the right building blocks in place for that goal and beyond. During the year, we have significantly invested in and bolstered the front-end leadership teams, our capabilities, and the execution machinery across the organization. During the year, we also initiated a new organization structure to position us well for this journey to the $2 billion revenue milestone. The new org structure focuses on scaling existing key accounts to $100 million and $50 million each, leveraging a broader ecosystem of alliances and deal advisors, charging up the revenue hunting engine, and creating differentiated service offerings.
The core verticals will work as global integrated business units, and the service lines have been reclassified into six global horizontal business units, which will be market-facing and actively contribute to revenue growth. The new org structure has already been rolled out effective April 1, 2023. This new structure that is now settled with teams that are now clearly primed, the continued large deal wins, the strong executable order book, a resilient deal pipeline, anticipated broad-based growth across our core businesses, gives us confidence that we shall continue to drive robust, sustained, and profitable growth in fiscal year 2024 as well. For fiscal year 2024, our revenue growth guidance is 13%-16% growth in constant currency terms.
On the profitability front, we expect our gross margin to increase by about 50 basis points in fiscal year 2024 over fiscal year 2023. Adjusted EBITDA margin to remain at similar levels as fiscal year 2023. With that, ladies and gentlemen, I conclude our prepared remarks, and all of us open the floor to all of you for your comments and your questions. Thank you.
Thank you very much. We will now begin the Q&A session. Anyone who wishes to ask a question may press Star and one on their touchtone 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. Participants connected on the video link, please click on the Raise Hand button on the toolbar or the Q&A tab and click Raise Hand. The operator will announce your name when it is your turn to ask a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Yeah. Hi. Good morning, everyone. Thanks for taking my question, and congrats on a very strong performance, yet again. It's just got accustomed to getting surprised by the company every quarter. Sudhir, basically if I could just start with the visibility that you have for the guidance for FY 2024. We ended the year with an order backlog, in procurement executable order backlog, which is up 21% on a YMY basis. We are guiding to, basically, revenue growth of 13%-16%. Just wanted to take your take home, what is the visibility that you have, let's say, towards the top end of the guidance, given that we are ending the year at such a strong growth in the executable order book.
Does that mean that you might expect some slowdown on a YoY basis? It's not necessarily a decline, but maybe a deceleration on a YoY basis reordering for in the first half of the year. Do you think the demand environment remains strong enough for us to be able to do this guidance and of course, take it as we see it during the course of the year?
Well, Vibhor, mathematically, we need to clock roughly around 3% sequential growth every quarter over 4 quarters on an average to hit 15%. If you look at our track record, around execution, the guidance that we've given at the beginning of the year over the last 2 years, we've been able to revise it both those years upwards and then exceed it by the time the year ends. 13%-16% clearly is something that we believe is in the realm of the possible. The RAM that we have because of the Q4 growth. The fact that large deals pipeline continues to be resilient and large deals continue to be closed also gives us a lot of comfort.
The order executable number, which is the next 12-month orders booked at $869 million, is roughly about 20% more than where it was at the same time last year. There's a lot of comfort that we derive from that as well. Large deal velocity has continued unimpaired. Order intake has been at more than $300 odd million for five quarters running. We feel that the guidance that we're giving you is clearly in the realm of the possible. Our intent, as always, will be to try to hit the upper end and hopefully, if all goes well, try to exceed it also over time.
Got it, Sudhir. That's really helpful. Really great to hear that. My second question was on the margins front. I think this year also we saw a very good expansion in the gross margin front, but slightly lower EBITDA. That, of course, as you had mentioned, that we are investing a lot in our sales capability. For the next year also you just guided to the same thing, that we're looking to expand our gross margins by 50 basis point. The overall EBITDA margins, adjusted EBITDA margins might remain flat.
So just wanted to understand, I mean, do you believe this higher than the, I mean, the last year kind of investment in sales and marketing tools will continue and that will continue to have that gap between the gross margin expansion and the EBITDA margin expansion? Just a related book moving question, if we could just maybe get a broad idea as to how much could be the gap between reported and adjusted EBITDA margins in FY 2024.
Yeah. The second question is something that I'm gonna deflect to Ajay.
Yeah, sure.
Vibhor. As far as the margin issue is concerned, a very key point to note also is that if you look at FY23 performance of the firm, there's a 60 basis points negative that has come just on account of the hedge gain loss, right? The 18.3% that we reported for fiscal year 23 would have been 60 basis points higher had the hedge gain loss not played out the way it has. Going into FY24, we are confident of a continued expansion in gross margin from where we are right now. We are equally committed to making sure that most, if not all of it, gets funneled into additional investments, into capability build, into solution build, into sales enhancement. It's a tough macro. We don't wanna meet the guidance.
We don't wanna exceed the guidance if it's possible. The intent is gonna be to keep pressing the pedal and make sure that the capabilities and the investments are helping us power growth at a time like this. Ajay, would you like to take question number two, please?
Sure. The difference between the EBITDA and the adjusted EBITDA is primarily the cost of employee stock options. The current year options, the cost for would decline and would be around 60 basis points for the next financial year. However, the options which are given in the current year, they are not factored in there, and we will update that in our next earnings call.
Got it. It's going to be north of 60 basis point. 60 basis point is for year one, plus on top of that, whatever the cost of this year's ESOPs will be. That will be over and above that.
That is correct.
Perfect. Great. Thank you. Thanks, Sudhir. Thanks, Ajay. Thanks, everybody for your valuable time. Wish you all the best.
Thank you, Vibhor.
Thank you. Next question is from the line of Abhishek Bhandari from Nomura. Please go ahead.
Thank you. Good morning, gentlemen. Sir, I have two questions. First is on the insurance vertical. You know, finally, we have started seeing, you know, some sequential, you know, growth momentum picking up. If you could help us, you know, understand how should we think about this vertical in FY24, given that it has been a laggard and we have been, you know, trying to do some leadership change there. Are you seeing a sustained momentum of growth coming back here?
Abhishek, the answer is a clear, unqualified yes. It's been a 5% sequential growth. The way we look at our insurance businesses, our insurance business on the P&C side is largely focused on commercial specialties, small and medium players. That place, the transformation spends are continuing and our partnerships are working very well. There's a clear continued growth vector that applies there. The second thing that's happened on the insurance side is our expansion into newer geos within the insurance vertical has played out very well. I talked about 10 new logos. 4 of them actually came from insurance across APAC, largely centered around Australia. That element is working well.
On the BFS side, there is pressure when it comes to discretionary spending, looking at our top 10 clients in that space, looking at a ground-up view, we think growth there again is gonna be resilient. The answer, the short answer to your question is yes. We believe the turnaround that we've seen, actually, it's a fairly significant turnaround that we've seen on the insurance side, will sustain. What I do also wanna call out is next year. This year, if you look at the dispersion across business units, it was very stark in our case. BFS was just on a tear. Insurance was pulling us down. Next year, the guidance that we've offered, we believe all the three core verticals will more or less be in line centered around that growth guidance number and deliver growth numbers that will be roughly similar.
Insurance should turn in a performance where the growth should be indicatively around 15% for the year as we see it now.
Got it. Thank you, sir. The second question is on your, you know, longer term margin outlook. You know, while for this year your aim is to improve 50 basis points on GM and, you know, refunnel that into sales and marketing. Eventually, where would you want to, you know, stabilize on your sales and marketing expenses? You know, we are already closer to 14.5%, you know, kind of number. Do you think maintaining this kind of S&M is necessary for the growth to remain where it is? Eventually you can taper it off to, you know, more like a 12%-13% number, what we had seen in the past.
Abhishek, 6 years back, the SG&A of the firm was roughly around 19%. We brought it down very drastically through COVID all the way down to 12.5%. We're now at about 14% odd. The way we look at adjusted EBITDA versus S&M investments is the plan that we've created internally around hitting a $2 billion mark, and we envisage that at $2 billion revenue, the firm will have an adjusted EBITDA that is at least 150 bits higher than where we are. On the outside, all the way up in a good scenario, 300 bits higher than where we are. It's obviously gonna be a pull and a push, depending on the year. This year is a tough year.
We want to keep pushing the pedal to make sure growth is maximized, and hopefully some of the results of these investments will play out next year, possibly even this year, in taking the revenue needle and the revenue growth rates much higher.
Thank you, sir, and all the best for FY 2024.
Thanks very much, Abhishek.
Thank you. Next question is on the line of Sandeep Shah from Equirus Securities. Please go ahead.
Thanks for the opportunity and congrats on a great execution. Sudhir, the first question is.
Sandeep, your voice is not very clear. May I request you use the handset, please? Sorry to interrupt.
Yeah. Is it clear now?
Yes.
Yeah. Thanks for the opportunity. Sudhir, the first question entering FY 2024, do you believe most of the portfolio-specific issues are largely behind, in terms of CoCos, where you are now turning positive even on insurance? Second related question, are you witnessing any client-specific issue because of the increased macro pressure, especially with the exposure with some of the regional banks, in some of your acquired subsidiary, SLK, in the mortgage business as a whole?
Sandeep, thanks for the question. Portfolio specific, we believe, and I just answered the question, insurance is on a clear turnaround. Portfolio specific, we also believe that the dispersion across the business units in terms of growth is not gonna be as stark as we saw in fiscal year 2023. The growth, which is very important in a year like this, should be broad-based. I expect our core verticals to show broad-based growth. I expect our service lines to show broad-based growth. I expect growth across geos to be broad-based. I expect client cohorts, I can't specifically call out one or two clients individually, but client cohorts, top five, top 10, top 20, top 50 should all be resilient and should be more or less in line with the kind of guidance that we provided and the planning that we've done.
client-specific regional banks, our exposure is minimal. The only material exposure that we have is to the relationship that we have with Fifth Third Bank. It is largely centered around operations, not technology. I am speaking to you after having hosted the COO and the CIO in Bangalore the day before. That's a relationship that is only likely to grow. I see absolutely no contraction. We see absolutely no contraction. That's how I would characterize things as we see them today.
Okay. Okay. In terms of adjusted EBITDA margin, when we have given the guidance at the Q3 result, we were knowing about the Forex hedge loss which may be there for the 9 months plus prediction for the Q4. Despite there is a miss on the guidance as a whole. How do you see the Forex hedge loss entering into FY 2024 as a whole? It will continue to pain you on adjusted EBITDA margin. Also related question, when do you expect your investment into sales marketing capability building would be largely over? Because I think, despite a robust industry-leading growth, I think, the SG&A leverage is not turning out the way it should have been.
When we look at the numbers that we've delivered, 60 basis points negative was on account of hedge. You're right, 9 months was baked in, currency's been volatile through the year. Our exposure to Europe is far more than our peers, and you know this. Almost 40% of our revenue this quarter has come from Europe-based clients. That's been one playing to it. The second, of course, is gross margin has continued to climb very starkly. We could, through the quarter, have decided that we will not invest any more and meet the 18.5 guidance. We've taken a conscious call to make sure that we keep investing because FY 2024 is gonna be a year which we do not see necessarily as a doom and gloom year. Normal commentary that we are hearing.
We see clear opportunities in the terms. We see spaces like commercial specialty SMB. We see spaces like CTB in banking. We see spaces like airlines, airports, hospitality as places where demand is likely to be resilient and, in some cases, growing actively. The intent was to make sure that we continue spending. We're at about 14.5% odd on S&M. We would be absolutely okay with taking that number over time all the way up to 15% and capping it there. That's how we see it over time. In the current context, given the uncertainty in the macro, the primary imperative is to meet the guidance that we've offered. A very strong incentive that all of us carry is to try to exceed it also, if it is possible.
That's how we're looking at it, that's why we invested, and that's why we took a very conscious call that we would continue investing even while gross margin was going up, and not just focus on meeting 18.5%.
Okay, thanks. The question on the Forex hedge line expectation in the FY 2024?
Ajay, would you like to take that?
As if you see the over the last 1 year, the movement, currency movement and the hedges have been very, very sharp. The INR has depreciated very sharply, and which has actually led to the losses that were there in financial year 2023. In financial year 2024, if the currency stays where there is, obviously the loss would be much lower and it'll be it will not feel the gain. If the currency continues to decline in future, the losses could be higher. It, it all depends upon how the currency movement happens in future.
Okay, okay. Just a bookkeeping, sir. In terms of these ADR expenses, I think the process has been started more than a year back. Why the provision now? You are saying when the ADR listing happens, it will be recovered from a selling shareholder.
Yeah. These expenses are for the ADR and these were recoverable from the shareholders. as we started doing the ADR, the expenses were accrued and were recorded as recoverable from the shareholders. However, given the situation and the market conditions we are in, and there is obviously we are committed to the ADR, but there is a clear, there's no clear visibility when that will happen. from an accounting prudence perspective, we have taken a provision in this quarter. This still remains recoverable from the shareholder. It's a provision. We have not written this off.
Okay. Thank you. All the best.
Thank you.
Thank you. The next question is on the line of Shradha Agrawal from AMSEC. Please go ahead.
Yeah, hi. Congrats on a good revenue execution. Just one question on the margins front also. The margin miss in this quarter was entirely because of hedge losses or was there something else also that led to a margin hit against what was expected earlier? If I look at the hedge loss item, it was close to INR 13 crores last quarter versus INR 14.5 crores that we took this time around. Not much of a change on a QoQ basis, but margin expectation was about 70 basis points increase versus what we have delivered is just 110 basis points improvement.
Yeah, well, you're right, Shradha, margin did come in at north of about 19.5%, right? There was really nothing that was terribly unexpected. We could always have, and I said this in response to the earlier question, we could always have toned down our spending through the quarter to meet the EBITDA numbers. We took a very conscious call to continue to spend, and we will continue to spend in Q1 as well. As I said earlier, the deal pipelines are resilient. We expect Q1 also the deal pipeline to be resilient. The last thing we wanna do at a time like this when there is revenue pressure is to miss a revenue opportunity that exists out there in the market. Hence, we took a conscious call to do it.
There was nothing on the margin front that came as a material negative surprise to the management.
If I looked at the tailwinds that could have worked for us in this quarter was cross-currency tailwind improvement in utilization and hedge loss not being materially different from what it was in last quarter. Still our margin miss was close to 60 basis points versus what we had guided to. Was just looking at was there anything exceptional that went into beyond the hedge loss that we have been talking about?
No. More than 100 basis points increase in margin is a fairly significant increase. 170 obviously has always been a stretch, especially in a year like that. If you look at our margin in FY 2023 versus FY 2022, and you compare that performance with some of our peers, I think we've held up very, very strongly. Even the 40 basis points decrease that you see on an annual basis, 60 of that was accounted for by a hedge gain loss scenario. Net of that, margins performance perspective on a yearly basis went up 20 basis points in a very, very tough year. That's, that's how I would characterize it, Shradha. We remain confident around the margin guidance that we're giving for fiscal year 2024.
We will hold the line at the number that we're at on the adjusted EBITDA front, and we will continue to push to meet the revenue guidance and hopefully try to exceed it also.
Sure. Thank you. The next question is, you know, we've had an impressive performance across client buckets, but if you look at the top 5 clients' performance, that's relatively compared to other buckets a bit soft. Is there any client-specific challenge or was it broad-based softness because relative to other buckets that grew relatively softer?
No. I think in this case it's a classic case of success being its own enemy, right? You do very well as a firm and then you start looking relatively, there's bound to be a cohort that will underperform versus the others. There's absolutely no issue with clients. Client relationships are resilient, client relationships are strong, client relationships are strengthening. If I look at my top five or top 10 clients, when we look internally at gross margins, we actually see margins expanding there. We feel very, very solid about this. From a pipeline perspective, from a resiliency perspective, from an ability to cross-sell and improve our footprint there perspective.
Sir, just last bit. The salary hike cycle remains as of 1Q. What is the kind of margin drop that is expected in Q1? What is the quantum of hike that we are researching?
committed to our employees. It's not just an issue of giving them iPads and not giving them the hikes. The hikes are going to happen. That's absolutely non-negotiable. Salary hikes on an average will be lower than the numbers that we've seen in terms of increments over the last fiscal year. When the supply side was stressed, we went out, took a step out with higher than ordinary increments, and that's reflected in the very low attrition that we have. So, from our vantage, salary hikes will be lower. The margin impact, however, will be more or less in line with the same kind of margin drops that we've seen in the past. Q1 for us normally is about a 16.5% adjusted EBITDA quarter.
Q4 is somewhere around a 19.5% adjusted EBITDA quarter. We expect the same seasonality to play out. It should be more or less the same by quarter in FY 2024 as it was in FY 2023.
Sure, that's helpful. One last question, if I can squeeze in. In BFS, do you see any delay in the conversion cycle or any impact on the pipeline buildup given the macros that we are talking about?
For BFS, Shraddha, we see a very significant deceleration next year in growth. This year, BFS for us has grown 47%. There's no scenario under which we expect it to register that kind of a growth in fiscal year 2024. The way we look at it is, BFS will more or less fall to the 15%-16% kind of growth range. 13%-16% or 15%-16% kind of growth range from a 47% growth that we registered in FY23 in that space. There is a clear slowing down. There is clear cost pressure. BFS is playing out in interesting ways, right? When you look at us within BFS, we really play in only four areas. We play materially in asset and wealth management. We play in retail and commercial banking.
We play in central banking, and we play in fintech disruption. Now, in this space, run the bank is where most of the pressure is. That entire run the bank space, there is significant cost pressure to try to drive cost out through automation, through transforming the workforce to managed services through extreme offshoring. Change the bank, especially security, especially data, especially compliance, is still resilient. Those are the areas from which we will still see, we believe, around 15% yearly growth, but the number will come down very drastically from the 47% that we saw. That's how we see it, and that's how I would answer you. Did I answer your question?
Yeah, yeah. Thank you and all the best for your results.
Thank you, Shradha.
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Yeah. Hi, can you hear me all right?
Crystal clear.
Most of my other questions have been answered. Just one clarification. I missed the point in terms of how much is the expense for iPads in the next quarter?
Okay. Manoj? Yeah. Ashwin, the impact of the gifts will be additionally. iPads will be only $200K. There are other celebrations that have been planned, and total expenses for the billion-dollar celebration is $1.7 million in the next quarter.
Okay. Okay.
Okay.
Thanks. I think that's the one we need.
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Hi. Thank you for taking my question. Two questions. Firstly, what proportion of our business would be linked to cloud, whether it is migration or development work on the cloud? Secondly, a lot of people have talked about 2023 to be a year of cloud optimization. Are you seeing that in your own client base? What is your expectation with respect to which service offering is going to see a slowdown? Which service offering going to be more resilient in the current macro context? Thank you.
I'm sorry. Can you build on what you mean by cloud optimization? We've been talking about cloud optimization for the last decade. What do you mean by 2023 being a year of cloud optimization?
A lot of the surveys that is being done with the CIOs are talking about that people over-committed to the cloud spend.
Mm-hmm.
2023 is where they're trying to optimize and reduce it's a temporary issue. you know, wanted to hear it from you in terms of, have you seen anything similar to that?
Well, I mean, Gaurav, let me take the second question first. What you're talking about is something that does impact hyperscalers, and I think that information is in the public realm, right? The hyperscalers have called down their revenue numbers. Clearly the cloud migration activities are not seeing a degradation, but they're clearly seeing a deceleration. The numbers bear that. The data bears it, and that obviously is the hard truth gleaned straight away from the numbers that the hyperscalers are bringing up. We do see that. Our play, and I suspect the play of most of the SIs like us, is less around the migration piece.
It's more around how do you enable operations on the cloud. It's more around how do you make sure that ROI on work that is done on the cloud is measurable, especially in an environment like this. It's more around everything that you talk about in innovation terms, how does that get translated on the cloud? From our vantage, cloud, the cloud service line is a material service line. We would not expect it to grow at a slower pace than the rest of the firm, but possibly at a slower pace than the pace that we recorded in fiscal year 2023. That's how we're seeing cloud spends translating into revenue from our point of view playing out. Did I answer your questions, both your questions?
Yeah, that's very helpful. Any particular service offering that is seeing, like, more impact, under the current macro context, in your portfolio than others? That would be helpful. Thank you.
I'll tell you the ones that we see actually expanding and the ones that are more impacted, and this is all relative, this is not absolute, I don't expect any service offering to start degrowing. Service offerings where demand is very positive, still buoyant. The first one is low-code/no-code, particularly no-code. Within low-code, no-code. The demand there is strong, it is solid, it is resilient. The second one in an environment like this is integration. Integration continues to be unimpeded. And the third one I'd classify as being data, especially more on the analytics side than on the tech data services side. Those three areas, clear bright spots. Product engineering, still a bright spot. People are talking about transformation going away, but increasingly, what was the legacy ADM business is under pressure.
Product engineering, which fundamentally is all about full stack developers under a scrum pod-based models, continued demand despite the slowing down. Those are the areas that we see on a relative basis, we see demand outpacing the other service lines. Again, on a relative basis, tying this back to your earlier question, cloud on a relative basis, the demand has gone down compared to the other service lines. Cloud, clearly an area that is cloud. Infra, clearly an area. In most of the verticals, with the exception of travel, is a space that is under stress. Travel, of course, as a vertical continues to be buoyant, right? When I look at our travel client base, we see a more committed, a more confident spend on technology for the next 12 months because of a return to profitability, because of the increased business demand, particularly airports and airlines.
There, even cloud is resilient. For the others I would stick with what I just called out.
Thank you so much.
Thanks, Gaurav.
Thank you. Next question is on the line of Manik Taneja from Axis Capital. Please go ahead.
Hi, thank you for the opportunity. Just wanted to get your thoughts around the fact that we've seen our offshore revenue mix increase materially over the course of last three years. How do you see this playing out over the next 12-24 months? Also a related question to our segmental margin performance. What is driving the significant drop-off in terms of our segmental margins in EMEA as well as America? Thank you.
Sure. I'll take question number 1 around offshore. Ajay, I request Saurabh or you to take question number 2. Offshore, we're at about 51% right now, Manik. I believe from our size, all the journey up to $2 billion, the cap will be about 54-55. I don't expect us to be galloping towards that cap anytime soon. If you look at us over the last 8 quarters, you'll find that the rate of offshore revenue increase has been decelerating. Last quarter again is a clear pointer to it. That's how we see it. We're at 51. We used to be at 36 about 2 and a half years back, so we've obviously galloped our way to 51.
I see the pace of growth now decelerating, and possibly inching towards a 53%-54% if all goes well. Segmental margins, Ajay, all yours.
Yes. Saurabh, would you like to take that question?
Okay. Thank you, Ajay. I think the reason why we are looking at little stress in margins or a little drop in margins between EMEA and US, so there are 2 factors there. One, obviously the growth that has come in, there are investments that have been done at the front end. When we look at our margins for the geographies, it also includes the investment that has gone into S&M. The large factor come in is actually the S&M investments and the capability investments that have been done at the front end.
Sure. Thank you. All the best for the future.
Thank you, Manik.
Thank you. The next question is on the line of Abhishek Kumar from JM Financial. Please go ahead.
Yeah, hi. Good morning, and thanks for taking my question. We have guidance, and order book, conversion. It appears it is at the lower end of what we have achieved historically. Still it needs $250 million-$300 million of, you know, additional revenues coming in through new deals, et cetera, through FY24. Now, in the current environment where, you know, most of our peers have seen unforeseen ramp downs or instances of vendor consolidation, et cetera, do you see any risk to the guidance that we have given? Have you seen in our client base, you know, any instances where we might have lost out in a vendor consolidation scenario to large, larger peers? Thank you.
Sure. I mean, there's always risk. Abhishek, it's a question of whether that's a theoretical risk or a practical risk. Look at our track record. The guidance that we've given at the beginning of the year is a guidance on revenue that we've always met and actually exceeded. Our record really over the years has been somewhere around Q2 or Q3, we go ahead, revise it, and revise it upwards, and then close the year and close it ahead of the, of the, of the revised guidance that we provided. I mean, if the question is there a risk to the guidance? I guess the honest answer to that is, there's always a risk to any guidance. Practically, do we see a risk, and how significant is the risk? We don't...
We feel pretty confident, is how I would call it out, of the numbers that we provided, of meeting them. As I've said repeatedly on the call, the intent will be to exceed them, and we'll see how the year pans out. On a client basis, we have seen absolutely no instance with any material client where under a consolidation exercise we got edged away. It's a question that I've received a lot. I understand there are some theoretical constructs out there that large-sized players can come in and start displacing the mid-sized ones. We believe in it, we don't buy into it, we have not seen it, and we will not allow it. If there's one thing we pride ourselves on, it is execution.
Execution means being in the trenches with our clients and knowing what's gonna happen to their business and what their decision pattern is in the quarters and the months to come. We like to think we've done an exceptional job over the last six years of doing that, and at this point in time, we've seen absolutely no displacement out. We anticipate, under any circumstance, absolutely no displacement out. That's the answer to the question that you posed, Abhishek.
Thank you, and all the best.
Thanks.
Thank you. The next question is in the line of Abhishek Shindadkar from InCred Equities. Please go ahead.
Hi. Thanks for the opportunity, congrats on a good quarter. I just wanted to understand, you know, the growth rates in the fresh order intake and the executable book. Last year, you know, the executable book growth was lower than the fresh intake, while this year it is the other way around. How should we read that, from a perspective of, you know, the quality of book, and the tenure of book? If you can explain that could be helpful. Thank you for taking my question.
You're very welcome, Abhishek. Thanks for the question. I mean, I can't parse through order intake versus executable numbers on the spot, but what I can tell you is, if you look at the last six years, Abhishek, and I'm not talking one, two or three years, look at the last six years. If you look at the movement on order executable, which we call out every quarter, and you tag that with the actual revenue growth delivered over the next 12 quarters, there's been a very, very strong correlation. I did point out that we closed the quarter with an order executable number of $869 million. That number is 20% higher than where the same number was at the same time last year. We derive a lot of comfort from it, that order executable piece.
The other thing also that I very explicitly called out is even in a quarter like Q4, two large deals got signed, and we did call out that Q1, that we're already into, almost a month into, is a quarter where we expect the deal velocity, large deal velocity to continue. A lot of the confidence comes from that. Order executable has had a very strong correlation to actual revenue growth, and our intent will be to make sure that we don't lose that correlation in the year to come.
That's, that's helpful. What I was trying to understand is that, you know, fresh order intake growth lower than the, you know, growth of executable order book over the next 12 months, you know, historically. I mean, the assumption right now is that there are a lot of cost efficiency deals which are larger in tenure. You know, that should have been reflected in these growth rates also, while, you know, the near-term transformation deals or shorter-term projects, are more subsiding what the thought was or general perception is. Should we read anything from these two growth numbers and kind of correlate to the mix of book or maybe, you know, we are thinking too far?
Saurabh, you're closer to these numbers than I am. Do you wanna take a stab at the answer?
I think last year when we looked at order intake growth being higher than the executable, I mean, we had a large deal coming in which was spanning over a 5-year period. What is happening this year is I think most of the deals that have come in, they are around 3-year period. I think when you look at intake, as a growth in the intake, it also is a function of 5-year versus 3-year deals getting signed. That's one. As Sudhir mentioned, when we derive comfort from the next year projections, that actually comes in from the 12-month executable, because every deal, we carve it and then and derive what will be the next 12-month or 24 months or 36 months revenue.
I think it's more about one or two large deals getting signed, which is longer-term period, and that's where the intake growth in a particular year will be reflected very, very high. I think there is nothing more to read beyond that. When we look at our projections, our immediate growth numbers for next 6 to 12 months, the comfort that we derive is more from a 12-month executable order book.
John, this question around-
Thank you.
Yeah, this question around client outlook and orders come in quite a bit. Do you wanna provide some quick commentary on what you're seeing with the key accounts as a CS?
Yeah, I mean, the. I mean, you actually covered a lot of the points I was actually going to flag up. I see quite a lot of benefit from our positioning. The fact is that you mentioned the relation, the deep relationship, the bottom-up approach. We're in the trenches. We've always prided ourself on execution. This has actually positioned ourself very, very well where there are significant cost outs. 'Cause they come to us with our technology capability to drive those cost takeouts. I actually see it as a positive sign in many respects for us as an organization. That's extensibility.
Thanks, John. Thanks, Saurabh. Thank you, Abhishek.
Thank you very much.
I think that was the time we had for the last question. We can take other questions offline with everyone. Go ahead, Aman.
Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Sudhir Singh, CEO, Coforge Limited, for closing comments. Thank you, and over to you, sir.
Thank you very, very much. We mean this very sincerely. A lot of us, actually all of us on the call are gonna remember this day very, very fondly. It's the day we crossed $1 billion. We think it's fantastic that we got to start the day out here in India, with all of you. It's early morning. Thank you very much for your time, for your interest, for your comments, and for your insights. Look forward to seeing you next quarter. Bye-bye.
Thank you very much. Ladies and gentlemen, on behalf of Coforge Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines. Thank you.