Hi everyone. Good evening, participants. Welcome to the Q2 FY 2025 earnings call of eClerx Services Limited. Please note that this webinar will be recorded. To take us through the results and to answer your questions, we have with us the top management of eClerx, represented by Kapil Jain, Managing Director and Group CEO.
Srinivasan Nadadhur, Chief Financial Officer. We will start the call with brief opening remarks by Kapil, followed by Srinivasan, who will be sharing the financial update. Then we will open the floor for Q&A session. As usual, I would like to remind you that anything that is mentioned on the call that gives any outlook for the future or which can be construed as forward-looking statement must be viewed in conjunction with the risk and uncertainties that we face. These risks and uncertainties are included but not limited to what we have mentioned in the prospectus, filed with SEBI, and subsequent annual reports, which you can find on our website. With that said, I will now hand over the call to Kapil. Over to you, Kapil.
Thank you, Asha, and good morning, everyone. It's been an excellent quarter for us, and I'd like to share highlights of our performance for FY 2025 Q2. Operating revenue in Q2 was USD 98.8 million, up 6% sequentially and 12.8% year-on-year, driven by exceptionally strong growth in our financial markets business and supported by customer operations business. In Rupee terms, Q2 operating revenue was INR 8,318 million, up 6.4% quarter-on-quarter and 15% year-on-year. Margins have shown a strong sequential improvement as well. This is attributable to three key reasons: strong revenue growth, improved utilization, and some one-offs. Srini will cover the one-offs in some more detail. EBITDA for Q1 was INR 2,288 million at a margin of 27.1%, while PAT for the quarter was INR 1,402 million at a margin of 16.6%. Our analytics and automation business is USD 19 million this quarter, up 10% sequentially, which is a positive sign.
Our financial market business had an exceptional Q2 with strong offshore and onshore growth in the client lifecycle business, contributing to most of the growth. The momentum in this business continues to be strong, and we see demand in both change and BAU areas of this business. The growth in customer operations was driven by the care business. Digital had a mixed quarter with growth in data operations segment but offset by a slowdown in the creative business. In client geographies, growth in North America was strong, while Europe for us continues to remain challenging. ACV of the deal wins for the quarter was a strong USD 28.9 million. Roll-offs in Q2 were higher than Q1, and the full impact of these roll-offs will be felt in Q3. These roll-offs are related to short-term projects which have come to a planned end. However, the pipeline continues to be strong.
Our delivery remains strong. Our value proposition continues to resonate well with clients, and the medium to long-term growth momentum remains intact. Let me also provide commentary and outlook for each of our three businesses. We continue to see broad opportunities in financial markets, in KYC, onshore consulting, and delivery. We are in conversation with a broad set of potential clients and are working on several active RFPs. With some of our clients, we are also starting to uncover opportunities in the tech and change area, and given our strong domain, strong delivery, we believe we can meaningfully grow our presence in the change area. In the digital business, fashion and luxury saw a decline with global fashion houses reporting less client demand, particularly out of China. This is likely to continue for the next couple of quarters. We see budget outlook improving on high-tech, retail, manufacturing, and distribution.
We have also seen initial success in cross-selling our MarTech and data engineering services to some of our clients in the financial services space, which we see as a positive sign. In customer operations, the industry continues to see pressure around revenues and subscriber growth. Despite this, because of our strong delivery, we see continued strength in existing client growth and client diversification. We have combined technology and analytics under a single leadership. This will help us position our services better, improve agility, and enhance the value proposition for our clients. As I mentioned earlier, we are seeing a pickup in demand for change and transformation services in our financial services space. Finally, I'll conclude with awards and recognition and hand it over to Srini for more detailed commentary.
In customer operations, we were recognized by one of our large clients as the most insightful and innovative partner in their annual partner summit. Our QA360 quality as a service platform used for call monitoring, scoring, and auditing in the customer operations business won the CIO 100 India Award. We won the Silver Award at the 2024 Brandon Hall Awards for excellence in learning and development in the category of best custom content. Our award-winning entry was a transformative learning and development project designed to enhance the communication skills of analysts and senior analysts in financial market operations. The win marks our seventh consecutive year of winning at the Brandon Hall Awards. I think people are key assets, and this really differentiates how we are delivering services to our clients. Industry analysts have started to recognize our market leadership across products and services.
In the last quarter, eClerx was rated as a major contender in RPA products and in customer experience management services, Americas, and as an aspirant in finance and accounting PEAK Matrix assessments by the Everest Group. I'd like to thank all our clients, employees, and stakeholders for their support and confidence in us. And over to you, Srini.
Thank you, Kapil, and good evening, everyone. Let me provide a little more detail on our financial performance. As Kapil mentioned, operating revenue was USD 98.8 million, sequentially grew by 6% in USD terms and 5.7% in constant currency terms. On a year-on-year basis, revenue increased by 12.8%. Total revenue for this quarter was INR 8,447 million, up 5.2% sequentially and 14.8% year-on-year. Other income for the quarter was INR 128 million, lower than the previous quarter since we completed the buyback in July. The EBITDA of INR 2,288 million is up 22% sequentially and 4.5% YoY. The PAT of INR 1,402 million for the quarter is up 26% sequentially and 3.9% YoY. As Kapil mentioned, the reasons for the margin expansion are threefold. One is the increase in revenue leading to operating leverage. The second is the higher utilization in the quarter.
The excess bench that we were carrying in Q1 in anticipation of future work became billable in Q2. The third is because of some one-offs in the previous quarter, such as sign-on bonuses, higher 401(k) contributions, and a change in the calculation of provision for leave. The impact of these one-offs on margin is about 85 basis points. The exit headcount has increased by about 480 to 18,227. Attrition is at 22%, which is higher than Q1, as we had anticipated. On the key business metrics slide, the top 10 client concentration is now up to 63%, a result of the strong growth in top clients in financial markets and customer operations. DSO is 77 days compared to 81 in the previous quarter. Our new office spaces in Chandigarh and Pune will go live in Q3, and the new space in Mumbai will go live early Q4.
So, there will be an increase in seat count, and G&A and depreciation costs will go up in Q3 and Q4. Thank you, everyone. With this, we conclude our prepared remarks. We can now move to the Q&A. Back to you, Asha.
Thank you, Srini. Thank you, Kapil. We'll take the questions now. First question comes from the line of Yash Mehta. Yash, I have unmuted your line. Please go ahead. Yash, we can't hear you. Yash, you are unmuted. I think we'll move for the second question. Another question is from the line of Sandeep Shah. He's from Equirius. Sandeep, I have unmuted your line. Please go ahead.
Yeah. Can you hear me?
Yes, Sandeep.
Yeah. Congratulations on a superlative performance, both on revenue as well as margins and even pre-cash flow. So, the first question, despite a strong growth, the demand commentary looks slightly mixed, where we are bullish on BFSI, but we are also slightly cautious about the other segments. So, can you elaborate in detail how the second half will look like with all the comments which you have given on tailwinds and headwinds? And you also commented the roll-offs being higher in 2Q versus 1Q and will have a full quarter impact in 3Q. So, directionally, how do you see the growth in the near term and its impact on the margins?
Yeah. So, Sandeep, thanks for the question. Like I had said in the beginning, the strategy that we had put in place was to see how we can cross-sell and upsell in our existing set of clients. So, that seems to be working well. In terms of the overall guidance that we had given, three things. We had said that we will be in the range of 24% to 28% on EBITDA for the full year, which we are saying we will. Second, we had said we will show sequential growth year-on-year on the absolute EBITDA number. And third, we said that we would be in the top quartile of the growth amongst our peer group. And the medium-term outlook, short to medium-term, the H2 outlook is in line with what I had just stated and what we had stated earlier as well.
The overall strategy in terms of tech and change, which I alluded, as well as cross-sell, as well as growth on the back of strong delivery, that all is continuing, and we are seeing green shoots in that area, as well as in terms of some of the analyst rankings.
Okay. So, what is the nature of these roll-offs? Is that project completion, or these are customer-specific issues?
No, these are project completions. So, they were short-term projects that we started sometime earlier in the year, which have now come to a planned end.
Okay. Okay.
So, there is no roll-off that we have had, which is because of delivery issues, and this is as part of the business.
Okay, so if I understood correctly, in Q3, Q4, we may do well, but you said on YoY, even on a Q1Q, directionally, it should be a positive growth?
See, I think to expect the same growth that we have delivered in Q2, I think will not be appropriate. I think, and we don't give forward-looking guidance, but in terms of medium- to long-term outlook, stays positive, which is backed by the good pipeline that we have, as well as in terms of some of the success we have seen on the initiatives that we had embarked on, which I had alluded to at the start of the year.
Okay. Okay. I will come in the follow-up. Thanks and all the best.
Sure, Sandeep.
Thank you, Sandeep. Next question comes from the line of Aayush Rastogi. He's from B&K. Aayush, please go ahead. I have unmuted your line.
Yeah. Hi. Thank you. Thank you so much. So, a couple of questions. So, on G&A side that you mentioned that it could be on the higher side, what we have seen in 2Q. So, what's the comfortable band that we are eyeing for the 2H or maybe for the full year, if you can just guide us in terms of percentage of revenue? That's the first question. Second question is on acquisition fund. So, what sort of capabilities or in terms of implementation of those capabilities are we sort of eyeing for, or is it more or less like that we are looking for the customer operation side of the business, maybe to the near shore? So, these are the couple of questions, and then I'll have a follow-up.
Right. Thanks. So, on the G&A thing, we expect about max about 50 to 70 basis points impact as a percentage of revenue in Q3 and Q4. On your second question on M&A, so our priorities remain unchanged. So, we continue to look for assets which can meaningfully add to the capabilities that we have. So, in financial markets, we are extremely strong in delivery of KYC service. But something upstream to that in terms of consulting or advisory would be of interest to us. On the digital side, something on analytics would be of interest, as would something in the creative space. On the technology side, we are users of Salesforce and Adobe platforms from the operation side, and we'd like something that gives us an edge on the implementation side of these products. So, we are looking for assets in those areas.
And on the customer operation side, something on near shore might be of interest to us. So, the priorities broadly are the same that we had listed out last quarter. They haven't changed.
Yeah. Okay. Next question is basically for FY that we have commented in the last earnings call that we are eyeing for the double-digit kind of a growth. That's an aspiration. So, it seems easily achievable for them. So, is it fair to assume if you see the ACV trend for us for the one leg, it looks pretty strong? So, fine to assume that we would be eyeing almost like for mid-teens kind of a growth, which is kind of doable for the full year?
So, Aayush, we don't offer forward-looking guidance, but the overall progress is good. And I think we continue to state what we had stated when I had presented overall strategy for this year and the future. And I think our outlook stays positive for medium to long term. Quarter-on-quarter aberrations may happen, but the full year, what we are saying, we still stand with it on the growth. I had said top quartile. So, unless something happens, what you're saying should be achievable. And then on the margins as well as on the sequential growth on EBITDA.
Thank you so much.
Thank you, Aayush. Next question is from the line of Shradha Agrawal. She's from AMSEC. Shradha, please go ahead.
Yeah. Hi. Congratulations to thne team on a exceptionally strong quarter. two, three questions from my side. Just again, persisting on the guidance, if at all you can indicate for 3Q, given that ACV this quarter has been relatively soft, and then on a YoY basis, it is actually declining. So, from that perspective, how should we look at growth trends in the second half of the year?
So, I think quarter-on-quarter Shradha aberration may happen. I think if you look at sequentially, we have shown a marginal increase. YoY, yes. Because I think in terms of sometimes it does take time, and also the clients are taking longer in decision-making. That's what we have seen because the overall market is volatile, and we are cautious. However, given the pipeline growth, the momentum we are seeing in the business, I still feel in terms of restating what we had said earlier, and as I had said earlier, that forward-looking guidance we have not provided. So, I'll reserve my comments on that. But for the full year, we continue to stay positive and in line with what we had stated earlier.
And so, just again, insisting on the same thing, generally, employee addition has been one lead indicator of revenue growth for us. And despite a good uptick in utilization, our employee count is almost up 2.5% to 3% on a sequential basis. So, is it reasonable to assume a 2% to 2.5% kind of sequential growth going into 3Q?
I'll repeat the same.
Okay. No worries. And again, on the growth, if you look at growth, this quarter was driven more by the top accounts, and the emerging clients were relatively soft. So, any demand trends or variance in demand between the top and the emerging clients, that would be helpful.
I think what we are trying to do is also look at new buying centers in our top clients. Like I had said earlier, we have seen some success. It's only been six months from the time when we had formulated our strategy and thinking. That gives us confidence that there is still an opportunity in taking our service offerings, productized services into our large clients. As well as in emerging markets, there is an opportunity for cross-selling some of our productized services in customer operations as well as in finance and accounting. That's really where we have to double down and focus on as we move into H2 as well as for next year.
Right. So, just last bit on financial markets. We've been showing strong growth in this segment for two, three quarters in a row now. And given the expectation of further lowering of interest rates, do you think traction in this segment can further pick up, or demand should get further strengthened in this segment for us going ahead?
I think our financial markets growth is driven primarily from a compliance and regulatory perspective. That I think is a big driver. Second is the overall activity in the product classes that we support in the global market operations. We don't anticipate a slowdown, but compliance and regulatory, I think SEC and FCC, I think is something that we'll continue to see in terms of whatever the growth we have seen. There is a little amount of volatility on the compliance space because, let's say, if someone has got one of our clients, some clients will get, let's say, a timeline by when they have to complete certain regulatory requirements. And that's really where we support our clients, which drives the demand and growth.
Great. Thank you. And all the best.
Thank you. Thanks, Shradha.
Thank you, Shradha. Next, we have a follow-up question from Sandeep Shah. Sandeep, please go ahead.
Yeah. Thanks. Thanks for the opportunity again. Just wanted to understand how to look at the ACV conversion, which we have started reporting two, three quarters back. In terms of conversion to revenue, so because last year we were at $90 to $92 million, this time we could be close to $100 million. And that on a top line looks like a bigger jump in the next year. So, can you give us color in terms of how to arrive at an approximate growth rate based on ACV, keeping in mind the roll-offs will continue year after year?
Yeah. So, basically, ACV minus roll-off should be the net addition to revenue in any year.
Okay. So, Srini, just the normalized business or demand environment, what could be the annualized roll-off figure?
Yeah. Normal value is about 15% to 20% in a year.
15% to 20% of the top line?
That's right.
Okay. And Srini, in the first quarter, if I recollect in the earnings call, we said we will pull up margin on a Q1Q basis from 2Q to 4Q. So, now with new facts, do you still stay by that statement where PQ margin higher than Q2, Q4 margin higher than Q3 with some amount of headwinds you called out?
Yeah, so if you remove the impact because of new facilities going live, and if you remove the impact of the one-offs in Q2, then I think, and then based on that, if revenue growth continues to happen, then we believe that what you're seeing holds good, so if you remove, then the key determinant of margin is basically revenue growth.
Okay. Even revenue growth happens, even with one-off, we can be still better on a QoQ and Q3 over Q2?
Yeah. Removing the one-off.
Okay. And can you explain the nature of one-off sign-on bonus and why you believe those are one-off, will not come in the Q3 as a whole?
That was for senior management sign-on bonuses. So, we will not come again. So, that was one. The second is usually after bonuses are paid, the contribution to 401(k) increases in that quarter. So, that's why it's high. I'm talking about the U.S. So, that is the other one-off. And the third one is that when we make provisions for leave encashment every quarter, we use an approximate calculation for that. And in Q4 every year, we do an actuarial valuation. But this time, we did an actuarial valuation in Q2 itself, which led to a reduction in the provision.
Okay. Okay. Thanks. All the best.
Thank you.
Thank you, Sandeep. Reminder to participants, please click on raise hand button for questions. Participants, reminder, please click on raise hand button for questions. We have next question from the line of Debashish Mazumdar. He's from Svan Investments. Debashish, please go ahead.
Good evening to the management team. Congrats on a very good set of numbers. I have two questions. First is related to the vertical exposure that we have. From the numbers of your exposure to geography and clients, it seems to be the large part of the growth is driven by financial services, which has definitely grown much more than what is our overall company growth would be in this quarter. And the luxury segment must have been significantly impacted. So, if you can give us some amount of indication that how the financial services, customer segment, and the digital segment growth going forward over the period of next two to three quarters, and what are the opportunities you are seeing there. So, that is the first question. And second question is for Srini.
If you can quantify the 85 basis points QoQ one-offs that you were talking about, how much of that is related to that bonus signing and changing accounting policies, and how much is driven by your higher utilization and higher revenue growth?
Yeah. So, that 85 to 90 is entirely because of bonuses and leave provisions. There is no, it does not include the higher utilization or the revenue.
Okay. Okay.
So, Debashish, in terms of, like I had said earlier, in financial markets, the demand is driven on the back of compliance and regulatory work, as well as increased activity in different asset classes that we support on the market side. On the customer operations, the demand is driven on the back of existing clients, as well as cross-sell opportunities in other verticals. And on digital, we are seeing, again, cross-sell opportunities of MarTech analytics into financial services clients. The softness we are seeing is in the creative side on the CLX business, which is primarily due to the low demand that is coming in from China.
Great. Kapil, one more question, if I can add. If you can also help us to understand, since you joined, how the structure of the business changed in terms of focusing on existing top 10 clients or the annuity business or the focus more on maintenance business? So, what are the kind of changes that you have implemented, and where are the benefits that we are seeing today? If you can help with that?
Debashish, I think our delivery was very strong, and then our ability to offer productized services as well as embed technology in everything we are doing was a unique differentiator. That gave a very strong platform to go and take this value proposition to the clients and drive the growth momentum, and that is what we are seeing. I think the opportunity to cross-sell, upsell, I think we are seeing that. The overall strategy of One eClerx that we are driving, I think, is helping us, A, in front of the clients, as well as with our sales engine, as well as on the employee side. Because instead of three individual businesses, it's One eClerx, $350 million, 18,000 people. I think resonates well with the client, and so, that's really what we are embarking on.
I think what we are seeing is the green shoots that we are seeing of the strategy that we have laid out.
Okay. So, just to understand one more thing here. Before you joined, we were significantly focusing on clients beyond top 10 so that our exposure to few of the clients gets reduced. At least from the last two quarters' numbers, it seems to be that the focus on the top 10 client has come back. So, the point that I'm trying to understand that, is it because the top 10 clients have started growing because of the initial green shoots that we see, or it is the incremental proposition that we are taking to those clients that is helping us to win new businesses?
It's a combination of both, Debashish. And that will also help us de-risk the risk in our top 10 clients because we are looking to see how we can find newer buying centers in our top 10 clients. And it's not that the focus is not there outside of top 10 clients. I think the focus continues outside of top 10 clients as well on taking our productized services and cross-selling our, let's say, which I mentioned, our customer operations, finance and accounting, as well as our MarTech and analytics business. And we are seeing good traction on the tech and change side, which is what I had alluded even in the earlier earnings call, that given our strong delivery domain and productized services, it renders well with the client's agenda on change.
Okay. Okay. And one last question, sorry. So, we are hiring the senior leadership over the last two, three quarters aggressively. So, do we think that the senior leadership hiring is done and the large part of the employee cost escalation is behind us?
The senior leadership, under Kapil, that hiring is done.
Yes. Yeah.
That is done. But under the senior leaders, we will decide on a case-to-case basis on whether we need to strengthen in certain areas, add more sales muscle in other areas, and so on. So, that continues to happen on a case-to-case basis.
Okay. So, broadly, what I'm trying to understand is that employee cost as a percentage of revenue, is it at the level that we are today? Will we be able to see that falling trend going forward apart from the salary-high quarters that we see? Apart from that, is there a possibility that our employee cost as a percentage of revenue will keep on coming down from here on?
That is a little hard to say. And the reason, maybe Kapil, maybe I will comment, and then you can answer. The reason I say that is if we are moving into more change and analytics kind of work, then the employee cost in those areas is higher. So, it's kind of hard to say definitively that the employee cost has peaked.
So, Debashish, I think we will continue to add sales engine, right? Sales bandwidth. And in terms of, I think I had said earlier as well, when we are looking at hiring, sales bandwidth, leadership hiring, we look at in terms of what is the contribution we will have both on the top line and the bottom line. And I have said that, yes, absolute margins are important. For me, what is important is the overall EPS equation and sequential growth on EBITDA.
That continues to be the focus. We will continue to be in the band of what I had stated, between 24% to 28%. All the decisions that we are making is taking that into consideration, not in terms of, okay, yes, there are a lot of input metrics that we monitor and measure. At the outset, these are the three guiding sort of our North Pole that we have, which we look at when we are making some of these decisions.
Sure. Sure. Thank you so much for answering my questions.
Thanks.
Thank you, Debashish. We had a follow-up question from Sandeep Shah. Sandeep, please go ahead.
Yeah. Thanks. Thanks. Just a clarity. Srini, you were saying because of the new facility, Q3 and Q4, each will see a 50 to 60 basis points Q o Q increase in a G&A cost as a percentage to revenue?
Q3 for sure. Q4 will be lower than that.
Okay.
Yeah.
How the depreciation will look like?
I think about the same. I think it will go up by about the same percentage.
In terms of 50, 60 basis points higher?
Yeah. That's what I estimate. I've not looked into it in more detail.
Okay. And looking at the strong growth in Q2, especially in the top 10 clients and BFSI, there could be a follow-up impact because those projects might have started in between the quarter end of the quarter, may have some impact in terms of a positive growth in Q3 as well. Is it a right way of looking at it?
Yeah. That is fair.
Okay. Okay. Thank you.
Thank you, Sandeep. Reminder to participants to click on raise hand button for asking questions. We have next question from the line of Krish Beriwala. Krish, please go ahead.
Yeah. Am I audible?
Yes.
Yeah. Hi, Kapil. So just one question. Can you share some details around our current pipeline and how is it against, let's say, start of the year in terms of size or average tenure and nature of these?
So I think our pipeline, Krish, is up from when we started the year. And it's broad-based. The pipeline involves the opportunity that we had seen in the beginning, which is cross-selling. So there are opportunities on that front. We are also seeing a pipeline which is of larger deals compared to what we had seen earlier. So that's another good sign. And as well as it's across the three businesses, that is financial markets, customer operations, and digital, and in tech and change. So overall, pipeline momentum is positive. Like I said, in digital, we are seeing a little bit longer timelines in terms of decision-making.
Got it. That's useful. And just one follow-up on our top five accounts. They have done very well this quarter. Is the growth broad-based within those top five accounts or driven by one or two?
It's very broad. Sorry, is it broad? What is the question? Is it broad-based or?
I mean, is the growth broad-based within those top five accounts or driven more by one or two accounts?
No, it's more broad-based. It's not just dominated by one or two accounts.
Perfect. Perfect. Thank you so much, Kapil and Srini.
Thank you.
Thank you, Krish. We have next question from the line of Rahul Jain. He is from Dolat Capital. Rahul, please go ahead.
Is my line audible?
Yes.
Yes. Yeah. So two questions. Firstly, on the margin outlook that we have shared earlier, since we might see growth shaping up better this year versus the previous year, do you see that once the growth is back, this band would get narrower towards the upper end in the period to follow? Or do you think this is more a strategic thought process? So you would continue to invest back into the business and stay in this broad band even from a medium-term perspective?
So at the moment, I think the commentary that we have given on the band is for this year, for FY 2025. For FY 2026, I think we really need to evaluate the situation, which we are just in the process of starting. So we need to evaluate whether the band will change upwards or downwards. But we haven't come to any decision on that yet.
Sure. And secondly, we highlighted about the opportunity that we see in the analytics as well as MarTech side. It would be great if you could share some thought process. What is the size of this practice at this point? And how is the competitive landscape here? My understanding is that this is a very scattered market. So any color on these elements would be helpful.
So I think our analytics automation was what we did was we combined, as I had stated earlier, the analytics and technology. We brought it together, which has resonated well with the clients and in terms of the overall value proposition that we are able to take. And in terms of overall competitiveness, we have a good roster of clients and I think a very strong referenceable client set. So we are positive in terms of the momentum that we will be able to drive on the analytics side.
Anything more on the size of the business and also any seasonality that you have within your portfolio in the MarTech business, if that could be shared?
So I think in the creative business is where we see where we had said that we are seeing softness in demand. On the campaign management and performance analytics, we continue to see good demand. And I think in terms of size of the business, we don't give individual split of the businesses. So I'll reserve. But like I said, from what we are seeing in the market and from our clients, we are competitive and we have a good value proposition for our clients.
Right. So Kapil, what I'm trying to understand is generally this kind of businesses, they do have spikes both up and down. So is there a way to understand the seasonality, like Q2, Q3 to be bigger quarters for such business, or there's no such trend that we have identified in the past?
I think it's a little difficult to identify the trend in quarter on quarter. I think we look at anything we are doing, we are looking at how we create medium to long-term value both for our clients and shareholders. So I think in terms of quarter to quarter seasonality, we haven't seen or identified a trend.
Thank you, guys. Best wishes.
Thanks. Thanks, Rahul.
Thank you, Rahul. Next question we have from the line of Varun Bang. Varun, please go ahead. Varun.
Hi, audio.
Yes.
Yeah. Thank you for the opportunity and congratulations on strong performance. Just one question. So within the three business verticals, can you explain on the cross-sell and upsell opportunities in detail? Maybe if you can give or state one or two examples to explain how we are upselling and cross-selling.
So, for example, our MarTech stack, we have had a win in the financial services client. So that's one thing. Our customer operations in high-tech area, one of our productized services. So those are some of the successes we have seen, which is these are the two large ones. And I think on the back of this is giving us the confidence on our ability to cross-sell and upsell. And the reason is, I think our delivery, as I had mentioned again, is very strong. So the internal clients act as reference when we are cross-selling and upselling to other stakeholders in the same client.
And on the upselling side, if you can give examples too.
I think in terms of looking at adjacent areas and on the overall change and tech stack is where we are seeing upselling because we have domain productized services, and looking at change driving transformation is where we feel there's an opportunity for upsell.
Okay. Got it. Thanks.
Thank you, Varun. We have next follow-up question from the line of Debashish Mazumdar. Debashish, please go ahead.
Hi, Srini. Yeah. Am I audible?
Yes.
Yes. Yeah. Srini, one follow-up question on margin. So effectively, what we are communicating is this quarter, our core EBITDA margin is 26%, which has 85 basis points of one-off, which will not be there next quarter, one-off benefit, which will not be there next quarter. So is it like we are starting Q3 around 120 to 130 basis points lesser compared to Q2? Or is there something missing?
How do you get 120, 130?
So 85 basis points is the one-off, and then 50 basis points impact, you said, because of the new yeah.
Yeah. That's a fair statement. Yes.
Okay, and do we have enough leverage, enough levers available to kind of nullify some of this 120, 130 basis points impact that we will be seeing sequentially?
So it's largely based on revenue growth. So if there is revenue growth, then we should be able to do it.
So the question that you answered on Sandeep's question on a few of the new projects that is getting started because our ACV in Q1 was very, very strong, so is it a fair statement to assume that in Q3 may not be at 5%, 6%, but we'll have a reasonable amount of handsome growth that we'll be making in Q3 that will be able to maintain some amount of margin benefits, I mean, some amount of margin that we'll be losing in Q3?
I think the way you should look at it is put both ACV and roll-up together. I think you're only looking at ACV.
No, Srini, what I'm trying to understand is even if you so in H1 put together, our average ACV growth is around 35 to 36%. And even if you assume 12 to 15% roll-up, I think getting a 12 to 13% growth in this year will not be a very big trouble. And in that case, our sequential run rate is supposed to be I mean, the sequential growth ask rate is supposed to be 3-3.5%. So is it a fair assumption that in next two quarters, CQGR will be 3 to 3.5% to reach a 12.5% number for this year?
The assumptions are fine, but what we don't have is the visibility into the revenue. I can't really put into that.
Debashish, I think again, I think you're asking in terms of I had mentioned that we will be in the top quartile of the industry peer segment that you evaluate us on. Now, whether that is 12%, 13%, 15%, 9%, that's something I think is your guess as well as mine, right? We will be in the top quartile. On the margin in terms of whatever impact, one-off, whatever, we will be in the range of 24% to 28%. And we will show sequential EBITDA growth. These three things I have said, we will stick to it, and we'll maintain that, and we'll deliver that to you guys.
Sure. Sure. Thank you so much.
Thank you.
Thank you, Debashish. We have follow-up question from Sandeep Shah. Sandeep, please go ahead.
Yeah. Just a question on capital allocation. We generally prefer a buyback as a method of cash distribution. So with the tax ruling change in the budget, do you believe our priority may be now more towards dividend, or priority continues to remain on the buyback?
I think we will definitely have to examine it. As you say, there is no difference in buyback and dividend anymore other than the reduction in dilution. So we'll have to examine, but there's, I guess, a lot of time for us to do it.
Okay. Okay. Thank you.
Thank you, Sandeep. Reminder to participants to click on raise hand button to ask questions. As there are no further questions, I will now hand over the floor to Kapil for closing comments.
Thank you, everyone. And once again, I'd like to thank all our clients for having the confidence in us and all employees, my colleagues who have worked very hard to deliver the quarterly performance that we delivered. And thank you all for your support and look forward to talking to you in the next quarter. Thank you very much.
Thank you.
Thank you, everyone. You can disconnect your lines.