Ladies and gentlemen, good day, and welcome to the Firstsource Solutions Limited Q2 FY24 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star two zero on your touchtone phone. Please note that this conference is being recorded. On this call, we have Mr. Ritesh Idnani, MD and CEO, Mr. Dinesh Jain, CFO, and Mr. Pankaj Kapoor, Head of Strategy and Investor Relations, to provide an overview of company's performance, followed by Q&A. Please note that some of the matters that we'll discuss on this call, including company's business outlook, are forward-looking, and as such, are subject to known and unknown risks.
These uncertainties and risks are included, but not limited to, what the company has mentioned in its prospectus, prospectus filed with SEBI and subsequent annual reports that are available on its website. I now hand the conference over to Mr. Ritesh Idnani. Thank you, and over to you, sir.
Thank you, and hello, everybody. Thank you for taking the time to join us today to discuss our financial results for the second quarter of FY 2024. As we all know, it's been a little over two months since I joined Firstsource. As such, I'd like to use this opportunity to share my observations about Firstsource, my strategic priorities, and my roadmap to scale our business, besides discussing our quarterly performance. These prepared remarks will take a little longer than usual. Let's start with the macro context. Over the past eight weeks, I've visited our key locations in India, the U.S., and the U.K., covering more than 80% of our workforce physically.
I've also had the opportunity to meet more than half of our top clients across industry segments, as well as had the opportunity to join the 20-year anniversary celebration of our relationship with one of the top five banks in the U.K. These interactions have given me great insight into our operations as well as our customer relationships. For me, four things stand out. Firstly, our customers absolutely love the way we go beyond the call of duty and truly partner with them in solving their business problems. It's not just one or the other, but each one of the customers I met who echoed the same sentiment and appreciation of the deep understanding we have of their operating environment and the value we are able to offer to them.
I'm particularly amazed by the seniority, depth, and duration of our relationships with our, with our clients, some of whom are among the largest players in their respective verticals and are household brands globally. Secondly, we are the market leaders in several of our focus domains. For example, our collections business is the global market leader with end-to-end capabilities, from first-party collections to legal collections, all delivered with a strong technology platform, cutting across all industries. In customer experience, which is a key component of our portfolio, we have been able to fuse technology and operations to successfully deliver significant outcomes for our customers. This was recently recognized by Everest, who rated us as a market leader in CX for the work we do in this space.
Likewise, we're clearly among the top players in the mortgage industry, and if anything, our recent conversations and opportunities bear testimony to that, along with recognition by industry analysts. We've also made significant breakthroughs in the Healthcare payer space, despite it being a fragmented and mature market, and have created superior member and provider experiences. Our solutions across the payer value chain have won us accolades, including recent recognitions by analysts such as ISG and Everest, who have ranked us as leaders in the space. We've also had good success at incubating new industry verticals, such as EdTech and media, in the last few years with a consulting-first approach. This has allowed us to build a strong capability impacting the learner and subscriber experience, respectively.
Thirdly, as strong as our existing relationships are, we are still underpenetrated, even in several of our large accounts, both in terms of our wallet share in the services we do for them currently, as well as in terms of the opportunities we have to expand our portfolio in these accounts. I believe these represent significant white spaces of growth for us. Lastly, and most importantly, I am deeply impressed by the passion and commitment of our workforce, and I truly believe that is our superpower. We believe that these differentiators augur well for us in the current environment. Today, macro shifts are putting pressure on enterprises to move from a growth playbook to a growth and efficiency playbook. Concurrently, accelerated development in generative AI and applied AI hold tremendous potential for transformative business impact.
We believe that the discontinuities caused by these shifts are likely to create market opportunities, and my focus is to use our strong foundation to take advantage of these opportunities. Towards this, I've defined a common theme of One Firstsource across all our business lines, service lines, and geographic footprint. The One Firstsource team has seven strategic imperatives. Let me talk briefly about each one of them. First, simplify the organization. We are streamlining the organization structure to remove overlap, establish clear accountability, and ensure faster decision making. We're also working towards centralizing or decentralizing, as the case may be, enabling functions and identifying the right shore for role placement. Our refined organization design will have North America aligned along three industry verticals: banking and financial services, healthcare, and communications, media and technology, and others, while Europe will remain a geographical business unit.
We are also aligning our services portfolio into five capability areas that include our mature service lines, such as collections and customer experience, as well as emerging and fast-growing service lines, such as consulting, trust and safety, and data and analytics. Second, cross-sell, upsell into existing accounts. We are setting up dedicated teams for a defined set of accounts where we see significant headroom for growth. Each team will have an identified client partner with clear ownership to identify white spaces, develop a structured account plan, take proactive proposals to clients, and work with them to develop a pipeline of large transformational opportunities. Third, expand capabilities. We are focused on building adjacencies across our services portfolio to maximize our wallet share. Our expanded set of horizontal practices and the refreshed account management plan I highlighted earlier would be key enablers of this initiative.
We will be investing in scaling our consulting practice to act as a tip of the spear in increasing the size of our sales funnel. We are also actively strengthening our footprints in Eastern Europe, South Africa, and Latin America for nearshore and offshore delivery capabilities. Fourth, amplify the Firstsource brand. We are doubling our efforts to strengthen our relationships with industry analysts and advisors. We are also putting increased focus on driving thought leadership in the domains and capabilities we excel in. While we've always been doing this, I intend to reinforce and redouble down to ensure consistent and more amplified messaging in the marketplace. Fifth, technology in everything we do. We are institutionalizing the process of evaluating how we can leverage technology in every aspect of our business, whether it's customer facing or for internal functions.
This includes building technology-led propositions to disrupt incumbents in our target set of accounts, as well as infusing our existing frameworks and platforms with the latest technologies to improve their relevance and attractiveness in the marketplace. We will also actively expand our current partner ecosystem and intend to bring them to the fore in everything we do to improve our catchment of opportunities in the market. Sixth, elevate employee experience. We want to make Firstsource a great place to work for our employees and be an employer of choice in all the markets and regions we operate in. We are working to reduce the friction, if any, and ensure a best-in-class experience for our new joiners, do a skill refresh across levels and functions, reduce attrition, as well as expand our leadership training and development programs. And finally, improving profitability.
Even as we invest across the initiatives I outlined earlier to improve and expand both our sales footprint and execution capabilities, we are going to have a laser focus on expanding our profit margins. We've identified multiple levers to work on. We have been working on right shoring our delivery model this year, which is evident in the two percentage point increase in the offshore share in H1 of FY 2024. This can only improve further. I also see scope for operating leverage in our execution model. In summary, I believe that the discontinuities caused by the macro and technology shifts are opening up opportunities which Firstsource is very well positioned to take advantage of. Our market leadership in several of our chosen domains and the quality of our client portfolio give us a solid foundation.
The One Firstsource framework is aimed at leveraging that to drive top quartile revenue growth with concurrent improvement in margins over the medium term. I will now shift to the key highlights of our Q2 performance. Let me start with the financial performance first. Our revenues grew by 3.5% year-on-year and came in at INR 15.4 billion. In US dollar terms, it was broadly stable both on the year-on-year and quarter-on-quarter basis at $111.86 million versus a year-on-year decline of 2.6% we reported in Q1. In constant currency, revenues were down 2% year-on-year, but flat sequentially, in line with our earlier assessment. EBIT margin, adjusted for one-off items, was also largely stable quarter-on-quarter at 11.2% and was higher by about three percentage points versus Q2 of last year.
Our net profit was INR 1.3 billion, and our diluted EPS was INR 1.8 for the quarter. Let's move to the deal wins. We continue to participate actively in both the cost optimization as well as the process transformation and revenue growth agendas of our clients. We are also actively hunting for sole source opportunities, both in our existing portfolio of clients as well as a new set of logos. The success of our strategy is evident in our deal wins in Q2, which were the highest in the last four quarters and the second highest in the last three years. Let me highlight a few notable ones. We were selected by Educational Testing Service, one of the largest education testing and assessment organizations in the world, to provide student support and technology services.
As part of the deal, we recently launched a state-of-the-art global capability center to deliver a cross-section of services. Firstsource also expanded its offshore footprint for one of Europe's large and leading media and entertainment companies by adding new complex service tiers. We were also chosen by one of the leading reverse mortgage companies in the U.S. to deliver a full suite of operations and technology services. We further strengthened the multi-decade relationship with one of the largest managed healthcare and insurance companies in the U.S., with additional business for providing digital intake and customer engagement services. We also won additional business from one of the largest telecom and cable companies globally to provide core customer support as well as automation and AI.
I would also like to highlight that we recently celebrated the remarkable milestone of 20 years of partnership with one of our large banking clients based in the UK. To me, this underscores the importance of the relationships we have built and the value Firstsource delivers to its clients. We and our clients continue to navigate an uncertain macro environment. In this backdrop, we stay focused on creating value for our clients and remaining disciplined on execution. Concurrently, we continue to work on scaling new subsegments in our chosen set of focus verticals and selectively expanding our operations and offerings to adjacent verticals. Let me now provide you a deep dive into our Q2 performance and outlook for each one of our industry verticals. Let's start with banking and financial services.
In Q2 FY 2024, our Banking and Financial Services vertical was down 7% year-on-year in constant currency terms, primarily due to the mortgage base effect. Revenues were broadly stable on a sequential basis. As you know, this vertical for us comprises four broad subsegments: the work we do in mortgage, collections, customer experience, and some of the emerging capabilities that we have in risk, fraud, and compliance. Let me give you a color on each of these subsegments. Mortgage. Our mortgage business was down year-on-year due to the base effect, but it was broadly stable quarter-on-quarter. We believe that interest rates will continue to remain elevated in the U.S. based on recent commentary from the Fed. However, I had a chance to attend the latest conference organized by the Mortgage Bankers Association in Philadelphia last month.
My interactions with various participants in the event suggest significant opportunities to partner with mortgage players as they look to do cost takeouts to remain competitive and relevant. We see opportunities to partner with them in helping them evaluate their target operating model, using technology to transform the way they run their current operations and reposition themselves for the future. We are also continuing to proactively increase our footprint, both from a market segmentation standpoint, beyond monoliners to mid-tier and regional banks, as well as expanding our service portfolio into servicing and HELOC. During the quarter, we also made significant strides in our efforts with new segments, including reverse mortgage, builders, and the Fintech vertical. Let's focus on the collection side of the house. Our collections business continued to grow at a steady pace in Q2, driven by new logo acquisition as well as growth in existing accounts.
Our focus here is to increase our footprint with our digital collections platform, as well as expand into other industry verticals beyond financial services. We added five new clients in this segment in the financial services space and see a strong deal pipeline. During Q2, we also expanded execution capacities in Mexico and started servicing two collections clients from there. We also made an entry into one of the largest Nordic banks, where we will be working with their collections business in the U.K. customer experience. Firstsource is one of the largest CX service providers in the banking and financial services vertical, leveraging its healthy mix of locations for voice as well as digital capabilities to drive efficiencies and deliver business outcomes. We're seeing an excellent demand from banks that are diversifying their overall retail banking and commercial banking portfolio with market improvements.
Demand is also getting diversified towards offshore and nearshore, given the continuation of cost challenges prevalent in both the U.S. and the U.K. We are seeing a strong business pipeline across large banks in the CX landscape. And finally, in the emerging segments, we are making good progress to broad base our portfolio in the BFS vertical. We've seen success with auto finance. We continue to strengthen our capabilities in risk and compliance, and we've formed a bunch of partnerships in this space, either on the Gen AI side or with leaders in areas like credit data services to power digital verification. Overall, we continue to expect modest growth in this vertical in the second half of FY 2024 over H1 FY 2024. Healthcare. In Q2 FY 2024, our healthcare vertical was down 5% year-on-year in constant currency terms, primarily due to the base effect in the provider segment.
Revenues grew by 1% sequentially. Let me talk about the provider segment first. Revenues in this segment were down both on a year-on-year and quarter-on-quarter basis. As we've been highlighting, volumes in this segment were affected by the public health emergency enforced by the U.S. government over the last couple of years. The PHE was lifted in May 2023, and the headwinds from Medicaid auto-enrollment have now subsided, and deal activity has started to pick up. In the wake of that, we had two key wins in Q2. However, the volume buildup is likely to be gradual as systems transition to a regular annual cycle. Meanwhile, hospitals continue to operate with wafer-thin margins, and they are preparing for normalization in funding post-PHE by exploring options for cost restructuring. We've seen an uptick in the number of discussions with clients to offshore and digitize their revenue cycle operations.
We've had numerous wins in the space, and we are currently in conversation with several clients in the revenue cycle space. The current wave of technology-enabled disruption is providing us an opportunity to take share from the traditional revenue cycle players who have largely built a people-based business. Let's turn to the payer side. Revenues in the payer side were down on a year-on-year basis, but had healthy growth sequentially. While the macroeconomic environment has been relatively stable for health plans, they continue to explore more opportunities for cost optimization and acquisition to drive member expansion. We are seeing opportunities to partner with them to provide disruptive propositions to help them be more competitive and relevant to their member base across the entire value chain, whether it be enrollment, claims, billing, et cetera.
We're also seeing benefits on the vendor consolidation side based on our relationship and depth in some of these accounts itself. We had good deal wins in Q2 from both existing accounts and new logos, and our strategy to focus on key accounts is playing well. We expect ramp-ups in these deals, which should translate to a healthy revenue growth in H2 FY 2024. We continue to also grow our BPaaS offerings with joint go-to-markets with some of the leading technology product companies in the space. Overall, we expect good growth momentum in healthcare in the coming quarters, largely driven by the payer segment. Let me turn to the communications, media, and technology segment. Our CMT vertical was flat year-on-year, but down 3% quarter-on-quarter in constant currency terms in Q2, due to the onshore to offshore transition underway in our top client.
Outside of the top client, our growth traction remains strong. In a short period, we have made solid progress in scaling our EdTech practice. I'd earlier mentioned one of our largest deal wins with ETS. This deal went live in Q2 and continues to ramp up through the second half of this fiscal year. We are in advanced conversations with several major EdTech providers, who are finding our solutions to be differentiated in improving the learner experience. We also are supporting major consumer tech companies in training their AI for their product portfolio, leveraging our AIOps framework. Overall, we expect onshore to offshore movement to impact revenue in our top client in Q3 and to a lesser extent, in Q4. However, ramp-ups in recent deal wins should drive the overall revenue growth in this vertical in H2. And finally, to our diverse portfolio, which is largely our utilities segment.
This grew almost 2x year-on-year and 10% quarter-on-quarter. We are experiencing strong demand in the energy market and expect it to continue to have meaningful growth in H2. Let me provide you some geographical commentary in terms of how the U.S. and U.K. markets did. In terms of geographies, the U.S. was down 2.3% year-on-year in constant currency terms due to the base effect of the mortgage business, while Europe was up 4.1%. Sequentially, the U.S. grew 2.9% quarter-on-quarter, while Europe was down 5% quarter-on-quarter, mainly due to the impact of the onsite to offshore shift in our top client. We do expect growth momentum in the U.S. to continue, helped by ramp-ups in recently won deals, as well as the steady recovery in our mortgage business.
In Europe, we continue to ramp up our sales team to have dedicated focus on client acquisition, as well as continue to grow our existing relationships itself. And finally, on the operations side, let me provide you some color on the people and facilities front. Coming to our people, we added a total of 1,569 new colleagues in Q2, bringing our total employee base to 23,963 employees at the end of September 2023. This addition was across geographies and is indicative of the strength of our executable order book. The trailing twelve-month attrition for the quarter came in at 39.8%, compared to 41.7% in Q1 and 48.1% in Q2 of last fiscal.
We expect these metrics to continue to moderate over the second half of fiscal 2024, which is helped by improved outcomes of our employee value-related interventions. Finally, let me provide you a progress update on the GenAI side. During the quarter, we launched FirstSense AI, our proprietary framework to accelerate clients' AI deployments. We've also developed a sandbox ecosystem called FirstSense AI Studio for clients to experiment and evaluate AI frameworks. We currently have a library of more than 100 use cases cutting across industry verticals. We've completed more than 25 POCs, and several of these have advanced to production pilots. To call out some examples of GenAI capabilities that we are leveraging, we are using email automation, after-call summarization, quality automation, as well as copilots for healthcare claims processing and mortgage underwriting.
I'm also happy to share that Firstsource was positively recognized by leading analysts for bringing significant value to clients and offering innovative tech solutions. To mention a few, we were named as a major contender and a star performer in Everest Group's Banking Operations PEAK Assessment 2023. The assessment called out our capability to deliver end-to-end solutions, covering the full spectrum from the front end to the back end, our comprehensive portfolio, our global presence, and our well-balanced shoring mix. ISG positioned us as a leader in their 2023 Provider Lens Customer Experience Services report for our powerful, advanced, AI-driven platforms and solutions with significant multiple vertical-specific expertise and effective delivery. In addition to our digital first, digital now approach, that's helping organizations to reinvent operations.
Everest Group has also ranked Firstsource as a leader and a star performer in the Healthcare Payer Operations PEAK Matrix Assessment 2023, and a major contender on Everest Group's Revenue Cycle Management Operations PEAK Matrix Assessment 2023. I'm also pleased to share that we released our ESG report and data book for 2023 during the quarter. Finally, from a guidance and outlook standpoint, in summary, we are satisfied with our performance in Q2 FY 2024. I am confident of our healthy order book during the quarter and a good deal pipeline that sets us well to accelerate our growth momentum sequentially over Q3 and Q4 and beyond. The uncertain macro environment does continue to remain an overhang on overall business volumes.
As such, we now expect our constant currency revenue growth in fiscal 2024 to be between 0%-2% and our normalized EBIT margin to be in the 11%-11.5% range. Now, I turn over the call to Dinesh to give you a detailed color on the quarterly financials and related matters. Dinesh?
Thank you, Ritesh, and hey, hi, everyone. Let me walk you through the financial details of the quarter. Revenue for the Q2 FY 2024 came in at INR 15,400 million or $186 million. This implies a year-on-year growth of 3.5% in rupee term and decline of 1.9% in constant currency term. We reported operating profit of INR 1,634 million, up 30.3% over Q2 FY 2023, and translate to EBIT margin of 10.6%. This include a few one-time charges related to leadership changes we had during the quarter. Adjusted for these, our EBIT margin in Q2 was 11.2%.
Profit After Tax came in at INR 1,265 million, or 8.2% of the revenue for the quarter, down 2% on a year-on-year basis. For half year FY 2024, revenue was INR 30,692 million or $372 million. This implies a year-on-year growth of 3.7% in rupee term and a decline of 1.8% in constant currency term. We reported operating profit of INR 3,424 million, or 41% over H1 FY 2023, and translate to EBIT margin of 11.2%. Adjusted for the one-time charges, our EBIT margin in H1 was 11.5%. Profit After Tax was INR 2,525 million, or up 17.7% on a year-on-year basis.
Coming to the other financial highlights, tax rate for the quarter was 18% at the lower end of our guided range of 18%-20%. Our cash balance, including investments, stood at INR 2,172 million at the end of the quarter. Net debt extended INR 6,653 million as of September 30, 2023, versus INR 7,133 million as of June 30, 2023, which imply a reduction of INR 480 million during the quarter. DSO came in at 66 days versus 63 days in Q1, mainly due to delay in some of the collection, which was subsequently collected in October. Overall, our cash flow from operation improved sequentially in Q2. Our CapEx during the quarter was INR 145 million, broadly similar to INR 151 million in the Q1.
As we prepare the execution capacity to fulfill the recent order win, these expenses continue to be in the same range. Our hedge book as of September 30th was as follows: We had a coverage of GBP 59.8 million for the next 12 months, with an average rate of INR 104 to the pound, and coverage of $96.5 million with an average rate of INR 84.22 to the dollar. I would also like to mention that we had rolled out our annual compensation hikes and promotions during the current quarter. We also have the residual impact of certain charges related to leadership transition. These two will have an impact in our Q3 margin.
However, we are confident of keeping them in the range of 11%-11.5% band on a normalized basis, as I think Ritesh also highlighted. This is all from my side. We can now open the floor for question. Operator, over to you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll now wait for a moment while the question queue assembles. The first question comes from Manik Taneja with Axis Capital. Please go ahead.
Hi, good afternoon, and thank you for the opportunity. Ritesh, congratulations for the new assignment. Just wanted to get your thoughts on a couple of things. First of all, is a bookkeeping question with regards to segmental margins across industry. Is there any one-off regards to the healthcare segmental margins in the current quarter? That's question number one. The second question was with regards to the point that you made around significant rightshoring of business. If I look at the overall portfolio, the offshore/onshore revenue mix has been between 25-75 or in that range for almost last 10, 12 years. Do you think this, this moves in a very significant manner going forward? And would that be driven by by just offshoring of the existing business or by virtue of expansion of service lines?
I think on a margin or accounting question, I think there is a few one-offs in the healthcare side of it. One is also the, as we are seeing, new customer growth, so there is a ramp-up cost, which is a hit in this quarter. As well as we have, one account where we need to make a small provision for a doubtful debt. So I think those are the two. One is one-off, one is not a one-off, but is in the regular course of business, so that has impacted the margin for the quarter.
Would it be possible to call that out, the impact?
It's not that high because it's both are mix of two, so I think margin is slightly lower, but I don't want to really put the number, but there is a one-off.
Okay. Sure.
Let me address the question that you asked, Manik, on the onshore to offshore mix itself. I think the comment you made is a valid one, but at the same time, while we've been focusing on it for some time, and what you will see in the recent past is we've had a positive move in terms of just increasing the mix by a couple of percentage points. I still see opportunities for improvement there. You're also right, it's not going to come just on account of moving existing work to offshore, but also in terms of new business that comes, which will also move offshore as well.
One of the things to bear in mind in the world we live in is this is not going to be just about labor arbitrage, but also technology arbitrage that I think is going to come into play with how we're able to render services to our customers. I think that's something that's going to be very critical. Number two is, several of our customers continue to appreciate the fact that we're able to offer that blended delivery model itself. On one hand, we are looking at right-shoring resources wherever relevant and optimizing our current delivery infrastructure. But at the same time, one of the things that also creates differentiation for us in the marketplace is the fact that we have a blended delivery model.
So, in summary, we do expect runway and improvement in the onshore/offshore mix, but at the same time, it's going to come also from expansion of our existing business and adding new business also.
Sure. And one last question before I get back into the queue. Your comments with regards to expecting good traction in healthcare in second half led by payers, is that largely a function of the typical seasonality of the healthcare payer business because of the open enrollment season?
Well, I think, it's coming on a few different accounts, right? So, one of the things that I think is gaining traction and currency for us in the payer segment is the fact that, A, we work with a lot of, great logos in those accounts itself, right? So we have a good, existing client mix that's there, as well as a very solid pipeline in terms of, new logos that we are going after, where we have, a seat at the table.
What we are seeing in several of these existing accounts is, we might be there in one or two of the functional areas, and there's an opportunity to extend and expand our footprint, gain more share of wallet, be able to integrate what we do, you know, particularly on the back of the digital intake platform that we have, which allows us to have end-to-end capabilities across, as an example, maybe digital intake and claims. And these are some of the capability sets that create competitive differentiation for us in the marketplace. Clients are very receptive to that in the payer space. They are looking to optimize the way they run their business, and this creates opportunity for us to be a value-added partner to them.
So the ability to, combine technology and operations in a meaningful way, drive transformation in their portfolios and deliver an outcome, I think creates the opportunity for us to be beneficiaries of, of the kind of pipeline we're seeing in the payer segment. Sure. Thank you, and all the best for the future.
The next question comes from Dipesh Mehta with Emkay Global. Please go ahead. Mr. Dipesh Mehta with Emkay Global, please go ahead. The next question comes from Jyoti Singh with Arihant Capital Markets Limited. Please go ahead. The next question comes from Nikhil Choudhary with Nuvama. Please go ahead.
Hey, hi. Thanks for the opportunity. I hope you can hear me.
Yes, Nikhil.
Yeah. Yeah, Ritesh, congratulations on your role. My first question is regarding the revenue growth. Ritesh, it's been almost two years since we have typically any growth, even in terms of your the commentary for the business segment, mortgage business continue to face challenges and expected to remain at least deliver modest growth only. Correction, we are not seeing the bound, despite of increase in delinquency, while in CMT, we are at least due to top client basically moving to towards higher offshoring getting impacted. So just want to understand, given that you must be working on strategy and maybe it's bit early, but what's the roadmap to take revenue growth, let's say, from low single digits to high single digit first, and then ultimately to double digits?
Any thinking, any roadmap you have?
Thank you for that question, Nikhil. As I elaborated in my opening comments, the One Firstsource theme is what we are looking to drive across the organization, and it has several broad, broad themes itself, right? The primary objective of, you know, everything that we achieve through the One Firstsource theme will allow us to get top quartile revenue growth concurrent with an improvement in margins itself. What we shared today is my thought process in terms of how we see the current landscape, and also how I'm trying to reposition ourselves to leverage on the foundation that we have, our existing strength. You know, we've worked with several household brands, as I talked about, in the domains in which we have, as well as prior experiences in scaling businesses profitably itself.
You know, our intention there is to drive the top quartile revenue growth itself. What I'm hopeful of is, as we get into the next two quarters, going into the end of the fiscal year, we can continue to give you a more detailed picture of how this is developing itself. But one of the first things that we are seeing already is, you know, a significant amount of activity, a deal activity. You can also see that in terms of the best quarter of deal wins that we've had in the last four quarters, and as we speak, they are in various stages of ramp. You can also see this in the net headcount acquisition numbers, as well as our facilities built out, and we expect to see this in the next two quarters and beyond.
But what I'm also trying to ensure is we are able to maintain this on a secular basis, and that's one of the key priorities as well, from my perspective.
Sure. Sure, Ritesh. My second question is regarding your comment on GenAI, that, you know, disruption due to GenAI is creating opportunity for you, and you are training some AIOps, right? Can you please give more color, maybe quantify if possible?
Absolutely. So let me address this from a wider context to the BPO industry as a whole. You know, most enterprises today are still early in their adoption cycle, and in fact, most of our clients were caught flat-footed with the pace of advances in the AI field itself. And as you know, every enterprise client today has been asked by their board about what their AI strategy is. We're currently engaging with technology product services companies for advice and guidance, and most of the efforts today are actually on using the time to focus on data quality to ensure that the AI can add maximum value, and experimenting with POCs to figure out how they can best leverage GenAI within their organizations.
We realize that the cost to compute and the cost to infer is still substantial, and hence several enterprises are struggling to make business cases stack up, and which is why they're going with this fast experimentation cycle, which we are also engaged with. As I mentioned, you know, we've, we've got an inventory of more than 100+ use cases. We're working across several POCs, which are moving towards pilots and so on and so forth. Secondly, I expect this to also lead enterprises to get more selective in where they want to invest in proprietary large language models, and also where it may be economical to outsource. You know, if you take an area like customer service as an example, today, only 27% of the market is actually outsourced.
So there's a tremendous opportunity for players like us to continue to A, take share of wallet from, from large players, but B, also as the overall market expands, and this is where a lot of customers are currently in active dialogue to say, can they increase the percentage of work that's outsourced, offshore, leveraging technology itself? And GenAI adoption in some sense could lead a significant expansion of this share, where enterprises will increase the amount of work they, that they have outsourced. We are already seeing, you know, green shoots on this front. My personal take is that I believe that companies such as Firstsource are ideally positioned to be a net gainer from this trend, given our right size.
We're neither too big to suffer from incumbency disadvantage, nor too small to lack domain experience, and a roster of quality clients with a sizable wallet, but where we continue to have headroom for growth. And finally, you know, I also expect GenAI adoption to open up new market opportunities and new revenue streams. For example, you know, we have the opportunity to partner with technology companies who are developing domain or function-specific LLM. Given our deep domain and data knowledge, we're actually doing a lot of work already, on the data infrastructure side, whether it's around data annotation, data labeling, with several leading consumer tech companies. And this is an opportunity which will continue to grow as enterprises prepare the data to be relevant for use and maximizing the outcomes of AI itself.
We're also seeing the emergence of new services around AIOps, and that's gaining significant currency and traction in the marketplace itself. So overall, you know, I, I think, this is, this is something that we feel good about in terms of how it's likely to play out in the marketplace.
Sure, Ritesh. Thanks a lot for giving detailed answer and good luck for current year. Thank you.
Thank you, Nikhil.
The next question comes from Dipesh Mehta with Emkay Global. Please go ahead.
Am I audible now? Hello.
Yeah, we can hear you. We can hear you, Dipesh.
Okay. Okay. So, two questions. First about I think you earlier in your OneSource, One Firstsource framework, you alluded to white space. So if you can help us understand, identified white spaces across segments and any plan to expand into from the major vertical, three vertical area to add any fourth vertical kind of thing. Second is about cross-sell and upsell. Now, you indicated about some of the identified client partner and all those things. So if you can help us understand how, what changes you are making in go-to-market, which can help you to create strong funnel even after strong deal closure. So if you can provide some sense around these things.
Thank you, Dipesh, for your question. Let me address the first point and then come to the second part of the question. So, if you think about our current footprint and existing accounts, in several of the accounts, we might be present in one or two capability areas. So we might be doing, as an example, collections and customer experience for a bank, but there's probably opportunities to increase our share of wallet in just those areas itself within the bank. We might also have the opportunity to, let's say, service some of their assets, whether it's consumer loans, mortgages, credit cards, et cetera, from a back office loan processing standpoint. We might also have the opportunity to help them in their risk and compliance, financial crime, fraud, and so on and so forth, as capability sets.
Each one of these represent areas where we can either increase share of wallet or expand into areas that we might not be present in. And this is where, this is what I mean by the white spaces that we see in several of these accounts, that we currently partner with. Your second question was related to, second point in the first question was related to, are there new verticals that we might be thinking about? Look, the three verticals that we play in, and I'll also include utilities in this, you know, but if you think about banking, financial services, healthcare, communications, media, technology, and the utility space, we address a substantial part of the industry, addressable spend itself.
So on one hand, our focus is to continue to go deep in these verticals because that's what creates competitive differentiation for us. I'm a firm believer of the maxim that less is more, and it's better to be an inch wide and a mile deep, rather than try to be everything to everybody. But at the same time, look, there might be opportunistic areas that we might choose to get in.
It could be in an emerging geography which we might say, "Hey, look, it's worthwhile for us to try and, you know, get going there and leverage the industry verticals that we are already in to get into those geographies from a new market standpoint." It could also represent. There could also be opportunities coming about where we might say, "Hey, there's a acquisition to get a foot in the door in a new vertical." But those kinds of things are more opportunistic rather than something that we are actively planning for. The second question that you had was related to how we are thinking about our account management structure and, you know, how do we plan to scale up our footprint in these accounts itself? One of the thing...
One of the areas of opportunity for us is where we have several accounts which are, which I would call a strategic logo, and these have the potential to give us several tens and hundreds of millions of dollars in terms of the opportunity or the addressable spend in those accounts itself. One of the things that's critical to realize that potential is to have dedicated team structures, which can allow us to interact with senior stakeholder relationships, multiple buying centers, and create as well as close the opportunities that come as a consequence of that. And that's where one of the things that we are looking to do, is to continue to step up investments where those opportunities exist, have dedicated people whose life depends on growing those relationships itself, and realize the full potential that these accounts represent.
Dipesh, does that address your question?
Yeah, it does. The last question is just about the margin. Now we are marginally tuning our guidance to 11%-11.5%. So any specific which you are foresee in H2, considering any investment plan or something? And how once you look medium term, you indicated profitable top quartile growth, but whether margin also would be top quartile in once we look medium-term perspective. Thank you.
So, let me address this on two fronts. So one is we have indicated that from a margin EBIT margin standpoint, our guidance for H2 is 11%-11.5%, from an EBIT perspective. And we want to continue to operate with that, even with some of the investments that we want to continue to make in the business itself. What I am confident of is improving our margin trajectory over the medium term without compromising our growth aspirations, and I see multiple levers for that. You know, we talked a little while back, the onsite to offshore shift is an obvious one, and while we've been focusing on that for some time, I still see an opportunity for improvement out there.
But in addition to that, right, there are multiple levers that exist, whether it's the employee pyramid, whether it's span of control, how we staff our delivery model, how we look at rightshoring resources across functions, optimizing our current delivery infrastructure. I think we've spent an enormous amount of time already in the eight weeks that I've been here, detailing out all the value levers that exist for margin improvement itself. And I think we expect that this will result in in improvement from the levels we are at. What I want to also add is, I'll be able to give you a more concrete sense of our revenue growth and our margin aspirations with our Q4 results, but I am confident of improving our margin trajectory over the medium term without compromising our growth aspirations.
Understand. Thank you. Thank you very much.
The next question comes from Jalaj with Svan Investments. Please go ahead.
Hello. Am I audible?
Yes, Jalaj.
Yeah, you are.
Thank you. So I have two questions. One was with regards to the cash flow statement. I do see, in the, in the working capital adjustments, there is a reversal entry, for loans and advances, almost INR 160 crores. Could you please throw light, a little light onto it as to for what does it stand for?
I think there's a reduction in the liability. I'm not sure which line item you're referring to.
It's the changes in working capital, just below the trade receivables.
I don't think any [inaudible].
I'll, I'll take it offline. Let me check it out. I don't think there is any material thing in any of... Because I think assets and liability, the large movement is on account of assets taken on lease, which is basically when you take a new facility, ahead of the time you have to be booked for asset on the similar liability side of things. So that I think the only change which I can see.
Sure. Sure. And second question was with regards to for Ritesh. You mentioned that our aspiration is to go to a top quartile performance, so maybe in the short term, in a medium term to a long term. So you partially did touch upon that, but I just wanted to have what would it take us to be there in terms of service lines offering? Do they need to be expanded, or do we have enough bandwidth in terms of offerings right now? So what would be the strategy to be there? What would it take to be there? Thank you.
So, Jalaj, thank you for that question. If you go back to what I talked about in the, you know, in the One Firstsource framework itself and where the opportunities are, right? One of the things that you will see in the context of that was, A, the opportunity to cross-sell and up-sell in our existing accounts itself, right? And this is adding share of wallet in the existing work we do, but also expanding capabilities in those accounts. So the second thing that we also talked about is not just take the five service lines that we have today, whether it's collections, CX, trust and safety, data and analytics, right? And the entire digital piece itself. But the objective around that is to ensure that we are able to bring those capabilities in every account itself, right?
That's critical from our vantage point. At the same time, we are also actively strengthening our footprints from a delivery standpoint in Eastern Europe, South Africa and Latin America. I think it's a combination of each one of these things. It's not one or the other, right? So all of these levers together, when deployed collectively, result in a very focused execution framework, creates the playbook or the foundation for top quartile revenue growth. So it's not one or the other, but the ability to bring all these together to enable that.
One of the questions that came a little while back also is, having, you know, a dedicated team, which is the other area that we are also focused on, to say: Look, if there is a strategic account that we believe has headroom for growth, let's make sure that there is a person who's, who's focused on trying to grow that relationship, in a meaningful manner. So that becomes also an additional lever that's there. So it's a combination of all of these things, identifying the right accounts for growth, knowing the white spaces in those accounts, having a plan to deliver against that, having the right set of capabilities to be taken to those accounts, and having the right kind of delivery and execution capabilities to back up, what we need.
Bringing all of these together creates the secret sauce for secular growth, which ends up in top quartile.
Got it. And one more question, if I may. So, there has been this discussion of the right sizing or moving from on-site to offshoring. So where are we on those, in terms of, if I were to say, let's say 100% of the old accounts are the [inaudible] , so renewals would come, so we would see this movement. I'm asking you this because there might be revenue loss. Margins would be accretive, but since the, on-site billing and offshore billing are slightly different. So, how much of the percentage of the portfolio has already been converted or, of that which can be, in this sense?
So without getting into specifics of what percentage of our portfolio et cetera, I think the way to view this is on two counts. Number one, in several of our existing accounts, we see the opportunity to move some of the work that we might be doing from onshore to offshore, where relevant, but also, at the same time, take new business offshore as well. Clients value us for the end-to-end capabilities that we are able to bring and the blended delivery mix that exists in our model itself. Secondly, the world we are moving to is no longer just about labor arbitrage, but it's also about technology arbitrage. And the ability to bring that to bear, to drive meaningful transformation and business outcomes, I think matters to our customers.
If we are able to bring a couple of those things together itself, what we will be able to do is going to be revenue accretive as well as margin accretive, and I think that's what I'm working closely with the entire leadership team on.
Fine. Thanks a lot and best of luck.
Thank you.
Thank you all very much. As there are no further questions, I would like to end the conference by handing over to Mr. Ritesh Idnani for closing comments.
So thank you all for joining the call, and the interaction. I just want to close with a few final points. I am pleased with our strong order bookings during the quarter. We are now in execution mode on these deals, and a ramp-up should accelerate our growth momentum over H2 FY 2024. More importantly, pipeline replenishment in the quarter was also significantly healthy despite the strong deal wins. This gives me confidence on the trajectory in the medium term. We have realigned our strategic focus under the One Firstsource framework with the seven strategic themes that I talked about upfront, and we are now putting this into action. I look forward to continued interactions with you. Thank you once again for joining this conversation.
On behalf of Firstsource Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Have a good day.