Ladies and gentlemen, good day and welcome to the Firstsource Solutions Limited Q4 FY 2023 earnings conference call. As a reminder, all participants' lines will be in a 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 and zero on your touchtone phone. Please note this conference is being recorded. I now hand the conference over to Mr. Ankur Maheshwari from Firstsource Solutions Limited. Thank you, and over to you, sir.
Thank you, Vikram. Welcome, everyone, and thank you for joining us for the quarter ending March 31st, 2023 earnings call for Firstsource. To take us through the results and answer queries, we have with us Mr. Vipul Khanna and Dinesh Jain as the CFO. Do note that the results, the fact sheet, and the presentation have been emailed to you, and you can also view this on our website www.firstsource.co.
Before we begin the call, please note that some of the matters we will discuss on this call, including our business outlook, are forward-looking and as such are subject to known and unknown risks. These uncertainties and risks, sorry, are included but not limited to what we have mentioned in our prospectus, pilot study and subsequent annual reports that are available on our website. With that said, I hand the call over to Vipul Khanna to begin the presentation. Vipul ?
Thanks, Ankur. Good morning, everyone. Welcome, thank you for joining us today. Ankur and Dinesh, I'm coming across clear and okay?
Yeah, yeah.
Yes, we are.
Okay. All right. Very good. All right. I will. Let me start by giving you an overview of our Q4 performance. This quarter, our revenues de-grew 2.8% year-on-year in constant currency and came in at INR 15,568 million or $190 million. This implies a growth of 2.5% quarter-on-quarter in constant currency.
Operating margins improved by 21 basis points year-on-year and 220 basis points sequentially to come in at 11.6%. I'd like to reiterate that our margin performance in H1 was an aberration. The corrective actions that we've taken have brought us back to a normalized margin range. The diluted EPS in Q4 grew by 7.3% year-on-year and came in at INR 2.02 for this quarter.
For the fiscal 2023, we recorded revenues of INR 60,223 million or $750 million, implying a constant currency degrowth of 1.1% over fiscal 2022. Excluding mortgage and acquisitions, we achieved constant currency growth of 13.7% year-on-year. Operating margin for the year was 9.4%. These numbers are firmly in line with our recent guidance.
This year was clearly challenging as our unique business mix was negatively impacted by unprecedented macroeconomic cyclicity. We refined our long, long-term strategy to ensure that our go-forward business mix is more balanced and can better manage these external variabilities and also position us for more sustainable longer-term growth.
As a quick reminder, the key components of our strategy are, one, to diversify within the BFS and CMT verticals and expand into select new sub-segments of healthcare and CMT with the overall goal of reducing exposure to macro cyclicity and driving the next phase of our growth. Two, drive growth in our chosen verticals by building adjacent capabilities, by systematically adding new clients and by growing existing strategic accounts.
Three, leveraging our digital tools and services to create more cost efficiency and build new digitally powered solutions. We are as much focused on harnessing rapid developments in AI, especially generative AI. Against this strategic framework, we had a number of critical achievements during fiscal 22. Let me first start with the theme of diversification. In BFS, we made good progress in growing the collections and U.K. BFS segments.
We are pleased with the organic constant currency growth of 18.3% in our BFS portfolio ex-mortgage. In CMT, we reduced our concentration of our top client from 80% of CMT revenues in fiscal 2022 to 70% in Q4 of fiscal 2023 by consciously growing the other parts of this segment. Excluding the top client, this portfolio has grown strongly at 44% year-on-year, led by growth in EdTech and collections in the communication segment.
We continue to build new capabilities in adjacent areas. For instance, FinCrime ops in BFS and extending our digitally empowered contact center solution for the EdTech world to drive a better learner, CX. We launched our consulting practice IDEA and our data integrity practice. In the first year, we converted four consulting engagements to annuity contracts.
The utility segment within the diverse vertical grew nicely 43% year-on-year, albeit in a small base on the back of our DECC or digitally empowered contact center offering, its maturity and digital connections. Let's talk briefly about our delivery ecosystem. We expanded our delivery footprint to two new geographies, Mexico and South Africa, and further strengthened our Philippines operations to help address the increasing challenge of sourcing the right talent.
Of value extraction. Now we are present in six countries. Finally, driving growth through new client additions and systematic account mining. We added 73 clients, new clients this year, and we did well to expand most of our key relationships across non-mortgage BFS, CMT and HBHS. Our approach for fiscal 2024 continues to refine these building blocks.
As we look forward to the start of the new fiscal, I'm confident that we have reduced cyclicality in our business, even as the global economic environment and sentiment is increasingly uncertain. From a current vantage point, we are expecting to achieve constant currency growth of 2%-5% in fiscal 2024 with an operating margin range of 11%-12%.
This factors in a sequential decline in Q1, followed by steady growth from Q2 onwards. This guidance assumes a 3% revenue headwind from our mortgage business, given H1 of 2023 was higher than H2 of 2023. A 3% revenue headwind from our onshore offshore estate rebalancing. I have spoken previously about our intent to grow offshore more meaningfully. I'm pleased with the progress. We are in advanced discussions with a couple of key clients to realign their onshore offshore footprint during this fiscal year.
While the absolute revenues realized will decline due to billing rate differential, we expect the margins to expand. Operating margins will benefit from the multiple initiatives in fiscal 23 to take costs out and protect margin erosion. We are now back to our normalized margin range. The key levers that we have factored in our operating margin guidance are margin recovery across mortgage business and the acquired businesses, onshore offshore rebalancing and growth in our digital service line.
Operating margin should remain in our desired range through this year. Let's talk in detail about the key trends in our industry segments to give you a better color on our growth drivers. Starting with mortgage. The last 12-18 months have been turbulent for this industry to say the least.
The mortgage segment clearly took the bulk of the mind share for both you and us alike. We believe that the industry has moved past the worst of the volatility triggered by this unique economic cycle. Interest rates have been moving within a narrow range and the industry expects a modest pickup in volume over the next 12 months.
We are confident that we can manage any further volatility without a material impact on our overall performance, especially considering that this segment now contributes less than 9% of our overall revenue. For our portfolio, we also believe that volumes have more or less bottomed out and we should not see a material decline unless there is a significant shift in the macro environment. We continue to focus on adding new clients and scaling capabilities to accelerate diversification beyond origination.
Most of the pipeline activity currently is around servicing and capital markets. For fiscal 2024, we are projecting mortgage to operate closer to our Q4 fiscal 2023 exit run rate for H1, and then moderate growth in H2 based on recent wins and current pipeline. In the collections segment, the consumer credit metrics continue to soften, which is a positive for our business.
Overall, U.S. card debt delinquencies rose to 2.25% versus 2.09% in the last quarter, and the charge-offs were at 2.55% versus 2.11% in the last quarter. Over the last couple of weeks, most of the large U.S. banks declared their Q1 calendar 2023 earnings. The consistent themes across these commentaries were, one. consumer debt is now higher than pre-pandemic and credit tightening has begun.
Two, consumer balance sheets are still quite strong and remain near all-time high, driven by low unemployment rates and high wages. Three, delinquencies, while still below 2020 levels, are expected to rise. The provisions made for credit losses by these banks are gradually climbing each quarter. Considering the above trends, we expect our collection business to witness a gradual recovery toward the year. The sales activity and the new client additions remain strong and we added six new clients in Q4 of fiscal 2023. For fiscal 2024, our key priorities for the collection business are, one, we continue to diversify collections as a multi-industry offering with penetration into Fintech, auto, and across telecom and utilities. Two, expand geographically to the U.K. Three, stay focused on the digital collections platform roadmap and reduce new client onboarding timelines. Four, drive revenue and margin growth in our legal collection segment.
U.K. BFS continues to deliver strong growth. We are actively pursuing expansion across our key banking relationships by penetrating into new divisions and focusing on growing offshore. There is continued focus on digitization of contact centers through call deflection to self-serve and chat. We continue to see good growth in FinCrime operations as well. The growth in U.K. BFS has helped us diversify in the broader BFS segment and de-risk from mortgage concentration. We expect the momentum to continue well into fiscal 2024 with a sharp focus on new client additions and more offshore business activity. Shifting to healthcare. This segment remains steady. The business continued to grow well and clocked an 8.7% year-on-year growth for fiscal 2023 in constant currency terms. The growth rate has slowed down primarily from conclusion of project-based engagements, delays in deal closure, and continued softness in the provider segment.
Our provider business has witnessed significant headwinds over the last couple of years due to the Public Health Emergency enforced by the U.S. government. As for the recent government notifications, the PHE or the Public Health Emergency will finally be lifted on May 11, 2023, so in a week from now, fingers crossed. Ending the automatic Medicaid enrollment provision that has been placed, that has been in place since 2020. This change is expected to result in an estimated five million-14 million people losing their Medicaid coverage. A large part of this segment is likely to be uninsured, a segment our eligibility services and patient access practice focus on. We expect strong growth vectors to emerge from this change in H2 of fiscal 2024.
In the health plan segment, we are witnessing somewhat of a slowdown in deal closures, especially where the solution involves significant transformation or digital intervention. Having said that, the deal pipeline remains strong. We've seen good traction for actively working with the clients in moving parts of value chains offshore. We continue to scale our capabilities and have made small starts in the higher value appeals and grievances and claim automation segment. For fiscal 24, our focus for the healthcare segment is to reverse the revenue decline in provider and scale offshore across both provider and HPHS. Over the last 12, 18 months, we've had several marquee wins in our digital intake practice in HPHS. Now the focus is on wrapping up these engagements and further strengthening the digital intake platform.
The last thing I, last piece I'll mention is that we are growing aggressively in the plan B plus market to build on the couple of wins we've had in the last 18 odd months. The CMT segment continues its strong growth trajectory. In fiscal 2023, the segment grew 14% year-on-year in constant currency. We've done well on two areas. One, scaling our U.S. CMT business, which we've been incubating and building from scratch organically. This segment is now more than 4% of the overall revenues and growing nicely. This remains one of our key priorities for fiscal 2024, and we expect to see meaningful growth in this segment. Second, adding new capabilities and markets. Over the last two years, we've successfully made inroads into EdTech, digital media, and tech verticals.
We've added several marquee clients and are witnessing good growth momentum here. Finally, our relationship with our top client remains strong. During the year, we added high-value work offshore, underpinned by increasing client confidence in our capabilities. We continue to explore near-growth opportunities in their estate. It's been a while since we spoke about our diverse business segment. This segment primarily focuses on utilities and other industries which are still early stages for us and where we are evolving our strategy and offerings. We were recently successful in dealing with one of the top three utility providers in the U.K. a few years ago. Our relationship has significantly strengthened since, and we are today one of their top three outsourcing partners. We expect this relationship to grow considerably in fiscal 2024 on the back of the recent wins we have with the client.
We are in the process of expanding our delivery footprint to South Africa through this important and then extend to other U.K.-U.S. clients. It feels good that we now serve two of the top five U.K. utility companies. In summary, while fiscal 23 was a challenging year for our technical businesses, we are pleased with the progress in building the rest of the business, diversifying our portfolio, and progress in our digital offerings. We look forward to updating you over the coming quarters and progress against this strategy. Let me now hand over the call to Dinesh to give an overview of our financial results.
Thank you, Vipul. Good morning, everyone. Here is a quick snapshot of our financials for the quarter and full year ended March 31st, 2023. Revenue for the Q4 came in at INR 15,568 million or $190 million. This implies a year-on-year growth of 0.8% in revenue terms and constant currency terms, degrowth of 2.8%. For the full year, revenue came in at INR 60,223 million or $750 million, implies a year-on-year growth of 1.7% in rupee terms and constant currency terms, degrowth of 1.1%. On a margin front, operating margin came in at INR 1,799 million or 11.6%. This is an expansion of 220 basis points quarter-on-quarter.
For the year, operating margin came in at INR 5,633 million or 9.4%. Profit after tax came in at INR 1,413 million or 9.1% of the revenue for the quarter, a year-on-year margin improvement of 50 basis points. For the year, profit after tax came in at INR 5,137 million or 8.5%. Our cash generation always remains strong. We generated INR 7,634 million cash from operation, and our free cash flow was INR 7,120 million after adjusting for CapEx of INR 514 million. The closing cash balance including investment stood at INR 2,111 million.
Net debt stand at INR 6,159 million or $75 million, which in compared to last year.
Almost at 26% lower. Last year, our debt was INR 8,013 million or $106 million. DSO came in at 60 days versus the 61 days last quarter. Tax rate for the full year was around 16.5%. For the FY 2024, we expect to be range of 18%-20%. In that, we also factor that you guys are aware that U.K. tax rate is moving from 19% to 25%. That will have also the some percentage increase in the tax rate which we have paid. On our ForEx hedging, we have coverage of GBP 44 million for the next 12 months with the average rate of INR 102 to the pound, and coverage of $60 million with average rate of INR 84 to a dollar.
For 12- 24 months, we also done some coverage on pound book, which is GBP 12.5 million with an average rate of INR 105 to the GBP. We also take some of the option product which to realize it better forward rates. Those are just option product. We did not have any impact due to the currency movements to the negative side. This is all from my side. I'll open up for the Q&A and move back to the moderator.
Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. We will wait for a moment while the question queue assembles to ask question. Please press star one now. We take our first question from the line of Rahul Jain from Dolat Capital. Please go ahead.
Yeah, hi. Thanks for the opportunity. Just wanted to get little bit clarity on the operating margin side, outlook that you have shared. Based on, you know, the kind of savings that you have done in this course of quarter, and you're seeing growth coming back into the business. From that perspective, you think this 11%-12% margin is a bit on the conservative side? You think some more cost factor that would need to take care during the course of the year, which makes you think that this is the ideal margin for you for the next year?
Hi, Rahul. Look, operating margin, as we said, we've certainly been improving after a very rough H1. Q4 was 11.6%, and we guided to 11.12% for the year. I think we've done well on the cost discipline and aligning our cost to the business volumes that we had, especially mortgage. As we go into the next year, as you said, there will be some growth, you know, decent growth sort of coming sort of virtually across segments. We also want to be cautious against the uncertainties in the economic environment, right? The environment is fairly dynamic. We want to make sure that we are cognizant of that.
There were some elements of our growth investments that we had moderated out in the last year. I think we'll also kind of go back to some of that, so that's kind of another put into it. Overall I think we feel good that we're starting off a good base, and if we can get the momentum through the year, we should be able to kind of meet this profit margin, the operating margin.
Right. Right. second question. You said about this Public Health Emergency getting finally taking a pause. From this perspective, is there any understanding from past or any feeling you are getting from the conversation that how this could shape up? You're expecting it to pick up in H2, how is the general behavior and any reading on that?
Yeah.
That how it should go back?
Sure. Look, I think the central government is making it, evolving it to the states to figure out how they want to, roll back this, you know, roll back this requirement of automatic enrollment. Every state will take its own course, obviously a bit driven by political and philosophical considerations of each state. It'll be kind of a gradual roll-off. At a simplistic level, we think the demand will come in two ways, right? One will be a catch-up demand for people, as they fall off. They'll be like, "Oh, hey, quick, go and catch up there." Then there will be a more settling in of a new equilibrium or getting the equilibrium back to sort of the old, pre-COVID days, right?
I think there'll be a little bit of a bumpy demand to catch up, and then you'll settle into a new routine. We are having great conversations as states, plans as well as providers get ready for this falloff to start happening. Some of them are preparing, some of them are proactively engaging. We've had some wins for getting ready for both health plans and providers to catch the falloffs so that they don't lose revenue, right? 'Cause each time somebody falls off, it's a revenue loss for them. We see that sort of decent demand coming through. We'll see wins, we'll see traction, but I think the revenue will start to come more towards H2 in this segment.
Sure, sure. That's it from my side. Thank you.
Thank you.
Thank you. We'll take the next question from the line of Mohit Jain from Anand Rathi. Please go ahead.
Hi, sir. three questions. First is, if you could help me understand this growth in telecom outside top clients and then other diverse segments. Is there a one-off or something that you have experienced this quarter, given the growth guidance, or do you think this can continue? That's one, and then I have two follow.
Now in both, this has been a very ground up, as I said, ground up organic build. It started from small wins. Like the utility example started with one-off and where we were one of the challenger partners. We've gradually earned the right to be like the main partner now, and others kind of shift to the challenger thing. It's the growth that we've seen is in a long-term sort of energy contract. On the utility side, it's not one-off. On the strength of that, we won a second top five client. It'll again start small, but at least we can diversify with the mainstream offerings out there. Likewise, on the.
The ramp-up is done or will it continue in 1 Q as well?
The ramps will kind of continue through-.
Okay.
Into the next fiscal. Yeah.
You were talking about telecom side.
Same. There the segments that we've been focused on, whether it's the non-U.K. communications or the EdTech and Tech segments, that's been slow gradual builds, organic. The wins are, they started small. Some of them are starting to look like one of the, as I mentioned, one of the EdTech clients that we had signed in the education testing space. You know, when I add up everything that we signed up, it's a good 5-year, $15 million-$16 million TCV now, right? It's kind of coming to a big client, and basis that we kind of go back to the market for other meaningful wins.
This is in the U.S. or Europe?
No one of them. U.S.
Okay. telecom outside, top line, we should see more like U.S. growth than Europe growth.
There is some Europe growth as well, but more, more pronounced in the U.S.
More pronounced in the. Right, sir. The second one was your guidance. Now, why there should be a decline in 1Q? Meaning, I was just guessing could be collections maybe. If there is no one-offs, then what.
Yeah.
What is giving us that decline?
Okay.
Subsequently the growth appears relatively slow, at, say, 4% midpoint, for next year.
I see. Couple of reasons for that. one, there is an element of seasonality from collections and open enrollment from HPHS, which will taper down in Q1. Second, there was some project-based work, especially in healthcare, which has wound down, is winding down. That will have some impact. Finally, you know, the large BPaaS deal in HPHS that we had announced, it had an implementation phase which had meaningful revenue. That phase has come to an end, and now we're into steady state. That also has an impact on the start of the HPHS revenue. Those are the three main factors for Q1 being somewhat lower than Q4.
Mostly driven by healthcare decline. Rest of the verticals are fine.
Healthcare and some amount of seasonality in collections.
Collections, right. Guidance at 4%, like, we are coming off a very low base. Is there like some ramp down, et cetera, which we're anticipating on the market and stuff? Because I thought we would probably do around five at least as the midpoint.
Yeah.
2% is also more flattish.
Mohit, as I said, we have identified and called out two headwinds. One is the year-on-year decline from mortgage because H1 started strongly. Right now we are resuming Q4 run rate, expanding with some mortgage growth in H2 from mortgage. That's about a 3% headwind year-on-year. We have the unusual, almost revenue decay of about 3% from the onshore to offshore movement. That's a proactive strategy. We have been vectoring our growth, new growth for offshore. In our existing portfolio, we have this movement, which is most likely to come into this year. We wanted to call it out at this stage, that in a couple of clients we'll see this movement. That's another 3%.
Add the 6% to the midpoint that you, for instance, that you picked up. We start to get into sort of late single digits, early double digits sort of growth trajectory. These are the two exceptional things which we're calling out.
Okay. The last one for Dinesh, Sir. Is there any payout left for FY 2024 or are we more or less done with the payouts related to acquisitions and the subsidiary stake?
Acquisition related all, there was no payout done, because we have already, they have not achieved the target yet. That has been closed for both the acquisitions, so there is no more pending on that. On the equity related, there is one more revenue target which they have to achieve in FY 2024, and on that basis there is a payout for that. As of today, I think it's a whole year available and we're, we still have discussion with them going on, how much revenue they will be going to bring on the table, and accordingly we'll come back as we get a more during the year.
Dinesh, this amount was $11 odd million for 2024?
No, 2024 will be, I think, four and a half million dollars.
2025, we'll have another payout?
No, they. Only the FY 2024 is the one year which have been left.
Okay. Perfect, sir. Thank you.
Thank you. We'll take the next question from the line of Shradha from AMSEC. Please go ahead.
Yeah. Hi. Congrats on a good quarter. Just on the guidance bit again, what is the kind of decline that we are expecting in 1Q?
Sequential decline?
Yeah, sequential decline.
At this stage, we think it will be between 1% to 2%. Maybe 5%.
Okay.
Yeah. Sort of that range.
1% and 3%.
Let's call it 1%-2.5%.
Okay. This is primarily related to the project work rundown that we are expecting in healthcare.
Healthcare, the implementation phase being over for a large program, then the seasonality of collections.
If we-.
The fact seasonality.
Right. If we talk of a, say, 2.5%-3% decline in Q1, I think starting Q2 to get to the mid end of the guidance, you would have to do some heavy lifting. What kind of visibility do we have to be talking of, you know, achieving the mid end of the guidance if we are talking of a 3% kind of a decline in Q1?
Yeah. The way we are looking at it translates to a CAGR of about 3.5%-5%.
Sure.
From Q2 to Q4.
Mm-hmm.
Right? in those three quarters.
Mm-hmm.
I think, if you think about the collections, I think it'll build up. We've seen signs for that. We have good traction in the healthcare segment from a B solution standpoint, which we know is under implementation. As we get into Q2, we'll start to see revenue kind of booked from there. I talked about growth coming back to providers, right? We've been conservated for H1 for provider. We think it should result into something meaningful in provider. Our new businesses that we are talking about. Right now, obviously, they're on small base. We are expecting pretty good revenue growth from them. I think we add up all that. We feel pretty good about the guidance that we're giving at this stage. The newer businesses, obviously, you know that, they're still pretty young.
The pipeline is building. To that extent, the pipeline is binary, in the sense you don't have a big pipeline that if you even if you lose, you know, two-thirds of the deal and you win one-third of the deal, you'll kind of get your numbers. Today, when you have smaller pipeline, it's binary. If we have some good wins, right, we should have better numbers. If we don't, that's what we're modeling at this stage on the 2%-5% guidance. I'm trying to give you colors of the different businesses and how we think it'll play out through the year to get to that 3.5%-5%.
It is based on more of hope of recovery in H2 because the seasonality the collection business seasonality will play out and the healthcare provider segment growth will play out only in the H2. Maybe we are talking of, you know, very high growth rates in three Q and four Q, and that is just based on hope of recovery, right? I mean, rather than anything concrete in the deal pipeline as such currently.
No, I wouldn't say that. I wouldn't say that. What the growth even for provider, when I'm talking about H2 growth, it'll come in the deals, it'll come on the conversations that we are having now or the wins we've secured, right? We've told that in provider, the revenue build takes a while because your inventory builds up and then sort of when the collections or the revenue billing for that happens for our client, after that we get done, right? So there's a while. Even if you win a large deal, it takes a while. So we've baked all of that in when we've given you guidance of 2%-5%.
Right.
We've taken a bit of a broader range this time.
Right. Just for this quarter, the other expenses, did see an increase, significant increase. What was it related to?
I think other expenses is not. This is in the Our new collection business which we got, which is the legal. As the revenue grows up, work we do with the business associate, which is part of other expenses. That's the reason this expenses is higher. That is along with the revenue which we get through that. There's no exceptional expenses.
Okay. Vipul, would it be possible for you to call out the exit run rate in the mortgage business and similar for collections in UK BFS?
Mortgage, we were closer to INR 70 million for Q4.
Mm-hmm.
I don't have the breakdown between collections, handle, but collections put together, we were closer to $32 million-$33 million, I think.
Right.
Uncle Vijay. Vijay bhai. correction, I think it was closer to INR 36 million.
INR 36 million.
Okay.
Yeah.
Sure.
Okay.
Thanks.
Also keep in mind that today, you know, because as we expanded collections, it's become like, still dominated by BFS, but there are components of that which go into CMT Or CMT as well, right? Diverse, which is utilities. To that extent, we look at it as a horizontal, but what you see when we give out to you is the vertical numbers, right? Which is banking, CMT, and healthcare. It kind of doesn't necessarily stature that all collection goes into BFS now.
This 36 is spread across the three verticals that you're talking about? Or is this only BFS collections?
No, this is all collections, except healthcare.
Okay. Got it. Yeah. Thank you, and all the best.
Thank you.
Thank you. We take the next question from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Yeah, thanks for the opportunity. Just one clarification I have on the prior question. Collection, when we say $36 million, it is only BFS collection or you include other things? Because I heard it is ex healthcare, so it in a way include utility-related collection business also. There we have seen $4 million swing quarter-on-quarter, but collection is not showing any kind of uptick. If you can clarify, that is first question. Second question is about healthcare. Vipul, how you judge our performance in healthcare for FY 2023, you think it meets your expectation or it is below expectation and/or exceed expectation, and what led to that deviation, in your opinion, and how you expect it to evolve in next few quarters?
Sure.
Second thing is about. Third question is about margin. Now, there are few things which are very supportive to margin. First is about 3% of sources which you highlighted. Second thing is provider business recovery, which is more profitable than rest of the business. Third thing is now known significant revenue decline kind of segment where we have challenges from margin management perspective. Despite that, our trajectory is different than Q4. Ideally, it should be at least Q4 and above Q4 kind of trajectory. What plays out in terms of the way you think buildup of margin over medium term? Fourth question is about more about to understand this data integrated practice which you launched during the Q4 for tech industries. How one should understand that practice, what we do, and what will be the potential term or sale kind of opportunities? Thanks.
All right. Dipesh, let me take the first question, and then, probably, I'll hand over to Vipul. On collections, the number that we speak of includes BFS, Comms, Media, and Tech, and data and diverse, right? Effectively all non-healthcare collections is captured in that collections number. The healthcare collections is part of the overall business.
Ankur, in that case, the INR four million swing which we are seeing in diversified industries should also get reflected in collection revenue trajectory, which is not the case. What explains that deviation?
That was all entirely coming from the collection vertical. I think as Vipul talked about in the opening remarks, that growth is a function of our efforts from the large clients, large entity clients in the contact center practice area, BPaaS practice area, as well as new wins and, some element of growth coming from collection vertical clients. The entire four is definitely not from that segment.
Yeah. If I remember correctly, last time we highlighted collection is around INR 34 million-INR 35 million for Q3. This quarter we are seeing INR 36 million.
Yeah. I mean, we can go through the numbers. I mean, that's still based on Q1.
Sure. Yeah. We can take it through.
Let's see what the numbers are. We can discuss them.
Sure.
Okay. On the healthcare question, Dipesh, let me give you some color and then I'll come to sort of where I think in terms of against my expectations. Let me take HPHS first, right? HPHS in fiscal 2022, and towards the end of 2021 had some pretty meaningful wins, good trajectory, right, and good quality wins on digital intake, BTaaS and sort of classic member services, claim services, et cetera. A lot of them with very large health plans. I think H2 of this year we've taken almost somewhat of a natural breather to make sure that we execute on those complex engagements, right? Get the focus of the organization to deliver to them. That's kind of one factor to keep in mind.
Second, now that we are serving eight of the top 10, some with decent size relationships, some that we just opened, wherever meaningful growth will come, these guys are already onto their third or fourth generation of outsourcing. Their process is pretty sophisticated, pretty long. Even when you win a deal in that very competitive RFP environment, the switch out from their existing, invariably another partner to a new one takes longer, right? It's not classic, "I have this, kind of come and help me do that." The pursuit timeline as well as the execution and the switch timeline is longer is one of the learnings that we've taken now that we go and play sort of head-to-head with, you know, for the big health plans with the big boys.
That's sort of one phenomena which has kind of played out for us in this year. The digital intake platform, which we took it as an entry strategy to break into these accounts, it got us some wins, but it had some execution, you know, an execution cycle to develop that, and we're still on that road path to kind of develop and complete that development. When I put those two factors, I think it's kind of moderated some of the growth in a good way that it has allowed us to build the foundation more. I think the pipeline is strong. We're off to a good start in April in terms of the new daily wins. Overall, I would still expect that FY 2024 for HPHS will be sort of mid-single digit growth and then sort of starts to accelerate there.
Providers, we have talked enough, you know, what has ailed it, right? We play in a specific segment which was the most impacted by PHE. We are hoping that once PHE goes away, the market comes back in a new manner. It looks for more digital solution, looks for more automated solution, and we are ready for that. 23 was kind of rough, right, in terms of the momentum there and the lack of momentum there. Overall, we are kind of disappointed by how providers played out, but the team has worked hard. We've expanded our strategy. We've started off on a good note thus far in this quarter in terms of types of wins that we wanted.
Some of it we'll come back and talk in when we finish Q1 once we lock it out, to give you sort of how that expanded. Overall, I'm still very bullish about this segment. If I take the next two to three-year view, both payer and provider, I think there's lots of headroom for growth there for us and for that segment. This year for HPHS was a little bit of a moderated year, but it should pick up. That's the healthcare part. On the data integrity practice, this largely goes to big value chain, right? At the entry-level end is the data labeling part, and the top end it starts to get into, you know, data architecture and sort of data guardianship and stuff like that.
With the, with the increase in sort of machine learning models, everywhere, not just in the big tech companies and platform companies, but even other business enterprises starting to embrace it, we think it's an attractive opportunity. That's why we've come in. At the low end there is obviously a lot of smaller players as well and distributors around the world, including tier three, tier four. As we get into more sophisticated stuff in the middle part, not even the high-end IT world, but even the middle part, we think there is enough bulge there for us to kind of get in and make a, make a jump. This allows us to break into the tech segment, right? These guys are mature buyers. The world serves them.
This becomes one of our entry strategies to get into the big, big FAANG vendors, sort of client base and start to look around for other work. Those are the two drivers for us to get into data integrity. We'll segment out the TAM for you on this one and where we wanna play and come back so that we don't give you the big blase number, which a lot of consultants are throwing about data integrity. I want to come with a number which we are targeting and not go either low, too low end or too high end. On the margin question, yes, we had a, you know, hard work to kind of get into sort of where we did on our operating margin.
Next year, we will obviously, as I said, you identified, we'll get some lift from mortgage recovery. We'll get some lift from providers. The takes against that is we'll get some amount of marginal impact from the India's accounting benefit we had in fiscal 2023. That helped us in 23, so some of it will kind of not be there in 24. We have to work for that. Overall, I want to be cautious in terms of what we guide. It's early on, right? Lot of uncertainty in the market out there at this point in time. We wanna make sure that we start cautiously, and as things kind of play out, we'll see if we need to do anything else to the margin guidance at this stage.
For this number, 11%-12%, we feel good. We see a good path to sort of achieving this number at this point in time.
Understood. Thank you very much.
Anything to add on the margin? Anything to add on the margin question?
No. For that, we are okay.
Okay.
Thank you. We'll take the next question from the line of Ruchit Kanga.
I think we're good.
From IWealth. Please go ahead.
Hello.
Hello sir. A very good morning and congratulations on
Good morning.
Good set of numbers. Basically, I missed your opening statement, if you could just repeat, what was the guidance on the sales side? If I heard it right, the operating margin is what you're saying is 11%-12% guidance.
Correct. The revenue growth guidance, Ruchita, at this stage we are saying will be between 2%-5% for fiscal 2024, after baking in a 3% headwind from the mortgage business year-on-year decline from, you know, given H1 was higher, and about 3% headwind from the offshore/onshore estate rebalancing we expect with some of our key clients in later part of this year.
Okay. The operating margin, which currently in FY23 you did around 13%, that you're reducing it further-
No.
11?
No. No, no. We did 9.4% for the full year. Q4 run rate was 11.6%.
Is it the EBIT margin that you're talking about post depreciation?
Yes. Operating margin, is the EBIT. Yeah, you're correct.
Okay. Okay. That you are guiding for 11%-12%.
Yes.
Okay. Got it. Got it. Thank you so much. That is it from me.
Thank you.
Yeah.
Thank you. We'll take the next question from the line of Sameer Pardikar from ICICI Direct. Please go ahead.
Sir, thank you for the opportunity. bookkeeping question from my side. What is the mortgage number for FY 23?
The full year number?
Yeah.
Yeah. Full year we were more like $92 million-$93 million.
Against $216 million that you reported in FY 2022. Is my understanding correct?
Correct. Correct.
What is the rough breakup of origination and servicing in that number for FY 23?
For Q4 it was, it was more one third origination, two third servicing. For the full year. Ankur, do you have it handy? For the full year, what's the distribution, fiscal twenty? Yeah. Sorry, I don't have it. For full year I think it was 35 origination, $35 million and about $58 million in servicing.
Okay. Thank you so much.
Thank you. We take the next question from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Yeah. Thanks for the opportunity. This is slightly medium-term question. Just want to understand potential impact from generative AI or ChatGPT on overall business. How much volume impact do you expect through automation over the next three, five years? Can you highlight portion of business which likely to get first impacted where it is easier to automate versus, let's say, very difficult to automate kind of processes? Thanks.
Yeah. Yeah, sure. This is a very hot topic everywhere, Dipesh, rightly so. We are thinking of generative AI impact in sort of two or three dimensions. One is the external dimension in terms of how do we bake that into our products and services. In terms of where it impacts most, logically from an outside in, if you look at it, chat is a good use case. Today when we humans chat with a customer, once generative AI is able to work within an enterprise boundary, right, and work through sort of extracting data from different systems like a billing system, a customer activity system, a pricing system, whatever else sort of comes out of there, like product databases, et cetera.
Once generative AI is able to work and pull out data from very structured databases, then I think, it's a good use case for chat to become very smart and generative AI helping humans kinda do that. Likewise, theoretically, we could see at this stage, we'll get there medium term, but as you see more and more voice to text conversion real time, and then through that text you can use generative AI to help an agent answer or service a question better, that provides for a better CX and obviously far more greater efficiency in servicing that part. Those are sort of clear examples of using it. There are obviously intermediary users case, use cases of saying, "Can I use it efficiently for doing after call work?" Right?
Typically if I take 10% after I finish a call to capture what happened in my conversation with Dipesh, so that the next time Dipesh calls I have reference to that. That part, the 10% or the 15% work can be automated, right? That's kind of possibility. Then you can extend it further to say I can use it far more efficiently for internal, for internal training purposes, training my folks and stuff like that. As far as impact on back office system is concerned, I think that will be a little bit longer. At this stage it looks like it'll be a longer haul because by definition what you're doing in back office is the exception processing. If systems could process what people are doing in straight through processing rate, it would have gone through, right?
If you look at claims example in healthcare. Today most of our clients would have auto claim adjudication rates depending on who they are and sort of how their systems are set up. Anywhere from 70 to best in class is 90 some percent auto adjudication rates. What we do as an industry, as Firstsource, is the fallout, which is the 30% to 10% or the 5% fallout which happens. Those are invariably pretty complex, require data retrieval, require judgment, et cetera, et cetera, and empathy as well kind of in that. There, for us to find the specific use case of generative AI which can work specific to a client environment and the rule set that they would have done in their engine, that's a longer haul.
We'll see the movement there, but, you know, it'll require some specialized investments out there, by industry players. We are looking broadly to say whom do we partner with and where do we apply it first. An area to really, really watch for. It's an important development and we are all in... we are on it, both externally and internally to make sure we use it as an opportunity and then, you know, do what is right for our clients to kind of convert to that. Sorry, long answer, but I wanted to give you a color sense of how we're thinking about it in this stage.
Yeah. Thank you very much for the details.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. I would now like to hand the conference back over to the management for closing comments. Over to you, sir.
Great. Well, thank you all. Thank you again for your interest, your engagement, and your great questions. Until the next time, thank you and goodbye.
Thank you very much, sir. Ladies and gentlemen, Thank you, sir. On behalf of Firstsource Solutions Limited, that concludes this conference. Thank you for joining with us. You may now disconnect your lines.