Ladies and gentlemen, good day, and welcome to the Happiest Minds Q4 FY 2024 Earnings Conference Call, hosted by HDFC Securities. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Apurva Prasad from HDFC Securities. Thank you, and over to you, sir.
Thank you, Riya. Good morning, ladies and gentlemen. Thank you for joining us today on the Q4 FY 2024 earnings call of Happiest Minds Technologies. On behalf of HDFC Securities, I would like to thank the management of Happiest Minds for giving us the opportunity to host this call. So today we have with us from Happiest Minds, Mr. Ashok Soota, Executive Chairman, Mr. Joseph Anantharaju, Executive Vice Chairman and CEO, Product and Digital Engineering Services, Mr. Venkatraman Narayanan, Managing Director and Chief Financial Officer, Mr. Rajiv Shah, President and Executive Board Member, Mr. Ram Mohan, President and CEO, Infrastructure Management and Security Services, Mr. Aurobindo Nanda, President and COO, Product and Digital Engineering Services, Mr. Sridhar Mantha, President and CEO, Generative AI Business Services, and Mr. Sunil Gujjar, Head of Investor Relations.
With that introduction, I'll hand it over to Sunil for the safe harbor statements and to take the proceedings forward. Thank you, and over to you, Sunil.
Thank you, Apurva. Good morning to all participants in the call. Welcome to this conference call to discuss the financial results for the fourth quarter and year ended March 31, 2024. I am Sunil, Head of Investor Relations. We hope you had an opportunity to review the earnings release we issued yesterday evening. Let me quickly outline the agenda for today's call. Ashok will begin the call by sharing his perspectives on the business environment and our results. Venkat, Joseph will then speak about our financial performance and operational highlights, after which we will have the floor open for Q&A. Before I hand over, let me begin with the safe harbor statement. During the call, we could make forward-looking statements. These statements consider the environment we see as of today and carry a risk in terms of uncertainty, because of which the actual results could be different.
We do not undertake to update those statements periodically. Now, let me pass it on to Ashok.
Thank you.
Sir, you're not audible.
Can you hear me clearly now?
Yes, sir.
Okay. In FY 2024, your company achieved industry-leading revenue growth of 11% in constant currency, and we beat our EBITDA guidance for 16 quarters in a row with an EBITDA margin of 24.6%. Not only has the year been excellent in terms of performance, but we at Happiest Minds are excited about the future due to the transformational changes we introduced in FY 2024 and the acquisitions we have closed in the early days of FY 2025. So much so that I may say that FY 2025 is going to be our best ever year since our IPO. These changes have enabled us to project with confidence that in this year we will be back on track to achieve our vision of $1 billion revenue by 2031.
We require 25.3%, CAGR, that is compounded average growth rate, when we announced this goal on September 2021. We envisage that we now need only 22% CAGR by the end of FY 2025 to achieve $1 billion in revenue by 2031. The transformational changes I referred to above include several which will accelerate the future growth for Happiest Minds. First, we established a business unit focused on generative AI, gen, which is called GBS, an abbreviation. And, you know, I must mention that we are the only company which has created a dedicated business unit for this. And the reason is, it's the most transformational change we've seen in the last 40 years in the IT industry, and we want to capitalize on that opportunity.
We created a new vertical organization structure comprising of 6 new industry groups. We then took the rest of our business, which was functioning as 2 separate business units, PES and DBS, and integrated them into a single business unit, Product and Digital Engineering Services. We have also acquired 2 strategic assets, PureSoftware and Macmillan Learning. The GenAI business unit, GBS, under the leadership of Sridhar Mantha, President and CEO of the unit, is generating many new business opportunities. We already have 14 active customers across various industries, covering 20 projects, which shows you that when you enter a customer account, you get multiple use cases in those accounts. The opportunities include contextual chatbots, learning simulators, contract management, sentiment analysis, and content generation. Building on the learnings from such engagements, we are also creating replicable solutions across industrial technology streams.
So therefore, in all of these areas I just mentioned, we can replicate that same solution for multiple customers. Our growth in the plan includes training all our engineers in GenAI. The GBS business unit is already 70 people strong and expected to grow to 250 by the end of this fiscal. I mentioned the six new industry groups. This is really structured under six leaders, but we actually cover many, many more industry verticals. These include industrial and manufacturing and energy and utilities under one leader. Healthcare and life sciences. Retail, CPG, and logistics. And then we have BFSI, which the industry is aware of what it stands for. High-tech, and media and entertainment under another, and then we have EdTech.
So each of these clusters will operate as independent profit centers led by experienced industry managers and have dedicated teams with deep domain expertise, allowing for customized solutions and faster response times. So you can see that this is six new growth engines that we've created. The executive board has facilitated the realization of two significant acquisitions, each strategically aligned to enhance organizational profitability and productivity. It has taken us some time for us to complete these acquisitions, as we've been very selective with our choices. The wait has been worthwhile as we have acquired complementary and very valuable assets. These new acquisitions have cumulatively added 1,250 Happiest Minds to our team and have further strengthened our key areas of BFSI, healthcare, and EdTech.
I'm coming now to a very unique capability that we built in Happiest Minds, and this has been going on over the last two years, and I believe it's again, another transformational change. We've built a capability in bioinformatics, which no one in the industry has. This comprises experts in molecular biology, data scientists, data engineers, and healthcare domain specialists. The team is working closely with the medical research community from prestigious medical institutions in India and abroad. The team is also working on finding solutions using metagenomics on gut microbiome, anomaly detection in MRI and CAT scan images, and conducting large cohort research studies to identify early predictions in stroke, cardiovascular diseases, et cetera. You know, you won't hear about this or see about this in any other company's portfolios.
And not only are they unique, they're also transformational for us because they're very significant value-added areas, which will be of great value to the entire, I'd say, the entire population. Joseph Anantharaju, the Executive Vice Chairman, who's been responsible for the consistent success of the PDES BU since its inception, has taken responsibility for the integrated PDES business unit, which will continue to focus on investing in cutting-edge digital technologies and engineering skills. And we've made a lot of progress in our ESG efforts, and we have been recognized as ESG Champions of India 2024 by Dun & Bradstreet. This has been possible due to the leadership of Aurobindo Nanda, our President and CEO for PDES, supported very much by the team, or under Venkat, our MD and CFO.
Happiest Minds places sustainability at the forefront of its strategy, striving for accelerated programs in the ESG realms. A significant portion of the CSR budget is dedicated to supporting environmental causes including tree planting and adopting the goal of becoming carbon neutral by 2030. Rooted in mindfulness, our culture emphasizes being mindful and doing mindful. Central to our identity are our smiles values, seamlessly integrated into our day-to-day operations. Embracing the mission, happiest people, happiest customers, we prioritize the well-being and professional development of our team members, ensuring they have ample opportunities to enhance their skills and progress within the organization. I'll touch on an area, and that is our recognitions under the Great Place to Work Institute for being a whole range of awards that we've got over the years.
They're amazing when you consider both the range and the continuity of these awards, be it the best places to work, overall, the best places for women, the best places for health and wellness. Joseph will give you more details about these and the other awards that we have won. I extend my sincere appreciation to our customers....for their continued trust and confidence in Happiest Minds, and to our delivery teams, which have consistently delivered customer happiness. I want to thank all of the support teams which have made the results possible. I am thankful to our board of directors, shareholders, and all stakeholders for their supportive guidance in creating an organization designed for perpetuity, as inclined, articulated in our Vision 2031. Let me conclude by wishing you all good health, success, and happiness. Over to you, Venkat.
Thank you.
Sir, your voice is not clear.
Can you hear me now?
It's muffled, sir.
Hello?
Can you speak directly to the laptop, please? Directly to the laptop, please.
Venkat.
We can hear.
Still, there is some disturbance, Venkat.
Is Joseph, Joseph on the line?
Yes, sir.
I think Joseph can start while Venkat sorts this out.
Can you hear me now?
Now it's very loud and clear. Very good, Venkat. Go ahead.
Oh, sorry. Sorry about that. Thank you, Ashok, and apologies for that, slight tech stopper. Good morning to all of you. Let me begin my commentary by giving you an update on the fiscal and then talk about the quarterly numbers. We ended the year with a total income of INR 1,710 crores, showing a growth of almost 13%. Operating revenues in US dollars was $109.96 million, showing a growth of 11% in constant currency and very close to our guidance of 12%. Our EBITDA at INR 421 crores grew by about 11% and stands at 24.6%, beating the upper band of our margin guidance range of 22%-24%. We have now beaten our guidance range on this front for the 16th straight quarter.
We were able to sustain our margins despite pressures on account of pay increases, strong net additions, campus hires, and continued payout of our committed variable pay. Profit before tax, PBT, was INR 335 crores and at 19.6% of revenues. PAT grew by about 8%, while profit after tax, PAT, was INR 248 crores, 14.5% of our revenues, and also showed a growth of 7.5%. While we have all along been reporting and guiding on EBITDA, we would like to start reporting our operating margins as well as we go forward, as I believe that will be relevant in an environment of rapid growth and investment, both organically and inorganically. Our cash conversion remains strong, with a free cash flow of about INR 411 crores over the year.
It's about 97.5% of our EBITDA. At the year-end, we held cash balances of about INR 1,361.64 crores, including the INR 500 crores raised through a QIP and the INR 125 crores that we had raised through an issue of non-convertible debentures. We are now deploying part of these reserves into acquisitions, two of which have been announced during the past few weeks. Our return on capital employed, ROCE, stands at a healthy 22.3%, while return on equity is at about 17%. As I've mentioned during my prior interactions, our return on equity has dropped mainly due to the capital raise, and we should now start improving on that front as we integrate the acquired entities, which are synergistic, profitable, and cash generating. Now, coming to the highlights for the quarter.
We have reported revenues for the quarter of $50 million, a sequential growth in constant currency of about 1.4%, and a year-over-year growth of 9.5%. Total income was INR 443 crores, a sequential growth of 1.9% and 14.5% over the previous year. EBITDA for the quarter was INR 108 crores, which stood at 24.5% of revenues and showed a growth of 7.6% over the previous year. PBT was INR 96.2 crores, which is 21.7% of revenues and showed a growth of 21.8% over the previous year. So as you can see, all the metrics, whether it be for the year or for the quarter, have been growth, focused in growth of late.
Let me now switch gears to provide you some operational highlights. We ended the year with 250 customers, a net addition of 13 during the year. We crossed a significant milestone of 5,000 Happiest Minds, our people. This is only organic numbers, we have not added the inorganic. Ashok, during his talk, talked about th stats adding 1,250 from the two acquisitions that we counted. At the end of the quarter, we stood on an organic basis at 5,168 people, and showed net additions of 251 Happiest Minds during the year. Our utilization for the quarter was 75.1%, compared to the 76.7% in Q3.
The drop was mainly due to investments in hiring for the GBS business unit and recent campus hires who are going through the training program. Adjusted for these, our utilization should have been closer to 76%. This is a definite lever that we have for improvement as we look into the next year. Attrition on a 12-month basis dropped to 13% from 19.8% in the previous year, and we expect these numbers to continue trending at these levels. Happy to state that keeping in line with our progressive dividend policy and capital allocation discussions, our board of directors of the company, at their meeting held on May 6, have recommended a final dividend of INR 3.25 per share, subject to shareholder approval. This will take our total dividend for the year to INR 5.75.
Now, looking ahead, we'll continue to fuel and focus our organic growth through investments in our verticals, people, capabilities, and especially the Generative AI Business Services. We will put into actions all efforts to pull in business and deliver value to our customers by integrating our business first through verticals approach. Our COEs of automation, analytics, security, today stand on their own merit and are significant in terms of size and capabilities, and we will continue to invest in that. Growth through inorganic means has been a stated objective and forms an integral part of our vision to being a billion-dollar enterprise by 2030. As Ashok mentioned, we are on track to achieving that goal by aspiring to grow at a CAGR of approximately 22%. We have recently announced 2 acquisitions, Macmillan Learning and PureSoftware.
We have closed the first one, while hoping to close the second during the current month. Plans are already afoot to integrate our businesses to harness the value coming from the synergies. I'm almost at the end of my commentary, and before I hand over to Joseph, I'm sure the one question that is looming large in all your minds will be our thoughts on growth and profitability for the next year of FY 2025. While not giving out a guidance, we are estimating a growth of between 35%-40% in terms of revenues for FY 2025, with our margins, margins being in the range of 22%-24%. These are estimates that consider significant investments in acquisitions and the result, the certain drop in cash reserves and other income, investments in GBS, and time taken to pull in synergies coming out of the acquisition.
Before I hand over to Joseph, just restating the obvious, the acquisitions that we have made are of profitable companies and are growth, EPS, and capability accelerator. Thank you. Over to you, Joseph.
Joseph, we're not able to hear you. Joseph, sir, we are not able to hear you.
Operator, is the line active of Joseph?
Yes, sir. I guess he's on mute.
Oh.
Joseph, sir, could you please unmute yourself?
Hello?
Yes, sir, you're audible. Joseph, sir, your line is on mute. Could you please unmute yourself?
Maybe he's waiting, maybe he's not able to unmute. Can he hear us there?
Sir, now you're audible.
No, that was Ashok. I don't think Joseph is audible.
Sir, Joseph, sir, is connecting back. One minute, please. Joseph, sir, is connected.
Yeah. Yeah.
Can you hear me now?
Yes, sir.
Yes!
Okay. I don't know, there's some issue. I could hear you all, but... Sorry to all the participants. Thanks, Venkat, and good morning to all of you all. The results for the year reflects the 360-degree value we create for our customers, and the ability to do that with rigor and discipline... I'm very happy to share that in the reported quarter, we crossed a significant milestone of $50 million in quarterly revenues and $200 million on an annualized basis. This has been possible due to our focused efforts on account planning, ability to win new logos of consequence, while investing significantly in our business to realize new channels of growth for Happiest Minds. The sustained growth comes against the backdrop of an uncertain macro due to economic, geopolitical, and industry-specific conditions.
At the same time, tailwinds, such as universal recognition of the importance of AI and GenAI. Our razor-sharp focus on plan and expand, coupled with quality execution, has led us to penetrate deep into our customer strategic spend, as can be seen from the increase in our customers' cohorts. The number of US $10 million customers has increased by one to a total of two, and the $1 million-$3 million cohort has increased by a good five to a total of 37. And again, the number of US $1 billion customer increased by 9 during the year. This year's annual customer happiness survey showed an increase over last year's impressive net promoter score of 60 to reach our highest ever score of 65 and an overall satisfaction level of 7.97 on a scale of 9.
The results of this survey reflects our efficient and quality delivery, engineering excellence, and prudent account management practices. As a technology-driven organization, we are constantly learning and growing to stay ahead of the ever-evolving digital world. During the year, our learning platforms enabled 4,900 Happiest Minds to complete over 144,000 hours of training, averaging around 33 hours per Happiest Minds. Our concerted and sustained people engagement programs have led us to consistently be recognized by various forums on multiple categories, as alluded by Ashok. Some of these are Top 50 India's Best Workplaces in IT and IT/BPO in 2023. Top 50 India's Best Workplaces for Building a Culture of Innovation, 2023. Top 50 India's Best Workplaces for Women, 2023, and this is three years in a row.
Top 50 India's Best Workplaces in Health and Wellness for 2023, and two years in a row. Some other notable awards that serve as a testament to our inclusive culture and proactive initiatives include: 100 Best Companies for Women in India by Avtar and Seramount. Ranked number 2 in Top 30 Future Workplaces 2024 by Fortune India. Let me now share my perspectives on the demand drivers. All strategies continue to lead to technology and reinvention, with customers remaining committed to their digital transformation journey, be it modernizing their core, reimagining user experience, using data and analytics for better decision-making, or securing technology investment through a robust security layer. Enterprises are increasingly looking to deploy AI at scale and leverage generative AI to solve business problems, automate processes, and improve productivity by launching new products and solutions.
Customers look up to Happiest Minds to guide them in this journey from ideation to execution. Let me give a few examples here. For Enercon, which is championing sustainable energy generation from onshore winds since 1984, Happiest Minds was chosen as a strategic partner to build a platform which optimizes wind energy generation. This also enables us to impact environmental and sustainable causes. Recently, MindSculpt Analytics, a healthcare solutions company that uses advanced artificial intelligence and machine learning techniques to deliver tailored medical diagnostic solution, has chosen us to build a preventive and diagnostics platform with the end goal of providing accurate and early detection and prevention of many ailments. We strengthened our relationship with a global hyperscaler by expanding our presence into a second business division to design and configure an end-to-end, secure and scalable connected vehicle platform on their cloud platform.
We have been rapidly building our GenAI capability and business with much success, as mentioned by Ashok. The Southeast Asian bottling operations of one of our... The largest soft drink companies, Happiest Minds, is engaged in building GenAI solutions that allow employees to converse in both local language and English against enterprise knowledge bases. Happiest Minds is the largest global Pimcore partner, with more than 350 dedicated practitioners and brings 10 years of successful Pimcore implementations to global and mid-sized enterprises. During the reported quarter, a global movie chain chose us to provide digital transformation services leveraging the Pimcore platform. Coming to the other significant development on M&A that Ashok mentioned. We're pleased to announce the signing of a definitive agreement to acquire 100% equity interest in PureSoftware and Macmillan Learning India.
PureSoftware acquisition strengthens our capability in BFSI, healthcare, and life sciences and will allow us to target more new logos in these verticals while expanding business with existing customers. We are excited by the potential to cross-sell analytics, GenAI, automation, infrastructure management, and cybersecurity services to PureSoftware customers and drive accelerated growth for Happiest Minds. In addition to augmenting our presence in USA and India, Happiest Minds will get an offshore development center in Mexico and offices in Singapore, Malaysia, and Africa.
... Macmillan Learning India Private Limited, a wholly owned subsidiary of the Macmillan Group, has been operating as an offshore development center, providing software services to the Macmillan Group. This acquisition strengthens Happiest Minds' edtech vertical and deepens the existing relationship with the company, making us a strategic partner for the Macmillan Group, a global leader in learning, education, and publishing. As we cast our gaze forward, while the demand environment continues to be affected by macro and geopolitical situations, our pipeline continues to be strong, though with elongated deal cycles. In growth markets like India, where we have a sizable presence, the pipeline of opportunities is at a record high.
The recent reorg, as mentioned by Ashok, has helped us to fine-tune our market approach and engage in deeper discussions with customers on their business problems and plans around new technologies like GenAI, automation, AI, et cetera. The newly formed industry groups are working closely with the GBS BU and our COEs to incubate solutions that are targeted for a particular domain or customer problem. To summarize and conclude, we will continue to fuel our long-term growth aspirations through continued investments to enhance our technical capabilities and venture into new markets through acquisitions. With this, I conclude my commentary, and we can now open the floor for Q&A.
Thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Thanks for taking my question, and congratulations on the quarter. Gentlemen, my question is on the demand environment and really the growth visibility on the organic business. I'm asking especially in the context of high variability last year in the organic growth. Could you expand on that gap between the lower end and the top end that you're looking at for next year when you said 35%-40%, especially in the organic side?
Venkat, go ahead.
Yeah, hi, Apurva.
The estimates that Venkat has given, I think the important thing is, given the fact that we've done these acquisitions and you can't be quite sure exactly whether everything will work out as planned, we've not really... And even in the past, actually, we never really segregated our guidances. But your question is very valid. We really do want to see the organic momentum, you know, given the fact that many of the leading players have obviously shown much lower growth rates than they've done in the past. So it's good to know where we see the market heading for our environment, and Venkat will add on that.
Thanks. A quick back-of-the-envelope calculation will suggest that there is a very good element of organic growth baked into those numbers, because we know what's the top line of PureSoftware. Macmillan is, if you can call it, it's such a roll-up. It's nicely integrated. It's actually gone into our into our EdTech business. It's nicely tucked in. I would actually say that that's an organic growth realistically, because we were working with them, and then we were able to expand our footprint into Macmillan through this acquisition. And this only opens up new doors for us within that account, and we're just keeping in line with our growth land and growth strategies, land and expand strategy. So, there is a good element of organic growth baked into the 35%-40%.
Why I mentioned estimate rather than a guidance is because, you know, closing of a recently large-sized acquisition like PureSoftware will take some time. While we are guided for a closing by the month end, we are hoping that we are able to do it earlier. It could also slip by 15 days or 20 days, and that will have a reasonably significant impact on the revenues, which is, which is why, we have, we, we have used the word estimate both for margins and for the bottom line output.
Got that.
But, just to understand on the variability, at the lower end and the bottom end, and I'm assuming that would be, driven by the outlook on the organic business. Is there a certain set of assumptions, which keeps the organic business estimates as wide as that?
Not really. That is, if you get into saying that the entire variability is attributed to organic, that's when you come to that conclusion that it's we are hoping that organic growth is being wide. But both because the PureSoftware has also taken certain ambitious targets, certain targets, we have also taken upon targets. Both of them, and the existing base is baked into this number of, you know, the estimate that we are giving for the next year, which is why I'm trying to keep a larger range.
Thank you.
Just to add, Venkat, there's also, you know, a fair bit of, you know, a bit of-
... cross-selling that has been incorporated out here, and it will depend on how quickly we close and, you know, come together and able to reach out to each other's customers. So that, that adds also a little bit of variability out here to the 35%-40% range that Venkat is mentioning. So it's not all attributable to organic.
Sure. You know, Apar, if I can also add, actually, our organic outlook has never been stronger. You can see that. What have we done? We've created six new growth engines in the industry groups. We've created GenAI, GBS, apart from the acquisitions which will create this cross-selling opportunities. So when you see the growth that you're going to get, and then I will add the bioinformatics capabilities that we're building. I mean, it's not small, you know, they become. And you'll see that reflected in the growth of our healthcare vertical practice when you see those numbers next year. Most of those orders that we are talking about in that field actually came in last year, but which will expand in the coming year, and that's all organic growth. It's a very, very unique growth opportunity.
I don't see anybody having the sort of momentum on organic growth that we have in the industry today. Even with whatever may have happened last year, it was still an industry-leading growth, and I think we'll do significantly better than that in the next year.
Got it. Thank you for that.
Thank you. Next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Yeah. Thanks for the opportunity. Just one question. If I look over Q4 growth, and FY 24 played out weaker than what we expected, do you expect some of the factor which impacted, let's say, last couple of quarter growth trajectory are changing and improving entering into FY 25 for industry as well as for us? Thank you.
Joseph?
Sorry, just coming in, Venkat. I missed that question out.
Hello? Should I repeat it?
Yeah, please do.
Yeah, please, please.
Sure. So Q4 FY24 and FY24 growth, if I look at it, it played out weaker than what we expected. We guided well. We came at 11 because of softness in Q4, and I think some softness we witnessed even in, last couple of quarters. Are we seeing any change, factors changing from organic business perspective for us as well as for industry, which gives incrementally more confidence about organic growth trajectory improving, apart from some of the factors which you highlighted, specific action we have taken?
Sure, yeah. I think if we just look at the overall market, I think there are three, four bright spots that give us quite a bit of confidence. I think the opportunities and the pipeline and business from the India market, which you would observe, you know, a revenue share from India market is among the highest if you look at the other Indian IT service companies. And we think that it's you know, right from inception, we've always felt that it's a geo that we should be focusing on. And it's really borne out well. If you see, the percentage of revenue has been consistently increasing quarter on quarter, and we're doing it at you know, at good margins.
We're not compromising margins out here, and we continue to see opportunities. So that's one area that we see as being an area where we would be able to get business and growth. The second one is from a sectoral segment perspective. Ashok talked about healthcare, and again, you see on a quarter-on-quarter basis the share of revenues in healthcare and the absolute level also has been growing. And there are multiple areas. Ashok talked about bioinformatics. There's a lot of demand and work going on in on the digital side of pharma. In the Med Tech industry, again, you're having some really new technologies and convergence of hardware and software, creating a lot of opportunities out there.
We think that healthcare will be an area that will continue doing well for us. If you look at retail CPG, the CPG part, there's a lot of investments going on in automation, in leveraging AI and in how you reach out to customers and build networks, and that's all part of the digital journey that we are helping customers out with. The third point that I wanted to talk about was on GenAI, and again, Ashok talked about the number of customers that we have. But along with the 14 customers, there are multiple conversations going on right now with both existing customers as well as with a lot of new logos that we've...
You know, a couple of the new logos that we've reported, we've actually opened them this quarter with our GenAI offering, and we have a full team that we have in place with some of our best leaders. We have the sales, delivery, technical, all of the whole team in place. And we're seeing a lot of traction out here. And as the year progresses, we expect some of these conversations to move into POCs and then quickly into implementation and large projects. So that's again gives us the confidence that the year will be good. And the last point that I wanted to make is that our pipeline is at almost record high, and...
As the year goes by, we expect this to translate, you know, as it moves through the funnel into more new orders, whether it's with existing customers or new logos. And, you know, our IGs, the industry groups, have become kind of the central point of all the interactions and value adds that we are bringing to customers, both in terms of reach outs and once we sign logos to see how we expand our presence, and that should continue leading to, you know, increased opportunities and business.
Did ask in your question on how we saw the industry outlook versus ours. You know, we can't really comment on it. You've seen all the guidance which has come from most of the many of the players have already announced. And I'd say you can see a mix. You can see really the larger players giving very muted guidances. And we don't need to have to talk about them because you go by what you've they've seen and stated themselves. There is a more positive outlook through the, I'd say, smaller or the larger players. I think we are really unique out here because of all those changes that we've done in the last year. Six new growth engines in terms of industry. You can see this in GenAI.
If we are saying we've already got 14 active customers, those customers have just started, right? So they are the ones which are going to grow. The bioinformatics customers have just about started, they are the ones which are going to grow. So we've got a somewhat unique position in terms of having unique drivers for growth, which is why we are very confident of our organic growth numbers.
Wonderful. Thank you.
Thank you. A reminder to all participants, you may press star and one to ask questions. A reminder to all participants, you may press star and one to ask questions. Next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Yes, thank you for the follow-up. My question is on PureSoftware in terms of one from a capabilities standpoint, which are the areas that are complementary? And therefore, what are the kind of revenue and cost synergies that are being looked at?
I'll take the areas that are complementary, Apurva. As we mentioned earlier, the two domains or industry groups in which PureSoftware has deep capabilities are on the BFSI side and on healthcare and life sciences, right? And especially on the BFSI side, they are working with, which is majority of their revenues. They have some large banking and financial services customers, and build capabilities in this area that we would be able to take to some of our customers. But more interestingly, we see a lot of scope to cross-sell some of the COEs and service offerings that we have around AI, around GenAI, infrastructure, cybersecurity, where they have little to no business automation.
So on the platform and digital engineering side, there's, you know, we have quite a few capabilities that are shared. Again, things like our Pimcore offerings and capabilities, something that we could cross-sell. So we see quite a lot of cross-selling opportunities that should lead to additional business, you know, with PureSoftware. On the margins, I think we will, you know, talk about cost optimization. We will see, we will look at areas and ways of doing that as we start the integration of the two companies, and that will be, you know, something that, as Venkat pointed out, that's the reason why, you know, we've given a range in terms of the margin guidance.
Got that. Got that. And, on the EdTech vertical, what is leading to this continuous decline last two quarters? Seems that the impact is beyond the large clients. So, what is happening there, and any outlook, if you could provide in that?
Sure. Before I get into providing the outlook, I want to give another number. If you look at on a year-on-year basis, both at a percentage of revenue and absolute level, there's been pretty good growth. Having said that, I think this is a space, two factors, right? One is this is a space that's going through a little bit of challenging time. And here, again, I'd like to break it up into three sub-segments. You have the higher ed, you have the K-12, and then you have the workforce and development and professional development, right? Three. And you can even probably break it up into pre-kindergarten and other things, but these are three substantial sub-segments in this vertical.
A lot of our revenue was coming or is coming from higher ed, and that's an area that is growing, especially in U.S., and I would say even in many of the developed countries is going through a slightly challenging time because of factors like, you know, decrease in fertility rates, the number of high school students graduating, cost of education, et cetera. So having seen this, you know, and we've been impacted by a couple of our customers who've either done some strategic restructuring, selling off their businesses, which has led to a reduction in business or budget cuts.
We're looking at diversifying within this space, and we are looking at K-12, where, you know, one of our larger customers now, I would say second or third largest customers is in this space. And we're looking at additional customers that we could acquire. We're also looking at professional development and workforce development subsegments. We have a few customers out here, and developing offerings and reach out, market reach outs in these areas. So that's what... And I think we would be able to diversify our risk. And the second point is, couple of the engagements that we had, where we're developing platforms for customers, more on a programmatic basis and in a fixed price mode.
They sort of started ramping down in Q3 and Q4, and some of that also is reflected in the numbers in Q3 and Q4. But as I mentioned, you know, on a year-on-year basis, there was a good growth in this vertical. It is having a little bit of a challenging time, and we are looking at how to mitigate the risk and diversify.
Got it. Thanks, thanks for that. And on the recent revamp of the org structure, any early success that you could talk about? And, what are the markers that we can track to assess how that's progressing, if I have to see beyond revenue per client metric?
So, if I, you know, the three, four things again that I would say are markers. One is just the industry groups taking ownership for both new logo acquisition and expansion of customers, and we are seeing that happening. As I mentioned, you know, a lot of the business development activities are getting funneled through the industry groups. And, you know, again, Ashok talked about some of the capabilities we built in bioinformatics. You know, again, in the CPG space, we are seeing good traction. We have closed some of the largest, the leading CPG players.
All of this is happening because of the ability of our industry groups to bring the various capabilities that we have together and present a united front to the customer and putting on a, you know, on, on a layer of domain understanding or consulting. So that's, you know, one part of it. The second part of it is to look at how many... The movement of large customers, you know, because of the ownership on account expansion, account development plans, which the industry groups would be taking on. And again, we are seeing, as I mentioned in my commentary, that we are seeing a movement, an increase in the cohorts of large customers. And the third is, you know, part of the restructuring was the creation of Generative AI business unit.
And as both Ashok and I have mentioned, we're seeing a lot of, you know, success and early traction out here, both in terms of prospect discussions and customer wins. And these customer wins that we have, they will automatically, you know, many of them would transition into larger engagements, while the prospect discussions, you know, so they would close into POCs and act as a pipeline for larger opportunities, which is what gives us the confidence about our organic growth.
Got that. Got that. And just finally from my side, Venkat, you gave full year margin outlook, but if I have to look at margins over the next two quarters, if you could just help us with the puts and takes and also the impact on the depreciation amortization line item.
That's right. So, when I talked about margins, you know, EBITDA has other income, but, that will be a reasonable amount of cash that will go out to fund the acquisition, bringing in the EBITDA down. But at the same time, if you take operating margins, our operating margin and the company that we are acquiring, both are at, reasonably, they are at similar operating margin levels, shorn of the other income. So which is why I said, we'll start focusing or we start calling out operating margin as well as a number, while EBITDA will continue to be an area of focus for us.
And as we go down to the PBT, there would be, based on the allocation that we do to goodwill or the intangibles and the amortization that, that comes, into our financials, it will affect our, EBITDA, sorry, PBT too by that, that number, while also getting certain tax advantages, for that, for the, for the borrowings. There are quite a few puts and takes here on the profitability front, which is why I've given a, you know, a wider margin. That wider margin is not to accommodate for a, you know, company which is lower than us in margins. They are reasonably close to us.... And you did allude to that, there will be cost synergies as we, as we go along. But all of that takes one or two quarters to, you know, come through into the financials.
This is why we are just taking the route of giving a larger range this time. In fact, I would have said margins of 20%-22%, and then do better, much better than that.
Thank you.
Thank you. Next question is from the line of Sumit Jain from CLSA. Please go ahead.
Yeah, hi. Thanks for the opportunity. So the question is for Ashok. Ashok, you mentioned that you have created a separate business unit for GenAI. So will those revenues start reflecting in your analytics AI service line or the digital infrastructure cloud service line, the way you report?
No, I'm not sure I really got the thrust of your question. But from whatever, we've got a new GBS, and this one has actually got end-use cases, and we've given examples of these across wherever you see, and we mentioned many of them. If you look at cloud, and a lot of people emphasize cloud, to me, actually, cloud is a pipeline, and you put everything today is on the cloud. So if that was the thrust of your question, yes, everything is on the cloud, because all solutions are being delivered in that fashion. Everything we are doing is digital. What is really important is that all of these are really new end-use cases, and because it's new, virtually everybody needs them.
So if you find one use case in one company, you could say, "Hey, I can do this in the next company also," which we've seen in one use case which just came up recently. Suddenly, overnight, we had four prospects, because three or four different other players suddenly said, "Why can't we also use that?" And that is why it becomes so interesting, as a completely new market being opened out, thanks to GBS. I don't know whether that answers your question.
So actually, my reason for asking this question was twofold. One is it will help us to understand how the GenAI is scaling up in the market, because you are probably the only one who has created-
Right.
This unit. Secondly, I mean, we can see hyperscalers' growth reviving back in the last two quarters, where, you know, almost all three hyperscalers have seen a revival in growth from a YOY perspective. But I cannot see that reflecting in your digital infrastructure cloud service line, particularly. So that was a, that was a two-way question, you know, I was trying to come.
Yeah, Sumit, I can answer that. You know-
Sridhar, could you just respond to that yourself?
If I can just take the-
The question is, yeah.
Question. Yeah, it's about-
Go ahead.
-the business.
Reporting.
See, we have been reporting revenues and margins by three business units. That's the segregation that we've been following, BES, DBS, and IMSS. Starting this year, we are consolidating BES, DBS into one, that's called BDBS, and we'll have IMSS and GBS. So, it's just not that we are... It will all get obfuscated in the overall numbers. GBS will be called out as a separate revenue line item in our, you know, segmental reporting. It will be shown as a segment. The second question that you're asking is, when it comes to technology, where would that go? That's something that is something which, you know, Ashok was trying to mention.
It will go into cloud, it will go into it could go into platform development, or it could go into other parts of the technology slice when you look at it. But from a segmental reporting, it's a new segment. And in fact, in a manner of speaking, Sumit, we are actually sticking our neck out by saying that we are calling it out as a segment, because it will be sunshine. If you you will get to see the number in the next quarter and the next quarters as we progress. It's not going to get obfuscated inside a technology and get buried deep in the numbers.
Right. So that is where my follow-up question, you know, coming to that in terms of the markers for how the GenAI practice is scaling up for you, in which digital offering service line or by business unit, we will actually be able to see that ramp-up?
No, it is a business unit in itself. First-
Yeah.
It is a separate business unit for you. So it is a segment. When you see the segmental reporting, we had three business units, we will continue to have three business units. GBS would be one of those, and we'll report the numbers at that level. So that's what I said, we are, we are sticking our neck out. It's not, we are not, you know, burying those numbers into the technology and the overall new gen landscape and all of those things that people talk about. But when it comes into a technology slice of what is GBS and what are the constituents, they will go into the technology slices that we have been traditionally talking about. And Sridhar will be able to give you-
... To this, response.
For sure.
Is where, which verticals? The first question was on the horizontals and cloud. Then the second one is saying: "Hey, which verticals is it likely to impact more, and where are you going to find those use cases?" I think Sridhar can talk about that.
Absolutely right. I think already Venkat has given the clarification. When we report it, of course, as a business unit, there'll be a standalone number. And of course, the use cases that we are doing fall into multiple verticals that way, or industry groups. For example, if you are doing generative AI use cases for healthcare, that revenue will be reported within the verticals or the IGs that we'll be reporting. Moreover, when it comes to the horizontal technologies. Right. So this is where, like, it becomes a little trickier. Like, for example, if you are developing a custom solution for healthcare using ChatGPT within Microsoft Azure, right? The way Ashok framed it, now this solution is going to live in Microsoft Azure and the cloud, and this solution leverages heavily the multiple AI technologies.
So from that point of view, like, we'll make sure that, like, it is going to be reported in the appropriate horizontal technologies, where the generative AI itself inherently leverages cloud and inherently leverages AI, and that's how the genesis of the overall space happened. So, so that way there'll be a clear understanding about where it stands out and how it is contributing towards various industry groups and what, what horizontal technologies, that, that are going to, actually create, are leveraged to create the solution.
Right. So you are hinting that, you know, this GenAI revenues will reflect under multiple horizontal lines, not in just one single service line. That's what you are mentioning, right?
Oh-
It is multiple horizontal and multiple verticals, no?
Yes, verticals, I agree. Yeah.
Verticals business.
Got it. Got it. Okay.
As well as stand out as a business, as well as stand out as a business unit, as Venkat said. So you'll get all, all cuts, Apurva.
You will start reporting that-
Yes, absolutely.
unit from next quarter onwards, right?
Yes.
That's, that's right, Apurva.
Sure. But, you know, let's not commit ourselves to how much depth we're going to get for this new BU. We don't have to slice and dice that BU in horizontal and vertical. We'll give you a number there. You'll see the grand total horizontal numbers. We'll see the grand total industry numbers. We're not going to say out of those industry numbers, so much has come today through GBS, because that's excessively dicing it for the market. What we give today, frankly, is more than anybody else gives in our data. But internally, exactly what you're saying, we'll measure it. In course of time, we may even find it worthwhile to announce it, but it will be the wrong thing for us to start announcing that in the very beginning.
Because what will happen, one order in one month will get completed and they'll say, "Oh, this one has gone down." Hey, how is it? Naturally, it will go down because we don't have critical mass at that stage. So the degree of reporting, I think you'll... We will highlight which are the areas in which we may have got some new use cases, but we are not going to slice and dice it to that extent.
So maybe-
We have to slice and dice, PDES also in that extent. We're giving you business unit results, and we're giving you horizontal results and vertical results. Within that, of course, there's color, which you can always ask for and get clarifications, but it's not going to be published.
Maybe you can highlight the pipeline or, you know, the order book, the way your bigger peers are highlighting of late.
Yeah, okay. We'll take a look at it and see how we want to change our approach towards some of this reporting, in terms of pipeline in particular. Hopefully, then you'll see it getting reflected. At this moment, it's difficult to commit because there's so much transition. There's new acquisitions, there are new business units, new verticals, so we'll have to get down to it progressively.
Great. Thanks a lot for addressing my questions and all the best.
Thank you. Ladies and gentlemen, that was the last question of the day. I now hand the conference over to management for closing comments. Over to you, sir.
Thank you all for joining us today. We thank HDFC Securities for hosting this call on our behalf. We look forward to interacting with you. You can reach out to us on ir@happiestminds.com. Thank you.
Yeah. Can we get, Joseph and Michael to remain-
Thank you. On behalf of HDFC Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.