Please note this conference is being recorded. I now hand the conference over to Mr. Smit Shah from Adfactors PR Investor Relations. Thank you, and over to you, sir.
Thank you, Steve. Good morning, ladies and gentlemen. Thank you for joining us today on the Q1 FY25 earnings call of Happiest Minds Technologies Limited. Today we have with us Mr. Ashok Soota, Executive Chairman; Mr. Joseph Anantharaju, CEO, Product and Digital Engineering Services; Mr. Venkatraman Narayanan, Managing Director and Chief Financial Officer; Mr. Rajiv Shah, Executive Director and Member of Executive Board; Mr. Ram Mohan, President and CEO, Infrastructure Management and Security Services; Mr. Aurobinda Nanda, President and COO, Product and Digital Engineering Services; Mr. Sridhar Mantha, President and CEO, Generative AI Business Services; Mr. Sunil Gujjar, Head of Investor Relations. With this, I would now hand over to Mr. Sunil for safe harbor statement and to take the proceedings forward. Thank you, and over to you, sir.
Thank you, Smit. Good morning to all participants in the call. Welcome to this conference call to discuss the financial results for the first quarter ended June 30, 2024. I'm Sunil, Head of Investor Relations. We hope you have had an opportunity to review the earnings release, which 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 and Joseph will then speak about financial 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, Sunil. A very good morning to all participants in this call. I'm pleased to share with you that the current quarter has been a transformational quarter for Happiest Minds. Not only that, it has laid the foundation for making FY 25 our best ever year since the IPO. We have begun the year with, yet again, industry-leading performance on both top line growth and sustaining our margins above the guidance for 17 quarters in a row. I will leave Venkat to provide you the specific numbers. The reason I call the reported quarter and the year as transformational is because of 3 significant milestones for Happiest Minds. Our generative AI business unit has had a great start. With universal recognition now of the importance of Gen AI, we are eyeing towards long-term leadership in this critical technology.
I will let Joseph give some more color on how we intend to achieve this. Second, the reorganization of the company with industry groups as profit centers has taken off and has enabled us to be thought leaders in providing domain-specific solutions and services to our customers. Each of these industry groups will be an engine of growth for long-term success of Happiest Minds. Third, and the most important, is that we closed two significant acquisitions: PureSoftware of significant size and Aureus, a company which has got deep capabilities in reinsurance space. These developments will propel the growth of this fiscal to our best year since IPO. I am happy to share that we have expanded our board of directors to include Mittu Sridhara and Rajiv Shah.
Mittu is one of the most strategic minds I've known for many years, and he is a seasoned executive, renowned for his strategic acumen in the technology sector and brings in extensive experience in steering market-leading technology companies. Rajiv Shah, who has been a key leader at Happiest Minds as a member of the executive board, is now inducted to the board of directors. Rajiv has played an important role in driving the expansion of the company's digital business unit over the past four years. The induction of Mittu and Rajiv will add considerable depth to the board's expertise. With these additions, Happiest Minds board of directors now comprises eight members. Moving on to other updates, I'm happy to also share with you that during the reported quarter, Happiest Minds won the CNBC-TV18's India Risk Management Award for 2024.
Being honored at such a pretty prestigious platform is a validation of our commitment over the years to plan and execute on best practices in risk management. Our Happiest Minds are an integral part of our business, and our systems, policies, and practices are crafted to foster an open culture, enabling our people to discover their potential and participate in shaping their own work-life experience. Over the years, we have been recognized on people-first initiatives on many forums. During the reported quarter, we were recognized as only one amongst top 30 future-ready workplaces of India by Fortune India. A few of you have written to me inquiring why I have sold some of my Happiest Minds shares, particularly since the company has been delivering industry-leading results, and we have projected FY 25 to be our best year since the IPO.
This was done primarily to fund my other two institutions, SKAN, a not-for-profit medical research trust, and Happiest Health. Both required investments to fund their growth, and they are on their way to become great, institutions. In the past, I have also mentioned that I will not permit my shareholding in Happiest Minds to go below 40%. The current sale has brought my shareholding down to about 45%, and I do not expect to make any further sale in the next 2-4 years. I have also exchanged a mail with the shareholders explaining this reasoning. I'm happy to tell you that I've received over 500 replies, and I'm delighted at this engagement with our shareholders.
In closing, let me assure you that my commitment to you, the shareholders and investors and Happiest Minds, is unwavering, and I remain confident of achieving our vision of achieving our billion-dollar revenue goal by 2031. With this, I conclude my commentary, and over to you, Venkat.
Thanks, Ashok. I'm happy to start by saying that we have delivered a quarter of very good performance, with revenues in dollars of about $55.5 million. That has shown a growth of 10.9% QoQ and 16.8% YoY. Now, that number in constant currency is even better, at 11.4% QoQ growth and 17.8% YoY. The growth is a combination of our organic growth engine with a strong impetus from our recently concluded acquisitions. We reported a total income of INR 489 crore, which is a growth of 20.6% from the previous year. As a result of the reorganization, our investor presentation and fact sheet have undergone a few changes.
I'll just call them out so that, you, you will see those numbers as you go through our fact sheets and investor presentation. We are now calling out our Generative AI Business Services revenues separately. The GBS BU revenues include AI services, which is embedded in our revenues from the analytics centers of excellence. We now have product and digital engineering services as a new BU, formed by the merger of the erstwhile product engineering services and digital business services business. Revenues of PureSoftware and Aureus have been consolidated into the PDES business. That's a new BU that I just talked about. And they'll be consolidated with effective May 22nd and May 24th, 2024, respectively, which means our results include 40 days of PureSoftware and 38 days of Aureus.
PureSoftware has taken us into new markets of APAC and Africa, while Aureus takes us into Hyderabad. These new markets that have been acquired, that have come through acquired businesses, have also been shown in our fact sheet. Coming to the other financial metrics, we reported an EBITDA of INR 117 crores, which is 23.9% of total income and has shown a growth of 13.3% YoY and 7.8% QoQ. We've continued to maintain our good margin profile, which includes the acquisitions and also by influencing the levers available to us, like utilization and other operational efficiencies. We also continue to make investments in new technology areas and the new BU of GBS that I just talked about. We reported an operating profit, which we define as EBITDA, excluding other income, at 19.8% of revenue.
This is similar to the previous quarters. At INR 92 crore, this metric showed a QoQ growth of 9.6% and YoY growth of 2.4%. A question that comes up from our research is the drop in our PBT and PAT. During the quarter, coming out of the two acquisitions, from an accounting standpoint, we have taken significant increases on account of two non-cash charges and one cash charge. The non-cash charges are amortization of intangibles and unwinding interest cost on deferred payments. The one-time cash charge is acquisition-related costs. The non-cash charges of amortization and intangible show an increase of INR 6.8 crore and INR 1.5 crore respectively, which is, mind you, for the 40 days of the consolidation. So next quarter we'll get a full, full quarter impact. So we also had a one-time acquisition-related cost of INR 6.4 crore.
This is a one-time, real one-time cost and a cash charge, which will not repeat. On top of this, we also had an exceptional write back of INR 13 crore in the previous quarter. So if you consider the INR 13 crore of exceptional write back in the previous quarter, take it along with the cash charge of the INR 6.5 crore of acquisition cost, we are talking about a swing of INR 20 crore on account of one-time seasonal- not seasonal, one-time exceptional costs from, if you compare our financials of this quarter to the immediately preceding previous quarter. If one were to adjust for these costs, our PBT would have been similar to like that of previous quarters in absolute terms. Coming to certain other metrics, we have improved our DSO from 187 to 84 days. Cash on our books is about INR 1,560 crore.
This is after considering upfront payments for PureSoftware and Aureus, which have been funded through a combination of internal accruals and overdraft facilities that we have availed on our fixed deposits. Cash expended on payment of upfront consideration for the two acquisitions that we talked about was about INR 712 crore. We continue to report solid cash conversion ratios, and our free cash flow, free cash conversion was at about INR 116 crore and almost equal to 100% of our EBITDA. Return on capital metrics of ROCE and ROE are at 22.4% and 13.9%, respectively. These ratios are expected to gradually move up as the benefits of consolidation of the acquired entities start to percolate.
Including PureSoftware and Aureus, Happiest Minds is now 6,600 strong, with a strong net addition of 1,431. These numbers also include 112 campus hires that we made during the quarter. Our gender diversity ratio stands at 27.7%. Attrition on a trailing twelve-month basis has dropped to 13.5% from the 16.6% in the previous year. We expect these numbers to trend at these levels. Our utilization for the quarter has inched up to 78.2, compared to 75.1% in Q1. Here, I would like to say there was a significant influence of both PureSoftware and Aureus, which have a reasonably good utilization numbers, when compared to Happiest Minds.
Utilization in the next quarter is expected to trend a little lower, considering the campus joiners, and also, we have got lesser number of billing days. There is an NCD press release that you would have seen, that we are planning to raise non-convertible debentures. We have taken an in-principle approval from the board to raise up to INR 250 crores through a combination of NCD and term loans. These NCDs will be short-term debt instruments, and we have been tapping this route to raise funds for general corporate purposes, and as these come at an attractive effective yield. On the M&A part, we had a great start to the year with the two acquisitions that we talked about. Both the acquired companies are excellent businesses, which have complemented our capabilities and strengthened our presence in the BFSI and healthcare vertical.
They've also taken us to the new markets. An integration team is in place, which is working with an immediate imperative of realizing operational synergies with the acquired entities. We are very optimistic that these efforts will start yielding positive results in the coming quarters. Guidance on forecast for the rest of the year or quarter, my perspective is our growth for this quarter has shown significant acceleration from the previous year. This momentum should continue as we progress through the fiscal, and we believe we are headed for a strong growth in absolute terms. Effective first of July, in line with our regular appraisal cycle, we have rolled out our yearly pay increases, which will have an impact of about 250-280 basis points on our margins.
Q2 will also be slightly impacted due to the lesser number of working days. Interestingly, we are one of the very few companies who have gone ahead with the pay increases, while we have seen the others making announcements or delaying those cycles. We continue to maintain our forecast on EBITDA of between 20%-22% in the medium term. With this, I conclude my commenting. Over to you, Joseph.
Thank you, Venkat. Good morning to all participants in the call. I'm very excited to present to you the results for the first quarter of the new fiscal. Our growth this quarter has accelerated, and as Ashok alluded, we are on course to achieve our best performance this fiscal since our IPO. The reorganization of our industry groups as profit centers, which is effective the first of April, has started giving us positive outcomes. And to begin with, cohesive two teams of sales, delivery, and domain members within each industry group have increased customer focus and are building on our proven land and expand strategy by focusing on account development plans to expand our footprint in each of these accounts.
We have 279 active customers, and the average revenue per customer has increased to $840,000, as Ashok, Venkat had mentioned, which is a testament to this strategy of land and expand that we've adopted. The number of customers which give us more than $1 million in revenues has increased to a total of 58, and we work with 55 billion-dollar corporations, a good increase over the previous quarter. Let me share some noteworthy events during the quarter, which are both wins in existing accounts and in new logos. At Happiest Minds, we use our engineering pedigree and vibrant product innovation culture to help build platforms that are primed to meet the needs of the business today and tomorrow.
During the quarter, for a U.S.-based provider of sustainable solutions, Happiest Minds was chosen to enhance their data platform and visualization by providing data-driven, actionable, and compelling information for decision makers. We help our healthcare customers build an integrated ecosystem to support the entire continuum of care, from pre-hospitalization to post-discharge. Happiest Minds has been supporting healthcare provider entities in personalizing interactions, generating insights to facilitate care, enabling semantic data exchange, and reducing administrative workloads. During the reported quarter, for a U.S.-based professional board in the healthcare sector, Happiest Minds was chosen as a strategic partner to migrate to a cloud-based CRM solution. Our IMSS business unit has delivered a great performance in the quarter. Our customers trust us to support, maintain, and protect their mission-critical systems.
Our strong capabilities across cloud, data center, digital workspace, and enterprise networking, coupled with strong partnerships across leading platform providers, has helped us position as a preferred partner for our customers in digital assets. For a USA-based professional organization of emergency healthcare providers, the strategic multi-year cybersecurity engagement entails Happiest Minds providing managed security services to prevent, detect, and respond to cybersecurity incidents. Our solutions in cybersecurity's Zero Trust access offers a paradigm shift in how organizations approach security in hybrid work culture. I'm happy to report that in the reported quarter, for the largest professional clearing member in India, Happiest Minds has been chosen to provide managed security services and security operations center, SOC, services.
In the reported quarter, we launched a complete 360-degree IT managed service offering, Happiest Minds Watch 360, designed specifically to help organizations manage their IT environment effortlessly, powered by Ellipse, our AI-infused platform. We believe this solution has immense potential to positively impact our customers' infrastructure and helps them build a robust and secure environment. Now, coming to generative AI. Our new GenAI business unit has got off to a flying start, as alluded by Ashok, with reported revenues of $855,000 during the quarter. Our customers are leveraging the promise of GenAI to drive productivity enhancements, realize new revenue streams, and drive automation efficiencies. Knowledge-based processes, customer success, intelligent conversations through content, making sense of document repositories, and software engineering are some of the key use cases which we are seeing for application of GenAI.
We are currently having about 50+ conversations with customers and prospects, and we completed 15 POCs during the quarter. Rapid acceleration in adoption of GenAI across our customer base has resulted in a pipeline of opportunities doubling in just 6 months. We have also been leveraging a strong partnership with Microsoft to make inroads into some of these conversations and engagements. Some of the customers we work in this space are leaders in the adoption of GenAI. Take, for example, the world's leading beverage maker. Happiest Minds is enhancing their sales process through a generative AI-enabled chatbot for actionable intelligence and decision making. The work on GenAI for this customer comes with the backdrop of another engagement where we have delivered impactful outcomes using our intelligent automation solutions across 20 different processes.
I'm happy to share that over 75% of our workforce is already trained in GenAI tools, and we hope to cover the entire workforce in this quarter and the next. As a digital company, we have leveraged GenAI in our own functions, like HR, legal, and talent transformations, building further depth in this technology. Our model is now able to match resumes with job description and enable to shorten the recruitment life cycle by 30%-40%. Coming to acquisitions, continuing where Venkat left, we began the year with two back-to-back acquisitions, which has put us back to the growth trajectory of achieving U.S. $1 billion revenues by FY 2031. PureSoftware and Aureus have given us deep expertise and strong impetus to our growth story in financial services, healthcare, and the reinsurance segments.
The BFSI and healthcare and life science verticals, because of these acquisitions, are now in the top 30 industry groups for us, top three industry groups for us, with revenue contribution of 17% and 16%, respectively. PureSoftware has also got us into new markets of Southeast Asia and Africa, while adding a nearshore center in Mexico. Aureus has a strong brand record in the reinsurance space, with access to the largest reinsurance company in the world as a key customer, along with customers in the elective healthcare segment.
The teams on both sides are very excited to partner and have made much progress in establishing processes around sales, GTM, and driving delivery excellence across the larger Happiest Minds group. As Venkat alluded, integration is underway and making good progress, and we are spending time with the leadership of these countries, which include companies which include delivery heads, sales leaders, and support functions, to harmonize our shared vision and get more business leverage in terms of cross-selling. Our domain and our IGs and COEs and our practices are very actively engaged with the sales team of both PureSoftware and Aureus, while the sales team of Happiest Minds are leveraging the domain capabilities of the PureSoftware and Aureus team in various conversations. We already have multiple conversations with customers and prospects with a few joint wins.
I'm happy to report that in this quarter, PureSoftware has been selected by a leading American multinational investment bank to drive their digital transformation program. Recently, PureSoftware's Arttha banking platform was awarded Best Banking as a Service Platform of the Year at the fourteenth Africa Bank 4.0 Summit. We are very excited by the potential this platform holds to take our IT business to the next level. Let me now share my views on the current demand environment. Our sustained growth is on the terms of resilience and agility of our business model, and we will continue to be laser focused on our clients' needs and quickly adapt to market conditions. We continue to further our presence across our customer base with a land and expand strategy.
With customers being careful about their spend and seeking very targeted interventions for better ROI on investment, our ability to identify these priorities and quickly pivot is very critical. In response to the demand, environment, and market challenges, customers, too, are calibrating their approach, and we are seeing more restructuring and reorgs in the customer organization. With our agility and agile approach, as well as the recently announced industry group structure, we are taking consultative approach, adopting a high-touch approach to account management, being attentive to customers' needs, and making investments to strengthen relationships which are allowing us to expand our footprint. With this, I conclude my prepared 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 the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Manik Taneja from Axis Capital. Please go ahead.
Hi, thanks for the opportunity. I hope I'm audible. Hello?
Yes, Manik, you are.
Yeah. Thank you, Venkat, and thank you, Ashok, for the opening remarks. Just, if, for the benefit of the audience, while you did allude to the number of days of consolidation of PureSoftware and the other acquisition that you made, it'd be great to get absolute numbers in terms of contribution from these entities. The second question was with regards to the comment that you made around certain one-off write-backs that you had in Q4. Just trying to confirm if that was called out as a gain in Q4, and, what does this pertain to?
Yeah. We had called it out as a separate line item. That was about INR 13 crore of write-back on account of, you know, unwinding of payout. When you make an acquisition payout, and if you don't you make a provision for that, and you don't make a payout, the credit, if any, comes through the PNL. So that was about INR 13 crore, which came in through Q4 financials. And in the Q1 financials, INR 6.5 crore of acquisition-related costs, which in the early days, we could capitalize, no longer under IND AS, as it hits our PNL as a non-recurring expense. So between the credit of 13 and debit of six in the current quarter, we are at about INR 20 crore of spend. And we had called it out as an exceptional item in our financials.
You know, in our press release, we have just, for our investor presentation, we have just corrected that disclosure.
Sure. So Venkat, also just get some sense on the contribution of acquisitions in the current quarter. You called out the number of days, but it'd be great to get the absolute contribution.
This is why I said, EBITDA. So, we discussed about EBITDA and operating margin. EBITDA is at about 22.9%, compared to 24.5% last quarter and 25.5% same quarter last year. If you take out the other income, that number is at about 19.8%, compared to about 20% in Q4, and it was slightly higher, 20.6%, if I'm right, in Q1 of last year. So that's the operating income, EBITDA without other income.
No, Venkat, I was actually looking for the revenue contribution of the two entities, basically.
Pardon me, I couldn't get that. Pardon?
Venkat, I was looking for the revenue contribution of the two acquisitions that were made, because when I'm looking at your stand-alone numbers, those numbers still appear to be soft, and that's why I was just looking to get absolute contribution of the two acquisitions for the quarter.
Yeah. So see, we have only talked about consolidated growth.
... Now, the standalone numbers, for example, don't reflect SMI numbers, which is growing significantly, which is an acquisition that we did last year. And the growth is coming out of the, you know, work that we are doing with the client, the integrated approach to their customer, Happiest Minds with SMI. Macmillan, for example, is an organic growth. It got structured as an acquisition, so unfortunately, that also does not come in, come into the standalone numbers. PureSoftware, like Joseph mentioned, revenues, but we were working very closely with the management, both of PureSoftware and Aureus. At the beginning of the quarter, even before, you know, the deal was inked, in terms of additional selling that was happening.
So it's becoming quite a complex scenario to pull out organic and inorganic, but both put together we are doing 17.8% year-over-year growth and quarter-over-quarter of 11.4%.
And just to add to that, you know, the approach we are taking is to prioritize market and opportunities and business, and we are encouraging the sales team to leverage capabilities we have on both sides. So right, you know, before the announcement of the acquisition, we had enabled knowledge-sharing sessions, where we had teams, especially the Happiest Minds practices, COEs, and domains present on offering their capabilities and start working on RFPs, on proposals, on customer discussions. We also started leveraging talent pool. You know, we've enabled mechanisms for PureSoftware and Aureus to reach out and get people who are, you know, available or even who can be made available to kick-start engagements. So, you know, we want to look at this as one revenue stream.
Sure. And just, clarification with regards to full year outlook that we'd shared after Q4. I hope that stays intact, both on growth and margins.
Okay. There's a slight correction. I had used the word, not to pick and choose on the words, but I had said forecast, because we weren't sure about the closing date, and I was estimating that we will close from April, sometime in the first week of April. But unfortunately, discussions and documentation went on, it slipped, and it went on till end of May. Basis my estimate of the first week of April, we had said 35%-40% in terms of, you know, a forecast for the revenue growth, but now it is 30%-35% is that number. As far as EBITDA is concerned, I had talked about 20%-22%.
Now that we have closed the transaction and we have seen through the flow-through costs and the benefits that we can get from the transaction, it's-- we have done 23.9% for this quarter, and so 20%-22% on the EBITDA number continues. As far as the top line is concerned, I'm still holding it, calling it as a forecast. It is 30%-35%, and primarily because of the loss of number of days that we had.
Venkatraman, you may also want to mention the absolute revenue growth we are expecting, whereby we are saying that this will be our best ever quarter. You don't have to give exact number, maybe, above some.
Yeah, it will, yeah. At 30%, it would be upwards of $53 million. We closed last year at about $196 million. So at 50, 30% at the lower end of the range that I'm giving, we should be growing, we should grow more than 50, $52 million.
Sure. And if you could elaborate on the, on the near term, how could you alluded to the lower number of working days, coming into July, August, September? This is something that you might have known even on April one, when you were, you forecasted, because-
Yeah, yeah, you are absolutely right. That is more from the standpoint of, you know, quarter-on-quarter variation, rather, Manik, rather than anything. So that, that's got nothing to do with, you know, the, what we are holding out as a guidance or a forecast for the year. That's more from a quarter-on-quarter basis. As far as the pay increase is concerned, that's something we knew. But, you know, the industry is behaving differently, or the other participants are displaying multiple different, you know, approaches to that pay increase. Many of them have deferred it, many of them are not even talking about it. But we have gone ahead, and we have commit...
What we committed, we have continued to pay, keeping in line with our own, you know, culture and, the way we are doing business. These are the two things that have given us, a time only to do a quarter on quarter variation.
Sure. Well, that's nice to hear, and wish you all the best.
Thanks, Manik.
Thank you. The next question is from the line of Apoorva Prasad from HDFC Securities. Please go ahead.
Yeah, good morning. Thanks for taking my question. Venkat, just another clarification to what you cited earlier. This change from 35%-40% for FY 2025, coming down to 30%-35%, is this only the timing of PureSoftware and Aureus, or is this organic growth, which you see to be lower basis the near-term outlook?
No, largely it is only that, Apoorva. Largely it is only that. But, but, you know, as you come closer, you will see 1%, 2% here and there adjustments, because in our business you have committed, you have got committed, you know, pipeline, or you can view two quarters, so there is always a little bit of hesitation from the sales team in giving you a number for the first quarter. But otherwise, if you are—if you look at our plan and the way we are building our own pipeline, and PureSoftware is working the way we are working together, that, that's the only main, main difference, Apoorva.
Got that. And on the service lines, could you explain why there is some weakness in the analytics and AI and security solutions, especially when the GBS unit seems to be tracking well?
So, you know, let me take that, Apoorva.
Sure.
If you look at PureSoftware and Aureus, more of the revenues come from digital infrastructure and applications. They have less of analytics, AI, and security, and that's the reason you see these going down as a percentage of revenues. But on an absolute level, all of these service lines have grown. And if you look at conversely, this is a selling opportunity, and as we speak, the IMSS's business unit is very closely engaged with both Aureus and PureSoftware on some of their existing customers to cross-sell infrastructure and security solutions. Again, another area that they're tapping, two...
Another two areas that they're tapping very, aggressively around the automation, both, business, and, business process automation, RPA, as well as on test automation and on the analytics and AI side, where we have strong centers of excellence. So, you know, in summary, absolute numbers have grown for these service lines. As a percentage, it's come down because, PureSoftware and Aureus have lesser revenues from these streams. It also affords us a cross-selling opportunity that we are actively working on.
Got that. And Joseph, would the addition in the 2,000 customers all be inorganic coming in from PureSoftware and Aureus?
No, we, we would have had a couple also coming in from, organic, Apoorva. So it's a, it's a mixture, actually. You know, as you would have seen from the press release, we've reported quite a few, and then, logo wins as, you know, examples of case studies. So it's a mixture of inorganic and organic.
If I can just add to what Joseph said, you appreciate that this is really the first quarter for GBS. So many of the things we are doing at the moment are like discovery projects or proofs of concept. These will move in subsequent quarters into, you know, the final projects that we're going to execute. And, to that extent, you'll begin to see those numbers, even on a percentage basis, beginning to change from quarter to quarter.
Got that. I had another one on the top account, which is come back to growth after three quarters. Any outlook that you can provide there?
So, you know, I think the customer, the higher ed space has been a little challenging, and these customers in the higher ed space, though they are a little bit more oriented towards professional development. And as you, you know, rightly pointed out that they have stabilized in the last three quarters, and we expect this to continue. And now that they've level set their technology investment, as and when they get growth or they make acquisitions, we expect that this will lead to growth, you know, in this account.
Right. And on margins, Venkat, you called out the headwinds for next quarter, but with all the pluses and minuses, you think lower end of the band which you've given out, that can be defended?
20%-22% EBITDA we should do. We should be within that, and better than the lower end, Apoorva.
For even Q2.
3.9 this quarter. That, that's right. That, that's my expectation.
Okay. Got it. Thank you, and all the best.
Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. The next question is from the line of Ankit Gupta from Aequitas Investment Consultancy. Please go ahead.
Hi, good morning. So on the net profit, you called out aspects which were one-time charges for this quarter. But, if I look at it overall for this complete year, do we think we can deliver the growth on the net profit line over the course of the entire FY 25?
Yeah, the point I would like to look at in the year of any acquisitions, we looked at other... I've looked at many other companies. It takes about at least 2-3 quarters for, you know, these one-time costs or amortization of intangibles, unwinding of interest. These kind of accounting costs, as I call it, to get completely recouped from the business growth. It takes about 1 or 2 or 3 quarters. So we should be back to that kind of a number, back to our typical PBT numbers, hopefully in about 2-3 quarters. That's assuming that all goes well with the growth of the acquired companies and our own organic growth. So that's one thing.
I think, as we grow larger, we should also look at the profit growth, absolute terms, EPS growth, cash EPS growth. These are these and the return on capital employed as metrics, because sometimes getting stuck with just a percentage of the profit could mean that we don't make investments at the right time. For example, our financials also include about INR 1.5 billion of investment, which will be in the GBS BU. So if one were to, you know, not make those investments at the right time, we will not be able to grow in the future. You should afford, you know, allowances for those investments and these accounting costs.
In the long term is to make sure that the acquired companies reduce efficiencies and start performing at similar levels or better levels than what it was previously. And that's what I would suggest. So which is why I talk about EBITDA as a metric, and in fact, this time onwards, I've actually even taken out the other income part, talking about operating margin, because that really shows you the health of the business.
Right. Thank you. And, secondly, I've just been coming across some advertising by competitors like EPAM, which are hiring very aggressively in the Indian market or seem to be hiring in the Indian market. Is an increase in competitive intensity something that you're kind of seeing on the ground? And, is that something that we should be looking out for?
We really have not seen much of the competitive intensity from, you know, some of our similar size or slightly larger brethren. But what we are seeing is, you know, more of the GCC is getting established, and this has been a trend for the last 10, 15 years, and it's something that we have worked and we are working into our strategy mindset.
Right. Thank you.
Thank you. Before we take the next question, we would like to remind participants that you may press star and one to ask a question. Ladies and gentlemen, if you wish to ask a question to the management, you may press star and one. The next question is from the line of Ankit Gupta from Aequitas Investment Consultancy. Please go ahead.
Hi, so thanks for the other opportunity. Just following up from the earlier commentary that, this time we are not, including the other income, in the operating margin. So just for our clarification, what would be the operating margin guidance that you're giving of 20%-22%? Does this not include the other income altogether?
No, no, no. The guidance or the forecast that I'm talking is about EBITDA of 20%-22%. Just to give you, the health of the business, I removed the other income and gave you this number of operating margin, which is, EBITDA minus other income, which is 19.8%. So we are still holding on to EBITDA of 20%-22% with other income.
Understood. Thank you.
Thank you.
Thank you. A reminder to all participants that you may press star and one to ask a question. The next question is from the line of Srinivas Sampat, an individual investor. Please go ahead.
Good morning. My question is to Mr. Venkat. Venkat, this is regarding your NCD proposal that you have put on. You said you are going to raise around INR 250 crores. Is it additional debt that is coming on, or is it that the replacement of all the overdraft you said you took on fixed deposits? Basically to know, like, whether your finance costs are going to go up or, it's a replacement, the yields are lower, so expecting the finance costs to go down. And the second thing is, in your revenue, since you closed the 2 acquisitions around the end of May, this month would have probably captured only 34 days of revenue. So do you expect the revenues to be a lot higher, considering that you will have full 3 months for the newly acquired entities?
The last point is, on the sale. This is for Mr. Ashok Soota. Appreciate that, you needed to sell for investing in your new business. To be very frank, what was quite disappointing was that the explanation of that did not come immediately after the sale, and it took a lot of time, by which most of the business channels had characterized it as the promoter reducing the stake and causing phenomenal damage to the stock price. Your explanation came quite late. In future, some of these could be avoided; it would have helped a lot.
... Yeah. So, let me talk about the full quarter impact. Yes, the next quarter will have 90 days of the full quarter impact on account of PureSoftware and Aureus. That's right. Second is on the NCD program. So we already have INR 125 crore of NCD at a certain rate, which is treasury linked, plus a percentage, you know, of increase on top of the treasury linked rate. So we will replace that, or we'll replace the working capital lines, whichever, because, you know, the rate of interest is currently we are getting it at much competitive rates as our credit profile is improving, and we are also having the other avenues to put this money to use.
So it'll be used to retire existing debt or, you know, replace the existing debt. And it's also important to keep a, you know, chain, a supply of debt in the market, because that keeps our papers available, tradable, you know, in the market, in the debt market, as I speak. And that gives you an avenue tomorrow to raise capital if required for any acquisitions. But right now, we are not doing this for acquisition, but this is just to replace the existing debt. And the third thing is, you know, when you talk about any line of credit, a line of credit comes at a cost of about 0.75% of commitment cost. In India, we don't have this concept of line of credit.
You only get a, you know, interest letter of intent, but nobody gives you a line of credit like in the U.S. markets. So instead of having a line of credit, you know, finance people like us, what we do is we raise this money and when the markets are there, the liquidity is the market, you raise it, then you deploy it into something like a fixed investment, fixed deposit, and there is a gap of some 0.6%-0.7%, which is the effective cost of that credit, line of credit available to you in case you need to do an acquisition or in case you need that to repay a certain line of credit or nothing else. So that's the way we visualize NCDs.
You borrow when the rates are good, and you take advantage of the market movements and the variations. So that's on the NCD. And if you look at it, our interest coverage ratio is improving, our debt coverage ratio is improving. Debt to equity, obviously, the formula is including working capital, but if you exclude that, we are at a healthy point, 3.4%. It brings in certain operating leverages into the company. The post-tax cost of this debt is really, you know, worthwhile to make sure that that's used for capital formation in the new business like GBS, that we are talking about.
So there is enough reason for borrowing decent amount at interest rates, which are compelling, to make sure that you are investing that into business, which is giving you a lot higher IRR. Our Return on Capital Employed is 22%, and on equity is 13% or 14%. So Return on Capital Employed is 22%, means I'm able to generate that kind of an IRR in the business for the money that I'm raising.
The follow-up is that, now that you said that your tempered growth for the year to, let's say, 31%, 30%-32%, you would have a fair idea of, you know, and this particular year is going to be a little difficult for us to just work out what could be the profit before tax and all that. Would you have a ballpark figure of what would we end at earnings per share by the end of the year? Not holding you to any number, just going by whatever ballpark figure that you have put, what would we end? Because last year you ended with an earnings per share of around 16.78. What would you probably end the year with?
We will not... I'm not guiding on that.
I'm not holding you to that, but just a fair... I mean, assuming that you are also doing the guesswork along with me, what would you say that would be the number?
I would hesitate, or let me stay away from making that guesswork. Maybe after the Q2, we'll have a better fit on how this annualization works, because typically, what people do is annualize one quarter into four and give you a number. But with this quarter having one-offs, we should not make such an attempt. But if you take that, maybe, an earnings per share of very similar to that of last year. Which is why I said again, maybe EPS is not the right metric during the, you know, formative years or the integration years. You should look at cash EPS.
So because if I made INR 116 crores of EBITDA, almost INR 116 crores is, you know, dropped into my cash flows, which you can see my cash flows, as cash balance. So that shows in the health of the interest, health of the company and the operations. My DSO has improved, my working capital ratios have improved. And obviously, the business metrics Joseph talked about, they've all improved.
Okay. Thank you.
Thank you. The next question is from the line of Ankit Gupta from Aequitas Investment Consultancy. Please go ahead.
Yeah, hi. Considering that the EBITDA margins this quarter are a little lower than the same quarter last year, and I do understand PureSoftware is a 40-day integration, but even if I look at it from a 90-day perspective, do we feel the confidence that PureSoftware is actually giving us a credit, and also that it has a similar or a higher margin profile to our organic business? Or can we expect a compression in margins when that comes?
You know, we did, I did cover this in the last. Their margin profile, because, see, smaller companies don't keep the kind of cash that slightly larger companies like us do. So if they are- they were working on a 19.8% margin without the other income. So it is very similar in terms of margin profile with us. And they, other than the slight lumpiness of the, because of the product business, they have got a good margin profile, and I don't think there's a huge compression risk on account of PureSoftware. And we have to, in fact, improve on that margin profile because full integrations are required to get the cost integration benefits that shall come out.
Okay. Thank you.
Thank you. As there are no further questions from the participants, I would now like to hand the conference over to Mr. Sunil Gujjar for his closing comments.
Thank you for joining us today. We look forward to hearing from you again. You can reach out to us on ir@happiestminds.com. Thank you.
On behalf of Happiest Minds Technologies Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.