Q4 20/21

Apr 23, 2021

Quarterly report

Ladies and gentlemen, good day and welcome to the Q4 FY 2021 Earnings Conference Call of HCL Technologies Limited. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation Please note that this conference is being recorded. I now hand the conference over to Mr. Sanjay Mandirata, Head, Investor Relations. Thank you and over to you, sir. Thank you, Margaret. Good morning and good evening, everyone. Apologies for the delayed start. A very warm welcome to HCL Technologies Q4. Trust you all are safe and healthy. We have with us today Mr. C. Vijay Kumar, President and CEO, HCL Technologies Mr. Prateek Agarwal, Chief Financial Officer Mr. Apar Rao, Chief Human Officer, along with the broader leadership team to discuss the performance of the company during the quarter and In the course of this call, certain statements that will be made are forward looking, which involve a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those in such forward looking statements. All forward looking statements made herein are based on information presently available to the management and the company does not undertake Statements that may be made in the course of this call. In this regard, please do review the Safe Harbor statement in the formal investor release document and all the factors that can cause the difference. Over to you, CDK. Thank you. Yes. Thank you, Sanjay. Good morning and good evening to everyone. Apologize for the delayed start. Thank you. I hope all of you are doing well. You are safe and good health. At HCL, we continue to Strengthen our business continuity program. It's already in high gear across the country and we are extending Every possible healthcare and well-being support to all our employees and their family. With that, let me It started with the overall performance for the quarter and for the financial year. As you would have seen, Revenues grew 2.5% constant currency in Q4. And if you look at Full year revenue grew 1.1 percent in constant currency, delivering $10,175,000,000 which is a 2.4% year on year growth. EBIT margin was Down by 8.3%. It came in at 20.4%, which is a 2.5% below the previous quarter. And similarly, the net income reduced by 24.1%. There is a detailed walk for the EBIT and net income, which Pratik will walk you through in the subsequent slides. Our overall EBIT performance year on year, 11.7 percent growth. Year on year net income growth is 13.2%. We delivered one of our highest EBIT performance, which is 21.4%, is a 180 basis points increase from the previous year. Of course, all of this exclude the one time milestone bonus paid in 2 points amounting to about $100,000,000 Just moving on, just to provide you an overview of the business performance, As you saw, we had positive revenue growth, double digit EBIT and net income growth in FY 2021. In spite In the Q1, some of that continued in the Q2. Our Mode 3, which The digitization led revenue on the new services as well as our product and product model 3 revenue grew in double digits, Mode 2 in high teens and Mode 3 in low teens growth. Growth was very well balanced Across verticals and all the geographies, what is very notable is there is very strong and diversified growth In the services business and the strong pickup in Q4 in the IT and Business Services is led by our Great success in digital transformation deals, which is application modernization, vertical led operating model Transformation deals, analytics, cloud migration, cybersecurity and digital workplace deals. Our Application services, which also includes a lot of application modernization work delivered 1 of its highest quarter on quarter growth in this Got it. Our engineering services continues to deliver decent growth Y o Y as well. Some of it is Impacted due to the COVID impact in some of the segments in which we are present like auto and aero segments, Products and platform continues to exceed expectations and is performing well above the business case. There is a certain segment of products, which we see strong potential and healthy pipeline and we are going to Continue to invest in those products to ensure the long term medium to long term growth is assured. We've had good deal closures in the products and platform business. The pipeline creation through the head fuel channel is also strong, Almost 20% of the pipeline of the total business is coming through the HCL services channel. We're also very happy to announce that we had the highest client satisfaction index, which was done through a third party firm, which we do every year. This is 11th year running and Net Promoter Score came on top of the previous high that we achieved in FY 2020. This gives you the year on year performance and the quarter on quarter performance in constant currency. As you can see, IT and Business Service delivered 4.4 percent growth. Of course, there is about $25,000,000 of revenue, Which is from the acquisition of DWS in Australia, which is also embedded in that, but even excluding that very smart growth. From an engineering services perspective, we had a modest growth of 0.7%. But again, we see good traction and the Subsequent quarters, the outlook remains very positive. And products and platform quarter on quarter is not Sure. Relevant in this business, but a year on year perspective delivered a 20.5% growth. And Engineering Services declined 5% year on year, Largely due to the asset heavy industries that we have and we do believe the growth in that segment has already bottomed out and we should Good uptick moving forward. In terms of the overall business, we had a record net new booking of $3,100,000,000 in Q4 and a total booking in FY 2021 of $7,300,000,000 This is all net new booking. This does not include renewals or gate card deals that we have signed, Which was also very significant in the quarter and through the year. The $3,100,000,000 booking in Q4 was led By 19 large deals and what's very heartening is these deals are across the segments Like we had 8 deals in manufacturing, 4 in financial services, 3 large deals in life centers and healthcare, 2 in consumer goods and 2 in tech. And it is also quite well spread between Americas and Europe, 13 in Americas and 6 in Europe. Also, it's worthwhile to highlight most of these deals are with Fortune 500 or Global 500 Companies Where there is significant headroom for growth paving way for a very strong long term growing relationships. Our strategy during the mid of the last financial year, given that the demand environment had really become very Svein, we consciously participated selectively in deals that aligns with the long term value creation And the results are absolutely heartening, very, very heartening that we had a very diversified, very high quality clients across A lot of digital spend and this is going to be a good outcome in the long run and we are very happy to note that. Several deals, one large deal, probably the largest this quarter was a Europe based Global Energy and Utility Company, which is carving out of its patent, we are setting up a greenfield digital foundation and establishing an independent IP organization and support to enable the continued business transformation. One of the largest deals that we signed in our Engineering and R and D segment was from a global technology company where we had chosen As a strategic product engineering partner to drive innovation that would steer growth of these products and customer advocacy for their clients. In Germany, we signed one of the world's leading consumer goods company signed up for workplace as a service Across all clients' service support levels across their global locations and environments, here consumer experience Enable through automation and AI was a significant theme. Similarly, in the U. S. Financial services firm, We signed an integrated engagement encompassing application management, application development and the digital foundation And cloud migration, primarily to transform the clients' wealth management business and the application landscape. A U. S.-based telecom company again expanded its relationship with a digital transformation deal The areas of order management, client experience, secured payments, etcetera, which is again modernizing applications and migrating more and more We also recently announced a deal with UD Trucks, which is a Japanese automotive manufacturing company. This is again a carve out where end to end IT transformation spanning digital foundation, application development, Modernization and Digital Workplace Services. So this is just a small set of deals among the 19 deals that we signed. We have a very detailed list of all the deals in the investor release, almost 17 of the 19 deals are highlighted there. Looking ahead, based on the record booking and the broad based pipeline, the pipeline at the exit of FY 'twenty one It's the highest. So even though we had very high booking, a lot of it has got replenished with a qualified pipeline, which is slightly higher than what it was at the end of the previous quarter. This augurs very well for the growth in the near term And a lot of it is driven by our Mode 2 services. We do believe our Mode 2 service revenue and Mode 1 service revenue Should be equal in the medium term. That's the aspirational goal that we are working towards. And for this purpose, we will continue to invest in Expanding and investments and solutioning and engineering capabilities in our Mode 2 services, Especially there are several new areas in the digital engineering space which is 5 gs Industry 4.0, Data Engineering and Softwareization and certain high growth verticals, which offer a lot of opportunities for our engineering services In the current market environment, semiconductor, software, automotive are some of the areas where we want to expand. We also launched what we call as HCL Cloud Smart to address the $300,000,000,000 services opportunity related to cloud. Here, while we have very strong ecosystem partnerships and dedicated business units, CloudSmart is an overarching Offering, helping accelerating and maximizing business value from cloud in alignment with the industry needs And the specific organizational goals and unique client situations. We want to take advantage of the Massive opportunity that is playing out in the cloud space and this offering really brings together our IT services, Our engineering services, our hyperscaler partnerships and the industry IP that we have in several segments As well as some of the offerings from our products and platform segment. We are also launching HCL now, which is really The SaaS version of all the products that we have on the HCL software side and this is again Very exciting launch and we are seeing a lot of interest in our customers to adopt the cloud version of some of the products that we have That's classified in the recent past. All of this is helping us strengthen our partnerships with hyperscalers because they are looking for Industry solutions to be coming in from the partners like us and our investments here are very well aligned with what we want to accomplish. In terms of geographies, we believe there is additional geographies Where we are seeing growing demand and a significant adoption of the global delivery model. While we have made investments, we have a Country model which is strongly present in these geographies, we think this is the time to double down on some of the Sales and marketing investments in geographies like Germany, France, Canada, Australia and Japan, while we've seen very good traction, We think the market opportunity is much bigger. So we are going to invest more in these adjacent countries where We want to build our business. We are also looking at expanding into some emerging markets to address some of the IT demands Countries like Brazil, Mexico, South Korea and Spain, some of these countries already have a country manager Appointed and we plan to expand our teams in these locations. We are also Increasing investments from a geographic leadership and sales teams in some of these geographies. On the products and platform, The business stands validated by better than expected performance in FY 2021. As I said, we are well ahead of our business case As an overall portfolio of all the investments that we make and we see further opportunities To grow this business, there are 2 segments that are clearly emerging This has got strong growth potential. About 75% of our products and platform business It has got a very strong growth characteristics and that is where we are investing, which should help us deliver a double digit growth the 75% of the product portfolio in the medium term. The remaining 24 of a Sustained portfolio where we want to sustain these products, optimize our profitability, while it would decline In a double digit manner in the medium to long term, while there could be Little more decline in this 25% in the current year, which is F. 22, Because there are a couple of products which we have consciously taken a decision to discontinue. We see Demand for talent is very strong and the adoption of remote work requires a complete rethinking or I would say a 0 based approach to talent access and delivery models. We put several special programs in place to enable hiring, grooming talent, etcetera. I'm also led by increased offshoring for which we are not only depending On India, we are looking at additional locations like Sri Lanka, Vietnam, Philippines, where we believe where we will significantly scale up In this year and in the next 3 years, we are continuing to expand on some of the local nearshore centers in U. S, Continental Europe and Australia, these are small nodal centers which will help create the right mind share for us And attract local talent. We already have strong presence in U. S. And Continental Europe, but there are a few more locations where we propose to invest. We plan to hire over 15,000 entry level hires during the year and this is spread across India, U. S, Europe, Australia, Sri Lanka and Vietnam. In terms of outlook, while we Had very strong booking and we are exiting with a reasonably good exit momentum. We expect to grow in double digits in constant currency And our operating margins, we expect it to be from 19% to 21%. And I mean the reason why we've provided a double digit Growth rather than giving a range, you should look at this as a floor for our growth. Lot of bookings that we have done, there is certain amount of That needs to happen, which needs to be planned out. And we want to focus a little more on booking and the metrics around booking. And we will provide you continuous visibility of booking. We are very comfortable with the net new booking TCV To be announced in the coming quarters, we will fine tune it to make it more complete, including renewals And even some amount of rate card deals. So that's where we want the organization to focus and we want to provide a floor Of what the growth expectations will be. And from a margin perspective, as you would have noticed, we used to give a range of 1% now we've given a range of 2%. When we did the planning, we did assume some amount of travel and transport spend would come back. That is baked in, but Given the current scenario, maybe that may not happen. However, we want to give ourselves a little bit of elbow room for all the investments that I talked about Because this is not the time to maximize profits, I think the market opportunity is very strong and we want to do everything possible to Capture the market opportunity. And that is the rationale for a 2% guidance range. With that, I would request Pratik to provide a little more financial details. Pratik, you can start talking and I'll share that. Thank you, Subhiket. So let me walk you through, Did you see the slides just vanished? Yes. Yes, it's come back. Can you see it now? Okay. Why don't I use I'll do a slide turning for you. Okay. All right. Okay. So I'll just go through the numbers which CVJ has not covered. So The revenue growth is something that Sivik has covered already. EBITDA I think we should be able to change the slides now. Yes, Sivik? Yes, I have the control. Thank you. Okay. Thank you. So the EBITDA we clocked During the quarter, it was $603,000,000 which is 22.4%. As you can see, it is a reduction a quarter to quarter basis, which I will walk you through the details. And by the way, these are numbers Which are the published numbers on the next page, just as a quick glance, are the numbers And just without the impact of milestone bonus, let me go ahead with this one instead of the previous one because this is more relevant to This milestone bonus was a one time bonus we paid to the employees, 10 days of salary to commemorate achievement of the 10,000,000,000 milestone. So without that, the EBITDA is at 7 0 $3,000,000 which is 26.1 percent, which is still a drop of 2 15 basis points On a quarter to quarter basis, and I will give you the walk for that. On a net income basis, we came in at $410,000,000 which is EPS of close to INR 48, 47.9 rupees. On an annual basis, we did $10,175,000,000 and EBITDA of 26.7 And net income of $1,760,000,000 resulting in that EPS of the same $47,900,000 This is the walk on a quarter to quarter basis on an EBITDA margin. And as you can see, there are basically four factors here. Wage impact is we had the 2nd quarter Impact of all the senior members of the team and some other parts of the group, the total For the quarter, it was 60 basis points. And the seasonal decline in revenue for P and T, It's basically a seasonality factor. I have a further page coming up explaining this in slightly more detail. It's a seasonal decline which is contributing 73 basis points. And The third factor here is really the large number of fresher hiring that we have done. And as you can imagine, They are not billable immediately and it takes kind of a quarter Some parts of our business are little more to make them productive and deliver. So that has contributed about 61 basis points and other investments, freshers and other investments. And ForEx fluctuations took away another 21 basis points. So that's how the 215 basis points is really comprised of. Looking at the cash flow summary, I'll just focus on the FY 2021, while the JFM, the Q4 numbers are given here in FY 2020 are also given here for Comparable, I think the numbers to focus on for the year are 2.176 $1,000,000,000 of cash profits, cash profits is nothing but OCF before the working capital changes. That's also the same cash profit translates to cash EPS that we have been publishing for quite some time now. On a OCF basis, operating cash flow, we delivered $2,600,000,000 for the year. Mind you, this is after The $100,000,000 that we paid out for the milestone bonus, so if we were to exclude that from here as well, The number is actually $2,700,000,000 And then when I go remove the CapEx from that, the free cash flow is at 2.34 And we have been clocking at that $2,400,000,000 over the last few quarters on an LTM basis. And if I add the $100,000,000 back, Again, here it is $2,440,000,000 And if you look at whichever yardstick you might want to measure As a percentage of net income or as a percentage of EBITDA, these are very, very healthy numbers for anybody. With that $2,800,000,000 is cash on the balance sheet At a gross level and after removing the borrowings of 534, it's about $2,300,000,000 Moving on to P and T, I Said I have additional page. So what I want you to I mean we have said this 20 times in the last, I don't know, 5 or 10 quarters. It's got its own seasonality. And here you can see both for FY 'twenty and for FY 'twenty one how the numbers have been. FY 21 Q1 was obviously there was no contribution from the Acquisition of those 7 products that we did at the end of June 2019, so that is the reason For this growth to be so high, but even if you leave that out, I think the important point to note is that Well, after that, the growth has been very good looking at constant currency of 16%, 9% and 3% Sequentially, I mean sequentially meaning on a year on year basis. And even for this quarter, It is a growth of 3.3%, 5.4% on a reported basis, in constant currency, 3.3% And that is really the right number to look at. For the whole year, of course, it came in at 20.5%. There was a small impairment charge that we took for one of the products that was under One of the IP partnerships that we did, the charge is a small charge of about $16,000,000 On an annual basis, it means 16 basis points. On a quarterly basis, it means 60, 60 basis points. Now out of the 20 odd product groups that we have either required or done by partnerships on, This is one of the products out of those 20, which has seen impairment After several years, as we approach June of 2021, it will be 5 years completion of This new business that we started in June 2016 with the very first deal, to my mind, that's a small thing It happens once in a while. The other notable thing during the quarter was the DWS acquisition, which We consummated on 5th January and those numbers have been sort of consolidated in this quarter. And as far as purchase price allocation is concerned, this table gives you the purchase price. It was a total enterprise value of If you add the $120,000,000 equivalent that we paid for the shares and the borrowings of close to $30,000,000 So the total enterprise value was about $150,000,000 and this is how the assets came in and the rest is of course new. This is the last thing that I want to talk about, the tax line item. And this has been a bit of a surprise during the quarter, because the finance minister in the finance Bill went out and took away the benefit of depreciation that was available so far and that was the loss so far That goodwill was depreciable and we had obviously baked that into our calculations And we were taking the benefit of that as far as tax books is concerned. But in this quarter, The FM came and withdrew it from a retrospective effect from 1st April 2020. So while we got the benefit for 1 year FY 2020, but for the FY 2021, right, from day 0 of FY 2021, We had to sort of write back that benefit that we were taking. So that has been the reason why the cash the tax Expense has gone up during the quarter and that is just looking at the U. S. GAAP books. If you look at the India's books, there is a big amount of Close to $160,160,000,000 which is a complete one time non cash Kind of a deferred tax liability that we have had to undertake, put it in the books there, Which is not a liability table to anybody at any point in time, but that is what India's And IFRS dictated, so it has also caused a large difference of $160,000,000 Between the net income as per U. S. GAAP, which did not have to take this Silly entry actually, but under the NDS literature and we tried our level best to See how we could have avoided this, because this really is not reflecting the reality. But At the end of the day, this is what it is and this is what we had to provide for in the India's books only, not under U. S. GAAP. And My last page okay, sorry, my last page is the reconciliation. I'll come to that in a second. This is just a quick recap of the bond issuance that we did. We finally got ourselves 2 ratings, 1 by S and P, which you are aware of, and we also got switched to raters, Both of us rated us A- with a stable outlook and that's One of the highest credit ratings and the highest rated issuer Out in the international debt capital markets, we raised about $500,000,000 for a period of 5 years And this is listed on Singapore Stock Exchange. We did get very fine pricing As you can see from the data provided here. This is the last page I was talking about. This is basically a reconciliation of the U. S. GAAP in rupees growth versus the MAS. And the 3 highlighted blue bars is what you need to focus on Or rather 4, revenues there is no difference at all. It's the same $75,000 crores. But In the EBITDA, as you can see, there is a difference of INR 7.19 crores, Which is coming entirely from how India streets on the leasing charges Versus U. S. GAAP. So as you can see, the India's EBITDA is always About a percentage point higher, which is the $7.19 or it's kind of slightly lower than 1% at this point in time. EBIT then kind of more or less matches up because the same reversal happens at the depreciation level. And then there are some other small items which make the reconciliation, but the big item this This INR 11.74 crores which I spoke about a few minutes back and that is really causing the big difference of INR 12.90 And this is really the bulk of the difference being caused because of that deferred tax liability that we had to create under India's standard. That's all I had. And over to you moderator for Q and A. Thank you very much. We will now begin with a question and answer session. The first question is from the line of Ankur Rudra from JPMorgan. Please go ahead. Thank you and thank you for the detailed presentation and the increased disclosure this time. CVC, could you give us a sense of how this The order book you had this time, how does the spread look? Is there any 1 or 2 very large deals which skew the mix or is it evenly spread? And also as an additional question, thanks for your commentary. Can you give us a sense of your participation rates in application and digital leads have gone up significantly in the last year or so? Ankur, as I said, it is well balanced, the 19 deals. There are 2 deals with $250,000,000 plus 2 deals and several $100,000,000 $50,000,000 plus kind of deals So it's not concentrated with 1 mega deal. So that's also a good part. That's a broad based momentum across Multiple geographies with some sizable deals, which are very, very good from a long term perspective for us. And in terms of duration also, I don't see too much of variation. Most of them are either 3 year or 5 year deal, so there isn't a 7 year or a 10 year deal in this. So that's one perspective that I can provide. In terms of the business line, of course, I think it's I mean, there are at least 4 deals which are integrated, which has between infrastructure, digital foundation and application modernization And cloud migration kind of programs. 2 carve outs, which is M and A kind of deals, one we already Announced, which is UD Trucks and another one, which is again the largest deal for the quarter, which is again a Europe based utilities And that is also digital foundation and application modernization and cloud smart offering. And the large one of the largest deals for engineering services was again product sustenance. It's more of a cost and Trying to build more innovation and customer advocacy kind of deals. It's very well spread, high quality deals In very high quality large clients, that's the best that I can share now. Ankur, I just want to add and clarify, unless it caused some confusion, but M and A or carve out that As you spoke about is at the customer end, not at our end. Understand. Thank you. Yes. I was just going to ask for a follow-up from there. Clearly, very strong bookings this time and also as you highlighted, the duration is not very high. So looking at the exit rate of deals booked new deals booked this time, the guidance of double digit growth or even at least a double digit growth looks a bit light and easy to achieve. Are there any headwinds, for example, the net impact of the P and C decline that you alluded to? Is that something you're baked into this guidance? Is that why it's a bit more you're not Yes, yes. I think from the services business, both IT Business Services and Engineering Services, We are seeing a very strong outlook. Products and platform, as I said, 75% of the products, We feel confident of strong growth 25%. There is a declining characteristics and we have retired a couple of products. So at this point, we have penciled in a low single digit type of growth in the P and P segment. That's So how we should think of that's how the numbers will pan out. Understood. And just last follow-up Pratik, Pratik, the margins this quarter in P&P or Mode C, was it largely the impairment charge? And if I take that out, on a YY basis, the margins are sort of flattish? Actually, Ankur, if you just do the math on a quarter on quarter basis also, The drop in the PLP margin is about $40,000,000 out of which revenue is a seasonal decline. It's just seasonality. There is no nothing more to be read into it. That's about 18 odd 1,000,000. Impairment, as I discussed, is about $16,000,000 that comprises $34,000,000 leaving just a small increase of $6,000,000 Which has been building the sales and marketing in other parts of the business. So it's really not a surprise. Understand. Thank you for the color. Thank you. The next question is from the line of Pankaj Kapoor from CLSA. Please go ahead. Yes. Hi. Thanks for the opportunity. Sir, my first question is on the investment that you plan to do. So I was just trying to I figured out, are you looking at this as more of a one time investment? Any quantification you have in mind that what would it be in terms of the scale? And from a medium term margin outlook perspective then, does it mean that once this investment is done over maybe say a year or 2, we can go back on a higher margin trajectory? Yes. So I think we are looking at the I talked about many areas of investment Geographies and Motu and talent and locations and all that, it's about you should Consider it like a 100 basis points kind of an investment. And then of course, I mean, we also should be able to once some of that investments have In the last 3, 4 months, a little bit of that could be in the run rate, but from a full year perspective, It will play out, it will magnify. And I think some of these geographies, we are seeing strong momentum as we kind of scale up revenues That will automatically pay for itself. So I don't see this like a permanent thing. There are certain geographies where we want to Expand and they're not like random geographies. They're geographies where we're seeing a lot of traction and there is Good acceptance. We have some marquee clients. So there is a great way to expand. So It should I mean, if you take the next year or FY 'twenty three, 'twenty four, I think it should this should not really be a headwind from a margin Understood. And my second question is on the dividend that we declared. So just wanted to have some broader thoughts On your capital allocation policy, is there any kind of a thought process in terms of the way you are looking at it as a percentage of maybe Profit rate or as a percentage of free cash flow like many of your peers have? And any thoughts around the mode that you may have in mind? Do you think The dividend is a more preferred route or you will be open to excluding other options as well. Yes. Prateek, if you can take that? Yes. Sure. So, Akash, thanks for the queue on that one. I should have covered it without even the slides. So as we mentioned, the dividend So this quarter declared INR 16 per share, INR 16 and We had declared 2, 4 and 4 in the previous three quarters. So that takes it up to a total of 26. The 16,000,000,000 is broken into 2 parts. So one is just like we gave employees 10 days of salary As a commemorative mark, just to mark the milestone of $10,000,000,000 We are doing the same with the shareholders, INR10 per share as a mark Of that, Miles, right. The rest INR 6 is really the new benchmark that we are setting Going forward, instead of the INR 4 per quarter that we paid in the last two quarters And before that, we were paying INR 2 per quarter. So we have increased it now to INR 6 per quarter and that is what we intend to Carry on into the 4th quarters of the next year and beyond. And we'll again look at it Next year end as and when we get to that. Understood. And just one last Small clarification, Pratik. Given the kind of adjustments that you have done on the attach side, any sense in terms of what kind of high-tech test rate should we be looking at? Last quarter you had spoken about it going down to around 22% kind of a level, but now with these changes, what is the new ETR that one should expect? Thank you. Yes, Pankaj. So as far as ETR is concerned, our reported ETR for this year is 21.9%, But that does have the benefit we've got for FY 2020 in this year. So if we normalize it, it comes to about 22.5, taking away the benefit of prior years. So against that 22.5%, we expect next year to go up to 24 0.5%, give or take 50 basis points either which way. So the range for next Financial year 'twenty two should be from 24% to 25% odd. This is about 1 percentage point higher from the midpoint of what I had told all of you last quarter. I had mentioned 23.5% and because it was still an interim kind of working, I kept a plusminus1% on that. So from that perspective, the range has Changed from 22.5 to 24.5 to now narrower range of 24 to 20 Thank you. Ladies and gentlemen, in order to ensure that the management will be able to address questions from all participants, we would request you to please limit your question to one at a time. Should you have a follow-up question, please rejoin the queue. Thank you. The next question is from the line of Divya Nagarajan from UBS. Please go ahead. Thanks for taking my question. Cdk, I was Curious about your earlier comment about not the time to maximize profits. And I'm also trying to Reconcile that with your 100 basis points of investments that you talked about. And Kind of wondering what that comment really means, if you could add some color to that. And what also happens to the operating leverage that you get in the business this year? There's also a currency tailwind that we're starting the year with. Could you just kind of lead us through where you're thinking about this, please? Yes. Definitely, there is an operating leverage in some of our core geographies and some of the scaled up areas So capabilities, but in the given circumstance, I do think expanding our presence Outside some of our strong geographies, which is U. S, U. K, Nordics, is a very good investment. And we are already seeing the success of that in France and Germany, little more emphasis on a few more geographies And some geographies where we really don't have a country sales presence, we are trying to expand this. And the second element is on our engineering services. While we have a strong leadership position in engineering services, There is definitely significant shift in technology, which is what we are now calling as Motto Digital Engineering Services, Very similar to how the other motor services helped scale and Create a significant mind share and very good traction. Like now our application services led by our digital capabilities is really doing We want to create those opportunities and give ourselves a little bit of elbow room to invest there. So it's when I said about not the time to maximize, I think it's really a reflection of there are opportunities and This will really help us deliver stronger growth in the mid to long term. I hope that clarifies. Yes. Thank you. And just as a quick follow-up, these investments, Would you categorize them or characterize them as preemptive or would you categorize them as need of the hour? Most of them are proactive, except the talent related, some of the investments We believe are addressing some of the emerging demands. I mean, we have pressures of scaling up, Including in different geographies, so some of that creates upfront costs, which will get rationalized as we move forward. That's very helpful. I'll come back in the queue for follow-up. Wish you all the best for the rest of the year if I don't get another opportunity. Thank you. Thank you, Divya. Thank you. The next question is from the line of Sudhir Poonupalli from ICICI Securities. Please go ahead. Yes. Good evening, gentlemen. Thanks for taking my question. Extension of the prior question on margin guidance. Our normalized EBIT margin guidance plan used be 19.5% to 20.5% before acquisition of IBM Products. With their integration, we were expecting a step jump in overall EBIT. Then came in COVID, which brought some of the transient tailwinds, state offshoring higher utilization, so on and so forth. We do acknowledge that some of these may be strictly ephemeral in nature there may be a need for higher investments. However, if you look at margin guidance span of 2019 to 2021, it's weaker than even pre COVID and pre IBM acquisition levels. How do we reconcile the profitability trajectory with these tailwinds related to IBMCOVID on one side and your guidance on the other side? Yes, I think the right way to look at it is at a gross margin level, it Continues to be a good outcome. And there are some areas where we want to proactively invest, While lot of savings related to the pandemic is sitting in our FY 2021 margins, We have been in our planning, we've already assumed a certain amount of travel, all of that. So maybe some of them may not play out. But that added to the investments that we have planned. We thought getting to a slightly broader range, Which is also the industry factors, which gives us a little bit more elbow room to do all the right things that is required. Sure, Sirike. And just one follow-up. In one of the recent industry forums, You made an interesting point about industry revenue potentially doubling over the next 3 to 4 years. HCL being one of the key leaders in the industry, we would have It feels outgrow the industry or match the industry growth levels. But our growth guidance seems to be a little behind. So how do we read this disconnect? Are we being conservative at this juncture or is there a context to it? Sudhir, I think you should interpret that comment and as it was said, it is a long term outlook For the industry and it is an industry forum and I want to just leave it there. Sure, Suneet. Thanks and all the rest of the day. Thank you. Thank you. Next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead. Yes. Hi. Thanks for the opportunity. CDK, you did talk about investments on the digital engineering services side and the IR and D piece. So what is our mix So as of now, approximately between core engineering versus digital engineering. And in terms of our outlook for the R and D, would you think That will grow at company average or because of the fact that there is exposure to aero auto, This might grow slower going into the next year as well. We expect our engineering services To be growing at the company average services growth rate for sure. And right now, the mix of Digital Engineering Services is small. I don't have an exact quantification. Maybe in a Future opportunity to interact will provide you a little more color. But definitely the potential in some of these areas are good. And we are already doing a lot of work in this area. It is just that there is a little more attention and little more proactive investment will help us Execute well as well as drive growth in the future mid to long term. Okay. Thanks. And just one clarification. So in terms of the impairment that you've taken in the products and platforms Space in this quarter, is the revenue impact of that kind of already there in our numbers? And secondly, Out of the remaining portfolio of around 25% of the business where we are seeing declines, Is that kind of taken care of in our expectation of, say, low single digit growth in the products and platform space for the next Yes. Ashwin, that is all factored in, in our projections. And just to provide a little more context to this impairment, it's I mean, if we wanted to optimize cost and deliver more contribution margin On this, to avoid an impairment, we could have very well done that. But we do believe this is a very strong product. There is a very strong outlook. So we decided to invest a little bit more, which is why the contribution margin comes down And impairment. So it's a conscious call. And I mean, if we really wanted to avoid, we could have very well avoided it. But we think it's the right thing to do from our overall product portfolio perspective. Okay. And just one last small one. In terms of the next year margin guidance, have we baked in hedge hikes for the next year? Yes, of course. Yes. We have a wait cycle which starts in July and last year there was a 3 month delay. But this year, we expect to provide them base hikes as per the regular cycle and that impact is factored in in our PMF. Okay, okay. Thanks a lot and all the best. Thank you. Thank you. The next question is from the line of Ashish Chopra from Kotak Asset Management. Please go ahead. Yes. Hi. Thanks for the opportunity. Just a couple of quick ones from my side, Vivek. Firstly, with respect to the investments that you mentioned around digital engineering and perhaps some new geographies, How are you thinking about the build versus buy over here? And do you think that the inclination to maximize the time to market Maybe you could give some acquisitions there and this could be embedded in part in the margin guidance? See, I think, for example, in countries, I mean, we'll always be we are always looking for opportunities For acquisition to expand in some geographies where we want to, like Australia we did, we did a small one in Germany 2 years back. All of that is At least Germany is definitely helping us in a significant way. For Australia, it's early days. So we look for opportunities, But sometimes these things don't happen in a time bound manner. So at least we are ensuring that are doing all the right organic investments in these areas. And the same is true with some of the digital engineering. If we find the right assets, We wouldn't hesitate to acquire, but obviously some of them the valuations are high and Our ability to kind of get all the right outcomes, but that also takes time. So that way I think we are better off Doing organic investments and growing some of these areas. Where we already have capability, it is just a little more emphasis and little more proactive build out To ensure we are able to address some of the demand. Got it. And just lastly from my side, In the past couple of years, we've seen the fiscal year starting on a relatively softer note because of Some of the productivity clauses coming in, in the larger engagement. Do we expect a similar kind of trajectory and seasonality This time around as well or would it be a there the seasonality would be more or less in the product that services would be high and large? I think there would be a little bit of that seasonality which will play out in Q1, But nothing out of the way, I would say. Okay, Okay. Thanks so much for taking it. All the best. Thank you. Thank you. The next question is from the and of Kavaljit Saluja from Kotak. Please go ahead. Hey, thank you for giving me the opportunity to ask a question. It seems that there have been plenty of questions on margins, so let me add 1 more to it. Now, typically, normally, you expect companies to Fund investments in service lines, geographies, they are the normal operations. I mean, is there any specific reason why you have called this out? And is there in any sort of way an acknowledgment that you have under invested in the business overall, which is causing this Additional investment into FY 2022? And if not, then normally investments signify that once they start paying off, it leads So I just wanted your thoughts on what is really investment versus spending? Yes, I think, Kanwal, on the geographies, I think we were every year we were trying to pick up a couple of geographies and focus on and that's how we've always looked at it. 3 or 4 geographies we pick up As a 3, 4 year strategy and then that's how the whole Nordics we've kind of reached a very strong leadership position, similarly some other Geographies like South Africa and things like that. And some of these geographies we started and we are seeing good results, so we are stepping up the investments. That's all I should see. And obviously, every investment that we make, we take we feel accountable for delivering returns, But not necessarily like in the same year, we think if you take a 2 to 3 year horizon, they would pay for itself and they would Kind of deliver company level profits in some of these geographies. So on the capability side, we have very strongly invested in Mode 2 on the IT and Business Services. Maybe on digital engineering, maybe that we could have done a little bit more in the past, But we still think the timing is right. We can do some of these things, which will help us to get a little bit more Market share. And I mean, some of this will definitely reflect in growth as we move forward. Okay, thanks. C. V. Tien, the second question is on engineering services. I mean, this is A huge opportunity. Post COVID for some of the companies globally as well as in India, there seems to be recovery in engineering services. So somehow for HCL Tech, the pickup seems to be a little bit tardy. Any reasons? And When you move to FY 'twenty two, how should we look at this particular business segment performance? Yes, Kannal, I think it has definitely bottomed out. I mean, as we had said earlier, the high-tech and communication, even this year, there was a positive growth And the asset heavy industries is where we had a steeper decline, especially some accounts in office automation and aerospace. And we see that those things have bottomed out. And next quarter Onwards, we should see a good growth in Engineering Services. That's what our expectation is. Okay. Fantastic. Thanks a lot and all good rest for you, sir, and all the best effort to you, too. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Mr. C. Vijay Kumar for closing comments. Yes. To close, thank you for joining and Yes. We have delivered very well in the pandemic year and we are doing all the right things for our business to continue to be an industry leading franchise and we look forward to connecting with you in the coming quarters And thank you for your interest and thank you for joining us. Thank you. On behalf of HCL Technologies Limited, that concludes the conference call. Thank you for joining us and you may now disconnect your lines.