Q2 21/22

Oct 14, 2021

Quarterly report

Ladies and gentlemen, good day, and welcome to HCL Technologies Limited Q2 FY 'twenty two Earnings Conference Call. As a reminder, all participant lines will be in the listen only mode. And there will be an opportunity for you to ask questions after the presentation I now hand the conference over to Mr. Sujay Mehdi Rata, Head of Investor Relations. Thank you, Andoverseo. Thank you, Stanford. Good morning and good evening, everyone. A very warm welcome to SCL Tech's fiscal 'twenty two earnings call. Trust you all are safe and in good health. We have with us today Mr. C. Vijay Kumar, Chief Executive Officer and Managing Director at CL Tech Mr. Pratik Adhrawal, Chief Financial Officer Mr. Apa Rao, Chief Human Resource Officer, along with the senior leadership team, I'll discuss the performance of the company during the quarter followed by a Q and A. In the course of this call, certain statements that will be made are forward looking, which involves a number of risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those in such All forward looking statements made herein are based on information presently available to the management, And the company does not undertake to update any forward looking statements that could be made in the course of this call. In this regard, please do review e safe harbor statements in the forward investor release documents and all the factors that can cause the difference. Over to you, DDK. Thank you. Good evening, everyone. I hope all of you are Let me start by giving you a high level commentary on our comments in the last quarter. We delivered healthy growth Last quarter, we posted a revenue growth of 6.5% sequentially in constant currency and 10.5% in year on year basis. We continue to execute well, keeping our operating margins within the guided range. Our operating margin came at 19%. We continue to see strong demand for all of our services, especially digital business, which is our Application Services, digital consulting and data analytics and of engineering services and of cloud services. These three forms have been part of our overall services revenue. This represents about 85% of our overall The total revenue of the Company and the services portfolio grew 13.1% year on year and 7.1% That's essentially in constant currency. The acceleration in demand for digital and cloud propositions, both in IT and Business And Engineering Services reflects as a 36.3% growth Y o Y in constant currency For all our Mode 2 offerings. Successful ongoing client mining resulted in interest in client relations across All clear, please. We grew our $100,000,000 clients by 1, dollars 50,000,000 clients by 4. On a year on year basis, we've grown over $12,000,000 clients by $5,000,000 and $1,000,000 clients by 'nineteen. This reflects strong demand and relevance of our offerings for the G2000 clients. Each of these clients are large investors in technology and We also had strong bookings, which grew YOY 3EA questions. We won $2,250,000,000 of net new deals. We also witnessed the highest net firing numbers in the quarter, 11,125. All these stats So they all are well for our business momentum going forward. The $2,200,000,000 includes 13 Large services deal and one significant product deal across Telecom, Life Sciences and Healthcare, Manufacturing And other verticals. I also want to call out that while There isn't a large deal in Financial Services, but our services momentum in Financial Services is very strong With significant incremental additions, this happens in a number of large clients. This quarter, we got a landmark analyst citation for our public cloud capabilities, where Gartner in their inaugural report Ekadur is amongst the top 3 leaders worldwide and public cloud IT transformation service providers. We are the only India heritage player in this top group And actually the only non consultant, hold back IT services vendor in this category. This is a great testimonial of our leadership in this space. And with cloud becoming the very backbone of enterprise technology modernization, We believe we're more strongly positioned to leverage the opportunities that this multi $100,000,000,000 market presents to us. We also received a leaders rating in the Forrester Wave application modernization and migration services before released this quarter. We are seeing the market awareness and the traction of HETRIO's unique offerings in the application space, This is increasing by today. It will only be stronger and we will be rewarded with the coal position similar to what we enjoy Our Infrastructure and Engineering Services. We are also recognized in leadership position by various other analysts and advisers Various practices and offerings, and you will find this in our quarterly investor release. I'm very happy to share with all of you HCL has once again made it to the Forbes list of worst hit employers. We emerge as number 1 among all organizations globally in the field of financial services and lead the ratings in the Technology and Services Industry. We are also among the top 5 multinationals headquartered in India This is a very influential global recognition and the one that is reflective of our commitment Towards fostering a culture of empowerment, innovation, learning and mutual growth, that's also the attritional value of our employer brand. This quarter also got another validation for our employer brand on the back of Forbes, Best Places to Go HCL America is now certified as a great business to work in 2021. Brandon Hall recognized Sequium in 8 categories, including Gold Award for Leading Under a Crisis TakeCare's NPL program recognized for our leadership strategy and commitment to managing employee engagement Also, we're really proud of this recognition. Now I will close some light on our segment performance. In terms of segments, this quarter we posted 5.2% sequential and 13.2% year on year growth In constant currency in our IT and Business Services, our digital business embedded in the apps offerings continue to grow faster Within this segment, providing impetus to the overall growth led by various propositions like commerce modernization, client experience The strong growth reflects the solid support our propositions have made in this segment. We have brought from many defining large deals across manufacturing, retail, CPG, life sciences and project sector in the last quarter. Two examples, 2 U. S.-based major healthcare companies growth company chose us to drive digital transformation initiatives for an immersive omnichannel experience for its end customers And 2 leading Canadian brands also interested us with their digital transformation journeys. We're also seeing a good momentum In the integrated deals where clients are awarding us both application and infrastructure modernization programs, for example, a Europe based consumer goods Company's collected ACL delivered services in the area of data analytics and integration, marketing, sales and trade promotion management. We will be responsible for application development, support the new projects, support these product streams for the Prestigial client. Flexsteel will also transform the client's global workforce experience services, delivering a consistent and personalized experience Across all endpoints, we will introduce a flexible, scalable and agile delivery model To accommodate business dynamics across all markets and geographies, in our digital accommodation and the infrastructure proposition, we're starting to grow again at a modestly leading rate after a relatively steeped Q1 on the back of commodity demand. We continue to win a good number of large deals in cloud migration, digital workplace and cybersecurity across geographies and verticals. Now coming to our Engineering and R and D Services. Led by a strong demand for industry pivot 0 solutions and the digital engineering services, Our ERS business posted robust 5.2% sequential and 12.7% year on year growth in constant currency. Notable mention here is the strong recovery in asset ready investments after relatively a tough time post the 1st wave of the pandemic 18 months back, while the Pacific and Telecom segment continues to grow well. This quarter, 3 leading technology companies Interested the product transformation journey to us to develop new use cases for their products, Our key win here is a U. S.-based technology company that shows the field As a product engineering and joint go to market partner for its workforce management SaaS offerings, Our Q2 will provide accelerated road map, integrate Duo Technologies and expand the customer base by working into new industries and geographies. It's really heartening to see our engineering business reaching its full position in the market even as this sector Migrates from traditional project led work to digital engineering led end to end transformation initiatives. We see a lot of growth potential for MotuStack in this business and will continue our investments in this space. These are strong numbers in digital cloud and digital engineering. Our Motu portfolio continues to Doing very well, delivering almost 36% growth on a year on year basis. Our Products and Platform declined 5 point Question year on year in this quarter in constant currency. You probably know that Jazz Quarter is the biggest product in the new license sales for any software product business. We had A few deals slipped from the September quarter to the Q2. But we expect to bounce back in O and D, In Q2, some catch up for the timing delays from deals in DAS. And O and D is seasonally a strong quarter, and we are very confident Very sharp bounce back in this segment. And during this quarter, we had 2 80 plus new conference wins, A strong year on year improvement from the previous Jazz. 1 of the world's largest retailers expanded its relationship We have HCL for new licenses for HCL Commerce, Bitrix and Domino. HCL Commerce supports the customers' Multi $1,000,000,000 online business while BigFix manages its countless end point devices. We launched HCL now and HCL SoFi and are seeing good initial uptake from the customers, though a lot of them are still in the early stages In terms of pilots and customers' interest, we are also seeing positive recognition from industry analysts for our innovation in our cloud native strategy for our product offerings. In all, it is expected to perform in line with our expectations As we've not seen any change in business fundamentals, be it renewal rates, scope or demand pipeline, All remaining consistent with our plans. Over having the experience this quarter where some Towards the last few days of the quarter, we believe our earlier low single digit guidance Would it be more appropriate for us to reset that to 0% to 1% growth in the Production Platform segment? After the segments, in terms of partnerships, we continue to work closely with hyperscalers, OEMs and SaaS partners to offer best in class integrated solutions for our clients. In this quarter, we launched a dedicated Cisco Ecosystem Unit focused on creating solutions to accelerate clients' This ecosystem will create leading edge competency solutions and business outcome models by leveraging Cisco Technologies. We also chose the RISE with the FinTech offering to our enterprise digital landscape. This expanded partnership will see HCL take the role of consumer and global service strategic service partner for RiceBPG. As an SAP strategic partner, HCL will help its clients leverage its combined experiences in the Industry Cloud Transformation space. I also want to cover a little bit on our delivery footprint and go to market. We had earlier talked about a 3 pronged go to market strategy last quarter that classified our go to market into core markets, which is U. S, The second one is Equocus Markets, which are 5 large geographies: Canada, Australia, France, Germany and Japan and the new frontier markets, which are in 7 countries where We are getting our presence established. Now the GTM strategy is well supported by our delivery strategy Let's take the establishment of GeoVital's degree. We had some very good segments in Sri Lanka, Vietnam, U. S. And Canada. These would be in the form of onshore, nearshore and offshore delivery centers, Giving our clients all the options to address various business scenarios. We now have more than 15,000 employees in smaller cities in India Our next call is New Vistage Locations. This has helped us significantly to address talent demand as well as provide flexibility during the pandemic waves. We also completed 1 year of operations in Sri Lanka And surpassed the milestone of recruiting more than 1,000 local employees, including both recent graduates and seasoned industry professionals. We entered Sri Lanka and Chief Financial Time to make it a global delivery hub that works on technology programs for some of the biggest corporations in the world, We are well on our way to it. We are in the process of expanding these new Vistra footprint to Romania, Costa Rica and Philippines. So you will see a lot of action emerging from this execution of these blow plans. In terms of our return to work Strategy, planning has been initiated for a 3rd and calibrated return to office in a safe manner and in compliance with the local guidelines We believe the future operating model is a hybrid operating model, And we believe a significant part of our workforce would be in the office in the next 12 weeks. Now looking ahead, we remain very positive about near term in the technology modernization and end to end digital transformation space across applications, engineering, infrastructure And Business Process Services, it covers very well for our midterm growth. Do you believe this upward trajectory And we'll continue. And the impact you should realize benefits from the first phase of digital investments. That should only give the conviction to accelerate Technology spending in the coming quarters. In parallel to the business momentum, we also We continue to invest and aggressively focus on our employee experience, value proposition, talent transformation Our aim is to continue to build a future revenue organization It's a digital frontrunner and employee centric, globally diverse and a socially responsible organization. We've onboarded a digital sustainability head, this is accompanied by a team of dedicated experts to integrate our sustainability in addition to operations and also ensure our ESG proposition results in fair value creation for all our stakeholders. We also plan to enhance this to a sustainability and ESG consulting practice, which can work with our top clients in the technology aspects of the ESG acquisitions. On the Overall summary, I will hand it over to Pradeep to provide you more details on financials and further details. Over to you, Pradeep. Thanks, Jinke. Good evening, everybody, and good morning to the ones from the U. S, etcetera. Greetings as we go into the fiscal season. I'm going to keep my I'm going to change the order of my commentary from what we have been doing in the past. And some of this you would have seen in our investor release today. And the highlights The highlight of the quarter is obviously the services revenue growth, which is at 5.2% sequentially And 13.1% on a year on year basis in constant currency. And this has been driven by both the services engines, both the services segments, Engineering and R and D Services, ERS has shown growth of 5.4% quarter on quarter. And even on a year on year It is 12.7 percent. And it has crossed for a pre pandemic peak, which was Around 425,000,000 which was almost a year back. So that has bounced back strongly in this quarter. The second segment, which is the largest segment, of course, is ID and Business Services. That has also showed very strong Moving down with 5.2 percent sequential growth and 13.2% on a year on year basis. And as overall services business, Mode 2 has been the driving factor, growing at 36% Year on year and 12.5 percent on a sequential basis. As PDPJ covered, PMP revenues saw a department of a few deals and showed a decline of 5.5% Year on year in constant currency. But that is a bit of a blip in this quarter, which This portion of it, most of it should get recovered in the next quarter. It is important in that context to remember that in the last 12 months, including this The PNP growth in constant currency is at a level of 3.6%. So while obviously this quarter 5.5 percent obviously has grown good, But even in this quarter it is 3.6%, which is pretty much in line with The commentary that we had given to you earlier. And even for H1, the first half of this fiscal, it is a flattish Growth which is minus 0.4%. Moving on to some of the other key metrics then In the quarter of importance to say, deal wins came in again pretty strong for the 3rd quarter And 2,250,000 TCV, which is Yes. I'm assuming you got dropped at key metrics. Deal wins of 2,000,000 to 4,500,000 TCV. Total contract value, which is 38% Year on year and 25% sequentially is one of the biggest highlights. And this is further backed by very strong Net additions in the employee workforce of 11,100 plus. Net hiring Over the last three quarters has been at about 28,000 in our employee workforce And there is another 3,500 odd in terms of third party contractors as well. So the quarter is pretty much near RMB32000 over the last three quarters itself. And as a result of The services growth that we have seen, our account mining has improved and you can see Most prominently in the 50,000,000 category, 50,000,000 plus customers Went up by 12 on a year on year basis to now 41 in number. And even on a sequential basis, that number went up by 4%. So that was very heartening to see. Q1 is the €100,000,000 plus category. We will increase the customer count in that category by 1, Both sequentially and on a year on year basis. The other highlight which we announced today is For our shareholders, I mean, of course, let me just cover quickly the diluted EPS earnings per share for the last 12 months, which stands at €49,500,000 leaving out the Milestone Bonus, we are continuing with that practice, leaving that out. Back INR49.5 The rupees per share is a 9.5% increase on a year on year basis versus the previous last 12 months period. The new announcement we made today is on the beyond quality. This has been a long standing ask of Almost all the investors and analysts I have spoken to in the last few years. And the Board has We agreed to increase the payout policy now to not less than 75% of net income Cumulatively over a period of 5 years, including this fiscal 'twenty two right up to fiscal 'twenty six. So this has been the ask for laying out a longer term policy which Give some degree of certainty and projections and almost guidance. And I hope our investors would be happy with this announcement that we are making today. In line with the revised policy, the dividend for this quarter, we were running For the last few quarters, at INR6 per quarter per share. And with this change for this fiscal year, We are increasing that dividend to INR10 per share, and we expect to follow Similar, we've seen per quarter for the balance 2 quarters as well. The other big announcement we made today was for the employees. So we are evolving our existing ongoing Long term incentive plan and replacing a portion of the tenure based portion of that cash Based LPI plan, with restricted share units, RSUs, so What is currently a 100% cash award plan will move to a mix of 70% cash, This is continuing to be performance linked as usual and the 30% tenure base will be converted to RSUs at the market price on the date of the chart. And this will obviously need to go to The shareholders for approval, which we will do for the next quarter, including the stock exchange Approvals and processes. The good part, which I must share with you, Of this RSU plan, it feels like the way we have planned it, It will be no dilution for the shareholders and that is simply because we will be buying these shares from the secondary market. There will be no fresh issue of share. We will buy this through our stock options trust And those will be held in the trust for Job people to exercise as and then they get their vesting after 3 years or so. And so that is something we have made sure that this does not lead to any dilution. It is also no extra cost because it is in view of the cash LTI and because it is being converted at the market price, it is just It is just changing the form but not really. In some sense, it remains the same. Of course, We do hope that we are able to grow the share price and the So those were the bigger announcements of the day. I will now quickly cover some of the more usual highlights at the company level. The revenue was at 2.91. I'm not going to go through all of that because I'm sure you would have We lap it up in the last two and a half years as you usually do. The overall company growth 3.5%, sequentially 10.5% on a year on year basis. EBITDA in U. S. GAAP came in at 23.4% And in the AS, Indian Accounting Standards, It is 24.3%. The second number is more comparable because most of our peers are reporting in IFRS, which is Practically the same as India. So our EBITDA in both terms is 24.3 EBIT came in at 19%, as you know very well, 65 bps lower sequentially. In terms of looking at it, again, if you look at it on a sequential basis, Separately for the services business and keep the VIP business in a separate market, You will notice that the EBIT margin for services is pretty much flat on a 2 0.2 quarter basis. It was 19% last quarter, which is 18.9% this quarter. So the entire Pretty much the entire 65 basis points is practically driven by the lower P and P revenue And a little bit impact, 5 basis points of impact due to the ForEx fluctuations. But practically, it's the BNP revenue which has gone into the next quarter. And therefore, there should be hopefully And services margin, like I said, has remained practically the same And last quarter, within this quarter, of course, we gave out increments and there has been a host of Costs which have been increasing over the last few quarters, as you know, pretty much across the industry In terms of hiring costs, backfilling of the attrition, special allowances and And of course, last quarter, we had some one off costs. So they have practically offset each other and that is why the services margin is Pretty much flat. Net income for the quarter came in at 15.8 percent of revenue, Which is about 33 basis points lower on a sequential basis. In the net income, we did gain From a favorable assessment we received during the quarter, so our tax rate is The VAT cost for the quarter is lower than what we had anticipated simply because We got a benefit from the assessment this quarter. So you would see that the GDR for the quarter is at 20.5%. And therefore, our full year guidance, which we As you have said, I think 24% to 25%. Now is revised for the full year to On our I mean a lower range of 22% to 23%. We are at about 21 0.1 or something like that in the first half. And for the full year, the guidance is now revised to 22 Cash generation continued to be very good. During the quarter, we generated $465,000,000 of operating cash flow and $390,000,000 of free cash flow. OCF as a percentage of net income is 106% and as a percentage And FCS as a percentage of net income is 88%. Both are and on a last 12 months basis, the number is 2,050,000,000 of operating cash flow, which is 117% of net income And free cash flow is at $1,800,000,000 which is at 103 Last 12 months OCS and FCF yields Remain at 4.4% and 4.4% and 3.8%, We ended the quarter with strong balance sheet gross cash at 2,700,000,000 Which is an increase of about 20% year on year. And our guidance remains, as we had announced At the beginning of the year, revenue guidance of double digit and margin guidance of Thank you to Q1 percent. With that, I will return the call to the moderator. Over to you, operator. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. The first question is from the line of Mohit Agar from Motorola I think my first question is for is from you. If you look at your guidance, which you guys So given you have again the double digit revenue growth guidance, the general sense Which we are getting to your peers across the industries that the demand visibility is actually higher than what usually is there in the space. So can you just help us understand what is the reason behind the kind of shying away from giving at least a range, Especially your employee addition number clearly indicates a very high degree of confidence internally. Yes. Nafil, as we said, we are Not keen on giving very specific guidance. We wanted to give a directional view, which is what we started the year with, and we will stay with that. Now in lieu of that, we provide the booking commentary every quarter, which consists of all the new bookings. And we're also giving you the headcount additions. So then I think these are the 2 Clear metrics which we can confidently share. So, you should be to our own sense and do your models. Sure. And CVC, another question again kind of following on this trajectory. If you look at the The Indian IT industry post initial talk last year in Q1 and look at you versus your large cap peers. You have clearly you stood out in terms of the addition of employees you have added And prepared for the supply stock, probably I think it was based among the large player stack. But if you look at The monetization of the employee addition, because others have also been identified aggressively, they have been able to monetize it In a much better way on how we have done it. And hence, it has actually ended up with your Q2 Revenue per employee being down almost 9% on a y o y basis. So what is the reason behind this gap which has While the expectation kind of builds up that you are preparing for growth down the line, And if that is the case, then how should or when should we expect you to go back to The earlier revenue monetization of your employees, and if not, then what has changed? Yes. So, pretty long question, but I think that the one simple thing is The headcount additions should be looked at with respect to how our services business is doing. And That's what will follow logical sequence. So if you look at, we have very strong growth this quarter. We had good additions last quarter. So that is reflected in good The net additions have a function of laterals and pressures. So this quarter, we have hired almost 5,500 pressures. So it will take maybe an additional quarter before they become productive. But the rest of the people hired, They expired also the quarter pretty much in a linear way. So that's how the revenue will flow. And as far as the revenue per employee is concerned, I think it went up at some point. And if you take the overall revenue per employee, There is so much seasonality in our product business, which is really not dependent on people and headcount. And of course, the pandemic, some of the offshore On-site account reduced and that got reflected as some offshore headcount. And that also has a significant impact to revenue per employee because the realization rates at offshore are significantly lower. These are some of the dynamics. Other than that, the growth is all happening significantly in the higher end services. So we Seem pretty confident of how the revenue growth and services headcount growth should back up. Sure, Shirk. And Abhrad, changes over last 1 year have been fairly uniform for the Indian IT industry as a tool. And even if we look only at the revenue on the IT services and R and D side and the whole base because on a product QY basis quite small, Even that has seen a fairly sharp decrease which we are not seeing in the QSO. So Do you see a chance where a business will be normalized as this activity will be adding pressure to employees over during the quarter? So Mukul, I don't See, anything unique to us in the services business, which is Are there any major divergence from what the industry is? I have not done my comparison myself, but I'm confident of Our growth in revenue stocking. I'm happy to do more detailed analysis and see if there is Thank you. The next question is from the line of Pankaj Kapoor from CLSM. Please go ahead. Understand how should we be looking at the revenue trajectory in the coming quarters? You are talking about a Some of the spillover of the product contracts in the P and C business, which can obviously Nishab, the 3rd quarter numbers. How about the rest of the services business? Historically, you have said that the deals that you do, they Taken to revenue only with about a couple at least a couple of quarters lag. So is this the trend is going to hold out for the recent deals in as well, Which means that we will see the reflection of that only in FY 'twenty three. Obviously, some of these deals could start pushing up into the numbers So we may actually see a fairly comfortable comments in the first quarter. Yes. Pukitj, I think a big part of the ramp up in Q2 Has been the highest booking that we ever had in Q4 of last year. So, obviously, translated after 1 quarter's delay. So, that would be the normal kind of delay, So headcount additions Minus the pressures, I think that should give a good good good good in terms of the capital discipline on the services business. Now on the product business, yes, obviously, O and D is a seasonally strong quarter. And there There is a certain switch agent deals in Q2, but we expect some of this to recover in Q3. So there is a possibility of a very strong quarter in Q3. Now given that we had this, See, actually the dynamics of product businesses, lots of transactions happen and they all kind Q up towards the end of the quarter. In fact, we were ourselves was placed on the outcome this quarter because it's happened in the last 7 or 8 days. So there's a lot of dependence on linked quarter closure. So now given that we've experienced this, we are just factoring that in And the software we have provided a 0 to 1% growth for the full year. So we've just So, just to clarify, does it mean that there is some when you're giving out this guidance, you're presuming that we probably will be at the lower end or you see a risk to this delta itself, if this kind of shifts happen, So we might have it with the negative growth as well. I think we are reasonably confident of a flat 1% growth based on a lot of things that we've seen. But of course, there is always this uncertainty at the end of the quarter. I really cannot model that in any meaningful manner. So we are going to do everything possible. And maybe, Sharon, you can add Any more color on this aspect? I think you summarized it very well, CBK. There is just a higher dependence in the product business on in quarter closing and there is seasonality. I think you covered all the key points. So, CVD, if I can just squeeze one more. So, the kind of The split we had on the product side of low single digit now to 0 to 1. Can we presume that on the service So, business, you are on track to what your numbers you had modeled in at the start of the year, which is behind that At least the building's growth guidance. So the only incremental impact is that from GV slightly lower growth in CMC. Or you think the Art Decon Services business also might have changed? I think, I do believe Even if there is some slip in product business, maybe if you take factor in some question, which is Pretty much $25,000,000 I think we will make that up in the Services business given the momentum and things like that. So my year beginning outlook for the full year and all the variables, Thank you. Thank you. The next question is from the line of Samik Agarwal from Edgewise. Please go ahead. Hi, good evening and thanks for taking my questions. Kritik, I have only one small question that Can you repeat? Yes. So, yes, so, I guess because of our strong positioning in the IMS space, We should be the preferred choice for the half way pillars and we should be the beneficiary of the wave which is there. But it looks like our whole Yes. And so Sandeep, the products and platforms, especially the IBM divestiture, We had a lot of dynamics of one time payouts and settlements and all of that in the last year. And then of course there is certain product segments that we discontinued. All of that is playing out. Most of it is in line with what we Our fundamental book of business on the product side remains in fact. Our hypothesis of modernizing these products and getting them into leader's quadrant in various industry analyst networks, It's very much on track. The products are being used by some of the largest companies like the biggest retailer in North America, Almost triple that capacity on our foremost product in the last quarter. So I think the fundamental hypothesis is intact, but obviously, There are some moving parts given the nature of this transaction. And I'm pretty confident of the long term road map. With respect to synergies, it's still very low. But there is a very, very conscious effort to drive more synergies, Especially that we have opened up so many new geographies where we are not present as well as the top clients even in the core geographies, We are getting access and if you could help us a little bit on the services side as well. I don't know how much is it, but Thank you, Sandeep. Next question is from the line of Moshe Kaffee from Redburn Securities. Please go ahead. Hey, thanks for taking my question. I hate to kind of dig even more into this, just talking about flipages that you talked about during the quarter into the December quarter, are you suggesting, based on the recent comments, is this predominantly due to the IBM's asset that came on board or there are any specific Any surprise related issues that caused this outage, maybe it's regional days, maybe it's vertical days. Any color there will be really helpful. Thanks a lot. Yes. Madhu, thank you for the question. If you see, we followed our revenue in IT and Business Services, Engineering Services and Products and Products. The first two segments are the core services segments, This contributes to 88% of the revenue. We've delivered very, very strong quarter. Can you question first sequential growth on both the segments? IBM Products are housed under our Products and Platform segment, and that is where we have these moving parts. This was a declining business. Our hypothesis was to de energize, modernize, make the cloud native And we've been to lead this quarter and can drive more growth. So that journey is taking a little longer And product business itself is a very different dynamic from the services business. So last few days can determine what will happen to the cash flow. We had a miss, Probably the first time since the acquisition, we've had a misheard. So I think it's a blip and I don't see it like Is it fundamentally or structurally, which should be concerning? So is that vertical Thank you. The next question is from the line of Apoorvos Prasad from LRx. Please go ahead. So David said, what is your comments on whether we are getting rate card increase broadly and more specifically within Mode And also particularly in Europe, where I'm noticing a lot more larger deals sort of accelerating there. So is there also an increased Outsourcing there and more price benchmarking by enterprises? Yes. So, what we see, we talked about This is on Germany and France as the geographies where we were our presence was a little bit less than what the market opportunity was. And over the last couple of years, we have really invested in building the right local presence and relationships. So you see Germany and France doing very well in the recent few quarters. That's one reason why you will find Europe give more announcements. And Proximus was a big deal, which This is going to be a defining deal from a Telecommunication segment perspective. We have pretty nice deals in U. S. As well, Like in licenses and healthcare, as we called out 2 large deals. 1 is a feasible vendor consolidation deal where one of the incumbents completely replaced, A large incumbents. And another provider segment would be It's an infrastructure and application outsourcing. So there are pretty nice deals of decent price in U. S. And Europe. Right. And just the earlier part of that question, Kibishan, on the rate card increase, how widespread is that? Yes. Sorry. Yes. The rates are increased, definitely, obviously, given the upside situation, we are doing everything possible to get increases. Definitely new deals are going in with a slightly higher price. Even negotiations, we are probably putting much more firmer on our price. Of course, existing customers, it's difficult. But at least for some very niche skills, specialized geographies, Even existing customers are a little bit understated. But if you look at your overall 183,000 people Getting a few things here and there still does not move the needle. But there are certainly some green shoots of getting better rates, It's a strategy in our application business and engineering business. Got it. And can I just one more on the Paretosh, this is Latam, please? So, more from a medium term perspective, I wanted to understand your outlook and you didn't cover this in an earlier question But then how does this tie in with these tokens also around the partner ecosystem? I mean, is there a change in the 2? Or Do you think that I think this energy is to exploit now with the platform partnerships or with the hyperscale? And this is more from not seeing Yes, absolutely. Yes, Archer. Like for example, Commerce is now cloud native on Google Cloud Platform. Incomix is cloud native on AWS. So we have modernized containerized these products on this cable platforms. And obviously, our close relationship has also helped us get that friction going. And now it's a part of their Ratecard, that part of our last quarter, where some of these offerings are, but The hyperscaler sales teams are also carrying with them. So this is what our HitFuel Now proposition is, where we are offering commerce as a service, where We provide the software, we hosted, we provide all the operating services. And that's just started in the last Actually, July is when we formally launched it. We've seen some good traction. Obviously, that is increasing some costs as well because we've The next question is from the line of Prashant Kuchari from Pickett. Please go ahead. Yes, hi. My first question is regarding the slow trajectory that we are discussing now. Is there any need to Sorry, any more lead for? Nothing that I'm seeing. Maybe Prashant, you can hear it a bit. No, Prashant. As of now, we haven't really baked this into this. This is something we typically do on an annual basis. As of now, there is no trigger that I see. Like we discussed from this call right from the beginning, This is more of a postponement from this quarter to the next. But given the complexities, we are just Thanks, Ling, in a slight lowering of the outlook that we had given earlier during the year. At this moment of time, I don't expect it to have any major impact. We really haven't done the numbers based on that. Okay. And then my question was just on the growth expectations that you have. I mean, for the long term time in SCR, we are the fastest growing large IT company And we seem to have loved that mental. I mean, how are our expectations today when there are some players Do you see a path of regaining that or just this through telemetry? I think if you look at Prashant, if you look at our Services business, our quarterly growth is already picked up and And as we go through the process, I do believe we will close the gap on year on year Our aspiration is supposed to be the growth initiative. And we have every dimension of Service offering, client relationships and sales and delivery organization, the face to face the leadership. So I personally don't see why we cannot So our aspiration remains and there has been a little bit of Slow growth in the last couple of quarters, I mean, Q4 and Q1. Q2, we have demonstrated a pretty nice ramp up across all services. And our booking and headcountries and all of that is also quite promising. So I feel pretty confident that we will The next question is from the line of Ashish Chikrawal from SunTrust Yes. Darren, do you want to take this? We had one very large contract that slipped And then a number of other small to midsize deals. So it was a handful. None of those deals have yet closed. It's all work in progress. None of them have been lost either. So we are still working them and we do anticipate closing those if not all of them The next question is from the line of Sandeep Shah from Expiry Securities. Please go ahead. Hello. Yes. Thanks for the opportunity. C. B. K, if I look at the services growth in this quarter, pricing looks endier. But my sense is it has been even bigger or higher than this. And why I'm saying this is if I look at the last 4 quarters new business TCV, It's close to around $8,000,000,000 And if I apply a prior tenure, it could be close to $1,600,000,000 new business, which would have been 16% of the FY 'twenty one And we are coming off a low growth base in Q4, Q1. In that scenario, my question is, is it the leakage in the existing revenue It's higher than anticipated or there are some delays still continuing in terms of conversion of deal wins into revenue annuals? Yes. Nitin, I think your equation would be accurate if The entire business is annuity business. However, there is a significant part of the business Rafton Station and Engineering Services and even leveraging the intra services, which are project based. So some of the new booking goes to fill the projects which are going over as well. So I don't think it's a direct equation. So that's why the headcount numbers and booking numbers both will have to be correlated to I'm kind of a model. But is it CKS renewal pressure on your software infrastructure legacy business Still higher than it was in earlier years or those pressures are no longer subject or nothing to call out as a whole? I don't think renewal pressures are anything material to call out. As I said in the past, renewal rates are 97%, 98% And the 2 questions that go away are, of course, there is M and A or There is some consolidation work, which is driven by some other triggers, Like if I were to be acquires a company, then there is some figure to drive business in the second direction and things like that. And That trend has not really changed, 97%, 98% is our annual business, it's getting renewed. And you also said Q2 growth is a reflection of Q2 order book, while 1Q and Q2 order book still stronger So is it fair to say what we have seen in the 2Q in terms of the growth momentum Yes, I mean, Okay. And a question to Pratik. The guidance of 19% to 21%, is it applies only on a yearly basis or also on a quarterly basis? Because we are in Q2 at 19% EBIT margin, which is lower end of the bank. So do you believe it Can we slightly lower looking at the top right high pressure attrition challenges happen in Q3 or Q4 or do you believe this guidance is applicable even on a quarterly basis? Sandeep, our guidance is always on an annual basis. It is never on an individual quarter basis. Okay, okay. So looking at supply side issues, there is a possibility we can be in a particular quarter lower than the lower end of the bank. Thank you. Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead. Hi. Thank you for taking my questions. So, two questions. Is there a reason to believe that the momentum what we have got In the last quarter of 12%, 13%, is that going to decelerate either on the higher comps or because The translation of the deal will only take 1 or 2 quarters before it starts going into the revenues. Is that a correct interpretation? And the second question is on just want to understand a little bit on what are the percentage of the margins in the second half? What are the levers this can help you to keep your margins stable in the second half. Although it may be still within the bank, just trying to understand the levers that you're referring to. Gaurav, I didn't understand your first question. Would you mind repeating it? Yes. So, the services business has been 12%, 30% constant Currency growth in the first half, is there a reason to believe that the growth might decelerate in the second half either because of higher comps On a Y o Y basis or because the deal wins what we have done in the last 1 or 2 quarters will only flow through with the lag of 1 to 2 quarters? Sorry to interrupt you. But Gaurav, like I replied to Sandeep in the earlier question, we really don't want to get into giving quarter on quarter guidance. Our guidance is given at an annual level and that's where we intend to keep it. I would leave it there both for the margin question and the services question. Sir, can you please go on whatever you were going Thank you. Next question is from the line of Jason Papanaban from Investec. Please go ahead. Hello. Can you hear me now? Yes, we can. Please proceed. Yes, please. Yes, please. Yes, thanks for taking my question. My question was on the product business. Now particularly product business at Jivyum, when you put the deal, You basically sort of record a deferred revenue and every quarter the revenue sort of recognized. So for sort of almost €30,000,000 sequential drop, would it mean that the kind of A sort of miss that happened is primarily due to a very, very large renewal. So Nathan, It's not that simple. There is a mix of what is you refer to renewals. So That's what we call subscription and support, SNS for short. There is a mix of that where Typically, it works the way you described. But then there is another significant component, which is new licenses. Our new licenses is most of it is recognized upfront when the deal is Sold when it is booking is done and that is the type of deals that slipped in this current quarter And that has got nothing to do with recognizing it ratably across the 12 months. So basically, on the new license, is it more like a one time sale from a specific ticket and A large component, yes. I also want to Take on the point you made about the sequential number. As we have been explaining for quite some time now, This is not a sequential business. Products business in any company is never a sequential business. There is a seasonality. And the only correct way to look at it is year on year. And that number as we have talked about is Minus 5.5%. It was a number of 3.44% in September quarter last year. This time it is GBP 325,000,000 and that is a drop of GBP 19,000,000 not GBP 30,000,000 like you said. That is the right comparison. I just want you to be conscious of that. Otherwise, you might end up making some earlier 2 months. Absolutely. Completely understand that. Just one more. This new license so typically license The proportion of revenue is quite significant from a portfolio perspective. So that's my question. And second, Considering that this year we are sort of basically surprised on growth in products and platforms. Last quarter you mentioned that 25% on the declining, but the remaining is doing very well. Do you think that by next year, a 3.50% to growth Considering most of the declines should have happened and the proportion of debt and liquidity should be lower on the overall portfolio. Here, we will provide that outlook as we get to the next year. But I just want to clarify one more thing. Even though they are new A large part is recognized in the quarter and it is booked, but small part gets Yes. And with your earlier question about license versus total, that is a portion that is growing pretty much every quarter. Obviously, it has its seasonality, the September quarter being The smallest quarter in the 4 quarters, December quarter on the other hand being the peak quarter. So there is a seasonality. But On a general trajectory, if I was to see across the 9 quarters that we have been running this business at the front end, It is going up as a proportion of the potential pretty much every quarter seasonally existing. One last question, if I may. On the I think the Blue Cross companies On the clear set, when we speak at the industry, one commonality is that growth from existing customers is very, very strong. Now in the context of your earlier comments on existing projects being completed and That's sort of preventing the sort of impact from that. But ideally, in this environment, should that sort of Yes, absolutely. Yes, you're right. And that's why you will see our client Category, every category clients have grown. That is projects getting over and new projects being won. New Project 1 gets sent to the new body. Right. So in that context, when we Sales of $2,000,000,000 in Q4, that will be converted into revenue this quarter. I was just wondering whether 1,000,000,000 is yet to be sort of converted to revenue going forward or the entire thing has already happened and there was some project sort of There will be a mix of multiyear contracts and What are the incremental ramp ups in a lot of existing clients? So it's a mix of that. Incremental ramp ups will depend on the duration of the project. Many of them are 12 months, 18 months and then they get renewed after that. Then long term contracts are 3 year or 5 years, so there is a time to transition. And after that, there is somewhat revenue streams as we did previous. Ladies and gentlemen, that was the last And I'll hand the conference over to Mr. Siva Jaykumar for closing comments. Thank you, All of you for joining the call. In summary, we feel very, very confident of our business trajectory, Our digital business, our engineering services and cloud transformation, all of these are playing into the sweet spot of HCL. And we have been confident about harnessing the base product of the market commentary. So, I would say the product business is unique in itself. I would encourage all of you to look at the Services Business and Product Business with a very different lens and All the positive work that we're doing and delivering very good work on the services business as a result of We've sent out propositions and relevance to our clients. So I think overall, the outlook is very promising. And thank you for joining the call and I look forward to talking to you during the quarter and during the next quarterly calls. Thank you, everyone. Thank you, everybody. Happy to share. Thank you very much.