Q2 20/21

Oct 26, 2020

Ladies and gentlemen, good day, and welcome to the Consistent Systems Earnings Conference Call for the '1 Ended 09/30/2020. And Mr. Amit Adri, Company Secretary. I would now like to hand the conference over to Doctor. Anand Ghiswande. Thank you, and over to you, sir. Thank you, Margaret. Let me first wish all of you attending this call happy Daswira and all the greetings for the upcoming Diwali season. I hope all of you are staying safe and taking precautions for COVID-nineteen and business continues to be well for all of you. It is my pleasure to announce and to welcome Sandeep Kalra, who the Board has decided to take over as the Chief Executive Officer of the company with a trip from the weekend. Sandeep is not new to this meeting. He has been part of the company since May 2019, and he has been attending and leading many of the discussions for the last several quarters. So I don't want to make a formal introduction, but just welcome Sandeep in his new role as the CEO and hand it to him to share the highlights of the quarter and answer questions. So, Sandeep, welcome to the new role and let me hand it over to you to take it from here. Thank you, Anand. Good morning, good evening, everyone. Before I get into my prepared comments on these two, I would like to take this opportunity to sincerely thank Anand and our Board for interesting me with the CEO role. I, along with our 11,000 strong consistent team, will continue to endeavor to take our company forward on our growth journey. Now coming to the Q2 results, as you would have noticed, we delivered yet another strong quarter with Q2 revenues coming in at $136,090,000 versus Q1 revenues of $131,020,000 On Q on Q basis, this comes to a sequential growth of 3.9% and on Y on Y basis, this comes to 8.4% in USD terms. In Indian rupee terms, revenue came in at INR17.7 crores, a Q on Q growth of 1.7% and Y on Y growth of 13.9%. This quarter's cost reached a significant milestone with both the revenue and the PAT crossing significant milestones of INR 1,000 crores and INR 100 crores respectively. From a customer revenue growth perspective, the top one, five, ten and twenty customer categories grew by 14%, 6%, 7%, 7% Q on Q respectively, where we are showing a very healthy broad based growth. From an industry vertical perspective, at a company level, tech companies and emerging verticals sector growth at 4.7%, followed by BFSI at 4.2% and Health Services at 1.4%. From a service line performance perspective, we continue to see a strong direction in our product engineering services as well as cloud and infrastructure service lines. Sunil will be covering our financials in much more detail a little later in this call. Now let me give you a color on the performance of our two business units, the Technology Services and Alliance Business. For the Technology Services segment, the Q2 revenues came in at $105,000,000 This gave us a sequential growth of 4.2% and year on year growth at 16.6%. We won a number of large deals in the quarter in GSU across our existing customers and net new customers. To give you some examples, in technology companies and emerging verticals, we won a large deal with a global media solution provider. This is a multiyear, multimillion dollar deal to establish a center of excellence to expand data and analytics capabilities as well as to provide engineering and support for their flagship platform. For a leading cloud based voice video messaging platform, we won a large multi year, multi million dollar deal to set up a global technology center where we will be putting a number of engineers towards the fast tracking of the product development and optimizing their costs. In G A Financial Services, we won multiple large deals. To give you examples, for a large tax technology company, we won a multiyear multimillion dollar deal to set up a global technology center to help them develop and support their products at an accelerated pace. For an innovative multi bank trade finance network in Europe, we won a multimillion multiyear deal to provide operational support, including IT services and onboarding for end customers and traders. Moving on to Healthcare Life Sciences, we saw a number of large deals including one with a large multinational medical technology company, wherein we won a multiyear, multimillion dollar deal for re architecting their flagship product from legacy to modern component based architecture. One of our existing customers in the scientific instrumentation space, we won a multi year multi million dollar contract across new business units to build newer reporting applications. Moving on to our Alliance business. Alliance business came in at $30,850,000 against Q1 revenues of $30,060,000 thereby having a sequential growth of 2.6%. In this business, there have been efforts to improve the profitability as well. And these have yielded a new royalty contracts with growth products and at level of service contracts with new and existing resale customers where we resell certain products like CECLM and so on. We were also named a partner of IBM for the Financial Services Cloud. In addition to our largest customer, Alliance is seeing the strong traction in services with other end customers, further yielding better prospects for revenue and profitability going ahead. The representative deals won in the quarter included setting up our key set of excellence in Mexico for a large technology company to meet their near shore requirements for their end customers. We also won a deal with a large agricultural technology company where we are implementing blockchain and helping improve biosecurity on farms with IBM Food Trust solution. In summary, we are seeing growth in our large deal pipeline in the Alliance business with a number of multimillion multiyear deals across services, Red Hat, cloud and PLM businesses. We are excited about the partnership with Red Hat where we are seeing growth across opportunities worldwide. During the quarter, we also raised our partnership level with Red to advance build and saw us expand our Red Hat go to market with opportunities in both Europe and Asia Pac in addition to U. S. As you would know, our largest customer in the alliance business announced that it will be splitting into two companies by end of CY 'twenty one. We believe this should be positive for us over the medium to longer term. Majority of our current revenues come on the core IBM side and a smaller proportion on the Neuco side and this gives us opportunities on both sides as the company gets interested. Over the past two months, I've spent significant time with our Reliance team in understanding the contours of the business. I'm optimistic that the team is headed in the right direction, that Jiani's leadership, who is a President for that business unit. We are hopeful that our Advanced business will turn around and become a growth business over the next few quarters. I'm also optimistic about the opportunities in cross collaboration across our Technology Services and the Advanced business as we simplify and integrate the service offerings and harmonize the way of working across the business units. Moving on to the industry analyst recognitions. This quarter saw us one of the proudest achievements for any analyst kind of award. This is for ISG Star of Excellence Awards. Let me take a few minutes to tell you why we are proud about this. So the ISG Star of Excellence Awards, these are based on the customer feedback. The customer feedback is about the service provider's quality of services based on multiple different parameters, collaboration, innovation delivered, the quality of governance, quality of execution among others. This is the first time we at Persistent had participated in these awards. And I'm very proud to say on behalf of our team that we won the highest number of awards against the leading peers in our competition globally. We won the Global ISD Star of Excellence Award, which basically means that we out beat 24% of our competitors starting from the biggest in The U. S, Europe, India and so on. We won the North America APAC Regional Awards. We also won Global Awards for Banking Financial Services and Health and Lifesciences industry verticals. These awards showcase to you the strength of our customer engagements and the appreciation of our customers for the good work we deliver for them day in, day out. Apart from IP recognition, we also won multiple other recognitions, including Forrester Wave, strong performer award, our recognition in digital process automation service providers for Q3 twenty twenty. On the marketing front, you may have noticed we revamped our digital presence and brand expression with our newly launched website in line with our branding. Coming to the M and A side of the house, you will have noticed we announced the acquisition of Capyot, strengthening our data integration capabilities in MuleSoft, Pico and Red Hat space. The acquisition is well aligned with our go to market strategy with one of our most strategic partners Salesforce, and this will help us expand with our Salesforce customers. Going ahead, we continue to evaluate potential candidates from an M and A perspective and hope to accelerate the inorganic growth over the next several quarters. With this, I would like to hand over to our CFO, Sunil Sappre for his comments on our financial performance. Sunil, over to you. Hi. Thank you, Sandeep, and thanks to Anand and Sandeep. Good evening to all of you, and hope all of you are safe and doing fine. And even if anyone of you have been hit with COVID, I hope you're recovered and, you know, are taking precautions to Coming to financial performance, Sandeep has apprised you on the business outlook and various dimensions of vertical and the market perspective. Let me take you through some financial information policy for the quarter ended September. So revenue for the quarter at $136,090,000 had a Q2 growth of 3.9% on the back of 3.1% compared to in the first quarter and Y o Y growth of 8.2%. In INR terms, it was $77,001,000 growth of 2.713.9% on Y o Y The H1 growth in terms of Y o Y growth for h one came at 9% in dollar terms and 15.5% in INR terms. As Sandeep mentioned in the vertical space, we grew at 4.2% for the year, point 7% for technology companies and emerging verticals, and healthcare was slightly softer with a growth of 4.4. Coming to the composition of revenue. The linear revenue grew by 5.3% quarter on quarter. The growth in linear revenue, as you know, is net of impact of COVID in some of discounts and ramp downs that affected us more in Q1, slightly lesser in Q2 and we see the impact reducing in Q3. The IPR revenue had a dip of 2.9% Q o Q due to the seasonality in the reseller business where we had some higher reseller deals during the previous quarter. However, in terms of the composition of IPLate revenue, we had higher royalty income. While the reseller business was lower, the higher royalty income helped us in the margin profile of that business. On the linear revenue front, the on-site linear revenue grew by 1.8%, consisting of volume growth of 2% and decline in billing rate by 0.3%. The Offshore linear revenue grew by 7.7%, comprising of increase in volume by 7.8% and a small decline in billing rate by 0.1%. The utilization improved to 81.2% as compared to 78.5% last quarter. Depreciation was lower at 10.6% on trailing twelve month basis compared to 12.7% in the previous quarter. So we are trying to do salary increments in April 1, November across the board all in place. Higher senior revenue, the improved utilization and better royalty income are the three important factors that help us to register improvement in gross margin despite currency movement being adverse during the quarter. The gross margin came in at 34.7% as against 33% in the previous quarter. Sales and marketing expenses came in at 8.9% of revenue as against 8.7% in the previous quarter, more or less holding steady. Admin and other expenses came in at 8.1% of revenue, slightly higher than the previous quarter, which was at 8%. Provision for doubtful debt is in the same range as in the previous quarter, mainly due to the provision for expected credit loss given the requirements of COVID-nineteen reporting significantly improved customer collections, took care of the backlog that we had in the previous quarter and helped us to have very good operating cash flow. The DSO you would have seen has reduced to sixty three days as compared to sixty nine days at the June. On the CSR spend, besides our regular CSR spend, we had an additional spend on COVID related donations hitting the quarter. These included medicines, financial support to hospitals for the effect of COVID nineteen patients, donations to PMCares and chief ministers relief fund, donation to North American Charities as well as to for the CO survey that was submitted. So the total CSR spend was INR 1,570,000.00, accounting for 0.7% of revenue compared to INR 85,430,000.00, which was about 1% of revenue in the previous quarter. With this, total SG and A was about 18.3% as against 18.2% during the previous quarter. So the benefit that we had in gross margin, which is G and A remaining almost in the same range, EBITDA improved 16.4% as against 15.8% in the previous quarter. Depreciation and amortization accounted to 4.4% at the same level as in the previous quarter. And with that, everything grew to 12.1% as against 10.4% in the previous quarter. As you know, this currency impact we had during this quarter, the unfavorable currency margin to the extent of 70 basis points. So improvement in margins is after the currency headwind. Treasury income for the quarter was lower at $2.00 8,000,000 as against INR $279,000,000 last quarter. We had benefit of mark to market gain on mutual fund investment due to the yield movement that happened in the last quarter. That is where we had higher treasury income. ForEx loss given at INR 61,000,000 as against INR 88,000,000 in the previous quarter. Profit discount was INR $1,675,000,000 at 13.6% as against 2.3% in the previous quarter. ETR for the quarter was INR 35.8% and PAT came in at INR $1,020,000,000,000 at INR 10.16% as against 9.1% in the previous quarter. As we mentioned, this quarter saw these two benchmarks of 1,000 in top line. Operational CapEx for the quarter was reduced to $263,000,000, part of which was essentially to enable all our employees to have their own equipment, the system provided equipment while they have As you are aware, we have announced the capital acquisition and the respective numbers will flow well during the course of Q3 after we close the transaction. The cash on the book amount INR $1.09 $33,000,000 as of September 30, that's INR 1,939,000.000 as of June. Forward contracts outstanding as of thirtieth September were INR 1,290,000,000.00 at an average rate of 76.3 So with that, thank you, everyone, and I hand it back to Sandeep. So we can take questions. Moderator. Please go ahead. Thank you very much. We will now begin the question and answer session. From line of Sandeep Shah from Nomura Securities. Congratulations, Mr. Sandeep, well deserved. So just wanted to start with the alliance and the IT business also, Sandeep, coming under your leadership. And you also, in the opening remarks, said that in the couple of quarters, it would be a growth driver for the company as a whole. So what exactly the changes you are driving, which gives you the confidence that it would be a growth driver in the next couple of quarters? Sure. So first of all, you. And see, if you look at our revenue profile in the Alliance business, there are multiple pieces to that. There is the IP business that we have. There is a sell with our biggest customer and there is a sell to component to the biggest customer. Now if you replicate these and go at these three things in a different manner, there are avenues of having growth in each of these things. And last but not the least, if you look at it, there are avenues where if you simply set the organization structures, unify the organization structures and take the service lines across, there are many things that we have not necessarily taken to our advanced business customers, which are service offerings that can be taken from our technology services across. And similarly from our advanced business, there are many services and strengths that can be taken to technology services customers. To give you an example, the Red Hat study that we have, which is a very strong story emerging for us in the alliance business, can be taken to any and every of our largest customers on the technology services side. Similarly, are many things on the technology services side that should be taken to the alliance side. So we are pretty hopeful at this and we have already started seeing traction. We are already seeing a number of deals that are doing this. Plus, the margin profile of Alliance definitely can be optimized and we are working on doing that as well. So both on top line and bottom line, there are multiple levers. And I want to keep my answers short so that we can cover many more questions, but happy to take it offline as well. Okay. Thanks. And the last question is in terms of margin. How sustainable will the 12% digit margin? Because Daylight will start taking in the purchase and the royalty cost is also likely to be at seasonal low, which will improve going forward. And travel related project, travel related costs may also actually start going up once the pandemic, to some extent, is stabilizing as a whole. So how confident in terms of our earlier aspiration to improve margins beyond in the near term as well as beyond the 05/21? Yes, please go ahead. Yes, sure. This is this thing that you have seen, you'd also look at the fact that the completion of business in terms of GIP revenue, right, which had higher royalty revenue this quarter will continue in the next quarter. Q3 is a seasonally strong quarter for the alliance business, as you know. The second important thing that we announced in the first quarter, now that is entering the phase where we will significantly move resources from on-site to offshore and that will give us release of cost. The third aspect is definitely the fact that the discounts and ramp downs that impacted us in first and second quarter, more in the first, slightly less in the second, are definitely going to reduce in the third quarter. So we have, you can say, multiple levers besides what's referred to that is optimizing the delivery headcount in the IP portfolio across various products that we work with. And you would have seen, you know, that the IT person month has been going down over a period of time. You would have seen over a twenty years' time, the headcount is down to about 300 where they are repurposing these people for other opportunities where we are growing the product engineering and other areas. So multiple reasons are there for this to give us the confidence that while we are doing wage hikes, the same will get absorbed by all these levers, and we'll be able to hold margins at different levels. I hope that helps. Thanks. Yes. Thanks. I have more will come in color. Thanks. All the best. Sure, sir. Thank you. The next question is from the line of Dizin Kabhavan from Indra Corp. Please go ahead. Hi. Good evening, everyone, and congratulations Sandeep on the elevation. My first question is on if you look at the client buckets, our $5,000,000 plus clients have increased by 5 to 16 in the last two quarters. And I think that's been a part of our strategy to improve annuity business. So I just wanted your thoughts on how the annuity business has improved as a percentage of the overall portfolio versus what it was earlier? Nitin. So yes, as you rightly saw, it's stated strategy and we have been very diligently following through our execution on the same. And if you look at even our commentary today, the kind of deals we are announcing are whether they are existing customers or new customers, we are trying to book larger deals, long term deals and all of these will layer up to quality of revenue and the quality of customers in each market increasing. In terms of percentage, etcetera, we don't share that with us, Steve. And going ahead, let's say, about two quarters from now, we plan to share both the order booking as well as certain amount of color on these things. So if you can hold off for two quarters, we are in the process of organizing the processes across technology services and alliance business, measuring these metrics and giving you the metrics as we go along. So from the next financial year perspective, you will see a lot of these numbers being shared. And what I picked up with the initial comments, I think the current situation where we have the PSC business showing good growth and the Alliance business being relatively weak on a year on year basis, that situation should sort of incrementally change sometime next year, a fair kind of understanding. Am I right? Yes, that's a fair understanding. Fair enough. Thank you so much, Simal. Thanks. Thank you. The next question is from the line of Sandeep Agarwal from Edelweiss. Congrats to Mr. Bhavan. Also wish good health to everyone. So I have only one small question, Sandeep, that we have seen a very good performance in last six months because on the services side. While, you know, the alliance side is still is not, you know, our expectation. So will it not make sense? You know? And I I I'm just trying to get some color on that. But, you know, the way the proportion of alliance is getting down in overall scheme of things, will it take a level where it will become nonstrategic for us, or is it already nonstrategic? And do you think that we can have some strategic gains from this this part of the business? Or you think that at some point of time, it it will be better to, you know, some way the you know, separate this product to our business either to our investment or some other strategic action because it is kind of our performance on the services side. Sandeep, there are a number of questions in that. I'll try and address it in a holistic manner. So first and foremost, is it a strategic business for us and do we see it as a strategic business going ahead? I would say absolutely. And look at the mix of that business. The business is a healthy business working with one of the largest technology companies in the world amongst other components of that business. And we are seeing a shift in strategy from one of the largest customers that we have. We are definitely seeing a rejuvenation at multiple levels at year end as well. Obviously, it has to play out over the next few quarters and years. Our perspective on that, we are hopeful and we are so that's been significant time over the last two months. What I have seen and what I'm working on, I'm pretty reasonably confident it can be a good strategy part of our portfolio going ahead. So I don't think there's any thought in our mind of any kind of divestiture of this business, not even discussed ever and I don't even think we have that on line with it. Now the other side of it, from a growth perspective, we are definitely seeing green shoots of the opportunities from there, whether it is on Red Hat side, with the customer, with the customers' customers, with our other customers and so on. So there are multiple different things that we are looking at. And I would say give us two to three quarters to report back significant progress on that, and I'm pretty, you know, optimistic that that can be done. So I'll I'll take a pause. Hopefully, that answers you. Thank you. Thank you. That's very helpful. Thank you. The next question is from the line of from Centrum Broking. Please go ahead. Yeah. Hi, sir. Just on your acquisition strategy. So now that from 1,700 crore is a net cash on balance sheet, would you look at a sizable acquisition on the enterprise verticals where there are gaps? Like, we are strong in DFS and health care. So maybe you want to add another vertical there? What are the thought process from the Board level on that? Just your views on that. And second on the amortization, which is almost like 3% of revenues. So that was supposed to, I think, likely to come down in FY 'twenty two, 'twenty three and be a margin CAGR. So based on the amortization also if you can help. Thanks. Sure. So I'll take the first part of the question and I'll I'll take Kesune to answer the second part of the question. So Madhu, on the first part, look, from an acquisition strategy perspective, so we are focused on making sure that we become more sharper in our value proposition. So if you may look at the service things that we ship to market. So that's one angle on which we are going. Second is the industry vertical. Third is basically the geographic diversification. So we are looking at the cost of these three and you will see us do slightly bigger acquisitions than what we have done before. But we are not looking at acquisitions just for the sake of revenue, aggregation and so on and forth. So for us, if it makes meaningful sense basically getting SaaS on a service line or bigger in a vertical, that's the first and foremost. And obviously, Europe you know, is a stated goal for us to expand revenues there. And if you can talk about the. Yeah. Sure. Sure. Yeah. Hi, Madhu. So you're right that, you know, the parts of the acquisitions that had happened in the was gonna have to amortize. Amortization release that is likely to happen now in this second half of the year between the IBM business that we had done. You are right that we release some, you know, amount that is sitting in amortization in the. So from FY twenty two onwards, the amount will be actually we'll see that will impact on that. So it is moving down one quarter for certain fees and another quarter for certain fees. So margin swing will happen in FY 'twenty one because your provision for this COVID related and all will not be there and amortization will also come down. Is that my is my reading right? Yes. That is right. You're correct. Yeah. Okay, sir. Thanks. Thank you. Thank you. The next question is from the line of Mohit Jain from Anand Bhatti. Please go ahead. Hi. Two questions. So there is definitely a scope for improvement on the On-site Offshore mix. And Mohit, this is driven by multiple factors. This is driven better by the cost side of it or more importantly now with the visa regulations, etcetera, as well. So even the customers understand this very clearly. And COVID interestingly has been a different pivot also. So in COVID times, earlier even the customers who had objections about offshoring or even within onshore, they were hung up about they wanted people to be working from their sites. Even their own employees are all working from home. So the acceptability of offshore combined with some other challenges, I definitely believe there is a certain amount of that will also increase because of this. I I wouldn't want to say the targets more, but we are definitely seeing more openness. And in fact, in some cases, the customers themselves wanting to have more offshore. I would not want to put a target percentage against that. Okay. The second thing was the performance in Europe was very different from our peers or what you would generally expect versus US. So any specific gap in Europe or do you think it was more like a client specific figure in US apart more than others? There are two pieces to it. One is the specific quarter on quarter nuance. Let me answer that, and then I'll come to overarching part. So quarter on quarter, if you look at it, we had two large deals in the reseller business in Europe last quarter, which are obviously which don't happen every quarter. So they are one offs that happen and then they get renewed maybe a year later and so on. So that caused a swing from a quarter to quarter perspective. Second part, which is an overarching part for us, see Europe for us is a mix of two things. One, what we do in the Alliance business. Second, what we do in the Technology Services business on different services including Salesforce and so on. Now our intent is to take the services part across both these businesses higher and that's where when I even talk about acquisitions and otherwise, the European part has been weaker for us and hence since it's focused on a few small components, our performance comes out different from our peers or competitors, whatever you may call. And that's one place which over the next few quarters and years, you will see us focus more on, and we would like to have a bigger mix in Europe as a part of our performance overall. And hopefully, answers your question. The next question is from the line of Sandeep Sai from Nirmal Gang. Congratulations to Sandeep for the elevation. Sandeep, just want to ask you some medium term strategy questions. How would your strategy be different from your predecessor from outlook on growth and margins in the medium term? So first off, let me say this. My predecessor was here for a short period of time. He came in, he did some very good work, and he decided to pursue other interesting life. So we'd like to wish him the best. Now even from that perspective, I've been in the company for last five quarters. So it's not this that we were not doing something on the strategy front in the last five quarters. So we had certain strategy for the technology services side. We have seen some results from there as you would notice in the last four, five quarters. We have had decent momentum on our side. Where I would want to focus is Q4. Number one, one of the factors for us as a management team is to make sure that our finance business, as you would have noticed from the earlier questions as well, starts turning in the same direction as the services businesses and we bring growth into that. So we are looking deep and far into that business and seeing what are the avenues, how do we bring one persistent approach, how we take services or the strengths that are there in that business across other customers within persistent and vice versa. And even add certain things to that in terms of investments, whether it is Red Hat and so on. So in the short to medium term, will see that. In the medium to longer term, we are working on our own strategy. We are working internally on our next big thing for the next four years. We want to target growth of $1,000,000,000 over the next four years. And we'll come back to as analysts in the next one to two quarters and talk about our strategy there. So far now, biggest focus is to keep the momentum going, streamline, harmonize across the organization, bring Alliance to a growth and put all this together towards the $1,000,000,000 plan, including the inorganic plan that we have talked about earlier in this, bringing it all together and executing over the next three to four years towards the goal. Hopefully, that gives you a flavor. And in the next one to two quarters, we'll do an Investor Day as well where we'll come and articulate all these things. One question on margins. This 12% number was something that you articulated a few quarters back. Now, when you hit this number, do you think that the number can move higher in the coming years? I'll just make an overarching comment and then I'll let Sunil talk about it. So for now, I think we are comfortable with this number. Can it move higher over the years? Yes, we have other levers to do that. But right now, our focus would be on sustained growth. So if we can sustain the momentum and build it up from here, that is our first priority. And getting growth versus priority, growth is the higher priority. Margins at this level are good. If you can deliver better than that, absolutely, we'll try and do that. So with that, I'll let Sunil also add a flavor to it. Sunil, please go ahead. No. I think I would agree that the most important point is that we should not allow margins to split and be, you know, completely chasing everything that needs to be done on all the operating levers to hold and grow. So if we are growing top line with 15 margins, there's the first priority. Improvement in margins should not be at the cost of growth also is an important thing at our stage. So we will go with that and have the objective to ensure that the margins are shifting here. Thank you. You. Thank you, Preetish. Thank you. The next question is from the line of Dipesh Mehta from SE Global. Please go ahead. Thanks for the opportunity and congratulation on strong execution. To answer your question, first of all, if I look at BFSI and Health Care growth, BFSI growth seems to be very skewed. Top line in BFSI is driving most of the growth. So if you can provide some perspective how you plan to make it more broad based compared to one client extreme large part of the growth in BFS? And secondly, real estate seems to be relatively softer compared to industry as well as overall the way market is picking up in that side and our capability. So if you can provide some perspective. Second question is about IT airlines business. Typically, see Q3 is seasonally strong, but last year, it not played out. So how do you expect? Because last year, H2 was weak. If you can give some perspective, how you expect this H2 to clear out? So on the first question first, in the BFFI part, you talked about the 4.2% growth and you talked about it being skewed by one customer. So let me put it this way, I don't think it is skewed by one customer. It is a broad based growth. And yes, there are larger customers within that, which obviously if they have to grow at a certain clip, they have to contribute a certain amount of growth as well. But rest assured the BHI growth and some of the deals we talk about. So for example, we talked about a large deal, a multiyear, multibillion dollar deal with a large tax software company. Like that, there are many other deals which are there. And so the DFI growth is also broad based. And we are very focused on making sure that it becomes even more broader based as we go along. On Health and Health Sciences, while the quarter may have looked a little softer as compared to the competition, the difference behind it are, there was a onetime IP deal in the quarter before, which contributed roughly about $708,100 dollars So normalizing for that, this quarter also came in at a decent clip, because these IP deals don't happen every quarter. So you have to first, you know, white cost for that and then grow. So I'm not that worried. Can it be better? Absolutely. And we are rest assured, we are focused on making sure it goes faster. Obviously, you know, there are efforts to be done in that side. So the IP business in the alliance last year compared to this year, from what we have seen so far, we are relatively confident there should be a little bump up in this U3 part of it. But again, it has not been till it is done, so we have to wait for the quarter to pan out, and we'll be happy to report as we go ahead the progress of the same. Thank you. Your answers. Thank you. Ladies and gentlemen, you may press and one to ask a question at this time. The next question is from the line of Rahul Jain from Dollar Tree Capital. Please go ahead. Congratulations, Sandeep. So do we see that the opportunities for the company has changed meaningfully in light of the digital observation processes, improved deal win and win and also growth potential that you see in the alliance business. So we'll appreciate your thoughts from aspirational perspective, if not like guidance in the future? See, from our perspective, if you look at it, we have been absolutely focused on executing in the last few, three quarters. And we have seen the early results of that. And we hope to harmonize, as I said before in this call, the go to market across different business units, take the best of the business unit and service lines across. We are hopeful of continuing the journey on services, bringing the same over the next two to three quarters on the alliance side. Overall, we are cautiously optimistic and the COVID came from nowhere, I'm just hoping that the COVID impact does not come back again at a much bigger level and so on. Barring such events, barring any geopolitical things, we are on a reasonable momentum, and that's where the whole team is focused on. Obviously, we'll have to execute over the next few quarters the same way we have done, but that's the trajectory. And, you know, give us two to three quarters to report the progress on the alliance business as well. Right. So I yeah. I hello? Go ahead. Yes. Sorry. So, you know, I I understand that's why this question is not about how, you know, the next year looks like, You know, because we used to grow, like, you know, well well ahead of, you know, our last year with, you know, growth till '20 all of a sudden, we have seen significant change in that. And so what I'm trying to understand is that next benchmark is your own. I mean, we do not have to see a number of where we see the way opportunities are or, like, what sets of the market growth, if not individual growth, that you would aspire, growing like how much higher than the industry, product industry or whatever could be a hard process? So as of this point in time, Rahul, what I would say is this. We have a differently defined strategy between organic and inorganic growth. We would love to be the top quartile of the industry growth, if not better than that. So let me just talk it there. Otherwise, it will be like pretty much giving forward looking guidance. The next question is from the line of Abhishek Nachar from Ilara Capital. Please go ahead. Hi. Thanks for the opportunity and congrats on good quarter. My question is regarding an extension of what someone asked earlier. And you attributed to harmonize the organization across both TSU and the enhanced business as well as create selling opportunities. So just wanted to get your perspective that based on your interactions for the past two months, what was what were the top two reasons for not cross selling such opportunities in the past? Was it organization silos or sales strategy? Anything if you can elaborate, that would be helpful. You. Sanjay, it's a good question. I would not want to see postmortem is always easy and hindsight is always twentytwenty. So I would not want to try and find faults in what was done or not done. I would want to say that there are good opportunities going ahead and the team is good. The team is good. They're very open. They're very open to taking newer things from across the organization. And similarly, bringing their best foot forward to collaborate with the technology services to take, you know, the enhanced offerings into technology services. I think there's a lot of good things that can be done, and there is a happy medium for the next three, four quarters to take a lot of things from one business to the other and spread them across the company, I I would rather, you know, look at that as bigger opportunity ahead of us rather than what was not done. So I I am very optimistic that that can be the good start going ahead and that can also fuel a good amount of growth across the two businesses. That is very helpful. Thank you for taking my question. Thanks, Amishya. Question is from the line of Sandeep Shah from Macquarie Securities. Sandeep, just wanted to understand software major in the Europe has recently downgraded the license both for the licenses on prem as well as for the software as a service. So this is largely because of the extended lockdown or second stage of lockdown, which is coming. So are you requesting in your client discussion? Because we also do a lot of market implementation work related to cloud software. So are you cautious about the second half in terms of deal pipeline, elongated conversion and delaying decision making of closing of the business? Sandeep, from our perspective, we have a decent pipeline. We are not seeing any of those things as of this point in time. Europe, the sales force business for us in Europe, a little bit of pause in the initial part of COVID, but it's also coming back. So from our perspective, whether it's Europe, whether it's overall, we are seeing a reasonably decent pipeline. We are not much into active software, as you may know. So from our perspective, so far so good, and we'll keep, you know, reporting the progress as we go along. So no softness from that perspective as you are alluding to, but we'll keep an eye on that. Suraj Kumar from HPFC Securities, your line is. Please go ahead with your question. Yes. Congrats, Sandeep, and the elevation as well as the Novelis. Just one question. So on the four year billion dollar number, so what's the inorganic threshold or scale or anything around that? If you can give an indication, that will be helpful. So, Bhuva, if you give us the quarter, we'll do an investor meeting, if COVID guards allow or like this, and we'll be very happy to play out the contours of all those things. I think it's a little premature for me to comment on that. Although we have a blueprint, I would rather come in one go along with our team and present to the team on this call and others. So if you can just hold off for a quarter at max, we should be doing something like that. Okay. Thanks and all the best. Thanks. Thank you. The next question is from the line of Raju Kapus from Broking. Please go ahead. Sir, just on the buyback, what is the possibility? Because even if you were in outstanding cash is sufficient. So just on the buyback and capital allocation policy. Sunil, you want to go ahead? Yeah. Madhu, so you're right that we have a good amount of cash on the book. But actually, if you look at quantum of that cash, it's also not something that is so big that significant amount can be allocated to by acquisitions. So now that you can say we are seeing the effect of pandemic sort of reducing, we have a few more, you can say, understanding of where we want to go in terms of the dollar 1,000,000 that is free that something we talked about. There's some more work to be done internally. We are. It's not as if it's the my bag is off our minds or something like that, but it's probably some time before the board can take a view on that. So if there is some time, we will, you know, come back on this a little more after some time. Okay, sir. Thanks. Thank you. Thank you. The next question is from the line of Girish Bai from Nirmal Gams. Please go ahead. Thanks for the opportunity. Sandeep, the system has had a problem of not having enough service to sell. How are you kind of handling that? So in terms of horizontal and vertical areas that you would want to focus on over the medium term, what are the new ones you would kind of focus on? And when would be visible in terms of taking the mass on your P and L? Right. So I don't think that we have any depth of services to sell. I think we have a decent service portfolio, right, from our product engineering services, which we take as application engineering to the enterprise, to the cloud, data security, Salesforce, intelligent business automation and a few more. So I think it's not a result from our perspective today if you look at it, if we have been able to execute in the table over the last four, five quarters, yes, we could have been even better. But that should give you the confidence that we have enough meaningful things for our customers to work with us. The ISD part as well, the thing that came out in terms of the awards that we won that I talked about earlier should also tell you that the customers look at us very meaningfully. So I think it is about making sure that we are at any point in time ahead of the curve in the services that we have, whether it is on the cloud, data security and many others that I talked about and are the sharpest technology folks in the industry verticals that we choose to. We have enough to grow and more. And with the acquisitions that we talked about, even if you look at the small acquisition that we did, the Caviar acquisition, all of that is aimed at becoming the best in the services that we take to market. So if Salesforce expands and takes new stuff, we want to be as strategic to sales force before that acquisition as after the acquisition. And that's the trend that you will see. So you will I don't think you need to see more I think this is more and I think we bring to market helps us differentiate. And that's where we win against the largest competition whether it's global or it is India based and so on. So I think making sure we are relevant, we are deep and we continue the cutting edge expertise both horizontal service lines and verticals is where you will find us at, not necessarily trying to splash more and more. So hopefully, that makes sense to you. Question to Sunil. For the quarter, it seems on a quarter on quarter basis, the lesser cost connected with your royalty seems to have helped in terms of margin expansion. Why is it that the increase in utilization and the higher shift to India or offshore has not helped your gross margin? Harjit, beach hikes have been in the last quarter? No, Girish, actually, the last quarter also had the benefit of that we had implemented, if you recall. So actually, what has happened in this quarter is that besides the currency headwind, which took away 70 basis points, this quarter did not have so much benefit of the base card. Right? Last quarter, we had that benefit. So the margin improvement that you see is actually coming on the back of both the items being utilized and margin growing from, you know, what it was. So both the items have been utilized despite there is also this headwind of some of the discounts and COVID related impact that we had in second quarter as well, so slightly lesser than the first quarter. There are multiple levers why we feel that we can absorb the impact of the wage hike in the third quarter. The next question is from the line of Venkatesh Mehta from Bankgate Local. Please go ahead. Yes. Thanks for the opportunity. Just want to get some sense about the subcontractor. Our subcontracting cost remain elevated from last four quarters. If you can provide some perspective about resource planning and how one should look this line item? Sunil, do want to comment on it? Yeah. So, you know, this is the, what do call, thing we have on the subcontracting side while we do understand the, you know, cost arbitrage between a subcontractor and the loan employee. Three times, they have to do a cutoff between the longevity of project and the ability of people to move across, you know, the regions in The US as well. Now while we had initiated a program to reduce the dependence on subcontractors, after the COVID breakout, we felt that it is not something that we should right now try to push. One being the fact that we were not in a position to kind of move people from India in that kind of plan that you need to do that. And second is some of the new engagements that we have done. So suppose you take more wins. We were required to fulfill the gaps because of the three gaps that exist. So there is definitely a focus on bringing down this number. It is taking longer than we would have, you know, like to work towards. So it's on the. So it should trend down broadly over medium term rather than stabilizing here. You're right. You're right. That will trend down in the medium term. So a couple of quarters from now, it should trend down. Okay. Thank you. You, Deepa. You. Next question is from the line of Neera Talan from Exane BNP Paribas Securities. Please go ahead. Thank you for the opportunity. I had a question on the utilization. If we see our utilizations are back to pretty high levels, so what do you see from here on? And then employee additions, what should one expect going on? From the utilization perspective, right now, if you look at it, we are roughly at about 81.2%, and we think there's a reasonable utilization to be at. We are not targeting much higher than this. From an employee headcount perspective, our headcount additions happen in waves. If you look at the last two quarters, we had added a good number of net new headcount there. For this quarter and next quarter, we do have a plan to add anywhere between 300 to 400 people on a quarterly basis. So you should see that come in. That should support our revenue growth and also a little bit of utilization may move here or there. Hopefully that answers you. Got that. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to Doctor. Anand Deshpande for closing comments. Thanks a lot, Margaret, for coordinating this call, and thank you all for being part of this. We will close this call now and follow-up with you next quarter at the end of the next quarter. Thank you. Thank you. You. And we have no such questions, Moderator. Concludes the conference. Thank you for joining us, and you may now disconnect.