Q1 21/22

Jul 23, 2021

Ladies and gentlemen, good day and welcome to the Persistent Systems Earnings Conference Call for the Q1 of FY 'twenty two ended June 30, 2021. We have with us today on the call, Doctor. Anand Deshpande, Chairman and Managing Director Mr. Sandeep Kalra, Executive Director and Chief Executive Officer Mr. Sunil Sapere, Executive Director and Chief Financial Officer Mr. Saurabh Divedi, Head of Investor Relations and Mr. Amit Atre, Company Secretary. As a reminder, all participant lines will be in the listen only mode. There will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Sandeep Kalra. Thank you and over to you, sir. Thank you. Good afternoon, good morning, good evening to all of you depending on where you're joining us from. It's good to be with you once again and I hope all of you are continuing to stay safe and healthy. Before I go into the financial and business updates, I would like to start by thanking our team members and customers for their resilience and their trust in us during these unforeseen times. Everyone of our team members and their extended families were impacted during the 2nd wave of COVID-nineteen. Sadly, we even saw a few of our colleagues succumbing to COVID. We pray for the well-being of the families and their loved ones. As a countermeasure from our side, we have been undertaking vaccination drives for all our India based employees and their families. We are happy to report that more than 10,000 of our associates and their families have availed of these vaccination sites and the facilities associated. As the vaccinations have progressed, a small percentage of our employees have also started to work from office. We expect the numbers to go up gradually. However, we'll be taking a cautious approach to return to office during the year, while considering the possibility of a 3rd COVID wave as well as return specific Nuance. Once again, we sincerely pay for everyone's wealth. With that, let me get into the business and financials. Coming to the quarterly financial performance, as you would have noticed, we delivered yet another quarter of strong growth, delivering continued progress on all major business metrics. On the financial side, the revenues came in at US166.8 million dollars for Q1, giving us a growth of 9.2% quarter on quarter and 27.3 percent year on year. This is in U. S. Dollar terms. In rupee terms, this into a growth of 10.5 percent quarter on quarter and 24.1% year on year basis. This is among the best quarter on quarter year on year organic growth delivered by us as an organization. Our EBIT for Q1 came in at 13.5%. This translates into an EBIT growth of 13.5% and this translates into a growth of 13.7% Q on Now let me give you a little color on Quarters performance from an industry vertical and service line perspective. Quarters growth was broad based and was led by Healthcare and BFSI industry verticals. These grew 15.5% and 11.8% respectively on a sequential quarter on quarter basis followed by Software and High-tech segment that grew by 5.2% on a sequential quarter on quarter basis. On a year on year basis, the growth was broad based as well With all the 3 industry segments bearing very well, Healthcare came in at 32.1%, Banking Financial Services at 23.5% and software high-tech at 27.9% year on year. We also saw consistent growth across our top account categories Whether it was our top 1, top 2 to 5, top 6 to 10 or top 11 to 20, all of these saw significant growth quarter on quarter. To give you specific numbers, the top one customer grew by 3.4%, top 2% to 5% by 15.6%, top 6% by 12% to 20% by 10.9%. This should give you the confidence of our strategy in terms of account mining working out very well. Further to substantiate this, the number of customers that we have in the greater than $75,000,000 moved significantly up this quarter, going up from 17 to 21, an addition of 4 customers in the greater than 5,000,000 category. Similarly, on the greater than 1,000,000 category and less than 5,000,000 We added 10 customers on a sequential quarter on quarter basis. The quarter ended with 76 customers in this revenue category compared to 66 in the last quarter. Before I move on, I would like to point out 2 aspects. In the last 2 financial years, we have been reporting our revenue around industry segment and service lines. Hence, we are discontinuing the reporting of our revenue breakup at the 2 West Wild Organization units as the utility of the same is no longer Revenue for our CECLM reseller business, which is categorized under our IP business, has been accounted on a net basis from Q1 FY20 That is for the CECLM reseller business, we are only taking the margins for value added reseller services as the top line revenue in our P and L. This was necessitated due to the lack of associated services engagements with such resellers. Now coming to the order book for the quarter, had a good quarter from an order booking perspective. The total contract value for the quarter came in at US244,800,000 The annual contract value of this is in the order of $188,800,000 In terms of new bookings, the new business Total contract value was $147,700,000 out of which the ACV component or the annual contract value component stands at 93 point Just to refresh everyone's memory, the TCV, ACV numbers that I just spoke about include all Bookings, small and large renewals as well as new bookings across existing and newer customers. Coming on to the employee numbers. Had yet another quarter of significant addition in our team comp. We brought in 1224 new colleagues, bringing our total colleague base On the employee base, 14,904 at the end of June 2021. The attrition for quarter came in at 16.6% compared to 11.7% in Q4 on a trailing 12 month basis. As you would have seen, attrition has been increasing across the industry given the shortage of digital skills in the industry and the ongoing upsurge in demand. This is definitely a focus area for us as a management team. We've taken many proactive measures with an aim to bring this under control. The measures include increased engagement levels with our employees, Flexible working hours to help work life integration, increase in fresh grad intake, upskilling of our existing employees and helping our people with long term career development and planning with active learning and development interventions. As you may be aware, we had undertaken salary increases in November 2020. For the last financial year's cycle much ahead of our other peers, for FY 2022 we have reverted to our normal wage hike cycle in June. We continue to strengthen our leadership. Suresh Prabhu joined us as the Chief Delivery Officer for Industry Verticals. Suresh comes in With a strong experience across multiple product organizations, Suresh's experience should help us further enhance our digital engineering expertise. We also continue to strengthen our team with addition across sales, delivery and enabling functions. These additions to our team would help us The integration of Capeoort has progressed well and we continue to see quarter on quarter growth in our integration practices. We acquired the IP and business assets of Shoreline During Q1, the IP and the team of Shoreline have augmented our capabilities in cloud migration and modernization services. Turning you to scout for potential targets in our focus areas and hope to give you an update on this in the coming quarters. Moving on to ESG. As shared with you in our previous analyst call, we have now appointed an ESG consultant to define the ESG road map for the company and start measuring our sales against standard ESE PIM. By the end of FY 2022, we will come up with a comprehensive report on our ESG roadmap and the status of our current initiatives against the bank. Now I'll turn the call to our CFO, Sunil Safeway, to give a detailed color on the quarterly I'll come back after Sunil's comments to give you some more details on the key client wins for the quarter and awards and other repugations Yes. Thank you, Sandeep, and good evening to all and hope you are all safe and keeping well. Sandeep has given a fair amount of information about the business. Let me give you some more financial details for the quarter ended June 30, 2021. Revenue for the quarter at $166,820,000 registered QoQ growth of 9.2% and YOY growth of 27.3%. And you will recall that in the year of the pandemic when the pandemic outbreak happened, In the last quarter in the Q1 of last year, we have also had a growth. So this is a significant Improvement in year on year growth that we have seen. Revenue in INR terms was 12,299,000,000 reflecting growth of 10.5 percent Q on Q and 24.1 percent Q on Q. As regards industry verticals, BFSI grew at 11 point by 11.8% quarter on quarter, healthcare by 15.5 percent, and technology companies by 5.2%. Coming to linear revenue, offshore linear revenue grew by 10.7% primarily on account of volume growth of 8.6% while billing rate grew by 2%. The on-site linear revenue grew by 12.9% comprising of volume growth of 10.2 percent and increase in billing rate by 2.4%. With continuing efforts on improving the level of engagement with customers, You would observe that the number of customers in greater than 5,000,000 category went up from 17 to 21 and in $1,000,000 to $5,000,000 category went up from $66,000,000 to $76,000,000 As you are all aware, this quarter has visa expenses on H1B The impact of this cost on the margin was 50 basis points. Given the increased demand for talent in the market, The attrition during the quarter went up to 16.6%. We continued the hiring momentum during the quarter adding 1224 to the net head as net headcount addition. This is on the back of the 2 quarters gone by in the earlier year where, if you remember, we added 16, 18 employees in Q3 and 1242 in Q4 of last year. The gross margin stood at 33.5% as against 33 0.9% in the previous quarter largely because of the one time seasonal expense on the filings. Yes, NMA expenses were in line. As regards G and A expenses, there was an impairment in one of our investments in start ups. The impact of this on the margin was 60 basis points. There was also an increase in recruitment expenses on the back of continued hiring and some leadership hires. Collections from customers against some receivables that we had provided for earlier resulted resulted in the reversal of doubtful debt provision, whereas the total spend on donation towards COVID was slightly higher than the previous quarter. So these two items in terms of the strategic. Overall SGA was at 17.2%, that's again 17%. The EBITDA came in at 16.4% as against 16.9% in the previous quarter. We will observe that these 2 onetime or one seasonal item in form of Visa costs and the other in terms of the impairment are the two main reasons otherwise most of the items were in line. Depreciation and amortization accounted for 2.8% against 3.8% in the previous quarter. As you will recall, we had mentioned about one of the products that had completed amortization in the last quarter. With that, EBIT was at 13.5% as against 13.2% in the previous quarter. Treasury income for the quarter was INR256,000,000 against INR211,000,000 in the last quarter. Forex gain was INR109 million against INR174 million in the previous quarter. With that, the profit before tax was RMB201,000,000 at 16.5%, that's again 16.6% in the previous quarter. Effective tax rate for the quarter was 25.5 percent, same as in the previous quarter. And with that, PAT for the quarter was at least $1512,000,000 at 12.3 percent of revenue as against $1378,000,000 in in the previous quarter at 12.4 percent of revenue. Coming to the operational CapEx, it was INR 141,000,000 in this quarter. The cash on books at INR19955 million as of June compared to $19,831,000,000 at 31st March. As you would recall, the quarter happens to be a quarter of payout of the annual bonuses and thus trends lower in terms of net cash added during the quarter. As Sandeep mentioned, we also had a small acquisition Let it payout during this quarter. As collections continue to be very good, the DSO came in at 54 days as against 55 days in the previous quarter. Forward contracts outstanding as of 30th June was $140,000,000 at an average rate of Thank you all and I hand it back to Sandeep. Yes, Anand. Now to give you a color on the key client wins from the quarter. Our press The quarterly result carries a number of our opinions and I'll just highlight a few. The Banking Financial Services and Insurance segment were chosen as a partner to co engineer our next generation Microsoft platform and to manage our legacy products by a Leading U. S. State and local government solutions program. This is roughly a 5 year deal with the provider to Pretty much take our legacy products to the next generation and also accelerate the product launch. The next win that we saw in Banking Financial This was with 1 of the largest banks in the U. S. Where we were chosen as a partner to transform wholesale and commercial lending operations through consolidation of multiple legacy systems of record. In Healthcare Life Sciences, we were chosen to manage the sales force roadmap, implementation and and provide managed services to support proprietary inventory management platform moving to sales force for a large U. S.-based pharmaceutical firm. Which was driven by a large fee in a U. S.-based global retail pharmacy company to implement and modernize cloud based security utilizing Microsoft Azure. In the software and high-tech and emerging technologies, we won a multi year, multi $1,000,000 deal involving the implementation of Salesforce platform to drive business growth, improve customer experience and drive business processes for an education driver organization. For a leading player in gaming products and services, we were chosen to provide re architecting, reengineering and modernization services For gaming systems, this is again a multi year, multi agenda. Now moving on to the awards and recognitions for the quarter. Even saw us get renewed recognition from multiple industry leading analyst firms and associations. I'll mention a few. For 5th consecutive quarter, we were named a top 15 sourcing standout for managed services in Q1, global ISC index in Booming 15 category. ISE also named VersysLink a rising star for digital transformation in 2020 ISE Provider Lens for Healthcare Digital Services for the U. S. We were named the star performer in average software product engineering services peak matrix assessment for Moving on to the partner ecosystem. We continue to invest in deepening our collaboration with ICM to accelerate hybrid cloud Under this collaboration, we'll continue to invest in IBM technology that helps its customers adopt hybrid cloud With Red Hat, OpenShift, Industry Specific Clouds and Advanced Security practices. During the quarter, we also became a key development, support and Deployment partner across the IBM Automation portfolio including IBM Cloud Pak for Business Automation, Robotic Process Automation and Other Network More details on these partner activities are available in our earnings release and on our website. In summary, We delivered well in Q1. We're seeing a good traction for our services in the markets we serve and we are confident of both journey going ahead. With this, I would like to conclude our prepared comments. I would like to request the operator to open the floor for questions. Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer Participants on the webcast can Right. I'll begin with the questions on the chat first, and then we can go to the audio questions. Sure, sir. Sandeep and Suneel, the first question that we have got on the chat forum is, Could you give a number on what level of growth has the acquisition of Capyat enabled in this quarter? Also, do you expect to our margins going forward? Okay. I'll take The question and I'll have Sunil answer that margin question. And can you tell us who asked the question so we can So yes, the question came from Janil Jain from Omkarra Capital. So on the question around Capriotic growth for the quarter compared to the last quarter, the Capriotic growth would have been roughly around 500 ks In U. S. Or around quarter. Well, if you can answer the margin question. So on the travel expenses coming back, while there has Not being resumption of travel in a very big way, but we do expect U. S. And Europe to slowly I have increased travel going forward. In the next two quarters, we can expect about 30 to 40 basis points of increase in travel expenses, If we come back by end of December, if we reach a good level of vaccination in India, then the outbound travel from India could also Start towards early 2022. So overall, if we look at the full year, it will take There were 3 gradual moves towards taking the travel expenses back to a level of 1%. It will still not be the same as what it used That should be in pre COVID times. That is how we look at that. Right. And Surin, we may want to clarify the travel expenses for this quarter. Just to clarify, we're on account of H1B filings and not on account of travel travel. And that happens every year in this quarter. So we just Before we go to the audio questions, I think the only The feedback I got on the chat forum is maybe the voice from our side is a little low. So if he can speak a little more loudly. Thank you. We'll move to our first audio question, which is from the line of Nitin Padmanathan from Investec. Please go ahead. Yes. Hi. Good evening, everyone, and congrats on a great quarter. The first question was around The TCV and ACV data, now it's been like 3 quarters of this data. In the current quarter performance, Is there revenue accretion from deals won in Q3? That was the first question. So you're talking about deals 1 in Q3 revenue accretion from that obviously would have happened. A little bit. As you look at it, some of these deals take time to ramp up. And that's what is happening. As we kind of win deals over the quarters, Every quarter as these ramp up, you are seeing the revenue consistently kind of go up in terms of growth, if that was the question. Yes, that was the question. Thank you. The second one was on in terms of the rising attrition and The compensation increase, I think, we are likely to give next quarter. Just wanted your thoughts on how are you approaching that and what's the A potential impact there when we look at next quarter? So, for us, the pay rate, the hike cycle is July Onwards. So, we've already given the letters out in terms of our increase in expenses. We started right. I will let Sunil comment on the margin impact and what our plans are To recoup that, Sunil Novak? Yes, sure. So if you recall, Historically, we've been having wage hikes and typically the revenue growth and several other levers Most commonly allow the company to recoup. Now currently, we are seeing 2 Phenomena in the market. One is that we have significant tailwind in terms of revenue growth. But this is coming also in a combined way where the digital technology oriented skills are not exactly adequate to fulfill this demand. As a company, what we have done is we have significantly increased the hiring over the last few quarters and that's where you will find that our utilization Offshore utilization has lowered around 80%. So, we have first concentrated to ensure that we are able to fulfill the business. Now at this point in time, we have the utilization lever which is significantly, you can say, one of the areas that we are working on. The second part is also the mix between lateral hires and pressure hires. That is another area that we are looking to optimize. And lastly, of course, the fact that we have onboarded these people and the conversion when it happens in terms of better utilization, We'll provide the cushion to absorb the pay hikes. So, these factors are what will be the can be comfortable with respect to deliverables and the sustaining the quality with the customers. Last but not the least, we will also take A conscious view in terms of potential areas where we can work with customers wherever we have flexibility in pricing Because I believe that there is a point of time when customers do understand that these skills are not easily available And to ensure that their deliveries and quality is not affected, we do have pricing power in some of our businesses. I hope that gives you a good understanding of how this will pan out. Yes. Sure. That's very helpful. Only the quantification of What we could expect in terms of potential headwind is the only last thing. And then I'll get back into the queue. Thank you. Yes. In terms of overall impact from the wage hike, it will be of the order of 2.50 to 2.75 basis points and we expect all these levers to Allow us to absorb most of it. Maybe there could be a 75 basis points to 100 basis points of headwind in 1 quarter in which I exactly thought, but with increased revenue, we're trying to see how much we can contain that. But it will not be more than that kind of Yes. Thank you very much. Next question is from the line of Vimal Goel from Union Asset Management. Please go ahead. Yes. Thank you for the opportunity. And firstly, congratulations to the team, splendid results. I have two questions. The first one is on attrition. So you mentioned that FY 2021 really So industry leading Weizai is being rolled out by the company. And despite that attrition, while it has been a phenomena For the industry as a whole. But our attrition sequential increase in attrition seems to be a tad higher as compared to what Some of the peers that have reported numbers. So if you could just comment give your comment there. The second bit is on your subcontracting cost. So currently subcontracting costs are at 14.7% of sales. This is probably the highest in the industry currently. What is your sense? I mean, does our business particularly need such high levels of subcontracting? If so, what would be the sustainable level for subcontractors going forward? And along with the margin levers that you Just mentioned, could lower subcontracting cost be another lever that we should count? Thank you. That's all from my side. All the best. I'll take the attrition part and I'll have Sunil talk about the subcontracting cost. On the attrition side, you have to look at companies in the context of the Areas they work in. So if you look at Persistent, we have always been on the cutting edge of technology. We are the leaders in digital engineering. And hence, the kind of skill sets that we have in the company, whether it is doing custom products or technology companies or doing Digital engineering enabled programs in cloud, data, sales force, etcetera, we are on the cutting edge. And those are the skill sets that are the hottest in the market in this No, post or if I can say post pandemic times. So that is the reason that we may have a tad bit higher attrition that looks Mike, from the outside, as compared to a general purpose IT services company, which also does ERP or Legacy stuff or legacy infrastructure management. So that is the rationale that is there. Having said that, this is an area of focus for us and we are committed to making sure We do the best in terms of engaging our employees and we have good plans in place for that. Now over to you, Surin, for the subcontracting part. Yes. Sure. So, on the subcontracting side, you would have observed over the last few quarters, Given the fact that we are continuing with this situation of restricted movement, Right. So, on one side, the flexibility of using your own staff while they may be in a particular country, But the mobility of that staff within the country is limited. Whereas we have been winning deals, you would have seen We will not be available to join on a full time basis. Our approach is to ensure that we are able to convert these as we get more visibility of their continued deployment And not to kind of engage them that can lead to disruption of costs. So, the whole idea is to optimize that And be rest assured we are continuously keeping track to ensure that they are That is a channel that we use only in select cases and to fulfill the seniors. Once the flexibility to travel improves, the reliance on that will gradually reduce. So is it that maybe there is a need for more local delivery centers, probably that could have been the case If we had more local delivery centers outside and probably had more local employees Hired before, we wouldn't have required so many subcontractors. And the subsequent question then would be that, if at all we are As in when travel starts, you will replace it with your people on-site. And further, Can those on-site people then probably can that work shift offshore when the project really is steady state? So can that happen? And as I said, the question was really To gauge if subcontracting can really be a margin lever for you? And lastly, just one more question on the TCV. Is there anything And the sequential decline in the TCV this quarter? Okay. So, let me answer these questions. So, as far as and I'll try and keep it brief because we need to Take multiple people's questions. So absolutely, you are absolutely right. In an ideal scenario where COVID Could have been predicted. People would have had onshore hiring done and we would have any of which we have scaled up the nearshore, onshore kind of They are on the road map. As soon as the COVID cards allow us to do it, you will see us have more presence on-site as well as nearshore centers. Is it a lever going ahead for margin improvement? Yes, it is. But again, we'll have to get things pan out as Go along. The first and foremost thing is to make sure we have a good growth going. We need to fulfill our customer demands. We deliver our products absolutely impeccably. And that's where some of these things will play out. So that is the first thing. And in terms of TCV, look, a company that does Today, we announced, let's say, dollars 166,800,000 roughly $167,000,000 We're talking of TCV of 245 And last quarter also, the TCV was roughly in the same range. So I think it's a fairly healthy thing. As a management team, we are Fairly comfortable with this. Some quarters will be higher. 2 quarters back, it was higher than this. Some quarters will be at this level. Some quarters will be at a lower level. Look at it from a And one perspective and look at what we have delivered on a sequential quarterly or sequential year on year basis, all of these point out towards a healthy trend And we are comfortable with the TCVs where they are, and we will tie our best to do more. Ladies and gentlemen, in order to ensure that the management is able to address queries from all of the participants, please The next question is from the line of Sandeep Shah from Equis Securities. Yes. Thanks for the opportunity and congratulations on once again Great quarter as a whole. So Sandeep, my question is more on the operating leverage. So despite last 3 to 4 quarters solid Q on Q growth which is coming. The EBITDA margin though on a y o y basis looks better, but On a Q on Q basis, it has been hovering around 69.5% to 17%. And one obvious reason is the increased supply side issue. So in this scenario, How do you tackle this supply side issue in terms of business perspective, a, in terms of pricing negotiation with the client because you are also saying that attrition is going up Of the hot talent. And we in terms of any restructuring of your low margin business units, if you can throw some light Besides the other margin levers which the CFO has spoken about. Sure. So as far as pricing negotiation is concerned, would say it's a collaborative thing with our customers. A number of our customers have been with us for years and even the newer customers understand the market dynamics. And so we are in discussions with many of those on seeing when the contracts' anniversary periods come, how we can work with them to bring in The COLA at the right levels, etcetera, that gives us the cushion to be able to retain the talent and do the right things. And in some places, we are looking at other ways and means of doing special bonuses along with the customers as well. So that's as far as price negotiations concerned. So all of that is on that payment and it's the other part about low margin businesses, At any point in time, we are having an eye on the low margin business. And we are continuing to rationalize some of that. If there are more RSPs to take Absolutely. To do that, we have brought good tailwind behind us. We have a good growth momentum. And so this is in small or large On low margin businesses, rest assured, we have an eye on the ball. Balance, if we take those decisions, we'll announce with time. Okay. And just second question in terms of Alliance business. Can you show some light whether it's now on a consistent growth path, both on the IT as well as in terms of revenue and also any efforts to improve the margin on this side of the business? And just a feedback today, I think the audio of both the CEO and the CFO has been leaked. So I think there is a difficulty in hearing your opening remarks. So if we can rectify, it would be really appreciated. Okay. We'll try and speak a little louder. Let us know if this is any better, Sandeep. Is this any better for you? Yes, yes, yes. It's better. I think in the opening remarks, it was really bad and it has improved thereafter. Okay. Sounds good. If we have time towards the end of the call and we are able to complete the questions, we will try and do that. And otherwise, in the recorded version, we'll make sure that it is So let's go back to the Alliance business. Your question was on the growth in the Alliance business. Yes. So, Alliance business is definitely seeing some amount of growth. If you look at our top one customer, the sequential part is the Alliance business. So you can very much relate to it. The top end business grew by 3.4% sequentially. So from that perspective, you should be able to Gather between that and the fact sheet that we have all the details about that. Now in terms of margins, etcetera, as well, As I said, we have an eye on the ball in terms of which are the businesses where the margins can be improved. And part of the thing is Those are being implemented and that is where despite the one time things that we talked about, the impairment that we talked about, the Basis points because of the H1B filings we talked about, we still were able to come in at about 16.3%, 16.4%, Right. And if you add back those things, we are actually higher than the 17, whatever was there last quarter. So from that perspective, we have an eye on various parts of the business And we will keep continuously looking at what we can optimize. Okay. And last question, if I can. Sorry to interrupt, Mr. Shah. Mr. Shah, sorry to interrupt, but may we please request you to return to the queue for your follow-up question as we have several participants in the queue waiting for their turn. Yes. No issues. Thanks. Thank you. Thank you very much, sir. The next question is from the line of Manik Taneja from J. M. Financial. Please go ahead. I thank you for the opportunity and congratulations for a very solid performance. I'm just trying to prod you a little bit further on the revenue much for higher pricing, especially because of the tight supply side environment? That's question number 1. The second thing is that, if you could Help us understand the number of pressures hired in the quarter, the plan for the year and given the fact that historically The industry is to complain about the quality of pressure talent and currently most of the industry peers are talking about rupees pressure intake. Do you think that The problem, years start showing up once again after certain amount of time? Thank you. Okay. So, let me go back to the first question first. So, the first question, if I got it right, is you were asking about. Typically, the increase would be in the 2% to 2.5% range in terms of the price increase on a yearly basis. In this situation, do we have the Ability to go higher? So in some cases, yes. But we have to be cautious of the competitive market that we play in. So while we definitely believe we have the pricing power in some of the customers, in a number of larger customers, we play in a competitive environment as well. So wherever we have the ability to play competitively and do more, we will do more. Otherwise, it may be in this range and So that is as far as that is concerned. In terms of pressure hires, we had roughly about 400 freshers in this quarter. On a yearly basis, we are looking at roughly about 2,000 pressures, but they will obviously be staggered out and they will go through their training programs, etcetera, before they become productive. A typical training program may last between 4 to 6 months depending on the technology that they are. So that is the high level answer to your question. Thank you. Thank you. The next question is from the line of Mohit Jain from Anand Rati. Please go ahead. Hi, sir. This is actually a follow-up on the previous one. I think the first part of the question is billing rate improvement seen in 1Q FY 2022. So what happened in the last 3 months that your billing rate both on-site and offshore has moved up sharply and changing the trend which we were seeing over the last few quarters. And second is on the fixed component of S and M. S and M cost as a percentage of revenue is behaving as a totally variable cost. So is there some element of it which moves in line with revenue or should we expect it to behave like a fixed cost going forward? Thank you. I'll have Sunil answer their questions. Sunil, go ahead please. Yes. So on the sales and marketing costs, I don't think that they will be Fixed in absolute terms, there will be some kind of additions to the cost happening. But in terms of percentage to revenue, You will find that on a wider revenue base, there will be some release of basis points in the sales and marketing cost. And on the first question about billing rates, Yes. I mean, consciously, we have been working with clients and trying to optimize the pricing position that we have. Like Sandeep mentioned, whether in new projects or in case of renewals, wherever we have an opportunity to discuss the same with the clients. We have that kind of benefit available in certain parts of our business. So, It's consciously happening. It's not because of anything particularly standing in the earlier quarters, but it's a conscious effort to improve our That's needed to ensure that we are able to hire good talent and pay them well. So, 1Q, you already saw some price increases, right? Yes. Next question is from the line of Dipesh Mehta from MK Global. Please go ahead. Yes. Thanks for the opportunity and congrats on strong execution and healthy momentum. Two questions. First, I just want to get what is driving strength in healthcare? So if you can provide some perspective, What is driving demand and how we are addressing that strength of demand in healthcare? And second question is related with India business, if you can provide some perspective, because India is doing well for us and we have not seen any impact despite secondary COVID in India. So if you can provide some colors what is driving strength in India? Thanks. Sure. Sure. So, the first question first, strength in healthcare. So the strength in healthcare is driven predominantly on the back of focus attempts by us in different parts of healthcare. So healthcare is an ocean in any country. It's one of the biggest GDP spenders. Healthcare part, as far as we are concerned, there are instrumentation companies And medical device companies on one side. And on the other side, you have pharma payer provider. So we have gone deeper into hiring talent, which can Kind of go into each of these segments and mine these segments for us, whether it is for the existing customers and also do the right logo acquisition from a new perspective. Now, in the instrumentation companies, that has been a traditional strength for us. In the provider and pharma, we are partnering more deeper with Salesforce. We have the best capabilities in the market on the provider segment in the U. S. As far as Salesforce is concerned and right from Digital front door to many other solutions, For the healthcare market, we are the leading provider. So that is what is panning out well for us. And we have further invested in our sales capabilities, which No plan, keep this at pace. But every quarter will be 15.5% sequential, whether it's healthier or other segments. But overall, this segment, we have Gone deeper in our penetration and hopefully that will keep faring well for us over a period of time. Now on the India side of it, There are 2 parts in the India market. There are a number of our global customers whose Indian subsidiaries we work with. So that is one segment for us. 2nd segment for us is there are companies in India like the NBFCs, etcetera, where we are a big leader in the sales force case In implementing many different things like their loan origination systems and for one of the leading midyear NBFCs, we are Basically doing a huge multi year transformation program as well. So there is good market locally for us and then there is a market in India for the global customers, Indian subsidiaries and so on. Wherever the contract is originated from, that's where we accrue the revenue. That's where the global companies' Indian subsidiaries, that revenue is accrued in India. So that's where you see the growth come in India from. Hopefully, this answers your question. Yes. Thanks. Thank you. Thank you. Next question is from the line of Giddish Pai from Nirmal Bang. Please go ahead. Thank you for the opportunity. I have a question for Sandeep and one for Sunil. Sandeep, your digital engineering stems from your OSPD capability, which is your legacy capability. But what is your right to win in the enterprise modernization market, especially against incumbents who are fairly strong out there? On what basis are you winning those deals and is this sustainable? Sure. So let me answer that first and then you can have the second question first, Sonali. So, Girish, if you look at it, what is the digital engineering side of it? And why is That giving us a seat on the table in the enterprise side. Today, if you look at it, everyone in the enterprise side, if you go to a large credit card company Or a credit card issuer. They want to look like feel like a software product company. You go to an ATM company, they want to have software solutions Outside of the APM as well. You go to any company, everyone is looking at products and platforms, whether you are an enterprise in the Banking Financial Services, In healthcare or any others, right? And everyone is talking about agile development. Everyone is talking about going more digital. Who has the most skills in that? Is it the legacy providers or is it providers like ourselves who have been doing this for last 30 years, we were entrained in the product segment? And that is the skills that are today relevant for enterprise modernization. So what we used to do for product companies in a cloud first kind of a product development It's today applicable for a cloud first platform development or enterprise modernization. So that is where today the variance for us competing with The who's who, whether it's a U. S.-based organization or a European heritage organization or a India heritage large organization, Those barriers are broken and we are competing fairly squarely for that market share and that's where we are winning as well. So that's as far as the enterprise modernization story and our right to win is concerned. You can ask the second question to Sunil and we'll take it home. Thank you. Next question is from the line of Abhishek Shandatkar from Incred Capital. Please go ahead. Yes. Hi, sir. Thanks for the opportunity and congrats on an excellent quarter. My first question is regarding the growth in Europe. Anything that we should read? It's been quite volatile, both on a quarter on quarter and a Y o Y basis. And my second question is More about the strategy. So now we with us positioning ourselves as a pure play OPD Historically, Persistent has operated at a very higher band of margins. So I'm not asking from a quarter perspective, but structurally, how do we position ourselves, whether we would like to Kind of achieve a higher band or kind of reinvest and kind of accelerate the growth, Which is more comparable to OPPDLs? Thank you, sir. Sure. So, let me try and briefly answer both the questions. So the growth in Europe, yes, it used to be volatile because one part of our business out there was majorly focusing on the resale of CECLM, Which is an industrial product, which we also engineered for one of our largest customers. And that used to since it's a product sale, sometimes some quarters it used to go up, some quarters it used to go down. And the other thing was we were trying to provide services around that. Now if you look at it this quarter, we have taken the revenue on net accounting. If had taken it on gross accounting, even Europe would have grown much higher. And the growth rate being 1, The volatility being second, both are things to take care of the volatility. And since we don't add much value in that reseller business, we have taken it to net. And now on, you should not see much volatility in the Europe business and in the IP business. So that's the answer on that. The strategy part, yes. Today, if you look at it, our skills are fairly well in demand. And can we try and get a little bit more margin over a period of time? Absolutely. But is that the highest priority for us right now versus making sure we continue the growth momentum? The growth momentum is At the same time, we will see wherever we can keep moving on the margin parameter over a period of next few quarters and years. Our aspirations are to do both. Very good growth and also increased the margins, but that will take time and growth is priority for us as of this point in time. Hopefully, that answers both your questions, I'm sure. Yes, sir. Thank you for taking my question. And just a small one for Suneet. Nothing to worry about the unbilled this quarter or any comments that you'd like? There is nothing To worry about that, it's just a matter of some of the paperwork that we had to get done spilled over to the next 2 weeks or it is getting built in this. Thank you. The next question is from the line of Madhu Babu from Canada HSBC. Please go ahead. Yes. Hi, sir. So now I think our growth is almost mimicking ETAM. So do you encounter And the second is that with the kind of cash balance and with the kind of momentum, is it the right time to go for a much bigger acquisitions? Thanks. Yes. So, Madhav, yes, we encounter a variety of competition in different kind of segments that In some segments, we do compete with our the names that you mentioned, the EPAMs and Provence as well. And in some segments, we compete with other people. And our growth rates, as you rightly said, they are ramping up and hopefully it works well for us further on that. Now The second part of your question was around acquisitions. So, at any point in time, we are evaluating 3 to 4 tuck in acquisitions. And Where should we find the right target? We'll absolutely go after it, and that is definitely a stated part of our strategy. And we have very clearly said our acquisitions would be tuck ins either to make us more smarter, sharper on some of the service lines that we have or to go deeper in an industry vertical, whether it is BFSI or healthcare or in a geography like Europe. So we are working on all these different types. We hope to announce something in the next quarter or so. And it will be an ongoing process. Thank you very much, sir. Next question is from the line of Rishi Jhunjhunwala from IIFL. Please go ahead. Yes. Thanks for the opportunity. Sundi, one question on headcount, right? Our headcount is consistently growing at least 10 percentage points above revenue growth for the past 2, 3 quarters. How do we read that? I guess there could be 2 or 3 ways in which you could pan out. Either revenue growth catches up with headcount growth Or you will cool off hiring over the next few quarters? Or probably is it case that incremental business is coming at lower pricing and as a result, while volume growth might still be there, It's not necessarily translating into revenue growth. So just wanted to get some clarity around that. Right. So overall, the headcount will continue to increase because a number of our businesses obviously are dependent on Our ability to staff them and scale them over a period of time. So our business is a good amount of that is linearly dependent on the headcount. I wouldn't read it into the headcount increasing as yield decreasing or cooling off and so on. At least for the next few quarters, We believe the headcount, this pressure will still be on and we can do with more. More is less here as of this point in time. And if you look at the realization, etcetera, we are comfortable. And we talked about hopefully trying to increase it. Hopefully, that answers. If I miss something, please let me know. That's fine. And just quickly, Hello. Go ahead, please. Hello. Yes, go ahead, please. So Yes. So this quarter's growth, right, I mean, really, it is one of the best quarters for you. I'm just wanting to understand whether Is the growth also could be attributed to some of the revenues probably, as you know, Getting booked later in the end of the quarter, which would have otherwise filled over the next quarter? Or do we expect The momentum will continue in the next quarter given that it's generally easily fairly strong even though of course not similar kind of growth, but it will remain healthy. So, the bookings, etcetera, that we have done, if you look at the bookings sequentially on quarter on quarter basis, that should give you the confidence of The growth continuing, I'll not put a percentage there. But and there was no end of the quarter phenomena. There's no one time IP license, etcetera, that we sold. It was scaling up our services business over a period of time and built up over the quarter based on the deals that we won in the last few quarters and even in this quarter. And we have done healthy bookings. We have a healthy pipeline. So we are confident of the ongoing growth. Great. Thank you. All the best. Thank you. Thank you. Mr. Devedi, would you like to take Yes. Chat questions for now then? Yes. We just have time for a couple of questions which have come on the chat forum. So the first question to you, Sandeep. This is from Atul Bole, DSP Investment Managers. In light of substantial deal wins across industry and shortage of skill set, do you see risk of delay in deal ramp ups? Look, it is a reality that a number of our peers are also having good order bookings, etcetera, and there is pressure in the market for talent. But the objective at our end is our ability to forecast our requirements and try and be ahead of the curve in terms of Thanks to Hire, the right skills, etcetera. And we are doing our best. So far, we have not seen any delays in any of our customer program ramp ups. And thankfully, all the ramp up that we have done, we have hired roughly about 4,000 people in the last three quarters. And that has kept us on pace. We have not missed any customer commitment, even in COVID times. So we are hopeful and it's an ongoing business challenge and we have good processes in place to take Okay. And the last question, which maybe either you or Suneet can address. From Debashish Mazumdar from EDELWEISS Finance. He is asking, unlike most of the peers, Our on-site contribution to the revenue is going up significantly in last few quarters. What is the reason there? Are we addressing the high demand scenario in a different way than competition? And in the previous high demand cycle between 2010 and Persistent used to operate at 16% to 18% EBIT margin bracket. Do we see potential to go back Those levels in the medium term. Okay. So let me quickly try and answer because we are running out of time. So as far as we are concerned, look, when we talk of Digital transformation related projects. There's an upfront good amount of interaction that's required with the customers. And at times you need more upfront Headcount to be deployed on-site to be able to have those discussions and engage at the levels with the business that we need to. So that is there and those are Normal business scenarios. So I don't think that's a thing to worry about. As far as the margins are concerned, as we have said, You've got a good growth going. Growth with the right balance of margins is what we are looking at. We are not looking at squeezing EBITDA out of every That we can. Businesses can be done differently. We are confident with our growth and our right balance of EBITDA. So with that, I think we should stop here. So once again, we'd like to thank our 15,000 team members, our customers and our partners for their unflinching support in this COVID times as well. We have been on a good growth journey for last many quarters. We are bullish on our prospects for the future. We appreciate your spending time with us on the call Thank you very much, management. Ladies and gentlemen, on behalf of Persistent Systems Limited, that concludes today's conference. Thank you for joining us and you may now disconnect your lines.