Ladies and gentlemen, good day and welcome to the Tech Mahindra Limited Q4 FY 2021 earnings conference call. As a reminder, all participant lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. C.P. Gurnani, MD and CEO, Tech Mahindra Limited. Thank you and over to you, sir.
Good evening, good morning and welcome to Tech Mahindra quarter 4 FY 2021 and FY 2021 results. Thank you all for joining us today. I know for some of us who are in India and in many different parts of the world, this is a very tough period owing to the wave two of the COVID-19. I sincerely pray for you and your families to remain safe and healthy. We're meeting again after three months while things have changed. It is also more important to remember is that the priority of Tech Mahindra has become more about safety and wellness of our employees, their families, our clients, our partners. That has become our topmost priority as we speak. Your company has taken ownership of vaccination drive for our employees across multiple locations.
We have rallied together with Mahindra Group to make sure that there is availability of caregivers, thanks to some of the work our Tech Mahindra Foundation has done on the Healthcare Academy. We are working not only with Mahindra Group but also with the state governments and the local governments regarding medicine availability, plasma donors, doctors, quarantine centers and essential supplies like oxygen cylinder. We are also working with some of the leading hospital chains to convert our facilities into COVID care businesses or COVID care unit. Over a period of time, you start realizing what a small contribution can make a difference. There's a voluntary program which is really very small contribution we started five years ago, called Associate Welfare Trust.
In the last one year, the trust has now provided majority of funds to families of dependents or associates who have got impacted.
Tech Mahindra Foundation, I'm particularly very proud because they've been helping over two million people and they've run more than 350 COVID relief programs. All I want us to remember that we are committed to individuals in the company, we are committed to our customers, we are committed to the society and to the nation, and we are doing everything possible to help fight this pandemic together. Though from an operations perspective, the impact is very minimal because statistically our number of absenteeism of people who were either impacted by COVID or who had family members who were impacted, Pune and Mumbai which are going through the worst wave, the maximum absenteeism or planned leave was only up to 1.5% of that center's or that area's total number of employees.
As you know, Tech Mahindra has global delivery centers in Philippines, in Asia.
In India, we are in Trivandrum, we are in Chandigarh. Basically in all tier two cities also. Europe, U.S., Canada, Latin America we have development centers. As a matter of fact, when Vivek Agarwal talks about some of the acquisitions, you would realize that we also have now expanded our reach in Mexico. In general, Tech Mahindra is able to give seamless continuity and is able to serve all their customers but always it's wellness of the employees, wellness of the customers first. Quarterly performance, I know we have already shared with you that the revenue of almost $1,330 million, quarter-on-quarter growth of 1.6% for quarter four. EBITDA at $266.1 million, quarter-on-quarter 3.5% growth. Overall, a satisfying quarter, satisfying year. Because last year, if you remember, we had spoken to you and said we will have a three-year plan.
First year was what I had called a repair phase, second year was what I had called rally, third year is what I had called rise, which is acceleration. Your company has focused on balancing the growth between communication and enterprises. We have worked very hard, and we thank Ravi, who is our Chief Operating Officer, and Simmi Dhamija, who is our Chief Transformation Officer. Both of them are on the call, but they have done an incredible work at looking at our margins, looking at an EBITDA improvement program. I think our operations team has also worked very hard to focus on the free cash flows. Overall, focus on operating metrics, focus on balancing the growth. The company is now poised for a much better year as we go into FY 2022.
What makes me feel a little more confident is really the uptick in the amount of deals that we have signed. We did about a billion-dollar plus, compared to the previous three quarters where we were more like $ 400, $ 450 million. TCV of billion as we go into FY 2022, to level it out. Potential deal signing in the next quarter also of the same magnitude, only it says that there is a pipeline, there is a deal momentum, there is execution momentum, and hence we feel confident that our growth will be double-digit. Clearly, the company is also focusing on improving our customer success rate. We are also looking at further levers for profitability. We are also overall happy that your company continues to be focused on being a company with a purpose.
We had talked about our focus on CSR, ISR, the individual social responsibility.
Your company continues to be one of the most recognized companies as sustainable corporations around the world. We are particularly proud of the internal movement on sustainability and also getting recognition as Global 100 Most Sustainable Corporations. It is definitely a pride that your company on ESG meets some of the world's best standards. I know there is a lot to be done, all of us together, both on growth, operating metrics, improving some of our areas, particularly on what I call revised and regenerated focus on hyper-personalization, human experience management, customer experience management.
That is one of the reasons you have seen some of our recent acquisitions, and I will let Vivek Agarwal carry the rationale and how it fits into our focus to increase our reach and momentum in customer experience management, human experience management, cloud, and cyber security.
Overall, I will summarize by saying we had a steady quarter. We remain optimistic of growth acceleration or rally as we get into FY 2022. I am going to request Milind, our CFO, to take us through the financials. I'm sure he will share with you a record dividend that the board authorized us to declare today. Milind, over to you, sir.
Thank you, C.P. Good evening to everyone. Let me now cover the financials for the quarter and for the year ending March 2021. As C.P alluded to, we closed the fourth quarter with a revenue of $1,330 million versus $1,309 in the Q3. A reported currency growth of 1.6% and a constant currency growth of 0.7%. What is satisfying is the growth was equally distributed across enterprise and communication. In enterprise, our stress vertical, especially manufacturing, has started growing again, and this is the second quarter of consistent growth. As you know, the first half, it had really taken a hit because of the COVID. As C.P. alluded to, the new deal wins that we had in this quarter are about $1.04 billion, $1.043 billion to be precise. Again, they are also divided equally between enterprise and communication.
It's also spread both across Europe as well as Americas. The $1 billion, the deal wins, which were like $250 million in quarter one, $400 million in quarter two and three, have jumped to about $1.043 billion. The EBIT for the quarter is $219 million as against $209 million in quarter three. The EBIT margin is 16.5%, which is an expansion of about 60 basis points, and the increase has come on the back of operational efficiency, delivery transformation, comprising of offshoring, increased utilization and automation, and lower depreciation because of the conservative capital expenditure that we have had over last one year. Partially offset by SG&A, increase in SG&A is also contributed by increase in the recruitment costs as we have spruced up our recruitment engine in the last quarter.
The 16.5% EBIT margin is the highest that we have reported in the last six years. Our net profit after tax was $147.7 million, as against $177.7 million in quarter three. That's primarily for two reasons. Our tax provision in this quarter is higher because of one-time charges, tax charge in two of our subsidiaries. Our effective tax rate normally is in the range of about around 25%, but the tax rate for the quarter, because of this one-off, is at about 32.4%. Going forward, we expect the rate to be in the range of 25%-26%. The other reason for that is also our lower other income, which we have seen in this quarter. That's because of the lower Forex gain, or actually a Forex loss.
as I will come to in the next Actually, it's not a realized loss, it's an unrealized translation loss. it's not a cause of worry for us. Our cash flow for the quarter is $187 million, which is about 127% of that. this is aided by our continuous focus on bringing down the debtor days, and we have brought down the debtor days from 95 to 92 at the end of March. Moving on to the full year performance. Our revenue stood at about $5.1 billion, which is a constant currency decline of 2.5%. that is a COVID impact in the first half that we have seen. In the second half, we are back on growth track and that's quite satisfying. In rupee terms, our revenue is 378 billion rupees, which show the growth of 2.6% over the previous year.
During the year, enterprise business grew by 1.2% constant currency term, while communication business declined by 7.6% in constant currency term. This was, as I said, what we have actually experienced, the decline of in the first half. Second half, both the engines are on the growth track. In enterprise, we have seen a growth in BFSI technology as well as retail verticals. Manufacturing and communication, which declined in the first half, are also back on growth track as I had alluded earlier. EBIT margin for the full year stands at 14.2%. In absolute terms, the EBIT for the full year is $729 million. The positive for margin was largely operational efficiency, higher utilization in higher offshoring, and our focus on reducing the sub cons.
Of course, there were some tailwinds which came from the currency our way, and lower SG&A for the full year.
As you know, because of the COVID-19 impact, we have seen savings in travel and some of the utilities cost because of the work from home. Of course, this was partially offset by the revenue reduction that we have seen, as I said, in the first half. Now, we ended the full year with an EBITDA margin of 18.1%. Now, going forward in the next year, we have already rolled out salary hikes effective April. As we start, the incremental salary hike letters are being rolled out. This will have some impact on the margin, but we have plans in place to recover the salary increase impact through operational efficiencies. There may be some increase in the travel costs, especially in the second half with increased vaccination in the world over.
Given our exit margins as well as our initiative around delivery transformation and cost optimization, and tailwinds which will come from revenue growth, because the leverage that we will get because of revenue growth, we are quite confident of achieving our EBIT margin of about 15% for the next year as well. Going below the EBIT line, as I mentioned, the other income for the year also was low. Other income is low because there were some one-times in FY20, some of the profit that we have made from our couple of investment that we have made in Altiostar Networks as well as one of the investment in our subsidiary from Comviva. Those were not there.
Forex gain for the year is lower at about $13 million as against $42.7 million. Our free cash flow for the full year is $965 million, which is 162% of PAT.
This is primarily result of reduction in DSO days by 20 days over the year. Our debtor days are down from 112 to about 92 at the end of March. We think we have reached the optimum level of DSO, and there may be marginal increase in terms of debtors, especially in absolute number as we get into a growth phase. The board has recommended a dividend of INR 30 per share, comprising of INR 15 as normal dividend and special dividend of INR 15. This will take our total dividend to INR 45 per share. This dividend is our highest in the history of the company, and it's a kind of indication about how we approach the future.
This is in line with our dividend policy that we have, where we have said that we will return the excess cash generation after retaining the money for acquisition and for the internal improvements. Our hedge book is at about INR 2 billion with an MTM gain of about INR 38 million, of which INR 8.7 million have been taken to P&L, and balance INR 31 million to the reserves or what is now called other comprehensive income, OCI. We continue to follow our hedge policy, which has served us well in the past. To sum up, FY 2021 has been a challenging year. However, we have come back quite strongly during the course of the year, and we look forward to continue our journey of operational efficiency and delivery transformation and deliver a good set of numbers.
I think we can open the floor for the questions now.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Pankaj Kapoor from CLSA. Please go ahead.
Yeah. Hi, thank you for the opportunity. C.P., you had a fairly good deal even in the quarter. I was just wondering with this kind of a conversion, has your pipeline got depleted or have you been able to replenish it? If you can give some color on the size and maybe distribution of the deal pipeline, that will be helpful.
Pankaj, I will probably start off and C.P. can add in wherever.
Pankaj, when you look at the deal wins, about INR 517 million from comms, INR 525 million from enterprise. We expect a similar deal momentum or other deal wins over the next quarter also. evenly balanced and in the right direction. Maybe Jagdish or Manish, you want to add more color to the deal pipeline and answer overall what you see as a mood in FY 2022?
Sure, C.P. Pankaj, hi, this is Jagdish. I think as C.P. said, from a deal pipeline perspective, we have a pretty strong deal pipeline going into FY 2022. We think that it will primarily be driven by a lot of transformation deals from a cloud transformation perspective. We are working very closely with all the four hyper scalers and the revival of some of our verticals and hopefully with the Q3 seasonal downturn of retail going off, we should see a much better pipeline conversion getting developed here. Pretty strong pipeline and hopefully that this will start to do a much better result.
Manish.
Yeah. Well, thank you, Jagdish. Pankaj Kapoor, like C.P. said, the deal flow will continue to remain strong. As you know, in the comms sector, we always focus on deals which are spanning across what we now call as legacy modernization. The deal that we announced last quarter is probably the largest across the world that any company has signed to take this customer onto a journey where they will transform their both business process as well as their underlying IT infrastructure and systems to be ready for 5G. We are similarly continue to work on deals around customer care and transformation using AI machine learning, and these are all becoming part of the large deal construct.
Jagdish said about cloud, that continues to remain a very strong theme. We signed a very large deal last quarter with an OEM to continue their three-year journey on cloud.
We are also looking at some interesting deals around the network space as we speak. Across all our portfolio, the portfolios that are capable to do large deals, we continue to remain very engaged.
Thanks for the comprehensive answer. I had just one small follow-up question on your capital allocation. The total payout this year, of course, was close to 40% of the free cash flow as you had alluded in the past also. Is it fair to assume that this is going to be the base going forward?
Hi, Pankaj. Can you hear me?
Sure, Rohit, we can hear you.
Okay, got you. Pankaj, 60 or 61% of free cash flow that you returned this year. are you good given the-
Mr. Anand?
Yeah.
Sir, sorry to interrupt, but we are losing your audio in between, sir.
Okay. Maybe you can answer.
Sorry, Milind, are you repeating your question?
Yeah. I will take the question. Pankaj, the question was in terms of capital allocation, right?
Yeah. Let me just repeat that. What I was asking is that the payout this year is close to 70% of free cash flow, which is similar to what the range you had indicated in the past. My only question is that, is it fair to assume that this is going to be the base going forward?
Pankaj, our policy is that we would like to return the cash generated during the year to the shareholders after considering the needs for acquisition and for the internal usage. yes, unless we see a major acquisition during the course of the year, we hope to maintain that ratio.
Understood. Thank you and wish you all the best for the next year.
Thank you, Pankaj.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah. Thanks for the opportunity and congrats on a good deal flow. Just wanted to understand, if you look at Q2 deal wins, Q3 deal wins-
Mr. Shah, sorry to interrupt, sir. May we request you to move to a better reception area, please?
Yeah. Is it better now?
Yes, sir. Thank you.
Yeah. congrats on the deal flow. Just a question in terms of Q2 and Q3. If you look at the new business TCV wins been between 420 to $455 million, but the same is not translating into the revenue growth in line with the industry. the question is, it looks like from our quarterly average of $450, $500 million worth of TCV wins each quarter may not be enough with an increasing base. how are we making sure that our deal flow each quarter continues to remain above $500 million in terms of the threshold? we are pleased to see that happening in Q4 may happen in one Q, but will it become a recurring feature going forward? then only it looks like your growth rates may be better or inch up to what the industry growth rates are.
Yes, Sandeep. Thanks for the question. Can you hear me now, Rohit? Operator?
Yeah.
Yes, sir. We can hear you.
Okay. Sandeep, from a deal flow and pipeline perspective, I think already Manish and Jagdish and CP added that we're looking at a strong pipeline and even with this quarter's $ 1 billion of deal wins, the deal pipeline is still replenished and looking stronger than ever. From that perspective for the business, sustainability is there and we're looking at a good. As we go forward, even for 1Q, as we have the visibility right now and what we're seeing, we're seeing significant closures coming through for us across the regions and the verticals. Be it healthcare or be it retail, we're seeing that across the board.
As we go forward, we will continue to see better conversions and we've positioned the organization in a way that we see the benefit, as CP mentioned, that we focused last year a lot on the repair phase.
we put the structure and the process in place, where we're now seeing the deal flow being better, the conversion being there, and also the quantum of value that we see coming through, not just in this quarter, but we see that continuing as we move forward.
Okay. Just on terms of margins, if you look at Q4 deal wins better, 1Q, we expect a similar deal flow. Our margin threshold, which we indicated earlier of 15%, will change with some large deal ramp-up related costs, or it may be even better with the better exit rate of Q4, which is 16 and a half. A related question, does the supply side issue worry you? Because in FY21, we are the only company which may not have announced the wage hikes, and the attrition across industry has been going on.
Yeah.
Let me first take the first one on margin. Sandeep, you're right that we exit Q4 at a 16.5% EBIT rate, right? When we look at next year, we have a couple of things that are playing as headwinds and then there are tails also. From a headwind perspective, you're right, there'll be salary increases, there'll be some ramp-up costs for the large deals that we'll see. At the same time, we factored all that in a model. We're also looking at, as CP mentioned, all the operational efficiency that we've been driving this year. We still have headroom as we move into next year for that, as well as some optimization at the portfolio company level that we're working on.
between all of those levers, the interplay is giving us confidence that we will be able to get to the commitment that we had made earlier in terms of 15%-16%.
Okay. just a-
Yeah.
Yeah. Just a last question in terms of looking at utilization, which is at very high levels of 87%, and at the other end, the attrition also going up for the industry. It's like a catch-22 situation. How will we manage this going forward?
Yeah. I think utilization is currently at its peak and with the deal flow coming in, we see big deals being announced. Our hiring is going to be picking up, so there will be some normalization in the course of the year. Still there are other operational levers that we have on margin, so that we kind of optimize it. In terms of measures for attrition, we've taken multiple from our side. I'll invite Harshvendra Soin, who's our Chief People Officer, to articulate some of the things that he's been driving from an organization perspective that gives us confidence on how the year will pan out here.
Yeah. Thanks. Rohit, a great question, and I think most of our peers have also seen an uptick in attrition. We've actually taken a few steps really to stem it. Of course, first thing was that we reinstated variable pay in quarter four itself, which was a very positive move. As C.P. had, and Milind had illustrated, we have already sort of announced salary hikes with effect from first April for all bands in the company and the letters, as we speak, are getting rolled out. What we also did is a few other things. One is a special additional variable payout. We had actually, as you know, not given the variable pay in the first three quarters.
An additional special variable pay of one quarter as bonus to band P&E because we did see an uptick of attrition there, as well as taken some cash and stock-based retention plan for key talent and especially in niche skills. That will really help our attrition to come down. We have actually gone ahead and also added some skill-based allowance for niche skills and project-based bonuses for key performers. We do believe, and we are very confident that with all these steps in place, we should be able to stem the attrition.
Okay, thanks, and all the best.
Thank you.
Thank you. The next question is from the line of Rishit from Nomura. Please go ahead.
Just one question from my side. Hi, thanks for taking my question. C.P., when you alluded the intention to reach double digit, could you just help us understand the split between both telecom and enterprise? Because we've mentioned that telecom is likely to grow only 6%, 8%, right, earlier as well. Are we seeing a pickup of 5G that's giving us that confidence to hit double digit?
I don't know whether we
Can I take that?
Go ahead.
Yeah.
Again, yeah, why don't you go ahead? Vivek, you wanted to take it?
I think it's Manish.
Yeah. Manish, go ahead. Let Manish take-
Yeah. I was answering that question on 5G, that if you really look at this deal that we've announced this quarter, last quarter. What are we trying to do here? this is an indication of what kind of discussions we are currently busy with across the industry. This is about modernizing their entire customer engagement platforms, particularly on their consumer side of the house, including the underlying cloud-native architecture so that it starts giving them the flexibility and the hyper-scalability like what is needed for 5G. we have always said that 5G is not just about a network modernization, it is also about the system and the back-end process modernization. most of our dialogue across the board, across the world, is largely driven by the 5G narrative, right?
Barring maybe one or two regions, everywhere the primary driver for the conversation is 5G and how they need to modernize their network and hence rest of the infrastructure. To answer your question, that indeed is correct. You will see maybe as we prepare for this quarter deal announcements, the next one that we are doing will at the outset look more like an operation deal. The underlying theme is about getting ready for serving the customers in the new modern 5G type of a world. Again, a very large, very interesting operator that we are working with. I think that trend will continue to be there for the next year or two.
At the same time, we've also continued to start adding deals or increase our both funnel deal closure and revenue from the network side of the business as far as 5G is concerned.
It is still a smaller deal, but however, these engagements do start small. It's a sub $10 million deal at this point that one of the greenfield operators in the U.S. has hired us for helping them integrate and test their 5G O-RAN type of a network. Again, it's an indication that the kind of conversation that we have been saying that we are busy with will continue. That's really the type of stuff going on in 5G. I hope I answered your question on that. Satish can help you with the enterprise side.
Sure, Manish. On the growth prospects, I think very confident with the coming back. As you know, one of the things that actually did not work for us in last year in our vertical was manufacturing and banking was doing very well. For us, I think this year, we see definitely not only two quarters of steady growth in manufacturing, but also in terms of our focus around aero defense, discrete as well as process, and we having a scale in auto, which we don't think will be too big. Amongst the four sub verticals, and we've launched one more sub vertical in manufacturing, together with retail and healthcare, which are our top four verticals on the enterprise side, we expect all four of them to start showing us double-digit growth.
That should pull the enterprise numbers more towards a double-digit number and pull it out.
Okay. Understood. just, Manish, just to confirm, you mentioned that incrementally versus the last quarter, there's an acceleration in terms of the timeline for 5G. Is that a fair assumption?
Sorry, can you repeat that question?
What I'm saying is that from a 5G incrementally versus last quarter, there's an acceleration in terms of the timeline. Is that a fair assessment of it? Okay.
That's right.
Okay, perfect. Just one small question, guys. Could you just talk about the hiring trends for the next year?
We don't really give specifics around it, but as Harsh mentioned, and you look at the demand pipeline and the deal wins, you can correlate it. I think from our perspective, that trend will have to go along with the business and the double-digit growth that C.P. mentioned, which is correlated to. We won't give a specific guidance there.
Okay. Thank you.
Thank you. The next question is from the line of Manik Taneja from JM Financial. Please go ahead.
Yeah. Hi. Am I audible?
Yes, sir, you are.
Yeah. my question was with regards to the fact that you've spoken about double-digit growth aspirations for the full year. How should we be thinking about it from a quarterly standpoint, given the fact that typically one Q is generally weak for us because of the combo of seasonality. Given the kind of deal flow that we've seen this time around, should we expect that this growth will get more contributed going forward?
Yeah, Manik. This is Rohit. You're right. If you look at our last two or three years' data, you will see one Q seasonality and typically, except probably last year when it was COVID-19, it went down quite a bit. Before that, it'll be around 1.5%-2% seasonality impact going down. As we move into next year, I think with the deal wins that we've announced and the view we have, there will obviously be a quarterly ramp-up that we will see. One Q, at least currently, the way we're looking at is a little bit more favorable than what we've seen in the past.
Sure. Thank you. If I can follow you on the margin front, you suggested that you're looking at 15% plus EBIT margins in FY 2022. If you could give us some sense of the wage increments that you've announced and the potential impact of wage increments that we should be thinking about from a margin standpoint in WNS.
Rohit, you're taking that question?
Can you hear me? Hello?
Okay. This, of course, is considering the wage increase that we have announced. We factor that in. We're quite confident that with our operational improvements that we have planned, we will be able to absorb that and report a margin upwards of 15%, EBIT margin of upwards of 15%.
Okay. Thank you.
Thank you. The next question is from the line of Diviya Nagarajan from UBS Securities. Please go ahead.
Thanks for taking my question. I think to an earlier question, you talked about the first quarter seasonality, avoiding some of the negative trends that we've seen in the past. How do I reconcile it with your headcount that you ended the quarter with in the last quarter? Should we expect that the headcount will ramp up as the quarter goes in? The other related question to that is that, in addition to wage hikes, do you also therefore, as you ramp up your headcount, do you expect to see your supply costs increasing, and how have you factored that into numbers?
So-
So-
Yeah, great.
Yeah.
Go ahead, Rohit.
Yeah. Can you hear me? Sorry, my line is patchy. That's why I'm asking again. Can you hear me?
We can hear you.
I can hear you.
Yeah, we can. Okay. If you think about headcount, it's a quarter ending position we're comparing with, but as we look at the trend, we see a monthly trend to get better in terms of numbers, and similar trend will continue as we move forward. I think that gets correlated as we move forward in one Q in terms of the offset of the seasonality that I mentioned. In terms of, sorry, what was the second question?
I was talking about, given that you had a negative headcount in the addition at the end of 4Q, would you then have to ramp up headcount addition as the quarter picks up? What kind of an impact it would have on your hiring costs as the quarter and the year progresses?
Yeah. That's all factored in when we've done the modeling and we're talking about our view for next year. It would have some correlation. Even in this quarter, we see some recruitment costs go up. That factoring and the increment headcount, hiring and offers and all that is playing in. They will be, and we've all factored in the model when we're talking about the comfortable view that we have with this team.
If I can add, Rohit, this is Harsh. That we are actually, for example, have already hired about 5,000 interns at the bottom of the pyramid. We actually see that making a pyramid even better, and that's obviously been factored in, like you very rightly said.
Got that. Thanks for that. Just as a follow-up, did you quantify your telecoms growth for the year? I believe you did talk about a double-digit growth on the enterprise side. Specifically targeting on the telecom side too.
Right now the view is double-digit on enterprise and double-digit telecom. As CP mentioned to him, double-digit overall. That's the current view we have. If 5G accelerates to what Manish mentioned, if that picks up through the year, then we'll kind of see how that plays out.
Got it. Thank you. I'll go back in the queue. Have a good rest of the year.
Sure.
Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL. Please go ahead.
Yeah, thanks for the opportunity. Just one question on FX losses this quarter. Now, if I really look at the FX movement, QoQ end of period rates are flat, so it can't be translational. On a year-on-year basis also, rupee has been appreciating. Just wondering why hedges would also have a Forex loss. Just wanted to understand why such a large Forex loss this quarter.
Yeah. Basically what we have is, we have certain currencies that have moved versus the US dollar in appreciation and some other currencies as well as we look at our subsidiaries. That's caused the impact for the current quarter, and it had the opposite reaction, impact to the last quarter. It's translation for those currencies vis-à-vis their movement. Milind, do you want to add anything there?
Yeah. Rohit, this is Milind, and as I clarified, last year or last quarter also, we have had a foreign currency translation gain.
Okay.
It's in terms of the subsidiaries that we have. We have about 160 odd subsidiaries, most of them overseas. This quarter, some of these currencies have moved against us. It's a translation currency loss in this quarter. It's not a realized loss. It's just a quarter-to-quarter volatility which hits us sometime. Okay. As far as hedging is concerned, as I mentioned, we have a mark-to-market gain of $38 million. I wouldn't really give much importance to the translation currency gains or losses.
Okay. just very quickly, can you elaborate a bit on the impairment that we have taken in this quarter? we had a pretty large number last quarter, last year, this quarter as well. just wanted to understand what are the nature of which subsidiaries have we or acquisitions have we taken?
Rohit, you want to take this or you want me to answer?
Yeah. Sure. I can take it. This time, what you see as an impairment, as we've already said in the past also, that we continuously look at geographies in a situation where we want to normalize and rationalize a business where it doesn't make profits for us. That way, we continue to look at one of the geos. To specifically that impairment where we've rationalized restructure and taken costs for the future move in terms of what we will pursue has been normalized to make profitable business going forward. Because of that restructuring, we've taken impairment on that specific country where we had a whole acquisition because of the change in business direction and the rationalization that we did.
Sorry, I didn't get you. Which acquisition did you mean?
This is in Brazil that I'm talking about, and this is almost seven, eight years back, and it's part of our strategy. We've mentioned that we continuously look at geos where we want to be more prudent on what business we take. as a part of that, I will get into Brazilian geo.
Okay. Thank you.
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity. I had one question on the performance in this quarter. If I adjust for the acquisition contribution, we possibly did not show any organic growth this quarter. What were the negative surprises, and which segments did we see them in this particular quarter?
I wouldn't say there's negative surprises, but yeah, I mean, from a timing perspective, the way the deals are closing and playing out that we saw, and that impact into revenue is going to trickle down as we move forward. probably that's timing as one of it. we should see that come through as we move forward. nothing more than that in terms of any vertical that we will into.
Okay. the second question was in terms of, like what Milind mentioned, that you have operating levers at hand to manage the margin impact of wage hikes or the hiring pickup that we see. if you can elaborate in terms of what are these operating levers at hand, because we've not necessarily done hiring for some time. Our utilization seems to be at peak. in addition to these, what are the other levers that we are looking at?
Yeah, sure. I've mentioned a couple of them. I'll add again. If you think about from a delivery and operation standpoint, from an offshoring perspective, we still have room, and we'll continue to drive that lever as we move forward to compare our numbers. That's something that we will continue to drive. From second area that we continue to look at is portfolio G&A centralization, and we're driving that effectively through a central team working with each and every portfolio company. That should also give us some headroom there. Similarly, on the operational delivery side, we will continue to drive other operating levers on managing each and every account, and driving operation leverage as we move forward.
Rohit, can I just add something?
Yeah. Yeah, Milind.
Another thing is the growth leverage. CP alluded to it, that we are looking at a higher growth rate so that our SG&A gets spread over a larger base, and that could be a good lever. A lever which we didn't have last year.
Okay. Just one last small clarification. In terms of wage hikes, we are looking at only one wage hike this year or there is a plan that given that almost every peer of yours is giving out wage hikes over a three-quarter duration, we might also possibly have to do some interventions towards the second half of the year.
It's difficult to answer because a lot of it, if we come up with a second wage hike, it'll be mainly because the company's growth or company's performance would be better than what we have envisaged. I'm not ruling out a second wage hike, but at this stage, we have not budgeted or planned for it.
Okay, C.P. Thanks a lot and all the best.
Thank you. The next question is from the line of Vibhor Singhal from PhillipCapital. Please go ahead.
Yeah. Good evening, sir. Thanks for taking my question. There's two questions from my side. What is our hiring target for this year in terms of either lateral or freshers or the combined number that we are looking at?
We specifically don't give numbers around that, but looking from what Harsh our people leader alluded, we're looking at lateral hires, we're looking at adding freshers at bottom level and ramping up the workforce. I think it's in the right trend moving upward, but we specifically don't call out numbers there.
Okay. Sure. Not a problem. Just wanted to just one more question from my side. Given that this year we are generally in the last four quarters, there has been a net reduction in our employee force, and we are looking at a double-digit kind of a growth next year. Do you see that, maybe if the hiring is not ramped up in time, then our subcontracting costs might go higher, which have been stable for a good part of this year. Do you see that number rising from the current levels at around 13% of the revenues to maybe something higher? Do you think that should remain in that same range?
I think subcon we continue to monitor closely and it's something that we will look very closely. it's also a function of what the customer asks and what the customer needs and the need of the project. we'll continue to monitor subcon costs and we'll continue to drive that like we've done the last few years. there might be some quarterly variations as we move forward, but on a long-term basis, that's a trend that we want to continue when we look at subcon as a percentage of revenue.
Just to add, Rohit, this is Harsh. As I had said earlier also, that we are increasing in terms at the bottom end of the pyramid. Upskilling them and keeping them ready for any position that would come to fuel growth. It's not that we have not taken steps, it's already there. Hopefully, those people at the bottom of the pyramid would actually spur the growth numbers.
Thanks, Harsh. Sure. Thank you so much for taking my question. Wish you all the best.
Thank you. Ladies and gentlemen, due to time constraint, that was the last question. I would now like to hand the conference over to Mr. Rohit Anand for closing comments. Over to you, sir.
Yeah. Thanks a lot. Thanks for all the participants for joining us today. All of us hope that everybody keeps safe. It's a phase where we have to be home, so be safe and take care of the family. Wish you all the best, and thank you for joining us.
Thank you. Ladies and gentlemen, on behalf of Tech Mahindra Limited, that concludes this conference. Thank you all for joining us and you may now disconnect your lines.