Coforge Limited (COFORGE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the COFORGE Limited conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhinandan Singh, Head, Investor Relations and M&A at COFORGE Limited. Thank you, and over to you, sir.

Warm welcome to all of you to this conference call of COFORGE, which I appreciate you have jumped on to at short notice. The call, as mentioned in the invitation, is to discuss our acquisition of SLK Global. Present along with me on this call are our CEO, Mr. Sudhir Singh; and our CFO, Mr. Ajay Kalra. The call will commence with a brief opening remarks from our CEO. And post that, we'll be happy to open the floor for your questions. The discussion at this call today is intended to be focused on this -- of earlier-mentioned transaction itself. So any conversation around our Q4, et cetera, is something we might not be able to discuss. And with that, I would like to hand over the floor to our CEO, Mr. Sudhir Singh. Over to you, Sudhir.

Thank you, Abhi, and a very good afternoon and a very good morning to you across the world, folks. I hope that your family, your loved ones, your team members and you, yourselves, are safe and healthy during these times. The firm and I sincerely appreciate your taking the time and joining us for this conversation today. We do realize it's a short notice, and we truly appreciate your participation. Today, we are very excited and I must say, very pleased, to share that we have signed a definitive agreement to acquire a controlling interest in SLK Global Solutions, which is a business process transformation enterprise offering BPM and digital solutions for the financial services industry. It is a quasi-captive for the Fifth Third Bank. You would recall that in the past, during our post results call, I had shared that in addition to targeting robust organic growth, we are also actively scouting for inorganic growth opportunities. This transaction is in line with that intent and strategy that was shared earlier. Over the last few years, we have demonstrated the execution intensity and the cultural adeptness, which is always necessary to successfully integrate, draw synergies from and robustly grow acquired entities like WHISHWORKS and Incessant Technologies. We are confident, very confident, that very strong business synergies shall be generated through this latest transaction that we are here to discuss today as well. Let me start off by offering you an overview of the acquired business. Founded in 2001, 20 years back, SLK Global derived its revenues from North America and by delivery centers in Pune, Kolhapur, Bangalore and in Metro Manila in the Philippines. It is a quasi-captive for the Fifth Third Bank, which has its headquarters in Ohio, U.S. It has also created a suite of platform solutions that allow it to differentiate itself in the market distinctly. Fifth Third is the largest customer as well as a significant minority shareholder in SLK Global. Prior to our equity stake purchase, the entire shareholding was with the Indian promoters and Fifth Third Bank. SLK Global reported consolidated revenue of USD 62 million during fiscal year '20 and it is expected to report consolidated revenues of USD 73 million during FY '21, representing a growth of about 15% in FY '21 through the pandemic year. The 3-year revenue CAGR of the firm is over 17%, which is a highly profitable business, and it will be EBITDA margin accretive to COFORGE from day 1. I'm going to give you an offer as a rational for the transaction very quickly as well. SLK Global comes with a very attractive operating profile. As noted earlier, it is a fast-growing business with robust margins, deep domain expertise in the BFSI space and with a sharp focus on the North American GEO. Importantly, as part of this transaction, we are getting a multiyear minimum revenue commitment from Fifth Third Bank, which after this transaction closes, will also count amongst the top 5 customers of COFORGE globally. As you're already aware, BFS and Insurance are the 2 core verticals of COFORGE. Within these verticals, we have made substantial gains over the last couple of years. These include, and particularly over the last 2 years, getting in paneled as a preferred partner for 2 of the world's top 10 banks and signing on 10 Fortune 500 insurance clients. This particular transaction shall further strengthen our position and accelerate our growth in the BFS and Insurance verticals. SLK Global's capabilities and its scale in the financial services BPM space, where COFORGE has minimal presence, offers substantial opportunities to generate synergies. In turn, COFORGE's proven $100 million automation service line can materially enhance SLK Global's offerings for its financial services plans. There also exists significant room for COFORGE to cross-sell the breadth of its IT services, especially our cloud and digital capabilities into SLK Global's clients, which include marquee names in the U.S. financial services industry. And finally, on the service delivery front, this acquisition adds an Indian Tier 3 city location, Kolhapur, to the COFORGE delivery matrix. As noted earlier, this is a highly profitable business, and it is going to be EBITDA margin accretive to COFORGE's consolidated financials from day 1. Quickly diving into the details of the transaction. COFORGE will be acquiring 80% of the equity stake in SLK Global over a period of 2 years, with 60% getting acquired in the first closing, which occurred this quarter. And another 20% after 2 years in the year 2023. The first closing involving 2 tranches is split into tranche 1, with a 35% shareholding acquisition, which was closed today. And tranche 2, a 25% shareholding, which is expected to close in about a month from now. After this, COFORGE will own 60% and Fifth Third Bank will own 40% in the business. As part of the second closing, COFORGE will acquire another 20% shareholding from Fifth Third Bank 2 years from now. Post that, at that point, COFORGE will own 80% equity stake in the business. And the remaining 20% stake held by Fifth Third Bank will continue at least through the period of the minimum revenue commitment that I talked about. We intend to fund this transaction through a combination of internal accruals and external borrowings. For the initial 60% equity paid purchase, in addition to our own funds, we are also raising funds via NCDs. For the next tranche, where an additional 20% stake is to be purchased, and which occurs after 2 years, internal accruals alone should suffice. Finally, talking about the way forward. The key management team members of SLK Global, except for the founder promoter, will stay on and contribute to the business growth. We have ambitious plans for robust margin accretive growth of the newly acquired business. We are accordingly rolling out an integration plan that is aimed at maximizing the growth potential that this transaction will bring for us. The COFORGE team is very excited to welcome SLK Global with its 7,000 employees into the COFORGE family. We are equally excited and committed to the new partnership and the client relationship that we have now formed with Fifth Third Bank. Fifth Third, as I noted earlier on the call, shall be a global top 5 client of the firm. And as our valued JV partners, we look forward to creating a brief and mutually rewarding partnership with them in the years to come. To sum up, and I've talked about this at multiple points during the call, we believe this transaction represents significant value creation for both organizations because of 5 principal reasons: one, it is a quasi-captive with a 5-year minimum revenue commitment; two, straight off the bat, it creates a top 5 global client for us in a core vertical; three, it is margin accretive; four, it is a high-growth firm with a 3-year revenue CAGR of 17% and a proven tenured execution-oriented management team, which has driven that performance on revenue and margin and continues to stay with the trend; and fifth, finally, we have secured this at a reasonable enterprise valuation of USD 195 million, which is at 2.6x the revenue. We have also consummated the transaction at a single-digit EBITDA multiple. With that, I would be happy to hear any comments and answer any questions that you might have.

[Operator Instructions] The first question is from the line of Sandeep Shah from Equirus Securities.

Congratulations to the management for the transaction. Sudhir, just wanted to understand, if it's a quasi-captive, is it -- and it's a sizable acquisition for COFORGE, so apart from Fifth Third Bank, who are the other customers which can help you in terms of ramping up the acquired business over a medium to longer term because after the MRC gets over and if the stake of the Fifth Third Bank goes to zero after the fifth year of minimum revenue commitment, there is a possibility of a ramp down from that customer. So I'm asking a very long-term question rather than a near to medium term.

The firm already has more than 35 customers across insurance and across banking, Sandeep. The revenues that come from the top 5 customers, who we spend time with are material. More importantly, they're also extremely scalable from our point of view. So a, of course, the intent will be to further strengthen and deepen the partnership with Fifth Third over time so that it doesn't just become a 5-year relationship. B, equally importantly, the remaining clients represent a very significant runway for long-term relationship build. And also an opportunity for us to very actively sell the other suite of services and the other service line capabilities that COFORGE has.

Got it. Okay. And Sudhir, just wanted to understand if it's a primarily a BPM company, looks like as the EBITDA margin being much higher versus the company average, can you split the business in terms of growth coming through nonlinear model or the percentage of revenue through nonlinear on a percentage of revenue through linear model? And is there a risk of automation in any of the processes, which has been run by this company? And then I have some financial-related questions.

Sure, Sandeep. Thank you for that question. The firm has its own digital assets, including assets in the automation space. We believe, as -- given the fact that we ourselves have a $100 million automation service line, which the synergies across our technology automation service line and this particular asset, this will represent about $100 million BPM service line for us, can be very substantial and can be an enabler in the future for us to construct solutions and propositions that should allow us to accelerate further the growth of this entity. At a slightly later point in time, we would like to spend time with analysts across the industry talking about the automated compliance, quality control solution called Copasys that has been created by the SLK Global team, the automated QC work that they do and to reduce potential compliance-related fees and penalties. So this is also -- I mean, just to conclude, this is primarily in the processing space. There are fundamentally no nonlinear revenues at this point in time. And the digital platforms that I've referred to are homegrown platforms that enable seamless integration.

Okay. It's helpful. Just coming to the sources of finance for this transaction. So the 60% stake will lead to close to around $9.2 billion worth of outflow. If we look at the cash on the books, as of now it's close to around INR 5 billion. So is it fair to say that a significant portion, maybe more than 50% to 60% of the portion may be financed through debt as a whole? And second, after the accounting for amortization on the acquired intangibles, whether the business will be EPS accretive or not?

Sandeep, so let me take the first question first, and then I'm going to come to the second question around the quantum that we are considering for -- from the NCD process, right? Given the operating leverage that will come from the accelerated growth of the merged composite entity and the operating synergies that are going to arise as a consequence of this merger, we expect to deliver higher EBITDA and higher PAT margins in fiscal year '22 over fiscal year '21. We believe, to your question, that we have invested in a fast growing, I would say, very fast growing, highly profitable business, which, as I also called out, operates at a higher margin than COFORGE. The operating leverage and the operating synergies that I talked about, which will get created as a consequence of this process, will be able to offset the impact of the interest cost associated with the NCDs, the impact of amortization and the impact of the minority interest. So I did want to call that out that given the profile -- given the margin profile, we did sit back, we did assess the impact of the interest cost associated with the NCDs, we did assess the impact of the amortization, and we did assess the impact of the minority interest. After baking all of it, after looking at the offset that they create, and after considering the operating synergies, the operating leverage that gets created, as I said, we expect to deliver higher EBITDA and not just higher EBITDA, higher PAT margins in FY '22 over FY '21. And I thought that was important to call out. Coming back to your first question, the NCD quantum is to be approved by the Board. At this point in time, we are considering raising somewhere between USD 40 million to USD 50 million as part of that process. Did I answer your question, Sandeep?

Yes. Just the last follow-up and will come in a follow-up round, $40 million to $50 million may still lead to a significant internal accrual usage. So is it fair to say that post December, the cash accrual and the generation in the business has been robust for us to make a lower use of debt? And will it lead to any kind of no payout in the year of FY 2021 because of this transaction as a whole?

Sure. So I'm going to once again take your second question first and then get to the question around cash generation. When it comes to capital allocation plans, Sandeep, there is no change in our capital allocation plans. We continue to look at accretive acquisitions, and we shall continue to return excess cash to shareholders. Again, that's important. And I wanted to point it out at the outset. That's how we're looking at it from a go-forward perspective at this point in time. As far as the cash flow issue is concerned, at the end of the quarter -- at the end of the third quarter, we had very clearly called out that the OCF was at 70% for that quarter, and it was trending upwards. That trend has continued. And we feel good about the cash generation of COFORGE and also importantly, of the cash generation at SLK Global, hence, the statement around capital allocation, and hence, the split between internal and external approvals that I talked about.

The next question is from the line of Ashwin Mehta from AMBIT Capital.

Sudhir, one question in terms of the kind of services on the BPM side that the company provides. Any particular area, which is a more dominant contributor in terms of services here? And secondly, in terms of this deal, does this involve any savings to the Fifth Third Bank for the commitment over the next 5 years?

Sure. And thanks for the question, Ashwin. SLK fundamentally does work that is split across 3 principal axis, and all 3 of them are aligned very sweetly with our core vertical focus areas. It is focused primarily on working across one, banking; two, insurance; and three, mortgage. Within banking, they support middle office, back-office processes across all lines of businesses like retail, commercial, cards, et cetera, which is where we operate as well. On the mortgage side, they operate across the origination, the servicing and the ancillary services spectrum. And Insurance, which incidentally is the largest vertical for us, they provide QC services, B2B contact center services, document processing services, lender-placed insurance in the P&C space and broad spectrum back office insurance capabilities. That's how we would characterize the 3 principal process areas at SLK Global. As I had called out earlier in response to an earlier question from Sandeep, the firm also has its own IP, its own digital assets that we hope to promote and we hope to augment. They have an automated compliance and a QC solution, which is called Copasys, which helps customers improve their upstream processes, which allows for automated QC and which allows for a reduction in the potential compliance-related fees and penalties. There's also a whole suite of customer service and contact center capabilities, which are delivered from Manila in the Philippines [indiscernible] Specific to your second question, Fifth Third is going to be not just the largest client, as I called out, it is also going to be a co-owner of the firm with us, a minority shareholder. At this point in time, the 5-year revenue commitment that I talked about does not have a material cost out that has been asked for by Fifth Third. There are the standard productivity clauses, but nothing beyond that.

Okay. Fair enough. And just one follow-up. In terms of if I look at the realization of the company given that 7,000 people work for it, that appears to be in the $10,000 range. And even if you assume here, 70% utilization, the billing rate comes out to, say, $7.5-odd. So is it that the utilization is running low here right now? Or is it that there is some component of business, which is outside the U.S. also, which is probably pulling the billing rates down? And how do you see that kind of trending as you introduce some of our automation-related offerings into the business?

Sure. So the 7,000 number that I called out is a number at the end of the year, Ashwin. There is very significant ramp-up that has happened, particularly over the last 3 months given the contract closure that the firm has seen. So it's been -- it's not been a gentle ramp up. There's been a very significant ramp up to 7,000 post -- particularly over the last 3 to 4 months. Hence, there is an impact of that accretion on the denominator when it comes to the revenue productivity that we're talking about. As we looked at the organization, given the specialization that they have, given the focus that they have only in 3 areas, we liked the pricing realization that they're able to do. We were also very impressed with the fact that the firm has done a very good job of leveraging our Tier 3, even lower cost center, like Kolhapur as part of its broader delivery matrix. So the Kolhapur center also allows them to maintain margins and to offer some or a large part of the savings from that center to its clients. Finally, there's a very interesting approach the firm has adopted around how they split the work across centers and how the firm is not just a specialist across 3 different process access, but has also got its centers to specialize over time and create value for its clients. Kolhapur center, interestingly and incidentally, offers a cost base, which is 35% to 40% cheaper than Pune, which is the other material base for this.

Okay. Okay. That explains. Sudhir, all the best.

The next question is from the line of Abhishek Shindadkar from Elara Capital.

Congrats on the acquisition. Just one question. You highlighted that the margin profiles are accretive compared to COFORGE. Now, this is coming from a higher gross margin profile as well, right? And it is not from the lower sales and marketing cost because it's a captive. So just wanted to understand that. And the second thing, just quickly on the payout that is likely to happen after -- for the second tranche. Any color on that at this point in time? Or it would be discussed at a later point?

Yes, Abhishek. So we looked at the sales and the marketing cost profile. We've also looked at the gross margin piece that we talked about. It is a high gross margin business. And your assumption there that the firm is able to do price realization and also manage operations well is correct. It translates into a higher gross margin. The sales and marketing investments that we've seen, we believe, are at an appropriate level. And we do not anticipate that we will need to do too much by way of material augmentation only for this business and hence increased costs for this particular business. As far as the payout for the second closing is concerned, that's going to happen 2 years from now. And over the course of the next 2 years, we shall share more color around how that is constructed.

Best wishes.

The next question is from the line of Manik Taneja from JM Financial.

Congratulations on the acquisition. Sudhir, just wanted to get some sense of the breakup for the business mix between banking, mortgage and insurance business as you spoke about. And while it's not [indiscernible] customer, you spoke about the acquired entity having about 45 customers. So if you could provide some perspective on the client concentration, et cetera.

Sure. Manik, let me just -- I'll start off with the client concentration, and I'm going to request our CFO, Mr. Ajay Kalra, to talk about the revenue mix across banking, across mortgage and across insurance. At this point in time, in the year that's closed, Fifth Third represents a material number. We do not call out for COFORGE or for our acquired subsidiaries, the exact contribution by clients. But it's a material number, is how I would characterize it and leave it for now. Ajay, I'm going to hand this over to you to talk about the mortgage, the banking and the insurance mix. Ajay, over to you.

Thank you, Sudhir. The mortgage is around 49%. Banking is around 40% mix. And the insurance is approximately 11%. That's the overall mix of the business across the verticals.

Sure. Could you also give us some sense of how the mix would have changed over the past 2, 3 years because it seems for some of the peers mortgage business has been growing very well in the recent times.

Yes. So our belief is that insurance, which is the largest vertical for COFORGE, and it's currently at 11%, is an area which we should be able to augment and grow very fast. Second, on mortgage, the business has 3 legs. It is origination, servicing and ancillary services. Origination has its ups and downs, as we know, but the servicing component is likely to be resilient longer-term as well as we examine the business. Banking, of course, is the other core vertical for the firm. And that, again, is the vertical that we expect to see growing. Did I answer your question, Manik?

Sure. All the best for the future.

[Operator Instructions] The next question is from the line of Sandeep Shah from Equirus Securities.

Sudhir, just wanted to understand the competition within the Fifth Third Bank. Is it fair to say that we have an opportunity even to penetrate outside BPM within this client set, and even from India and global vendors servicing the same client?

I'm sorry, what was the second half of your question, Sandeep?

Yes. Who from Indian vendors and the global vendors who are servicing the Fifth Third Bank?

Sure. So Sandeep, since Fifth Third is going to be a co-owner along with us, and because COFORGE has a fully developed suite of technology offerings, we do hope and plan to very actively share those capabilities and the solutions that will come up with Fifth Third. And the intent is over time, provided we can show value to Fifth Third, to radiate onto the technology operations side at Fifth Third as well. The mix of vendors at Fifth Third on the IT services side as far as we know is a mix of Tier 1, Tier 2 and Tier 3 vendors. So it's the entire full spectrum of IT service providers.

Okay. Okay. And just last, Ajay, can you provide some color in terms of some annual estimate for the acquired intangibles amortization, which can flow through P&L starting from FY '22?

We will do a detailed PPA study. And once we do that, we will come back with an estimate.

The next question is from the line of Prashant Kothari from Pictet.

[Technical Difficulty]

Prashant, I'm sorry to interrupt, but your voice is breaking. Request you to...

Is this better?

Yes, much better. Please go ahead.

Okay. I just wanted to understand why the promoters exited this venture?

Prashant, I think that's a question best addressed by the promoters. We've entered the business because, as I said, there are 5 aspects around the business that we found very attractive. One, that it's a quasi-captive with a 5-year minimum revenue commitment; two, that's straight off the bat, it creates a top 5 client for us; three, it is a margin accretive business; four, it is a very high-growth firm. It's a high-growth firm. We've talked about the 3-year CAGR and the last year CAGR during the pandemic as well. And fifth, very importantly for us, we've secured a reasonable enterprise valuation. As I said, single-digit EBITDA multiple and a 2.6x of revenue. When we look at the entire package from our point of view, the value proposition that this creates will allow us to deliver higher EBITDA and also higher PAT margins in FY '22 over FY '21. So that's been the logic from our end around why we've entered it. I'm sure the promoters thought through the exit pattern. And anyway, the promoters have been -- they started the business, they ran the business very successfully. They scaled the business over the last 20 years and are now moving out.

Okay. Second, the minimum revenue commitment because it is a mix of revenues from Fifth Third Bank and other customers, is this revenue commitment only from Fifth Third Bank? And is it a growing commitment or it's a flat line?

Prashant, you're breaking up. But from what I understood of your question, the question was, is the commitment -- the MRC, the minimum revenue commitment from Fifth Third or is it some other clients as well? And the answer is it is from Fifth Third alone. Was there another aspect to your question that I missed?

Yes. Would it be a growing MRC or a flat MRC over the next 5 years?

It's a minimum commitment at this point. And obviously, our intent will be to do materially more than the MRC. But the MRC is fundamentally flattish at this point in time.

Okay. And I heard that there's a delivery center in Manila as well. Can you give us some idea on what proportion of the staff is based there?

Yes, roughly about 550-odd employees out of the 7,000 that I called out are based in Manila. And that center, like the other centers, is also specialized around operations. It focuses more on voice, focuses more on call center, focuses more on collections.

I see. And I'm actually struggling to understand why these margins for this business are so high. Can you give us some idea? And are the margins kind of -- are margins similar for Fifth Third Bank versus other customers?

No, no. The firm, as we said, the margins are high and the gross margins are high. The price realization that the firm has, given its specialization, is something that -- is something that has helped the organization. It's important to note that the Fifth Third Bank and the non-Fifth Third Bank client margins are more or less in the same range. So it's the specialization that is allowing them to ask for and charge the price premium that they are. Second, the execution intensity of the organization and the culture very closely reminded that of COFORGE. The manner in which the delivery matrix has been constructed; the way in which the centers, including Tier 1, Tier 2, Tier 3 centers have been constructed; the way in which employees across those centers have been asked to specialize around certain process access has also created very strong operational benefits for the organization, and that is helping it on the cost side. So it's a mix of both price realization because of specialization resulting in high price realization both from Fifth Third and non-Fifth Third Bank clients. Margins are in the same range. And the way the entire centers and operations have been conducted, including Kolhapur, which is a scaled up long-term center that the organization has build up.

[Operator Instructions] The next question is from the line of Vimal Gohil from Union Asset Management.

I hope I'm audible?

Yes, you're audible.

So yes. So I joined the call a bit late. I'm not sure if you've covered this, but if it's possible, could you just give us a broad breakup between what would be the split between the gross assets -- I mean, the gross block and the goodwill in the balance sheet for COFORGE post this acquisition?

Ajay, would you like to take that?

Yes. So we had mentioned earlier as well, we've not yet done a detailed PPA analysis of the acquisition. As and when we do it, we will share that with you.

Fair enough. The second question is that, sir, you mentioned that the Fifth Third has a full spectrum of Tier 1 to 3 suppliers. Given the fact that you are now a very strategic vendor to them, what are chances of material market share gains within Fifth Third going forward?

Vimal, it's a very strong intent to make sure that we display clear value and the full spectrum of our own technology offering that COFORGE [indiscernible]. The fact that they are partners, hopefully, will provide access to us. After that, we will continue to do what we do, and I suspect it to do well, which is make sure that we construct solutions, we partner effectively and hopefully radiate into the technology services side as well. Our intent -- our very strong intent and a clear opportunity that we do see as part of this transaction is to move just beyond the operations side to the IT services side at Fifth Third as well. Fifth Third is anyway, as I called out during the call as well, is anyway, straight off the bat, going to be a top 5 global client for our organization. And we will continue to focus very sharply on that. Just given the size it already has and the fact that we think that we can grow it even further, if we're able to successfully sell technology services.

Right. Right. And just one more aspect. And again, I apologize if I've made you repeat this, but if you could just give us some breakup of what's the share of BPO and share of IT services for the asset acquired?

Vimal, the revenue mix is essentially BPM. There is no effective IT services within SLK Global revenue that we'd like to call out. And that's where we see the [ hunting mentality ] across both organizations. Effectively, 100% is BPM revenue. You're absolutely right, 100% are BPM services.

Fair enough. All the very best.

The next question is from the line of Ritesh Rathod from Nippon India.

Sir, can you help us, was Fifth Third a meaningful client before this acquisition for us, for COFORGE?

No, Fifth Third was not a client at all for us, Ritesh. So Fifth Third is a new client and obviously, a material client, which will now be a top 5 global client for the firm.

And when you say move from 3 to 5 years, keeping up by the MRC, the client -- a bank with that kind of asset and that kind of P&L, how meaningful it can be for COFORGE. Can you give us any idea? Like can it become 3x, 2x, 5x in the next 3 years for you, given all [Technical Difficulty] currently even after acquisition?

It's -- Fifth Third on outsourcing spends more than $100 million a year as we understand that, Ritesh. That $100 million -- more than $100 million is spread amongst various vendors. Currently, of course, confined as we are, only to the operations side, we get a small part of it. The intent will be to try to maximize it. If you look at some of the other relationships that we've had, we talked earlier in the call about the fact that in the last 24 months, we've signed 2 of the world's top 10 banks; we've signed 10 new insurance clients, which also happened to be Fortune 500 firms. In each of these cases, we have attempted to and in quite a few, we've been able to scale up our business in multiples, not just in percentage points. So it's difficult for us to say what the extent of the scale-up might be. That scale up, of course, will depend on how good a job we do on the execution and the relationship side and how good a relative value proposition are we able to offer them on the tech side. So I mean, that's a long answer. The short answer is the intent is to scale up the relationship. And more than scaling up the relationship, deepen the relationship and add more value to Fifth Third and hopefully grow [indiscernible].

And given in your past acquisitions, the promoters of those acquisitions have stayed with you for a couple of years, and then they had taken their journey. Now, in this case, how do you ensure to retain the top management other than the promoters in this acquisition. Would it be out of specific ESOPs? How you are going to work out that the relationship stays given the promoters are not with you?

So the founder promoter is moving on. Every other member of the leadership team is staying on for the longer term -- for the long term, not just the longer term. And the intent, and our communication to them, is that we would like to create extremely long career runways for them. If you look at our -- I'm sorry, can I request people to go on mute, please? There's an echo over the phone. If you look at the past record of COFORGE, when it comes to acquisitions, whether it was WHISHWORKS or Incessant Technologies, we have post the promoter exit continue to scale up the business and retain the core leaders and the core SMEs and make them integral to the overall COFORGE leadership matrix. We will use employee incentives, of course, which we talked about. But as important, maybe more important than employee incentives only is the fact that the cultural adeptness and the sensitivity of the organization in new entrants to the COFORGE family needs to be of a very high order. And that is something that we've always ensured in the past, and we will continue to work on. Second, we will make sure that the execution intensity that is a hallmark of SLK Global and also a hallmark of COFORGE Limited is something that helps establish synergies. I'm sorry, but this is more for the operator. I believe there's a pretty bad echo on the conference line, and it will be good to get that fixed on, please. Ritesh, I hope I was able to answer your question, and you were able to hear me?

Yes. And maybe one last quick one. Within what time frame you think you would be able to integrate and stabilize this acquisition like within 6 months, 12 months, and so that you are -- we would be open to look up to another round of similar acquisitions maybe in different capabilities or whatever.

Ritesh, it is a stable -- it is a completely stable leadership configuration. We have been in active conversations with the leaders. We expect them to run the business as a stand-alone BPM business for us. So I don't really sense any instability or any course correction that is going to get warranted. We've run through the same integration playbook at WHISHWORKS, at an Incessant, at an AdvantageGo. And we have 100% record of treating people with respect, offering them autonomy and creating clear, long rewarding carrier paths for them. We are going to create -- use the same playbook that you've seen us use with the WHISHWORKS and the Incessant Technologies acquisition. We have acquired a business with a very experienced, with a very tenured, with a proven management team. We anticipate no changes there. We have every confidence in the team that is running it. We will offer them the incentives, the career runways, the career opportunities, the respect that professionals deserve and the intent is to just keep it going, i.e., there is an integration office that we have set up, which is a standard process that we follow. There is a very granular integration plan that we have, which, again, is something that we followed in the past. We will follow that exact same playbook. Different phases of integration will obviously get consummated and closed at different points in time. But straight off the bat, there isn't anything that we see as being broken that will need to be fixed. It will run on its own. We will figure out synergies over time. I guess, I answered your question, Ritesh.

Yes, sir. Wish you good luck for going forward.

The next question is from the line of Devang Bhatt from ICICIdirect.

Just my rough calculation gives me that -- based on your imports of margins are higher than the COFORGE. So my ROE comes to around 6%, 7%. Like most of the other BPO companies come to around 10%, 12%, 15%. So first of all, is my calculation right? And secondly, how can we scale it up to that levels?

Difficult for me to answer, Devang. I have no idea how you've done the calculations. But Ajay, would you like to take a stab at that answer?

Devang, the margins of the SLK Global are accretive to our COFORGE margins, and they're not diluted. So I would like to understand if -- how you're calculating it. It's very difficult for me to explain beyond that.

So assuming a 10% margin -- of PAT margins, and you're funding is $50 million in debt. So remaining INR 553 crores and 60% share, that comes to around 6% ROE. So INR 32 crores divided by around INR 553 crores of cash that you would pay as equity that I assumed.

Devang, why don't we take this off-line as we understand any details because there will be a lot of calculations that we'll need to understand before we -- before I can really answer your question.

Sure. Sure.

The one thing that I do want to point out, Devang, and the point that I do want to underline is a point that I've made earlier, right. Given the operating synergies, given the operating levels that get created, we will deliver as a composite entity. The combined entity will deliver a higher EBITDA, of course. It will also deliver a higher PAT margin, after baking in the offsets because of interest costs, amortization, minority interest, et cetera. So as Ajay said, it is -- it's a very robust operating profile and not just the last 12-month operating profile, last 3-year CAGR that's been created and the margins that have been created. We'll take this off-line with you. We feel very, very confident about what it does for us.

[Operator Instructions] The next question is from the line of Dipesh Mehta from Emkay Global.

I have a couple of question. First was, can you help us understand non-top client-related growth over the last 3 years. So if you exclude Fifth Third Bank, how is the revenue growth trajectory? Second question on the mortgage side. What would be the dependency on origination side of the business? Or other way, maybe if you can answer what was the, let's say, mix year or 2 year back between banking, insurance and mortgage? And the third question is, what would be the voice and nonvoice revenue mix for the entity?

Okay. Mr. Mehta, the 3 questions, the non-Fifth Third top clients, we don't have exact specific data. But if I look at the non-Fifth Third Bank lines and their growth, that has been higher -- significantly higher than the growth of the Fifth Third relationship. On the mortgage side, there are 3 segments that the firm operates in: it operates on originations, on servicing and around ancillary services. Originations is a sub area that flexes up and down given the state of the mortgage industry. But servicing and ancillary services are not just more resilient, but in some ways, also help in offsetting the fluctuations that might come in there. Voice and nonvoice, which is effectively and fundamentally a nonvoice business, out of the 7,000-odd employees, not more than 500, 550 work on the voice side. Did I answer your 3 questions, Mr. Mehta?

No, on the mortgage side, if you -- what would be this revenue mix between banking, insurance and mortgage, maybe a year back or 2 years back, if you can say that number?

I don't have the numbers for 2 or 3 years back, Mr. Mehta, but banking was currently 40%. I believe insurance is 11%, and mortgage is 49%. Ajay, keep me [ earnest ] on this, but I believe that's the current contribution?

That is correct, Sudhir. That's the current contribution.

The next question is from the line of Vibhor Singhal from PhillipCapital.

Sir, just wanted to basically get an idea of how well the SLK Global was able to basically adopt to the new paradigm, which has got impacted because of the COVID pandemic. So in the sense, what would be the kind of from work-from-home percentage at this point of time? And how do you think the overall impact of the business has been because of the pandemic over the last 1 year?

The SLK Global operates under the policy that the call work from anywhere. And they had completely pivoted over so there's work-from-anywhere concept over the last 12 months, slightly more than 12 months as the pandemic has been raging right now. The growth of the firm, despite the pandemic that was raging was 15% -- roughly 15-odd percent that I called out in the commentary, more or less in line with the last 3-year CAGR. There's been a minor impact because of the pandemic. The last 3-year revenue CAGR of the firm is 17%. In FY '21, that number is roughly about 15%, as I called out in the investor commentary. So operations have been resilient and revenue also has been resilient despite the pandemic. That's hit everyone of us the last 12 to 14 months.

Right. And sir, any impact that you see from, let's say, I know it's still in early stages, but any sort of a lockdown that we are contemplating at this point of time? Do you see any kind of impact on this. But as you said, because they work from home it should be negligible if at all?

Yes, Vibhor, the firm has, especially over the last 3 to 4 months signed material contracts. And as I was -- when I responded to an earlier question, I talked about the fact that the current employee strength of 7,000 has got very significantly augmented, particularly over the last 3 months to service those contracts. So the order executable, which is what we call out at COFORGE, and which I had said was 18% higher for COFORGE at the end of quarter [Technical Difficulty]

We seem to have lost the line for Mr. Sudhir Singh. Please stay connected while we reconnect Mr. Singh. [Operator Instructions] We have the line for Mr. Singh reconnected. Over to you, sir.

My apologies, I believe I was blocked off on taking the call from my home office and [indiscernible] As I was saying in response to your question, Vibhor, the firm is on a very strong growth rating and that growth rating seems to be mirroring the COFORGE's growth rating that we had referred to in the quarter 3 post results investor call. Did I answer your question, Vibhor, adequately, and I'm sorry for having blocked off. Hello? Am I audible?

Yes, sir. We'll move to the next question. The next question is from Jyoti Singh from Arihant Capital.

Sir, what will be the minimum revenue commitment from Fifth Third Bank down the line 5 years?

I'm sorry, Jyoti, was your question, what is the quantum of the MRC from Fifth Third Bank?

Yes, like.

So Jyoti, it's -- this is -- the way we look at the organization, it is a quasi-captive. Under the firm, with the agreement that we have with Fifth Third, we are not allowed to share the exact number. It is a material number. And it's a 5-year base volume commitment that I talked about for each of those 5 years.

The next question is from Sandeep Shah from Equirus Securities.

Yes. Can you hear me?

Yes, sir.

Yes. Just the last question, in terms of the debt, will it be a foreign currency debt? Or will it be a Indian rupee-denominated debt?

Ajay, would you like to take that question?

Yes. It will be an Indian rupee-denominated debt that we will be taking.

Yes. So Ajay, what is the purpose of taking Indian rupee denominated because there could be a huge saving if you take the foreign currency?

We are buying an Indian asset -- shares of an Indian company. And given that we are an Indian company, taking a foreign currency debt for acquisition of shares, it will not be permitted given the FEMA rules.

The next question is from the line of Prashant Kothari from Pictet.

Just a follow-up question on SLK Global's financials. I mean, when I look at the filings from Fifth Third Bank, it seems that the revenue run rate for them was -- I mean, sorry, the revenue contribution for them -- from Fifth Third Bank was less than half of the revenues. So why are we calling it quasi-captive? It seems to me that, yes, Fifth Third Bank was a large customer, but it still seems that more than 50% of revenues were still coming from other customers. Is that understanding right?

So the revenue from Fifth Third is almost half, but less than 0.5%. I think that's the first thing that I would like to call out. Second, the -- Fifth Third is, as we called out at the outset, is still figured a minority shareholder. And the revenue that we -- the revenue used to be close to 70% of the aggregate revenue 3 to 4 years back, it has been coming down. Fifth Third is the owner of the owner of the asset. And Fifth Third has offered an MRC, which is spread over the next 5 years, which is why we characterized it as a quasi-captive, not, of course, as a pure captive, but as a quasi-captive. The growth in the recent areas -- in the recent years has come on account of the new capability that has been built and the growth of the acquisition of new logos that has happened. Fifth Third Bank as a client in absolute revenue terms has not been declining, it's proportion has been coming down. It's because of lots of these factors that we called it out as a quasi-captive and not a pure captive.

Right. And this proportion of Fifth Third Bank reducing, has this also helped the profitability of the overall entity to go up? Or is profitability increase more driven by their kind of differentiated capabilities?

The margin profile of the Fifth Third client relationship and the non-Fifth Third client relationships, Prashant, are very similar. They are not -- there's not much of a difference there. So the change has not impacted the margin profile of the organizers. It's obviously logically created a greater growth runway for the organization, and which is what I've been translating, as I called out earlier during the call to be very strong contract closures over the last 3 to 4 months, which in turn has resulted in very strong [indiscernible] additions for the organization.

That was the last question in queue. I would now like to hand the conference back to Mr. Sudhir Singh for closing comments.

Thank you. I want to thank everyone for having joined in. We completely acknowledge the fact that this was short notice that we offered. And we, as always, very sincerely appreciate the -- your time and your interest. As I called out, a quasi-captive with a 5-year minimum commitment, a relationship that straight out become the top 5 global relationship for us, a margin-accretive asset purchase, a proven experienced management team, which has built us up to the 17% CAGR -- revenue CAGR over the last 3 years and a very reasonable enterprise valuation, 3.67x revenue, on the single-digit EBITDA multiple are what makes us feel extremely confident about creating a very differentiated and a fast-growth proposition as a consequence. Thank you very much once again for your time and following [indiscernible]. I look forward to speaking with you in our post results call in early May. Thank you.

Thank you very much.