Coforge Limited (COFORGE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Coforge Limited Q4 FY 2025 Earnings Conference Call. [Operator Instructions] And this conference call is being recorded. We have with us today from the management team, Mr. Sudhir Singh, CEO; Mr. John Speight, Chief Customer Success Officer; and Mr. Saurabh Goel, CFO. We will begin the call with opening remarks from the management team. And post that, we will open the floor for questions. Before we begin, please note that some of the statements made in today's discussion relating to the future should be construed as a forward-looking statement and may involve risks and uncertainties. Please refer to the disclaimer to this effect in the company's Q4 FY 2025 earnings press release. With that, I hand over the call to Mr. Sudhir Singh.

Thank you, Imra. Ladies and gentlemen, thank you very, very much for joining us today as we share our quarter 4 and our fiscal year '25 performance, as also the outlook for fiscal year '26. Fiscal year '25 was a landmark year for the firm, where we've recorded 31.5% U.S. dollar-denominated growth. In addition, quarter 4, again, has been a landmark quarter for the firm because in this quarter, we booked $2.1 billion of orders in a single quarter. And we've signed 5 large deals paving the way for what is likely to be a very strong growth year in fiscal year '26 as well. With that preamble, and before I run through our commentary, I want to share an important reminder with you. Almost a year back, during the last year annual investor call, we made 3 assertions. Those 3 assertions and our performance against those assertions' bays remembering, as you listen to our commentary today. Assertion #1 a year back, we had shared was that what we were making that we were making a contrarian yet high conviction bit by acquiring Cigniti. Assertion #2 that we made a year back was we had shared that we were stopping the process of providing annual guidance not because we were unsure of our performance in fiscal year '25. But because, in fact, we were very sure that we would continue to drive robust and sustained growth in fiscal year '25. And as you can see, we have. And finally, assertion #3, a year back that we made was, we had shared that despite the bleak demand outlook painted by some of our peers and analysts for fiscal year '25, we had said then that we believe that there were definite areas where a focused firm could pivot and drive significant growth, and we have. We are pleased that our performance was exactly in line with the 3 assertions that we made a year back on this same call. I shall call out the full year and the quarterly performance in order. A few highlights before we dive into the details. It is not just the 31.5% growth in fiscal year '25 that is remarkable, but even more important has been the quality of that growth. Our growth in fiscal year '25 has been large deals led and has come off the back of 14 large deals signed through the year. The deal momentum has kept accelerating every quarter over the last -- over 4 quarters, with 5 large deals signed in the most recent quarter. Our order book at the end of fiscal year '25 is now 47.7% higher than it was at the same time last year. The growth, again, has been balanced. Every industry business unit of Coforge has performed well, every service line of Coforge has done well, every geo that Coforge operation has grown and all client cohorts, including top 5, top 10 and top 20 clients have grown. As I noted earlier, in quarter 4, we have booked $2.1 billion of orders, which is equal to the entire order book that we did in all of fiscal year '24. Therefore, we look at the coming quarter and the coming year with great confidence. With that preamble, I shall now walk you through the annual performance. Let's start with annual performance revenue analysis. In fiscal year '25, we registered a consolidated revenue of USD 1.445 billion. We clocked a revenue growth of 31.5% in U.S. dollar terms, 33.8% in Indian rupee terms and 32% in CC terms. Our ability to drive growth in tough macros was aided significantly by growth across each one of the industry verticals that we operate in. The growth was led by the travel vertical, which saw a 33.7% year-on-year growth, followed by government outside India vertical, which saw a 27.1% year-on-year growth. The banking financial services vertical through the year grew by 20.4% and the insurance vertical grew 13.3%. Other emerging verticals, including health care and retail grew by 67.9% in dollar terms. On the margin front, annual performance, commentary is as follows: the adjusted EBITDA margin came in at 18% for the year. Our pro forma adjusted EBITDA, including Cigniti, was 17% in fiscal year '24 and the margin improvements have borne clear fruit. Our reported EBITDA was at 13% and our margin improvement efforts have assured us that our EBIT -- reported EBIT shall expand materially in fiscal year '26. Moving on quickly to quarterly performance, revenue analysis. I am pleased to report that following a 8.4% CC sequential growth in Q3, the firm has registered a sequential revenue growth of 3.4% in CC terms in Q4. In USD and INR terms, the sequential growth was 3.3% and 4.7%, respectively. The growth during this quarter was led by the BFS vertical, which has grown 13.4% sequentially in dollar terms. Our travel vertical grew 7.5% sequentially and the government outside India vertical grew 8.5% sequentially in dollar terms. Other emerging verticals declined 8.3% Q-o-Q in dollar terms. Our top 5 clients and our top 10 clients declined 5.9% and 4.6% quarter-on-quarter. You will recall, they had grown 13.5% and 14.4% sequentially last quarter. It is important to note that our top 5 clients and our top 10 clients have grown by 12.1% and 15.1%, respectively, over the same quarter last year. And these relationships continue to be very robust. We expect very robust growth to return to this client cohort in the coming quarters and through fiscal year '26. Order intake commentary is as follows: quarter 4 was an outstanding, I repeat, absolutely outstanding quarter from both an order intake and the number of large deal closure perspective. During the quarter, we signed 5 large deals. The velocity and median size of large deals signed by Coforge has been increasing over the years, and I've remarked upon it often. I should reflect more upon this in my concluding remarks. The total order intake during Q4 was an exceptional $2,136 million. We have closed fiscal year '25 with the highest ever recorded order intake of USD 3.5 billion and this metric is up 75.1% year-on-year. The executable order book, which reflects the total value of locked orders over the next 12 months now stands at a record USD 1.5 billion. This number, some of you might recall, was only $1 billion a year back and has witnessed a 47.7% growth. On the people front, our total headcount at the end of quarter 4 stood at 33,497. We saw a net people addition of 8,771 people during the year and 403 during the quarter. Utilization during the quarter stood at 82%. Last 12-month attrition for the quarter fell further and is now at 10.9%. We remain, as always, one of the lowest iteration firms across the industry. With those comments, I will now hand over the call to John Speight ,Chief Customer Success Office of Coforge for providing insights into our operations and capability creation. Over to you, John.

Thank you, Sudhir. I should now touch upon the quarter's highlights related to our delivery operations. Starting with the progress on our AI and Gen AI capabilities. Q4 saw significant process on the implementation of our AI-led solutions. We now have over 200 real-world solutions developed and deployed, all of these solutions, frameworks and assets are available to our clients by the Coforge [ Codes ] of AI marketplace. I will now share some examples with you. We implemented a Gen AI and Q Solution for a large U.S. insurer that enabled the automated extraction of policy and claims data to insurers, integrating seamlessly with platforms such as Duck Creek and Guidewire delivering 30% operational efficiency. For another U.S. insurance company, we based payment and documents a year, significantly enhancing data extraction accuracy, quality and speed. In the travel sector, from a major European transportation company, we implemented an AI-powered solution that provides real-time insights on next best actions during customer calls. Meanwhile, for the world's leading air transport communications company, we implemented an AI-based prioritization solution that has been instrumental in reducing by 75%, the volume of web alert center pilots. Agentic AI is driving a lot of interest in the market currently, and we are actively building capabilities in this area to deploy Agentic AI solutions. For example, we are developing an Agentic AI base product catalog solution for major U.S. building products distributor to improve that B2B sales spec. We've also use NVIDIA NeMo framework to develop our model lifestyle -- life cycle as a service offering. This enables organizations to build out their own proprietary AI and Gen AI models win managed secure environments enabling them to safeguard that IP and enable data confidentially embedded within their proprietary models. Within Coforge, our engineering team are leveraging tools such as GitHub Copilot across the software development life cycle, achieving more than 30% reduction in time and cost on large modernization programs. Through our AI Spark program, 94% of our employees are now AI trained and more than 50% of our developers are proficient in GitHub Copilot. Moving on to partnerships. I want to share a couple of highlights this quarter. In collaboration with ServiceNow, we launched the Coforge Generative AI Center of Excellence, CoE. It will focus on developing agentic AI solutions that help customers accelerate their ServiceNow adoption journey. Areas of focus include payments processing, fraud detection, dispute management and digital operations resiliency. Coforge and ServiceNow also partnered to accelerate AI-powered dispute management. In March, we delivered for a U.S.-based branded payment company, the first dispute management solution on the ServiceNow platform. In the cybersecurity space, we achieved Tier 1 MSSP status for Zscaler on the back of a successful client implementation of their Zero Trust architecture, the latest being for telecommunication service provider. On a final note, we are particularly proud of achieving Pega Global Elite Partner status for 2025. This prestigious recognition underscores our exceptional capabilities in delivering client value add with Pega-led solutions. With that, I will now hand it over to Saurabh Goel.

Thank you, John. Let me take you through some of the financial highlights for the quarter and the year. During the quarter, we signed a definitive agreement to sell entire stake of AdvantageGo business at a consideration of GBP 43 million. As a result, the reported financial performance of the quarter reflects performance of the continued operations, and all metrics in my commentary will be for continued operations until and unless otherwise -- specified otherwise. During the current financial year, AdvantageGo business generated revenue of $23 million, EBIT loss of $5 million and a cash burn of $8.5 million. During the quarter, we also acquired data and cloud assets in the U.S. generating for a quarterly revenues of $6 million and our ServiceNow asset in Australia generating a revenue of $2 million per quarter. Both these acquisitions generate margin in line with company's performance. Revenues from these acquisitions will be largely set up by the sale of AdvantageGo business. We've also ended the year with net cash of $43.3 million as against a net debt of $9.8 million at the end of FY '24. From a full year perspective, the revenue for the year stood at $1.45 billion, reflecting a growth of 31.5% in dollar terms. Adjusted EBITDA margin for the years were 18% and EBITDA margins were at 16.6%. EBIT margins for the year stood at 13%. The structural changes executed by us and large deals signed during the year, reflects our continued focus to drive profitable growth. With these changes, we have a clear line of sight of improving margins over the next 2 years. Currently, our cash and bank balance total stood on $125 million. Excluding the $82 million working capital loan, our net cash position is $43 million. Full year OCF stood at $147 million as compared to $108 million last year, reflecting OCF to EBITDA of 61%. Excluding integration expenses, the OCF to EBITDA for FY '25 stood at 71%. During the quarter, the quarterly revenues stood at $403.8 million, including AdvantageGo, the revenues for the quarter were $410.7 million, adjusted EBITDA margin in the current quarter, which was a tough quarter expanded by 100 basis points to 18.7%. ESOP cost has come down by 33 basis points as we guided in the previous quarter and now stands at 1.8%. And as mentioned earlier, it will -- it is expected to come down to a level of 100 basis points from H2 of this year. The exit EBIT margin for the quarter stood at 13.2%, which reflects expansion of 123 basis points over previous quarter. Operating cash flow, excluding transaction expenses related to integration expenses for Q4 stood at $75 million against $48 million in the previous quarter. This reflects OCF to EBITDA of 108%. With that, I will hand over the call back to Sudhir for his comments and outlook.

Thank you, Saurabh. We are entering fiscal year '26 with a record signed order book, which is 47.7% higher than where it was at the same time last year. Let's start with that for outlook. Equally importantly, our pipeline of large deals where we have high conviction that they will be closed in the short term is unimpaired. For more than 8 years, despite the changing macros, both the number and medium size or large deals signed by our sales engine has continued to increase year-on-year. That trend, despite the uncertain macros, the industry is currently facing will continue to be on track. The Sabre $1.56 billion deal that we announced through the quarter has seen an impeccable transition and a ramp-up so far. We believe that more than the robustness of our growth, what is truly remarkable is the balanced nature of our growth across all cuts. That is across geo units, across industry vertical units, across service lines. Our confidence in sustained growth in the future rides out the fact that there is no overreliance on any one growth vector, all vectors, including geo-based units, industry-based units, and service lines are firing. They are all not just growing, but they're all growing robustly. Finally, as we conclude the year, we would like to reflect upon the 3 key reasons why Team Coforge has delivered robust and sustained growth over 8 years. Remember, 8 years, this is not 1, 2 or 3 years, including during years when the industry has faced headwinds. Those very reasons give us confidence in our quest to be the industry growth leader in fiscal year '26 as well. Reason #1 out of those 3 reasons is an execution discipline and an execution intensity that is uniquely our own. For 8 years, the 3-step iterative process of plan, execute debrief; plan, execute debrief; plan, execute debrief has been repeated by every function. And every unit of Coforge it has now become hard coded in the DNA of our firm. Reason #2 is our outsized focus on driving growth essentially through solution-based proactive large managed services deals. This large deals-based growth approach has meant that our teams count more on wallet share expansion and not client budget expansion as the primary arc for expanding our revenue. We enter every downturn with a strong signed order book and a high conviction short-term pipeline ahead of us, allowing us to outperform irrespective of the macros. Reason #3 is our unwavering 8-year dedication to building deep, differentiated architect pools and SME-led industry-specific engineering competence. We believe as things stand today, after 8 years, we are one of the most credible challenges today in the financial services tech partner landscape, and we further believe that we have now entered the leaders' box in the travel services tech partner landscape. Our Government business outside India and our Health Care business is being built up painstakingly following the exact same approach. Each 3 of these aspects, the execution intense DNA, the large deal-oriented sales mindset and the industry-led engineering focus cannot be built overnight. They take years to build. But once built, they become a lasting growth pillar, which does not just sustain high growth, but actually accelerates growth every year. Our growth outlook for fiscal year '26, despite the uncertain macros that the industry faces is very robust. We believe very significant growth in fiscal year '26 will be accompanied, as Saurabh said by a simultaneously -- by a simultaneous and a material expansion in the reported EBIT. With that, ladies and gentlemen, I conclude my prepared remarks. And Saurabh, John and I look forward to hearing your comments and addressing your questions. Imra, all yours.

[Operator Instructions] Our first question is from Mr. Abhishek Pathak from Motilal Oswal.

Congrats team on a great quarter. So I've got a couple of questions. Firstly, as you mentioned, right, over the past 8 years, the growth has been quite significant. But would you agree that this is probably going to be an extended period of downturn for the industry? And if so, does the deal win engine have to kind of permanently pivot towards large deals and cost takeouts or there is still room for discretionary and in other areas? That's one. The second question is on the Sabre ramp up. Could you please tell us how the margins will be impacted in the short term? And how should we model that? And just on the margins as well, right? I mean, how should we expect the reported EBIT margins to expand from here on in terms of margin walk?

Abhishek, thanks for all the questions. I -- as far as the pivot towards large deals is concerned, that's a pivot that we've embraced over the years. That is not just a pivot that we've done. That's part of our approach towards sales, irrespective of the macros, discretionary spends up or down, we continue to focus on managed services base, proactive solutions led large deals. That is not going to change. Difficult for us to comment at this stage in terms of how long the demand downturn is going to last. Irrespective of the demand downturn, as you would have noted from our tone, all 3 of us. We are confident that the large deal velocity and the large deal median size will continue to grow for Coforge. As far as Sabre margins are concerned, it will not have any downward dip in our margins. Saurabh had guided to the fact that by fiscal year '27, reported EBITDA, I'm not talking adjusted. Reported EBITDA will hit 18%. This year, you've seen we're at 16.6%. We will deliver on that pledge.

And Abhishek on EBIT, the Q4 exit EBIT is 13.2%. As we mentioned that there was a burn of 50 basis points on AdvantageGo business. Now that's behind our back. So 13.2% is the exit for the year. We were looking at $2 billion of revenue guidance for FY '27. EBITDA guidance of 18%. That translates to typically an EBIT guidance of roughly 14-odd percent. But I guess that by end of FY '26, we would have done a large part of the journey coverage from 13.2% to 14-odd percent. So I think that's where we are.

And also just to add regarding the downturn point, I think the continual drive of AI, Gen AI to deliver long-term efficiency gains is focusing many organizations on business transformation, legacy modernization. They're having to get the value out of AI. So we expect those to continue actually to accelerate.

All the best.

We take the next question from Vibhor Singhal from Nuvama Equities.

Congrats Sudhir and team for a solid performance yet again. So Sudhir, two questions from my side. One is in terms of growth you had called out that the deal pipeline also looks quite healthy at this point of time, despite the very strong bookings that we've had in this quarter. So again, I mean it's just because we are operating in an environment in which there's quite a benign commentary by a lot of our peers. How do you see this basically pipeline shaping out over the next few quarters? Any specific pockets that you want to call out in which we have seen very good strength that you believe could be the driver of -- the deal with next quarter -- next year. The next year growth is, of course, taking care of what the deal was this year. But what could be the driver or what segments could you see be the driver of next year's deal wins? Then I have a question for Saurabh -- maybe if you can answer this, and then I'll have a follow-up with Saurabh.

Sure. So the drivers, in our case, the two areas we focused on are the same areas that John talked about, transformation and legacy modernization. There's always the cost play out play that we are all always aware of. We expect growth to come from multiple quadrants, not just 1 or 2. If you just reflect back on the 5 large deals that we've signed in the current quarter, quarter 4, when the industry in general has been struggling. One, of course, was clearly the Sabre win. The other deal is a very interesting deal where we are offering GPU as a service at scale. The third one was for one of the largest banks, AI-led QE services and QE for AI. The fourth has been a very large sales force led win again for a bank. And the fifth has been a very interesting $62 million TCB win from one of the top 3 clients of the erstwhile Cigniti organization. So it's not this one pillar. It's not just one vector from which we are exploring deals. We see significant revenues. The broad theme continues to be what John talked about, transformation legacy modernization with cost outlays.

Got it. Got it. And specifically, if I could just pick your brains on the travel vertical. That is one vertical in which we have seen a lot of airlines coming with profit warnings. United went ahead with a by-model guidance in terms of the environment. How is the environment in that vertical looking like? I know we had the largest deal in that vertical in this quarter. But going forward, are you seeing some sort of, let's say, uncertainty or delay in decision making from the airline specifically, the airline is part of the travel vertical.

So it's a mix bag. I'll talk about the pros and the cons both. On the con side, given the recent change in geopolitics impacting global economy, we are seeing travel industry take a more cautious approach in increasing capacity and sharing their own outlook. Specifically, there in the U.S., while year-on-year reported travel bookings and revenue are higher for travel and hospitality. A number of companies have reported reduced velocity, and there's a fear of booking cancellations in the near term. More or less the same commentary in Europe, right? Low-cost carriers, digital-first models continue to drive recovery growth, especially in leisure travel space. However, there again, rising labor cost, capacity constraints pose ongoing challenges. Interestingly, again, just continuing on the geo arc, Vibhor, across Asia Pacific, Middle East, Latin America, Africa, travel demand is growing steadily. So it's not the same feedback as it's coming to North America, Europe. For fiscal year '26, despite the cons that I talked about, our outlook on travel is strong, and we are well poised to grow while factoring in the industry dynamics that I talked about. And this outlook is based on the bookings in hand, the current sales pipeline and the demand that we are seeing in our existing key accounts in travel still despite the cons that I talked about. We are seeing client opportunities in travel in GCC setup, in modern airline retailing, in data modernization, in M&A integrations and in loyalty and personalization. So that's a quick overview in terms of travel, what's happening and what we see going forward.

Got it. Got it. That's really helpful that detailed explanation. Just one last question for Saurabh. Saurabh, I think our OCF reported a very sharp jump in this quarter. Last 2, 3 quarters, it had been $50 million, this time it's around $74 million. So if you could just take us through that, will this be the -- can we expect it to be the ongoing run rate over the next few quarters also? Or are you expecting some headwinds to this number?

So Vibhor, this is how at least structurally over the last many, many years that our H2 from a OCF perspective has been higher than H1. In fact, in prior years, the H1 OCF used to be negative or 0, and then all the heavy lifting used to happen in H2. So current year also in H1, our OCF was low largely because of QIP expenses. If we knock that off, the OCF started -- we started the year with 30-odd percent OCF and then which end up 100-odd percent, so that we ended up delivering 71% OCF for the year. I guess on an ongoing basis, we believe that anywhere between 67% to 70% OCF is what we would generate in the business with the kind of growth that we are seeing.

And that would have a normal seasonality. The first half will be weak, and the second half will be stronger.

Absolutely. We are trying everything to make sure that it is smoothened out to an extent, but then there are certain structural things which result in heavy payments happening in quarter 1 and quarter 2, resulting in OCF to be lower in quarter 1 and quarter 2.

Wish you all the best.

Thank you, Vibhor.

We take the next question from the line of Ankur Rudra from JPMorgan.

Maybe I just wanted to talk about the outlook to start with.

Mr. Ankur Rudra.

Can you hear me now?

Yes. Yes.

I wanted to get a sense of the outlook. Outside of the Sabre deal, we understand that will be a significant component of the growth outlook. But outside of that, if you can share how does the overall momentum look like given the environment has probably weakened a bit. And if you can give us any kind of update about the medium-term target of hitting $2 billion in revenues?

As I said, Ankur, we have -- we do not believe that the velocity of large deal closure. And in quarter 4, as I just shared, we signed 5 large deals. Sabre was only one of them. We don't think the velocity -- or I mean, if you leave out Sabre, the median size is going to deteriorate for us. We understand, we acknowledge, and I just shared the commentary around travel as well that the demand outlook has worsened. But given the pipeline that we already have, given the sales orientation, which is very sharply structured on proactive proposal creation, we would expect the velocity. We would expect the median size of these large deals to sustain. As far as $2 billion is concerned, we would not like to share a time line, but we -- I mean, given our performance of late, given the commentary you've heard, we feel we're going to get there pretty soon. Actually, let me make that very soon without qualifying what the very is.

Understood. And there is no risk to that number for F '27 that you previously stated, right, given the weakness in the short term and you're seeing very soon?

No. No, I don't think there's any risk at all to fiscal year '27 getting to $2 billion. The intent will be to get there faster. We'd be a little disappointed if it took us all of fiscal year '27 and to scrape by to $2 billion.

Understood. In terms of the near term, if you can comment anything about revenue conversion from all these large deals, anything to note given some of the weakness you might be seeing on travel side, which you've acknowledged?

Nothing of concern, the immediate quarters are going to be very good as well fiscal year '26.

Our next question is from the line of Manik Taneja from Axis Capital.

Congratulations for the steady performance. My question is for Saurabh. Saurabh, if you could help us understand how does the number of working days in April, May, June, defer and should be a tailwind to sequential growth in the current quarter, if you can provide some insight into that? And the second question is with regards to the margin outlook. If you could talk about the different margin levers, especially in context of the lower ESOP charge as well as sales and marketing expenses outside of ESOP expenses and the gross margin provision that we should be seeing in FY '26?

Okay. So a couple of things. One, when we look at number of days. So yes, there will be leverage coming in. And that's why I said that between Q3 to Q4, it was a tough quarter, and there were number of -- lesser number of days based to even then, we did a 100 basis point margin expansion in the current quarter, number one. Number two, like you remember that we have given wage hikes in quarter 2 last year. So again, it's not happening in quarter 1 for sure this year, which means that there is no depression on margins that is going to come in quarter 1. And we believe that we will be able to sustain margins that we are delivering now. And to the extent of the adjustment that can happen -- would happen on account of these are costs that gets paid upfront for the whole of the year. Apart from that, we believe that the EBITDA margins or the gross margin should hold, or gross margins should marginally expand. So that's number one. Number two, from a lever standpoint, 13.2% is the EBIT exit in quarter 4. As you know that by end of -- by Q3, this ESOP cost is going to come down from current levels almost by 70, 80 bps further. That is going to slow down into EBIT number in Q3, which will get far marginally set up with whatever wage hikes will happen at that point in time. But we believe that between 13.2% to 14-odd percent EBIT guidance at least that we have, a large part will get covered this year largely on account of structural changes that have happened in the business, wherein the scale lever will start playing in the large deal expansion with no depletion in gross margin will start playing in. And that's why we believe that whether it is gross margin or EBITDA margin or EBIT margin, should sustain and should expand materially over the next couple of years.

So that's helpful. And if I can chip in with one more question. If you could clarify on the segmental margins for Asia, they appear to be the highest in several quarters. If you could help us understand what drove the big upswing in terms of segmental margins in this geography?

So what has happened is that Australia as a geography -- and so a large part of that revenue comes from Australia, and it comes from ASEAN. These were 2 regions, which earlier were not doing well. But over the last couple of years, maybe I would say, 18-odd months, the correction in Australia happened because of the investments that we had made there and the new leader that was hired almost 2 years ago, and that margin had already improved. Now the ASEAN business has also started firing and there was some small part of the business, which is not doing well, even that's behind us. So smaller geography, not a significant impact on the overall numbers. But yes, I think there are certain areas which were stressed, which are now behind us.

Our next question is from Dipesh Mehta from Emkay Global.

A couple of questions. I just wanted to understand about utilization. [ I wanted to ] understand our optimal utilization range? I'm looking it from...

We can't hear you, Dipesh. Dipesh, can you get closer to the mic, please? We can't hear you clearly.

Is it better now?

Yes, it is.

Yes. So my question is about utilization. What is the optimal utilization range you are looking for? And in the context of If I look headcount addition it is roughly a percentage this quarter, where we are expecting some of the large deal ramp up to play out in the next few quarters. So in that context, if you can provide some sense. That is question one. Second question is if I look at your service mix, there is a sub growth in engineering, while IMS is soft. I just want to get some sense because in geography also America is very soft compared to Rest of the World. So there are some quarter-specific months is playing out. If you can provide some color around that.

So Dipesh, utilization, we are at 82% for the quarter. We think that's a good number because in our utilization, we count freshers as well. The second question was around head count, is it?

Yes.

What was that second questions.

So second question is on the headcount. See headcount addition for the large deal ramp-up has started happening Dipesh, last quarter itself, it is Q3. And it was getting added over a period of time. So that is why you see the current head count addtion and over next few quarters also we will see material head count addition that will be happening.

Also, the other thing you have to note around headcount is while we've declared a headcount addition of 400-odd, from that number, we've subtracted 600 people of AdvantageGo. If the business had been continuing as is, this quarter would have seen 1,000 people headcount improve, right? John, do you want to comment on engineering versus IMS?

I didn't actually hear the question.

So the question was engineering contribution seems to be far outstripping the contribution of the infrastructure business and why is that?

At this point I think a lot of it is down to the Sabre deal, A significant proportion of that is pure play engineering services. I think that's the major factor that I see affecting that.

Correct. And the longer-term secular trend that we're also seeing, Dipesh, in addition to that is our engineering business, and we've called it out repeatedly, is very firmly grounded in the functional expertise that we bring in across industries. And whether it's a geo-based unit or an industry-based unit, with the new delivery and the new engineering leader that we've had in play for the last 12-plus months. That business is picking up incredible speed, while the IMS business continues to grow strongly. In relative terms, it's picking up speed.

Understand. And last question about the Sabre deal ramp up. How one should look the ramp-up, whether the linear equation is a good way to look at it the way it should contribute over a period of time?

The Sabre ramp-up is proceeding extremely well. We would expect the ramp-up to continue over a 3-quarter period, and that's proceeding as per plan.

And contribution would be roughly linear, right, across 13 years, if one do that division?

More or less, Dipesh -- I mean, deal of this size, the revenues are never linear. But as we mentioned earlier, it will be a Zip code of $10 million to $20 million plus/minus.

Our next question is from Abhishek Kumar of JM Financials.

First question is on Sabre deal, and it's a question that is asked to us very frequently by investors. Given the financial situation of Sabre, do we foresee any risk of ramp down or any challenge to receivables or receivable days? And if at all, any risk mitigation that we kind of use to protect ourselves?

So Abhishek, a couple of things. One, we have been working very closely with the leadership team of Sabre. And this is one of those accounts, wherein we have not only have a connect with the CIO organization or the CTO organization or the CMO organization, but also to our CFO and a COO and even at Board level. So that's point number one, which allows us to get insights on what the strategy of the business is, what they're planning to do and what are the future steps they're going to take. That's number one. Number two, they very recently announced the sale of their hospitality business, which we were not supporting. It was a small business, roughly $250 million, $300 million of annual revenue, at $1.1 billion to pay off their debt. So we were aware of it. So out of the debt of $4.7 billion, $4.8 billion, $1.1 billion will be shaved off. And they've always been operating at a debt of $3 billion, $3.5 billion. So we continue to monitor. The point I'm making is that we continue to monitor their financial performance, their business strategy very, very closely. And obviously, we've also taken nonrecourse factoring, and we've also taken a credit insurance policy in case anything unforeseen happens. But apart from that, we continue to work very closely with the management team, with the Board, so that we know what's happening into the customer.

Okay. That's helpful. My second question is in the Others vertical, which saw a sharp decline this quarter. A lot of what is included in the Others vertical like retail, health care, et cetera, seems to be where Cigniti has contributed. So I just wanted to understand, is that attributable to some softness in Cigniti? Or that's just quarter noise?

No, it's not attributable to any softness in the Cigniti portfolio of accounts. As I noted, one of the largest deals, the second largest deal during the quarter after Sabre is a deal with 1 of the top 3 accounts of Cigniti that is a $62 million, not 5-year, but a 3-year TCV deal. The incremental revenue from that deal is going to be bigger than the size of the account was when we took it over. So the Others vertical. Also, the second thing I want to tell you is the Others vertical, forget the quarter, look at the full year. Others vertical has grown 67% over the previous year. So what you're looking at in this relatively smaller vertical is a temporary quarterly blip, not attributable to any softness in Cigniti, which continues to be a fantastic acquisition from our vantage where the pipeline of large deals from accounts that used to be Cigniti is growing. So to that extent, we feel reassured around Cigniti.

And Abhishek, just to add to that. So Q3, there was sharp spike that has happened in Others. So I think it's more of that revenue that came in Q3 has just gone away, and that's why you see a blip. Otherwise, structurally, year-on-year basis, you will see that there is growth happening. There is not a single vertical otherwise, which is not doing well on an ongoing basis.

Our next question is from Sandeep Shah of Equirus.

The first question is, if I look at FY 2025 and step out the inorganic growth based on my estimate, we have roughly done a mid-teen kind of organic growth. And if I look at also the announcement on Sabre deal plus other acquisitions, it looks like that the coming year with this announcement will also contribute 15% growth automatically through Sabre and inorganic acquisitions. So is it fair to assume the growth momentum what we have seen in FY '25, which is upwards of 30% can be maintained in FY '26 as well?

We can't give a number-based guidance, Sandeep. But I will just reiterate what we said. We expect very strong growth in FY '26 as well without qualifying the number, the growth should be very strong.

Okay. So Sudhir, you expect the macro headwinds may have some taperness or some impact on organic growth in FY '26 versus FY '25?

Not at all. I would -- I don't see organic growth slowing in any shape or manner in FY '26 over FY '25.

Sandeep, just to add to that. I mean, last year, when we got into FY '25, we had a headwind because our quarterly growth rates were actually coming down. I mean, we started the year with -- the exit of FY '23 was around 4%, 4.5% quarterly growth, which came down to 1 and 1.5-odd percent quarterly growth when we exited last year FY '24. This time when we are exiting quarter 4, we have had quarters where we have grown 6% to 8% on CC basis on an organic basis. And that's why we believe that at least -- directionally, I mean, that next year should be better than the current year on an organic basis.

Okay. Okay. And just I have joined late apology for the same. Can you once again give a detail about the organic -- the margin guidance for FY '26?

We haven't given a hard number guidance, our believe -- we believe that EBIT will see a significant improvement. That's reported EBIT and our guidance for hitting 18% reported EBITDA in FY '27 also stands.

Okay. And Saurabh sir has said that this year would be between 13.2% to 14.2% at an EBIT level.

So I had said that the guidance for FY '27 was revenue of $2 billion, reported EBITDA of 18-odd percent, which would mean an EBIT of 14-odd percent. From 13.2%, a lot of that journey to 14% will get covered this year itself rather than leaving it for next year to kind of stripping towards reaching 14% EBIT number.

Our next question is from Vaibhav Chechani of Nirmal Bang.

Congratulations on great set of number. So my question is for Suarabhji...

Vaibhav, you're not audible.

Hello. Is it better now?

Yes. Much better.

So congratulations on yet great set of numbers. So my question is around the exchange rate. So in our factsheet, what I have found the reported rate is around 86.6%. However, when I calculate through a numbers, reported numbers, which is USD 404 million versus INR 34,099 million, it comes with a deviation of around $2. So any color on that?

So number one, see, our exchange that is just a dollar exchange rate. When you look at our mix, it's a little different from most of the other organizations wherein the almost -- only 50% of the revenue is actually dollar denominated revenue. Large part of also comes from pounds, euros, Australian dollars and Singapore dollars. So that's number one. Number two, we also take hedge losses in the top line, which actually translates into a very different number. So these are 2 reasons why you see just a dollar average rate versus the revenue, that's not delivered in the quarter -- from a reported revenue in rupee terms or dollar terms.

Understood. And sir, a follow-up, a second question on that is around the GCC business. So any color on our GCC business? How is it ramping up and how significant is becoming in our Asia geography, because our Asian geography has seen a significant revenue growth in this quarter. So is it primarily driven by GCC or GCC is just a part of the higher-end growth in Asia geography?

Asian growth has not been driven by GCCs, Vaibhav, but a lot of our growth is being driven by GCCs. GCC driven or GCC influence revenue is almost 10% of our aggregate revenues as we speak. The largest deal that we're pursuing right now also is a GCC specific deal currently. So short answer, Asia growth is not necessarily a function of GCC growth, but a lot of our pipeline is significantly influenced by our GCC growth. John, would you like to add more to that?

The only thing I'd add to that is given the success we've had with GCC over the last 12 to 18 months with a number of customers, that is itself being used as referencing into new customers, and that is driving change. What we're also finding is a number of organizations are struggling to drive their offshore strategies alone, and it's feeding into us significantly. And hence, why we're having so many conversations with customers in this space.

Our next question is from Chirag Kachhadiya from Ashika Institutional Equities.

So I brought you 2 questions. The Cigniti's offering in one vertical the operating testing-related services. So how that particular division is now integrated in this consolidated entity and providing some synergy benefit to the existing business of the Coforge? And in advent of this AI-related disruption, how this is muted offering on real-time basis will not get impacted by this AI [indiscernible] at all? And second, what risk you see in FY '26 and '27?

Cigniti, QE out of the 5 large deals that I talked about, 2 of the large deals were influenced by our AI for QE and QE for AI-based offerings. That's a hard data point in terms of how successful the Cigniti business, especially in the AI-driven QE has been. Second, in November this year, given our confidence around the AI suite in QE, we are organizing an event in New York City, 4 hours workshop inviting every analyst there is in the world, just to talk about the differentiation that we have built, which was part of our premise around acquiring Cigniti in this space. Third, the Cigniti QE team has been fully integrated into the Coforge unit. There is no longer internally, if you look at us, a stand-alone Cigniti team. QE is now a horizontal business in it. It is run by Mr. Raghu Krovvidy, who used to be the Global Delivery Head of Cigniti earlier. As far as the risks are concerned, no outsized risk that I can call out when it comes to the revenue. We haven't given a guidance, but the confidence that you hear in our tone, we believe we've considered most risk scenarios. We most importantly, considered the demand downturn that our industry is dealing with. And after making all of that, we still feel extremely confident about what we've shared with you. I'm going to request John to layer on anything else to that.

Yes. Just one thing which we're seeing is the cross-sell upsell opportunities into the accounts that have been onboarded as part of that acquisition. That is significant. Because that business that we acquired was 90% QE, small smashing of RPA, digital. But now we've got the full gambit of other engineering platform plays that actually can deliver value to those customers. And that we are very confident on leveraging.

Our next question is from Vibhor Singhal from Nuvama Equities.

Sudhir, just a question on the Sabre deal again. I mean more of a subjective kind of assessment, if I could ask you for -- so I mean it's very seldom that we see a company of our size, mid-tier company grab such a large deal. These large deals had always been the kind of forte of the large cap companies that we had always seen. You mentioned, of course, that this was a long-standing client. We've had a long-term relationship and our domain expertise in the travel vertical is also known. But is it -- is there a kind of a paradigm shift in which more and more companies like our size are being called for large-cap companies in your pipeline, are there any more large deals that you are chasing? And are the customers now becoming more open towards, let's say, including more companies of our size into these large deals as compared to, let's say, 3 or 4 years ago?

Yes. Thank you for the question, Vibhor. With our size, we believe we are within touching distance. It's a question of which year we touch $2 billion. We're no longer a small firm as we see ourselves and as our clients see us with 33,000 engineers across the world, hopefully, likely to be 50,000 pretty soon. It's a fairly significant cohort of engineering talent that we have. The Sabre deal was won against 2 of the largest SIs in the world. When I look at the final shortlist of 4. 2 of the folks who were against us were 2 of the largest SIs that do play within our industry. We believe the Sabre deal was one, not just because of our industry expertise in travel, but also because of the iterative series of workshops around the engineering solution that we delivered for Sabre, which gave them comfort to choose us as their deep engineering partner for a 13-year period. So that's how we see this. When it comes to pipeline, there are a significant number of large deals in the pipeline, which are of a significant scale as well. John, do you want to add on that?

The one thing I would add is that what we're seeing certainly in Europe is that -- a number of the segment proactively bringing in and even defining frameworks, which are their barriers to entry to encourage engagements with [indiscernible] an organization of Coforge's size. And quite often, it is to break up those mega deals into smaller chunks and to derisk and also to ensure outcomes are delivered.

Got it. Got it. Just one last bookkeeping question from Saurabh. Saurabh, if you could provide some update on the Cigniti share swap proposal, what is the status, whereas the approval pending? And what is the time line that we are looking for the full integration of Cigniti into our business?

So Vibhor, right now, it is with SEBI. So exchanges have already cleared and it's sitting with SEBI and then there are -- it went to SEBI around end of March. And there are no, I would say, turnaround times that are there typically with the regulators, but one can expect anywhere between 2 to 3 months. And then NCLT, then shareholders' approval. We believe that somewhere towards December to January is a time frame when the model should get consummated. But having said that, as far as we are concerned from a business standpoint and from an operations standpoint, other than -- apart from the fact that there are 2 separate listed legal entities running, the business synergies, the operational synergies have started flowing in already. And that's why you see the margin expansion, 100 basis point margin expansion on a pro forma basis over last year to current year or a unit, which was -- an asset, which was $220 million in revenue, with 12% of EBITDA going up to exit of, say, 18-odd percent in the current quarter, I mean, is the result of synergies that have come in between both the businesses.

Our next question is from Abhishek Pathak of Motilal Oswal.

Sudhir just very quickly on the client complaint that we -- it's been an ongoing issue for the past, I guess, 18 months. But just a brief update on that and how do we expect to sort of close this?

Thank you for the question, Abhishek. The client complaint claims at a hacker trick service desk agents into resetting employee passwords, allowing access to the client's customer loyalty database, it misrepresents the company's engagement terms, role regarding the database and the service desk agent responsibilities. The company did not handle. And when I say the company, I mean Coforge, the company did not handle core cybersecurity services for the client. We had no access to or responsibility for the database and we were not involved in its management. We are consulting our insurance provider and consulting legal counsel regarding the complaint. The liability amount cannot be determined at this time. We do not want to comment on the name of the client, but the company continues to serve the client regularly since the last 18 months. The client is not a material client of the company and does not form part of even the top 50 clients of the company. So that's an overview in terms of the complaint.

We'll take a last question from Prateek Maheshwari from HSBC Securities.

Sorry, guys, I was on mute. Guys, I just wanted to ask on your net other income, it continues to be negative. And I just wanted to check if this could be a strong lever for PBT margin growth next year?

So a couple of things. If you look at our presentation, we have explained where the net other income is coming from. So there are 2 things there. Number one, there is interest on borrowings, which is there on the working capital. That's number one. And then there is lease discounting, which is a standard because of right of equal assets that's been created. But yes, over a period of time once the working capital utilization starts going down and with the improvement in the cash flows, the interest income will start going up and will become a lever for PBT expansion. But right now, with the growth that we are sitting at and with the working capital requirement that we have, and we continue to pay dividends. So we believe that at least it will continue for a year or 2 for now and then we'll kind of start thinking of PBT for interest, other income as a lever for margin expansion. But right now, we are first focused on improving EBIT of the organization and then we'll start focusing on this.

Ladies and gentlemen, that was the last question for today. I now hand over the floor to Mr. Sudhir Singh for closing comments.

Thank you, Imra. Ladies and gentlemen, thank you very much for your time, for your interest and for your support and mentoring and guidance over the years. We look forward to these conversations. We enjoy these conversations. We learn from these conversations, and we look forward to more of these conversations. Thank you very, very sincerely. We wish you a very good morning or a very good evening or a very good night. Thank you.

Thank you, members of the management. On behalf of Coforge Limited, that concludes today's conference. Thank you for joining us. You may now click on the Leave icon to exit the meeting. Thank you for your participation.