Coforge Limited (COFORGE) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to the Coforge Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. Joining us today from the Coforge leadership team are Mr. Sudhir Singh CEO; Mr. John Speight, President and Executive Director; Mr. Saurabh Goel, CFO; and Mr. Himanshu Sarda, AVP, Investor Relations. Before we begin, please note that some of the statements made in today's discussion relating to the future should be construed as forward-looking statements and may involve risks and uncertainties. Please refer to the disclaimer to this effect in the company's Q1 FY 2027 earnings press release. I now hand the call to Mr. Sudhir Singh. Over to you, sir.

Thank you, Inba, and a very good morning and evening, ladies and gentlemen. Thank you for joining us today. Please allow me to start today's call with a big reflection and a recap. This, ladies and gentlemen, is the 10th year that the current management team at Coforge has been at the head. Nine years back, what was a $400 million revenue organization when we took over is poised to close the current year having grown almost 7x in just 10 years. As you listen to our quarter 1 commentary, and the very robust growth and margin expansion we see ahead of us in this year, we hope you will recognize that the execution intensity and the commitment that has got us here over the last 9 years is not just undimmed, but it is actually getting stronger. Over the last 9 years, we have delivered a revenue CAGR of 21.9%. Over the same last 9 years, we have delivered an EBIT CAGR of 24.6%. And over the same last 9 years, we have delivered a PAT CAGR of 24.1%. That is an exceptional record of sustained profitable growth. And yet, that is the past. It is the future, which is far brighter. And it is the future, which in the short term, looks set to mark Coforge out as the firm which truly brought the promise of enterprise AI to life. Our pipeline of large deals in Q2 and beyond has never been stronger than it is today. In Q2 itself, the quarter we are in, 1 month has elapsed, we believe that we are likely to sign large deals in numbers that will be very close to what we signed in the full year just 3 years back. You will recall, in quarter 1, we had indicated that we were set for a flat quarter because we were culling elements of our India government and data center business to ensure that we deliver on our promise to expand reported FY '27 EBIT to 15.5% on a consolidated basis and reported FY '27 EBITDA to around 20.5% for the year. We are pleased to report that not only have we exceeded the full year EBIT margin guidance target in quarter 1 itself, but that we have also grown 1.1% CC sequentially. Excluding the impact of the businesses that we culled in quarter 1, we have grown almost 5.2% CC in sequential terms in quarter 1. Our growth in quarter 2 and beyond is likely to be very robust in our margins, having reached this threshold already, will sustain at a minimum and likely expand further. In quarter 1, 86% of our business came from AI-led engineering, data and cloud services. Equally importantly, in Q1, the Encora acquisition was consummated using the proven Coforge integration playbook, which is uniquely our own. We immediately and fully integrated both organizations on day 1 itself, on the 24th of April itself. As part of our playbook, we parted ways with leaders running the acquired firm again on day 1 itself, so we had immediate and complete effective control. Today, on the 28th of July in India, all aspects of Encora operations for the last 3 months are being overseen by Coforge leaders who led the Encora due diligence effort. We are ahead of the cost synergy plans we had shared as part of the acquisition case, and this is reflected in the fact that our consolidated reported EBIT margin in quarter 1 is already at 16%, while our consolidated EBIT plan for FY '27 that we had shared with you was 15.5%. At this time, we believe -- let me rephrase that to at this time, we know that Encora will create exceptional business value and synergy in line with what Cigniti, what SLK Global and what Incessant did. Excluding onetime exceptional costs, EPS for the quarter was INR 13.30 compared to INR 13.80 in the previous quarter. This performance is particularly noteworthy given the 25% increase in our equity base following the Encora acquisition and the incremental interest costs associated with the acquisition financing. As we guided earlier, we remain on track to be EPS accretive in FY '27 following this acquisition. So with that, ladies and gentlemen, and before I get into the detailed commentary, let me talk a little bit about how we are moving enterprises from AI adoption to what we call enterprise autonomy. Let me also reflect on the next wave of AI-driven opportunities for our industry. We believe that the AI-driven disruption will create select yet outsized winners. The new AI-driven world demands that our industry pivot itself from operating on a scale of people to a scale of intelligence. The AI conversation has changed. A year ago, enterprises were asking how do we deploy AI. Today, they are asking, how do we operationalize it? How do we govern it? How do we scale it? How do we turn it into measurable business outcomes? This shift, which is creating the next wave of opportunity for our industry, is what we at Coforge call the shift towards enterprise autonomy. We believe this next phase of AI will not be won through access to models. Every enterprise will have models. Every enterprise will have cloud or clouds, every enterprise will have agents. The differentiator will be applied AI, AI grounded in the business context. AI grounded in process, AI grounded in policy and risk. It will come from operationalizing intelligence across the enterprise. It will come in the form of AI that works inside real, complex enterprise environments. That is where value is moving, and that is where we are focused. This is why we built Coforge Nuuron. Nuuron is our AI operationalization platform. Its purpose is simple: to help enterprises move from AI pilots to AI operations. It brings together enterprise knowledge, decisions, workflows, governance, agents and execution, so AI can operate at enterprise scale. Nuuron, ladies and gentlemen, is not another model. It is not another Copilot. It is not another agent marketplace. It is the operating layer that helps enterprises move from experimentation to production. We are backing this vision with meaningful investment. Today, Coforge has more than 11,000 data and AI practitioners, 8 AI platforms, 22 AI assets and over 100 reusable AI agents and accelerators. During fiscal year '26, we invested approximately $58 million in AI innovation. Furthermore, approximately 30% of active agents -- engagements, I beg your pardon, already leverage AI within delivery workflows. These are not future ambitions. These are capabilities we are deploying today. Finally in terms of evolution of the delivery model, technology alone, we believe, is not enough. The delivery model must evolve as well. And that is why we have combined Neuron with forward-deployed engineers, with Mod Squads, which are hybrid agent human pods and with reusable AI assets. The traditional model was built around effort. The emerging model is built around outcomes. In this overall context, what makes Coforge different is straightforward. We are not competing on model ownership. We are not trying to be an AI infrastructure company. Our advantage is applying AI inside complex industries where domain knowledge execution discipline, governance and measurable outcomes matter most. We know the industries. We understand the workflows, and we understand what it takes to move AI from ambition to a word you hear me use often, execution. We believe the next wave of enterprise value creation will not come from deploying more AI tools. It will come from operationalizing intelligence across the enterprise, embedding AI into decisions, workflows and operating models and helping organizations move from AI adoption to the term I started off this conversation with, enterprise autonomy. That is a journey Coforge is enabling through Neuron. Let me move on now to revenue commentary. Consolidated revenue for the quarter stood at USD 592.2 million. In Indian rupee terms, revenue stood at INR 55,277 million. I want you to recognize that these figures include only 2 months of contribution from Encora, revenue starting the 1st of May and not the 24th of April. Revenue, excluding Encora, grew 1.2% sequentially in CC terms, and if, as I had noted earlier, if we take out the impact of the government and the data center businesses that we've culled in the quarter, the rest of our business grew 5.2% CC sequentially in quarter 1. Our consolidated revenue on a year-on-year basis in dollar terms has grown 33.3%. Our consolidated revenue, again, on a quarter-on-quarter basis in dollar terms has grown 21.1%. On an organic constant currency basis, Banking and Financial Services grew 2.9% sequentially and now contributes 24.7% of consolidated revenues. Insurance grew 4.6% sequentially and contributes 13.6%. Travel, Transportation and Hospitality grew 1.7% and contributes 21.3% overall. And health care and hi-tech grew a very rapid 11.6% sequentially and contributes 17.3% to our revenues. Government outside India contributes 6% and Others now at 17.1% of revenue, declined 8% following the planned portfolio exits that we had shared with you. From a geographic perspective, organic growth was led by Europe and the Americas, which grew 8.4% and 3.5% sequentially in CC terms. Rest of the World segment contracted 22%, reflecting the impact of the portfolio exits across India government and the data center business. AI-led engineering, data and cloud which is the strategic core of the combined organization together contributed 86% of consolidated revenue during the quarter, ahead of the 80% share that we had indicated when we announced the Encora transaction. AI-led engineering remained our largest revenue contributor at 50%, followed by data services at 21% and cloud at 15%. The addition of Encora has further broadened our client portfolio. In terms of client mix, Coforge now has one client with revenue greater than $100 million, 3 clients with revenue between $50 million to $100 million, 14 clients with revenue between $20 million and $50 million and 29 clients with revenues between $10 million and $20 million. Our top 5 clients contributed 18% of Q1 revenue and the contribution from our top 10 clients stood at 26.1%. Order intake, during the quarter, we signed 4 large deals. As I noted in my earlier commentary, in quarter 2, we expect to sign more deals than we possibly ever have in terms of numbers in our history. Total order intake during the quarter stood at USD 691 million. Our next 12-month executable order book expanded to an all-time high of USD 2.23 billion compared with USD 1.55 billion a year ago. That's an increase of 44.2% year-on-year. And that, in turn, provides strong visibility in line with my commentary for the year ahead. People. Move to our people metrics. Total headcount at the end of quarter 1 stood at 46,228, reflecting a net addition of 10,451 employees during the quarter. This includes 9,256 colleagues from Encora who became part of Coforge following the acquisition. On an organic basis, our workforce increased by a net 1,195 employees sequentially. Utilization remained healthy at 82.5%, and we are holding it there because we see significant growth ahead while the last 12 months, attrition declined further to 10.4% remaining amongst the lowest across the industry. With that, ladies and gentlemen, I now hand the call over to my colleague, Mr. John Speight.

Thank you, Sudhir. I will now highlight the quarter's delivery and capability milestones. Across our client base, AI-native operating models are moving from ambition to production with AI-led conversations converting into large multiyear engagements. For a leading global financial institution, we are building its AI platform and agent ecosystem across the SDLC landscape with the potential to deliver more than 50% productivity gains across their business units. For a leading Latin American bank, AI-enabled Mod Squads now span engineering, testing, modernization and business analysis, targeting a 30% to 50% increase in delivery throughput. For a leading fintech, we've modernized its AI vibe coding developer portal using reverse and forward engineering agents on GitHub Copilot and Claude Opus, contributing to a new modernization engagement. For a leading wealth management firm, an AI-led framework accelerated API transformation by over 3 months. For a leading wealth and asset management platform, our AI-native adviser experience desktop powered by over 20 specialized AI agents is delivering 30% plus adviser productivity gains. For a leading investment services institution, we are supporting an AI-led operating model transformation with 40% of portfolios transitioned in 1 year and delivery cycle times reduced by 80%. For a global travel technology leader, the Mod Squad model delivered 30% productivity gains and a 22% reduction in manual effort. Also, please note that our cargo platform, COSYS+, went live for 1 of India's largest aviation hubs, extending its footprint to 20 airports globally. For a leading Australian medical indemnity insurer, we progressed a large-scale core platform transformation serving approximately 40,000 health care professionals. For a large specialty insurance provider, CodeInsightAI was leveraged as part of the modernization program to migrate to Azure, reducing technical debt by 92%, delivering 99.93% field level accuracy and 65% productivity improvements. Meanwhile, in Life Sciences, for a leading biopharmaceutical company, an agentic audit platform identified $4 million in saving opportunities at 95% accuracy. In manufacturing, Coforge's CodeInsightAI platform modernized a global automotive manufacturer's legacy landscape, reducing documentation effort by 70%, modernization cycles by 50% and operating cost by 35%. For a leading European client, we secured a 5-year $230 million-plus AI-led transformation program using low-code and no-code platforms, AI-powered automation and AI-infused SDLC to reduce their manual effort and improve productivity at scale. These successes were complemented by recognition as both a leader and star performer in the Everest Group Duck Creek Services PEAK Matrix 2026 and a leader in the ISG Provider Lens Duck Creek Services Ecosystem assessment, reaffirming our position as a preferred transformation partner for insurers globally. With that, I will hand over to our CFO, Saurabh Goel.

Thank you, John. Q1 marks a strong start to FY '27 with the combined organization delivering results ahead of the operational and profitability objectives articulated in the beginning of the financial year. I will lead with key highlights of the quarter. Revenue Up 49% Y-o-Y, EBIT 101%, reflecting year-on-year margin expansion of 414 bps, PBT, profit before tax, up 92% Y-o-Y, and expansion of 284 bps year-on-year and PAT up 110% Y-o-Y, again, reflecting 271 bps improvement in the margin. Q1 FY '27 reported revenue stood at $592.2 million including $100.7 million that came from Encora for 2 months. Consolidated EBIT margin came in at 16%, organic EBIT margin was 16.7%. Within its first quarter as a part of Coforge, Encora delivered EBITDA margin of 20.3% and EBIT margin of 19.1%, reflecting a rapid expansion of the integration playbook and realization of SG&A and operational synergies. Coforge's reported G&A for Q4 was 6.7%, whereas Encora was at 10%, and we had mentioned that in our call in December when we announced the acquisition. The combined org is now at 6.6% for Q1 FY '27 from a G&A standpoint. This represents a reduction of 40% in Encora G&A. This is further going to improve in Q2 as a result of full quarter impact of actions taken in the current quarter. The hedge losses incurred during the current quarter amounted to $10 million. Additionally, we have an M-to-M loss of $14 million on account of outstanding hedges, which will be realized over next 2 quarters. From fourth quarter onwards, we anticipate a positive impact of $10 million in our earnings as the hedge losses will be eliminated because of no open book beyond Q3 from our perspective. Exceptional expenses and acquisition-related expenses were recognized to the extent of $6.5 million in the current quarter and $5.4 million were in Q4. We had guided for acquisition and integrated-related expenses of $15 million at the time of acquisition, and we're going to remain well within that budget. We expect marginal integration cost in Q2 and then nothing from Q3 onwards. From Encora integration standpoint, the integration of Encora has progressed significantly ahead of plan. All 45 legal entities were migrated on to S/4HANA effective May 1, creating a unified operating and reporting environment from day 1. Revenue recognition policies, planning systems and performance management processes have been aligned across the organization. Based on the progress achieved to date, we remain confident of not only delivering but surpassing the 15.5% consolidated EBIT margin guidance shared in last earnings call for FY '27. Moving to cash flows. The combined organization generated a free cash flow of $52.9 million in quarter 1, representing a FCF to PAT conversion of 95.3%, compared to negative 56.5% in Q1 same time last year. This significant year-on-year improvement reflects the strength of underlying operating model and disciplined working capital management. We remain confident of meeting the free cash flow to PAT guidance of 100% for FY '27. Moving on to balance sheet. As part of Encora transaction, the company recorded approximately $480 million of customer relationship intangibles, which will be amortized over 12 years, resulting in charge of $40 million per year within depreciation and amortization line. The accounting for acquisition has been done on fair value of shares on the date of closing, which was $12.20 per share as against $18.15 at the time of signing. This has resulted in lower goodwill in the balance sheet by $600 million. On term loan, you would all recall that for Encora acquisition, we had taken a term loan of $550 million. As of June 30, the term loan was fully drawn and it is reflected in the balance sheet. The loan has a 3-year tenure and carries post-tax interest cost of 2.99% per annum. The schedule of payments is including the principal and interest, we'll be paying almost $59 million in financial year '27, $209 million in financial year '28 and $258 million in FY '29 and finally, the last tranche of $75 million in Q1 of FY '30. With this, I will hand over the call back to Sudhir.

Thank you, Saurabh. And summing up and sharing outlooks -- sharing outlook for the rest of the year is what follows. Fiscal year '27 is shaping up to be an exceptional growth year for Coforge despite the significant AI-driven flux. Not only do we expect to set the benchmark on revenue growth but we also expect to emerge as one of the highest-margin mid-caps across our industry in this year itself. The exceptional AI-led engineering, data and cloud services capability core which contributes to 86% of revenues now is what is helping us realize simultaneous and exceptional growth across both the revenue and margin expansion access. All of this is driven by an execution intensity that is uniquely around. With 8 AI platforms, 22 AI assets, more than 100 reusable AI agents and accelerators, USD 58 million invested in AI innovation behind us, we shall continue to center ourself strongly on using AI to drive enterprise autonomy. As we had shared last time, for Coforge, the demand tailwind in the current environment is structural and pure. We recognize that AI generated code is cheap to build but we also realize that it is expensive to maintain, to secure and to govern. We realize that agentic AI will create a massive managed services layer, managing which will create recurring high-margin revenue streams, but only for firms that can seize them. Every AI advancement accelerates our growth. We are positioned for the near-term legacy modernization surge. We are positioned for the medium-term agentic deployment wave. And finally, we are positioned for the long-term expansion of the global technology market. The outlook for fiscal year '27 that we had shared last quarter remains unchanged. We are confident of achieving an EBITDA margin of 20.5% to 21% on a consolidated basis. EBIT margins are expected to be in the range of 16.5% to 17% on a standalone basis and 15.5% or maybe higher on a consolidated basis for the firm. Free cash flow to PAT for this year will be more than 100%. That, ladies and gentlemen, was the end of the prepared remarks. We look forward to your questions, to your comments and to addressing them. Thank you.

[Operator Instructions] We take the first question from Sulabh Govila of Morgan Stanley.

Yes. Am I audible?

Yes, sir.

Congrats on a good quarter. My first question is on the fresh order intake number. So I just wanted to better understand how much is the fresh order intake number driven by Encora and how much is the core business within that? Plus, last quarter, we spoke about the U.K. deal that we're into. So just wanted to understand whether that's now part of this fresh order intake or that still continues to be outside of that?

Sulabh, your second question was not clear. Can you repeat the second question? The first question was what's the mix between organic and Encora-led. What was the second question?

So last quarter, we had called out that we have certain framework agreements in U.K., which was not part of the deal inflow number in the last quarter. So I'm just trying to understand whether this quarter, those agreements are included or they still continue to be outside of the deals inflow.

So the $691 million, Sulabh, does not include the order intake from the Encora portfolio. That's only the organic piece that has come from what used to be stand-alone Coforge. That's answer one. As far as the framework agreement and the likely -- for the incremental work that we are likely to get, they are still not included in the order intake. That will continue to come and sit on top on the order intake that we've already announced.

That's great to hear. And just a second part of the question was, on the large deal with expectations that you have in 2Q, I just wanted to understand whether those will support growth rates in 2Q itself or it will be more of [indiscernible]

Sulabh, we think Q2 is going to be a robust growth quarter. And for everything that we needed for that quarter to come through is already in place. We've already closed some of these large deals in the first month of the quarter. It's almost the first month of the quarter, 4 weeks are in. But most of these will really start impacting quarter 3 onwards. Despite that, quarter 2 should be very robust. As I said, if you exclude even in Q1, the impact of the India government culling and the data center walk away that we've done, even in Q1, we grew 5.2% CC sequentially.

Understood. Understood. That is very clear. And then just 1 question for Saurabh. Saurabh, I just wanted to check on the net working capital on cash flow this time around. The absolute number as well as the number as a percentage of sales has shown some sort of an increase. So I just wanted to understand whether that's just because of consolidation of Encora or there's something more to that?

So the absolute increase is because of consolidation of Encora, but the number of days have actually come down.

We'll take our next question from Abhishek Pathak from Motilal Oswal.

Am I audible?

Yes.

Congrats on a good quarter. Sir, I had a couple of questions. Firstly, on the Coforge Nuuron network or kind of our FDE sort of Mod Squads, how are we monetizing this right now? Are they used as accelerators to kind of just win deals? Or as stand-alone offerings, they are already generating traction. And in the future, is there any way to quantify the revenues that are coming from, let's say, platforms versus -- not legacy per se, but versus managed services operations that we may have earlier. That's the first question. The second question was on our T&M versus fixed price sort of revenue mix. The T&M piece seems to have kind of inched up a little bit over the past few quarters. So how should we kind of reconcile this with the outcome-based contracts that seem to be now the flavor and they will continue to kind of -- I'm assuming dominate the deal conversations ahead. And lastly, kind of a hypothetical question around EBITDA, Sudhir and Saurabh, right? I mean we are already at 16% EBIT. What happens if we sacrifice, let's say, 100 bps of margins from here, how much growth does it kind of buy us? Or just trying to understand at such a robust sort of margin sort of level, is it possible to sacrifice a bit of that to kind of chase even more growth? Or are we -- or is the expansion in margins more organic and we should continue to expect that going forward as well?

We'll take those questions in order, Abhishek. As far as Nuuron is concerned and Nuuron in some ways is the operating system. It's not a platform. Nuuron is further layered by the 8 AI platforms that we have and the 22 AI assets that we talked about, as I had referenced. 30% of the active projects -- delivery projects, real projects are being driven through our AI assets or are infused with the AI assets. We can't call out a number, which is AI only or AI stand-alone. The number that we have shared is that 86% of the revenue of the firm in quarter has come from AI-led engineering, cloud or data services. And for us, that in some shape or form is an umbrella surrogate for AI-led revenues. As far as T&M versus fixed price and outcome-based contracts are concerned, 6% to 7% of our global revenues on a run rate basis today are coming from outcome-based contracts. And that's how I would put it. And as far as the trade-off between EBIT at 16% and growth is concerned, we believe very strongly that solution-led selling does not warrant price discounting to accelerate growth. As I suspect you've heard us say over 3x during our collective commentary across the 3 of us, we feel very assured that we will set the benchmark for revenue growth for the industry for the third year running. And at the same time, we are equally keen to be the highest, if not one of the highest, the aspiration will be to be the highest margin mid-cap as well. We think both of those are possible. We think exceptional growth will still come despite staying at a 16% odd EBIT level that we've already achieved. Incidentally, I just want you to know that at 16% EBIT is a consol EBIT number. Stand-alone Coforge for the quarter came in at 16.7% EBIT.

Our next question is from Vibhor Singhal of Nuvama Equities.

Congrats, Coforge team, on a very solid performance yet again. Sudhir, a couple of questions from my side. You mentioned about how enterprises today are, everybody has multiple basically agents, multiple LLMs. But what we basically are building them for is the application layer, where you can. So there are a lot of basically information that is kind of flowing at a very rapid pace these days. Enterprises are also talking about building SLMs rather than SLM -- rather than large language models. There are also -- I think there's an angle of token cost optimization, which is also coming in. So keeping that all together in one bucket, how do you see the overall this enterprise application adoption in the AI space leading for us? Is it very similar to, let's say, the 2018 scenario when we basically kind of hit that path in which we started moving enterprises onto the cloud platforms and digital adoption. And if that is the case, how do you basically differentiate at this point of time? How does that enterprise differentiate a client, differentiate at this point of time? Between which companies to choose and what are the kind of offerings that they're looking at? I know it's kind of a subjective question, but if you could just help us understand clear the noise from the information that we need to at this point of time.

Vibhor, I think it's -- you're right, it's subjective, but I think a very relevant question. Given the rate of change and the speed of change that's going on, I think -- and most enterprises are not tying themselves to a specific model they are not tying themselves to, let's say, a hyperscaler or a set of clouds because access to models through clouds that are out there can change and model providers themselves are now in the field as we know, and offering their services on their own proprietary cloud. So we're at a stage right now where from a Coforge perspective, we have come up with service offerings on a very quick basis when it comes to Token Ops to manage token economics, again, a field that seems to see change almost every week. We are at a stage where, as Coforge, we have been working with our partners like Zscaler to come up with service offerings that have already got monetized around partnering on the Guardian AI platform and come up with managed services-based constructs around Mythos related security vulnerability assessment. So the smart enterprises at this point in time, the one key learning that we see all of them having taken is that they're not tying their wagon to any particular star, to any particular LLM model provider or to just 1 or 2 cloud providers. We are seeing enterprises increasingly focused on what they're calling enterprise sovereign AI or enterprise open intelligence and increasingly trying to diverge that data processing and moving it in-house with the associated security and governance issues that are going on.

Got it. Got it. Okay. Just one quick follow-up and then I have just a couple of questions for Saurabh. Is the aversion to Chinese LLM models still there in the markets, especially in the Western markets? Or do you see them opening up to those models also at this point of time, even if at a preliminary stage?

Saurabh, the question was for you?

No, Sudhir, this was for you.

So this question was to you, Sudhir. I mean...

Would you mind repeating it, Vibhor?

Yes, sure. Sorry, yes. So the question was that, I mean, just again, a very bird's eye view if I can get. Is there still an aversion to the Chinese LLM models in the Western enterprises? Or do you see that picking up gradually over the past some time?

We're not working -- as Coforge, at this point in time, we are not working with enterprise clients in North America who are leveraging China-based models actively within their realms, and that's just as us, Vibhor.

Sudhir, I'll add to that as well. Just very quickly, I concur the same comment across U.K. and Europe. I've yet to have a client that's engaged us on using these Chinese models. That obviously may change with the introduction of the latest LLMs and the issues over tokens, but we've yet to see it.

That's really helpful. Just a couple of quick questions for Saurabh. Saurabh, the $230 million deal that we announced last week, is that the part of the deal win in this quarter? Or will that come in Q2?

No. It was a Q2 deal, so it's not included.

Perfect. That's really great to hear. So that means our Q2 deal, as Sudhir also mentioned in the opening remarks, should also be quite strong. Secondly, if I see the presentation, as you also mentioned in your basically opening remarks, that because we closed the transaction in April and the book value of the Encora acquisition comes at around $1.2 billion, so that has led to a lower goodwill. Has that also led to a slightly lower intangibles and slightly lower amortization? Or we kind of kept the amortization same as we were looking at before? And it's only the goodwill that has probably come down?

It is only the goodwill that has reduced by $600 million. The intangibles, the amortization impact was roughly $4 million per annum and we have kept it at the same level. So -- yes. So the intangible on account of customer relationship is close to 30% of the valuation.

Sure. And just a last quick from my side. Typically, we have seen Q1 had always been a seasonally weak quarter for us in terms of cash flows. Our free cash flow used to be negative in that. But this quarter is a very strong cash flow. So can we expect this trend to continue and the weaker seasonality of Q1 to go away now and probably have a stronger Q1 every time?

Vibhor, we had taken this feedback from all the investors and had structurally made that change of improving the free cash flow quarter-on-quarter. It was not just quarter 1, it was H1, which used to be almost near 0 for us for many, many years. It has taken us 2 to 3 years to come to a point where we stand today, and we feel very confident that we'll only build on to this in years to come.

Our next question is from Ravi Menon of Axis Capital.

Congrats on a good quarter. So G&A people costs have increased a bit faster than revenue. That's surprising, especially given how focused you were on taking out combined G&A costs. Are there any onetime costs here?

The G&A has actually come down as a percentage of revenue. It's just the 2 companies coming together. The absolute number has gone up. If you look at Coforge stand-alone G&A last quarter was 6.7%. And I had mentioned in my December call when we announced the acquisition that Encora G&A was at 10%. The combined G&A in the current quarter stands at 6.6%. So which means that there is a 40% cost out that has already been done on the Encora G&A, and this will further come down as a percentage of revenue. So the increase is because Encora company got consolidated in the current quarter.

I was just looking at the overall G&A people count that seemed to have gone up slightly and overall G&A people cost as well, that's all. And the interest rate on this 3-year loan at 4.6%, this is just 30 bps higher than the 3-year U.S. treasury yield, right? Is this better than you expected? And are there any specific loan terms here, such as you have to keep a certain amount of cash in escrow or anything like that, that restricts -- do we have some cash that's restricted as part of this?

There is no cash that is restricted. The reason why it is only 30 bps higher from the SOFR, which is a 3-year SOFR standing today. We signed this deal at a fixed rate of next 3 years. With the price that the interest rates were expected to move in all directions, we didn't want to bet on that. And that's why we signed a 3-year fixed-term loan and that's why it stands at 4.6%. The post-tax impact is -- actually, cost in the P&L is 2.99% because this loan is sitting in India, we get 35% tax benefit on that. So the P&L will see an impact of only 2.99% But you're right, there are no such fancy terms, which will restrict any actions that company might have to take in the future.

And one last thing. You said that this loan is in India. So does this mean that since you have a natural hedge, you will reduce your ForEx hedges now?

I've already said that we are not hedging more. We have a natural hedge and we'll fund it through that.

Our next question is from Jyoti Singh from Haitong Securities. There seems to be no response from this connection. We will move to our next question, that's from Dipesh Mehta of Emkay Global.