Expleo Solutions Limited (EXPLEOSOL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Expleo Solutions Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from Christensen IR. Thank you, and over to you, Ms. Gupta.

Thanks, Steve. Good morning to all participants in the call. Welcome to the Q4 and Full Year FY '21 Earnings Call of Expleo Solutions Limited. The results and investor presentation have been already mailed to you, and they are also available on company's website. In case anyone does not have a copy of press release or presentation, please do write to us, and we will be happy to send you the same. Representing the management today, we have Mr. Balaji Viswanathan, Managing Director and CEO; Mr. Desikan Narayanan, CFO. Mr. Balaji will start the call with brief overview of the quarter and year gone by, which will be followed by Mr. Desikan who will be getting into the detailed financials. After that, we'll open the floor for Q&A session. As usual, I would like to remind you that anything that is mentioned in this call, which gives any outlook for the future or which can be construed as forward-looking statements must be viewed in conjunction with risks and uncertainties that we see. This risk and uncertainties are included but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual reports, which you can find it on our website. Having said that, I now hand over the floor to Mr. Balaji. Over to you, sir.

Yes. Thanks, Asha. Thanks, Steve. Good morning, everybody. Thank you for joining the call. It's a pleasure to once again talk to you all after our Q4 and full financial year result declaration. The past quarter and overall, the last financial year have seen quite a few ups and downs with the beginning of the year seeing the outbreak of the pandemic and a little bit of a slowdown. And the last 2 quarters being almost close to back to normalcy or even better than the normal growth trajectory for the ITeS industry, and that's been probably the trend across the entire ITeS industry as well. The last quarter has been reasonably good. I wouldn't say blockbuster but slightly better than what our previous quarters have been. And we see a lot -- quite a bit of business traction, particularly in the Asia market, U.S. market, where we have recently started showing a lot of traction as well. The European market is coming back to close to normalcy, and we expect that this trend will continue going forward. However, with the second wave in India and in some of the neighboring markets, we will see some minor impact in the next quarter. But hopefully, it should not be -- it should be only a minor blip rather than an ongoing phenomenon. We believe we have had some instances of COVID infections within the teams as well, considering that we have close to around 1,400 people now, including our contract employees employed with us now. And we have had our own share of challenges with the pandemic between the team. But most of it has been, I would say, recovered or recovering at this particular point of time. We have also had 1 or 2 unfortunate losses of life within the organization as well. And we are keeping a close track of this, making sure that we are keeping our teams safe, which is very critical for us to make sure that we as an organization stay strong together. The business results have been showing continuous growth over the last couple of quarters, and we think that it will continue to grow in the coming quarters as well. Main shift in the business has been primarily the increase in the offshore business. For people who have been tracking us for the last couple of years, we have had the on-site revenue or the revenue that is coming from our resources deployed outside of India contributing to almost 58%, 59% of the revenue the 4, 5 quarters back. And in this quarter, it has actually come down to 42%. And for the overall year also, it's actually ranging at around 45-odd percent. So as we all know, reduction of the on-site revenue basically would mean -- reduction of resources on-site basically would mean a shrinking top line but better bottom line because the margins of offshore business is much better than what we get on-site. But we have been able to balance both these together without showing much drop in our top line. We have been hiring. The market is seeing a significant hunt for talent, and every other IT company is going through same phase. And we are also going through a similar phase of hunting for talent to meet our customer demands. And from the last year, during the period of COVID where the attrition levels are much lower with the increased demand in the market, we are also seeing a slight increase in our attrition as well. But we have the plans in place. We have a hire, train, deploy model, which we started off in late 2019, helping us in making sure that we are able to fulfill most of the demand. However, the increased demand is certainly something, which is a top focus for us for this quarter and next quarter as well. It has been a great learning for us through the pandemic, particularly on how do we manage the remote working, how do we manage our security and data integrity, and also how do we manage our teams and how do we engage with our teams and their families as well. So we had an excellent employee satisfaction survey results for last year, which we did around December of 2020, for which the results came out in February -- end February, early March. And we've moved from around 62% to 72% in employee satisfaction. And we have a very good CSAT rating as well, which was done between December and January of 2020 -- and Jan of 2021, where the satisfaction rating is -- customer satisfaction rating is close to around 86% to 90%. And with almost all of our customers saying that they have really not seen any decline or any challenges during the COVID times, which has been good hallmark for us. We've also increased digital presence, and we have also been participating in webinars. We have been conducting webinars and industry events given the course of these last 3, 4 quarters. There has been a significant amount of white papers and the point of views that we have published as well in the social media, which is actually getting us reasonably good traction and visibility as well. We have been receiving awards for the last couple of quarters. Last quarter, we received an award from FICCI for HR policies and HR leadership. And we will continue to try and create our visibility better than this market as well. Our cost management, as usual, has been reasonably good. We are keeping a close watch on where we are investing and how we are investing and where we are spending the money. And we did our salary increases after a 6-month delay in Jan 2021. And we are also making sure that we have a good pay-for-performance culture, which basically has a reasonably good bonus and variable pay upside for the leadership team. We have been continuing our investment and learning and upskilling programs. The hire, train, deploy model, now we have 2 partners across 2 different locations where we are hiring and training anywhere between 50 to 100 people every quarter. And this should actually help us in addressing some of the future demand that is likely to come in Q3 and Q4 of this year. Overall has been a reasonably good quarter and a reasonably good year. And we hope that we will continue to sustain this and probably grow faster than what we have done so far. Thank you so much once again for your interest. And I'll pass it on to Desikan for covering the specifics on financials.

Thanks, Balaji. Good morning to all. Since this is the end of the financial year, I will touch upon quarter-on-quarter and full year-on-year changes. Starting with the quarter-on-quarter, current quarter, the revenue grew by 10% compared to last quarter. We ended up with a revenue of around INR 79 crores against INR 72 crores in the previous quarter. The growth in constant currency was also at 10%. On the EBITDA performance, we ended at 24% EBITDA as compared to 19% last year. Previous quarter, we had lower revenue due to reduced working/billing days and with some onetime discount due to COVID. During the month, the increase in revenue and the cost -- close focus on cost has contributed to a higher margin. Coming on the year-on-year FY '21, the good news is that we reached INR 300 crores revenue during the year. The revenue saw a growth of around 11.4% compared to previous year. Our EBITDA improved by around 352 basis points ending at INR 49 crores. The better margin contributed by the change in the offshore and on-site mix referred by Balaji, also some cost benefit -- savings benefit coming in travel and facility-related expenses. Our earnings per share for the year was at INR 49.2 compared to INR 38.51, up by 28%. Our cash balance was at INR 131 crores compared to INR 87 crores in the previous year. On the usage of cash, we look at various options to utilize it. But if finalized on this -- we are yet to get to finalize on that. Considering the current COVID wave 2 situation, we wanted to move little cautiously. So that's a brief about the performance -- financial performance. Now I'm opening it up for Q&A.

[Operator Instructions] The first question is from the line of Ravi Naredi from Naredi Investments.

Balaji, congratulation to extend your Managing Director post for 3 months -- 3 years, sorry, and we wish all the best to the company and you. First, I would like to know, you are telling the 250 employees you have hired now and 250 you are going to hire. So how many employees at present you are having?

So including contractors, we have close to around 1,300 employees at this particular point of time. Our employees on...

[ Absentee and regular ].

Yes. Our employees on role is approximately 1,100.

And sir, in IT industry, every company has no attrition this year. Why we are having more attrition?

No, that's not true. Because if you look at until December 2020, our attrition rates have been in single digits. But if you look at all the IT companies are going through a similar kind of a challenge right now, starting from last November, December onwards, when we -- when the market opened up and there was a huge demand on experienced resources, particularly the mid-level resources who are in the 3 years to 10 years experience range, there has been a significant demand in the market. So our attrition is not way off the industry. But last year, we had a very good performance. That is the calendar year of 2020 was very good compared to what even the industry has been. We were in single digits. But this year are -- it is increasing, and moreover, the demand also is increasing as well, because we see a lot of demand coming in from the market as well. So the point on other companies don't have attrition is surprising to me because all the other analyst reports and industry reports, if you are to look at it, everybody is going through a similar challenge.

And we are hiring 250 more. So do we have some new projects or more projects? Can you highlight something about that?

We are having reasonably good demand. And most of these hiring is actually done at the entry level. So most of the hiring is in the 0- to 3-year experience category. And our model of hiring this particular level of employees have been in this hire, train and deploy model that I talked about, where we hire these resources, train them for a period of 90 days to 120 days and then deploy -- start deploying them in our projects. And that's the model that we have been adopting since the last quarter of 2019 onwards. Earlier, we had the only 1 partner doing it. Now we have 2 partners doing it. So there are more. Earlier, we were doing around 100 resources hiring just to make sure that we are able to backfill the attrition and also manage the new demand. But now the demand has increased, and that's the reason why I was talking about 250. And typically, during this first phase, they are considered as contract employees, and then over a 6-month period, they become employees.

So my second question, other income is down drastically in this quarter to INR 6.9 million versus INR 46 million in quarter 3 and INR 33 million in quarter 4. Any specific reason?

Desikan, do you want to answer that?

Actually, with respect to other income -- yes, I'm taking it. With respect to other income, last quarter, we had a foreign exchange gain, which get grouped into other income. The gain was around INR 3.7 crores. This time, it's a loss -- foreign exchange loss of around INR 2.6 crores, which gets grouped under other expenses. So that's the reason you see the change in the -- between the last quarter and the current quarter other income.

Okay, okay, okay. And you said this -- as you are hiring 250 more employees, we can presume, Balaji, we have more order in current year and more performance, better performance in current year?

Yes, sir. Yes. We do have a reasonably good pipeline. And we are also, like what I said, see the attrition rates are slightly increasing. We are also making sure that we don't face that challenge as well. We will -- from the current scenario, we are quite positive about more growth coming during the course of the year.

Nice. Nice. And sir, last question, INR 130 crore cash, what is in your mind or in Board of Directors' mind to deploy this amount?

To be very honest, we haven't really discussed much about that in the Board meeting so far, because all our focus is to make sure that we are able to sustain the growth and we are able to take care of both our clients and our teams at this particular point of time. Cash deployment is something which we'll probably cover in the next quarter, once -- now that things seem to have got stabilized.

[Operator Instructions] The next question is from the line of Deepan Sankara Narayanan from Trustline PMS.

Congratulations for a good set of numbers. So firstly, how has been the order book pipeline looking like? Are we seeing better traction from European market?

Yes, Deepan. Thanks for compliments. We are seeing better traction across all geographies, particularly in Asia Pac and Europe. Some of the older projects, which slowed down or getting on hold, are looking to revive. And the investment or the focus that we were trying to go back to U.S. is also showing some results with 1 or 2 opportunities in pipeline from that geography as well. The pipeline looks reasonably good at this particular point of time.

Okay. Okay. And also, can you give more details on this one new customer addition in terms of deal size, contract type and which region kind of?

Yes. So in this quarter, we had 3 customers whom we added, out of which, 1 of them is in India and 2 of them, 1 from APAC and 1 from Europe. And the APAC customer is the one which has actually signed with an average revenue -- annual revenue of approximately $2.5 million to $3 million. And the other 2 are, at this particular point of time, reasonably smaller.

Okay. So when all these deals will be implemented?

We have already started that with all these 3 customers. The engagements have already started.

Okay. Okay. And lastly, we have seen a very strong gross margin expansion. So during the call, you also said that increase in offshoring is contributing majorly to this. So are we seeing this 50% kind of gross margin is sustainable in coming quarters as well?

Like what I said, our biggest shift in the model has been the reduced on-site presence to increase offshore presence. So we are not sure as to whether there's going to be -- particularly the Middle East market and the Asia market, where traditionally, we have found customers being more comfortable with on-site presence. This is the current situation because of the pandemic. But given the cost advantage, we think that it may probably continue, but that's something that we are not 100% sure of. But our target has been always to have a gross margin in the range of anywhere between 38% to 40%.

The next question is from the line of V.P. Rajesh from Banyan Capital.

Congratulations, Balaji and Desikan. That's a very good quarter. My first question is this $2.5 million deal that you mentioned, what business segment is it coming from? Is it an insurance or cards and payment? And is it...

This is in cards and payments, Rajesh. This is in cards and payments and more on the digital services space. We are working on legacy modernization platform. And that's the engagement that we have -- that's actually about both security and legacy modernization.

Yes. That's great. So I see a [indiscernible]...

Mr. Rajesh, sorry to interrupt, sir, your voice is breaking up. May we request you to move to a better reception area, please?

Is it better now?

Yes, sir.

Yes, much better.

Okay. Sorry about that. What I was asking is that it looks like you're getting traction in this particular segment. So maybe, Balaji, if you can just comment on what you guys are doing differently to win against the competition and get such large kind of deals.

Rajesh, the focus has always been at least building the right team in place. So that's the investment that we have been talking about for the last couple of years to get the right kind of leadership and the right kind of team members and the thought process around investing in those technologies, so that we can build the experience. And the other advantage that we have is that we are far more nimble compared to many of the larger players. And that's something which is helping us both in terms of engagement and also be flexible on how do we deploy, how do we deliver and what we sign up for as well, so the contracting model and the earnings. So the customers also see value and the commitment that we have been able to show. Of course, not that -- not every other opportunity has been successful. So from the earlier days where we used to deal with probably 20, 30 opportunities in a year, nowadays, we are actually dealing with almost 60, 70 opportunities in a year, because we are trying to go behind every other customer opportunity, which we see is in our own specific focus areas. So the bid percentage has -- is what is actually -- that we are focusing on to make sure. And we have our specific target customers and much wins, and the focus on making sure that we do that is also helping.

Got it. Got it. And my second question is if you can just comment on the group's thinking. Because on last call, you had said that you are planning to double your headcount in India. So what has been the progress on that particular initiative?

Yes. So from -- like what I mentioned, the initial focus for the group in India has been on the engineering business where the offshoring headcount has been very, very low. That particular business has seen a significant amount of traction, particularly in the automotive space. They have been signed a couple of large engagements in India in the automotive space and also considering our aerospace presence and the Indian defense investment in the French defense manufacturers has been helping the group as well. So there has been a reasonably good number of additions in the engineering side over the last 2 quarters. And we also have now a specific focus on entering into France for the banking and financial services and the fintech and others that we are focusing on, which is under these spaces as well, which we hope that we should see -- start seeing some progress in Q3 and Q4 of this year.

So any plans of the group to merge those entities into this listed entity, the engineering part that you are talking about?

Still early days, Rajesh. But I don't -- we haven't really given a full thought on that as yet.

The next question is from the line of Anuj Sharma from M3 Investments.

Congratulations, Balaji, for the results, and my condolences for the loss of lives. My first question is, going forward in the next 2, 3 years, what contribution do you expect from existing clients and new clients? And I'm just trying to read into what does this active clients mean because we are not able to go out of this 65 to 75 range. So what's your thought on and what's the annual target you're taking for the sales guys for the clients?

Okay. So the active clients basically means that if we have billed the client doing -- how many clients we have billed in a particular quarter. I wouldn't -- probably next time onwards, we will probably try and cut that out because I don't think that adds any significant value or indication. Because our focus is while -- to make sure that we sign new clients, we also want to make sure that we sign with reasonably good deal size as well. So the number of clients alone is not the indicator of the revenue. So our focus is to try and look at profitable customers where we can add value, where we'll be able to add more capabilities for ourselves and also some reasonable size as well. So I would actually look at what is the average ticket size per customer and what's the average revenue per employee and average profit per employee. That's a better indication than just the number of customers per se. So if you look at it, then that's what we are looking to grow, and that's what our focus has been as well.

Sure. So in the same line, could you also tell us as to what is the opportunity set in the existing clients? And how much do we want the new for our growth to materialize? What is the wallet share in the existing set of clients do we service?

So wallet share will vary by client, Anuj. But what we are looking at is -- so the best way to measure your new, new customers and what are the kind of pipeline or business that you get from existing customers. Normally, the best practices are the KPIs, which are considered good, are in the range of around 85% to 90% coming from existing customers and new customers delivering anywhere between 10% to 15% of your revenue for that particular year. We have been -- if you look at our last 4 to 5 years, we have been in the range of around 4% to 5%, which we increased around 7% in 2019 and last year to around -- a little lower -- close to around 9% through new customers. And this year, with some of these new customers we have signed up with, we should cross the 10%, 12% range. I would say that I'd be happy if we were to be in that range of 85% to 90% from the existing customers and 10% to 15% with our new customers.

Sure. That's helpful. My second question is, you spoke about non-BFSI and non-testing segments also. When could we expect some new client additions into these 2 spaces, which we are actively working upon?

So we are -- we have signed -- we signed a customer last year in the APAC or the digital APAC space. So that's actually -- they've already broken into our top 10 customers list. That account has been growing reasonably well. And we have been working on other opportunities primarily on the digital space and some of the technology service providers as well as clients. And we are not really going into the -- we are not getting into the areas where the group has already present -- our group entities are already present because, otherwise, we'll end up competing with each other. But the other industries, like what I mentioned, logistics, e-commerce, is something which we have been focusing on, and we have been seeing some traction in that space.

The next question is from the line of [ Zaki Nasar ], an individual investor.

Hello?

Yes, sir. Good morning.

Hello. Can you hear me there?

Yes. Good morning.

Yes. So first of all, condolences to the families of the employees who had the unfortunate [indiscernible]. And my 2 questions are, since you have added 250 -- since you are planning to add 250 more employees to your 1,300 employees, do you think that during the current year, sometimes we could touch that INR 100 crores per quarter? I mean would the capacity be to accommodate INR 100 crores turnover per quarter, sir? And my next question is that since nothing has changed in the hands of the parent company, has there been some kind of a change in dividend distribution policy? Because last year also, there was no distribution. This year also, there has not been any dividend payment, sir.

On the first question -- so thanks for your condolences. We'll certainly pass it on to the teams as well. The 250 headcount addition will cover both the employees who we lose and for the new opportunities as well. And that will not get us to move from the current INR 75-odd crores that we do to INR 100 crores, for sure. What we are looking at is to make sure that we are able to meet all the demand that is coming in from our customers at this particular point of time. And I don't want to guess a number, but the 250 will basically cover anywhere between the current -- what we are talking about the 10% that we have been growing quarter-on-quarter at this particular point of time. So that's what...

So there should be some growth from that 79, 80 kind of stuff?

That's right. We should see -- yes, we should see some modest growth, for sure. And on the second question on dividend distribution to be -- I'll have my colleague Desikan cover more on that, but that's not been a topic of discussion so far because right since the new management took over during the COVID times, all the thought has been around conserving capital rather than trying and spending...

Yes, sir. But you have INR 133 crores on your books now. Sir, you have INR 133 crores. There has been cash generation. And previous year, there has been a definitive dividend distribution policy, I mean, broadly. But since the new group has taken over, I mean, the company has not passed on anything. So is there some kind of a change in mindset the new group gets in? And if it is there, what is it, sir?

Desikan, do you want to cover?

See, with respect to the dividend distribution policy, generally, top 1,000 company is only expected to do that. And now this year, in the latest of everything, we will also be coming out -- really coming out with the dividend distribution policy this year -- starting this year. On the dividend, declaration is something which has been looked at. There are better distribution of cash and also utilization of cash as such. All the avenues have been looked at. And finally, there aren't -- in the current situation, we are thinking that it is conservation of cash is something very important for us to look at in the COVID wave 2, which is happening. So maybe in the next quarter Board meeting, this may be taken up for a discussion, and we may have something coming out in that discussion is the current state of things I can tell.

The next question is from the line of Sachin Kasera from Svan Investment.

Congrats, Balaji, for a good set of numbers. Finally, we're starting to see some traction in the top line. I have 2, 3 queries and 1 comment. The first off, regarding is offshoring. You mentioned that offshoring has been one of the key drivers for the margin improvement. So are we now at the optimum mix? Or how do we see this mix going ahead? Will it remain the same? Will it again improve further in favor of offshoring? How should we look at that?

So if you recollect from 3, 4 quarters back, we were actually talking about something very similar. And I said that at that particular point of time, 45-55 or 50-50 would ideally be what our target may be. So considering that, I think we are in the right mix of on-site versus offshore. However, the current mix has driven not by anything else apart from the COVID situation and remote working across the group. So I feel that this is sustainable, and we have probably reached the right kind of a mix between on-site and offshore that we have approximately 10% to 15% of our workforce deployed outside of India and generating close to around 40% of our revenue. I think that's -- I think we have reached a point where it is optimum, but whether it will stay there or not is something which we will get to know in the next couple of quarters once things start easing out and the customers start demanding people to go back to on-site. But I'm also confident that with the kind of traction that we are seeing right now, our offshore numbers will increase significantly to compensate even if we were to add another 20, 25 more on-site.

Sure. And just one clarification around the previous callers, you mentioned that this current 250 people that you reported will be sufficient for 8% to 10% year-on-year growth that you mentioned? Or was it quarter-on-quarter that you mentioned? I got a little confused.

Year-on-year.

Yes. Got it. Second question is on the America part of the business. We have been talking that either you will keep investing, at some point of time, we'll take a different call. I think it's been a while. Any progress, any thoughts on that, what is happening?

Yes. We have actually taken the call in the last quarter of 2020. So we had decided that we will invest -- because of the pandemic and the situation that the group was going through, they had deferred any acquisition that they wanted to do in the U.S. or in any other geography for that matter. So because of which, we took a decision in December 2020 that we will invest in our own sales team and in the pipeline generation in the U.S. So we have hired 1 new salesperson, and we are also piggybacking on some of the group entities there with some of our presales and -- presales team sitting out of the U.S. now to generate more demand. So we signed 2 customers in the U.S. between December and April. And 1 was a reentry, and the other 1 was a fresh new customer as well. And with the new sales guy who we have hired who has been with us for the last 4, 5 weeks, we think that we should be able to get more traction in the U.S. market as well. But our objective is to now try and get to at least an optimal size or a minimum size in the U.S. during the course of this year or during the course of this fiscal. So that whenever the group is ready for the larger acquisition, we also have a reasonable amount of business and sales being in the market to capitalize on that.

[Operator Instructions] The next question is from the line from [ Ashish Das ] from Sharekhan.

So my first question is on revenue. So you mentioned that also that revenue growth would be around 15% to 20% in FY 2022. As you are hiring new -- hiring 250 people in the next 2 quarters, also you are winning deal -- added clients, so just wanted to know the revenue growth would be on the higher side of the range in FY '22? And what is your expectation the momentum would continue in FY '23?

So I'm not sure and I don't recollect talking about the 15% to 20% in 2022. But yes, we are -- the current traction shows that we will be able to get to that more than the double digit -- the current double-digit number or slightly more than the 10% mark for FY '22, for sure. But of course, the -- we all know the situation is quite unprecedented, and we don't know which way the tide will turn, depending upon who is going to hit the third wave first or who is going to hit the second wave, who's going to come out in the second wave then. So I would say, yes, we are quite positive based on our current traction and our current pipeline that we have in hand. And '23, we are reasonably even more confident with the kind of investments that we have made in the digital space. We should be able to see the continuing momentum in '23 as well.

Okay. Great. On margin front, on our last call -- con call, you highlighted that the margin would be impacted, and it would be in the range of 17% to 18% due to your investments on people, technology and also expansion to U.S.A. So when do you see the margins would start recovering from that level, if it impacts in next few quarters? And what level of margin -- at what level the margin can be stabilized once the investments are done?

So if you look at it, even though we have been projecting that with our investments, the margin will decline, we haven't really seen that margin decline at this particular point of time as of now because our realization rates have been reasonably good. And most of our investments, we have actually tried to make it as a revenue investment or as a capital investment, so that it actually gets exhausted over a period of time rather than spending everything upfront. So it's more on a pay-per-use model. So we haven't seen any significant investment so far. But given where we are and the kind of talent requirement that we have and the investments that we need to make, we expect that we will be in that 18% to 20% range. But we have always been lucky in the last 3 quarters, thanks to the reduced operating expenses due to COVID, lesser travel and lesser office expenses and other stuff, we have a better margin profile at this particular point of time. But even if it were to change, we'll still be in that 18% to 20% range. I don't see that going below that. Desikan, do you want to add anything more?

No, I think you covered it well. In the last year, as I mentioned at the beginning of the call is that there were some kind of upside happening on the margin side due to the offshore-heavy business where we have lesser of travel that has contributed to it and also some facility-related cost is not hitting us. So that way, we could -- it has actually contributed to the incremental EBITDA, what -- the current period. For the period, we need to really look at how things will be, investing a little bit on the operating expenses for -- instead of marketing or anything, we can just do that. So in the current set of things, if we are expecting to invest [indiscernible] but we don't see any guidance for that considering the current fact of how things are going in the direction...

Mr. Narayanan, sorry to interrupt but your voice is breaking up a bit.

Sorry, sorry. [indiscernible] Yes. Hello?

Yes. So yes.

Okay. Sorry.

The next question is from the line of [ Somil Shah ] from Paras Investments.

In a previous con call, you did mention that we are in talks with 1 more large customer, and retail will be known in the next 1 month. So any update on the sale? Have we won that customer? And what will be the revenue from the customer?

So we have -- in the last quarter, like what I mentioned, we have won 1 customer that was in Jan to March. Out of the 3 customers, 1 of them is a large customer, 1 which we talked about. Close around $2 million to $2.5 million per year revenue is what we expect from that customer. There are a couple of other customers as well who are in the $1 million to $2 million range over there in the pipeline for this quarter and possibly next quarter as well.

Okay. So just that 1 large customer, if we calculate that $2.5 million mark, that can contribute to 5% to 6% of our revenue growth. Is that correct?

Yes. But our existing customers also have to sustain at the same level.

Yes, yes, yes. Okay. And this almost 2 months are gone for this quarter. So how is it shaping like? Is it in line with the previous quarter? Or are we seeing any uptake in demand and sales?

Yes, there is an uptick in demand and sales, as you could see in the last 2 quarters, and that trend is still continuing. So we have -- like what I mentioned, we have a reasonably good pipeline.

The next question is from the line of Priyank Chheda from Standard Chartered Securities.

Sir, just wanted to understand any broader change you find in software testing industry, which opens a big opportunity and faster sales growth for Expleo?

The software testing industry itself has changed significantly in the last 3 years or so. With everybody moving into agile, there is more focus on DevOps, there is more focus on automation. So -- and that is what we have been adapting and trying to stay ahead as well over the last 2, 3 quarters. And that investment is what we have been doing over the last 1.5 years or so, and we are quite confident with where we are in terms of trying and catching the trend, specifically on the testing space. And the other areas, which is the shifting left and shifting right of the testing is what is the other strategy that we have been adopting. And that particular area also is helping us to be a more design testing and deployment provider.

Okay. So sir, any strategic shift that you want to highlight to us with respect to the plans and for Indian entity after the new CIO -- or new CEO that was hired in the group? And you did highlight in last couple of calls, but then anything that has changed in last 3 months or after we met last quarter?

No. So the new CEO published his vision and what he wants to do in September, October of last year. And we've had to move into that new model starting from the beginning of this year and which we have already done. And so we are now organized by clients with global leadership, so we are able to tap into talent and investments and research that is being done across the group in different geographies. So we have now service lines -- service line engagements across the group, and we also have business engagements across the group, customers who have been tapped from the global organizations and setting up of global client management. All those structures are -- instead of each one of the countries running on their -- running as a separate entity, now it's more a global organization, and that's the model that he published in the last quarter of last year starting from this year onwards. We are in the process of transition, but at least India as an entity and India has done -- across all the 3 entities in India, we are the first one to all of that, and that's going as per the plan.

The next question is from the line of Vaibhav Badjatya from HNI Investment.

So on the employees front, you mentioned that you are hiring talent [ and what is in the process ]. Can you help us with the net number of employees, including the contracts in place, at the end of Q3 and at the end of Q4? And what do you expect after this 250 additional people that you are hiring? So I want the numbers on net basis after this year.

Yes. So we had -- as of December 2020, we had approximately 1,200 employees. And as of March 2021, we have a little over 1,300 employees and because we also need to accommodate for the attrition as well. So -- and we expect that by end of this financial year, that is the end of this fiscal -- March 2022, we should be in the range of approximately 1,500 to 1,600 employees, 1,500 at least.

Okay. Okay. Got it. And then secondly, on the U.S. sales initiative, so it has been really, really tough for any small player to really crack the U.S. market. Whatever investment that's been done by a lot of other companies, they were not able to grow their share sales because of their scale. And on the top of it, apart from the scale, we have -- we are very specialized focus on BFSI and traditionally known only for testing. So what do you think that to what extent you can really succeed in this new sales strategy, unless until you go really, really serious about it and hire really high-grade sales person to drive it, which doesn't seem to be the case, because your costs are not showing that kind of direction, which indicates that you had the sales entity?

We are hiring senior salespeople. I'm not sure as to whether high-cost salespeople or not, because at the end of the day, they have to deliver the numbers. And that person -- there are 2 people whom we have hired. One of them have joined, and the other one has not joined, and that's probably one of the reasons why you're not seeing the full costs in the books at this particular point of time. But we -- like what I mentioned, we have a presales team, and that is an engagement that is actually going on there right now to do the market mapping and analysis and research to make sure that we have the right demand-generation engine in place when the new person comes onboard. So the new person is likely to come. The senior guy is likely to come sometime in July. And on your question on whether testing is a big market in the U.S. or not, yes, everywhere testing it is actually a reasonably sized market, and U.S. is no exception. And there are quite a few demands in that particular market. It's just a question of having the right kind of people on the ground and tracking the gains, the opportunities that we see in that particular market.

The next question is from the line of Sanjeev Hota from Sharekhan.

First question is on the digital services. Now you have mentioned that 26% of the total business. So what exactly you classify digital services? And how much you've got directly from the group and how much is the -- from the outside? And what is the road map for the digital services? And what kind of margins that is there in this part of the business, whether it is much higher than what the company have reached currently? And what is the road map? Could you elaborate on that?

Yes. So digital services, basically, what we mean by digital services is that automation-related services, legacy modernization, cybersecurity, performance engineering and performance testing. Then we also have RPA as a service, robotics process automation, that we have been offering to customers. We have a low-code, no-code practice to help customers in building their digital front ends. And along with that, a small piece of software development as well because some of the DevOps and software development comes hand in hand. So these 5 or 6 elements is what we call as our digital services at this particular point in time. We have a clearly defined service lines on what we call our digital services. The margin profile, while the gross margin profiles have been good because of the investments that we have to make, both in terms of attracting the right talent and doing the right investments in tools and technology, the overall net margin might not be the same as what it should have been for the other [ cloud ] businesses. But going forward, it should be better than the standard margin that we get for testing services, for sure.

And the road map for the next 2, 3 years, how much it should execute?

We are expecting that we'll probably balance it out at anywhere between 30%, 35% or so. 26% is where we are at right now. We started at around 9%. We went up to 15%, and now we are at 26%. And we think that we'll probably stabilize at somewhere between 35% to 40%.

The next question is from the line of [ Gaurav Chopra ], an individual investor.

Congratulations on a good set of numbers. So I was a bit confused. Just a while back, you told that the employees as of March 31 was 1,300 approx, but your investor presentation says 1,028. So is the difference like some contractual employees that you don't account for?

That's right. Yes. So the -- I had mentioned that when we started off as well, the 250 employees that we are hiring or the hired ones who are training are not actually in our roles. They are hired as a contract employee for a period of 6 months. And then after that, once they do the full hiring engagement, and then they get actually deployed as a regular full-time employees, so to say. So the 1,300 is including the contract employees.

Okay. And the second question was if you look at your consolidated results, other expenses jumped from INR 200 million to INR 250 million year-on-year. So can you throw some light what is this? And how do you foresee it going forward next year -- I mean this year?

Yes. I think Desikan will probably be better positioned to clarify that.

With respect to [indiscernible], the thing you need to look [indiscernible] the other expenses...

Sir, your voice is breaking up.

Okay. I'll clarify. So the reason is that the classification of -- is your line better now? Okay. So the classification of expenses is where the challenge is. Until last quarter, we were not -- we were classifying the contractual employees or the employees on contract, the salaries for them as part of our regular direct and indirect costs. Now this time, we have actually classified them as other expenses. And that's the reason why you are seeing a significant jump in the particular cost line. There's no other reason for that.

The next question is from the line of Rajeev Rupani, an individual investor.

This is my first call. So my -- I have a follow-up question on the dividend. Sir, your shareholders were used to high dividend of INR 24 a share. Now you gave in the year 2014, '15, '16 and '17. So since last 3 years, that is 2018, '19 and '20, there has been no dividend. So I mean, it's actually disappointing for your shareholders to be used to such a high dividend and getting no dividend for 3 years. So are you suggesting that going forward, I mean, the INR 24 dividend per year is a thing of the past, and we won't get the same in future? And a follow-up question on cash. Now the cash, what we have on books, will it be used for giving dividend or buyback because there was a buyback in 2019 or acquisitions? Please guide us.

So on the cash...

Hello? [indiscernible]

Desikan? Your voice is still breaking. So I'll do that. Your voice is not clear, Desikan. So Mr. Rupani, we don't have a dividend distribution policy. Until now, we were not obligated to have a dividend distribution policy. But now we are in the top 1,000 listed companies within the BSE and NSE, and we are obligated to have a dividend distribution policy, which we are likely to come up with over the next 3 to 6 months' period. On whether we are going to do the dividend distribution right now or whether we are going to do it later is something which we have to take a call. At this particular point of time, that is 2020 and until now, the last 5 quarters, our focus has been to try and make sure that we conserve the cash. What we will do with the cash is something which hopefully you should hear from us in the next -- after the next Board meeting. And whether it is going to be a buyback or an acquisition, we are open for every other opportunity that we are evaluating at this particular point of time, whether which one will be the best use of the cash for both the company and the shareholders for the long-term view as well. But please bear with us for another 1 or just 2 more quarters. Hopefully, you should get an absolute answer.

And I have a last follow-up question on number of employees. Just now you had said that by March '22, you would be having 1,500 employees. So would all those 1,500 employees would be permanent employees?

No. No. We have been having the same model that we have been practicing. Close to 10% or a maximum of 15% of our employees are on contract. And normally, we do that for the short-term demands. And over a period of time, if the employee has been with us for a reasonably -- reasonable amount of time in contract, then we make them permanent.

The next question is from the line of [ Shanti Kumar Saraogi ], an individual investor.

Hello?

Yes, sir.

Like I just -- most of the questions have been answered. Just one thing I would like to just address because I've been a shareholder since long time. I've been listening to the con call. Most of the time, what I've seen in regard to the dividend policy, it has been told that we will take up the next Board meeting. But until now, I haven't heard on that next Board meeting when it will arrive. So I just want to make a suggestion like at least what we are seeing, we try to go through that, because at least heard twice or thrice this thing that will take this matter on the next Board meeting. But I don't think it has ever come up. So I just request at least this matter be sorted out. At least as a shareholder, we know what the policies like.

Yes, sir. So like what I mentioned, we will do that because now we are obligated to come out of that dividend distribution policy based on the new regulations as well. We will come out with that. And I certainly appreciate if you also look at what our current situation has been over the last 4, 5 quarters. Our focus has not been on the dividend distribution. Our focus has been primarily to make sure that we are able to conserve the cash. So that's probably the reason why we have been pushing it because nobody could expect when we will come out of this particular situation.

We take the last question for the day from the line of Mr. [ Devang N. ], an individual investor.

I just wanted to -- very brief about how we are looking at this Expleo as a company in the next 5 years or 10-year perspective. I mean what is the vision? And how are we looking at how the company would be unfolding? I mean, right now, we are doing -- maybe we were talking about from INR 70 crores to maybe INR 100 crores or maybe INR 150 crores in the next 3 years. But then, I mean, how the opportunities are going to be unfolding? And what are we looking at from a 5-year or 10-year perspective at Expleo, considering now we have a really good behemoth as a parent since last 3 years, correct? So would be really a pleasure to understand that front.

Yes. So the vision is that we are an engineering and a quality end-to-end service provider, and that's what our focus has been. India is no exception to that. The global parent is looking at growing at a double digit, at least from a euro number perspective, and we are looking at growing that anywhere between 12% to 15% on a year-on-year basis in India across all the entities put together. And our objective is to try and tap into the engineering quality and digital space, particularly for the sectors that we have been working on, which is banking and financial services, which we specialize on; and the automotive, aerospace and transportation segments, which the group focuses on. And we are also getting into other segments like logistics and supply chain, which is also another area which the group is focusing on. So that's what our plan is. I would -- I don't know -- we don't really have a 10-year view, but the 3- to 5-year view is that from wherever we are at this particular point of time to be at least 50% more than that at a group level and double our business in the next 3 to 5 years in India. That's what the focus is.

I now hand the conference over to the management for closing comments. Over to you, sir.

Yes. Thank you. Thanks for the interesting questions and the interest in the company. Really appreciate each one of you logging in. Sorry if I have not been able to answer all the questions. Keep tracking us. Keep supporting us. And we'll come back to you during our next investor call. Thank you so much.

Thank you. Ladies and gentlemen, on behalf of Expleo Solutions Limited, that concludes this conference. We thank you all for joining us, and you may now disconnect your lines.