Expleo Solutions Limited (EXPLEOSOL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Expleo Solutions Limited Q2 FY '23 Earnings Conference Call. As a reminder, loan there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from E&Y Investor Relations. Thank you, and over to you, ma'am.

Thank you, Ruud. Good afternoon to all participants in the call. Welcome to Q2 FY '23 Earnings Call of Expleo Solutions Limited. The results and investor presentation have been mailed to you, and they are also available on the company's website. In case anyone does not have a copy of press release and presentation, please do write to us, and we will be happy to send it to you all. Representing the management today, we have Mr. Balaji Viswanathan, Managing Director and CEO; and Mr. Desikan Narayan, Chief Financial Officer. Mr. Balaji will start the call with a brief overview of the quarter call by, which will be then followed by Mr. Desikan, who will be getting into the detailed financials. After that, we will start the Q&A session. As usual, I would like to remind that anything mentioned in the 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 face. The risks and uncertainties are included but not limited to what we have mentioned in the prospectus filed with the study and subsequent annual reports, which you can find it on our website.

Thanks, Tasha. Good afternoon, everybody. Thank you so much. Parsons for a couple of minutes willing to get connected -- thank you so much once again for your interest in Next Bio Solutions and for participating in the call. We have had a reasonably good second quarter for this financial year as well. There has been growth across all segments. -- we still see a reasonably good pipeline of course, that the customers who are getting a little more cautious in terms of what kind of opportunities are coming in the way and also how long term of the engagement at -- so there is a little bit of caution considering the kind of macroeconomic factors that we are facing. However, we don't really are or we are not ready to call that as a slowdown as yet, we are still confident that the digital transformation journey, which all the customers have been tacked on a single continue and the opportunity that we have on the kind of capabilities that we have built will still be having a really good traction from the -- we have been focusing on people. We are also looking at making a bigger investment in 2023 conferring the kind of opportunity that's likely to come by and probably somewhat similar to what we did in 2021, where we had more than 500 plus graduate hirings that we did 2023, we may probably do something similar as well by 2022 slowed down a little bit in terms of hiring because we had significant number of resources who have to get built -- we also had some amount of attrition numbers. I'm sure that there will be another question on that. The reason why the attrition numbers are higher primarily because we were also looking at the cost and PPP were not getting billed at that is more of an agility attrition where the capabilities are not matching what our requirements were -- and apart from that, we also had quite a bit of CSR activities tied in this quarter, focusing on both environment and education. The murder of entities, there have been some progress with some of the NPL getting. And we still hope that we should be able to complete as per our origin schedule of December '22 -- that's all I have as an introduction, Desikan, over to you for you to go through the detailed financials.

Thanks, Balaji. Good afternoon to all. another good quarter with the revenue reaching INR 131 crores and EBITDA at 22%. We take you through the quarter-on-quarter and half year performance. Quarter-on-quarter, revenue for the quarter improved by 3.6% and in INR 131 crores against INR 127 crores last year -- last quarter. EBITDA versus 22% and which is an improvement of around 17 basis points. PAT was almost the same as previous quarter ending at 13.9%. On our hotel performance showed a growth of around 39% in revenue. EBITDA in value grew by almost 65% against previous quarter, majorly contributed by revenue growth with cost major recounted revenue growth in the cost not being the same as what the previous percentage of revenue. Earnings per share improved by 45%, ending at 33.9% in -- and on the update on merger process, currently for the unlisted companies, the -- it is the official liquidator of each state has to submit the report to the respective NCLT. Once that is over, NCLT of those states will take into consideration before the pronouncement of the order. With respect to NCLT C&I, they have sent as a water they have sent it to the regulatory or other regulatory authorities for the representation, if any. The next hearing is around the third week of December. So we expect all to close by end of the year, we're keeping our finger got. And one question to update is on the DSO. I think last time to this time, the DSO was almost a 1-day drop -- the major reason is we had -- as I mentioned last time, we had one of the clients, which had an internal system change due to which the payment got delayed. We did -- we do see the same lower during the quarter. Other than that, a couple of clients in India and Middle East, we had some delay in payment, which we expected to receive by this month. So overall, the target and the expectation is to further reduce the DSO in this quarter. So that's the overall update about the quarter. Now we've opened question One thing is that I think Ralph has joined the call, I think, is it true.

Yes. is connected.

Asha, any introduction, please?

Yes. So we have also Mr. Raj Galison, Chairman and Non-Executive Director of XP Solutions Limited and Global Executive Committee members. So we will now start the Q&A session.

Thank you very much. We will now begin the question-and-answer Session. [Operator Instructions] The first question is from the line of Abhishek Singhal from Naredi Investments.

Good afternoon, thank you for taking my question. First question, there has been a sudden increase in loan which was of INR 19 crores in March, it became INR 61 crores in September. So give data. And also, you have given loan to your group entity for how long and when will you take it back? Okay. Second question. And second question, is there any CapEx plan for FY '23 and FY '24? And where do you use the cash you have.

Thanks for the question. With respect to the loan, what we talk about is that it's basically what we have done is that there is a group cash pool, what is maintained in the group. So from the subsidiary company, we do transfer the money into the cash flow. It is more from an investment perspective, we move into that cash foot, which gives us a better interest compared to what we are having it in the bank account. So if you look at the bank accounting the respect to geography, we don't get much of interest out of it. So that way, we see that it's a good opportunity for us to earn a better interest. That's the thing which we have bultenand we have started some of the cash excess surplus cash, what we have in that so that we get the better interest -- and…

For how long time.

This is a very short term. If you look at it, this cash is -- I can get it in 1 day's time, which actually the agreement is within 3 days, we can get the cash back. So it is -- there is no term for this transfer of cash, it's daily we can get it at needed. So it is on-demand kind of investment what we have. So that way, we think that it is safer and also interest also good -- and your second question, I missed it. capital investment, right?

I'll take that Yes, we do have plans of capital investments primarily from expanding our capacity. We are running a sort of a capacity in Bangalore. We also have -- we may also find requirements in 333 for requirements in Chennai as well. So we are making some investments. These are not -- we're not going to buy anything, but it's primarily around leasing and some amount of investment for making up that particular place. And the other investment that I talked about, which we mentioned earlier was on the people we are paint higher graduate release in a similar state as what we did in 2021, around 500 to 600 people over the course of the year, bottom one shot. And there will be investment for training them and selling them as -- so these are the bigger investments that we see at this particular part of that.

Thank you. The next question is from the line of Romil Jain from Electrum.

Yes, hello sir, I hope you can hear me. So I just want to understand how is the U.S. business doing? And what is the plan there? How can we scale up and some targets effect?

Yes. So this is an almost all the investor call mentioned earlier. U.S. is, of course, an important geography, but we are not looking at U.S. at this particular point of time because we have enough opportunity or a significant amount of investment, and we will plan our engagement in the U.S. in line with them, the group also looks at a larger acquisition and market plan into the U.S. At this particular point of time what we did a data management acquisition last year -- or last couple of quarters back, and that is what is contributing to the growth from the earlier single digits that we had in last year. Now we are close to around 13% of our business coming from U.S., and we expect the same rate of 13% to 15%.

Okay. And sir, if you can just help me with guiding on the consolidated margins post the merger is complete, where do we stand on a more sustainable basis? And lastly, just on the digital part of the business, if you can just explain how is it different from what we were doing earlier for the entire digital aspect?

Desikan, you want to take the gross merger margin question?

Yes. Post-merger margin, we are expecting to -- on the EBITDA, we are looking around 16% to 18% is the poster margin, what we are looking at for now.

Sorry, sir, how much can you repeat that?

Around 16% to 18%.

16 to 18, okay.

And from a digital transformation piece from the earlier way of primarily focusing on functional and manual testing. We have done a transformation over the last 5 years moving into DevOps automation. We also started with some amount of software development segment primarily to see what we added then as issues. And the legacy modernization because most of our customers who have legacy platforms, moving from those platforms into the Denver platform. We are supporting them in both configuration, testing, installation, movie to the cloud. All those are the ones that we are focusing on that's what we classify as digital in that ore.

Thank you. [Operator Instructions] The next question is from the line of V.P. Rajesh from Banyan Capital Advisors.

Just apology if you can share the numbers for the unlisted entities, which are going to get merse how did they perform in this quarter?

Yes. I will take it up, Rajesh. For the quarter 2, they had a revenue of around INR 95 crores and an EBITDA of around INR 18 crores, which is around 19% EBITDA.

Okay. Great. Great. And then the second question is as is also on the call. What is the group plans for growth in calendar year '20, given the macro conditions in Europe is being described as very challenging. I'm just curious as to what kind of growth opportunities we are looking at the group level.

First, Good morning everyone. There are growth opportunities. I think on the one hand side, I think, as we are generating significant revenue at the group level in Europe, -- there are certainly some challenges, energy crisis, to warn the Ukraine that is definitely creating a market environment that is challenging on the one hand side. But on the other hand side, we see in the industries we are in at a group level. And you know it's a significant part is in our aero defense. And even in the automotive sector, we don't really see a slowdown of the customer investment in digitalization. We see still in the automotive sector, a strong shift into the software-enabled cars. We see a lot of effort in terms of robotics to even streamline and digitalize processes even in the aero industry. So from an investment perspective, and this is even confirmed by our customers, we do not see a slowdown in their investments on all what is around digital -- and we even see that they are still going into their normal cycle even to develop new product, new cars, new aircraft, we can even see there that there is still good demand, and they're very cautious on the one hand side. Decision cycles will be shorter, even there are sometimes some shifts even before even contracts will be awarded. But overall, despite the overall macroeconomic climate, we can see quite a lot of confidence with our customers that they will continue on their transformation strategy, even besides the banking and insurance segment that was already covered by Balaji.

Does that answer your question, Mr. Rajesh.

Yes. That's very helpful. Just a quick follow-up. What kind of revenue growth are you expecting in calendar '23 at the group level?

At the group level, this year, a growth of around 25%. And we are even expecting that we will outperform the market in '23, so that we are again expecting even there in growth that is definitely closer to the 2% than the 10%.

The next question is from the line of Dipen Shankar from Trustline PMS. Please go ahead.

Good afternoon, everyone, and thanks a lot for the opportunity. So firstly, I wanted to understand how has been the order book pipeline for us, especially in Asian and European markets.

So the order in order book is not very different than what we had when we started 22 as well. So normally, our customers actually give us orders for a period of the MAX needed as 1 year and then they keep reviewing it as we go through the transition products. There are a few of them, which was month, mostly, it's all in that 6 months to 1 year range. And if you were to look at where we are going to start or 2023, at least 70% to 75% of whatever we are doing in 2022, -- we will have a confirmed outlook. We still need to add the growth that we are targeting to do in 2023 as well. But at least 70% of whatever we would be doing in 2022, we should be having an order book for that in 2023, and we need to keep adding the same thing because most of it would be renewals and then we need to add on top of it the growth that we.

Okay. So one of the reason specifically for digital revenue has dropped by around 3%. So are we seeing some slowdown in that segment specifically.

No, no, we are not seeing any slowdown at all. That what the base is growing. So it's not the same pace as what it was earlier. So last quarter, we could focus on where we were. Obviously, the base of the road. In terms of actual numbers, the absolute factor, the numbers are growing and significantly growing as well, much more than what our normal growth percentages are. But in terms of percentage from the last year or last quarter is lower because the last year last quarter as has become better. So in terms of absolute numbers, we are growing and we don't see any -- that's where we see most of the actions as well.

Okay. So earlier, we used to guide for Q-on-Q growth -- so currently, we are running lower at that level. So are we still maintaining that 7% to 10% Q-on-Q growth for the remaining quarter?

Q-on-Q, 7% was for what we did earlier, what was this last year. So now we are actually -- so the same the base effect depends you have to look at the absolute number, the numbers will be significant enough. But obviously, the previous quarter numbers are higher. So adding 7% to 10% quarter-on-quarter would basically mean that we grow at almost 60% in the year. So that's not our -- that's not the ambition at a such a particular point of time to grow or than our ambitions are in the range of 25% to 35%. So for that, the current growth rate, that's what we are projecting around 4% and the 2, some of it is because of also the depreciating a in the rupee or as the dollar as well. So that also is playing in a bit because we have a larger euro exposure as well. So above that, our target is to do anywhere between 4% to 5% quarter-on-quarter.

Thank you. The next question is from the line of Anuj Sharma from M3 Investment. Please go ahead.

Thank you. Am I audible? See, I have 2 questions, both on capital allocation. One is we have given the loan to the parent as per annual report at 4.4% plus LIBOR. However, when we see the interest from related parties, it's a 1% yield. So just trying to understand where is the gap of actual yield versus the intended yield?

Maybe I just need to take this thing Current please. need to calculate because if you look at the interest rate, what you have taken is based on the current market condition, what we are doing and whatever we have given it based on the Lebara.

So Anuj, we also need to look at when the loan was actually disbursed and what is the time line as well, but is not that the entire quarter the amount of.

No, no, I'm not talking about the quarter, I'm talking about -- Based on that. Balaji, I'm actually talking about the year. So FY '20, an opening balance was INR 19 crores and ending was INR 19 crores and the interest received is roughly INR 2 crores -- sorry yes, INR 20 crores, yes. 2 million. 2 million, sorry.

So it's 1%. This. whatever the loan, what we have given is at really at the end of last year -- sorry, last quarter, -- so prior to that, it was more an FD interest which was lying in Indian band, which you have been getting the term loan a short-term kind of fixed deposit, what we kept. Now if you look at it, all the -- what is on the surplus amount what we had in the subsidiary bank account, which never used to get any interest, whatever the surplus now we are putting it in the show cash pool of the group, which is now getting this Liva rate. So I think it is a very I can say that it's only 2 to 3 months old kind of a thing. So that way, you can't compare it with a year number with the 3 months. If you look at our interest income compared to last, that has increased from last quarter to this quarter. But I mean, that is the thing which we compete as in comparing with the whole year. I don't think that we can do that yearly thing which will take time. If we're going to continue it further down the line, then it makes sense. There is a very short-term kind of a time line to check on that.

Okay. Desikan, sorry, I'll reiterate the interest is 1% for FY '21, '22 for the whole year, but we'll come back on that. My second question is, look, we have been reluctant to give dividends for the past 3 years, '19, '20, '21. In fact, 4 years, and we have prioritized over loans to related parties over dividend to shareholders. So what's the thought process of -- the loans are now 20% of net worth, yielding just 1%. And how are the independent directors really comfortable with this?

One thing is technically because they are putting it as a loan, which actually I think I'm not in this low. And seeing this as a parking of my touches gas in a place where I get better interest than what extent -- that's the way I look at it. Maybe since because the way it is mentioned it as alone, it is not actually loan. It is more from my side. It is more a parting of a super flash. So that way, even the independent has looked at it, we are not -- I don't want to compare it with the dividend, what you're talking about. Because currently, if I look at it, I have the supply because any time in 3 days' time, I can get back the money. So that way, I can't compare this usage of my cash for a loan. I see that as a new age of my cash, the surplus cash to earn better interest. So that way, I don't take that as a -- you compare to as a loan, it's not something which I'm looking at it. We are looking at it from a perspective of using the surplus cash for a better interest rather than using it for a low -- for M&A or paying dividend that comes with the -- even currently, I have the money. So I think there are 2 visions that are completely different from each other. So that's something which won't to tell you.

All right. And just one follow-up Desikan. So why aren't we getting money back to India and deploying it at a higher interest over a year. So again, it's basically a capital allocation diction, which I'm really not really sure how the management and the Board is thinking about it. But clearly, it's a suboptimal capital allocation decene. The capital or the sole cash has been deployed.

Because we -- like what I mentioned earlier as well, our exposure is not on U.S. dollars. -- the only one whether it is found or whether it is euro, if I were to actually bring the money back from these countries into India in the last 6 months, we would have only ended up doing rather than paying at there for a better time, it will only sell if we were to do an M&A at a later point of time, similar to what we did 6 months back? And if you have to make the payments in euros or any a better option for us rather than bringing the money back to India. -- that option always exists, but these are decisions that were taken after considering those factors as well.

So Balaji, do I conclude the capital, which is overseas, will find it difficult to find it way back in domestic accounts?

It will come back if those currencies appreciate and if we find a better return, we'll bring it a what basic mentioned, these are all on demand. If you need the money, all we need to do is get 24 hours notice and with certainly to us, we will have cash available for us. Rate blog.

Thank you. The next question is from the line of Rohit Balakrishnan from ithoughtpms.

Hello, am I other one? Congratulations on a very good set of numbers. So I have 2 questions. One, just one on bookkeeping. So I think you mentioned revenue it and you also mentioned the path for use entities, just to I think you mentioned it last time around if you enforthesake of completeness, but you just mentioned that as well.

I don't get your question.

I was asking this again, the profit after tax for the unlisted entities in giving the EBITDA and revenue, we will just also give the PAT for the unlisted equities profit after tax. Profit after tax for the rent.

So the profit after tax for the listed company is around INR 11 crores.

Okay. Understood. And at a combined level. Just to be clear that this is an unaudited figure won't notices. And just also wanted to understand, I mean, I think we've been talking about coming out of the dividend policy for a while, but you won't be able to -- I mean I just wanted to understand what is our thought process as the previous participant also asked, we have not been on the dividend paying risk for a while now. And I mean, just as a shareholder, while I understand your thought process from optimizing your earnings on these -- in the short term. But from an overall perspective, we generated close to INR 90 crores EBITDA this first half on a mine basis, I know we are not at math. But just generally trying to understand what is our thought process in terms of redistributing cash, utilizing cash, you can just share some thoughts around that.

So if I look at it, one thing because we do discuss about it. One aspect is also to be considered batt get the merger then that is the one major thing which is happening now by in that December that gets closed. Then we have the combined entity coming in and by the next quarter, we will see that how the overall performance for the year is. So maybe that is one thing which always is the priority for now for the group. And also, that is one priority, which is not -- that is one of the reasons that we -- the decision of how to get the dividend done is something which has been a little postponed for now. Other thing is, of course, the group is also looking at the M&A activity, how we can use the cash better. So these are the things which is currently going on, but the first priority is get it much, and we are almost in the last leg of things. Hopefully, I'm just single cross that we will get it done by this year, and we'll start the new year with the combined entity. So that's the current thought process which I see, maybe your Balaji can add to that.

No, I think it's -- the other question that I had was that, Balaji, I think you're still -- I mean I think in the previous call, you mentioned 6%, 7% quarterly growth. Now you've seen 4%, 5%, which is still decent. I mean this slide more patient is on account of the macro concerns you see or some -- I mean, just -- I mean, is that the reason anything for slight moderation. I know it's still good, but just to.

I'm talking about the listed entity right now. It's because of the base effect because the base keeps changing quarter-on-quarter, and that's the reason why we're talking about it. If you look at what we talked about last -- in the last 2 years, we have been growing year-on-year in the range of around 25%. And we still continue to have that as our target anywhere between 25 to 35 and what our objective is -- so we're not sure whether we like what I mentioned, we live 2 quarters at a time. So that's the kind of certain visibility that we have. And I also mentioned when we started off that there are some amount of parts in terms of the decision-making process and the investments that the customers are going to meet as well. But the 4% to 5% in my opinion, is it still as to the 25 to 35.

Okay. Understood. And in terms of the understates of this quarter, we've seen very strong growth.

So with this kind of momentum even on a higher base, will continue like we're now almost INR 100 crores kind of quarterly INR 95 crores this quarter. So on this higher base also, do you see that -- those entities also go at a similar range or they could probably grow at higher rates, given what Rallye mentioned that they are all in areas which are in the overall market is also expanding from a software point of view. So where we see is that the growth is -- we are seeing growth that we are the only thing is that the term of the engagements that are actually shorter term in terms of 6 months or -- so we have to look at where we will land, but we don't really see any reason for us to have any doubts on the.

The next question is from the line of Aman Vij from Astute Investment Management.

My first question is on the employee trend. What is it today and how much addition are we planning for this year as well as next year combined in.

So the compare entity here at around 4,200 people back now, and our expectation is that this year, we did not have a too many trainees from some part of what we did in 2021, 2023, we are also looking to add to be for the number of 3 we as well around 500 to 600 of them. Our target is to get to a lease of 5,500.

And any target we have for next year?

INR 5,500 crores.

That is for next year. Not for this year.

No, not for this year.

So this year, it will be around what number, sir?

4,500 to government -- it is slightly lower than what we expected, but because we had to take a call on cutting down on some of our costs. And that's why you see a big number on involuntary attrition or managed structures.

Sure, sir. Second question is mostly to Ralph. There was this news of our parent RDL looking for selling of the Expleo group, if you can update on that? And what are the thoughts on that part?

I think first of all, that it is an earnings call for Explorer solution can certainly give some insights. But I think you even understand that it is not an expert investor call. What I can confirm is that we are having a good relationship with our shareholders. We even saw some news in the market that were even a surprise. I think even for the shareholder, what was probably even a speculation in the market, what would happen. We know that we having a very strong support from our shareholders in 2022. And I think we all can expect the same support from our shareholder, majority shareholder even in 2023 -- we are aware that there were some -- on some of the M&A platform, some speculations, but that is nothing that we can confirm as effect.

The next question is from the line of Sandesh from InCred Asset Management.

Congratulations on results. I'll start off with the performance of the listed entity. If I just look at the geographic trends, our both in a quarter-on-quarter and year-on-year basis is very tepid. And I understand that there's just currency impact. So just to minus 2% to 2% sort of number. Am I right in calculating that the constant currency growth would have been in the range of 8 to 10 %. And is it -- and as you mentioned that U.S. we've had better traction. So I'm just trying to understand, 50% of the business is from Europe. So at the group level, at the combined level, our growth is coming more from mining our existing clients? Or is it what 20%, 25% target we have is it predicated on just adding new clients? And how is the pipeline looking with regards to that.

On the constant currency, I think it is quarter-on-quarter the growth is the growth of around 1%. But on the -- if I look at year-on-year for the same quarter, the growth is around 57%. PAT is 35%.

Constant currency growth in Europe is 1% quarter-on-quarter.

Yes. Quarter-on-quarter is 1%. Year-on-year is 47%.

In Europe.

Sorry, you're talking about Europe, I'm talking about overall number.

So you are saying that--So that can be taken under that. You had a net benefit of currency movements on your reported numbers?

Actually, it's another way, right. If you look at the euro conversion, the euro has -- INR has strengthened against Europe. So that actually has reduced our growth.

So I'm just trying to reconcile the reported 2.8% growth to the 1% for just now.

On a quarter-on-quarter basis, there are not much of a movement if you see that I'm looking at a year-on-year same quarter, that could make a few difference. Because if you look at the INR growth is around 35%. I look at it at , it is around 47%. So that mix, that is the one which we are comparing to.

So maybe if you are to look at it just to clarify, I think your question is that are we seeing a slowdown in Europe and are we looking at our tepid growth in Europe. Now that is not the case because we as a company, we are growing in around 20 plus year-on-year, quarter-on-quarter, around 4%. If you take the currency effect of, it's probably been around 2.8% or so. But the Europe business, which is coming in from the group and some part of the business that we signed directly with our European customers are also growing at a similar pipe. So we are seeing the same 4% to 5% quarter-on-quarter and close to 20% to 25% year-on-year growth from the European market as well. We haven't seen any slowdown at this particular point of time. But at the same time, like a lot of trap mentioned, there are customers who are really looking at some of their projects, and that's why we are looking at it on a quarter-on-quarter basis in terms of how the situation is going to be for the next quarter or 2 quarters from now rather than looking at a very long term because things might change quite quickly.

Fair. And just regards to your unlisted entities. And also, first of all, the headcount numbers, I do understand that there is an element of caution that you're building in, in terms of headcount addition. But honestly, at March call, you had mentioned a number of close to 400 and Yes. And the target at that time was for the finance was higher. So we want to get to 5,000 this year, which we are not doing at now. So -- and I'm just trying to reconcile again with the 25% growth that Group has reported and the outlook they have and also the potential for outsourcing that our Indian entities have from the group itself. So performance growth happening, why are we not trying to capture that? And why is the headcount addition not expected this year?

So okay. The reason why there was a significant amount of -- I mentioned earlier last year in the around end of the second quarter or early third quarter, we hired close to tradings who all became billable this year. So that is the reason why the revenue growth is not translating exactly into onto because all those team members were actually getting built starting from this year. And that was an investment when we did last year. And it will translate and that's why I said that next year, we are going to look at once again hiring another bigger tranche than what we did this year. And the digital growth also is actually not exactly directly proportionate to the head count growth as well. While for any services company, the growth will also have to result in some order headcount growth. It will not be directly proposed. We will see headcount growth in 2023. But this year, we were a little cautious on how much we want to invest because we wanted to make sure that the team will be hired last year gets billable. Did I answer your question?

The next question is from the line of Hiten Jain from Enel.

The first, a little bit confusing when you say constant currency growth of only 1% Q-o-Q. So that is definitely lower than your expectation of 4%, right?

Yes. One thing Okay. it's lower than compacting right. Of course, it's lower than -- for this quarter, it is lower. We are trying to talk about the base, right? If you look at the base from last quarter to this quarter, last quarter, we had a $15 million revenue. Now it's got to be made a $15 million revenue. So if you look at the base for the last 3 years, we at 3, 2 years before, we were at the range of around 8% to 8.5% and then we raised around 9% to 9.5%. In the last year, we went up to 9% to 11%. Now we are in the range of around 13% to 15%. So that way, the growth has phenomenally happened over the last 3 years. So now between the quarters, now the growth has been lower because of the base, what Balada mentioning. So -- that is something which is really making a big difference to look at.

So then if this base is here to stay, then your expectations of 25%, 30% is quite high, right? This -- on this base, then you should rightly expect 5% to 10% growth given what you have done this quarter? So where the spots coming from bases.

If you speak on the quarter 1 to quarter 3, if I look at that, it is down from a $13 million, we have increased around $15 million. So that gives us almost 20% growth in the each from the first quarter to the third quarter. So overall, for the year, if you see the increase will be unmoved in the almost to 30% to 40% will be the growth year-on-year, right? From the last year number to the current year number.

No, yes, but I'm saying -- so there is definitely -- so it's a sequential which will build up for your full year number. these are the initial slowdown that is being seen because of base because of whatever challenges you are seeing in the environment. And so that has to be -- so I'm just trying to reconcile because that's one point we're saying that this 4% is sustainable, but the delivery is not there. And so which is where I was trying to reconcile the 2 things.

So we grew by close to 40% in the first half compared to what we did last year. And the expectation is that we would -- when we close the year compared to what we did last financial year to this year, we will be in the range of around -- and that's what we are talking about so far in terms of what our expected growth rate from what we did in 2022 to what we will do in 2023 in the financial year 2023. I'm probably not able to exactly make up what the question is in terms of the question as to how you are confident that we will grow by 25%, 35%? Or are you saying that the sequential growth is not adding up to that particular number, I'm not able to exactly understand the question.

The question is that when you have your expectations of around 25%, 35% growth, then obviously, sequentially, and you also said that sequentially, we expect a 4% kind of a growth, but this quarter.

Quarter 5, yes.

Yes. Correct, 4% to 5%. And this quarter was just a 1% growth. So which is where I was trying to reconcile the 2. Or if there is something which has happened this quarter, which you think is not going to be happen -- not going to be there in the next quarter, which..

No only expectation is the currency to be valuing better, but there is that is really looking that we are doing. Q4 normally gets a little or rather gets a little slower because of the number of working days and the self typical to any other services industry, but we don't really see anything unusual.

Okay. Maybe I'll take that offline. So the another question was that your unlisted entity is obviously there, you're seeing a high growth. There also, if you can just give us some constant currency. And one suggestion would be to give us constant currency metric because that's what all the IT companies do. that makes it easier because currency will not be in your hand, it's externally driven. So constant currency is something which the business is delivering. So if you can give that number constantly, it will be useful. And same if you can give for unlisted entities this quarter. And at the same time, what is the group contribution, both at the listed entity and the unlisted entity. The last number I have, which you had given was close to 21% for the listed entity and 45% for unlisted entity what it is today.

As now the performance is concerned, I don't have a constant currency working on the unlisted company. The total revenue for the quarter was around INR 95 crores and the EBITDA of INR 18 crores.

Maybe I will come back to you on the constant currency. And the revenue share from the group for the listed and the unlisted.

Unlisted entity, the percentage revenue of group is around 18% for the quarter or even for the year, if you look at 18% of the revenue, it's a group revenue, which actually we directly signed with the group. Unlisted entities. Unmistered, with respect to the Pune entity, it is around 85% to 90% is the group revenue. And with respect to the Bangalore entity, it will be around 15% -- 10% to 15% is the group revenue. That's the combination.

Okay. So I have more questions, I'll come back in the queue.

Next question is from the line of Rohan Advant from Multi-Act.

My first question is on the margin guidance of the merged entity at 16% to 18%. If you look at it today, the listed entity is upwards of 20% and in Q2, the unlisted subs have done 19%. So we are already above 18%. And with the merger happening, shouldn't there be some synergies? So why is the guidance at 16% to 18%? Are we expecting some more expenses post the merger that should bring it lower?.

This is on your guidance. So I don't want to very deep on saying that we have always mentioned in that we don't meet forward-looking statements. So only the guidance based on what we think will be the first 1 year of how we are going to integrate what kind of invest and what kind of engagement we need to have for the first 1 year. But of course, logically, what you're asking is right, but we would still like to stick to what we mentioned in that that's what our objective is because we see once we merge, we could not start generating synergies right from day 1.

Okay. Got it. And second question is on the unlisted entities. Q2 day did INR 95 crores. What was it in Q1?

Q1 was INR 85 crores.

Okay, okay. And just the last question to get it right. What we are saying is that at the company level, the listed company overall level, our constant currency growth this quarter was 1% against the reported currency against a reported growth of 2.8% in INR terms. Is that correct understanding?

Yes.

The next question is from the line of Rajan from SG van Company.

So sir, this quarter has been the first quarter that our digital revenues have actually de-grown. I'm referring to the presentation made by yourself. I think it's Page #7. So we have been actually having super growth in digital revenues. There is this time for the first time you have degrown. So what is the reason behind it? And secondly, sir, our clients, which are above 1 million have fallen from 13% to 11% quarter-on-quarter and clients from 0.5 million to 1 million have also fallen from 17 to 14. So is this a worrying factor? And what is the kind of reason that there could be for this? Secondly, sir, how many new customer visits that we have had in this quarter for new contracts, et cetera? And our parent is it listed? And what is the kind of R&D revenue that we have on the parent level as a percentage of total revenue? And how much -- once the entities are merged, how much more outsourcing can we expect -- it's at 20%. Is it possible that it could go to 27%, 28%? So on the customer profile, I think compared to last quarter, the current quarter, we are more flat because if you look at -- it is 17 or $5 million to $1 million and $1 million above 17 and 13 , I don't see that as a change. And the second thing is the addition of clients around. I'm sorry, I've read it. I've read it wrong. I'm sorry. And the client addition is around 10% in the quarter, which has contributed to overall -- and the other questions, I think Balaji.

On digital revenue, it is not -- I have mentioned this to another for another question earlier in the call. The civil revenue has actually grown in terms of absolute numbers. If I were to compare it with the last quarter, the I mean because the total revenue has also grown, it shows at 39%, but we still have the same target of crossing 40% this year and getting to close to 50% next year. So that's not changing in India, and we are not seeing that to be growing in any way.

And if you could say something about the customer visits and also what are the new kind of M&A activities? Is it is it to do more with cybersecurity, which most global CEOs are citing as a big problem? And how is the company that we acquired, is it leading to much many more client expansion or do client additions for us? The one in the data management.

So we have multiple customer visits if I have to look at how many customer visits. I would probably say that we are posting customer also 72 weeks. So I don't know the exact number across all our centers. And in terms of what our areas of focus are, it's primarily in the digital space around automation, data and also in terms of what will give us the legacy modernization capabilities as well. Ralf, do you want to add a little more people from.

I think from an M&A perspective, when you look at the priorities, it must have an impact even on our existing markets and not only markets we are not in we would not consider even on M&A activity in South America or Latin America as we don't have a footprint there. So it's always a priority on markets, regions, we are already in -- it has a priority on industries. We have diversified even with the life science sector at the beginning of the year. And so now the priority is definitely even to leverage even within the industries, we are automotive, certainly banking, insurance, life science. And then you can see from an M&A perspective, it comes with a strong capability around digital. What is software engineering, what is cloud, what is data and not city, very special play. It is really more on how to leverage really and to support digital activities with our customers where it even then has an impact on our global delivery capabilities. And I think we confirmed several times that our focus is and will be even in the one. So it is definitely more likely that even this will even then be -- have a strong impact even then on our business in India, but it must even mean that it even brings some leverage in the region and in our existing industries. Even beyond banking, financial service, as you know we are even having other business activities in the con especially...

What is about total R&D revenue as a percentage of our total global revenues engineering and Research and development. What is our engineering results and development revenues as a percentage of our total global revenues for the Expleo group, -- that is one. Second, RB listed entity? And third, I mean, do we plan to raise outsourcing to India from the current 20%, 21% to at least 26%, 27% once the merger is complete?

Okay. So don't get me wrong. I understood there are only 2 questions. I'm happy to answer 3 now. But -- so overall, the engineering part is roughly 2/3 of the group business. We are not a listed entity. We are owned by the fund, that's a minority shareholder. And the Pinel shareholder is still as am what is an engineering firm listed at the stock market. And yes, we are certainly even consider even to bring more of the customer-related activity that we are even having today and even what we're expecting that growth, this will even then include delivery from India yes. So with the growth, even in the engineering segment, we are even expecting even the more even accelerated growth even then in India as more of the new initiatives will be even be in a in a distributed way, including delivery from India than the traditional engineering services that were more customer-led and more on site.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to the management for closing comments.

Okay. Thanks for again joining the call and asking questions. I hope we were able to answer most of the questions, and thanks for your continued interest in Expleo Solutions. Thank you so much and take care.

On behalf of Clio Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.