Happiest Minds Technologies Limited (HAPPSTMNDS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q4 FY 2025 Earnings Call of Happiest Minds Technologies hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vinesh Vala from HDFC Securities. Thank you, and over to you, Mr. Vala.

Hi, everyone. Good morning, ladies and gentlemen. Thanks for joining us today on Q4 FY '25 earnings call of Happiest Minds Technologies. On behalf of HDFC Securities, I would like to thank the management of Happiest Minds for giving us the opportunity to host this earnings call. Today, we have with us Mr. Ashok Soota, Chairman and Chief Mentor; Mr. Joseph Anantharaju, Co-Chairman and CEO; Mr. Venkatraman Narayanan, MD and CFO; Rajiv Shah, Executive Director; Ram Mohan, CEO, IMS Services; Sridhar Mantha, CEO, GBS Business; Sunil Gujjar, Head of Investor Relations. I will hand it over to Sunil for safe harbor statement and to take the proceedings forward. Thanks, and over to you, Sunil.

Thank you, Vinesh. Good morning to all participants in the call. Welcome to this conference call to discuss the financial results for the fourth quarter and year ended March 31st, 2025. I'm Sunil, Head of Investor Relations. We hope you have had an opportunity to review the earnings release we issued yesterday evening. Let me now quickly outline the agenda for today's call. Ashok will begin the call by sharing his perspectives on the business environment and our results. Venkat and Joseph will then speak about our financial performance and operational highlights, after which we'll have the floor open for Q&A. Before I hand over, let me begin with the safe harbor statement. During the call, we could make forward-looking statements. These statements consider the environment we see as of today and carry a risk in terms of uncertainty because of which the actual results could be different. We do not undertake to update those statements periodically. Now let me pass it on to Ashok.

Thank you, Sunil. Good morning to all the participants in the call. Happiest Minds has delivered an exceptional performance for the year with constant currency growth of 25.6%, which makes the reported fiscal performance the best year since our IPO in absolute terms. The growth was backed by a superior margin profile, which we have maintained in our guided range for 19 quarters in a row. Let me touch upon 10 strategic transformational changes launched by Happiest Minds since FY '24 and going ahead through FY '26. The latest change is the one we announced on 19th March 2025, regarding our Apex organizational structure. As you all already know, Joseph is now our Co-Chairman and CEO. Joseph has been a part of Happiest Minds since its inception. And I'm sure Joseph will drive Happiest Minds towards accelerating profitable growth and strategic strength. Let me start from where these 10 transformational changes began. After a few years of delay, we finally completed 2 acquisitions, PureSoftware and Aureus, whose results were integrated in Q1 of FY '25. The wait was well worth it because both the organizations have a culture, which is similar to ours. They were both cash accretive and have contributed to our growth. And they have helped us deliver well above industry average performance for the fiscal. Three more transformational changes followed in the second half of FY '25. We did say these changes would begin to make an impact in FY '26, which you will see starting from this fiscal. Reorganizing Happiest Minds on an IG-wise basis and creating 5 new industry groups was the first of those changes that we launched in FY '25. We were also the very first company to recognize the potential of Gen AI by creating an independent business unit headed by Sridhar Mantha, a Happiest Minds veteran and our erstwhile CTO for 12 years. We appointed Chief Growth Officer, Maninder Singh, and gave him the responsibility for net new sales. Maninder's team is already making visible impact by bringing in new logos. These transformational changes will show great growth in FY '26 and even more so in FY '27, assuring us of healthy organic growth in FY '26 and then FY '27. In effect, if you see that we have delivered obviously, very good growth in FY '25, we are saying we are well positioned for double-digit growth right through on a 3-year cycle beginning from FY '25. The 4 transformational changes of FY '24 were followed in FY '25 by the organization changes mentioned earlier, and Joseph will talk about the 6th to the 10th transformational initiatives. I now hand this over to our Co-Chairman and CEO, Joseph, for his address.

Thanks, Ashok. Good morning to all of you. Let me start by thanking Ashok and the Board for the trust they have placed in me. I'm very confident of continuing to deliver industry-leading growth based on the quality of our leadership and talent, the transformational initiatives we have initiated and the strong customer relationships we have developed over the last 14 years. Happiest Minds has delivered yet another year of solid performance across all fronts. The growth was broad-based and across industries and geographies. Product digital engineering services led the growth with 27.9% with all our core markets of U.S., India and Europe showing good growth. In the recently concluded customer satisfaction survey, we have received an industry-leading Net Promoter Score of 63, and our customer happiness score has increased to 93%, which reflects the commitment to delivery excellence. During the year, we have added 4 customers in the USD 5 million to USD 10 million cohort, taking the total to 10, and 5 customers into the USD 3 million to USD 5 million cohort, taking the total to 7, validating our sustained efforts to widen our presence among our existing customers with a land and expand strategy. We have 6,632 Happiest Minds. And during the fiscal year, we added 1,464 new Happiest Minds. As Ashok mentioned, I would like to elaborate on how we are driving transformation through innovation, integration and industry expertise. The recent changes to our apex organizational structure marked the first step in building a stronger future-ready company. The current Executive Board will maintain continuity this year, while we transition to a next-generation leadership team focused on long-term profitable growth. In the last few years -- weeks, I've been talking to leaders from Happiest Minds, PureSoftware and Aureus to understand the aspirations and forge an integrated organization structure that I target to announce in the next 4 to 6 weeks. Private equity firms have become increasingly influential with Happiest Minds seeing a significant rise in PE-owned customers. We are shifting from tactical to strategic engagement with PE firms, entrusting this responsibility to a senior leader to lead this effort. Our offerings will support both PE firms and their portfolio companies, including due diligence, post-acquisition road maps, security risk management, modernization, innovation consulting, cost optimization, Gen AI adoption and integration of acquired entities. We will leverage existing customer relationships to build these connections and deliver tailored solutions. Over the past decade, our land and expand strategy has grown many accounts to $2 million to $3 million with some even reaching $5 million to $10 million. With the HIPO initiative, we aim to scale key large accounts to $20 million and create more $5 million to $10 million by investing in dedicated client partners, aligning incentives and prioritizing these accounts. The formation of a dedicated NN sales team has freed up bandwidth to enable this focus. Again, the move to verticalize has allowed us to bring different functions together and bring a sense of shared ownership and collaboration to enable this HIPO strategy. We also see a strong potential in the expanding Global Capability Center, GCC segment. We will tailor our offerings based on GCC maturity from strategy and compliance support for new GCCs to innovation, modernization and data-driven value creation for established centers. As the IT industry has come under pressure in recent years, we have been feeling that it needs to be strengthened by a product and SaaS solutions approach. We were fortunate in gaining one such product, Arttha in the BFSI space through our acquisition of PureSoftware. Our product team has been enhancing the capability of this product and moving to a SaaS platform. Both the product and the SaaS solution will coexist. We plan to create a separate P&L and invest in market-specific features and go-to-market strategies for India, while expanding internationally into Europe and North America through partnerships and enhanced digital banking capabilities. The last transformational change I would like to share is our revolutionary health care product, which is expected to be available for launch by Q1 FY '27. At this time, we have the Board of Directors' permission to make a directional statement. The final decision to include this in our offerings will be taken by our Board only when the business plan is ready towards the end of FY '26. Lest there is a fear that development of the product will require large capital expenditure and strain our resources, let me assure you that even in the first full year, this business will run on a cash positive basis. It's also important to mention that our product is being developed through the unique bioinformatics capability of Happiest Minds, of which we have been speaking during the last year. Let me share my view on the demand environment. We have put up a great show in an environment of elevated uncertainty amidst higher tariffs, reciprocal measures and continued geopolitical risk. Businesses are recalibrating their approach to work in such an environment by being efficient through streamlining operations and derisking their supply channels. Technology is at the core of such an exercise, and we at Happiest Minds, with our AI-led approach, are transforming the way our customers operate with our innovative solutions and services. Demand remains resilient in certain industries like BFSI and health care. We are the trusted partners for our customers in their digital transformation with cloud, data, AI, automation and security being top priorities. In the reported quarter, an American insurance broker chose Happiest Minds to build their client data portal, leveraging our strong capabilities in Microsoft's Power platform. Sectors like manufacturing, industrial and retail are seeing softness due to delayed decision-making and a wait-and-watch approach by our clients. We're helping our customers navigate this elevated uncertainty by accelerating their digital transformation initiatives, which reap immediate dividends. For example, in the reported quarter, a U.S. manufacturer of intelligent fluid-flow equipment chose Happiest Minds to build their next-generation connected products to enable automated fall detection and diagnostics and realize energy savings. With Gen AI built on top of digital twins in reported quarter, we empowered traditional energy and utility technology enablers with data-driven real-time virtual model that simulate, analyze and predict the operational behavior and performance of its physical counterpart, eliminating manual bottlenecks in data collection and entry. Then, as I come to the end of my talk, I want to step back and look at the IT industry. The year FY '25 is witnessing flat growth for some of the majors and negative growth for a few others. We have delivered a healthy double-digit growth, albeit some of it inorganic. Recent global developments have clouded the prospects for the Indian IT industry. We want to state empathically that at Happiest Minds, we see no recession-driven slowdown. Thanks to our 10 transformational changes and to our dedicated teams, including those from PureSoftware and Aureus, we see a good view ahead for next 2 years, and we expect to deliver healthy double-digit organic growth, not just in FY '26, but also FY '27 due to the momentum we are building up through our 10 strategic transformational changes. With this note of excitement and the potential of these transformational initiatives, I would like to invite Venkat, our MD and CFO, to share with us our operational and financial performance. Venkat, over to you.

Thank you, Joseph. Good morning to you all. I'll start with an overview of our financials, both for the quarter followed by the year and then give some specifics. Our extremely healthy revenue and profitability performance underscores our vision of accelerating profitable growth. We remain committed to balancing growth and margins, ensuring continued value creation for our shareholders. Coming to revenues, we have done well both in the quarter and the year. Our Q4 revenues in constant currency have grown both sequentially and annually by about 1.1% and 27.9%, respectively. Our annualized quarterly exit run rate in dollars takes us over $0.25 billion mark, while delivering compounded quarterly growth rate, CQGR of about 6.3% since our IPO, which is 18 quarters. This is for sure an industry-leading performance. Operating margins for the quarter is at INR 79 crores and 14.6% of revenues. Operating margins have dropped sequentially and year-over-year. This will need a little bit of an explainer. First, during the quarter, we had a sudden reneging on payment obligations by one of our customers, having business with government agencies in the U.S., requiring us to make a provision for bad and doubtful debts of about INR 12.5 crores. Since we ceased work with the customer at the start of Q4, revenue from them also saw a sharp decline during the quarter. We started business beginning of Q3, had a nice ramp-up, and then, we also worked during the month of January. But what we did is we had to write off or make provision for the Q3 revenues and also not recognize revenues in Q4 for any of the revenues from this customer. Adjusted for this bad debt because I see this as a one-off despite all planning and thoughts, our operating margin stands at about 17% and very much like the last quarter. As I've covered in my earlier interactions, we continue to make investments in our new and incubated Gen AI business services, the GBS BU, while adding significantly to our new sales team across the world. Our quarterly investments and above is about INR 10 crores with annual numbers being approximately INR 40 crores. Adjusted for the said investment, our quarterly operating margins stand close to the previous year. Coming to EBITDA, adjusting only for the bad debt that I talked about, we are at 21.4% and very much like in the previous quarter and in line with our guidance of 20% to 22%. After accounting for investments that I just mentioned on GBS and new-new sales, our EBITDA was largely in line with levels seen in the previous year. At this point, it's natural to ask about the status and progress of our GBS and sales investments. The dedicated GBS unit currently has about 120 dedicated people. They are currently on a utilization of about 34.5%. Meanwhile, our new sales team under Maninder is now 7 members strong, and they are also adding a couple of more people in the team. Suffice to day, these investments are critical for our future and integral part of the transformation agenda covered by Ashok and Joseph. Our investments are beginning to show immense progress and performance and outcomes of these are wired into our growth plans for FY '26 and forward. Now profits before acquisition-related costs is at 13% versus 14.6% in the previous quarter. The drop is primarily on account of the bad debt. Our acquired companies are doing better than what was estimated at the beginning of the year. Earn-outs paid over and above the original provision that we create on account of better-than-estimated performance gets routed through a charge to the P&L. These charges or adjustments are shown as part of our exceptional item. Ideally, such excess provisions or payout should be a capital cost. Our accounting standards have a different treatment for the same. To give you a context, we have approximately paid $90 million for our acquisitions made last year. This is cash and upfront payment that I'm talking about. On top of this, we have performance-based earn-outs for the acquisitions that we have made totaling about $45 million. The $90 million upfront plus earn-out for performance on a best estimate basis. I'm talking about the best estimate basis based on what we estimate their performance gets accounted as assets and intangibles. Initial accounting for these are all held in the balance sheet with amortization of intangibles and interest -- imputed interest cost, not real interest costs, are charged to the P&L over many years after acquisition. Now any subsequent measurement of the earn-out, here, I'm referring to the $45 million, on account of subsequent better-than-estimated performance, hits the P&L. In our case, in the current quarter, we have taken an additional such exceptional hit of $1.5 million. The fact is that better payouts means better performance. Such variances when compared to the amount of earn-outs or intangibles that we have on account of these acquisitions are very small, and in my view bound to happen. Maybe a little complicated, but what I'm trying to say is the exceptional item that you see, you must have seen in our financials over the last 3 or 4 years, and they are all related to acquisitions, and because of a work or a standard of accounting, we have to take it as a P&L hit, which is really not a P&L hit. From a business standpoint. What we have done from this quarter is adjust these accounting charges, or what I would prefer to call as noises in the PAT, to show an adjusted PAT and adjusted EPS. From a business perspective, in my opinion, these are a better financial measure. Now adjusted PAT for the quarter is 9.9% versus 10.7% in the previous quarter and 14.7% in the previous year. The drop Q-o-Q is on account of the bad debt, I keep coming back to that, and slightly higher tax provisions, while that of the year-over-year is on account of the above bad debt and the tax provision and also, of course, the GBS -- the investments that we have made into GBS and the new sales team. While on earn-outs, I'm happy to share that the earn-out period for SMI are complete, and the company is now fully integrated into Happiest Minds. We are only now left with earn-outs of PureSoftware and Aureus and that too for 1 more year. Now coming to the full year, we have reported revenues of about INR 244 million for the year, which is a growth of 25.6% in constant currency. In the early days, we had given a forecast of about 28% to 30%. So compared to that, we are slightly short, and I have covered this in all our earlier interactions. Total income grew 26.4% to INR 2,162 crores. Happy to say that we are a INR 2,000 crore company right now, and that's a threshold that we covered this year. Operating margins has grown by INR 17 crores, and as a percentage of operating revenue, it is 17.3% compared to 21% in the previous year. Adjusted for the bad debts, our operating margin nicely corrects upwards to 18% and when corrected for the GBS and new sales investments of INR 40 crores, approximately INR 40 crores, this becomes 20%. EBITDA at INR 462 crores, showing an absolute growth of INR 41 crores and at 21.4% of total income is within our guidance range of 20% to 22%. I'm not getting into the details of adjustments for acquisition-related costs and exceptional items, as they have been called out clearly in our presentation and have covered this above in the quarterly level. Adjusted PAT, which is PAT adjusted for acquisition-related charges and exceptional items give you a better view [ than ] accounting noise. Adjusted PAT for the year stood at INR 246 crores, which is about 11.4% versus INR 254 crores in the previous year. Adjusted EPS was almost constant and compared to the previous year at about INR 16.37 per share. Coming to some of the operational ratios, our cash conversion ratio versus EBITDA continues to be good. Cash on the books at year-end is about INR 1,472 crores. DSO remains stable at about 88. We could obviously improve that to 84 and 82 that we have seen in the previous quarters. Our capital return ratios stand healthy at 18.3% and our ROE, which is ROCE at 18.3% and ROE at about 11.9%. A slight reduction versus the last quarter because of a reclassification of some of the carrying -- acquisition carrying costs. We should see this nicely improving in the coming quarters, and our target is to get ROCE back to 20% plus. Our utilization for the quarter remains stable at about 77.4%. Utilization is something that we could flex to a range of about 78% to 80%, and which is one of the levers available to us going forward. Attrition on a 12-month period has inched up to 16.6%, and we are continuously working on the same and should hopefully see it drop in the next couple of quarters. Happy to state that keeping in line with our progressive dividend policy and capital allocation discussions, our Board of Directors have, subject to approval by the shareholders, recommended a final dividend of INR 3.50 per share. Including the already paid interim dividend of INR 2.50, the total dividend for the year will be INR 6 per share. My areas of focus for the future will include, amongst others, maintaining industry-leading margins. We have sustained 19 quarters of top EBITDA despite heavy investments in transformation, and we aim to preserve and enhance these margins through value creation and effective profit lever management. Mergers and acquisitions, we will pursue new M&A opportunities and ensure a smooth integration of recent acquisitions. Managing people, culture and outcomes is critical to driving growth and profitability. We start the year with a reasonably strong pipeline of deals. While organic growth continues to be our foundation, M&A will serve as an additional growth driver. Adapting to industry changes, this will be the final one. The Indian IT sector is undergoing rapid transformation, and we must remain flexible to seize new opportunities. With this, I conclude my commentary, and we can open this for Q&A.

[Operator Instructions] The first question comes from the line of Chirag Kachhadiya with Ashika Institutional Equities.

Hello. Am I audible?

Very clear, very clear.

I have a question on the quarter-on-quarter growth per se. So if I look at the performance, it's a little lower than what our some of peers in mid-cap and small cap category has reported. Can you throw some light what's that -- on why we think like headwinds in terms of growth? And second, with respect to the EdTech vertical, what's the trajectory from here onwards?

See, as I mentioned, we had -- somebody needs to go on mute, please. We have nicely gone on -- we have ramped up to about $1.5 million with that customer that I talked about, which unfortunately, we had to stop work starting January 1st. So during a quarter, if you have to take a $1.5 million drop in revenues, but still cover up for that and come out with a 1.1% growth in constant currency and then 2.6%. I think if you adjust for that, Ashish (sic) [ Chirag ], we are doing -- we have done pretty well. I'll turn this over to Joseph for the second part of the...

Thanks, Venkat. So as I've mentioned, Chirag, in the past, the EdTech segment is going through challenges. And if you look at the EdTech segment, we can break it up into 4 broad subsegments. The first is the higher ed segment -- that higher EdTech segment, so all the Pearsons and others; then you have the universities, and which is part of the higher ed ecosystem; you have the K-12 and then you have more of the workforce development that's professional and others. Now the -- one of the segment that's really challenged right now is the higher ed segment. They're going through quite a bit of churn for various reasons, drop in the higher cost of education, drop in enrollments, the catchment area in terms of teenagers dropping because of fertility rate, multiple issues. So our strategy, while we are looking at extending higher ed presence from the providers to universities, and we are having some success out there, as we speak. We have 2, 3 conversations going on. The main pivot and strategy that we're doing is to focus more on the workforce development space. As you know, with all the rapid changes, Gen AI and other technology changes and business model changes, upskilling and multiskilling of the workforce is becoming very important. And there's a fair bit of investment going in this space. And during the -- our strategy session, that was one of the areas that we identified. We have some good offerings that we put in place, and we are taking these to market. My expectation is that during the year, we will continue making progress on this front.

Next question comes from the line of Aditi Patil with ICICI Securities.

My first question is on BFSI and Healthcare vertical. Firstly, for the quarter, there was a decline in Healthcare vertical. Can you let us know what led to this decline? And similarly, in BFSI vertical we saw a sharp jump in revenue. So apart from -- how much of this was contributed by Arttha Banking platform? And for a longer-term view, we are focusing on BFSI and Healthcare verticals. So what is our growth strategy here in terms of what kind of subsegments or clients are we targeting in this vertical -- in these 2 verticals?

Sure. Thanks, Aditi. Let me take BFSI first, and then I'll come to Healthcare. In the BFSI segment, which has become our largest segment by and far, we've had a contribution during the year from PureSoftware and Aureus. As you know, we -- one of the reasons for making these 2 acquisitions was the concentration of revenues in the banking segment in PureSoftware and insurance in Aureus. And during the quarter, there was a fair bit of contribution from the Arttha Banking platform. Typically, we see a jump in Arttha revenues during Q4, it's a little seasonal. That's contributed to the growth in BFSI. We did acquire a couple of customers in the Middle East, ADCB and Bank of Muscat. That has also contributed to the growth in BFSI. And BFSI is one of the segments, as we also pointed out during the last earnings call, which is seeing some green shoots and increased spend. And the expectation is that during FY '26, this will be a sector or a segment that will contribute handsomely to our growth. The other segment that we are quite very bullish about is Healthcare & Life Sciences. During the quarter, we did see a dip. That's because one of our large customers, they tend to have a ramp down, again, a cyclical seasonal ramp down during Q3 and the ramp-up was delayed. But towards the end of the quarter, we did see a ramp-up, and that should normalize revenues. Apart from that, in our press release, we had shared that we have signed 2 SOWs, totaling $20 million, which should continue into next year as well. And this should enable and drive the growth of the Healthcare & Life Sciences sector or vertical. In terms of the focus areas, some of the areas that we are focusing on in the Healthcare space, as we have mentioned, bioinformatics is an area of promise that we've been investing in, and we are looking at continuing to make these investments and take this offering to market. We're also looking at the medical devices segment that we've been building capabilities in. We have a few customers in this space. And we believe that with more data-driven approach being taken by medical device providers and leveraging data, it will be a good confluence of our GBS Analytics and AICoE and our Healthcare capabilities. Pharma continues to be an area of focus because there's some medical device that they also manufacture and there's a lot of emphasis that is being provided on leverage of data in formulating -- coming up with molecules and also in the trial phase. So these are areas that we will be focusing on. The other area that I'd like to talk about is the commercialization phase. Once a molecule has been tested and approved, there's a lot of modernization and analytics and data engineering that we can bring to the fore out here because the pharma companies are trying to form a view of patients and the development of customer data -- consumer data platform and applying models to understand the data better is an area that we'd be able to help these companies out.

Okay. Got it. My next question is on -- you have announced the Healthcare product in bioinformatics. So what would be the amount of CapEx which you would be investing for the same in FY '26?

So as we mentioned -- as I mentioned in my talk, we are in a very -- we are still in the exploratory phase and putting a business plan together. We are making some investments that are already included in the plan. And the CapEx that we would need, all of that would get finalized when we present the plan to the Board. And again, as I pointed out, we expect this -- once we launch this in FY '27, we expect it to be cash positive, right in the first year. So I don't see much of an impact from a CapEx standpoint out here.

Okay. But so -- the CapEx investments or the investments in the product would start from FY '26 itself, right?

Yes, a part of it could be in FY -- Go ahead, Ashok.

Yes. I can just add to that. At the moment the product is being developed, and it's really a billing opportunity for Happiest Minds. So therefore, when we talk about all these SOWs that Joseph has talked about, one of them is this. We may decide to take the product to the market ourselves, in which case, we would still have a positive cash flow. So at the moment, it's just business.

Okay. Okay. Got it. And in the IMSS vertical, if we see the segmental margins, there was a sharp decline in margins, both on Y-o-Y and Q-o-Q basis. What led to this decline?

Ram, do you want to take that, Ram?

Yes. So basically, if you really look at the last quarter, we acquired a business specifically which was predominantly onsite centric and that had a much lesser margin, and that was the one, which actually drove the margins low because most of the work, which we are doing there is onsite. That is the reason.

[Operator Instructions] Next question comes from the line of Jiyush (sic) [ Piyush ] Pandey with Centrum Broking.

Am I audible?

Yes, Piyush. Go ahead. Piyush, please go ahead. We can hear you. I'm sorry, Piyush, could you repeat that?

Mr. Pandey, if you have muted your phone, please unmute your phone and go ahead with your question.

Am I audible now?

Yes. Please go ahead, Piyush.

Yes. So broadly, I want to know like what are the key projects which you are doing in the generative AI space for your clients?

Sure. Sridhar, you want to share some perspective, Sridhar?

Sure. Thanks, Joseph. In terms of the total projects in the last 12 months, starting from 0, currently, we are working on 35 distinct projects, Piyush. And I'll repeat one example Joseph quoted as part of his opening statements. We are -- I'll give a couple of examples, and I'll then talk about broadly how they are, right? So we are working with a global leader in the software for electrical power systems. And for them to actually create the digital twins of the motors from the field, collecting the data about the motors is becoming very error-prone, right? So we actually create a generative AI solution that can actually interpret various parameters of the motors very quickly by looking at 2 or 3 pictures the field personnel takes in the field with the help of the current large language models that can easily interpret the information from the images and the understanding of the motors, so that the data entry aspect drastically becomes completely with 0 errors. So that way, the overall efficiency of the digital twins will go up drastically. And we are doing many repeatable solutions, which in the previous sessions, Ashok did talk about. One of them is talking to the data, right? Pretty much the enterprise run on the data and irrespective of the BI and the simplicity of the reports, it is still cumbersome for the people on the move. And we created a talking to the data kind of solution, so that the people can quickly ask a question against complex databases and warehouses and data lakes. And we are working with a participant management and a supply chain provider, and we integrated a Gen AI solution as part of their platform, so that the entire BI and the data complexity can be completely simplified by people asking simple questions in English, and they're getting the right kind of answers. And in terms of the overall kind of concluding statement I want to make, Piyush is, we have been working on a lot of POCs and more than 50% of them already started moving and moved into the production. And also recently, we started seeing more complicated solutions, which are more like a Gen AI-powered solutions, as opposed to be a stand-alone Gen AI solution, where we are building complex back-end layers along with the front-end solutions that will be having a kiosk, avatar-based interfaces and chat-based interfaces. And we are doing this solution for one of the large airports in United States. These are a few examples, Piyush.

Okay. Second question is like, sir, how do you plan to reach revenue of $1 billion by FY "31?

Maybe I can just take this question. Given the slowdown that has happened in the last couple of years for the industry as a whole, not so much, our numbers have actually been very good, but we've also got impacted to the extent they could have been even higher. Now we are taking a look at this, and we are very optimistic about the current year, as you can see. And we will maybe do a cost correction by saying maybe we'll need a year or 2 more in order to reach the level. The goal will remain the same, but we'll evaluate this in detail when -- during the course of the next quarter. And if not by the next quarter, by October, we will restate, where we stand on that goal. It is a matter of good governance. I'm glad you've brought it out because once we've stated it, we should either recommit to it or say, okay, maybe the date needs to shift by a year or 2.

Next question comes from the line of Vinesh Vala with HDFC Securities.

So given some softness in the EdTech sector, how are we capitalizing on the high-growth verticals like Healthcare and BFSI? And what are the specific strategies will be used to drive the growth in these verticals? And one more thing in this quarter, our Healthcare vertical had a sequential decline. So is it related to any client-specific thing or some issues overall?

Sure. Let me take the Healthcare vertical first, and then we'll talk about BFSI. So the Healthcare vertical, just to address, the quarter-on-quarter movement, as I mentioned earlier, that's because one of our large customers in the Healthcare space, they do a seasonal ramp down in Q4 of their year, right, which is October to December quarter. And the ramp-up was delayed as a result of which we've seen an impact for revenues during the quarter. Having said that, we remain extremely bullish on the Healthcare segment. And as I shared earlier, we have signed a couple of SOWs totaling $20 million, which will start yielding revenues. In a couple of cases, we've already ramped up the teams, and it's positively impacting our Q1 revenues. The focus -- or the areas of focus in Healthcare will be bioinformatics. We -- not only for the product that we talked about, but for services that we are providing to our customers, medical devices, which are more on the -- which leverage data and use a fair bit of AI. But we're also looking at the pharma space, how do we help customers shorten the time period required to come up with new molecules and to go through the trial process, again, using a lot of data and AI. And in the commercialization phase, customers are looking at how do you make data easily available, how do you leverage all of the data that you get from patients and drive that back into their sales and marketing strategy. So those are the areas that we will be looking at in the pharma sector.

Joseph, can I add one point? And this is apart from the seasonal ramp down that you pointed out in one of the customers, actually, one of the major reasons is that one large customer came to the end of a project and then began a new platform. That platform took a little time to pick up, but is really picking up full speed now. As Joseph mentioned, that's getting reflected in the next quarter data or the current quarter data.

Okay. Got it, sir. Sir, on BFSI?

On BFSI, one of the -- as I again shared, one of the areas that's showing a lot of promise and good growth is the Arttha Banking platform. And from 2 angles, one is the direct revenues that it provides as also the pull-through revenues once you implement Arttha. It also helps us differentiate with some of our banking customers. Again, taking a product or a solution-centric approach in the insurance space, we have come up with an insurance in a box concept, which leverages a customized low-code, no-code platform on which we've built various components of the typical insurance workflow. And we're taking this as an 80%, 90% baked solution to the mid-market segment in the insurance space. Our hope is that we will be able to scale this to the larger insurance providers as well. The third area that we're looking at in both insurance and banking and especially in insurance is how do we help customers customize their approach to their CRM solution by helping them move away from the standard CRM solutions that are available out there and build customized CRM solutions that are data-driven and then ensure that underlying that would be your customer data platform that will allow for, again, a lot of analytics, AI to be superimposed on top of this. It could be platforms like Palantir or Azure on the data lake side. The other area we're looking at with customers in the banking and insurance space is helping them in modernizing some of their customer experience. Some of them have carried out -- they've digitized their offerings, but they've done this around 10 years back, and there's a fair bit of progress that's been made, whether it's adding a Gen AI front end to it or just modernizing the customer experience on the front-end side. A lot of customers are also looking at how do you modernize or to look at the legacy platforms that they have, have not kept pace with the technological changes that have taken place. And so, there's a scope for carving out some functionalities and helping customers build customized applications or platforms out there. Part of it is Arttha. Arttha serves this purpose. And in some cases, customers may want to build their own customized applications. So these are some of the offerings that we are taking to customers in the BFSI space.

Next question comes from the line of Sumeet Jain with CLSA.

Actually, my questions were again around the generative AI business unit. So you have started disclosing your revenue proportion from that particular business segment and it's just 2% of your overall revenue. And when we compare that to what Accenture or Capgemini are giving, it's almost 5% to 6% of their overall business. So is it that you are slightly behind the larger peers out there? Or is it the definition is different? Can you just explain how easy it is for a company like Happiest Minds with a $200 million to $250 million revenue to actually pivot their business much more faster towards a fast-growing service line?

Sure. As you rightly pointed out, Sumeet, I think it's the -- it's how each company defines generative AI, right, can add AI, can add data element to it. We believe that the revenues that we're getting is industry-leading. Could we do more? Absolutely, and that's a goal that we've taken for ourselves. And the way we look at generative AI is there are 3 distinct sources of revenue. The first is direct revenue, which is what we are -- we've been quite very strict about it, which is what we've been sharing. Then there is other AI and data elements, and that is what our analytics and AICOE provides. And the third is the pull-through revenue. As Sridhar pointed out, customers are taking a Gen AI-first approach. And so, they're building a back end and putting a Gen AI front end to it. And that's the third element. The back end that we build for our Gen AI-first solutions is the other source of revenue. And in terms of capability, rest assured, we are very confident that the kind of team that we put together and the capabilities that we've built in this space is as good, if not better than the other companies out there. This is reflected in the number of conversations that we've been having with our customers, as Sridhar pointed out. It's -- we've had more than 40, 50 conversations and POCs that we built, some of them very, very interesting use cases. And we will continue focusing and building our capabilities. That's the reason why we built this as a separate business unit with its own P&L, CEO, COO and leadership, practices, delivery, sales structure. So we're making all the right investments. We have the capability, and we expect traction to continue increasing during FY '26.

Got it. That's helpful. And just digging deeper, can you just explain the unit metrics out there or the contract characteristics out there as to how is the pricing, the profitability? And are they more fixed price or time and material based? Can you just throw some light on that?

I think most of the work that we've been doing so far, Sumeet, has been fixed price because you initially have conversation with the customers, scope it out. In many cases, we iterate the business use case with the customers, go talk to the customers, come up with a list of use cases, identify the ones that would have immediate impact. And then in some cases, we do get partners like Microsoft, AWS to provide a little bit of funding to get started. And so, this is mostly a fixed price that we're doing. In terms of pricing, this does get us premium pricing because it's a differentiated capability, a cutting-edge capability. At the same time, since you need to build capacity and capability upfront, the utilization is on the lower side in this business unit. And as we start getting more and more business, we expect that utilization number to go up and to have a positive impact on both the profitability of the business unit and overall of the company.

If I may add to what Joseph shared...

Please Sridhar. Yes.

So I'll add 2 points there. The first one is, of course, in the Q1 and Q2 of the last year, we used to have heavily the fixed bid projects because the clients are trying to address a point problem leveraging generative AI. But slowly in the last couple of quarters, we started moving into the other engagement models with a few customers, where there is a reasonable clarity on their road map of various generative AI features they want to add, we started actually moving into the extra engineering model. And also, the large airport example I have given, we started seeing larger RFPs with generative AI being a core feature within that. And we'll start seeing that shift as we move into this year, which will make the engagements being larger and multiple use cases moving into the production, et cetera, and larger RFPs. And when it comes to utilization, it was in a way planned compared to other business units because the technology being so young and new, we have a large team that is internally working on various prototypes and demonstrations and competency development and those people moving into the client projects and taking these POCs to the customers and converting them into the client projects. And that's the point Joseph is alluding, compared to the last financial year, this financial year, slowly, we will move towards better utilization. But still considering the overall technology space, we still will be having a relatively larger pool of the people, who will continue to do R&D and keep creating new solutions.

Got it. That's very helpful. And my last question is around your utilization. I mean, you guys obviously are operating at 77%, 78% levels. But when I look at the larger peers, they are at mid-80s, Accenture is at 91%. So is there like a difference in the way these are being calculated across companies, but I fail to understand how utilization for you is far lower than larger peers?

Sumeet, we -- it's got to do with the way things are calculated. We have always said that our maximum possible utilization is between 83% to 85%. That's what is maximum possible. It's billed days by billable days. People -- the definition of capacity also varies between customers. So the uniform definition is something that we need to clear up. So our is the maximum possible is 83%, 84%, and we are at about 77.4%, within which GBS is at about 34.4%, 35%. So there is quite a bit of room for improvement in GBS to work up on the utilization front. PDES is at lower at about 74%. So that's picking up. PureSoftware is at a number of 80.1%, 81%. So I would say, if you keep those metrics, we have got a headroom within BUs and at the company level to do better on that front.

Next question comes from the line of [ Sushovan ] with Anand Rathi.

Yes. I hope my voice is audible.

Yes, you are loud and clear.

Just a couple of questions. One is, how would you categorize the organic and the inorganic growth in Q4 and FY '25? The second question was basically on the amortization, acquisition-related amortization. It's almost INR 51 crores in this financial year. How should we model that for '26 and '27 along with those exceptional items, which you mentioned? These are the 2 questions.

Thanks, [ Sushovan ]. So we have not been giving a split by the organic, inorganic because if you look at it, PureSoftware and Aureus has been with us for almost all of the year, started in Q1, so 11, 11.5 months. It's almost integrated. In fact, Aureus is fully integrated. PureSoftware is working very closely with us. So it's not easy, fair or possible to give an exact number of who did what and how do you attribute revenues. So that's on the revenue side. As far as amortization is concerned, you're absolutely right, INR 50 crores is what we have. This is something, which is something that I shouldn't say came as a surprise, but this is the cost of doing an acquisition. You have this -- you have intangibles being written off through the estimated life of a customer. If it's an intangible, it's 7 years, some of them is 5 years. If there is a product like Arttha Banking involved in it, there is another definition for it. So frankly, while there is some science behind it, it's a cost, which comes out -- which actually is -- thrives on the face of business logic, at least to me, because we are not replacing anything with this money. But in any case, that said, you should see intangible at about INR 49 crores to INR 50 crores next year as well, in fact, slightly higher maybe because you will have some part of the intangible being again tested for impairment. So I'm just saying from an estimate standpoint, take around -- take a similar number and an impact for an additional 30 or 40 days for the next year. That's on that. Exceptional item, again, I said, we estimate a certain payout at the beginning of the year for earn-outs. We did $90 million worth of acquisition and $45 million is earn-out. So you see there is a huge amount of earn-out. Accounting requires me to make an upfront judgment of how much of this $45 million will be paid. Whatever I taken as a judgment goes and sits in the balance sheet, that goes in as intangibles and then gets written off. If I make a wrong assessment or if I -- I shouldn't say a wrong assessment, if my assessment is slightly on the lower side, it impacts the payout when they do better than the performance. So we have to balance what we think is performance and what we think is the intangible portion of such performance and then keep growing it up on a quarter-on-quarter basis. Frankly, if you ask me, [ Sushovan ], you can -- you should adjust these to the PAT or PBT because none of them are cash charges except for maybe earn-out, you are now paying for performance. So if somebody is performing much better than what we estimated, we are paying them slightly higher. So to me, a debit of exceptional item or what is in terms of additional payout is good news, while a credit is not such a good news because they are doing lower than what I estimated them to do. So yes, and my prayer is always that they do better than what we thought they will do, and we pay that as a purchase consideration, both accounting asks for it to be returned to the P&L. So take a similar number is what I would say [ Sushovan ].

Ladies and gentlemen, we have reached the end of question-and-answer session. I would now like to hand the conference over to Mr. Sunil Gujjar for closing comments.

And then, just one point -- moderator, sorry, just one point. I think in our presentation, we have got exceptional items in minus, we will correct that. I just noticed that and hope [ Sushovan ], your question was not coming from that. So exceptional item is actually a hit to the P&L. We'll show that -- we'll correct that part on the presentation and upload updated presentation. Thank you. Over to you, moderator.

Thank you. On behalf of Happiest Minds Technologies, that concludes this conference. Thank you for joining us. You may now disconnect your lines.