Indegene Limited (INDGN.BO) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the Indegene Limited Q3 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhishek Agarwal from Indegene Limited. Thank you, and over to you, sir.

Thank you, Maria. A very good morning to all of you, and thank you for joining us today for Indegene's earnings call conference for the third quarter and 9 months ended financial year 2026. Today, we have with us Mr. Manish Gupta, Indegene's Chairman and CEO; and Mr. Suhas Prabhu, CFO, to share the highlights of the business and financials of the quarter. I hope you have gone through our results release and the quarterly investor presentation, which have been uploaded on our website as well as the stock exchange website. The transcript of this call will be available in a week's time on the company's website. Please note that today's discussion will be forward-looking in nature and must be viewed in relation to risk pertaining to our business. After the end of this call, in case you have any further questions, please feel free to reach out to the Investor Relations team. I now hand over the call to Manish to make his opening remarks.

Thank you, Abhishek, and good morning, everyone. Thank you for joining our Q3 earnings call. Now it was a good quarter for Indegene. We grew revenue by 30.8% year-on-year and 17.1% quarter-on-quarter. Even if I exclude BioPharm, which was acquired effective October 2025, the growth was 18.3% year-on-year and 5.9% quarter-on-quarter. We delivered an adjusted EBITDA margin of 18.5%. Our top 5 customers grew by 3.1% quarter-on-quarter, and 3 out of these top 5 customers are [ in our ] $25 million-plus accounts. We continue deepening and broadening our relationships with our customers. The $1 million plus customers grew back well and now are 52. Our active customers grew by 10 and now are 86. Our revenue per employer now has crossed USD 70,000 annual mark, which is, by far, the highest in the industry, underscoring the tangible impact of technology and AI and the very specialized nature of what we do. This is also a good quarter on new business generation front. We also had a -- we also had market deals wins with large and small customers and performed well on the renewal front as well. And I will talk about all the stuff. We won 7 large deals exceeding $1 million ACV each across 3 accounts in Q3. Let me talk about the first ones. The first for a top 10 pharma company, we have secured omnichannel orchestration for the whole of U.S. for a multiproduct portfolio on the back of Indegene and BioPharm tandem, combining AI to boost prescriptions without reliance on-ground sales team. This engagement is expected to yield $10 billion-plus annual revenues with a 2.5 quarter lag post go-live, which means revenues will start accruing from Q2 FY '27. We also secured a chain management engagement for omnichannel operations from the same customer. The value exceeding $1 million ACV. The second customer, a young emerging pharma, has entrusted Indegene with the broad -- covering various aspects of both commercial and medical services, consisting of 3 work orders also aggregating over $10 million. Finally, we won a $20 million PCB business consisting of 2 work orders for being an end-to-end commercialization partner to a midsized biotech company. GenAI is a key part of this partnership, and this engagement is expected to yield $5 million of revenues in the first 12 months. All these deals have been won on the back of highly specialized resources and our AI-based platforms coming together to deliver very compelling value propositions for our clients. Outside of these deals, there are other places where we increased our footprint as a strategic partner to our customers, again using our domain expertise, specialized skills, technology expertise and GenAI platforms to help transform our customers' operations across both commercial and medical ops. I'm going to share some success with you today. For a large medical device customer, we are managing global pharmacovigilance workflows using AI-driven automation, significantly reducing manual case processing and accelerating aggregate reporting. This is a multiyear 7.5 million ACV versus 1 life perspective, January 2026. For a midsized pharma customer, we are reimagining their R&D operations through GenAI and setting up a global innovation center for them. We are deploying our AI-assisted next medical writing platform within the customer's private cloud AWS environment for regulatory use case as a start with many other document offering expansion possibilities. Now beyond some of these examples, we are also very actively engaging with our existing and prospective clients is what we are calling agency-less model, where AI-led modular solutions replace traditional fragmented agency structures. GenAI is creating productivity gains across our commercial and medical segments. We have been expanding our catalogs to convert productibility into volume expansion by enabling our customers to do more. This has enabled us to deliver more for the same while also adding higher complexity work to our catalog, which helps penetrate deeper in adjustment spend areas. The scale and mix of wins as also the pipeline and discussions reflect improving industry sentiment, faster customer decision cycles and the strength of Indegene GTM approach combining GenAI domain expertise. All this points to strong momentum in the industry given the near to midterm outlook, impact of policy changes and increasing adoption of GenAI. Now with that, let me move to developments impacting the life science industry and its outlook. The BioPharm and life science industry remains resilient led by 20, 25 large companies that have consistently shaped the market over the last few decades. Despite the policy driven headlines, pharma tariffs, MSM pricing, Visa discussion, the actual impact to the industry and consequently to Indegene have been minimal. All the MFN pricing has generated retention. Its near-term impact remains limited. All the pharma majors are now in deals with the U.S. administration returned for pharma directory and expedited drug application reviews, while considering on pricing impacting are very small segment of consumers limiting the adverse impact. Further price increases for other segments are expected to offset the price reduction. The pharma industry enters 2026 with a stable growth outlook, strong innovation momentum and significant operational pressures and is expected to grow 5% to 8% CAGR through 2029. While patent expiry and pricing pressures will persist, the order trends, M&A activity, increased access, strong innovation pipeline support the industry's growth outlook. Importantly, as revenue for approved drugs steady declines, pharma companies are under pressure to improve efficiency, expert launches and modernize commercial operations. This creates a structural demand for Indegene offering across content medical, regulatory, safety and omnichannel operations with accelerated adoption of digital and GenAI transition. Now with this, having talked about the industry, let's spend some time diving slightly deeper in everyone's favorite theme and topic: AI. One of the big benefits of GenAI should accrue and would accrue to the health care and life science industry. Using GenAI to accelerate discovery enhance recovery, enhance more drugs getting into clinical drives, clinical trials being made more effective and efficient more specialized and effective drugs being marketed and reaching patients. That's what GenAI could enable. And this vision, of course, will require per unit cost of trials, compliance, sales and marketing to come down over time as volume of drugs increase. This is what we, at Indegene, are excited about: The role we can play in this industry. At Indegene, our scale, nature of engagement, specialized talent and very strategically thought to platform approach of GenAI products, we are positioning ourselves and getting recognized as a strategic cutting-edge partner to deliver superior outcomes and not a point solution or a legacy provider sticking partnerships with point solutions to stay relevant. Our platform approach enables us to help clients reimagining their value chains, shifting from isolated productivity wins to holistic transformation. At this point in time, it was also useful to throw light on some our 3 GenAI platform approach, which helps us to reengineer and reimagine the entire process in 3 key areas. Content SuperApp, the first one which integrates agency of record, tectonic, content production and MLR workflows. As an example, a top 20 pharma customer adopted our Replicator model, which is a part of the content super app, a few markets in Europe for 2 assess channels. As we successfully complete this deployment, we also have the ability to scale seamlessly across additional content formats and channels in global markets. I already alluded to our next medical writing platform getting implemented with a midsized company, which is -- and this is the enterprise-level engagement. Third, intelligence platform, our omni-channel operations and analytics with modular AI components, where we are combining the power of Tandem IP acquired through BioPharm with [indiscernible]. Now let me move to an update on the progress made with BioPharm post the acquisition effective October 1. On the integration of BioPharm, specifically transition of services such as IT, HR and finance from the [indiscernible] is on track for completion by March 31, 2026. BioPharm has seen no disruption in active engagements. Client response has been positive. With many exploring combined Indegene BioPharm capabilities. Employee integration is progressing well with a strong retention across the organization. Technology IT integration is progressing as planned and will conclude by year-end. Joint business development has begun delivering results, including 2 omnichannel wins with large Indegene customers, integrating BioPharm capabilities. Cost energy totaling to around $1 million per annum is expected to accrue progressively in FY '27 and have been identified for action. Now finally, let me talk about the segment integration, which we've gone ahead in Jan. In our previous earnings calls, we had mentioned that BioPharm is integrated enterprise Commercial Solutions also Tectonic, which is a combination of enterprise commercial capabilities. The capabilities acquired through [indiscernible] is part of Enterprise Commercial Solutions commercial segment. There is -- inevitable blurring of lines across the Enterprise Commercial segment and brand activation segment. There are many capabilities and engagement start up as brand specific, but more into enterprise segments or capabilities. We also are very clear that in the long run, the enterprise part of the business will continue to scale, and that's a very robust business. Reflecting this reality, we have integrated brand activation in BioPharm into enterprise commercial segments. Going forward, the company will report results in the 3 segments: Enterprise Commercial, Enterprise Medical and others. I will now hand over to Suhas for a deeper dive into financial performance. On to you, sir.

Thank you, Manish. And once again, a very good morning to everyone. Let me walk you through the key financial highlights for the quarter. Q3 was a strong quarter with revenue rising to INR 9,421 million, reflecting a robust 30.8% year-on-year growth and a 17.1% quarter-on-quarter growth. Our growth in USD terms remained solid with revenue up 24.4% year-on-year and 15.1% quarter-on-quarter. Even excluding BioPharm, which we acquired during the quarter, we continued to deliver heady progress, achieving 3.9% sequential growth in U.S. dollar. EBITDA adjusted for onetime expenses came in at INR 1,747 million, marking up 15.7% year-on-year and a 19.6% quarter-on-quarter increase. Notably, our adjusted EBITDA margins expanded to 18.5%, an improvement of 30 bps quarter-on-quarter. One-time nonoperational expenses related to the 3 acquisition transactions executed during the quarter and restructuring was INR 105 million or $1.2 million. During our last earnings call, we had outlined 150 basis points of impact due to planned investments towards enhancing our go-to-market capabilities and supporting business expansion beginning this quarter, quarter 3. In addition to these planned investments, quarter 3 also witnessed elevated costs related to upfront investments and go-live costs in large deals won in the recent past, which has been already mentioned on this call. As indicated in the previous call, we continue to expect EBITDA margin to return approximately to 20% over the next 6 to 8 quarters. EBITDA is expected to begin sequential improvement from quarter 1 of FY '27. Moving on to PAT. PAT for the quarter was INR 1,026 million, reflecting a 0.5% sequential increase and a 6.5% decline year-on-year with a PAT margin of 10.9%. Adjusting for onetime expenses, net of tax, PAT margin would have been 11.7% Beyond these onetime items, PAT performance was primarily impacted by lower interest income given the $165 million reduction in investment and surpluses in the U.S. following the BioPharm acquisition also coupled with lower yields due to declining interest rates in both India and U.S. Further, higher depreciation and more specifically, amortization costs, which are noncash charges, increased from INR 234 million in quarter 2 to INR 396 million in quarter 3, reflecting amortization of the intangibles from the recent acquisition. Amortization is expected to remain elevated for the next 3 quarters before reducing by INR 15 million per quarter starting quarter 3 of FY '27 and a further approximate INR 25 million per quarter declined beginning quarter 3 of FY '28. We have presented additional details in the investor presentation uploaded on our website. Both these impacted about 205 basis points at a PBT level and 156 basis points at the PAT level. With BioPharm integration-related synergies beginning to take shape, [ tenant-related ] costs tapering off and the underlying business momentum remaining strong, we expect PAT to strengthen and support EPS expansion. The geographic mix of the business remains stable with 97% of contribution continuing to come from the U.S. and European markets. North America, most specifically accounted for 71.8% and Europe 25.5% of our revenues. These numbers have moved up specifically for the commercial segment and North America following the impact of the acquisition of BioPharm, which is entirely a U.S.-based business. Moving to renewals. Most of our annuity business and work orders are renewed in this period as most customers have a Jan to December fiscal. While formal documentation is underway for a few, we have closed on nearly close terms with most contracts which are due for renewal. During this cycle, we identified pockets of customers where, depending on the centralization maturity of the client, we proactively approach them with our GenAI-enabled solutions and have been successful in offering certain benefits on price in lieu of volume or scope expansion. Overall, the renewals were stable in value terms with these GenAI-led forays expected to yield positive results as volumes for the new eligibles included in our work orders ramp up through the period. Overall, we head into 2026 from a position of strength with stable renewals, significant deal wins that Manish has already mentioned, both of these providing confidence and momentum for the year ahead. With that, I'll pause here and move to your questions. Happy to take them along with Manish. Back to you, Maria.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Vinay from Monarch Capital.

One, we've added about $7 million to $8 million in this quarter, and that is organically anything which helps this and what kind of momentum can we see going ahead?

So first of all, I think what is -- our teams are in place and now after a bit of consolidation, which happened in the industry, what we see clients are back on the table, right? Everybody is now thinking about what next to do, what to be implemented. And I would say that at least in the smaller companies, Indegene making cycles are also more agile and shorter, right? That whole trend, coupled with the fact that we had our teams in place, right, we've got a solid team executing on this ground, has helped this. Suhas, do you want to add on anything?

Yes. Vinay, thanks for the question. This has always been our approach at Indegene to get the breakthrough, expand, get into the doors, get into larger projects. And as we transform those projects from one-off projects to larger annuity businesses and enterprise deals, we see our customers growing into that $1 million and beyond. And the success of those forays is what reflects in the increase in our $1 million-plus customers.

Okay. And on the BioPharm side, how are you rooting that? Because in the last few years, in terms of growth-wise [indiscernible] So are we seeing some good momentum on BioPharm post the acquisition?

It's just a quarter, but the customer conversations have been very positive. We have been taking them to our customers, and the customers are excited about the joint proposition. The pipeline is building up. We also had done shows with their customers, right? And their, I think, the acceptance was very high. Everyone was super thrilled at a company like Indegene has become a new home for BioPharm, which is much more specialized capabilities. We're going to see how this plays out. But overall, we are very bullish about what we can do with this business.

Yes, sorry. To add on to that, BioPharm, during the quarter, did $10.3 million of revenue on a stand-alone basis. And this does not include certain pass-through costs, which are the media buying costs, which are reimbursed by our customers. While typically in the calendar quarter 4 is a strong quarter for BioPharm, we feel encouraged by a couple of deals that we have won which include BioPharm capabilities, Manish already mentioned in his commentary the tandem IP getting integrated and being offered as a single offering to our customers. And it's early days on transforming the brand engagements to enterprise engagements, but we are having very serious and exciting conversations with our customers, both at BioPharm and Indegene customers.

Okay. And just one last question. We've always kind of given the guidance of mid-teens growth. But this quarter, even apart from BioPharm retail about 18% plus growth. So are we looking at a stronger market ahead? And would we look at maybe going at higher teens and sort of mid-teens on that?

Vinay, we would refrain from giving out any guidance going into the [indiscernible] But having said that, our performance quarter-on-quarter has increased as you saw last quarter as well as in quarter 3. And the tailwind pipeline that Mahesh already mentioned, has been robust. So we believe that this would be steady and increase year-on-year.

[Operator Instructions] We have the next question from the line of Satishkumar from Kotak Securities.

A couple of questions. One is now with the brand business, acquisition of [indiscernible] BioPharm are becoming significant for Indegene. I mean we have seen the growth in the bank businesses, lower in enterprise business. So any risk of drag on growth from the business near term? And second, what is the outlook for growth in the top accounts? And as the pipeline normalize for some of the accounts which were impacted earlier.

Yes. First of all, Satish, let me start with the last point. The pipeline in the large accounts is robust. Is this the conversion has taken more time than what we expected it to. So overall, we believe that over the next few quarters, you start seeing growth in top few accounts, right, top accounts overall. Even some of the customers where we had issues, right, I think we are gaining momentum, and we're getting back in [indiscernible] businesses. So that part of the equation looks right now, I would say, robust. Now as far as brand and enterprise is concerned, we don't see a risk of drag on growth, right? Because strategically, what we are doing is at -- Indegene has grown from the enterprise route, right? But now with GenAI with more centralization as a team, right, which is also driven by GenAI and the pressures on the industry, we clearly see an opportunity of moving upstream, downstream from a centralization perspective. A lot of the upstream processes, right, especially par with the brands, right? That's where centralization will play out. It's critical to have credibility with the brand teams. And we have acquired those capabilities, build those capabilities. Using that, we drive the centralization team at an enterprise level, right? And that is clearly how customers are thinking. It's still early days. A few customers have moved on that, and that's where we are seeing traction. But given what we have seen in the industry, over time, these things become a trend, right? And we will be benefiting from this trend. And if you think about it, there's nobody which we will be able to bring capabilities the way we do from enterprise and brand perspective.

[Operator Instructions] We have the next question from the line of Chirag Kachhadiya from Motilal Oswal Financial Services Limited.

A couple of questions. So you mentioned that the current pace for renewal cycle on calendar year perspective. So can you also like what volume Indegene we are witnessing from the ex top accounts? And second, also for the new logos, what volume increase we are expecting Y-o-Y experience? Also, from the pricing point of view, what are the time [indiscernible].

Sorry, could you repeat the second part of the question, Chirag? We couldn't hear you clearly.

Yes, sir. I was asking what pricing trend are you witnessing in the [indiscernible]?

Suhas?

Yes. So thanks, Chirag, your question. So firstly, as I mentioned, renewals have been fairly stable, right? And I would say on value terms, we're seeing this net-net to be in line with our expectation of what we started the year from an order book. And on top of it, we have added new customers where the 6-month, 3-month kind of engagements have now converted to an annual annuity business, and that is the volume increase or net value increase that we have seen on the renewals. Now more specifically, on the pricing front, we're not seeing any specific trends. What I would mention here is that there have been more customers where our cost of living adjustments have been accepted and very few where there were negotiations. And the net impact from a cost of living adjustment is positive. But this impacts a very small portion of our business given that this applies only on the time and material part of the business and the larger business as the catalog pricing of the fixed price contracts. And further, as I had already mentioned in the call earlier, there are pockets where we have proactively gone ahead and offered certain benefits to our customers coming largely out of sharing the GenAI-led productivity benefits that we anticipate. And we have expanded the scope by way of adding new deliverables that we would also start witnessing in the future. Now those volumes need to crystallize in the future. So there would not be an ability to put a hard number on that at this point in time. Hopefully, that clarifies on both your questions, Chirag.

I want to just take a minute to explain this because it's fairly important what Suhas explained. If you got to think about it, brands and marketing gets budget. GenAI is enabling per unit more to be done, right, at a per-unit level. Now any savings, the brand doesn't pass it on back to enterprise, right, because they are not incentivized to do that. They are incentivized to hit revenue targets. They come back to us and say, what else can I do, right? And that is what we are seeing with the increased catalog, moving upstream, downstream over here.

One question at BioPharm. In your other expenses line item, anything onetime gain during this quarter earlier not mentioned?

Yes. So as you rightly observed, what we earlier mentioned, these were onetime expenses which are the legal fees, diligence fees and the like that we pay on -- have paid to the advisers and therefore, the 3 transactions that we did on certain associated restructuring. This was $1.2 million in dollar terms. These are transient costs and not expected to recur going forward.

We have the next question from the line of Sucrit Patil from Eyesight Fintrade Pvt Ltd.

I have the following questions. My first question [indiscernible] As global life science companies increase emphasis on digital engagement, data-driven commercialization and AI-enabled solutions, how is Indegene positioning its platform and service offerings to deepen client relationships and expand its role across the pharma value chain? In addition to this, how are you balancing scale -- how are you balancing scaling your digital capabilities with maintaining execution excellence and long-term differentiation in the operative state? That's my first question. I'll ask a second question.

I would talk about your first question for [indiscernible] question. But listen, we are very excited about this work we won in the industry at this point in time. It's all -- while we started the company 27 years back, it's almost that we are waiting for this moment. Our broader positioning right from day 1 when we started the company was that we integrate deep medical expertise, health care expertise with technology expertise, right? And we continue on that part. Technologies came -- evolved over time. From early days, we are working on very, very early days on mobile. I'll keep on giving you an example of palm pilot right to phone-based platforms, digital and mobile. And AI is something which we have been engaged with from the last 9 years, right? 2016 is when I remember setting into the office of CTO. I'm saying we're going to take machine learning, computer vision and NLP and start writing productivity across the board, right, and effectiveness. So that's our broad positioning a company which brings domain expertise and technology, right, knows how to deploy technology and also reduces the risk of any noncompliance rate and customer spending much more time in educating their partner given the specialized nature of work we do. Today, we are positioning ourselves and in the market and what we are building is the next-generation company, which enables this global pharma industry to take a drug from the lab right to a patient [indiscernible], right? And whatever needs to be done for that whether the sales and marketing patient engagement regulatory services, medical affairs and parts of clinical trials, those are the areas which we are changing how they are done using GenAI, right. And customers are seeing that happen. Now as far as you think about how we maintain scale and operational excellence. I think that Indegene is pretty good at that, right? The operational you see track record over so many years, how we have grown customers, how we have employed maintained ESAT, CSAT, right, while preserving margins. That DNA is pretty strong in the company, and we continue to invest in that. Now there are multiple other things which we are doing, right? We're implementing a -- model in the company to strengthen processes. We are automating a lot of our internal processes. We have upskilling for our employees, right? We have GenAI for all as an initiative for employees. I can go on and on, right, across the board on some of these internal initiatives, which is something which we have been traditionally very good at. Suhas , do you want to answer anything?

Yes. So let me probably try and put some financial metrics out there in relation to this. The office of the CTO or our investments in these kind of forays that Manish already mentioned, in financial terms, is in the region of 1.8% of revenues, and this has been fairly steady over the last 3, 4 years now. So this continues. And on top of it, what we mentioned, the 1.5% or 150 bps investment for enhancing growth in future, a significant portion -- or a major portion of that is towards some of the acceleration initiatives in GenAI. And that's what we don't see any significant change in our margins here on because we are already investing and our financials already factoring these costs in past performance itself possibly.

That answers my second question also. Best luck on the quarter.

Thank you.

We have the next question from the line of Kawaljeet Saluja from Kotak Securities.

I have a couple of questions. First, in fact, from your presentation and our initial comments, it seems like AI will augment and accelerate your growth rate rather than acting as a headwind, which is the case for the rest of the industry. Is that understanding correct? And if yes, can you just lay out in simple terms as to how AI will augment or assess your growth rate?

You're absolutely correct. We are very clear that AI is going to be a positive tailwind for us. And here is why we believe AI is going to be a positive tailwind. Let me start with very specific thing of sales and marketing, right? So which is where we get most of our -- a significant portion of our revenues from Enterprise Commercial Solutions was the largest segment. And we won a lot in that area. There are certain and Enterprise Commercial Segments happened even came into existence over the last 15 years because of a few things: That as digital start happening, complexity the content volume increased many times, right, which was getting on to doctors and patients. The -- complexity increased for customers, and the compliance risk increased. The companies had to do more centralization and start taking as a theme. Some processes got centralized. We took a share of that. With AI, customers are saying that I could do much more, right? And AI is not going to be done in a decentralized way. If you think about a large pharma company with operations in 50 countries, 25, 30 brands, right, they can't be having all the brand managers trained and requesting them to do AI. They will have to drive more centralization. That's what we are seeing with some of the early companies. And they are driving more centralization and more processes, upstream, downstream, many more high value-added processes. And that's when -- as that is happening, right, we are positioned very well to take a large share of that. As I said, the specialized skillset and the internal tech stack, which we have built. Now I can extrapolate the same marketing example I gave to regulatory, to safety and, over time, at clinical trials.

Okay, that's reasonably clear. Just a couple of questions for Suhas. Suhas, first is that cash is back to where it was on a Y-o-Y comparison despite cash outflow for acquisitions. Have you taken on debt on your books? Or is that basically just an indication of strong underlying free cash generation? And what would be your OCF to pack conversion given that all the high amount of noncash charge in your P&L?

Yes. Thanks, Kevin, and a very important observation. Thanks for bringing this up. So cash flows have been significant, and we continue to generate significant cash. The balance is back to the past year levels despite the $65 million for BioPharm and a little more for 1. The OCF ratios to PAT is actually in excess of 150%, 154%, to be more precise. Given that there is significant noncash charge, as you would understand, that the intangibles on the book need to be amortized over the period, but this doesn't obviously impact cash flows. Our cash flow to adjusted EBITDA is also a very healthy 90% during the quarter. And that this enhanced ratio would continue given that the noncash charge has increased in the period.

Okay. The third question is like as far as actually for Manish as well. When you look at acquisitions, the can be fairly expensive when it comes to P&L hit due to monetization and the consequent earnings dilution that it causes. So when you look at acquisitions, is that a consideration? And if yes, how do you embed that into your decision making on whether to go ahead with an acquisition or not?

I think we -- when we look at acquisitions, the first thing which we look at it is what value does it add to our customers or the solution set can we do -- can we take whatever we are buying and combined with what we have and take a larger market share, right? So that's the, I would say, primary objective. And then subsequent to that, we are also very disciplined in terms of what we are willing to pay, right, for customers and for acquisition, which is what you saw. This is actually between the sub-10 EBITDA multiple, right? And a company which has IP, has technology platforms, so we are very disciplined on the price overall which we are paying. Having -- so that's the next figure, right, after the strategic filter. And of course, after that, we spend time in terms of how the goodwill amortization, all the stuff will play out and what will be the impact. And we try to do the best over there. But we're also very clear that we are being slightly more conservative, right, from an accounting standard perspective, we're not going very aggressive on -- as we have seen the -- some other companies in do, right? So we mean conservative on that. But Suhas, on the last point, you want to double click on and give your thoughts?

Sure. And Kevin, we have also provided some additional color even in the investor presentation on the amortization, including how these would ramp down over a period. We emphasized that in the short term, there might be some noncash impact, which impacts the PAT margin. But as this is a transaction we got for the long term, what we have also consciously done is provided new industry with how this would impact the margins going forward. And the ramp down in the amortization over the next 4 quarters and then the 8 quarters, this should get back to the sub 1.5% kind of a charge on our P&L. While in the near term, this might be having a higher impact -- on the impact. But our cash flows, as I already mentioned, will not get impacted, and we will continue to accumulate cash profits and go stronger on the balance sheet despite the noncash charges.

As you would see from amortization schedule, FY '28 itself, you start seeing bumps because of the lower amortization. And of course, FY '29, it gets completely, more or less, normalized, right.

And I'm just thinking of a couple of more questions, if you permit. The first one is that, of course, the focus is always in the long term, but you have to balance that with the -- that near-term considerations as well. And I think one of the areas where there is basically some apprehension is on EBITDA margin because that seemed to have declined. So let's say, if you are an investor, how do you get that comfort that with we have a trajectory on profitability. How would that shape out over the next 1, 2, 3, 4 quarters. So if you can just provide some broad direction, that's the first question. And second, is it -- can you detail out or flesh out your hedging policy? And does that need a relook in the context of the sharp currency moves, yes?

I'll kick it off and then pass it on to Suhas. As an investor, if you look at our track record, even the published one, right, as a listed -- which is available right, FY '22, we took a hit on our margins, to take more market share. And, then bought back the margins there in a few quarters, right? And we have very clearly laid down that in the next 6 to 8 quarters, we will get our margins back to the levels we were at, right? And we have done a game plan to that, right? Some bit of it's volume driven, but also we see pockets where we can drive efficiency over the last next few quarters between me and so as we are very actively tracking that and executing on that. We laid that out. And going back, I would also see that there is attractive out of doing that as recently as a few years back. Suhas, you want to double click and in more details.

Sure. The margins at an EBITDA level, we believe will hold and start improving going forward. Several -- as Manish already mentioned, there would be certain translation costs with higher growth rates, meaning higher upfront or setup costs, but these would get normalized progressively through the quarters going forward. Coming to the second part, hedging policy. These are reviewed periodically. We had done a review in the recent past, I should say, 6 months ago when we look back the head accounting versus the mark-to-market accounting, we've been doing that again in the current quarter. So we'll seek input from experts. We have currency experts who are advisers to us on retainers as well as people from the industry and review our practices to keep it consistent with what the industry does, but also importantly, what that means for us as a business. We believe that policies have resulted in the -- our financial performance not getting impacted adversely. This is a risk management policy. And therefore, adversely whether positively or negatively, given the drastic variations, and we believe that objective has been met. But having said that, we do review this on a periodic basis.

We have the next question from the line of Simanek from ICICI Securities.

My first question is on the change in classification. What's the reasoning behind leading omnichannel with UCS? And second is on the margin impact, which has been very sharp. So how has the absence of a [indiscernible] and onetime costs not resulted in material tailwinds for us? That's it from me.

Yes. Merging of these segments are concerned, omnichannel or brand activation was single digit as a percentage of our revenues, right? I think if I'm not wrong, it was around 8-ish percent of revenues last quarter. And on top of that, what we are seeing is the line between these blocks were blurry, right? As we mentioned, we have Tectonic and a lot of our enterprise -- what Enterprise Commercial Solutions is moving upstream is on the back of all the capabilities that reside in brand activation, right? We have an omnichannel business sitting in Enterprise Commercial Solutions. We also believe it's going to significantly benefit from rather deep BioPharm capabilities that exist at a brand level, right? So these lines are blending, and we believe that these distinctions no longer actually held right. Over time, you would see more and more larger deals happening in the enterprise space. That's the duration we are getting into where we believe that when change happens, enterprise wins, right? And we leverage the capability of brand activation. So that was -- it was more strategically and how we see the business growing, and that's why the collapse these segments. Suhas, can you comment on the margin?

Sure. Thanks. If I understood your question correctly, the rate hikes that we had in quarter 2, why is there no impact of that in quarter 3. Actually, the EBITDA margins, on a consolidated basis, has increased by 30 bps from the last quarter, which saw the rates hike. So this quarter specifically, there has been no an additional wage hike. And the onetime costs, which is adjusted EBITDA has cost 110 bps impact on the EBITDA margins. And therefore, the reported EBITDA would be 17.4%. And maybe you're also alluding to the labor for impact on our financials. Actually, there has been no material impact of the new regulations in India. The [indiscernible] court presenting in salary component charges given the higher gratuity and lean encashment for many companies. However, at Indegene, our comp structures have been such that we meet the threshold of 15% fo our base pay in part of the total comp of our employees. And therefore, for the past many years now, our gratuity and deal encashment progressing have been at an enhanced level, exceeding 50%. And if there are further changes, we don't [indiscernible] to be material.

We have the next question from the line of Seth from Fidelity.

Can you hear me?

Yes, sir. You're audible.

No, I think one question I had on the margins and EBITDA. So I think in your initial comments, you mentioned that EBITDA is expected to begin sequential improvement from quarter 1 of FY '27. So are we expecting some EBITDA decline in the next quarter? Or am I getting it wrong? Or I just wanted to understand that.

Yes. So that -- we expect the next quarter to be fairly stable and increasing thereafter. As we have mentioned in the past, there are certain seasonalities on margins of January to March quarter as the midyear wage hikes, which are typically [indiscernible] the main big sites are in the July quarter, which is already behind us. And in the U.S., we have the payroll taxes and benefits reset. We have significant presence in the U.S., about 700 employees, would have, again, enhanced cost in the coming quarter. While the rest of the operational costs, we believe would actually improve, these would offset some of those gains. And therefore, quarter 1 would be where the increase is anticipated. Also, the integration benefits, the cost synergies that we mentioned earlier in the call, have been actioned in this quarter, the benefits of which will also be seen in the coming quarter, which is quarter 1 of FY '27.

The short answer is you see a steady [indiscernible] climbing and then the increase will start from Q1.

We have the next question from the line of Shirish Pardeshi from Motilal Oswal Financial Services Limited.

Manish, you gave a little depth on the AI strategy. So my reference Slide #10. So I'm more inquisitive that if I look back 7 to 6 clients or maybe talk 5 and 10 clients. This scale up or the implementation or execution or inquiries, to what percentage of client it would have happened in top 5?

So I would say, is that all our clients, right, our GenAI- and AI-based products are being used. It's a very core part of our proposition, right. It's not a shift which is happening. Again, if you think about it, all our revenues were digital earlier. And as a natural evolution -- and by the way, our pricing was per unit. Remember that, that's a very important part. The commercial construct was that, right? From day 1, we were incentivized to drive automation, drive efficiency and effectiveness. And hence, we have been investing and deploying GenAI earlier in AI-based solutions, right, which, over time, became GenAI-based solutions in pretty much all our engagements. It's a very integral part of our operating model.

And if I split ECS and the other segment, where do you see this aggressive demand or maybe most cases ramping up from the client side?

Suhas, do you want to...

I wouldn't say that there is any specific trend on the demand side histories. But what we are witnessing is that the pace of adoption or change in the current of the near term is higher than on the commercial side, which tends to be typically in our past experience, faster in some of these initiatives compared to the enterprise medical side, wherein a lot of this is also risk management, compliance management functions, which tend to be a little bit more conservative or very deliberate and calculated in the adoption journey. But on the demand side, I would say there's no specific trend, both places we have seen conversations pipeline and demand shaping up with that AI embedded.

And you can actually -- if you just see in the deals, which I spoke about, right, they are in both commercial and medical space.

In the interest of time, we will take the last question from the line of Mohamad Patel from Edelweiss Public Limited.

I only have 1 question. Sir, I wanted to have clarity on the investments that we are doing. So we said EBITDA margin compression of 1.5% due to this investment. So I wanted to understand, what exactly is the nature of this investment?

We have hired a bunch of senior folks in our GTM, go-to-market teams, people who are solutioning, people domain experts, enterprise commercial solutions and enterprise medical solutions, both we have hired senior talent with some very specialized skill sets in markets, right? So that's some of the large investments which are there. And of course, as was alluded in this quarter, especially -- actually, in Q3, we also had some costs associated, projects with contracts, right, where we signed up orders and we started incurring costs where the revenue ramp-up will happen later. Suhas, you want to click on this?

Yes. Thanks, Eman. I would also request you to go through our Q2 commentary when we have provided the breakup of the impact, the 150 bps that we mentioned, to again emphasize on that. These were on 3 vectors. Manish already mentioned, the go-to-market, the second was capabilities, senior folks who work with both the operations and the go-to-market to provide the right solution, bringing in new technologies into these solutions. And finally, the GenAI licensing, cloud infrastructure and security costs that have been enhanced to ensure that there are the right infrastructure and controls and checks mechanisms as we start making more and more investments in this foray. We can't be left behind on those fronts. And to again, to make it clear, at the cost of repetition, these have already impacted us in Q3. These are not costs that will enhance in the future. This is already in the past. We had already provided that as the likely impact in quarter 3, the full quarter impact, and that is already behind us.

Thank you, ladies and gentlemen. That concludes the question-and-answer session. I now hand the conference over to the management for the closing comments.

Thank you once again for your active participation and continued interest in Indegene. We look forward to your participation in the earnings calls and such opportunities going forward. Appreciate all your questions once again. Thank you, and have a nice day.

Thank you, everyone. Thank you.

Thank you, management members. On behalf of Indegene Limited, that concludes this conference. Thank you for joining with us today, and you may now disconnect your lines. Thank you, everyone.