Onward Technologies Limited (517536) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Onward Technologies Limited Q3 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from EY LLP Investor Relations. Thank you, and over to you, ma'am.

Thank you, Sajal. Good afternoon to all of you. Welcome to Q3 FY '25 Earnings Call of Onward Technologies Limited. The results and presentation have already been mailed to you, and you can view them on our website, www.onwardgroup.com. To take us through the results today and to answer your questions, we have with us Mr. Jigar Mehta, Managing Director of Onward Technologies Limited. We will start the call with a business update and financial performance for the quarter, which will be then followed by a Q&A session. As usual, I would like to remind you that anything that is said on this call that reflects any outlook for the future which can be construed as forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with the SEBI and subsequent annual report that you can find in our website. Having said that, I will now hand over the call to Mr. Jigar Mehta. Over to you, Jigar.

Thank you, Asha. Good afternoon, and welcome, everyone. Thank you for joining our Q3 FY '25 earnings call. It's a pleasure always to connect with all of you again every quarter. I hope you had a chance to review our results and presentation of Q3, which we released a few hours ago post the Board meeting this morning. Let me begin by providing an overview of the performance of the last 90 days and highlighting the progress that we have made. Q3 despite being a weak quarter with a lot of holidays in India, North America and Europe and, of course, the big impact as follows. We -- our top line remained stable at INR 123.4 crores, reflecting a growth of 8.2% year-on-year basis and our EBITDA was at 9.1% for the quarter. We started the quarter and after my Q2 earnings call, we spoke about Q3, and we, as an organization, were expecting a bit higher growth. We had very clear visibility. And till December 15, most of our clients had very limited furlough planned, which was in line with what you already have budgeted learning from the experience of the previous financial year or the previous December quarter. But this time, we saw the impact much higher, and there were a lot of last-minute changes and a lot of our large clients and lot of them actually shut down for 3 to 4 weeks. So that did have a small impact on us. Otherwise, our numbers could have been much higher in terms of both revenue and bottom line. For 9 months, our revenue stood at INR 364 crores, a growth of about 2.8% year-on-year basis and our EBITDA stood at 8.5% for the year. We continue to believe that we will meet our first guidance -- first time that we have given a guidance for the year of INR 490 crores to INR 510 crores for this financial year and 9% to 11%, and we have good visibility going into Q4. And this continues to be again from our existing clients. Just to recap a bit about where Onward is today starting 2025 is we have 80-odd clients that we work with which are all headquartered in North America and Europe. We invoice with them on 3 currencies or 4 currencies. One is dollar, second is pound, GBP pound in U.K., euros in Germany and across Europe and INR in India. So even the North American customer has a captive center in India, we would work with their captive center or their GCC in India and their invoicing would be INR, but they will still be U.S. headquarter. We continue to remain very, very focused on 3 verticals. Industrial equipment and heavy machinery is our largest and continues to grow for us and has good visibility and we continue to transition more and more towards the software side from mechanical. Transportation and mobility where automotive is a main vertical, again, continues to grow for us, and we've seen a beautiful transition in 2024 where we had significant number of Tier 1 customers to large OEMs. Today, a majority of the large OEMs are on the direct supplier list and we are all working very hard to mine the clients, form the clients in North America and Europe. Each of that, just to give a quick more perspective about what that means in 2025 is each client will have a dedicated account sales manager, or ASM, as we call it, which will be locally based in U.S. and Europe. So traditionally, about 3 years ago, we spoke about hiring a lot of people in U.S. and Europe. Those are all the salespeople. We transferred a significant number of people to U.S. and Europe who had gone to establish our offices, establish our presence, establish our credibility, showcase our delivery competencies to our customers and prospects back then. Now all of them are returning back to India, taking up various other roles. And we are now hiring specialist account sales managers, which are seasoned, been there, done that for larger companies, larger strategy numbers in U.S. and Europe. So again, very interesting phase for us as we enter this new thing, especially in the automotive vertical. Third is our health care vertical, which we started last April. I think it's making decent progress. I think we can do much more and we will continue to see very high growth percentage there because it's at a very low stage, lower number, but there is a lot of room in terms of to build because -- to build the entire digital capability that we are doing for customers in U.S. In a short time of 9 months, we have won some remarkable brands and as customers. Now it's all about being relevant to them with building niche capabilities. Now coming back to our numbers. Our top 5 clients and 10 clients continue to remain stable. They are growing and we hope to add a lot more momentum with them in 2025. We have already signed client extensions with majority of them and we believe that there is a lot more work, which will come our way from these customers, and we are building the capacity for them. Our recruitment team, which was something that we were working on for the last several years is now becoming solid and more robust. We have 65 strong team. We used to have 100 back in the day when we were hiring a lot of different kinds of people all over the world. Now the model has changed. We have 65 specialist recruiters in our team as well, staffing our various projects. So our dependency on external skills is limited, external search firms and recruitment houses that also helps optimize cost for us. And in terms of infrastructure, very exciting things are happening. We upgraded a lot of our offices last year in 2024 in anticipation of what the big move for us in 2025 will be. So as we speak, we are in the final stages of signing a large office in Chennai, which will be the largest design center of Onward in India. And we hope to consolidate a large number -- a substantial portion of our delivery capabilities for industrial vertical and automotive vertical in Chennai starting Q3, Q4. So again, looking forward to that, that gives us an opportunity to set up labs, centers of excellence, [indiscernible] facilities and a lot of other stuff that we can do for our customers. And what's also very important here, again, from an investment perspective is this is not going to be additional cost, right? So the cost is already there. We have a lot of small, small, small centers all over the country, which we will consolidate into the Chennai facility. So that gives us the breadth and depth to showcase like a customer experience center and even for everybody on this call, so you guys can actually see what we do for our customers. So again, looking forward to that. Now in terms of outlook, as I said for Q4, we remain positive. We have a lot of hard work coming our way. Our teams are excited to be back in office in 2025 and we're definitely ready to make an impact. As mentioned in our previous calls, our strategy remains focused on disciplined execution for our existing customers, leveraging our core strengths in mechanical engineering, in embedded, electronics and building capabilities continuously on the software digital side. And we are pursuing strategic investments to unlock future opportunities. Thank you again for all your support and trust in us. I will now hand over the call to the operator to start the Q&A session.

[Operator Instructions] The first question is from the line of Jyoti Singh from Arihant Capital Markets Limited.

Sir, my question is on the active client side, we have seen decline. So if you can comment on that and what are expectations from Q4, as you have mentioned, we are seeing remain strong for Q4.

Sure. So our clients are not declining. I mean, it's declining from a mathematical perspective. If you look at the ER&D industry, and what our vision has been for the last 3 years and what is for the next 3 to 5 years, is we continue to believe that we need 10 customers, which can get to $10 million per year, which can deliver $100 million or match 20 customers at $5 million revenue per year, right? So we are strategically continuously focusing on customers that can grow, right? So that's where our strategy lies. So we want to spend all our energies toward the large customers who value us where we have the ability to deliver for them, right, the most competitive, most cost efficient and, of course, very high-quality deliverables. So that's what we are doing. So as I've said before, we would like to consolidate even further. I think 80 is a very, very large number for engineering company. It's very different than IT. IT services, pure play or BPO, where a large number of customers add more deal momentum. For us being relevant to a few customers is very important and then spreading out geographically with them globally is the right strategy is what I believe and our Board believes. So that's what we are going for. And the visibility that we have shared is based on our customers' feedback for Q4 the guidance that they have given us and the RFQs that are coming out and the RFQs that are already out. So we remain hopeful in terms of that we can execute and deliver on what our customers are expecting from us.

[Operator Instructions] The next question is from the line of [ Mihir Manora ] from [indiscernible] Asset Management.

[indiscernible]

Sorry to interrupt Mr. Mihir. I would request you to please use your handset.

Is it audible?

Yes, sir.

You guys mentioned that from 15 December onwards, there was -- I mean, there's furlough impact for you, and that was higher than what it was previously estimated. So I mean if you can quantify if the furlough would not have been there, what could have been revenue within the quarter on a broader basis? And also if the furlough is there for 3 to 4 weeks and should we see furlough extending even in January or half of January, how should we see the furlough impact for the balance part of the year?

Sure. So the actual number, I mean, it's hard to quantify the furlough impact. But if you look at it from a pure rupee perspective, the number is, I think, approximately INR 3 crores, INR 3.5 crores, right, that we did not see it coming. This is over and above what we had budgeted, apple to apple from the same time last year, right? So we did lose INR 3 crores, which went away straight to the top line and the bottom line. At the same time, we won a lot of other things as well, right? Last minute where customers had a lot of peaks or loads and our teams could ramp up towards that. So that's the impact. Did it extend to January? Yes, it did. I think till about January 5 or 6, whichever the last Friday of the first week was.

Sure. So it was not an extended furlough kind of a thing for January, right? It's only for the first week.

No, just the first week. And I think that's across the industry for what I understand.

Understood. Sure. Second thing was on the healthcare side. You know, healthcare is going to be a focus. Last time, interaction was there. Now this quarter, healthcare has come down for us. And given the new administration, which is there in U.S., so how should we see your healthcare strategy for here-on on the overall business side.

Heath care is a very exciting space for us. It's a very new space. We've been in the old school manufacturing belt for the last so many years since 2016 since I have taken over. Health care is very exciting in terms of what we are doing because we're not starting from the manufacturing side. We're starting to see from the digital side and the AI side. So our teams are working hard. We've built a good team. I've shared before my cousin, [ Pratesh ] is leading this. He's based in Chicago. And I think it's only going to gain from strength to strength, right? We're only very, very -- what we are clear with, Mihir, is a few things, right, fundamentals. One is we're only going to work with the top customers, the biggest brands in the world. And as a sales organization historically and as a culture, we have been successful in getting some of the biggest customers with health care in a very short span of time. So we entered the clients. We are only on the digital side. We want to go towards electronics and embedded, hardware engineering, software engineering, mechanical. So it will keep gaining momentum. What's important is we want to grow. I mean, quarterly is very wrong for me, it's too small to understand, I mean, to do the math quarterly. But on an annual basis, I think it will keep growing exponentially much faster than the other verticals. And we see clear visibility for that as we speak.

Okay, sure. Does the change in administration change the funding? And consequently, would it impact the sector, per se?

Sorry, I didn't get the last part.

I mean does the change in administration now, I mean Trump is there as the President in U.S. So does the change in administration impact the funding of the sector? And so consequently, would there be an impact for us on this vertical?

Again, it's only been 12 hours or less than 24 hours, I don't really know much. But what I can gather from our experience and what our customers have told us, I think it's only going to be positive for us in India overall.

Okay. Sure, sure. Understood, correct. One more thing was just on the revenue and revenue growth side. I remember last quarter, you had called out that you would expect growth on the revenue side, north of INR 120 crores. This quarter also, I mean, if you adjust the furloughs [indiscernible] growth. Should we see this kind of growth rate continuing for the next 4, 5 quarters basis the visibility or basis the interactions that you're having with your customers? Is there a fair and reasonable expectation on that side?

Absolutely. I've hired 2,500 people on my payroll to do that. So it's just not me. I have 2,500 employees working very hard globally to deliver growth and to remain relevant in our business and our industry, we have to deliver. If customers don't want a lifestyle partner who just stays and does whatever they were doing 10 years ago, right? So every quarter, they want to see us add value, do more things, build more capabilities, more competencies. So that's part of job. And please keep in mind, I have 2,500-plus employees doing that every day.

Sure. Absolutely, we considered respect in regard to that. The question is more with respect to the deal wins, which is there in the books and the interaction that you would be having for ramping up of those deals. So keeping that in mind, do you see this growth continuing?

I think so. We see good visibility as we speak, Mihir, I'm currently in Paris meeting customers. And everything looks positive from that perspective. There is a slowdown, there are some challenges. But for a company of our size, the visibility continues to remain very strong.

Sure, sure. And just last question was there on the ESOP side. I mean this proxy advisory form, there is a press release that you have given a clarification. If you can provide some details on clarity over here as to what is the size of the pool? And when will that vest and what are the preconditions to vest that? And who all are the beneficiaries of that pool, that will be really helpful.

I don't have all the specifics here. I can give you a quick background about the new ESOP scheme. So the new ESOP scheme is based on the market price, which is completely -- so it's not -- first of all, the new ESOP scheme, which is out there is based on the market price. It's a discount based on that. And that was actually based on the advice and feedback given to us by all our investors in the past, and of course, guided by the Board. Number two, it has not allotted to anybody so far, not even one employee. It is just a scheme to replace some of our old schemes when we were allotting shares -- allotting ESOPs to employees at INR 10 per share or INR 20 per share irrespective of the market price. Now it is a discount in the market price, right? So it's a huge change in terms of upgrading the current policies where we are. And third, in terms of the proxy advisory firms, they wanted to add that terminology performance based. And absolutely, the whole company is based on performance and merit only. Nobody is given ESOPs -- we pay very well, and we are very proud that we are a well-paying company. Our attrition continues to go down every day. So it's more about performance only, and they wanted that in written, and we have given that.

Understood. Sure. And just lastly, I mean, how many employees are completely covered in this new scheme?

As of today, 0, but all 2,500 employees are eligible for it based on performance.

Okay. Okay. So it will be individual performance and then given. Understood.

We have 3 performance units as an organization. We have company performance, where maybe the top 40 or 50 people are measured on. Then we have a respective regional business unit performance, which is a much larger pool, maybe about 30% or 40% of our workforce. And then there are individual contributors. So everybody is eligible. In the past, we have our security guards to our admin people to HR, to recruiters, besides, of course, the delivery and sales people getting ESOPs. So -- and that's how we've built a beautiful company, and that's what we are very proud of.

[Operator Instructions] The next question is from the line of [indiscernible] from [ Thermopads Private Limited ].

So my first question is about the revenue guidance you have given for FY '26 of around INR 600 crores. So are we going to achieve that? And regarding the EBITDA margin. So from next quarter onwards, can we see double-digit EBITDA margin?

Yes. So on the first question, we have given a guidance for next year, and that guidance continues to remain strong, and we are very positive towards that. And the guidance, again, is based on our existing customers and the visibility they have shared with us last quarter. And in terms of Q4, absolutely, as I said in my opening remarks, we are working very hard to deliver the projections that we have shared in the last earnings call, which is revenue of INR 490 crore and INR 510 crores and 9% to 11% EBITDA, absolutely.

And sir, digital was the fastest-growing segment for us. But from last few quarters, it has dropped significantly to around 20%. And now we have seen improvement in that. So can we see that it's again contributing to around 40% of the total revenue going ahead?

Absolutely. I think very soon, what's going to happen is, I think we are waiting for 1 or 2 more quarters. And overall, we will start breaking up the company a bit differently into from -- instead of giving 3 categories of digital, embedded and mechanical, we will give only 2 categories, which is software and mechanical or old-school manufacturing engineering, which is not using the cloud or any of the AI tools in line with how the industry is sharing numbers. So software continues to be where the biggest demand is, and we're continuously building capabilities bench towards that.

So digital is our high-margin business, right?

It used to be. That's why I clarified before as well, if you remember last year or 2 years back, Digital used to be the highest -- high-margin business for everybody in the industry. Today, when you work with the biggest companies in the world, the margin profile continues to remain the same. Where the high margin is in terms of niche skills versus generic skills. So if you're building something for the future, that's where the high margins are.

Okay. And sir, can I know the current order book structure like ratio of repeat revenue versus project-based business? So you earlier said that project-based business will be higher. So can I get a kind of idea about the ratio.

I don't have the exact details. I think you're leading to TCV or ACV. I think our IR managers, Ernst & Young can share that with you. if you could email them your questions, I'm sure they can answer all the specific details, the breakups.

[Operator Instructions] The next question is from the line of Varun Kulkarni from InCred AMC.

I have three questions. The first one being, I think you've already answered that, but I would like some reassurance on that front. So if I were to look at the average of the 3 quarters, the EBITDA margin stands at around 8.4%. So for that, I'm assuming you'd have to deliver an EBITDA margin of, say, 11% to 12%. A, how confident are we on that? B, my second question would be, you mentioned that your strategy is to have 10 clients who would each contribute $10 million or $100 million, right? So is there no concentration risk in terms of that? Because wouldn't it be better to have a diversified clientele. And C, I remember attending one of your calls in which you have said that you would want to increase your revenue by geography in the U.S. region. So historically speaking, that number seems to be dipping like we are at 36% -- sorry, yes, we are at 37%, if I'm not wrong this year. And the India region continues to grow. So what are your thoughts on that.

Yes. Thanks for the questions. So I'll go point by point. So on the first question, your math, I guess that's the right math and we feel optimistic and we are working very hard to deliver those numbers. So far, the visibility looks good for Q4, especially there's no furloughs and where you make a number of holidays and there are 62 working days. So that adds value -- that adds the necessity depth in terms of delivering those numbers. On the second question, in terms of concentration. So when I say 10 customers, it doesn't mean Onward only have 10 customers. What we are simply saying is, let's say, if you have 80 customers, you cannot win all 80 battles, right? There's -- we are now competing against 6 or 7 of the largest engineering companies in the world. The beautiful part for us and everybody else in the industry is the industry is growing. I know there are some reports out there the industry is degrowing. I don't think that's a fact. Industry is only growing. And the India advantage is going to be even bigger and larger in the next 3 to 5 years, right? So I continue to remain very optimistic towards that and directly being a sales guy on the road. So that's what I see every day. So what we are seeing is 10 customers out of 80, if we win those, that's where the real engine is. And what I do every day is I want to make sure my best people, my top-performing people are focusing on the top 10 customers. Right? So you put your -- you're not putting all your eggs in one basket, so that's what you're doing. And the third point I clarified in my opening remarks. So all our customers are U.S. and Europe. So what's happening is a significant portion of our customers in U.S. are opening GCCs in India already have or already has large ECCs in India? So that's why I clarified. So when you are seeing revenue as we report in our IR deck, U.S. in -- sorry, dollar revenue comes in the U.S. bucket, but there could be U.S. customers in India which is the GCC, which is in the INR bucket.

Understood.

I just want to make sure I clarify that. And we are happy with all of them because now the numbers are not changing. Earlier, the number was a challenge. We -- companies didn't want to work with GCC. We love working with GCCs, and I think it's a very fair play in terms of what we have done, especially over the last 12 months.

The next question is from the line of Dhvani Shah from TCG AMC.

This is my first time attending this call. So in case the questions are not up to the remark. But one thing I want to understand that the range that you've given in terms of your guidance implies that the Q4 could be 2% to 18%. I just want to understand the puts and takes. I understand the optimism built in with your conversations with the clients, but maybe you could specify in terms of the verticals or what do you think will lead the growth?

Sure. So just reinforcing again. Our confidence is we are a delivery-focused organization now, right? Our visibility is not based on new clients and new wins and new deal wins. Our visibility is based on the pipeline, our existing clients have shared with us. So even today, we have a significant portion of people who have been trained in 2024, maybe in Q1 or Q2 and Q3 and now ready to get on to projects. So we have a significant portion of those people already in-house. Number two, we have a very strong talent acquisition team that we're constantly hiring in the market. So we are doing that part. Number three, every year in Q3, Q4, end of the year, there's the bottom 5% performers impact that comes through as well, right? So we hire a significant portion of people in Q1 to accelerate the year, some perform, some are not that lucky. We remove the bottom 5%. So that adds to the cost -- adds to the margin as well. So a lot of balancing stuff that happens in Q4 for us, right? And we are hoping, I think, this time, my HR organization has done a fabulous job to do it structurally from July time line, right, proper performance reviews, trainings, career paths, and I think that gives us a much better visibility. But fundamentally, net-net, it's the 3 verticals. It's the existing clients. A significant portion of our 80 clients, not all of them, are looking at ramping up in Q4. And I think we are the right place. We have to just execute.

Understood. And just one more question. The entire industry has been mentioning about slowdown in the auto industry. I understand your size is on your side in terms of smaller company. But can you let me know if there are any kind of client conversations that could hinder your Q4 and maybe that's why there is the lower band, which implies a 2% growth.

Sure. So I think your first point is very valid. I think the few -- 2 or 3 of the largest automotive engineering companies. The scale is much bigger, so we are talking very different stuff. And maybe they might have projects which are winding down, but new projects will start. As I said, the industry is only growing from an India perspective. On the second question, so I'm currently in Europe, as I was saying earlier, I met a customer yesterday. We have multiple meetings in the next few days. Again, the visibility continues to be very strong, right? All the customers have huge cost pressures. Majority of the automotive OEMs have anywhere from 30 to 300 suppliers, Onward not being one of them. And they are engaging with us because they genuinely believe that we can deliver and the references other clients are giving them is really adding a lot of depth towards our meetings, right? So our meetings, which traditionally used to be sales meetings today are very focused on RFQs, today are very focused on value. And I think that's where the confidence comes in for me and my team. So there's going to be vendor consolidation in automotive industry. There's going to be huge pressures. There's a lot of factory shutdown across U.S. and Europe. And majority of the work delivery-wise has to be in India. Like I was alarmed to learn and also happy to see that companies in Europe now are working -- have asked their engineers to work 8 a.m. to 8 p.m. five days a week. It was unheard of one year ago. Today, people are working, and I'm seeing offices with high energy, high motivation and so much and positive energy that things are changing around us, and that gives Onward a great visibility as well.

The next question is from the line of Krish Kothari from Shinobi Capital.

I actually have a question that's sort of an extension to the previous one. Specific to the auto sector, if there is some sort of downturn that's going on right now, how do you -- in your conversations with clients, how do you maneuver your positioning of Onward to showcase how valuable you are to them at such a time?

So fundamentally, there's two points, right? One is when you are saying there is a slowdown in automotive, it's not applicable to all the companies, right? If you look at the automotive industry even today, there's a 50% slowdown for companies which are in the EV space and then a 50% slowdown in companies, which are going through strikes or leadership changes. But ours -- I mean there is a lot of work that happens, right? So one of the -- like most of the companies that you meet OEMs out there have average of 10,000 engineers to 25,000 engineers. That's a broad figure, right? I think you have kind of seen all the reports on that part. Traditional automotive OEM will have that many engineers. Out of that, 70% they do in-house and 30% is what they outsource. Onward, clearly, is in the 30% outsourcing space, which is worth hundreds of millions of dollars, if not billions. So what we are talking about is very small. So there's a slowdown, 10,000 engineers become 9,500. I hope I'm giving you statistics.

Right. Right

10,000 doesn't become 5,000. The work continues. It is just that they are working on the new hybrid models, the new EV models and new versions or upgrades slows down. Onward Technologies regardless is not playing in that space today. We are not competing for those large multimillion dollar or hundreds of millions of dollars of transformation projects. We're still working on small, small, small projects. So for us, we don't get affected by that big slowdown that everybody talks about. Where Onward gets -- my team gets affected where we get affected every day, every quarter is when we were working with the -- or paying our dues with the Tier 3s, Tier 2s, Tier 1s. So that -- those are cyclical. And we're out of majority of those kind of projects and contracts. So our impact is much less today than it was a year ago.

Okay. Got it.

Hope I clarified.

No, I got it. I got the point you're making. My other question was actually from a 3- to 5-year perspective. I'm trying to gauge the scope for operating leverage within the business. And I'm trying to understand that the incremental, say, if you go from INR 500 crores to INR 800 crores top line, is that possible with very marginal increases in headcount? Or I mean, just put more bluntly, do you think your revenue per employee will increase significantly over the next 3 to 5 years?

That's where we are working towards, right? That's what we clarified before as well when I spoke about the whole U.S. strategy or approach. Traditionally, about 90%, 95% of the market for us is U.S. whether we invoice in dollar, euro, pound or rupee. It doesn't matter with U.S.-based companies who have a very mature outsourcing model. Europe is picking up in a big way. A lot of the other engineering service providers are doing a fabulous job there. We don't -- we are not that heavily invested in Europe. But we continue to make inroads and we are doing a decent job. Our teams are growing every year. Our business is growing every year. So for us, I think you will see us being around this headcount, 2,500 or 2,000 or 3,000 people range and we're going more and more deeper and moving up the value chain with our customers. it's not about adding 2,500 more people to get to double up the revenue. So revenue per person, gross margin per person, everything will increase. I said the same thing 3 years ago when we were 2,500 people, I think half the revenue. We have the same headcount and double the revenue now. So I think you will see that continuously as far as we keep investing in training and upskilling our engineers.

The next question is from the line of Vikas Mistry from Moonshot Ventures.

Jigar, in last conference call, for last 2 years, our strategy has been to build the U.S. and now from your opinion, it seems like that they're comfortable with GCCs. Is there a dichotomy in the strategy that -- where we are targeting customers from U.S. now they are asking us to just stay in GCC in India and bill rates will be much lower than U.S.

So there are 2 points. One is there are 2 types of GCC models. One was a GCC model when we were working with again, the Tier 1, Tier 2 suppliers. That was a very different model. It was a very transactional model. When I say transactional is you're working -- there is a great job 11 months in the year. And the 11th month, they will send back 50% of the staff to your office. It was a very different model, very cost-based model. And that's why we never enjoyed working with GCCs. And I think most companies did enjoy working with GCCs. I'm talking about the larger, let's say, the top 6, 7 engineering companies. Today, if you see it's a very mature GCC model, right? It's not like a grocery store, you come and go. It's actually a very -- you're an extension of the client's R&D department. There's a lot of respect, there's a lot of training. And the GCC is also very clear -- it's a very -- it's a highly integrated model, and we highly enjoy working with them. We are learning a lot. They are spending a substantial amount of time and money on training our engineers or the whole industry as a whole in India. And I think it's a win-win situation. So the GCC attrition rate, which used to be about 30%, 40%, 50% just a few years ago, I think it's down to single lower digits for everybody now. right? So that's the first part. The second part on the U.S. side, U.S. continues to be our focus. That's where our investment goes. And we will continue to invest big in U.S. every year. So a substantial portion of our budget goes to U.S. and we are making progress. It's not at the speed I would like. Obviously, we're growing at low single digits this year. So there's nothing really to be talked about. But we want to grow in U.S. and we do believe Onward's future growth continues to be if we are successful in the U.S.

Okay. Jigar, extension of that question, what is the bill rate differential if similar client tends to give business in U.S. and similar client tends to give business as a part of GCC.

I don't know if I can share those kind of numbers in this forum. You can reach out to E&Y and maybe they can share what -- all the public information out there.

Sure, sure, sure. Okay. My final question is that you said that we are in competition with top 4, 5, 6 companies. What gives you comfort that you will be moving up the value chain and what capabilities you have developed in maybe last 1 year, that gives you more comfort that you will win over more customers and try to give more value addition as compared to all other companies. Though your wallet share is lesser, but capabilities are much more necessary, so my question pertains to the capability point of view.

Sure. So what I clarified was the industry is growing. So we are not competing with the larger players. It's not possible to compete when they have that level of delivery depth or huge investment in labs and centers of excellence. What we have done is we are now working with the same customers where the large ER&D service companies are playing, right? Where they have been dominant for the last 20 years, 10, 20 years. We have a new company out there. So for us, it's just a privilege to be there. The beautiful part I've always shared before, we are in an industry which is growing. The Indian outsourcing industry is growing. We don't see a slowdown there. And customers have never asked us to compete other Indian companies. As I said, I'm in Europe right now. They are asking us to compete local European companies, which are 5x or 7x more expensive. And that's where we want to play. That's where we're building capabilities. So for example, if a customer gives us an option which is, okay, there's another Indian company in South India doing this, can you make it cheaper? We usually walk away from the deal. I've always said that. But as they say, this is what another French company is doing or the German company is doing or American company is doing, can you build capabilities for us there, and we see a huge visibility where we can ramp up 100, 200, 300 engineers, that's where Onward will invest.

No, that's understandable. But [ entire ] of the question was not that you're competing with the Indian counterparts, we already know that Indian ER&D industry and this industry continues to grow market share from other competition. The question point is that what capability you have, let's take SDV, in SDV,what capability you have that will give you further market share to be gained out? I mean what -- let's assume in health care, what capability you have built it out? Would you find that, that will be much, much better from your perspective?

I highly recommend why don't we plan a visit to one of our facilities in Pune, Chennai, Bangalore, that will give you -- this is again a wrong forum for me to share information because, obviously, customers -- all our projects are based on customers and we signed very strict agreements with them. But very happy to showcase all the delivery capabilities that we have built for our customers, ODCs that we have built for our customers. Our new office in Chennai will be launched, which will house more than 1,000 engineers. That will show you the kind of depth and breadth of capabilities that we have built. E&Y can again organize that a lot of people visiting all the time.

The next question is from the line of [ Shyam Rajan ], who is an individual investor.

I think I just picked from the last question that the previous gentleman was asking. Just keep your capabilities aside, but in terms of skills, are there some niche skills that we are building capabilities proactively on?

[ Shyam ], no. We are not building anything new, which our customers are not asking us, right? So we have not got to the stage today. We need to get to 15%, 18% EBITDA margins to invest 3% to 4% back in very futuristic skills. Today, we are in a very focused execution mode that I shared a year ago. And I think for the next 1 to 3 years, we will be in execution mode just to sort of get the company back on double-digit growth and double-digit EBITDA. That's the first vision. So we have actually proactively cut down drastically compared to 3 years ago post the pandemic where we invested in building a lot of new skills on [indiscernible], particularly.

Understood. I think that's the wise thing to do. Jigar, just in terms of -- I think somebody else asked this question that the guidance for FY '26 remains at INR 600 crores. Based on what you see today and the EBITDA that you said in the previous quarter was -- in the previous conference call of last quarter, was that it would be better than the closing EBITDA for FY '25? Does that still hold good for us to bake in the forecast?

Yes, absolutely. That's what we are working towards. And as I said, I already shared some of the points as well. Another big point also, which I just -- my team just pointed out was a substantial part of our investment in automation also has been completed. We have built -- we took a lot of our internal systems that were outsourced with other very high-end expensive things, which were not catered to the ER&D industry. We have built our own OTL apps that all integration is going on beautifully. And that cost also comes down drastically, I think from March itself. So yes, I think double digit is what we should be playing at where Onward should be at. I think sky is the limit as far as we can get our execution capability, right?

Just a last question, Jigar. I think maybe somebody asked this question, but I just thought I'd specifically ask it. Given the fact that this -- and I had a chat with the E&Y team maybe 3, 4 quarters ago on this topic. But I think we're facing the impact in the market today. The impact of automatic code getting generated through generative AI. So we also built some utilities for that. So we're able to see knock out 20% of the actual engineers who do the coding. So when you look at the digital side of the business, if there's a modernization project, upgrading from a particular version of Java to the next version, just taking us modernization. Actually, robo is able to do it and just needs somebody to make sure it's all okay at the end, just the final pieces. Is that coming and impacting us? Do you see that in some way impacting Onward?

Not so far, [ Shyam ]. We haven't seen that. But is Onward engineers working on stuff like that for various projects? Probably at customer sites, not in our offices. In our promises, customers more and more asking us not to use any kind of AI, including the meeting that I'm having in Europe right now. For the enterprise level, we are not seeing that. They're seeing it on the IT side in the CI organization, not in the engineering, research and development organization yet. And I'm sure it has to comment. The benefits are so many. I think moment one company starts, everybody else we follow the track.

[Operator Instructions] The next follow-up question is from the line of Dhvani Shah from TCG AMC.

Just one clarification that you have a portion of your revenues, which are legacy revenue. Could you just let us know what's the percentage of that legacy revenue?

It's 0.

Okay. Another portion now in digital and ER&D segment?

Sorry, not very clear. If you can just speak a bit louder.

So 0% is legacy revenue, right?

Yes, 0.

Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.

Thank you. Thank you, everybody, for joining us today. Just to summarize, we are coming off 2 years of single-digit revenue growth. We have a lot of work to do as an organization, and we are doing that. We have a beautiful team working very hard and we're constantly making the right steps or corrective steps to make sure that we build a high-performing organization. And we are privileged to work with some of the best customers and companies in the world in the 3 verticals that we are focused on. And as i said, sky is the limit in terms of what we can do with them. And a lot of work is going on in the background, and we remain committed in terms of the building a great organization. So thank you again, and have a great evening.

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