Persistent Systems Limited (PERSISTENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Persistent Systems Earnings Conference Call for the Fourth Quarter and Full Year FY '21 ended March 31, 2021. [Operator Instructions] Please note that this conference is being recorded. We have with us today on the call, Dr. Anand Deshpande, Chairman and Managing Director; Mr. Sandeep Kalra, Executive Director and Chief Executive Officer; Mr. Sunil Sapre, Executive Director and Chief Financial Officer; Mr. Saurabh Dwivedi, Head of Investor Relations; and Mr. Amit Atre, Company Secretary. I would now like to hand the conference over to Mr. Sandeep Kalra. Thank you, and over to you, Mr. Kalra.

Thank you. Good morning, good evening, everyone. It is good to be here with you once again. I can really hope all of you are safe and healthy. As you would have noticed, we delivered yet another strong fourth quarter bringing FY '21 to a strong close. Before I go into the financial and business updates, I would like to start this call by thanking our team members and customers for their resilience and their trust in us during these unfortunate times. Our team and our customers are the backdrop of the continued industry-leading performance, delivered by us over the past 10 quarters. As of this point in time, some of our employees and their families are affected by the second wave of COVID happening in India. And we sincerely pray for their speedy recovery. In view of the ongoing pandemic, we have announced several initiatives to support our team numbers, including local support groups, and undertaking the cost of vaccination for all our India-based employees and their families. We have already embarked on this vaccination drive and expect to start an even more vigorous vaccination campaign, starting May 1, when vaccinations become available for all adults in India. Also, as you know, the medical infrastructure across India is under significant pressure. In this context, Persistent Foundation is helping us do our part and its existing hospitals in our local communities in India, by donating ventilators and oxygen equipment. As you may remember, we did a similar drive globally earlier in the first wave of pandemic. We sincerely pray for everyone's wellbeing and hope that we can bend the curve in the right direction soon globally. Now let me turn to the business and financial updates for Q4 and FY '21. We are happy to share that we delivered yet another strong quarter, delivering continued progress on all major business matrix. The revenue for Q4 came in at USD 152.8 million, growth of 4.6% quarter-on-quarter and 20.3% on year-on-year basis. In rupee term, this translates into a growth of 3.5% Q-on-Q and 20.2% on year-on-year basis respectively. It's worth noting that this is the first time after a gap of 4 years that we have grown on sequential basis in Q4 over Q3, overcoming the seasonality of the IP business with strong services growth. For the full year in FY '21, the revenue came in at $566.1 million, showing a growth of 10.9% over FY '20. In rupee terms, this translates into 17.4% year-on-year growth for a full year basis. On the EBIT side, the Q4 came in at INR 1.64 million and EBIT margin of 13.2%. This translates into EBIT growth of 7.4% Q-on-Q and 70.9% on Y-o-Y basis. For the full fiscal FY '21, our EBIT came in at INR 50.75 million and EBIT margin of 12.1%, translating into EBIT growth of 55.2% over the fiscal FY '20. We had yet another strong quarter from an order booking perspective. The order booking total contract value for the quarter came in at $246.5 million compared to $302 million in Q3. The ACV value, which is the annual contract value of this booking is to the tune of $200.7 million. To put in context, Q3 is usually the seasonally most strong quarter for us, given 80% of our revenues come from the U.S., and that is the fiscal year close for the U.S. Since this is the second quarter of sharing this data, I would like to clarify that this data includes all bookings, small and large, renewals as well as new bookings, existing and new customers. Our collections for the quarter was very good sequentially. The DSO for the quarter moved to 55 days compared to 57 days in Q3. Cash on books at the end of Q4 stood at $268 million. In terms of employee numbers, we had yet another strong quarter in terms of employee addition. We added 1,242 net hires. The lateral hires out of this were 1,037, and fresher intake for the quarter stood at 205. The attrition for the quarter on trailing 12-month basis is 11.7% compared to 10.3% in Q3. From a salary-increase perspective, we had done the last salary increase in November 2020. The regular salary increase cycle for us is July, and we will continue to do direct salary increment in July 2021. Turning to the dividend part. Our Board has recommended a final dividend of INR 6 per share, which takes the total dividend this year to INR 20 per share. Sunil will talk more about it in his part later in the call. I'm also happy to share with you that we have given our strong performance this year, announced more than 100% corporate bonus, which is based on the company performance for each of our employees. Further, given the ongoing pandemic and the resilience shown by our employees, we spent a onetime amount of USD 600,000, in giving a resilience gift to our entire team, globally. This was in appreciation of the extraordinary efforts put in by our employees and the resilience exhibited by them, making sure all our deliverables were on time, all the time through this pandemic. Coming to the M&A front, the integration of CAPIOT is progressing very well. We have seen some meaningful wins in our data integration business, working with CAPIOT in our existing accounts and renewal accounts. We continue to stout for potential targets in our focus areas and hope to give you a meaningful update in this coming quarter. Now let me give you the quarter's performance from an industry segment and service line perspective. From an industry segment perspective, the growth for the quarter was led by BFSI and Healthcare & Life Sciences, which grew by 6.9% and 6.1%, respectively. On a year-on-year basis, the growth of BFSI and Healthcare & Life Sciences were 15.9% and 20.9%, respectively. The growth in technology companies, which includes our largest customer, was 2.7% for the quarter and 22% -- 22.8% for the year-on-year basis. So overall, across board, we saw a fairly healthy growth on a year-on-year basis and even on a quarterly sequential basis. From a service line perspective, all the service clients did well for us. The growth was led by digital engineering, cloud, security, data, all growing meaningfully in Q4. Turning back to our 2 organizational units. Technology Services came in at a revenue of $120.7 million with a sequential growth of 8.2% and a year-on-year growth of 22.1%. For the full fiscal FY '21, the Technology Services business registered an industry-leading growth of 18.4%. The Alliance business was subject to the traditional Q4 seasonality as you would all know. It had a degrowth of 7.1% quarter-on-quarter, coming in at $32.2 million. However, on a year-on-year basis compared to Q4 of last year, the Alliance business showed a growth of 14%. For the full fiscal FY '21, the Alliance business generated marginal degrowth of 2.7%. Despite this marginal degrowth, we are excited about the progress that we had made in this business in the recent time. We've also bagged a couple of large deals over the Q3, Q4 period for us, and that gives us confidence in the ability to bring a predictable, profitable growth in this business going ahead. The year FY '21 has also seen us optimize the cost in this business, and we will continue to figure out avenues of doing cost optimization in the IP business wherever prudent. In summary, on the Alliance business, we are prudent in adding profitable growth, and we are optimistic of continuing that on an ongoing basis. Turning back to the update on ESG initiatives. As you know, Persistent has a long-standing history of embracing strong corporate governance, CSR and employee satisfaction. We are in the process of appointing an ESG consultant to defining the ESG road map for the company and start measuring against the standard ESG framework. And we'll give you more details in this regard in our annual report for FY '21. Now I'll turn the call to our CFO, Sunil Sapre, to give a detailed color on the quarterly NAV financials. I'll come back after Sunil's comments to give you more details on key client wins, other awards, recognitions and a few more. Over to you, Sunil.

Yes. Thank you. Thank you, Sandeep, and good evening, good morning to all of you. And I hope that you all are keeping well and staying safe in this challenging time. Sandeep has already given you a fair amount of details on the financial stuff. I'll give you some more details on that. So the revenue number at $152.82 million was a Q-o-Q growth of 4.6% in dollar terms and 20.3% in Y-o-Y terms. On the rupee revenue, we had growth of -- the rupee revenue was INR 11,134 million, a growth of 3.5% Q-o-Q and 20.2% Y-o-Y. So while there was a different IP-led revenue due to the seasonality, as Sandeep alluded to, the strong growth in services revenue absorbed this dip and we were able to post a net growth of 4.6%. For the full year, the total revenue was $566.08 million with a growth of 12.9%. And in rupee terms, it was the INR 41,879 million, with growth of 17.4%. If you take the segments that we have in terms of the IP-led and services business, the services revenue grew by 8.6% and the IP-led revenue had a decline 13.8%. In terms of industry verticals, BFSI and Health care saw good growth of 6.9% and 6.1%, respectively. While the technology companies, where we have the maxim of the ISV business, grew at 2.7%, essentially because of the seasonality in the IP-led business, which gets accounted over the year. In terms of linear revenue, the offshore revenue, linear revenue grew by 11.2%, all accounted due to volume growth. And the on-site linear revenue grew by 4.2%, comprising of volume growth of 5.4% and decline in billing rate by 1.1%. As you will be aware, we had a pay hike announced in November 2020 for all the employees. The last quarter had 2 months effect of the pay hike, the full effect of the pay hike has come in this quarter. We added 1,242 net employees in this quarter to build capacity for growth and service some of the existing this quarter's growth. The royalty revenue being lower also affected the gross margin to some extent. And then there was currency movement, which also impacted margins to the extent of 40 basis points. So cumulative impact of the headwind were partly compensated by the organic growth that we saw significant growth in the services business of 8.6%. The fact that the retail revenue was lower, and we also optimized on the IT person month. And from an overall deployment point of view, there has been increase in the offshoring effort, which you can see in the personal data. So all these margin drivers taken together had an impact of 40 basis points on the gross margin, which came in at 33.9%, 40 basis points lower than the earlier quarter for 34.3%. The SG&A expenses were 17% as against 17.3% in the previous quarter. As you will recall, we had announced COVID-relief donations of INR 250 million at the start of the year. And we have by now contributed INR 170 million during FY '21 towards that. The EBITDA for the quarter was 15.9% as against 17% in the previous quarter. And for the year, it was 16.3% as against 13.8% in the last year. Coming to depreciation and amortization, which accounted for 3.8% as against 4.3% in the previous quarter. The EBIT came in at 13.2% versus 12.7% in the previous quarter and for the full year it was 12.1% as against 9.2% in the last year. So over the year essentially, you would have observed improvement in EBIT. Treasury income for the quarter was INR 211 million as against INR 288 million in the last quarter, primarily on account of interim adjustments on mutual fund investment, arising from increasing yields that happened in the month of March post the union government -- the union budget announcement of significantly higher government borrowing program. The ForEx gain was INR 174 million due to the end-to-end gain on hedges as against a loss of INR 2 million in the previous quarter. With that the profit before tax was INR 1,849 million at 16.6% as against 15.3% in the previous quarter. The ETR for the quarter was 25.5%, and VAT was INR 1,378 million at 12.4% of revenue as against 11.2% in the previous quarter. VAT for the full year was INR 4,507 million at 10.8% as against 9.5% in the last year. EPS for the year was INR 58.97 per share, a growth of 32.9% Y-o-Y. The operational CapEx for the quarter was INR 281 million. We have cash and current investments on books amounting to INR 19,831 million as compared to INR 19,037 million as at December 31. As you know, we had interim dividend payout that happened in the month of February at INR 14 per share. Forward contracts outstanding as at March 31 was $135 million at an average rate of INR 77.11 per dollar. The Board has recommended a final dividend of INR 6 per share. And this, along with the interim dividend of INR 14 per share, would make the total dividend of INR 20 for the year with a payout ratio of 33.8%. So with that, I would like to thank you all once again, and I hand it back to Sandeep.

Thanks, Sunil. So now to give you a color on key client wins for the quarter. Our press release for the quarterly result carries the details, far more than what I would do so. For the banking financial services and insurance segment, we were chosen by a leading Fortune 25 financial services of ISV as a key partner for core IT modernization. This is a 3-year deal to support and maintain identity and authentication products for enterprise applications, involving both offshore, nearshore teams across time zones. We were also chosen by a large insurance company for their credit union consumer segment to deliver retail experiences and build a cloud-based data and analytics platform. This would be helping their customers see insights as a service and build customer data warehouses for better decision making. In the Healthcare & Life Sciences segment, we were chosen by a leading U.S. health system to help them build a digital front door and patient experience solution with integration to EMR systems and patient portals. This will enable the health system to build a unified one patient portal, simplifying business decisions, enabling a single view of patient across departments and ultimately delivering consistent patient experiences. We were also driven by a leading global clinical research organization, CROs as we call them, in the healthcare space to help and execute on an enterprise-wide integration modernization program leveraging MuleSoft and intelligent business automation. Under software, hi-tech and emerging technologies, we were chosen by a global technology leader to partner with them on an engineering and go-to-market partnership on a portfolio of security product. This is a 5-year multi-million dollar deal to develop identity and access management product portfolio, with delivery teams spread globally across U.S., U.K. and Asia. We are chosen by a leading low code technology provider, a unicorn in the space, to establish an engineering and professional services center of excellence, helping them build industry solutions and deliver transformation programs for their customers in health care, life science and banking financial services domains. Moving on to the awards and recognitions for the quarter. Q4 saw us get recognized from industry leading analyst firms and institutions on multiple fronts. To mention a few, we were awarded the coveted 2020 Golden Peacock award for excellence in corporate governance, an award that we are extremely proud of. We were named to ISG Booming 15 global pan outs in sub billion-dollar category, fourth quarter in a row. We were named as a Rising Star in the ISG Provider Lens for healthcare digital transformation services. The Everest Group named us as a Rising Star and a major contender in PEAK Matrix for software product engineering services as well as major contender in intelligent process automation provider landscape. Constellation Research named us their ShortList for Innovation Services & Engineering in Q1 2021. All of these are testament to the capabilities that we bring to bear with our customers on a goal basis. In terms of the partner system, the ecosystem highlights, we were driven by NAFCU, which is National Association of Federally-Insured Credit Unions, as a preferred partner for digital transformation. Through this partnership with credit unions will have greater access to our strategic Technology Services and solutions to accelerate digital transformation, including expanding the use of cloud-based products and solutions. We announced the partnership with FinMkt point-of-sale lending for banks and credit unions. This partnership is aimed at enabling small to midsized financial institutions across the globe to accelerate their digital lending strategy. The joint solution offerings between Persistent Systems and FinMkt will empower community banks and credit unions, enabling them to seamlessly enter the point-of-sale lending market by directly originating loans or providing new cost capabilities for their merchant customers. We have partnered with AWS ROSA on the Red Hat OpenShift platform to bring services on the AWS services to clients seeking a fully managed OpenShift platform. Coming to our leadership team updates. We continued to add to our leadership muscle during the quarter. We announced Steffen Drillich as our Head for Salesforce business global. Steffen had joined Persistent as a part of the Youperience acquisition, and he will now lead our Salesforce business globally based out of Europe. We also added Bheemwal as the Head of Europe based out of London. Bheem will be responsible for all our business across Europe. With this addition of leaderships and promotion of Steffen, we will have leadership from Europe for global business, and we will have leadership being brought in for Europe in Europe. We also added W. Dokh as Head of Delivery for BFSI Globally and Navneet Narula for BFSI Far East. So we have been consistently adding the muscle to take on more and continuing the growth journey that we have established for ourselves. In summary, we had a strong Q4 and a good growth to FY '21. We are optimistic about our growth potential in FY '22. With this, I would like to conclude the prepared comments and like to request the operator to open the floor for questions. Thank you. Operator?

[Operator Instructions] The first question is from the line of Apurva Prasad from HDFC Securities.

Yes. Yes. Congratulations on the strong quarter. Sandeep, a couple of questions actually. Is the renewal component within the TCV part, is that in line with the prior period renewal rates? So, say, first half and prior to that and related to that, if I go by the recent deal wins that has been announced, you think those are good to keep growth rate in the top end of that 3% to 4.5% Q-on-Q range?

Yes. So coming to your first question. Typically, the renewals for some of our large customers are in the October, November, December quarter. That is where they do the annual renewal. And so the renewals that happen in this quarter are in line with the forecasted or budgeted renewals. So no worries on that and no worries on the new business. Now in terms of the growth trajectory, if you look at it. Look at it this way. We are doing $152.8 million in revenue for the quarter. The ACV value that we have set is $200.7 million for the quarter. Anything which is above or in the vicinity of 1.2 to 1.3x ACV is a fairly good number to have. And keep in mind, over the last 5 to 6 quarters, we have done many deals which are multiyear deals. The renewals for those will not be due for the next few years. So we are very comfortable with the booking profile. And as long as it is in the vicinity of $200 million, even PCE plus/minus a little bit. We are comfortable with that 3% to 4%, 4.5% quarter-on-quarter on an average. Obviously, some quarters could be higher, some quarters could be a little lower. But we are comfortable with the order bookings. We are comfortable with the order bookings translating into a trajectory that we have established for ourselves.

Thanks for the clarity on that. So on the Alliance business, I mean, with respect to Red Hat and Cloud Pak opportunity. Just wanted to pick your brains here. So I mean, IBM has talked about mid- to high single-digit growth in Red Hat at the cloud adoption, especially as IBM is undertaking an overhaul -- in their own go-to-market strategy, especially mid-market. Do you think that translates into sort of incremental drivers from a Persistent perspective and maybe across different components within the Alliance space? Just your thoughts here will be useful.

So on the first part, the Red Hat opportunity, the Red Hat growth, whatever IBM is projecting, give us a growth opportunity potential, absolutely. So for every dollar of Red Hat that IBM generates, the potential for us to generate revenues is multifold. It could be anywhere between 2 to 3, 3.5x at times. So from that perspective, the market opportunity is right. And whatever the partnerships that we also announced was between AWS and IBM Red Hat OpenShift, that's where we are playing. So we are also looking at the various avenues where Red Hat is expanding and how do we sharpen our pencils on our service line on that. So that definitely is an opportunity. Overall, also, if you look at it, not just the Cloud Pak, which includes Red Hat and so on. But otherwise, that's cloud side for security, the cloud side for data. Lingard is where we are looking at different opportunities, and we have a healthy traction on that. So from an enhanced business perspective, we have made sure that it comes back to the same humming nature in terms of pipeline and so on, and we are reasonably confident it will deliver growth.

Okay. And just finally, a bookkeeping one. What's the drop in the segmental margin in the BFSI and Healthcare & Life Sciences attributable to?

So for some of these quarter-on-quarter variations may be there. There are some client-specific nuances as well. So there are some volume discounts, et cetera, that have to be given at some point in time in different client basis. So I won't worry too much about that on a quarter-on-quarter basis. Overall, both these segments are -- overall, we are seeing across the company a good discipline on margin, and we are trying to even take the margins up a notch as we go down.

The next question is from the line of Dipesh Mehta from Emkay Global.

A couple of questions. First, about the S&M investment, if one look, S&M is largely flattish, even from employee perspective for last 2 years or so. So now do you think productivity related improvement, what you might have driven over the last few quarters? Largely over, you think still there is enough scope to drive better productivity from the team? Or you think now we have to invest in people and your S&M investment may start growing? Second question is about the digit sizes and tenure. If you can help us understand how it is changing let's say over the last few quarters?

Sure. From the sales and marketing side, we have driven good productivity from the investments that we have been making on an ongoing basis. And some of the things that also are helping us is as the revenue pans out, obviously, that S&M investment is being delayed over a larger revenue base. Will we make additional sales and marketing investments, we're continuing to make prudent investments to scale as we kind of even go through our journey for the next few quarters, years and so on. So there will be S&M investments, but we are not expecting it to be anything disproportionate in percentage terms. I think we have a good productivity metrics established. And we're continuing with this kind of event. So you should expect this to be in line in percentage terms. Obviously, as the revenue increases, that percentage translates into a little higher spend in dollar terms. Now on the other side, the deal sizes. So look, the place where we play in, we are very strong in digital product engineering, in practices like Salesforce, low-code, no code, cloud, data and so on. Usually, these are places where deal sizes, if I look at that TCV anywhere between $10 million to $50 million is a sweet spot for us from a bigger deal perspective. And even for larger peers, I would tend to believe, unless they are putting a lot of support revenue along with these kind of deals. These deals will tend to be in this kind of sizes, and they will keep having phases. So we are seeing the pipeline large and small, both. The larger deals are anywhere between $10 million to $50 million on a TCV basis. So that's where it is. And the deal term can be anywhere between 1 to 3 to 5. Bigger the deal the chances are it will be a 3- to 5-year kind of a deal.

Sure. Just one clarification I want about the weakness in realization what we are seeing on-site offshore growth. Is there any element of reimbursement portion? Because I think the definition surges, it include contractual reimbursement portion. So is there any element of travel-related softness impacting your realization or it is pure realization growth?

Sunil?

Yes. Dipesh, so this is actually what you call the realization, there are 2 numbers on site, where we have had certain expansion in revenue from North America in other geographies like Canada and Mexico. So you see partly one reason because of that. There is no impact due to the reimbursement part that you talked about. And then it is more about the, you can say, mix of the business. So for us offshore is concerned, yes, offshore is concerned, it is for this quarter, slightly higher because of revenue growth in the what you call India business.

Understood. So no travel-related impact. It is largely business mix related implication playing out.

Yes.

The next question is from the line of Pankaj Kapoor from CLSA.

Sandeep, congratulation on the consistent execution. I had 2 questions. First, if you can elaborate what kind of margin levers do you see when you're talking about keeping the margins stable in 16% to 17% EBITDA band? And just added to that, if you can talk about maybe Sunil can help in understanding the amortization trajectory? That's the first question. Second question is on your contract, I believe the $50 million contract that we announced last year. I believe there is some restructuring there. And I think the plant has sold the business as per your release. So if you can just throw some more light over there in terms of what are the changes that it means for your business and in terms of financial discipline.

Sure. So Pankaj, on the first chart on the margin business. So there are -- so right now, we have come a 17% range for the EBITDA part, and we are relatively confident of being there. That's point one. The underlying levers that we have there are 3. Number one, in our IT business, there is a certain amount of cost optimization we have done. There's certainly more cost optimization that is possible in that business. Number two, the utilization, if you look at it for us the utilization has dipped a bit for the last quarter. And from an overall perspective, we believe there is significant things that can be driven out of the utilization. And the utilization has gone a little lower because of the capacity build also that we did. If you look at the hiring that we did, 1,600 plus in Q3, 1,200 plus in Q4, all of that obviously takes a little time to kind of get to planning. So there are levers on the utilization side as well. And then there is the SG&A investments being spread over a larger revenue base that we already talked about. And then there are some minor operational efficiencies that we can bring in other functions and so on. So overall, we are confident. We have enough levers to be able to take on any cost increases that may happen in other places and still be in a comfortable 7% plus/minus a few bps here and there. So that's the thing on that. Now on the second part, the $50 million contract restructuring that you're talking about. So this customer of ours was bought by a large hyperscaler. And in fact, that bodes well for us. So for the shorter term, yes, there is a contract restructuring that has happened, but that does not impact any of our next 12 months to 18 months kind of revenue outlook. And even within that, there are discussions happening on what more can be done in different forms and shapes, which we are very hopeful will continue with the revenue at a same level, if not better. Second, it also gives us a bigger relationship with a hyperscaler, where we did not have that kind of a relationship in the core engineering part, that can be expanded to various other parts as well. So overall, comfortable with that. It's not a matter of concern at this point in time for us. So that is where we are on that contract. Hopefully, the 2 questions are answered.

And Sunil...

Amortization piece? Yes, Pankaj. So on the amortization, we have already got some benefit in this quarter. And from next quarter, there will be a release of another 50 basis points worth of amortization expense. So that will be the benefit from next quarter onwards.

And that is something which we can assume to be the stable number going forward, right?

That is right, yes.

Understood. Wish you all the best.

The next question is from the line of Sandeep Shah from Equirus Securities.

Congrats Sandeep and the team for solid execution, both on operations and consistent deriving as a whole. So first question in terms of the order book. Sandeep, it's heartening to see that $250 million to $300 million worth of TCV has been continuing in Q3, Q4. So you believe looking at the pipeline, there are prospects that these numbers can be sustained on an ongoing basis? Or do you believe these are aberrations and these are much higher than may not sustain going forward?

So Sandeep, the TCV part, I would say, it will fluctuate quarter-on-quarter. Some quarters are seasonally stronger, like October, November, December. Overall, if we are in the range of $200 million to $250 million, in that range for TCV, that's pretty healthy. But ACV part would be obviously a component of it. Look at it this way. If we are doing $152.8 million for the quarter and if we are booking 20% or more in ACV terms, that itself is a fairly heavy thing and we can translate that into TCVs and all. So we are very comfortable that TCV is in the range of $200 million, $250 million on an ongoing basis. Some quarters will be higher like O&D was $300 million. Some products may even be lower. But if you look at a broader purchase from a yearly basis, this is fairly healthy. And keep in mind, this does not include many of the deals that have been booked over the last 5, 6 quarters, which have 3- to 5-year tenures. They don't come up for renewals, which have low bookings in this quarter. So overall, fairly happy with the profile. And things may go up and down, but fairly happy with the pipeline and the process thereof.

Okay. Okay. Fair enough. Just on the technology vertical as a whole, can you refresh in terms of the split of the business on the product engineering for technology client, which could be the legacy products as well as on the new gen products because that's -- on the new gen product, product engineering business is likely to see a robust growth as per what we read on ongoing basis.

We don't call out that split, Sandeep, but we can get back to you on this number. A significant part of our business is on new product development. If I was to provide a guess, it may be 65%, 35% in terms of newer products versus older products being modernized or maintained, but we'll come back to you and we'll be in touch with you on this.

Okay. Perfect. And this 65% new product log, which you mean would be largely digital products or cloud-based products?

Absolutely. And even the other part, a chunk of that would be modernizing those products and enabling them in terms of classification or doing a hybrid kind of a thing where some part of that can be taken to the cloud and so on and so forth. So a significant part of even that would be the digital.

Okay. Okay. And just on the Alliance part. This year, we have seen a marginal degrowth and you have been restructuring, and you were also winning the deals. And we were earlier saying that from 1Q onwards growth may turnaround. So is it fair to say the growth rates may start inching up in the Alliance business to company average specifically on the services side of the business?

Yes. That's a fair statement to make. See if you look at some of the utilization related things as well, the utilization partly dipped because we had certain programs being ramped up on the Alliance side and other wise. So Technology Services and Alliance had some newer projects where we were doing the transfer and doing the transition part or building newer teams and so on and so forth. So that will definitely bode well for the Alliance business as well. And starting Q1, Alliance business is also poised for a good growth.

[Operator Instructions] We take the next question from the line of Abhishek Shindadkar from Elara Capital.

Congrats on a great execution. The question is related to mining. Now despite the strong growth that we are reporting, it seems that mining is still an area which can add to growth on top of the net new business that we are winning. So any color on how do we plan to improve that? And would that also mean that there are some tailwinds into the margins as we rationalize the client portfolio? The second question is just a bookkeeping to Sunil sir. The improvement in the DSO, is it something that we are consciously following up with clients? Or it is just that because of the shorter nature of the projects, we are getting payments, early payments or timely payments. Any color on that would be helpful.

So Abhishek, I'll take the first part, and then I'll hand over to Sunil for the second part. So a fair statement that mining is definitely a tool in our toolbox, and we have been at it. We have formed teams with our transformation team that help our regular account teams and thinking through what the clients' key initiatives are and help them thinking through the propositions proactively, including proof of concept and so on and so forth. So for FY '22, this is definitely one of the key initiatives, where we are expecting us to go deeper into existing accounts. And that should start reflecting over the next 2 to 3 quarters. And the client break into 1, 3, 5, 10, 20 kind of revenue brackets. So fair point, and we are at it, and we have seen early successes. Part of the consistent growth that we have had over the last 5 quarters or so, 4 to 5 quarters, has been on the basis of both the new wins in existing customers, which are nothing but mining and getting some large deals and net new customers. So we have seen early successes. But this is a place where we'll double down and deliver even better going ahead. Sunil sir, if you want to answer the second question.

Yes. Yes, Abhishek. So on the DSO, it is more a function of actually, the process efficiency improvement, actually. If you look at it, whether it is a short project or a long project, ultimately, the client is paying based on the underlying payment terms. So one is the process efficiency of entire order to cash cycle. And the second is this year regarding the system, we had also being conscious of the fact that in this pandemic situation, it is more important that we have eye on the bond and ensure that there is no buildup of receivables at any place. So all the factors put together has led to consistent reduction in the DSO. While if you recall in the first quarter, when the pandemic had started, we had actually DSOs going up because of the situation that we are faced as lockdowns and so on. But then from there, consistently, we have. So the first move was to get back to where we were and then continuously, we have been working on improving this discipline internally.

The next question is from the line of Rishi Jhunjhunwala from IIFL.

Sandeep, one question on the renewals. Or basically your revenue portfolio, how much of your revenues need to get renewed every year in the sense how much of it expires every year and needs to be refilled? And how have you seen that trend changing over the past few years and probably, I'm assuming that, that component is reducing given that you're winning a lot more multi-year multimillion deals.

Yes. So Rishi, good question. From that perspective, look at it this way. Some of the largest corporations in the world, when you look at, let's say, one of the largest networking companies, one of the largest banks, the people who are significant, even the largest technology company, a bunch of their businesses, they do not give more than 6 months to 1-year kind of views, even though they've been working with us on the same thing for many, many years. So unfortunately, that is the nature of their working, and so that we can't vision it. But to your point, we're believing a number of large deals, so the proportion of renewal business on a yearly basis, et cetera, is going to come down. And we are hoping to announce the order backlog in the next quarter. So I would want to wait so that I can, in one go, give you the order backlog and all these things. Otherwise, the more incremental data points we give, we get more queries and clarifications. So if you can wait for 1 quarter, we will give the order backlog that will show you quarter-on-quarter movement as well. And that will give you a fairly good grasp on all the analytics you want to do.

Sure. Great. The second question is, if you look at your headcount this year, it has grown at 29%, whereas your revenue growth was only 13%. So just to better understand, is this significantly higher hiring, a function of you doing preemptive hiring because supply could be an issue. And as a result, next year, the hiring number will be much lower? Or is it a clear reflection of how much revenue growth you're going to do?

So it's a reflection of 2, 3 reasons. It's a reflection of the revenues to come, combined with more offshoring effects, combined with some amount of capability build ahead of the curve, combined with some amount of attrition that we want to mitigate should it happen. So it's a combination of a lot of these things, but you pretty much got the factors right.

[Operator Instructions] The next question is from the line of Madhu Babu from Canara HSBC.

Congrats on a great quarter. Sir, just recently one midcap has done a sizable acquisition in the BPM space. And now that the cost of debt is very low, and we already have a very good cash balance. So is it the right time to go for a sizable acquisition, maybe in the under business service line or even on the consulting part?

So from an acquisition perspective, Madhu Babu, we are always on a lookout for good acquisitions. And for us, the acquisition will not be to accrue revenue, it will be to accrue capabilities. So that we become more sharper in the service lines that we have or the industry segments that we serve. And at any point in time, we are evaluating multiple of these small to big. Hopefully, we can give you a meaningful kind of update in the next 3 to 6 months' time. Because we will take time and we do have a few things that we are evaluating, but timing will obviously be over the next 3 to 6 months.

And sir, the strong hiring we have done. So I mean, was it the decent markup we have given to them? Because in this pandemic, I think people are thinking twice before switching jobs. So we had a very good hiring. So just what is attracting them to Persistent? And second, how is the outlook on the fresher hiring for next year?

Sure. So from a hiring perspective, look at it this way. We have been able to attract this amount of talent, 1,200 to 1,600 people on a quarterly basis for the last 2 quarters. This is on the basis of 2 things. Number one, obviously, we have ramped up our hiring in men. Number two, more importantly, when we approach kind of the hiring talent that we want to hire, the fact that we work on setting their technologies. The fact that Persistent has always been known to be a good technology company, good company where you get exposure to the later set work. And combined with the growth that we have shown consistently over the last few quarters, it bodes very well for us to be able to attract the best talent. So from that perspective it also helps us, not be attracting talent just because of the money we put out in the market, but because of the credibility of the work that we do, the growth that we have, the carrier path that we can provide and the employee experience that we provide. So that way it has been very helpful from that hiring ability. And we have not seen that as being the money, that part only. And you talked about the fresher hiring, so we hire usually between 800 to 1,000 freshers on a yearly basis. That would be the baseline for us. We may go a little bit higher if we need to. Hopefully, I answered your questions.

The next question is from the line of Dipesh Mehta from Emkay Global.

Just want to get your sense about whether we are seeing demand environment accelerating, decelerating, stable? And I'm asking this question in the context of, if I look over revenue growth, 20 percentage Y-o-Y. Considering strong billing days pipeline as well as airlines business likely to recover entering into FY '22. What challenges do you think, let's say, to sustain 20 percentage? Or you think it is sustainable and likely to play out over medium term?

Dipesh, I'm not going to answer the question on 20% because if I say 20% is sustainable or we will do more, I'm giving forward-looking guidance, which we don't do. I will basically say that, look, we have established a good trajectory for ourselves. We have executed with discipline over the last 4, 5 quarters. We have been in the range of anywhere between 3 to 4.5 or more. We would be in that range. Some quarters will be higher, some quarters will be lower. That is as far as that is concerned. As far as the demand environment is concerned, see, the demand environment for our services has been fairly good for the last few quarters. And that's what has boded well for us and our competitors, players whatever you know on the call for the last many quarters. We see that as a stable environment. And when I say stable, it means a good secular environment of growth for us potential for the next 2 to 3 years. So that is where we are. And unless something goes here or there, the environment from a demand perspective is fairly healthy. It's about us to go and execute. And some quarters will be higher for us in terms of order bookings because it takes a lot of effort when you are fighting a good set of deals. And then you will win some, you lose some, you create a pipeline again, and you do that. So overall, stable, confident of our growth, and that's where we are. So hopefully, that answers you.

That answers. Only airlines, I'm not very clear, you indicated airlines will return to growth like services in next year. [Technical Difficulty]

We seemed to have lost the line for Mr. Kalra. Please stay connected while we reconnect Mr. Kalra.

Sorry, I got dropped. So Dipesh, you were saying something.

Yes. Sandeep, I was just asking, you made one comment about airlines business, where you suggested revenue growth trajectory likely to converge with services business? So do you expect airlines business to reflect similar kind of growth trajectory entering into next year?

So it will start picking up towards that direction. And obviously, we are seeing fairly high growth in the services business. So the average of two will be in the trajectory that we are talking about. And incrementally, we will see more and more, hopefully, in the Alliance business. But we have good order bookings to be able to say with confidence the Alliance business is going to be back on growth trajectory and we have to build it up from there.

The next question is from the line of Manik Taneja from JM Financial.

Sandeep, I just wanted to pick our brains about the willingness from customer standpoint to pay more for skilled based or based on skills rather than location. And given the fact that even in our case, we have seen a significant increase in offshore mix of revenues over the last 12 months. And the reason why I asked this is because, in our case, we work with a lot of new age ISV customers. So from that standpoint, are they much more open to doing development work offshore? That's question number one. The second thing where I wanted to understand is that given the current outbreak of COVID, how is it impacting the delivery for you guys over the last few weeks?

Sure. So on the first part, is the customer willing to pay more based on skills rather than location. So yes and no. Ours is a fairly competitive market. If you look at it, we compete with globally, whether they are India headquartered, Eastern European headquartered, U.S. headquartered are broadly global maintenance, right? So while -- yes, the kind of work that we do enables us to get a little premium, but we have to be cautious about saying that we have just because of COVID and location independence, people have seen in this, we should be able to get the same kind of premium that we can get in the U.S. and so on or rates closer to the U.S. or Europe and so on. So there is definitely a premium we can get for our business, but it will not necessarily be a huge thing because it's always a competitive market. Second part from the current outbreak for COVID perspective. So thankfully, we have not seen any degradation so far in service delivery. All our teams have stepped up. All our team members have made sure if at all there is anyone suffering in their teams and there are some teams where people are suffering, they have stepped up to take on each other's work. And usually, we have a concept of shadow resources as well. We have product to bear. We also have used our bench in some cases. So overall, we have been able to make sure that even in the past 5 to 6 weeks, where we have seen the COVID second wave become pretty big in India, we have not seen service delivery delays. So that's where we are. Hopefully, that answers.

Sure. If I can ask one more. Just wanted to pick your brains regarding the onshore utilizations. And given the fact that, that was -- that has generally been cited as often listed to source of margin improvement from a medium term standpoint. How should we be looking at the decline in onshore utilization in the recent past? Is it just a function of supply side creation? Or there is something else to it?

Yes. So there is multiple parts to it. If you look at the on-site part of it, we use the onshore team members in multiple different ways. One, they are active project delivery where they are 100% committed to a customer program. Second, a part -- a significant part of that is also our consulting capability, where we leverage them for the front end piece of work or for doing proof of concept or for onshore related discussions and so on and so forth. So there's be some slack in the on-site utilization compared to many of the other peers of us who are basically into operations and so on. The other part of it, it's used to be driven in terms of getting more utilization there, yes, there could be a few percentage points there. But we would focus more on the offshore utilization as well, where we have built significant capability, capacity, and there is definitely the lever to do utilization improvement there. So there will be improvement in both sides, but offshore will give us more, onshore will definitely give us a few percentage points.

The next question is from the line of Rahul Jain from Dolat Capital.

Just wanted -- if you could share a little bit more color in terms of the areas wherein you expect this growth in Alliance to come back to a much higher level from the recent past trend? So any areas you would like to specify?

Sure. So if we look at the Alliance business, the largest customer of ours has reorganized their business in multiple different areas, whether it is their hybrid cloud business, whether it is their Cloud Pak for data, security, automation and so on. So if we look at it, we are well aligned to some of those businesses. We are seeing definitely an uptick, for example, in the security side, on the data side as well. And so it is more broad based, but there are some pockets where we are more well entrenched, whether it is cloud and security and data from that perspective. So those are the areas at a broader level that we will see the business come up. And the second aspect of that would be, as we do more business on those Cloud Pak with our biggest customers, we would also be taking that to the market in our customer base as well as newer customer base to be able to do the sell event part as much as we do the sell to part. So from that perspective, there are multiple levers of expansion that are available to us.

Right. And given this situation, you think this is a multiyear opportunity? Or this is what we're seeing for the near future, but we have to see as our things progress beyond FY '22?

So this is definitely short to midterm opportunity. Obviously, this is an evolving market, and we also have to see how all this evolves for our customers as well. But for the short to midterm, we are relatively confident of this approach. We have seen early successes. And that is where the confidence that we have from Q1 onwards that we are saying that this will come to growth is reflected. So short to medium term, this is the strategy. Obviously, in technology world, if you're looking for 2 to 3 years out, that is the best you can do and then you keep looking 2 to 3 years out every point in time.

Right, right. I mean the reason for asking that is, of course, how this segment has performed over the last couple of years. So the point is that is it a difficult business to scale? Is that what I'm trying to understand.

So every customer has a different profile. So from our perspective, if you look at the revenue concentration, we have brought down the revenue concentration because our other parts of business have been growing significantly higher percentage points. And the mix of this particular business in the overall business has been coming down. Given that it is like a portfolio management. Overall, we believe our business will heavily grow. We will be in the top end of the growth in terms of the top quartile for the industry. Now within that, some years, Alliance will grow very higher, some years it will grow a little bit lower. But on an overall portfolio basis, we are very confident in terms of the other customers that we have in the portfolio, spread of growth and so on and so forth. So not a worry at the company level. Obviously, puts and takes will always be there at individual customer levels. Operator, I think we are at the end of time. So we should try and close, if there are no other questions.

Yes, sir. We'll take that as the last question. I would now like to hand the conference back to Mr. Kalra for any closing comments.

Yes. So from our perspective, as I said, it was a fairly strong quarter and a fairly strong ending to the financial year '21. We are confident of our prospects in the coming year. And we remain committed to delivering industry-leading growth being in the top quartile. We would once again like to thank our 13,500-plus team members who made all this possible. Our customers and partners who are with us on this journey and even in these hard times. We appreciate all of you spending time with us on this call today, and we look forward to connecting back with you with the progress 3 months from now. Please stay say and healthy. Thank you.

Thank you very much. On behalf of Persistent Systems Limited, that concludes this conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.