Persistent Systems Limited (PERSISTENT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Persistent Systems Earnings Conference Call for the Second Quarter of FY '27 ended September 30, 2026. We have with us today on call Dr. Anand Deshpande, Chairman and Managing Director; Mr. Sandeep Kalra, Executive Director and Chief Executive Officer; Mr. Vinit Teredesai, Executive Director and Chief Financial Officer; Mr. Nitish Shrivastava, Chief Technology Officer, Engineering Hyperproductivity; and Mr. Saurabh Dwivedi, Corporate Vice President, Finance and Strategy. [Operator Instructions] Please note that this conference is being recorded. I now hand over the call to Mr. Saurabh Dwivedi. Thank you. Over to you, sir.

Thank you, [ Rashi ]. Good day to everyone. We sincerely appreciate your presence and participation in today's call. Let me quickly outline the agenda for today's call. Sandeep will begin with an overview of our Q2 results commentary on the business an update on our acquisition of Nagarro. Vinit will take you through the financial details and key operational metrics for Q2. Nitish will provide details on expansion of our AI capabilities and representative AI wins in the quarter gone by. I will then provide an overview of our key deal wins and awards and recognitions for this quarter. Sandeep will then come back for a quick summary of the prepared remarks, post which we will open the conference for questions. Let me also remind you that as part of our prepared remarks and during Q&A, we may make certain statements which are forward-looking and may involve significant uncertainty Persistent does not take any responsibility to update such forward-looking statements and your discretion is warranted while making any investment decisions. With this, let me hand over to Sandeep for his prepared remarks.

Thank you, Saurabh. Good morning, good afternoon, and good evening to all of you, depending on where you're joining from. I hope all of you are doing well. Let me start with a quick financial summary of the quarter gone by. We achieved a healthy revenue growth of 7.8% quarter-on-quarter and 20% year-on-year, delivering USD 487.6 million in Q2 FY '27. This marks our 26th sequential quarter of revenue growth. In rupee terms, the growth for the quarter came in at 8.4% quarter-on-quarter and 30.3% year-on-year. In constant currency terms, the growth for the quarter was 7.8% quarter-on-quarter and 20.8% year-on-year. The EBIT margin for the quarter came in at 15%, translating to an EBIT growth of 1.6% quarter-on-quarter and 19.5% year-on-year. The operating profit after tax for the quarter came in at 10.6%, translating to a PAT growth of 2.5% quarter-on-quarter and 5% year-on-year. The reported profit after tax for the quarter came in at 7.5%. I would like to point out that the reported PAT includes exceptional onetime expenses as part of Nagarro acquisition, resulting in approximately 3.1% impact for the quarter. Vinit, our CFO, will provide a detailed color on the financials and margin movement later in this call. Coming to the order book for the quarter. The total contract value for the quarter stood at USD 633.5 million with total contract value of new bookings coming in at USD 367.1 million. The annual contract value of bookings for this quarter was USD 481 million. Out of it, the annual contract value from new bookings contributed to USD 262.3 million. To remind everyone, both ACV and ACV numbers include all bookings, small and large renewals as well as new bookings across existing and newer customers. Also, as highlighted in our earlier calls, our revenue conversion quarterly base is a function of ACV bookings closed in previous quarters as well as the conversion from multiyear deals booked in previous years, which are included in our total contract value or TCV bookings that we announce on a quarterly basis. Now let me give you some color on our client movement across various reported categories. This quarter, we witnessed healthy year-on-year growth among our various client buckets. Our top 5 customers revenue grew by 38.9%, top 10 by 29.9%, top 20 by 25%, top 50 by 24% and top 100 by 21.6%. Coming to the year-on-year movement of customers across various reported buckets, customers with annual revenues greater than 75 million remained stable at 4%. Those with USD 50 million plus annual revenue remains stable at 4%. Customers in the USD 20 million-plus category, increased from 12 to 13. Those in USD 10 million-plus category increased from 25 to 34. Customers in USD 5 million-plus category increased from 56 to 60. And the customers in USD 1 million category increased from 191 to 280. This healthy movement of customers across various revenue tackets demonstrates our team's consistent ability in cultivating deeper, more resilient partnerships with customers over time. Now coming to the details of our performance across various geographies. In terms of year-on-year growth this quarter in U.S. dollar terms, North America revenue grew by 22.5%. Revenue in Europe declined 8.5%, largely because of 2 client-specific events. One of our key clients in the European region was acquired by a larger strategic last year, which led to the ramp down of our program with them over the last several quarters. Another engagement completed its plan to ramp down as a part of FX price engagement. Both are one-off client specific events rather than a sign of broader geographic demand trends. Revenue in India grew by 19.4% and rest of the world grew by 67%, although on a smaller base. coming to industry segments growth on a year-on-year basis. This quarter's growth was led by software, high-tech and emerging verticals coming in at 28.5%, followed by Banking Financial Services and Insurance at 16.2% and Healthcare Life Sciences vertical at 12%, respectively, on a year-on-year basis. Growth in our Software, Hi-Tech and Emerging Industries vertical was driven by our new software reinvention offering, not during the quarter, underpinned by the theme of the large deal that we announced last quarter last quarter. As you know, height as an industry that is most affected by advances in AI enterprise software companies as well as enterprises are rethinking how software is built and maintained. Our software reinvention offering is designed to help software and technology companies deliver native products as well as modernize their legacy products for an AI first world. This is traditionally a segment where Persistent has always been significantly ahead of our peers, and we are confident that this offering will drive growth across the business, creating a significant mode for us over the next several years. My colleague, Nitish will cover it in more detail on this offering in the AI updates section a little later in this call. Let me now provide you with an update on the agreement to acquire Nagarro that we announced earlier in June this year. As you may be aware, we signed a business combination element in late June time frame with Nagarro, a leading European digital engineering firm aimed at creating an AI-led global engineering powerhouse, serving clients with end-to-end capabilities with over $2.9 billion in revenue run rate and 46,000-plus professionals across 40 countries. To refresh everyone on the acquisition rationale, the combination provides us with expanded capabilities across multiple industry verticals and service lines, more balanced geographic mix across North America, Europe and Rest of the World, standard nearshore European delivery footprint with presence across Romania, Portugal, Hungary and Poland, and positions us nicely as a truly global partner for large task commission programs with our Global 2000 customers and prospects. This is further backed by strong cultural alignment between the 2 organizations anchored in perineural ethos and engineering first culture and decades of trust with marquee clients. We are confident that this combination positions Persistent and Nagarro for the next chapter of sustained profitable growth together. Let me now provide you with the progress made since the last quarter in terms of the process as some of you may be tracking the closure time lines closely, starting with the open offer update. The initial acceptance period for voluntary public takeover offer for Nagarro began on August 6, 2026 and ended on September 17. The additional acceptance period began on September 23 and ended on October 6. We have secured approximately 94.04% of Nagarro share capital, excluding treasury shares at the expiry of the additional acceptance period, significantly exceeding the minimum acceptance threshold of 50% plus 1 share that we had set. Having secured more than 90% of Nagarro share capital and voting rights, we intend doing a squeeze out of the remaining minority shareholders of Nagarro upon closing. From a merger control clearance perspective, we have received all merger control clearances and all FDI clearances other than Austria and Spain. We are confident of getting these approvals over the next several weeks. We have also submitted the application for Reserve Bank of India's approval, and we are following the 2 process to get the approval thereof. In terms of financing, we intend replacing EUR 1.4 billion 18-month rate loan with longer than [indiscernible] capital and favorable terms. As a part of this long-term financing strategy, we'll be raising USD 1.25 billion in terms of both debt and equity. Out of this, USD 50 million will be raised through equity qualified institutional placement or equity-linked instruments like FCCB or a combination of similar instruments. We have received shareholder approval for the above funding mix at the Extraordinary General Meeting held on October 5. We sincerely believe that the combined persistent Nagarro group presents a significant value-creation opportunity for all our shareholders, clients, partners and employees. As a part of this acquisition, I would like to highlight an important aspect around onetime expenses related to the transaction. Overall, we are expecting onetime expenses to the tune of approximately $50 million spread over 3, 4 quarters. These expenses will weigh in on the reported EPS growth, as you would have seen in our Q2 results, reflecting an impact of around 3.1% on our reported pattern. We'll be accounting for these expenses as they occur and will inform you all as we incur these expenses. Also, as you may be aware, our ESOP vesting criteria for our team members is conditional on achieving a 12% revenue growth and a 12% EPS growth. In line with this, the Board may seek shareholders' approval to treat these onetime transaction-related expenses as an exception when assessing the ESOP vesting conditions. To summarize, all the processes related to the Nagarro acquisition are going on at an expected pace. We expect the deal closure by Q4 CY '26 or Q1 CY '27. We'll keep you posted on the progress of this over time. We'd like to place again on record our appreciation for Nagarro's Management Board as well as its Supervisory Board for their ongoing support and cooperation in the acquisition process. We are enthusiastic and look forward to working jointly with them and our extended Nagarro team to make this combination successful for all our stakeholders over time. With this, I would like to invite Vinit, our CFO, to provide more details on our financials for the quarter. Vinit, over to you.

Thank you, Sandeep. Good morning, and good day to all. Thank you for taking the time to join us today. Let me now take you through the financial highlights for the quarter. Q2 FY '27, revenue stood at USD 487.6 million, registering a year-on-year growth of 20%. In rupee terms, it translates to INR 46,639 million, a growth of 30.3% year-on-year. EBIT for this quarter was INR 6,977.2 million, translating to a growth of 19.5% year-on-year. EBIT margins for Q2 FY '27 came in at 15%, 130 basis point decline year-on-year. I will now talk about some operational updates for this quarter. At the end of Q2 FY '27, our total head count stood at 29,598, an increase of 958 from previous quarter. Utilization stood at 85.8% down 70 basis sequentially, primarily reflecting [indiscernible] hiring to support the ramp-up of large deals. Trailing 12-month attrition stood at 11.9% compared to 12.3% in the previous quarter. Let me now give you quarter-on-quarter EBIT margin walk through. First, Events. As you would remember, this is the quarter when we have the yearly wage hike coming into this coming into effect. This impacted our margins by 180 basis points. However, lower stock cost enabled us to absorb part of this impact, leaving us with a net impact of 140 basis points. Lower utilization led to a 20 basis impact on our EBIT points. The large deal that we have announced in the previous quarter included end-to-end takeover of the engineering road map of portfolio of 20 products across development, sustained engineering, customer support, along with associated third-party licenses and cloud spend. This investment in the third-party tools and licenses led to an increase in the quarterly amortization of approximately USD 4 million, which had an impact of 90 basis points on our Q2 EBIT margin. The plan is to leverage FinOps and AI-led engineering road map to optimize the spend across people tools and cloud infrastructure and this large deal going forward. As we optimize the spend and our revenue scales in future, the impact on our margins will gradually reduce. Tailwinds, lower G&A expenses and favorable currency movements delivered a combined EBIT margin benefit of 150 basis points. Net impact, taken together, these headwinds and tailwinds resulted in a 100 basis point quarter-on-quarter decline in EBIT margin. In respect of our treasury income, we had mark-to-market losses on our investment during the quarter of INR 116.4 million as against mark-to-market gain of INR 146.7 million in the previous quarter. During the quarter, we had higher finance charges on account of higher receivables financing. The net result of both lower treasury income and higher finance costs resulted in negative net other income of INR 131.2 million as against a positive income of $414.9 million in the previous quarter. The foreign exchange loss was INR 455.8 million as against INR 1,052.7 million in the previous call. Forward contracts outstanding as of 30th September 2026 were USD 500 million at an average rate of 95.6 per dollar. Effective tax rate for the quarter came in at 22.5%, same as last quarter. Operating profit after tax for the quarter was INR 4,951.5 million margin of 10.6% with a year-on-year growth of 5%. We incurred transaction costs worth INR 1,853.4 million versus the Nagarro acquisition in this quarter. These expenses include transaction and advisory costs related to regulatory filing, financing charges, legal communication and travel expenses. Over the next 2 quarters, we expect an incremental amount ranging between USD 25 million to USD 30 million to be incurred towards the Nagarro transaction. For Q2 FY '27, these expenses impacted the reported PAT margin as well as the reported EPS by around 3.1%. Reported profit after tax for the quarter was INR 3,515.1 million, a margin of 7.5% with a year-on-year decline of 25.4%. Operating earnings per share was INR 31.6 with a year-on-year growth of 4.2% whereas the reported earnings per share was at INR 22.4, which translates into a decline of 26%. Excluding cash from the capital employed, return on capital employed for Q2 FY '27 came in at 45.6% versus 43.6% in the previous quarter. We are happy to report that we had record collections during the quarter, which had to improve the cash position in spite of payment of final dividend and exceptional expenses related to Nagarro transaction. Total cash and investments stood at INR 29,996.7 million around $315 million as of September 30, 2026, as against INR 27,044 million at the end of previous quarter. [indiscernible] collections also helped reduce the build DSO as well as led to the higher OCF 2 pad for the quarter. Billed DSO decreased to 15 days as against 61 days in the previous quarter. While the unbilled DSO came in at 34 days as against 25 days in Q1 of FY '27. On a TTM basis, trailing 12 months basis, OCF to PAT improved to 96.6% in Q2 of FY '27 compared to 76.2% in the previous quarter. Coming to update on the AG. Sustainability continues to be integrated into Persistent's business strategy with a focus on managing risk, improving operational efficiency and delivering measurable AG outcomes. Our commitment to ASG excellence was reflected in an improved ESG score of 83.3% from SES, a SEBI registered ESG rating provider or FY '25, '26 up from 81.7% in the prior year, underscoring continued progress in the execution of our sustainable sustainability study. We are proud to have received a jury mentioned in the climate action and carbon neutrality leadership category at the Sustainable World Awards 2026 by BW Business World. Assistant Systems, Pune has also been recognized as the winner of the decarbonization excellence award 2026 in the net 0 carbon category at the Con Concebra. We are also proud to be recognized as one of America's greatest workplaces in Tech 2026 by news week. These agents reinforce the progress we are making in embedding sustainability across our operations, climate action and people practices while continuing to strengthen our overall ESG performance. With this, let me now hand over to Nitish for commentary on our progress on the AI journey. Nitish, over to you.

Thank you, Vinit. Good morning, and good day to everyone. As we shared on our last call, our AI strategy continues to rest on 3 pillars: engineering hyper-productivity, business hyper productivity and enterprise data readiness with responsible AI. We believe the next phase of enterprise AI will be defined not by better models alone, but by how well enterprises combine them with their own knowledge, data, processes, people and governance. We call this the enterprise context and our 3C architecture of core context and coordination is how we help our clients build it. Last quarter, we enhanced our software engineering productivity offering with the launch of software reinvention services, a new offering aimed at helping enterprise software companies accelerate their next-generation products while improving the economics of the products they run today. Software companies are facing challenges on 2 fronts. On one hand, they are facing challenges on growth as AI native companies and model providers compete for their customers. On the other hand, they are facing challenges on cost as their established products must generate the margin to fund AI investment, while the AI consumptions add a new and fast-rising cost. Software reinvention services addresses both starting with growth. Our -- on growth, we are helping our clients build new products faster and take them to market faster. For new product development, we are focused on speed and quality. We deliver AI-led development acceleration through our SASVA platform. SASVA runs on our custom tune models and also work with models from Anthropic, OpenAI and leading open source providers, which gives our client flexibility in their choice of models. Clients can adopt our AI stack as a complete platform or deploy it alongside their existing AIs where it adds measurement, collaboration and structured ways of working.

We are now working with our clients' product managers to prioritize the features most likely to achieve product fit in the market. In recent programs for software companies, this approach has helped bring product to market about 50% faster. For go-to-market, we are helping our clients reach and win customers faster. Together with the leading private equity firm, we are building an AI-powered go-to-market harness to help its software companies reach their customers faster. Additionally, in select cases, we are building products with our clients in a co-sell motion. Our AI-led professional services model is turning into delivery expertise by getting our clients' customer live sooner and improving time to market by more than 25%. On core cost, our focus is on improving the economics of client-established product. because the margins from established products fund the forward-looking year growth. These products carry years of accumulated cost and we apply AI across the full cost of ownership in 3 distant areas. First, we are running mature product through the AI-led sustainment and helping our client carve out products outside their core. For example, for 1 market software company, we have taken over several product lines in data operations, data governance and infond management. We are now running their engineering sustenance and go-to-market while reducing their cost of running these products by 45%. Second, we are helping clients bring cloud and AI consumption cost under control. We are combining cloud optimization with AI led engineering and FinOps to reduce cloud consumption and operating cost. Our [ toconomics ] offering and SASVA's intelligent model routing which matches each task to the most suitable model are keeping token cost under control. Third, we are reducing both labor and nonlabor spend across SG&A. On the nonlabor side, we are rearchitecting products and replacing long-tail tools with custom agency applications to lower third-party license cost. On the labor side, we are bringing agentic system into SG&A and automating workflows across IT, HR, finance and procurement. Our clients are, in turn, reinvesting these savings into new products and go-to-market. So cost efficiency becomes fuel for growth. A strong validation of software reinvention services is the large deal we signed last quarter, a 6.5 years engagement worth more than $650 million with one of the largest technology companies spanning product development, support and cloud operations across multiple SaaS products. Our position in the market is built on long product engineering experience. Over 36 years, we have engineered products for more than 300 software companies. And today, we are serving 9 of the top 10 technology companies. Through Accelerate, we have also operated our own software product business, which gave us the direct experience in building, selling, supporting and sustaining enterprise software. We are now turning that into experience that experience into a repeatable playbook that combines our platform partners ecosystem and accelerators. Software reinvention service is drawing on the same platform and capabilities that are powering our broader AI strategies and the same disciplined approach is continuing to deliver results across our 3 pillars. The quarter gone by. We continue to expand our partnerships by becoming a preferred partner in Anthropics cloud partner network services track and earning Microsoft's Agentic Business Solutions specialization. Our teams today hold nearly 25,000 partner certification across Microsoft, AWS, Google Cloud, Salesforce, Databricks and snowflakes and have earned more than 58,000 AI certifications to date. In summary, as models commoditize, enterprise software differentiation is shifting to the context around them and to the economics of the product, the clients already run. We are helping clients build new products fund them from the products they run today and bring them faster to the market. We are turning that work into durable client-owned asset and applying the same playbook across engagements. This is where Persistent is continuing to invest and where we see long-term value for our clients and our shareholders. I will now invite Saurabh to share other key wins and award for the quarter.

Thank you, Nitish. Let me now talk about the most important deal wins for the quarter by industry segments. Starting off with Software Hi-Tech and Emerging Industry vertical. A leading hyperscaler a selected persistent as a prefer partner for its newly formed or deployed engineering organization to scale legacy modernization and transformation programs. Our dedicated certified [ F-18 ] will work alongside the hyperscalers, over-deployed engineers as an extension of its delivery capacity, emitting directly with customers to modernize and platformize mainframe and legacy states across industries. These engagements are anchored in business outcomes rather than effort, providing customers with a faster lower-risk path from legacy systems to AI-ready platforms. Moving on to Banking, Financial Services and Insurance. A Fortune 500 U.S. insurer has selected persistent as its AI-led modernization partner for its personal lines policy administration. The business was running critical underwriting rating and renewal processes on the legacy core platform, which was leading to inefficiencies and higher costs. Our engagement with the customer involves rebuilding a modern cloud-native policy administration platform. The first phase of the program powered by our proprietary AI accelerators will demonstrate automated part from legacy to modern architecture. Subsequent phases will reduce operating costs, accelerate product and pricing rollouts, retire legacy spend and expand into adjacent lines of business. Now coming to our Healthcare and Life Sciences vertical. One of the largest cancer research and treatment organizations in the U.S. has chosen persistent to manage the technology that supports cancer care across its national network. As part of the engagement, we will bring clinical applications, enterprise systems data and infrastructure under a single delivery model while providing on-site support at care locations. We will leverage AI to capture critical knowledge ensuring that patients and clinicians experienced minimal disruption during the transition. Our oncology and revenue cycle expertise will help the client deliver more consistent care across its locations. Now coming to the key awards and recognitions we received during the quarter. Persistent continued to receive multiple leadership recognitions from ISG in this quarter and received 6 awards at the ISG Information Services Group Provider Lens Awards 2026. The recognition span, digital engineering, AI cloud ecosystems, cyber security and industry services, demonstrating the depth of expertise across persistent. Persistent was recognized as for the second year in a row, achieve the growth honor of the year in annual revenue more than USD 1 billion to USD 5 billion category at Everest Group Elevate 2026. Persistent received multiple awards for its commitment to ESG and people excellence. The most prominent amongst them included. Persistent won Business World Sustainable World Award 2026 in the climate action and carbon neutrality leadership category. Persistent was also honored across 7 categories at the People Matters Infinity Awards India 2026 for excellence in talent and employee experience. With this, let me hand it back to Sandeep.

Thank you, Saurabh. Let me conclude the prepared remarks by saying that we are happy with the consistent performance we have been able to deliver this quarter. The consistency of execution quarter-after-quarter is a testament to disciplined execution, along with our clear strategy. we are making good progress on our AI capability build, client engagement as well as our Nagarro acquisition. I'd like to sally thank our employees, clients, partners and shareholders for their strong support and sustained confidence in us. With this, I would ask the operator to open the floor for questions. Operator?

Thank you, sir. We will now open the call for Q&A session. [Operator Instructions] The first question is from [indiscernible].

Congrats to the management team for a very strong performance yet again quarter after quarter. So Sandeep, one question from my side, and one I'll have for Vinit. We saw a very strong growth performance this time both in Hi-Tech and BFSI vertical. Hi-Tech vertical, of course, we know was driven by the large deal that we had won last quarter. In the BFSI segment, what is the kind of basically traction that we are seeing, specifically in terms of the pockets that we are seeing in growth, the option, which Mitesh talked about. And what is the outlook for this sector? Specifically, I mean, most of the peers are also reporting decent growth, I would say, in the BFSI segment. So is it safe to say that BFSI being the most early doctor of the AI platform is a segment which is kind of going the up curve and we could see more and more growth coming from that vertical.

Yes. So we were -- the growth that we saw in the quarter. I'll first talk about that and come to the BFSI part. So it was underpinned by 2 large things that happened. One was a large deal that we did with one of the largest customers we have. The second one is basically a vendor consolidation exercise that happened in one of the largest financial services customer that we have. So both other things combined were large wins that we had over the last few quarters. Now if you look at the themes that we are seeing in the financial services, vendor consolidation in pockets is still a big team. Second is the modernization side of it, whether it is the data modernization play, getting the financial services institutions ready for the AI part. That is one big set of themes that we are seeing. Second is the modernization from the legacy platform side, earlier, the legacy platforms, et cetera, that people thought they could not modernize whether they were mainframe based or otherwise, are unlocks that AI is providing us. So those are the things that we are seeing at a bigger level. Now in terms of the outlook, our pipeline is healthy. We don't give forward-looking guidance, but we are relatively confident that all the segments will kind of grow very well. One comment that you made that BFSI is an early adopter of AI platforms. I would say, in our mix, it is the high-tech part, which is the most disruptive. They are the companies and within the high-tech part as well. 20% of the ISVs, I would say, mid-market ISVs are on the bleeding edge. And that is where we are seeing the maximum adoption, the maximum productivity demands from our customers. And since we work with them, we are very comfortable taking the same to the BFSI and Healthcare Life Sciences verticals, which are a little slower in adoption given the regulatory nature of most of the constituents in those verticals. Hopefully, that answers.

Yes, yes, Sandeep, that's really helpful. Just a small extension on that part. As we are seeing this AI adoption, as you mentioned, across maybe high-tech companies first and then maybe followed by the BFSI companies, is the high token cost also coming -- becoming a factor for these companies to approach more and more IT services vendors so that we can optimize the token cost for them by maybe building an application layer or anything on that front, any kind of that would be taken?

Yes. So fair point. So there are 2, 3 things if we peel the onion a little deeper. So on one side, the companies in these various sectors are recognizing that there is a frontier model play and there's a play for purpose-built small language models, which may be open source models, open weight models or even building algorithms and that's what Nitish also referred about in SASVA, for example, we have created pathways. Only a few things that need to go to the most expensive models go there, the rest can be done on purpose building models. So that is the place where they are bringing in people like us to help them evolve what technology, what model what way to optimize this. And then even when they are using any of these models, they are putting the token-related FinOps equivalent of the cloud world to control the token costs. So there are multiple things happening there.

Got it. Got it. Just one quick question for Vinit, if I can. Vinit, you mentioned 90 basis point impact of the large deal ramp up which happened in this quarter. So is it fair to assume that for the next 2 to 3 quarters or so that impact will be in the base? And gradually, as our revenue base grows, that impact is it's going to come down?

Yes, that's right. As I mentioned in the -- my comments also that as we optimize some of the cost as well as increase or our revenue also increases, this will gradually come down.

The next question is from Nitin Padmanabhan.

And congrats on the quarter and [indiscernible]. Two questions, actually. Sandeep, the software reinvention services, which we have launched, we had done this prior to 2019 as well. I was just curious how is it different in terms of the shape and form the time. And even in the context of what we have sort of absorbed from the deal, let's say, the intangibles are up like $100-odd million. And you did mention that as revenue improves, the margins will come -- will sort of normalize. But is there a cap on the amount of revenue you can have in a deal like this? Or it has to be through cost coming down? Just wanted to understand how it's different from the last time.

Yes. So 2, 3 things. So how is it different from the last time? There's a difference on the technology side? There's a difference on the commercial side. The difference on the technology segments. If you look at AI, what does AI provide us as a big lever? And what is more specifically when its talks about SASVA, the ability that today we have is if you give us a mid- to late-stage product using technology, we can very clearly map out what happened in the product right from its release one to now. what were the features that were delivered? What was the effort that was there? What is the current hotspot in the product? What is the mapping of the product to the current so that these products are [indiscernible] anywhere wet 5 to 15 years back, how do you use the current cloud versus the capabilities that the current cloud has to offer today. So by rearchitecting how do you kind of bring down the cloud consumption and hence, improve the overall profitability for the product. also, which are the third-party licenses are embedded in the product that you can replace over a period of time by using AI to build some build components and so on. So from a technology perspective, the landscape has changed significantly over the years, and it continues to change significantly by the quarters. So that is the biggest difference that I would say. In terms of the commercials. The commercials are structured in a way that it is an outcome base where we have assured a certain cost saving for the customer. And it is a revenue share kind of a construct where as the customer sells them the product more, we get a certain percentage of revenue with a certain backdrop. So from that perspective, it is learning from the past from business models. Constructing an outcome-based model, which is a win-win for the customer and for us. And using our AI progress to make sure that we are not just depleting the labor cost, but also the third-party license costs and the cloud consumption cost coming together of which is hugely profitable for the customer, and we gain a good share of that as well.

Perfect. That's very helpful. The other thing was in terms of deal wins this quarter, my understanding was, last time, we didn't include the $650 million deal in the deal win. So this time, it's adjusted for that looks relatively softer. So I was just curious, is that a right interpretation or a missing or something.

So I'm pretty sure if you go back and look at our financials, the deal win was included, the TC was at an all-time high for us. And so I'll be pretty miss that was not included. So please review the data. It is included in the last quarter. And the revenue conversion partly had happened last quarter. And a bigger thing we had clearly said in the last earnings call that 75% to 80% or more of the deal would have ramped up by this time. And that's what you're seeing in our revenue realization.

The next question is from [ Kumar Rakesh ].

Please, please check the fact sheet and the CBTC bookings for the last quarter.

My first question was around the software licenses, which have been increasing over the last 2 quarters. So is that related to the large deal ramp up and hence, could be lumpy, could come down in the coming quarters? Or is that related to AI services picking base and this could be structured in now part of the business?

Yes. So it's a combination of both Rakesh. So it's a software licenses. As we have said, we -- the deal encompasses the software licenses that are embedded in the products as well. So part of it is that and part of it is our investment into tools that we are building, some of them even are based on third parties as well or software. So it's a combination of both.

So directionally, we should assume this to be steady at these levels?

Yes. And if we have more deal wins, where we do these kind of software reinvention as a practice grows bigger. Some of these may go bigger, but you should look at overall profitability. And we sincerely believe that this could be a significant mode for us and could also be a profitability in [ SAR ] over the next several quarters as we bring volume into this reinvention practice for the enterprise software.

Absolutely. Great. And my second question was around margin. So with wage hike now behind us and amortization as Vinit was saying should start at least the optimization should start kicking in. So is it fair to expect the margin should start recovering from here? And any year-end margin target you would want to share?

Yes. So from our perspective, we have said we want to be in the 16% to 17% range. That is our aspiration. That will be our endeavor, but we'll let the quarters pan by. We don't give forward-looking guidance. Please take this as an aspirational goal. We want to be in that bracket. And we want to make sure that we can continuously grow. Growth comes, we win deals, we can always optimize deals and increase profitability. So that is where it is.

The next question is from Sulabh Govila.

So my first question is on the deal wins reported this quarter. So on a Y-o-Y basis, the deal wins, they appear relatively soft. So I'm just trying to understand you're getting more color on this, whether One, is this reflective of a particular vertical? Or it was broad-based? And also whether this was related to a slower decision-making in this quarter or the productivity benefits are also leading to lower deal sizes?

Yes. So multiple questions there. And let me clarify for Nitin as well. The ACV reported in Q1 FY '27 was $536.8 million. And that TCV was [ $1,146.2 ] million, so roughly about [ $115 billion ]. That definitely included the $650 million of the large deal that we talked about and the ACV of $125 million that we talked about from the [indiscernible]. Now coming to this quarter. So this quarter, the ACV of $481 million and TCV of $633.5 million, is a reasonably good clip. We have a few deals that slipped over into this quarter. No excuses, we could have done better. But yes, the macro does impact us. the slowdown of decision making in the last few weeks was pretty apparent, and it was not the productivity side of it. It is just the nature of the deals and some of these get impacted when the Middle East dynamics kind of go up or down.