R Systems International Limited (RSYSTEMS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the R Systems Q3 FY 2021 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. Giriraj ]. Thank you. And over to you, sir.

Thank you, Aman. Good morning to all. On behalf of R Systems, I welcome all participants to Q3 2021 earning conference call. We hope all of you are doing well, staying safe and healthy. Today, we have our senior management of R Systems with us in this call. We will start the call with opening remarks on the performance of the company by Dr. Rekhi, followed by a financial overview by Mr. Nand, business overview by Mr. Avirag. Thereafter, we'll have a closer statement by Dr. Rekhi. Subsequently, we will open up for a Q&A session. Before I hand over, let me read out the customary disclaimer statement on behalf of the company. Investors are cautioned that this presentation contains certain forward-looking statements that involve risks and uncertainties. The company undertakes no obligation publicly to update or revise any such statements. These statements may undertake revisions because of new information, future events or otherwise. Actual results, performance, achievements could differ from those expressed or implied in such forward-looking statements. And with this, I am handing over to Dr. Rekhi for his [ commentary ]. Thank you, sir. Thank you. Over to you, sir.

Thank you, [ Giri ]. Good morning, everybody, and thank you for being a part of this investors call. I trust all of you and your loved ones are safe and keeping well. Safety and well-being of our employees is paramount to us, and we have helped our employees and their families get vaccinated. We're also evaluating options for work from office or hybrid working in a phased manner. The technology companies have continued to be benefited by renewed focus towards adaptation of digital technologies post this pandemic. The businesses have accepted the new normal and have started exploring new products business models to convert the challenges into opportunities. I'm extremely proud of R Systems' team for their commitment and efficient working in these times and [ on these lines ]. With this, I would like to present an overview of R Systems for the benefit of all those who are joining this conference for the first time. R Systems was established in 1993 in California as a software engineering company and is now spread across 3 continents with 18 development and service centers worldwide. R Systems delivers digital transformation services [ with new types of ] innovation and creativity to businesses in various industries, technology, telecom, digital media, health care and life sciences, finance and insurance and retail and e-commerce. Our deep industry domain knowledge, combined with our expertise in big data, advanced analytics, AI, mobility, IoT, RPA and cloud, has helped in transformation of businesses in this digital age. We concluded quarter 3 with revenue of INR 306 crores. That is USD 41.4 million. Year-on-year growth was 36%, and quarter-on-quarter was 12%. The growth has been outstanding on the back of new deal closures, deepened relationships with existing customers and continued traction towards product engineering and digital services. The EBITDA for the quarter was 16%, as against similar EBITDA margin last year and 13.4% in previous quarter. The quarter-on-quarter EBITDA margins have improved primarily on account of revenue growth and improved utilization. We have onboarded more than 290 associates to cater to the growing demand. The full impact of head count additions will be reflected in coming quarters. We are still keeping some bandwidth to handle near-term attrition challenges. Attrition has increased over -- across the industry, as there is a shortage of talent because of the increase in demand. We are taking several measures to control attrition. Profit after tax was INR 38 crores, as against INR 27 crores same quarter last year and INR 46 crores in quarter 2 2021. The profit after tax for quarter 2 2021 was benefited by inclusion of INR 22.3 crores under other income due to recognition of stimulus given by the U.S. government. We continued to have a strong balance sheet with shareholder funds of INR 503 crores and net cash balances of INR 292 crores to support liquidity and growth. The Board has approved the second interim dividend of INR 3.2 per share, aggregating to [ INR 37.6 crores ]. We served [ $28 million ] customers, including 5 customers contributing USD 3 million-plus revenues. We added 12 key customers during the quarter. I will now hand over to Nand, our CFO, to provide you a detailed financial analysis.

Thank you, Dr. Rekhi. Good morning to all. Thank you, everybody, for attending the call. Let me go into detail of each line item of profitability statement. Revenue for the quarter was INR 305.8 crores or $41.4 million, quarter-on-quarter increase of 11.8% and year-on-year increase of 36.3%. We have experienced robust revenue growth for our technology and digital services. We are quite optimistic for coming quarters and are strengthening our [ delivery ] team to cater to growth opportunities. There has been good growth from existing customers on top of adding 12 key wins during this quarter. Getting on to gross margin. It was 37.6% in this quarter compared to 35.6% in last quarter and 37.9% in the same quarter last year. Increase of 200 basis points is on account of growth in the business supported by improved utilization. Moving now to SG&A expense line. SG&A expenses increased quarter-on-quarter by INR 5.5 crores. It was INR 66.2 crores in this quarter compared with INR 60.7 crores last quarter. The increase is mainly due to addition of new sales and presales staff, along with increased digital marketing spend. EBITDA in this quarter was INR 48.9 crores or $6.6 million compared to INR 36.6 crores or $5 million last quarter and INR 35.6 crores or $4.8 million in the same quarter last year. This is a record EBITDA ever achieved by R Systems in a quarter. In this quarter, last -- the EBITDA in the similar quarter last year was 16%, and previous quarter was 13.4%. Revenue growth and increases [indiscernible] led the margin improvement despite keeping sufficient [indiscernible] for growth opportunities. We continue to witness strong pipeline for technology and digital services. This will help in further improving year-to-date EBITDA margins in coming quarters. Getting down to depreciation. The total expense was INR 7.1 crores compared to INR 6.3 crores last quarter and INR 6.4 crores also in the same quarter last year. Interest expense was INR 1.2 crores in this quarter compared to INR 1.1 crores last quarter. Interest expense was primarily due to adoption of Ind AS 116 and [indiscernible] benefit. Other income in this quarter [indiscernible] INR 6.2 crores compared to INR 24.9 crores last quarter. Other income mainly consists of interest income and net exchange gains. The last quarter was -- included -- the last -- included INR 22.3 crores [ as it related of ] [indiscernible] during financial year 2020 [indiscernible] under SBA payroll protection program. Interest income for the quarter was INR 1.8 crores. [ The exchange income ] during the quarter is [ INR 3.1 crores ] compared to INR 19 lakhs last quarter. As of the end of the quarter, we had forward cover of $28.7 million with average rate of INR 76.15 and euro cover of 1.9 million with average rate of INR 92.03, which have already been marked to market [indiscernible] 30th September. Our tax expense was INR 9.1 crores in this quarter, as against INR 8 crores last quarter. Our effective tax rate during the quarter was 19.5% primarily due to [indiscernible] [ debt and ] lower tax rate [ in European and in other subsidiaries ]. Last quarter effective tax rate of [ 14.7% ] was lower due to U.S. stimulus recorded under other income not subject to federal tax. Net profit after tax was INR 37.6 crores or $5.1 million compared to INR 46.2 crores or $6.3 million last quarter. Resultant EPS for the quarter is INR 3.14. Getting down to asset side in the balance sheet. Total receivables at the end of the quarter was INR 149.1 crores compared to INR 131.3 crores at the end of December quarter. The receivable in term of DSO was 45 days as at the end of this quarter compared to 43 days as at the end of December quarter. Net cash balance was INR 291.9 crores at the end of quarter compared to INR 303.1 crores at the end of December quarter. We have been constantly generating cash from the business. The Board has approved second interim dividend of INR 3.2 per share, aggregating to [ INR 37.8 crores ] to reward shareholders. R Systems shareholder funds were INR 502.6 crore at the end of the quarter compared to INR 426.8 crores at the end of December quarter. We have a strong balance sheet to support liquidity and growth. With that, let me hand over to Avirag for a review of operations.

Thank you, Nand. Thank you, everybody, for being on the call. I hope everybody is doing good. We continue to focus on digital technology and digital transformation. The strategy and focus have been helping us in our growth journey. We'd like to give you a brief flavor of our global operations. Digital transformation continues to be the focus for us on select key verticals like technology, telecom, finance, insurance, health care, life sciences, retail and e-commerce. Our digital transformation offerings include cloud, analytics, machine learning, artificial intelligence, [ key data science ], speech analytics, RPA, IoT, [ sales force ]; and these continued to be our arrowhead for growth. In the cloud side, we work with all the leading platforms such as Amazon, Microsoft Azure, Google. We are an advance partner with Amazon, [ gold partner with Salesforce ]. And we see significant opportunity in cloud in this space. On analytics side, we see huge growth in ML, AI, data and speech analytics. We are currently serving many key clients in this space, and there are a lot of opportunity that's coming our way. On mobility, we work on wide-radio technology such as Android and Android-iOS hybrid [ and other triform enterprise through ] mobile apps. We had 4 key wins during this quarter and some of these key wins are as below. One was a key leading [indiscernible] Canadian health care technology provider that optimizes operation and enhance productivity for dental service providers. They have engaged R Systems to modernize their legacy platforms that can help them [ doing ] actionable insight and use data science and engineering. Another win is a U.S.-based global provider of technology and business services to telcos. They awarded R Systems to enhance signaling technologies to analyze traffic and develop new features. Another one is a U.K.-based early-stage company offering all-in-one family health care through web technologies, and they have engaged R Systems to digitize their products for health care insurance and on-demand health care services for their Asia Pacific market. Another one is Singapore-based Asian watch and jewelry brand and retail company. They awarded R Systems' APAC division a project to upgrade their central version of medical application to Dynamics 365 Business Central and LS Central to integrate various business processes to deliver financial visibility and operational excellence. Another one in Singapore is one of the leading Japanese printer, electronic component and system device companies. They have engaged R Systems Consulting to upgrade its cloud suite industrial SyteLine ERP to enhance product certification traffic -- certificate tracking system in Singapore region. [ In turnover technical head count ], we have increased from 3,030 in Q2 to 3,327 in Q3. We added 290-plus technical associates to support growth and the strong sales funnel. Utilization, we've increased from 76.7% in Q2 to 77.7% mainly due [ to the plan ] execution and growth in the business. Quarterly, by geography, North America contribute 70.2%, Europe 12.8%, Southeast Asia 13.7% and rest of the world 3.3%. On quarterly client concentration, top 10 clients contribute 23.4%, with the largest 7%. With the brief overview, I will hand over back to Dr. Rekhi for his closing comments. Over to you, sir.

Thank you, Avirag. Let me sum up. We reported 28% revenue growth with improved EBITDA margin during the first 9 months of the financial year 2021. We remained focused to partner with customers in delivering successful digital transformation solutions. We endeavor to utilize the strong balance sheet to support operations and growth. We continue to invest in sales, [ retail ], digital marketing and in newer technologies. These are helping us win larger digital transformation projects. The business outlook continues to be positive with the strong demand environment, as evident from the strong sales pipeline. We are confident of continuing this growth momentum and margin expansion in the coming quarters. That brings us to the end of our presentation today, and we will hand you back to the organizers for getting your questions. Thank you.

[Operator Instructions] The first question is from the line of Sonal from Prescient Capital.

Can you hear me, sir?

Yes.

This is Sonal. I have 2 questions, sir. First one was regarding your segments in which you operate. Just wanted to understand, which are the larger segments where you are an established player and therefore incremental sales happen [ this year ] and compared to segments which is -- where you are investing in? That's the first one. And also want to understand like, given your size is growing and you're expanding, is there like a [ sales funnel ] in terms of you being prequalified for certain type of companies, let's say $1 billion top line companies or Fortune companies or government contracts, which open up with scale for you in the next 2 to 3 years. Just want to understand these two.

Thank you, Sonal. Regarding the segments, technology [ consists the ] biggest segment for us. 60% of business comes out of technology. And within technology, I think telecom did close to 30%. We are also -- the second big sector would -- of the segment would be the health care, around 10%, 12%; banking and finance; retail; and e-commerce. So broadly these are the 4, 5 segments where we're primarily operating, and we are growing in these segments by leaps and bounds. [ Coming to the pre qualification], we are close to -- on a run rate basis, we did 41 million. So we are close to $165 million company. In fact, last year, [ we closed close ] to 119 million. So I think we have -- I mean that's not a big [ issue. I think ] we are qualified for bidding or for that reason and so -- for most of the big projects or even the governments also. And our market [ cap ] is also close to right now 2,800 crores. So I think, that way, we have not faced any challenge. And we come across big organization like [ Infosys, TCS ], Mindtree, Persistent and all that. So I don't feel much concerns in that from that [ point of view ]. Does that answer your question?

Yes.

Yes -- sir, we have lost the participant. [Operator Instructions] We have the next question from the line of [ Anubhav Mukherjee ] as an individual investor.

Sir, I know -- like I'm like analyzing your company for the first time, so I have a few very basic questions. Sir, firstly, what are the key service lines for the company? And like is it outsourced for the development of like managed services? Can you take us through like the key [ horizontals, like ], for the company? Yes.

Okay, [indiscernible]. Let me tell you our system is a product engineering and digital transformation [ company ]. So out of -- we are close to, on a run rate basis, $150 million company, with 3,800 associates across the globe. [ Really ] the biggest business comes out of product engineering, which -- I mean it used to be called core engineering or core -- or [ outsourced development ]. This business is close to, I would say, $125 million out of that $150 million run rate. Another $10 million business is RCM knowledge services business. That makes it close to $135 million. And around $20 million to $25 million business comes out of Southeast Asia, where we are reseller to Microsoft and Infor products. So that is a broad breakup of [ $155 million to $150 million ] run rate company. And regarding employees point of view, we are close to 2,600 to 2,700 employees in India. We are in Noida as well as in Chennai, around 100 people in Chennai and 2,600, close, to -- in Noida. And we are in Eastern Europe, Romania, Poland, Moldova, close to 400 employees. In U.S.A., we are close to 250 employees. [ The core front-end sales team sits in ] U.S., 30 front-end salespeople. And also we're doing a lot of project nearshore work, where we have close to 200 employees. In Southeast Asia, we'll be close to -- Singapore, Malaysia, Indonesia, close to 400 of employees. So that's a broad breakup. So the core product engineering and digital transformation [ is the strength ] and the biggest vertical where our revenue is close to 125 million to 130 million.

As a follow-up question, sir, in product engineering, can you like just give us a sense of what is the nature of clients that we serve? Is it like larger software vendors like Microsoft or like -- and is it like more [ huge client ] players like -- sorry, [ U.S. cloud ] players like Salesforce? So can you take us through the nature of clients? And also, like as the follow-up to that, like what is the nature of the work you do in terms of like is it project oriented? Or is it more [ annual theme ] in nature? That will be helpful.

[ Yes. Avirag will be helping you through the data ]...

[ Okay, fair enough, yes ]. So thank you. And it is a very good question that you have asked. And typically our customers are ISVs in the range of from $35 million to mid-$50 million, though we would like to work with Microsoft and [ likes of Microsoft. And typically works that we do are the ] products engineering system, be it new product development, taking the cloud to the -- product to the clouds. It can be maintenance, support or -- all kind of product services. [indiscernible] product life cycle. It can be product development, maintenance, support, enhancements, [ porting ], testing, [ clearing ], the full life cycle. So we do everything. Typically, a customer that [ are new with us, we're going to start at any cycle, maybe ] initially some development, but the life cycle goes on. There are a lot of customer who are [indiscernible] with us for over a decade, so business is very sticky in the product business. A customer, when engaged with us, they'll continue for a very long duration. And some of the larger ones [ are also our ] client. So did I answer your question?

Yes, sir. And sir, could you also take me through like the nature of the revenue for these clients? Or is it more project related? Or I mean, how has that transformed over time...

It -- yes. It is generally a fixed team model. A customer will sign up for a fixed team of, let's say, 50 people or whatever number. And the core [ team they have will maintain ]. And based on the [ business up or down ], the team may scale up or sometimes marginally scale down. And as their business grows, we grow with them. Definitely these are fixed team annual contracts which renew year after year.

Got that, okay. And sir, on the digital transformation side, also can you explain like what type of work you do? And is it, I mean, like more for the, like, product development side for your ISV clients; or actually directly for enterprises to like help them with their digital transformation? How is it -- yes.

Yes. It's still -- on the transformation side is -- majority of our business is still coming from OPD, but we have been trying to focus on enterprise for last 2 year and we have some good success. So current volume is high on the OPD side or the ISV side, but we have already started working with a lot of enterprise clients in this space. And we see good traction in this space down the line...

Got that. And do you have a -- sorry. Please go on, sir.

So a lot of product engineering trends are now shifting to digital [indiscernible] product engineering [indiscernible] maybe -- out of the product engineering [ developers ], maybe 25% to 30% is in -- now in the digital transformation [ shift ].

Okay, okay. And sir, what percentage of your revenues would be sort of [ annual theme? Which I do track that. And if there is like effort to ] increase that, how -- like some...

Let me tell you the effort to increase -- maybe Nand can talk about the numbers. You see our repeat business from existing customers is to the tune of 85% to 90%. So there are year-on-year repeats. And we grow -- every year, we grow the business. There are some startups [ who, by the way ], die down, but there are other who grow, so there is -- generally growth this year has been exceptional. Many of our clients have grown very high. I mean some have been doubled. So there is a continuous effort to do product innovation [indiscernible] cloud proof of concept for the clients if they like that help us to grow their business with them. There is a continued effort. There is a whole sales and the relationship model that we have which help us to grow these clients. And Nand, do you would -- like to throw some light on the numbers?

Yes, yes, yes, sure. I'll do that. [ So a number of these agreements ] is -- I think 85% to 90% [indiscernible] that sector -- a customer will start or likely start with product development. Then there is [ an enhancement of that further and different volumes with that product ]. And once the product is made, we'll maintain the product and regular upgradation and all that. So if you -- out of that [indiscernible] product engineering which I mentioned, I will say that 85% of business [indiscernible] business. And we work as an extended arm of the customer. So I mean, to simplistically answer your question: The [ annual theme side of ] business would be, say, 82%, 85%. And [indiscernible] ramp-up, ramp-down [indiscernible] how the customer is performing. If customer grows, we also grow [ back there ]. So that is a [ broad, I think ], flavor [indiscernible].

Got that, sir. And sir, who would be your typical competitors for the kind of clients that we serve? Like the -- what I understand, you mentioned that it is smaller-sized, like, software vendors, so could they be Persistent, Mindtree? Can you take us through like your competitive landscape? Yes.

I think you answered 2. Third one may be GlobalLogic. Again, we [ compete with them ]. So like OPD players. There are rather few of them. So GlobalLogic, Mindtree, Persistent, we compete...

[indiscernible] 4, 5 kind of [ OPD players sometimes ]. So these are [indiscernible] that we are competing with [indiscernible].

Got that -- am I audible?

Yes. We can hear you well.

Sir, as a follow-up to that, can you take us for, like last few years, how have you seen this OPD space evolve? Like what we understand is that like [ even in ] OPD [indiscernible] players like Persistent, GlobalLogic, they are focusing a lot on the enterprise side. And also like the -- for some of the larger [indiscernible] players like [indiscernible], if you look at their growth, that has been explosive. And like that has also been driven by like [indiscernible] in the kinds of like accounts and services. Typically like this -- kind of like the work used to be very project oriented, but with digital like -- and especially digital transformation, the size of projects have really grown for some of these players, so how are you [ witnessing ] this space? And how is it for you? Yes.

So maybe I can take that one. I think [indiscernible] I think [indiscernible] where either they are trying to take their product to cloud or doing the digital transformation [indiscernible] because [indiscernible] a lot of projects [ or work ] that is coming to us in the -- within the cloud that will be [indiscernible] it is a large chunk of [ work ], but this won't be there for long. Once you do it, then you come in and sustain more. [ Or you want ] new product offering and all that. So we see good growth coming in this space for now and maybe some more years, but we are also trying to focus and we have been focusing on enterprise clients as well like Salesforce. We are increasing our footprint of [ Microsoft ] offerings, whether it is maybe [ then CRM ] [indiscernible] and some of the enterprise. So we are trying to focus a lot on this. And RPA [indiscernible]. So along with OPD, we are growing our enterprise business.

Yes, sir. Actually, sir, I would also, let's say, move to the enterprise side. [indiscernible] more sticky and the [ size of delivery are ] also going up. So from that, like can you take us through what kind of sales effort or, let's say, [ team ramped-up ] or additions we have done in the past few years? That will be helpful, yes.

Well, actually we have invested a lot in last 2 year in sales. There are a lot of salespeople addition in U.S. as well as in Europe as well. And what we are trying to do, we are trying to focus sales along with the technology. [ Like for RPA, we have core ] sales team in U.S. or other places, and the account manager [ in India ]. So it's kind of collaborative and same thing we are trying to repeat with the Microsoft or Salesforce within the space. [ So it will be sales and the relationships that we ] bundle together, trying to make the offering in the enterprise space.

Got that. Sir, the last question: Like how do you see the organization in maybe 3 to 4 years down the line? Like what's your aspiration in terms of what various lines; type of clientele, also [ maybe size ]? And secondly, as a follow-up to that, like does the organization need like some senior-level [ hire ], the -- like strengthening of the management team? What's your thoughts on that, sir? Yes.

So -- no, Nand, you go ahead.

Well, I think we have [indiscernible]...

[indiscernible] your voice is broken.

Yes. Your voice is...

Your voice is broken, [ Nandi ].

Can you hear me now?

Yes.

Yes, better now.

So what I said is that, [ in 1, 2, 4 years ], we have almost doubled our business, doubled our revenue. And on a run rate of now $150 million, we have grown [ 30% ]. I think the aim is to kind of double the business in the next 3 years time. That is the aim. And we have done very well. I mean, last 2, 3 years, we have increased -- and all this coming as through a lot of efforts. We have increased our domain expertise. We have higher domain expertise; and we still -- we have higher sales, presales. And we continue to invest in all these things and our aim is to [ find us doubled in ] next maybe 2 years. Did that answer your question?

Yes. That's really helpful.

Our next question is from the line of [ Samir Rathi ] as an individual investor.

I'm [ Samir Rathi ]. My question is -- first of all, I would like to thank the management for the [ liberal ] INR 3.20 dividend which we have given apart from INR 2.50 [indiscernible] dividend given earlier. Also the buyback process was recently completed. Last con call, some [ Delhi caller ] also alluded to or asked for a [ liberal ] bonus so as to allow more amount of retail participation, so my question is that is management thinking of some kind of a bonus or some sort of another way of or any other thing to award the retail shareholder. And I am investor since the IPO days, and it gives me immense pleasure to be [indiscernible] company.

Thank you, [ Samir ]. When -- if you have invested in the IPO -- I mean we are almost 10x. I mean [ IPO came at ] -- gone today [ 2 40 to 2 50 ], whatever, so I think we are happy to have investors like you who have been with us all the time. So we are a shareholder-friendly company. And we want to reward shareholders, grow business as well; and that is what we are doing. Regarding the bonus, I think [ this thing ] was discussed in last Board meeting. I mean, maybe as of now, we feel this is not the right time, but I think this is a good suggestion actually. We will -- I think we will reconsider. We will discuss that in future Board meetings as well. I think it's a good suggestion. The price is also now increased. So good progression. Thank you.

[Operator Instructions] We have a follow-up question from the line of Sonal Minhas from Prescient Capital.

Am I audible?

Yes, sir, you are.

Okay, all right. I think my colleague Anubhav asked a few questions basically, so most of it is answered. I just wanted to understand, sir, how your sales team have been ramping up. And what are the plans to basically grow the team or improve their productivity in the year -- maybe 1- or 2-year perspective? Just want to understand that specifically. Rest of my questions have been answered.

Very good. I think I touched upon that in some -- one of the previous answers. We have expanded our sales team, presales team, domain expertise team. And this has helped us, I mean, if you, honestly, ask me. 30%, 35% growth which we have achieved in this year is on the back of all these things being undertaken. We want to grow. I mean there's no doubt about it. We want to be one of the Persistent or one of the Mindtree of this world. So we want to grow. And we'll continue doing all these things. And I think that we have a very robust evaluation for our sales team. And you will find 1 or 2 more performers, which we keep on grooming and all that, but I think the team is doing well. I mean they have done well this year. Last year was a pandemic year, so we can't -- that was a exception, but I think our team is doing well.

And just to add to what Nand said: We have a global implementation of [ Salesforce ] for our sales team. Everyone is aligned to a vertical, geography or area. And we have a huge marketing team who create the funnel, [ model the load; and team follow them ]. So there is a rigorous process of creating the funnel [indiscernible] and the global implementation of [ Salesforce ] for our entire sales team. That help us to track individual performance, account, opportunity.

Got it, got it. And I'm assuming the head count basically there is ramping up...

Yes. Well, it's -- head count is ramping up, correct.

[ And also, in the past 2 or 3 years ] [indiscernible] quarter. We are doing well. I mean October has gone well. I think this quarter also [ we have seen the growth ].

Got it, sir. Sir, just 2 questions, 1 around the mix. I think, if I'm not wrong, last year -- last call and [ the follow-on ] discussions we've had, we've taken our next year target, next financial year targets of reaching roughly close to $200 million and being in a similar margin range. So this is more bookkeeping from my side. I just wanted to understand that given how you're seeing the past -- the next quarter and the year-end.

Sonal, we have grown close to 30% this year. We have -- we'll be, like on a run rate basis, close to $155 million or -- I mean we have done $112 million, $112.5 million, in our first 9 months. Assuming $41 million, $41.5 million this year, we will be close to $154 million, $155 million [ signed out ]. I mean, if we do 30%, I think $200 million is not very far, but I think, as of now [ demand is action ]. There [ is lots ] demand. [indiscernible] So I think [indiscernible]...

Sir, your voice...

[indiscernible] your voice is again breaking.

I said the -- from demand side, there is no problem. I mean business is there. And the challenges are resources, which we are trying to [ find out or push ] and trying to attract talent. I think we are [indiscernible].

Got it, got it, sir. And last bookkeeping question, which has been around your tax rate: I just want a clarification. The number actually is close to 16%, 17%, so what is it that we should be [ landing ], considering for our own internal working projections going ahead for this financial year and the next financial year?

[ Yes, that was presented. Listen ]. I think, this quarter, the...

This quarter...

This quarter is 20%, yes, yes.

20%. And last quarter was less because of the write-back of that U.S. PPP loans. I think 20% is a ballpark figure we [indiscernible] half of the business -- or more than half of the business [ comes from SEZ ]. Singapore and European will be lesser tax rate, as you would know. So I think close to 20% is the ballpark effective tax rate.

Our next question is from the line of [ Anubhav Mukherjee ] as an individual investor.

Sir, what portion of your revenue -- what is the division between offshore and onshore? Is the business more offshore in nature?

72% [indiscernible] offshore. Around 28% is on site, so I think major portion [ in terms of ] offshore.

And what has been retention like? For -- has offshoring picked up in the last 1 year or so? How is it [ going for you ]?

I think [ there was, 2 years before ], [indiscernible] 65%, 66% [ today we have ]. So I think there'll be [indiscernible] growth on that as well, offshore as well, but offshore has grown better. And there are better gross margins in the offshore business, so that has kind of improved margins also. So offshore is comparatively doing better than [ on site ].

Get that. And sir, also what kind of attrition have you seen in the last quarter? And is it manageable? Yes.

Yes. [ I know ] attrition at project manager and above level is very less, but at the below level it has increased, to be honest, within last 1 year. We used to have 10%, 12%. [ This year ], it will be -- even be [ contained. And this is ] around 20% kind of range. It has increased, but I mean we have taken several steps to kind of -- we have now put in across India, places not in constraint -- we have like -- now even we would exclude it from where we do not have the offices. This was [indiscernible] has become very well for us. So we are taking a lot of action to kind of [indiscernible]. And we are doing some housekeeping [ stuff also for ] [indiscernible]. [ I will say the market grows well ] [indiscernible].

Get that. And sir, what is your, like, salary hike [ setting ]? When do you typically take that? And do you see like further hikes or some other incentives coming in the coming quarters? Yes.

Normally our salary hike comes 1st of January, but I mean we have a definite -- different system. See [indiscernible] developments in March. So that is the [ preference ], but last year, [ for a few months ], because of the pandemic, we have kept that on hold...

Sir, your voice is breaking quite...

[indiscernible].

I said -- is it better now?

Yes.

I said that in 1st of -- on 1st of January, majority of [indiscernible] will be due for appraisal. We'll have to do much better than what we did last year, so I think that we have to manage that. Having said that, with the kind of growth we have achieved this year, we are initiating a lot of [ billing rate ] [indiscernible]. So I think we'll be able to take -- we'll have to do much better than what we have done last year, and -- but we will manage it to improve the utilization, improve billing rates [indiscernible].

Get that. And sir, longer term, where do you see the operating margins of the company? Like is this a sustainable level, 15%, 16% kind of? Given the supply-side challenges, do you see like pressure on the margins in the coming quarters?

[ Anubhav ], we did 13.3% EBITDA last year. This year, we have already done 14.1% in first 9 months. Normally Q4 is a better quarter compared to the previous -- Q3 and Q4 are better, so we'll -- I think the aim is to do 14.5% at least [ for this year's ]. I have a feeling that we'll be able to sustain that, but I want to remind you that, last year and in the first 9 months, there are a lot of cost savings as well, which may not be of that level. I mean some will continue. Some may not continue, so -- but with the kind of growth we have witnessed this year and the way we see it next year within this attrition challenge and this recruitment challenge that we talked about, I'm feeling that we will be able to maintain -- or rather, we should be able to improve our, maybe 50 to 75 basis points, margin. I mean I'm quite [ wishful ] of that.

We are seeking higher rate on the new contracts. Existing clients, also we are taking the rate increase [ for many ].

Sure, sure. And sir, just a last addition is like, from the coming quarter, in your presentation we could also share the -- like account size details; like in terms of like how many [ $1 billion, $5 million ] clients you have; and a trend of that over the quarters. That will be helpful, like -- because it helps us to understand how your accounts are ramping up over time. Just a suggestion from my side.

We do that. We do that. As of date, I think we have reported in the investor presentation 38 customer are more than $1 million and 5 are more than $3 million. So I think we report [indiscernible] -- yes, yes.

[indiscernible] in the results.

But we said -- I think we can put it in a more kind of number-wise [ writing ], maybe [indiscernible]. So we can do that.

[ Yes ].

[Operator Instructions] Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to Dr. Rekhi for closing comments. Thank you. And over to you, doctor.

Thank you, everybody, for your time and your questions. With this, we come to the end of the presentation. Thank you. Thank you very much.

Thank you very much.

Thank you.

Thank you. Ladies and gentlemen, on behalf of R Systems, that concludes today's call. Thank you all for joining us, and you may now disconnect your lines. Thank you, yes.

Thank you.