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

Ladies and gentlemen, good morning, and welcome to the R Systems Q3 FY 2023 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar. Thank you, and over to you, sir.

Thank you, Lisa. I welcome all participants to this earning conference call. We have today with us Nitesh Bansal, Managing Director and CEO, R Systems; Nand Sardana, CFO, R Systems. We have shared the presentation earlier today, so all of you have received that. We will start the call with the opening remarks on the performance of the company by Nitesh and followed up by a financial overview by Nand. Thereafter, we'll have closure statement by Nitesh. Subsequently, we'll 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 these presentations contain certain forward-looking statements that involve risks and uncertainties. The company undertakes no public obligation to update or revise any such statement. These statements may undertake revision because of new information, future events or otherwise. Actual results, performance, achievement could differ from those expressed or implied in such forward-looking statements. Now I pass it to Nitesh for his opening comments. Thank you. Over to you, sir.

Thank you, Kumar, and good morning, everyone, for joining in. This is Nitesh Bansal, the CEO and MD for R Systems. And it is my pleasure to be addressing you today. I would start the presentation with 2 slides that I have used in my past investor meet as well. And this is just to kind of once again remind all of you and ourselves as to the space that we play in. So I'm currently referring to Slide #3. Looking at the engineering services market, typically, the engineering and R&D services get divided into 4 subsegments, which include mechanical engineering, embedded engineering, software product engineering and digital engineering. We at R Systems, we play in the 3 out of the 4 segments, which covers embedded, software products and digital engineering. We do not perform mechanical engineering services, which is outside our scope. Looking at the digital or embedded engineering markets, the global outsourcing spend has obviously been increasing. And though mechanical engineering is a large part of the spend in the market, as you would see if you have the slides that you can refer to, going from 2013 to 2025 estimate numbers, most of the increase in spend has come in the software and platform embedded and digital engineering side. So given the space that we are in and the market that we address, we are in a space that is growth-oriented. And in general, the macro is pretty strong. Moving on to the next slide, looking at some of the current trends. And these are reports from third-party analyst services, where we look at the demand side and supply side drivers, a lot of demand getting driven through embedded software and platforms, digital engineering to be a key growth driver. Industry 4.0, 5G kind of use cases and as-a-service models are driving the spend with some of the customers. Of course, there are reasonable nuances, APAC versus Europe, et cetera. And on the supply side, pure-play digital product engineering services have been taking routes with great -- with niche or differentiated expertise and experience being something that the customers really like. And because these deals seem to be -- or these deals tend to be mostly in discretionary spend and in form of projects, to create lumpiness of revenue, there are new commercial models that have been evolved as well as M&A strategy to play an important role. And why this is relevant is because we, in the stage we play, we are obviously -- we have evidence of working in embedded and software platforms. We do work with broadcasting product companies that produce products for audio visual, audio and video sources and live broadcast. And we help them writing those software. Or in Industry 4.0 and others, we have examples where we have developed software for those companies. So we are well poised in this kind of space. Now we have to remember, these are all macro trends. These are like long-term trends, and short-term market fluctuations, demand fluctuations are not factored in into this. Coming to the crux of the matter, so moving to Slide 5, our key highlights for Q3 2023, which is basically the quarter ended September. The revenue for the company stood at INR 457.3 crores or USD 55.3 million, which is a year-on-year revenue growth of about 14.84%. This quarter, in the revenue, we had a onetime fee that we received out of a contract, net of which this would have -- we would be at 10% growth year-on-year. This has led to a net profit of INR 440 million or $5.3 million, which is a 48.3% growth in year-on-year EBITDA. But net of the onetime fee, it will be 15% year-on-year growth. The earnings per share stood at INR 3.72 per share. From a balance sheet perspective, we had a healthy cash balance of $19.5 million or INR 1,622 million. Moving to the next slide, Slide #6, highlights for the 9 months ended September 2023, which is the year-to-date numbers. We had revenues of INR 12,682 million or $154 million, which is a 13.6% year-on-year revenue growth; net of onetime fee, 11.8% year-on-year revenue growth. Net profit stood at INR 942 million or $11.4 million with an earnings per share totaling up to INR 7.97 per share. Looking at some of the key highlights. The market continues to be challenging with continued headwinds from customers that has been the flavor of the year 2023 as we've seen a lot of large companies do layoffs, a lot of tech companies who happened to be our clients have been reducing their spend. And those headwinds, customers are kind of dealing with, and some of that gets reflected on to the demand for our business. We've been deepening our engagement with our customers, helping them with their immediate priorities because at this time, they're looking at how they can produce software products at lower cost. We help them reducing the cost of product development by doing it offshore as we do it and leveraging cloud, data and AI-related specialized services to differentiate the features in their products. We serve 51 customers with more than $1 million in revenue on a run rate basis. The acquisition of Velotio technologies that concluded in July this year has been both growth and margin accretive. We have moved in the direction of being able to integrate Velotio in the larger R Systems and accelerate a lot of cross-sell and upsell initiatives between the entities. Strategic alignment or realignment of our go-to-market with a focus on key verticals to become more relevant to customers has been taking place. So we are aligning our go-to-market by verticals, and we are leveraging specialized offerings on cloud, data, experience, embedded systems, automation and AI as key horizontals with which we'll go to the market to the customers. And as always, we are committed to preserve the margins through efficient operations. With this, I'll hand over to our CFO, Mr. Nand Sardana, to talk the detailed financial performance.

Thank you, Niteshji. Good morning to all. Thank you, everybody, for attending the call. This presentation gives detail of both quarterly as well as year-to-date numbers. As Niteshji said, revenue for the quarter was INR 457.3 crores or $55.3 million, quarter-to-quarter increase of 12.4%; excluding onetime BOT fee, it was 7.7%. Year-on-year increase is 14.8%; and excluding onetime BOT fee, 10%. As we mentioned, above revenue and EBITDA includes BOT fee of USD 2.3 million or INR 19.3 crores on a knowledge service customer. It was due to change in customer priority where they set up their own center in India. The agreement was timed 3 to 4 years -- I mean, we have served the customer for the last 3 to 4 years and earned a revenue of close to $10 million in the last 3 to 4 years. Revenue for year-to-date September was INR 1,268 crores or $154 million as against INR 1,116.3 crores last year with a growth of 13.6%; excluding onetime fee, 11.9%. The company has added prominent logos having good potential to grow in spite of challenging macro environment. Going down to Q3 gross margin, it was 38.3%; excluding BOT fee, 35.6%, compared to 34.8% last quarter. The margin has improved on the back of BOT revenue and efficient operations. EBITDA in this quarter was INR 85.9 crores or $10.4 million compared to INR 60 crores or $7.3 million last quarter and INR 57.9 crores or $7.3 million in the same quarter last year. As percentage of revenue, EBITDA was 18.8% in this quarter compared to 14.7% last quarter and 14.5% in the same quarter last year. Excluding BOT revenue, the EBITDA margin was 15.2%, that is about 70 basis point improvement against same period last year. EBITDA year-to-date was INR 200.3 crores or $24.3 million compared to INR 148.6 crores or $19.2 million last year. As a percentage of revenue, EBITDA was 15.8% in year-to-date September compared to 13.3% last year. Again, excluding BOT revenue, the EBITDA margins were 14.5%. That is about 120 basis point improvement against same period last year. The improvement is primarily on the back of efficient operations and control over SG&A. We are committed to preserve these margins in spite of a challenging period. During Q3, company incurred certain nonrecurring expenses for acquisition of Velotio. We have mentioned that earlier as well. Other income in this quarter was INR 17 lakhs compared to INR 4.3 crores last quarter. The other income mainly consist of interest income and net exchange gains or losses. Reduction is mainly due to net exchange loss due to end-to-end of outstanding forward cover and reduction in interest income post utilization of [ corpus ] in Velotio acquisition. At the end of the quarter, we had outstanding forward cover of $41.25 million with average rate of INR 83.89 and euro cover of EUR 2.2 million with the average rate of INR 92.48. This has already been marked to market on September 30. Now moving into tax expense. Our Q3 tax expense was INR 18.2 crores as against INR 31.1 crores last quarter. Last quarter tax rate expense included INR 20 crores provision for tax on dividend declared from U.S. subsidiary. Out of INR 20 crores, the company shall be able to reverse INR 12 crores based on dividend declared to shareholders in next 9 to 10 months. Our effective tax rate during this quarter, excluding amortization of intangible accounted through Velotio acquisition, is around 26%. Net profit after tax for the quarter was INR 44 crores, up $5.3 million compared to INR 14.4 crore or $1.8 million last quarter. Net profit after tax for year-to-date was INR 94.2 crores or $11.4 million compared to INR 98.3 crores or $12.7 million last year. This is after considering nonrecurring expense of INR 10.7 crores and provision for tax of INR 20 crores on dividend, which we received from U.S. subsidiary. Resultant EPS for the quarter is INR 3.72 and year-to-date is INR 7.97. Now getting down to asset side of the balance sheet. DSO, including unbilled, for quarter 3 was 60 days compared to 64 days for December '22. We are seeing some AR challenges with 2 customers who are dependent on funding in the last few quarters, and we have made conservative provisions. Net cash balances after short-term borrowing were INR 162.2 crores at the end of 3 quarters compared to INR 271 crores at the end of the December quarter. The company has paid INR 264 crore for acquisition of Velotio, which has impacted our cash balance. Our shareholder funds were INR 639 crores as of September end compared to INR 540 crores at the end of December end. Coming on to the operation in terms of technical headcount, it has reduced from 3,927 as of June 30 to 3,740 as of September 30. This is the net impact of the BOT execution for which we have received the fee. Utilization in quarter 3, branded utilization of 79.2% compared to 77.3% in quarter 2 and 76.9% in quarter 3, 2022. We are making focused efforts to improve utilization in the coming quarters. On Q3 basis, geographical distribution based on customer location is North America, 74.7%; Europe, 9.5%; Southeast Asia, 12.5%; and rest of the world, 3.3%. On the client consultation, top 10 contributed 25.8% with the largest client contributing 6.5%. With that, let me hand over to Niteshji for the review of operation -- for the final comments.

Thanks, Nandji, for the detailed overview of financials. Coming up for this quarter, Q3 has been an exciting quarter. We have had large deal wins. We have had successful initiation of go-to-market alignment, with focusing on the industry verticals that we are most familiar with. As customers face headwinds, we have still managed to deepen our relationships through better relationship management, more active farming and reaching out to our customers with sharper offerings, addressing some of their immediate needs with adopting cloud, data, automation and AI. If you look at some of the success stories that happened in the quarter, we started a strategic partnership with a global leader in Access Control systems. We -- a leading provider of digital marketing services has engaged us to build the front end, back end and to integrate generative AI capabilities in their platform. Our U.S.-based precision engineering company is leveraging our expertise to gain insights through data using Power BI and Snowflake. And a leader in power generation and distribution in Europe has partnered with us to significantly reduce the complexity of new customer identification, validation and onboarding. And there, we are leveraging a suite of digital technologies. So these are the representative wins of the quarter, some good stories. But with that, I thank you for listening to us. This is what we had to present. And now back to you, Kumar, for the Q&A part.

[Operator Instructions] The first question is from the line of [ Amit Thawani ], an individual investor.

Nitesh, congratulations on a good set of numbers. It's quite a tough environment. And in that kind of an environment, to give these numbers is quite creditable. But I just had a few questions. If you go into the segment information, our IT services actually has de-grown year-on-year in its profit before interest and tax. And on a Q-o-Q basis, also, there is not much growth. So I was just wondering -- and clearly, the Velotio acquisition has got added in that segment in this quarter. So I was just wondering, is the Velotio acquisition really earnings accretive? I mean it -- at least in the segment numbers, it doesn't seem like that.

Well, Amit, first and foremost, thanks for recognizing that it is, business-wise, it's been tough environment. And in that environment, holding these numbers and that kind of year-on-year growth is definitely credible. I think what you're seeing is a net result of both the ups and downs in terms of where customers have faced headwinds and the projects have closed, that obviously has impacted the quarter. But on the other hand, our new client acquisition plus some of the large wins, including growth with some of the existing clients, like we said, in the areas of data, cloud and AI, has led to growth. Velotio itself has been, like we said, the synergies due to cross-sell, upsell, due to getting the advantage of having a location in Pune, which also gives us an additional talent pool, has been overall both growth and margin accretive for us. And I think that's reflected, to some extent, in these numbers. Your point on IT services de-growth year-on-year on PBIT basis on our profit before interest and tax basis, I do not have a comparison guide in front of me. I don't know, Nandji, if you have the numbers handy.

Yes, I can. I can. So Amitji, if you see quarter-on-quarter, year-on-year segment, technology has grown close to INR 26 crores, if you can notice that. So there is a growth. So -- but business process outsourcing, which encompasses the fee of this BOT fee, that's definitely, remember, absolutely this. And secondly, due to acquisition -- on the profitability front, due to acquisition of Velotio, you see, what has happened is we have acquired customers -- I mean how the accounting happens is the total consideration paid is close to INR 270 crores and -- so the net assets are close to INR 17 crores. The customer contracts are valued at close to INR 170 crores. There is a non-complete valuation of INR 50 crores. That's how the accounting is done in books of accounts. There is a depreciation element of close to INR 6 crores. All of that is accounted in information technology. That is the profitability number you are looking at are coming just flat because there is a higher depreciation element, which has been accounted for there. Having said that, we have improved our net of BOT fee. If you noticed that our EBITDA margins are positive 70 basis points year-on-year. And you see, last year, we did 13.7% and now we are at 14.5%, excluding the BOT fee. So we are in a trajectory where we should be improving our EBITDA margin, and this has been as of the number as well. I hope I have answered your question.

Just curious, this INR 6 crores of higher depreciation, how many quarters are we going to see this for?

That's a good question, Amitji. Okay, if you want to get into detail, let me explain to you. So when you -- we have INR 170 crores the valuation of clients, and the clients will be depreciated over a period of 40 quarters, 10 years. So INR 4 crores will be in depreciation each quarter for our clients. Non-complete is close to INR 53 crores, and that is 7-year kind of. So INR 6 crores, INR 6.5 crores is going to be -- this depreciation is going to be for a few years. I mean, we can explain to you in detail, I mean, one-on-one also, but that's an accounting -- how the accounting is.

So just -- actually, I was under the impression that we will -- this amount will probably get expensed through the acquisition of the OCPS and we would be acquiring the OCPS at a premium. But that is not the case, right? I mean I guess it is going to go through the P&L, this...

OCPS is different. That will result into a goodwill. OCPS has worked into a goodwill, but the cash contribution has resulted into client and [ non-compete ]. It's a little complicated accounting, Maybe I can explain you a little bit complicated accounting.

No, no, I've understood this, I've understood now. I was just not sure if this was going to go through the P&L, but now it is very clear.

Correct. Correct.

The next question is from the line of Abdul Raja from Ratnabali.

Congratulations on strong set of numbers. Sir, just a couple of questions, sir. Sir, the first one would be with regard to the onetime fee, which is like bottoming to the BOT. So what would be the cost pertaining to the sales, which would be taken out in the coming quarters? The second would be, is there any further addition in our clients from the Blackstone portfolio? And the third one would be, sir, recently, we have declared an ESOP plan. So if you could just give us a ballpark number, what would be the yearly or quarterly cost, which would be charged to the PL account?

So maybe Niteshji, you can answer on the BX client, and I'll answer onetime fee and ESOP point.

Yes, we can do that. And BX portfolio, very simple answer, Abdul, is yes, we have seen some additions. Obviously, the customers currently are not referenceable. But we continue to improve our wins within the BX portfolio as we do outside.

Okay. Regarding the onetime fee, as I mentioned in my reference, there's a BOT customer with whom we have earned revenue in last 3 to 4 years of approximately $10 million. The contract was signed in such a way that there is a BOT, which is to be executed, which has become effective from September 15. So $2.3 million onetime fee, we have received, which has straight away gone to our gross margin as well as our EBITDA. So that is the part, the customer is setting up its own center, but that was an agreement along that. Now coming on to the ESOP plan, the ESOP details are already -- they are still in the process. We are awaiting the shareholder approval. So I mean the detailed RSU -- these are in the form of RSUs, which are issued at INR 1. The accounting and all that, I think probably we will be able to explain to you when all that formalities are completed. Maybe in the next call, we can explain to you.

Sir, just one like follow-up regarding the Blackstone portfolio plan. So if you could just help us understand like how much would be the top line from these plans, sir? And by when can we expect these numbers to kick in?

So Abdul, see, we are winning business with Blackstone clients like you are, sir. Some of these projects will take time to start and then the number starts. I think it's very difficult to split the numbers by that or, again, that's something that until the client becomes referenceable, it will be difficult to share. But the portion of revenue, if that's where your concern is, right, is not so significant, right? Because we have been part of Blackstone portfolio only for 3.5 months or 4 months, right? We are beginning to see wins. We are beginning to use the Blackstone portfolio companies as a very fertile hunting ground to start relationships with them. But right now, I don't think it would be a material kind of a number to dispose. Nandji, I don't know if you have anything else to add on that.

No. No, no, Niteshji, you answered it well. So I think it's just start of the relationship, but we feel good about it that there's a good traction happening on that.

The next question is from the line of Nitesh Rachh from Nomura.

Sorry, I missed the first 10 minutes of the call as I wasn't let in by the operator. So I just have a few questions. I don't know if you've already addressed this. So when do you expect the organic sales engine to start firing? And secondly, has the hiring at the leadership level been completed?

Sorry, I didn't get the name of the speaker. Can I get the name? Nitesh. Okay, we share the same name, similar name, right? So Nitesh, your first question is, when do you expect the organic sales engine to start firing?

Yes, sir.

Was that the question? I'm a little at loss because our organic sales engine has been firing and has been firing really well for quite some time. So what's your real question behind that? I'm not able to understand. But just to give you some data points, we have been opening anywhere between -- or we have been winning anywhere between 30 to 40 deals every quarter organically, right? And Q3 has been some of the largest total contract value in deal wins as compared to even last 4, 5, 10 quarters. It's been one of our best quarter in terms of deal wins, and that's thanks to a few larger value wins that came in. So the total deal value of the wins has been fairly good. And this has been the trend of the company for several quarters and years to come. Our sales engine has been working quite efficiently. And this comprises both new logo wins as we continue to add new logos to the company as well as repeat wins from our existing customers, which were opened either 1, 2, 3 or 4 quarters ago, which continue to give us more business. Okay. And your second question was about, has the leadership hiring been completed or initiated? I don't know. But we haven't made any public statement or any statement about that we are either hiring or going in the market to hire any more leaders or anything. There isn't any such news. So again, I do -- I really do not have any answer for that. We haven't declared any new positions, and we haven't really reached out. Our leadership has been very strong and stable. The company's leadership has stayed with the company, and we are growing on the back of that leadership.

Got it. Sir, my first question is coming from the fact that excluding our Velotio numbers, our growth is flat, right?

I do not -- that's how you calculated it. Perhaps we haven't really divided the numbers up. Overall, we have seen, like I said in the previous response, that we have seen some amount of customer attrition because a lot of customers have faced headwinds. And we have managed to win enough business to more than fulfill for the gap created by any customer attritions and further give a small amount of uplift to their revenues.

Got it, sir. And just one more question. So where do you see the EBITDA margins over the next 2 to 3 years?

I don't have a forecasting mirror. But like Nandji had said, we are continuing to win more business. So that continues to give us the fuel for growth. And as we are growing, we continue to run our operations in a fairly tight manner and continue to look for synergies across our subsidiaries or acquisitions that we are making. So we believe that we'll continue to maintain a fairly tight control over margins and at least maintain the margin levels and, wherever possible, increase it by a few basis points. But that's again not something that I can forecast right now. We will definitely exercise every kind of fiscal discipline to make sure that we run a tight ship. Nandji, you want to add anything to that?

Sure. So what I can add is that we did 13.7% last year, and we are assuming that onetime fee are close to 14.5% right now. So we're already having improvement of 80 basis points. And as Niteshji said, we are making tight control. Having said that, we have to continue investing in sales, marketing and in digital technologies. So aim right now is to get more on the growth path. And definitely, with that the -- I think we should see some improvement, but difficult to kind of give the numbers.

Okay, sir. And is there any plan for any further M&A activity? And any sense of what kind of assets would we be looking for?

So while we cannot forecast when and how or what kind of M&A would happen, as a company, we are obviously open to looking at assets that can be synergistic with us, specifically in product development, engineering space, either in certain vertical or core service line competency area. So we, as a company, are constantly... [Technical Difficulty]

Ladies and gentlemen, the line for the management has got disconnected. Please stay connected while we reconnect the management. Ladies and gentlemen, thank you for patiently holding. We now have the lines of the speaker reconnected. Over to you, sir.

Okay. So sorry, I think I got disconnected, and I was saying that we are constantly scanning the market and actively looking at inbounds when they come in. And whenever we find another target that we are interested in and then we reach a stage we'll announce to the market. But just in general, we are open to it. We are open to looking at M&A, but no -- nothing really in hand right now.

Okay, sir. And is there any cost of this BOT project, which is sitting in our 3Q numbers, which will not repeat in the future?

When -- yes, sure. So when the BOT fee, the customer was live until September 15. So until September 15, the revenue and cost has come. But BOT fee, there is no cost involved in BOT fee. This is just a onetime fee.

The next question is from the line of Mihir Manohar from Carnelian Asset Management.

Sir, I had a basic question. I mean, largely, I wanted to understand what services are we exactly providing on telecom, both ISVs as well as pure telecom on the fintech and health care? Sir, I just wanted to understand, I mean, are we moving into ER&D or moving into product engineering? I just wanted to understand that. Second question was on the split, how can you split the revenue in ER&D, product engineering and KPO? What's the split across the business? And third question was on the outlook on the telecom sector. I mean given the fact that the sector is facing challenges, getting it difficult for IT spend itself, I mean, so what is your thought? What kind of conversations are you having with the clients? That will be helpful.

So I'll -- Mihir, thanks for the question. I'll try and answer your questions around services provided and telecom sector kind of in one go. So bulk of the services that we provide are related to product engineering, right? So ER&D is the broad classification, which includes mechanical engineering and embedded and software products as well as digital engineering, right? And the bulk of our work happens in the embedded plus software product engineering space. To some amount, it is in digital engineering space. When you talk of core sectors like telecom or even media and entertainment, we do both embedded and software product engineering work. To give you an example, without naming any customers, for some customers, we may be working on their OTT box, which normally households will have an OTT box through which they're watching television. And the embedded software on the box would probably be written by us or even be designed by us. Or we will be working with a telecom company, helping them write the core software stack that allows them to run the voice services or text message services or add value-add services to their telephone or their mobile offerings, which could be to do with, for example, allowing to watch [ Willow ] TV on your mobile subscription, right? So somebody has to write those software that become part of the product offering or core part of the stack on which these services run. So those are the kind of services we provide. Of course, bundled with that is a lot of data, a lot of data pricing, a lot of data, ML and AI and all that stuff. So that's a broad kind of understanding of what we do. Telecom sector...

Yes, just an extension to this, on the fintech and health care, are these similar kind of services?

Similar kind of. Specific of even in fintech, we work with companies who are writing software for whether cards and payments or whether it is loan origination or it is adjudication of the insurance claims or all those kind of things, right? So ultimately, the products that run or the software SaaS product or tool that runs to do these kind of calculations or back-end jobs, we actually help companies write those tools and products, right? The same is true for health as well. And your other question was around weakness in telecom sector itself. Well, seasonality in some of these industries does exist. But where we -- sometimes, of course, depending on this side of the business we are working on, we may see slowness in demand. We may see delays in decision-making. But on the other hand, when you look at, in general, the movement of more and more workloads onto the cloud or adoption of bringing in more data in AI, we are winning that kind of work, and that allows us to offset that kind of seasonality. And in telecom, in particular, there has been a lot of investment that's been going in 5G. So working with customers in helping them write some of the 5G-related services or right testing software, which they will use to test some of these services. So those are the kind of work that even though, in general, the industry may not be doing well. But then, of course, there are players in the industry who are using this time or leveraging the access to talent to be able to build some of these things for the future. So yes, I mean, it's up and down. Like I said earlier, we have seen in telecom some of the demand shrink, but we have also seen in telecom some of the new demand come up.

Sure, sir. This is very helpful. And just the third question was on the split across ER&D, products engineering and KPO. How does that split for us on the overall [ $230 million ] of business, if there are any?

Nandji, do we share the segment split? Is it public data, if you want to share?

Sure. At a broad level, I think we say that -- see, ISV constitute close to 30%, and the telecom ISVs telecom constitute close to 30%...

We don't do that sectoral split, right? I think the question was about largely KPO versus tech.

Okay. So KPO versus tech broadly is 90s to 10s, 90% is product engineering, I mean, on the IT side, and 10% is the KPO side, broadly.

Sure, sir. Understood. Yes. And just one last question. What are the conversations that you're having from the top 5 clients? Any indication from them in increase of spends or slowness of the spend, specifically from top 5 clients?

Mihir, currently, we are in November, and this is typically the budgeting cycle for customers, right, which will happen now. They are in the beginning. So we do hope that we will get some indications from them as they go through their budgeting cycle and close it out in November. Sometimes customers share, sometimes don't. But currently, I think timing-wise, it's actually too early to even ask. So we will have to wait until end of November when the budgets typically get finalized and closed.

The next question is from the line of [ Amit Thawani ], an individual investor.

I was just -- just out of curiosity, I was wondering, are we -- what are the parameters we are looking at when we are looking at M&A candidates? I mean are we -- will we -- are we still open to someone in technology -- sorry, I mean, telecom or we are looking to kind of diversify into different segments?

So Amit, broadly speaking, look, we operate across tech and Internet as one segment, and telecom, media, entertainment, banking, financial services, health care, manufacturing, logistics and services, right? So that's a pretty well-covered spectrum. So in that sense, it's not that we can be looking for or that we are looking for somebody in a very different vertical, a very different industry segment. Our aim is to strengthen and deepen our capabilities within the segment. So without really describing the entire M&A playbook, I mean, it's about either getting deeper with the industry expertise or deeper with the capability, which could be deep AI capability or deep embedded capability or anything, right? So M&A will always be with each case is different than individual lines, and you end up evaluating it for what does it bring to the company, what kind of synergies will it bring, what kind of value accretion it will bring and what is it that we are buying that we cannot build, right? So yes, we are open and we look at each candidate -- each potential candidate in that line. So we are open.

But are we looking at something that is -- the delivery centers out of India only? Or are we looking at maybe offshore delivery centers, maybe we want to become like a global delivery center?

Like I said, again, we are open in that regard, India-based or any other good talent location base. I mean, obviously, we would want to have a delivery center in a location which supports growth of talent, right? And that is very important for us. So if there is an alternate location that, let's say, a potential M&A target has, which turns out to be one of those global talent hubs where there is availability of good quality talent, sustainability of cost and ability to grow the talent pool, then, of course, we'd be -- we would still look at it totally.

Right, right, right. And do you guys give out like numbers such as TCV or something, like for -- or order bookings this quarter?

That has not been the practice of the company so far. So I think we would -- it's always the more -- these -- there's no limit to some of these details. And we think currently, our businesses is sum total of a lot of these things, which we need to shape up the whole rather than divide attention onto any those -- one of those particular aspects. Yes, so we haven't followed that practice so far.

Just to add, Amitji, 90% of our business is a repeat business. So that has been the history. So in that way, our master contracts are long-term contracts. So that has been the practice so far.

The next question is from the line of Abdulkadir Raja from Ratnabali Investments.

This is Abhinav Chandak here, colleague of Abdul. So congratulations on a decent set of numbers from my side also. I just had one clarification to ask. I heard Niteshji say that during the call that the contract wins in Q3 have been the best ever. And so there has been attrition for existing clients, but then the attrition has been filled by getting new wins. Can you just help quantify that how big has that been? How -- and when will the ramp-up from these new clients that we have added start to trickle in?

So like we were responding to Amit, right, I don't think we could quantify the TCV or [ positive ordering effect ]. But just in the general sense of the business, deals typically take a couple of months of ramp-up, and the impact of some of those ramp-ups come in. And they start coming in towards the end of the quarter or next quarter, but the ramp-up goes on for a few quarters because typically, look at this, it's a product development kind of business that people start in small and then as they gain confidence and as we learn more about their product, [ we put ] more and more to what we can do there. So the ramp-ups actually go on for a few quarters. So yes, we're just happy that we have had a great win.

So sir, what I actually meant was that, say, if in previous quarters, you have INR 100 crores of order, how significant has been Q3 out of, say, INR 100, INR 120, INR 130, what has been the growth like, which makes you say that this has been the best quarter ever? So I don't want you to give me exact numbers, but just a sense of the kind of growth that you're seeing.

You can ask me 20 questions and find the answer out, right? I mean this is not whether it's an order of magnitude or anything. We just -- I don't think, Nandji, we have any -- I don't think we have shared what is our order wins last time. So whatever I say, if I say...

Are these new customers? Are these new customers or existing customers, some sense?

Nandji, you want to answer it?

Yes, I will answer. So Abhinavji, as Niteshji said earlier, we have added close to 30 clients in each of the last 3 quarters, this quarter also. But some of the orders which we have won, the magnitude of that and the going forward ACV or TCV is comparatively much better than what we had in Q1 and Q2. We are not giving these ACV and TCV number in the past. I think it's a good -- we will take your feedback. And probably, we will internalize how to kind of take these. But I think things have started improving over last few days. And -- but I think the more information maybe can be provided in subsequent calls.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Nitesh for his closing comments.

I think from my side, first and foremost, thank you to all the investors and analysts who have attended the call. Thank you for your time. Thanks for the interest and also both the questions and the feedback, right? Some of your questions actually give us the inputs on what kind of information is meaningful, what are you looking for. So we can start -- like Nandji said, we can internalize it. We can start thinking about whether or not we can share it and how best to share it, et cetera. But also for all the good wishes that you've shared with us, really thankful. And we hope to continue to serve the interest of our investors well. Anything, Nandji?

Thank you. Yes, thank you.

Thank you, members of the management team. Ladies and gentlemen, on behalf of R Systems, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.