Saksoft Limited (SAKSOFT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '25 Earnings Conference Call of Saksoft Limited hosted by Monarch Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vinay Menon from Monarch Networth Capital. Thank you, and over to you, sir.

Yes. Thank you, Muskaan. Good afternoon, everyone. On behalf of Monarch Networth Capital, it's my pleasure to host the senior management of Saksoft. We have with us Mr. Aditya Krishna, CEO of the company; and Mr. Niraj Kumar, the CFO and COO of the company. I will now hand the call to Mr. Aditya Krishna for his opening remarks, then we'll move to Q&A. Thank you, and over to you, sir.

Thank you, Vinay. Hello, and good afternoon, everyone. Welcome to our earnings call to discuss the performance of the second quarter and the first half of FY '25. Let me start off by briefing you on the key business highlights for the second quarter, after which my colleague Niraj, our Chief Operating Officer and Group CFO, will brief you on the financials. As you're all aware, the IT sector has been facing severe headwinds globally. Despite these, I'm pleased to report that we managed to report good growth during the quarter and half year under review. We have reorganized our business into 4 high-growth business units, making us more market facing and customer focused. These business units are: Fintech; Hitech, Media and Utilities; Transport & Logistics and Retail E-commerce. Each business unit is now being headed by a leader responsible for ensuring that the company stays abreast of market trends and disruptions as well as the revenue and margin growth. In addition, this change will help us differentiate our offerings as the digital specialist based on domain in a fast commoditizing industry. Our realignment of business into focused verticals is on the back of our strategy and results obtained in the past thereof. We believe that the more we focus on verticals, the more we grow the business as we become more market facing. These verticals will be continued to be supported by our horizontal service offering spanning data, analytics, cloud solutions, legacy modernization, intelligent automation, product application engineering and quality assurance. On business updates, the number of clients with annual spending exceeding USD 1 million has grown from 15 to 17. We have added 2 new clients in the USD 1 million category within the Hitech, Media & Utilities vertical, thanks to our previous acquisition of Augmento, which facilitated the addition of these new customers in this sector. In September 2024, the company made another acquisition of Ceptes Software Private Limited, which is a global sales force service provider that enhances the value of customers' sales force investments through consulting, digital transformation and innovative solutions. We are pleased to inform that the allotment of bonus shares has been completed in this quarter. The current quarter, the Board has also announced an interim dividend of INR 0.40, that is 40% of face value of INR 1 fully paid up shares on the post bonus share capital. Now I would request Niraj to give you the financial highlights for the quarter under review.

Thank you, Aditya, and thank you, everyone, for taking the time and joining our earnings call today to discuss the results of the second quarter and half year ended of the financial year 2024-'25 under review. For the second quarter of financial year 2025, the revenues reported were at around INR 215 crores representing a growth of about 13% year-on-year. The EBITDA stood at INR 37 crores, which grew by around 3% year-on-year with the EBITDA margins being at 17.08 percentage. The net profit for the quarter was around INR 26 crores, which grew year-on-year by 4% and 2% quarter-on-quarter, with the profit after tax margins being at 12.15 percentage. For the first half of the financial year 2025, the revenues reported were at INR 416 crores representing a growth of around 11% year-on-year. The EBITDA stood at INR 72 crores, which grew by around 2% year-on-year representing an EBITDA margin of about 17.25 percentage. The net profit was at around INR 52 crores, which grew year-on-year by 3% and the PAT margins being at 12.43 percentage. Now coming to the revenues placed by geography. For the first half of the current year, the U.S.A. contributed 43% of our total revenues; Europe contributed 23%, while the remaining 34% came from Asia Pacific and other regions. The on-site revenue mix was 45% and offshore is at 55%. The revenue split across verticals for the current half of the year is as follows: Fintech contributed about 31% of our overall revenues. Hitech, Media and Utilities contributed 42%. Transportation and Logistics contributed 16% and the last Retail E-commerce contributed to 11% of our total revenue. The total employee count at the end of the quarter stood at 2,292, out of which 2,069 were technical with the utilization of the employees, excluding trainees, being at 84% for the first half of the current year. Moving to the balance sheet as of 30th September. The net available funds with the company were at INR 50 crore -- INR 150 crores. That concludes the update on the quarter, and we can now open the floor for the Q&A session.

[Operator Instructions] The first question is from the line of [indiscernible] PMS.

First question is in terms of revenue growth for this quarter. So if I look at the organic growth, excluding the recent acquisitions, revenue growth seems to be kind of flattish on Q-o-Q as well as Y-o-Y basis. So is my understanding in calculation correct? And if yes, then what led to the subdued performance in Q2 on organic basis?

The acquisition of Augmento contributed about -- INR 8 crores, how much?

The incremental for the quarter was INR 8 crores.

Incremental for the quarter of INR 8 crores. So between INR 215 crores and INR 202 crores, so we grew by INR 13 crores. So the organic growth was INR 5 crores.

On Q-o-Q basis?

Yes, on a quarter-on-quarter basis. I think that's more relevant. So we are trying very hard to increase the growth rate. It is -- we are seeing signs of increased momentum. We are seeing signs of increased activity in our sales pipelines. And it will take us some time, but we'll get there. And it's difficult in a market which is commoditizing, it's difficult with these headwinds in the U.S. market, which is our biggest market. So it's been tough. But I'm not saying it's an easy task and your question is very pertinent. At the end of it, with the same capital we have grown, whether it's through acquisition or organic, both are growing organically as well as inorganically, and that's going to be our strategy going forward.

Okay. And related question in terms of our vertical-wise revenue. So if I look at the first half FY '25 vertical-wise growth, then Fintech and Transportation & Logistics verticals seem to have declined by 9%, 10% each on a Y-o-Y basis, first half to first half. So just trying to understand what are the demand trends in these verticals, if you can explain some qualitative aspects over here?

Can you just repeat that question again?

So Fintech and Transportation & Logistics vertical, if I compare the first half FY '25 revenue versus first half FY '24 revenue, then it seems a 10% decline in both the verticals on a Y-o-Y basis, first half to first half. So just trying to understand the demand trends, maybe some demand headwinds in this vertical, if you can specifically highlight it?

Fintech has gone down because there has been a little bit of some challenges for us in our biggest account there. There's been some changes in the organization of our customer, some reorg, which has deferred spending, but that's going to pick up in the second half of this year. So I think these are temporary blips which will get corrected over the next 6 months. I think over the next 2 quarters, you should see this correcting out.

Okay. Understood. And third question regarding our recent acquisition Ceptes, so can you give some color about its margin profile? And what are the synergies do we expect from this acquisition?

The biggest synergy is our building up capability on Salesforce. If you're familiar with the Salesforce platform, it is used by most medium to large enterprise organizations. And our target market is the mid-market, companies which are $200 million or $250 million in revenue to $2 billion or $3 billion in revenue. A lot of them, I would say, almost 75%-plus use the Salesforce platform. We are now going to be able to offer them capabilities in this space. It's a fast-growing market, it's a fast developing market. You would have heard of most people when they talk about Salesforce, they think of CRM. But Salesforce is not only CRM. CRM is the marketing cloud or the sales cloud, but they also have a service cloud, they also have a finance cloud, they also have a commerce cloud and they have a data cloud. And these are all very integral parts of today's focus. And most importantly, they have an AI part, which is called Agent Force. We've seen a lot of interest in that space. And you will see in the coming quarters, our focus on artificial intelligence and AI and how that is changing the game for our increased farming of our existing customers as well as reaching out to new prospects. So Salesforce is going to be, from a sectors perspective, a big feather in our cap from a capability perspective. In terms of margin, it's about 15% EBITDA margin. We are confident of taking that up to 20%-plus because we'll be able to take those services to a lot of our existing customers.

[Operator Instructions] The next question is from the line of Miloni Mehta from Monarch Networth Capital.

So in this quarter, we see that the EBITDA margins have been a little on the lower side when we compare it even on a year-on-year basis. It's mainly because of increase in employee cost. So I just wanted you to throw some light on that? And also, how do we expect it in H2?

The only reason for muted EBITDA has been the increments -- we gave the appraisals and the increments to our workforce to our employees effective July, so 1st July. So that has had an impact this quarter. It will get correct -- normally, this impact happens in the first quarter, okay? This time, it's got -- this year, we've deferred it to the first -- to the second quarter. This will get corrected out in the next 6 months.

Yes. So now Ceptes is contributing 15% to it. Will we see number higher to 18% as to what we are targeting or it will be in the range of lower to like 17%?

Between 17% and 18% is what you can expect for the full year.

Okay. And sir, for this quarter, how much was the contribution from Augmento and what is the run rate that we see moving ahead?

Augmento contributed INR 8 crores of top line in this quarter. Yes, go ahead, Niraj?

Yes. So the total contribution from Augmento was around INR 12 crores for this quarter, and that we are expecting it to be the run rate.

[Operator Instructions] The next question is from the line of [ Rohan Mehta ] from [indiscernible] Investments.

Sir, my first question would be how much can we grow our Ceptes over the next few years?

Say that again, please. How much can we?

How much can we grow the Ceptes over the next few years?

There is a lot of opportunity in the Salesforce space. Now how much can we grow? I mean it's a difficult question to answer because what Salesforce will do is, it will not only allow us to offer sales force capabilities to our existing customers, we'll also be able to open new accounts through this capability or through this offering. So -- and we might -- when we open that account, we might sell many things other than Salesforce. So it's a difficult question to answer, but in summary, what I can say is it's a very essential part of our capability build. All our acquisitions so far have been capability-driven acquisitions. This is also 1 more capability-driven acquisition. It will add to our capabilities, which will add to our ability to farm existing accounts as well as open new prospects.

Okay, sir. Got it. And sir, my next question would be earlier we had given a guidance of INR 1,000 crores in revenue terms for FY '25 and till date, we've achieved close to INR 416 crores-odd of revenue. So are we sticking to the guidance or is there any alteration in that?

As of now, we are sticking to the guidance. It's a tough target. We're going to try and get to as close to it as possible.

And sir, what would drive that growth?

Your voice is not very clear. Can you repeat, sir?

Sir, what would drive that growth?

Existing customer growth. Like I said, we've got another two $1 million-plus customers. If we can grow them rapidly, that will help us. Existing customer pipeline is picking up momentum. There's a lot of activity in our sales pipeline. We've added sales teams. In the last call, you would have heard, we have added sales teams in the U.S. as well as in the U.K. It takes time for them to add to the pipeline, bring value, bring sales. That momentum is picking up. So organically, the engine is starting to show results. And that engine, we are very confident will pick up momentum in the coming quarters. Now INR 1,000 crores seems a tough ask today. It's going to be something that we are still aspiring for. We're still pushing our teams. Let's see how close we get to INR 1,000 crores, but that's still our goal.

Sir, just last question. Sir, will H2 be better than the H1?

Of course.

The next question is from the line of Pratap Maliwal from Mount Intra Finance.

So did you -- sorry, if I missed this out, but did you point out the revenue base and the PAT margins of the recent acquisition of Ceptes, what is their revenue base?

Their revenue base is around INR 20 crores, and their PAT margins is in the range of 12%.

Okay. Understood, sir. And just one confusion I had regarding Augmento. You -- initially you had said that the contribution for the -- for this quarter was INR 8 crores, and then you said that total contribution was INR 12 crores. So how much did Augmento to actually contribute in our incremental revenue this quarter?

Yes. So what we have meant was, the question was how much of the increase came from Augmento. So the increase which had come in from Augmento -- because that was acquired in the month of June, so we had some revenues which had come in from them around INR 4 crores of revenue, which had come in, in the previous quarter and current quarter's revenue were INR 12 crores. So the incremental revenue on account of Augmento was INR 8 crores and the total revenue from Augmento was INR 12 crores. I hope that clarifies.

Okay. So Augmento revenue in Q2 was INR 12 crores, is it?

Correct. Correct. Correct.

Okay. And I just had 1 question regarding Augmento. So like we call it, it's part of our digital engineering offering. So what exactly is our offering here? What problems do we solve for our clients? What is the use case that Augmento kind of brings in for the clients?

It is the entire SDLC. When we say digital engineering, it is application development, product engineering, product sustenance, product support, enhancements, the entire life cycle of software development is what we are referring to in digital engineering. And today, that is a hot area not only because of the large number of spends in this space, but also because of artificial intelligence. So we have a number of frameworks in the company. Augmento also contributed towards that, which are helping us get business in the digital engineering/product engineering space.

Okay. And just finally, what is the amount that we are paying for the recent acquisition of Ceptes? What is the acquisition amount?

The overall consideration, including the earn-out will be in the range of INR 62 crores, about.

The next question is from the line of [ Vikas Srivastav ] from RBC Financial.

A couple of questions. A little bit on Ceptes. While I understand the potential in terms of integration on the ground -- hitting the ground running, where are we in terms of, is the acquisition complete in all respect? And when -- will there not be a gestation period between now and maybe 3 months, 6 months before the results from Ceptes start coming in?

Vikas, these are small businesses. These are not large businesses, which require major integration efforts. Predominantly, what is the integration? It's the accounting or the finance part, which it's very easy to migrate now because we're all on Microsoft Dynamics. So whatever Ceptes or the company we acquire, we quickly within a month to 5 weeks, we're able to migrate them to Microsoft Dynamics. So that's 1 part. Then the front part, which is the CRM, the sales pipeline, we use an in-house tool called [ Saktrack ] That's something where our time sheet system is, where our sales pipeline is, CRM is. That is also effective 1st November for Ceptes. So integration has happened. The teams are working with our sales teams to take this offering to existing customers. So we are on -- we have hit the ground running. There's going to be no lag from adding that capability to our set of offerings.

Okay. My second question was on Augmento. You are projecting a flat contribution. When we bought Augmento, there was a potential which you estimated. But quarter-on-quarter and next 2 quarters, we are still talking about INR 12 crore contribution per quarter from Augmento. Is that a conservative estimate, is there an upside risk to that number? Where are we on that? Or are you just giving me -- extrapolating it on a flat basis and telling me that, okay, this is the minimum we'll do?

Augmento is contributing about INR 4 crores a month to our revenue and that is something that we can take at least for the next 6 to 8 months.

Okay. So you're saying that, that will remain more or less stable at INR 4 crores a month for the next 6 to 8 months. One doesn't see any major upside on that?

Not immediately. Like I said, there are two $1 million accounts in that customer. We are mining those accounts. We will see improvement, but we're not factoring in it. I'm just saying that for now, let's take INR 4 crores a month from Augmento.

Okay. Aditya, the next question is on first half versus second half. We've done about INR 416 crores. I could have math, which is wrong. If you're still targeting -- we're talking about another INR 580 crores in the next 2 quarters. You already -- we are into November, which means that out of the 6 months, 1 month is already gone. So we have 5 months -- actually 4 months and 20 days left in this quarter. At these kind of numbers in terms of -- and you're still holding on to your bold call or at least a target, which you're admitting that it's not an easy task. But in terms of -- you made sure have some visibility, right? You have 40 days in this 6 months has gone. What is it the kind of bag? What is the range out of this -- we're still targeting INR 1,000 crores, what kind of range are we talking about? What is the downward risk to this 1,000? Is it 10%, 20%? How much of it is already in the back? And considering that we have invested in this in the Salesforce now this investment has gone on for a while and things have been in the pipeline, there should have been -- is it reflecting in an already existing crystallized order book, which we have to execute over the last 5 months because there has to be a time lag between new orders and delivery in the next 5 months? And there, if you can give us a little more color on where you are getting your ambitious confidence or this very stretched confidence, where is it coming from? And how much -- what's the comfort level? Where are we on this? What should we -- how should we be looking at it?

Vikas, if you remember in our last call, you asked me this question about sales teams, are the guys we have hired still with us? And I told you that they're all with us. Most of the sales guys joined us in this financial year, the new sales guys. Maybe one joined us at the fag end of the last financial year. It takes time for these sales guys to show results. They have to understand the company. They have to understand our target market. They have to understand our offerings. We have started to add pipeline, started to add momentum, which is why I've been saying that we are seeing increased levels of activity in the pipeline. And we saw one big win of a large hitech company in California recently, which we added to our logo, and we're very hopeful that there will be more. So organically, it takes time to build the momentum, and I'm very confident that it's happening. Can it be faster? Yes, it can be faster, but it's happening. That's number one. Number two, on the range of revenue, you're right, INR 1,000 crores is an ambitious goal. I don't want to let it go, Vikas, because letting go is the easiest thing. If I say and everybody is listening to this call, including the sales teams. The minute I say that, yes, we're letting go of the ambitious goal, I can guarantee you that forget that goal, we won't even hit the lower end of the range. So the range that we're looking at, and I'll be very upfront with you, is on the downside, we're looking at anywhere around INR 870 crores, which is about INR 100 crores more than last year. And on the upside, I'm still sticking to around 1,000.

Okay. Fair enough. So you're saying that 870 to 1,000, so -- but currently, if you are doing -- correct me if I'm wrong, we have done about 416 in the first quarter, right?

Right.

First half. So we are now looking at anywhere between 870 to 1,000 or somewhere in between or whatever and hopefully, 1,000, but you're saying 1,000 is not -- it's still within the realm of possibility. It can -- in terms of structurally, in terms of delivery, in terms of time lag between -- and are you factoring in more acquisitions of this number in the next 6 months? Is there a possibility?

Yes, there is a possibility. We are working on a couple of deals. But again, these are not going to be -- we don't have that much money. So these are going to be small deals because...

Yes. Sorry, I just -- so therefore, you're talking about these numbers more or less coming wherever they come from mostly organically.

Correct. Correct. And that's the -- we have to fix that problem of organic growth. See, acquisitions only hide the problem. We need to fix the problem of organic growth. And that is where I'm spending all our time. My team is spending all that time because if we can fix that problem of momentum in our pipeline, then next year, the year after, doesn't remain a problem. It's the first hump we have to get over, which is give confidence to the sales guys, make them successful so that they stay with the company, make sure that all the muscle is behind the sales guys so that they're able to grow the business, existing accounts, new prospects. Once that starts kicking in, then the momentum takes you forward. If we keep adding acquisitions, it just -- it gives you a short-term kick, but it doesn't solve your problem.

So can we therefore say that about 870 is we have those signed contracts and other things remaining the same and any mis-hap here and there, can we say that 870 is in the back, assuming there are no aberrations?

Yes, yes, you can say that.

Okay. And typically, from -- in all our digitalizations, if I ask you for a general rule, typically, if you get new contracts between now and the next 1.5 months, till which month do they still kick into the revenue? What is the time lag between signing a contract? And I'm asking a very difficult question. And -- between signing a contract and actually converting into revenue in the financial year. What would be your cutoff date beyond which the new contracts would spill over into next year?

Yes, I would take a guess in about 3 weeks. So if I was to sign a contract today, we should be able to take some revenue within 3 weeks.

Okay. The time span is so short, right?

Yes, very short because we are a focused niche player. We are offering services for which we have capability and resources available.

Got all. If that be the case, why are we in terms -- isn't our EBITDA forecast of 17% -- I'm assuming that as of now, of course, wage hike has happened, are we planning to hire more people in the Salesforce in the next 6 months or are we going to just wait for some returns this year? Why is our EBITDA margins or forecast still 17% to 18%. In terms of operating leverage and scale, whichever way, whatever you want to use, should our EBITDA margins not be above 18% then? What is stopping it from being above 18%? Is it possible or is it, again, that's not possible or if I'm missing something?

Very difficult above 18%, Vikas, because historically, what has helped is the rupee-dollar. That's not happening. rupee-dollar or the rupee weakening is not happening to the extent it has happened in the last 5, 6 years. So I think 17%, 18% is probably the max for us from a growth perspective because keep also in mind, Vikas, that we need the business. So when we go into a new prospect, we might compromise on our rate cards because unless we're in the game, we can't grow the business. So we will -- whatever it takes, we will get into that account, even if it means discounting, even if it means giving something away for free to enter that account because once we're able to demonstrate the value we bring, then at a later stage, we're able to raise prices. And the customer is also okay. Customers also judging us. So you will see over the next 2, 3, 4 quarters, you will see a great impact of how AI is changing our business. And that is where a company like Saksoft is very well positioned versus some of the larger companies. They have much more to lose because of AI. AI is a disruptor. Now when there is a disruptor, market leaders lose the maximum. And we are not a market leader by any stretch of imagination. So we have the maximum to gain while the others have the maximum to lose, and that is what we're going to capitalize on. It's a bet we're going to take, and you will see that in the next 2, 3, 4 quarters. I'm very hopeful and very motivated and encouraged by what we see on the AI front.

So I would like you to spend a little more time, Aditya, and explain this to me and others on this call a little better in terms of this opportunity and the logic. I may be a little handicapped to understand it better, but others might and maybe if you elaborate on this, it might...

Sorry to interrupt Mr. [ Vikas ], sir, I just request you to return to the question queue. [Operator Instructions] The next question is from [ Saket Kapoor ] from Kapoor & Company.

Sir, when we look at our first half performance and the segmental revenue, we have seen the growth coming in the Hitech, Media & Utility segment. And Fintech, Transportation remaining lower, Retail E-commerce getting a big bump. So if you could just explain how are these verticals likely to look like for H2? And secondly, on the other expenses line item also when we see the first half, those have gone up from, say, INR 20 crores to INR 34 crore, so are the variable costs? If you could just explain the nature of the same?

I'll answer the first question on the verticals. Our biggest vertical today is Hitech, Media & Utility. And that is where you will see the maximum growth in the coming quarters. We are very bullish about Hitech. It's -- there, a lot of spending is happening in our biggest market, which is the U.S. Also, our capabilities are best aligned towards Hitech, again, because of the advent of artificial intelligence. So in the next half as well as the next year and the years ahead, Hitech is probably going to be the largest vertical for us. What is going to catch up is Fintech. We've had a little bit of a setback on Fintech. As I explained earlier, our largest customer has had some changes, so they have deferred spending, that will get corrected over the next few quarters. But Fintech will catch up. E-commerce and Retail also, we see as a huge spend pool because companies are spending more and more on e-commerce. They're transforming the platforms on which they are working, okay? Logistics has had a rough year because there has been a consolidation in that space in the U.S. market. There's been a lot of bankruptcies in that space. There is a shakeout. It contributes about 16% of our revenues. I don't see great growth in that. But it's a sector where we have a lot of expertise. It's a sector where we have a lot of domain knowledge. And I'm confident that in the coming years, it will also start showing an upward trend. So that's as far as the verticals are concerned. You had a question on the expenses. Niraj will answer that.

Sure, I can. Sure. So what you see on the expenses line when you're referring to an increase from almost INR 20 crores to INR 34 crores, this is predominantly because of our retail e-commerce vertical. In that vertical, we have a very strong partnership with HCL Commerce. And as a part of the revenue which we generate, there is a component of the license of the HCL Commerce platform, which gets sold to our customers. So the cost associated with that is not captured in the employee line, it gets captured in the other expenses line. So that is a cost which is proportionate to the revenue, which is the main reason for the increase.

And sir, we have also seen our finance cost and there it is also moving up significantly from the first half. It is equal to what we paid last year. So if you could just explain, these are the bank charges or what could be the reason for this increase? And then 2 follow-ups I have.

Sure. See, the finance charges, what happens is, as you know, when we do our acquisitions, there is an upfront payment which is involved and there is a deferred payment in terms of earn-out, which we pay over the next 2 years. These payments which have to be paid in the subsequent years from an accounting perspective gets classified as financial liabilities. And they have to be fair value to the current date. And you will have to do an interest reversal over it over a period of time. So predominantly, these are hypothetical interest charges, which are the unwinding charges in relation to the future financial liabilities, which we will incur. That is the main component of this increase in the finance costs.

So these are only provision increase and not actual cash outgo as of now?

Yes, yes. Predominantly not. What will happen? The actual cash outflow will happen when the earn-out payments happen to the founders when they meet their targets.

Okay. And for the other income component also, sir, we have seen that rising gradually. Does it have any proportion to the rupee-dollar equation -- or what attributes to this doubling of other income for the first half?

First half, I think whenever you look at previous year, it becomes very challenging because in an IT company, it's more sequential quarter-on-quarter, which you need to look. But definitely, the exchange has been a little favorable, especially if you see the GBP movement, which has happened in the current year, it has gone up significantly. So a large chunk of it is predominantly exchange, plus because of some of the treasury-related operations, the idle funds, which were invested, they have also given some better results because of the higher rates which are available in the market, either in terms of fees or mutual funds. That is the main reason for the increase in the other income line.

Right. Sir, can you specify what is the cash on book?

Yes. The net cash on book as on date is around INR 150 crores.

The next question is from the line of [ Meet Ruch ] from [ Equirus ] PMS.

So from a capability standpoint, we have recently concluded the Ceptes acquisition to gain Salesforce capability. So just trying to understand what is the next set of capabilities we are trying to target in terms of our hyperscaler partnerships network, et cetera. Maybe from acquisitions, not in this year, but let's say, in FY '26 or FY '27?

We're looking for an acquisition. I know you guys have an M&A team. So we're looking for an acquisition, a strong Azure -- Microsoft Azure partner or a strong ServiceNow partner.

ServiceNow and Azure?

Yes.

Okay. Okay. And sir, coming to Q3, so in terms of furloughs, do we expect the seasonal furloughs to be there as usual or there is any change in the furlough pattern this time?

You're asking your question if Christmas going to happen this year or not? Of course, there will be furloughs.

No. So in about 2 to 3 peers what I have observed is in some of the verticals, furloughs have been preponed to Q2, that would be maybe client-specific things. But in general terms, you are expecting furlough to be as usual, right?

Absolutely. Absolutely.

Okay. Okay. And what was the attrition for this quarter, Q2?

13%.

The next question is from the line of [ Saket Kapoor ] from [ Kapoor ] & Company.

Yes. Sir, looking at our verticals, you were mentioning that we are looking for growth on the higher side, especially for our high-tech media verticals? And how is this Transportation and Logistics vertical looking like in terms of the deal pipeline? And as you mentioned about AI, we did read an article today in a leading business newspaper, which also alluded to the fact which you are articulating to the midsized IT firms are at an advantage and they have also named one of the organization, so it's in public domain Sonata Software getting $100 million deals also that has been aided by AI. So are we also guiding to that part of the theory, which you just -- Mr. Aditya mentioned about AI being a big enabler in getting larger-size deals going ahead?

Yes. AI is here to stay, and AI is an enabler for anything in technology from development work to infrastructure work, to customer service work and to infrastructure work. So I don't think any technology company can hide AI and how AI will disrupt their business model in the coming quarters and the coming years. We are no exception, because we are a niche player, we are a Tier 3 supplier, I would even call ourselves at the lower end of Tier 3. We had the maximum to gain. And I -- that is what I was telling Vikas earlier, we have the maximum to gain, because when there's a disruptor, the market leader loses the maximum. So we are very bullish on AI, and we are working extremely hard to see how AI can complement what we offer. That's number one. Number two, we are using partnerships very extensively in each of our verticals to help our lead generation and our new customer acquisition. So for example, since you brought Logistics. In Logistics, we are looking at partnerships with Cleo, which is an integration tool. We're looking for partnership with CargoWise which is a TMS supplier, a partnership with MercuryGate, again a TMS supplier. So these partnerships will help us open new accounts as well as deepen our footprint in existing accounts. And we are working on partnerships in all the other verticals. In retail, Niraj already mentioned, we have a very strong partnership with HCL Commerce. We also have a strong partnership with Adobe on the commerce side. On the fintech side, we're looking at partnerships with Plaid, with Modern Treasury, with Encino, with Q2 and hitech, we're looking at partnerships with Fondesk and a few others. [ BTC ] as an example. So you will see a lot of our focus will be on partnerships that we can add not only new logos, but also deepen our relationships with existing accounts.

Right, sir. And sir, one small understanding and correct me, if in our presentation also, we could provide some more insight on the type of -- on the number of acquisitions which we have done over the period of time and how have those contributed to the revenue and the profitability, that would suffice a lot of our questions. And also going ahead, whenever we acquire since we are in the foray for acquisition, we will grow by both organic and inorganic. So if you could present a slide in the presentation, that would be very helpful for us so that a like-to-like comparison can be easily drawn.

What will be very helpful for us is if you -- since you are attending a lot of these calls, if you can give us a sample of what you mean, we will definitely include it.

Yes, sir, I can take offline and I'll try to give my [indiscernible] all the best for the very insightful discussion and giving us an opportune time to discuss the [indiscernible]

The next question is from the line of [ Udit Ganodia ], an individual investor. As there is no response from the participant, so we'll move to the next. The next question is from the line of [ Vikas Srivastav ] from RBC Financial.

So the earnout, I understand, is that finance earnout, future potential earnout at assuming that they meet their targets have been already accounted for in the finance cost? Is my understanding right?

No, no, no. [ Vikas ], it's Niraj. Just to clarify what we meant is, since there is a liability to pay the earnout in future, that liability is accounted for in the books and that liability is fair valued. Let's say, if we have to -- we assume that we need to pay INR 50 crores at the end of 1 year, using the current market rates of 8% to 10%, you would fair value it at around INR 45 crores or INR 46 crores currently and the INR 4 crores would be unwound as interest expense over the year. That is what I meant.

So -- okay. Can I ask that question? Therefore, are you saying that approximately 70% to 80% of your potential earn-out liability has been provided for?

The 100% of the potential liability is sitting in the balance sheet as financial liabilities. We have to provide the liability for the future estimated payments as a part of our financial statement. So whatever best estimate we believe is the earn-out which is going to happen that is already provided in the balance sheet. So if you look at the liability, there will be 2 components under both the noncurrent liabilities, financial liabilities will be there. And under the current liabilities, there will be financial liabilities. So all the amounts is already provided...

Yes. To provide a credit for liabilities, you have -- the debit has to hit the profit and loss account, right, Niraj? So my question is that -- if you don't make -- and okay, let me put it simply, if we don't make any more acquisitions, this financial liability which has come in this quarter, this financial cost, will come down significantly from next quarter onwards. Is my understanding right?

That's correct.

That's what I wanted to know. So that was one. My second question was what's the breakup of dollar-euro and the pound-sterling breakup of a turnover today?

Dollar will be based on what we've seen in the Geo-wise. So roughly 45% will be the dollar denominated. Pound will be almost 25%, which is more or less the geo breakup, which I have provided. So all the euro, which you see is predominantly GBP. So that's around 23%. And the balance would be INR and Singapore dollar, which is the 34% from the Asia-Pacific.

And when you make forecasts or whatever estimate of your EBITDA. Specifically for dollar, are you considering your past rupee not weakening enough? What kind of -- how do you put a rupee conversion or exchange rate number to that?

See, it's a very difficult calculation, [ Vikas ], to be very frank. The only thing which we try and do is we can't really estimate how much it can depreciate or appreciate, but from an exchange factor perspective, what we do is we take forwards and we cover more than -- I won't say more, nearly 50% of our exposure for up to 12 months. Earlier, we used to cover up to 6 months. Now we cover up to 12 months. So that whatever estimate we take in the beginning of the year, at least 50% of that holds good.

Got it. Got it. And if the rupee weakens significantly, there's an upside there.

Absolutely.

Okay. My next question, coming back to Aditya. Aditya, on the AI, and I think this is my last question. In terms of AI enabler, are we saying that we will be using AI to execute better and sell better? Or are we saying that because clients are getting disrupted by AI, they will need us more. Would you just elaborate on that, please?

Yes. Almost 55% of our revenue -- 50% of our revenue comes from digital engineering. And digital engineering is the most evidently impacted by AI. Now I'll give you an example. Quality assurance or testing is a big part of the software development life cycle or what we call digital engineering. I mean these are words which are -- or phrases which are used interchangeably, product engineering, digital engineering, SDLC, et cetera. Now testing is a big part of the SDLC life cycle. We have developed a tool called [ TaskVerse ]. It is an AI test case generation. It uses AI to generate test cases, which were earlier done manually. It saves 40% effort. Now we can go to a customer of Persistent and say, look, we can do what Persistent is doing for you at 40% less because of this tool. Now Persistent is also doing the same. It's not that we are flying the space shuttle or something that they can't fly. It's just that for them, it's cannibalization. For us, it's new business.

Got it. So the smaller and people who are more hungry, who are growing are in a better position to use -- so basically how you can deliver more value to your customers in terms of execution. Are these products, AI-enabled products, which you have developed or are developing internally is where you get an advantage over others because obviously, a persistent -- psychologically, right, if somebody like let's not name any company, but if your competitor, which is larger, he needs to then probably -- and which is change is always very difficult. So in terms of reducing people, manpower, systems and getting psychologically used to the idea of charging 40% less without it actually improving their margin really is where your advantage is?

Yes.

And my follow-up question would be that this is what we are using. And in terms of sales effort, we would be at par with another Persistent or anybody if you are using AI. It's more on the execution side where the benefit comes?

Yes. On the sales side, larger companies would have an advantage because they obviously have larger sales teams. We have smaller teams. So we would be on a back foot vis-a-vis larger companies there. But from a value perspective, we will be able to demonstrate better value.

And there is a lot of the proof of concept and in the last 6 months, 6 months, just let me complete this question, please, and I'm done. I don't think that too many people would be waiting. So from this entire process and flavor, if there is something that you've already kind of tested and established and you're seeing very positive signs here?

Yes, because we have these frameworks ready. So [ TaskVerse ] is an example of test case generation using AI. On the development side, we have something called [ TaskPilot ] which is used like Microsoft Copilot. It helps in the development cycle. So these frameworks are in place. We can demo these frameworks to prospects as well as customers. So what I'm talking about is not vaporware. It's actually in place.

Ladies and gentlemen, as that was the last question for the day, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

We thank everyone for taking our time to participate in this call and for their interest in Saksoft. I hope we've been able to answer some queries. And in case you have any other queries, please reach out to us or our Investor Relations Advisors, Valorem Advisors. Thank you, everyone, for joining us.

Thank you. On behalf of Monarch Networth Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.