Zensar Technologies Limited (504067) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Zensar Q1 FY '22 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Chandra from HDFC Securities. Thank you, and over to you, sir.

Yes. Thank you, operator, and good morning, everyone. On behalf of HDFC Securities, let me welcome you all to the Zensar quarter 1 FY '22 earnings call. We have with us Mr. Ajay Bhutoria, CEO and MD; Mr. Navneet Khandelwal, CFO; and the other senior management team numbers. So without further delay, I would like to hand over the call to Mr. Ajay Bhutoria to give us an introduction of the rest of the management team and update on the quarter 1 FY '22 performance following up, which we will open up for the question-and-answer session. Thank you, and over to you, sir.

Thank you, Amit. Hello, and good morning, everyone. Thank you for joining us today to discuss Zensar's financial results for the first quarter of fiscal year 2022. On this call with me are a few others from the Zensar leadership team. We have Navneet Khandelwal, our Chief Financial Officer; Vivek Ranjan, our Chief Human Relations Officer; Prameela Kalive, our Chief Operating Officer; Harjott Atrii, Global Head of Hi-tech Manufacturing and Digital Financial Services -- Digital Foundation Services, I apologize; Nachiketa Mitra, our Global Head of Banking Financial Services and Insurance; Shirshendu Deb, Global Finance Controller; and Arjun Warty, Head of Corporate Development. First and foremost, I hope that you and your families are keeping safe. Our thoughts are with everyone during the continued COVID crisis. I hope and believe that better days are ahead of all of us. As the second wave of COVID hit India, we worked to provide extensive support to our associates and their family members. Our emergency response team, which includes the top leadership of the firm, closely monitored the situation, worked to secure medical infrastructure and oversaw an extensive multi-location vaccination campaign. We created a mobile-enabled tracking platform to help coordinate procurement and usage of oxygen concentrators, ambulances, hospital beds and vaccine dosage to ensure resource availability and utilization in the best possible manner. We also created a network to facilitate plasma donations from our recovered associates. And as we speak, over 65% of our associates in India are vaccinated with at least 1 dose. Before I take you through the Q1 performance, I'm pleased to highlight our acquisition of M3bi, which strengthens our capabilities in advanced engineering, data engineering, analytics and AI/ML services. We are excited and look forward to integrating M3bi into the Zensar. Now moving on to our Q1 FY '22 performance. We started FY '22 on a positive note. Revenue for Q1 FY '22 stood at USD 127.2 million, which represents a sequential quarter-on-quarter growth of 5.8%. This Q-on-Q growth is the highest organic growth for Zensar in the last 6 years. Our growth in Q1 FY '22 was led by an increase in revenue in multiple areas. We registered growth across all geographies with South Africa region registering 9.5% sequential Q-on-Q growth and the U.S. region showing 6.7% sequential Q-on-Q growth. While our European region saw muted sequential growth of 0.1%, we are seeing significant traction in experience-led engineering contributing to multiple new client additions in this geography, which should reflect in results in the coming quarters. Our hi-tech manufacturing vertical registered 9.2% sequential quarter-on-quarter growth indicating a steady recovery by out hi-tech clients, and we are confident that this momentum will continue. Our banking business has shown a sequential growth of 5.2% quarter-on-quarter, indicating that our investments in this vertical are paying off. Insurance vertical has registered a dip of 2.2% quarter-on-quarter sequentially due to a few client-specific issues and project ramp-downs. We will remain committed to investing in this vertical in order to bolster growth. Consumer services remained stable with sequential quarter-on-quarter growth of 0.6% and a year-on-year growth of 19.2%. We are seeing an uptick in revenue in both our service lines: digital application services, which has shown 6.4% sequential growth quarter-on-quarter; and digital foundation services, which has posted 2.3% sequential quarter-on-quarter growth. This positive demand indicates a stabilization in clients that were impacted by the pandemic. I'd like to reiterate that our strategy launched last quarter has a clear objective of achieving sustainable growth over the next 3 to 7 quarters. Gross margin stood at 34.8% versus 34.9% in the last quarter. EBITDA margin for Q1 FY '22 was 18.5%, a sequential decline quarter-on-quarter by 142 basis points. The margin decline was primarily due to increased cost of delivery and increased OpEx investments. PAT margin for the quarter stood at 10.8% compared to 10.3% last quarter. We reached a new milestone in our net cash position, which stands at $183.2 million, this strong war chest allowed us to continue investing into our strategic growth opportunity areas to drive growth. Order bookings for the quarter was at $96.7 million TCV, which includes both renewals and new business. We have also scaled an existing customer into the $20-plus million category, bringing the total number of clients in this category to 3. Our new company strategy has received a positive response from our clients. We see increased traction and multiple wins in experience services and advanced engineering services areas. I'm confident that with our new STOs, we will continue to deliver expertise and transformation to our clients. Zensar's head count crossed 9,500 mark and stood at 9,512 for Q1 FY '22. The announced salary hikes for our associates effective July 1, 2021, which is our second hike in the calendar year. We continue to invest in our internal talent and on onboarding fresh talent. Before handing over to Navneet for a detailed walk-through of the Q1 FY '22 financials, I would like to provide a brief update on the strategy refresh that we announced last quarter. We are sharpening our go-to market by refocusing and realigning company resources along 5 strategic growth areas: experience services, advanced engineering services, data engineering and analytics, application services and foundation services. We conducted a massive exercise to roll out detailed playbooks that enable our associates to approach the market with a crystallized set of services and a strong set of value propositions for our clients. We remain focused on investing in our talent engine adding niche talent to align with our strategic clarity areas, along with massive up-skilling and re-skilling initiatives. We have expanded our hunting teams to drive growth in existing strategic and into new accounts. Over the coming quarters, as we keep refining and implementing our strategy, we will keep you updated on our progress. With that, I now invite Navneet Khandelwal, our Chief Financial Officer, to update you on the quarter's key financial data and open the floor for questions.

Yes. Thank you, Ajay. Good day, everyone. Welcome to this call. In addition to Ajay talking about the business, I will talk you through some of the details on financials. In the first quarter of FY '22, we have reported revenue at INR 9,368 million, which reflects a Q-on-Q sequential growth by 6.8 percentage and year-on-year decline by 1.2 percentage in rupee terms. In U.S. dollar terms, the reported revenue is $127.2 million. reflecting growth of 5.8% sequentially and 1.6% annually. In constant currency terms, for the quarter, growth of 4.8% sequentially and a decline of 3.1% annually. The U.S. dollar realization during the quarter has been INR 73.7 per dollar against INR 72.9 in the previous quarter. The year before in the same quarter, it was INR 75.8. Our gross margin declined marginally to 34.8% as against 34.9% in the previous quarter. PAT percentage improved to 10.8% versus 10.3% in the previous quarter. This shows a sequential growth of 10.9% in absolute terms. The effective tax rate has increased to 26.4% as against 25.3% in the previous quarter. For the quarter ended June 30, 2021, billed DSO has increased as compared with the previous quarter and stood at 55 days against 51 days, while DSO including unbilled increased by 3 days to 80 days as against 77 days in the previous quarter. On a year-on-year basis, DSO including unbilled increased by 7 days from 73 days to 80 days. Cash and cash equivalents, including investments in mutual funds, net of borrowings increased from $166.3 million in the previous quarter to $183.2 million in the quarter ended June 30, 2021, reflecting a net increase of $16.7 million. The total amount of outstanding hedges as of June 30, 2021, was equivalent to USD 136.1 million against $122.3 million in the previous quarter. On May 15, 2021, we entered into a definitive agreement to acquire M3bi, a Scottsdale, Arizona based, data engineering and digital engineering firm. The acquisition has been completed in the month of July. With this, M3bi revenues will be included in our performance from Q2 onwards. With that, I've come to the end of my presentation and open the house for questions and answers.

[Operator Instructions] The first question is from the line of Manik Taneja from JM Financial Services.

Am I audible?

Sir, I would request you to speak a bit louder sir.

Yes. Is this better now?

Yes, sir.

Congratulations on the sequential rebound in terms of business. Again, I wanted to understand that this current quarter, we've seen the rebound largely led by the hi-tech vertical. Just wanted to get some sense as to when do we start seeing this growth getting much more broad base. And the second question was related to the increase in onshore mix during the current quarter. Any sense on what's driving that? And how should we be thinking about this aspect going forward?

Sure. Thanks, Manik. So Manik, yes, let me go 1 question at a time. So we saw growth across multiple verticals and geographies, right? Our hi-tech business grew 13.5%. Banking grew 5.2%. Consumer services business, which has been steadily growing, which was one of the worst affected of the industry verticals for us during the pandemic, it has been steadily growing and stabilizing. It grew just about 0.5 point, but it's on a good wicket. In terms of our geographies, U.S. grew by 6.7% quarter-on-quarter. South Africa grew 9.5% quarter-on-quarter. And Europe, while it was marginally higher at just 0.1%. But what we have seen is that it did face some headwinds in terms of -- from a revenue perspective in terms of completed projects. But we saw a flurry of new wins, led by the whole experience-led engineering playbooks that we have driven with Foolproof and Zensar coming together. And that will generate momentum over the course of next 2 to 3 quarters. So we have seen growth across multiple verticals and across geographies. So that is, Manik, the first part of your question. Now in terms of increase in on-site mix, a couple of things to call out there. So we saw a bunch of deal wins during the quarter. And as we execute the beginning of those deals typically start with sizable on-site activity. So that is one factor that has increased the on-site mix in this quarter. And the other thing is we saw an uptick in terms of our nearshore delivery, be it U.S. or other geographies. And these 2 factors have contributed to the on-site mix increase.

I also had a follow-up question for Navneet. So last quarter, we had seen certain one-offs in the G&A expenses related to the outgoing CEO. So when would I expect the G&A expenses to come off. So what's driving the G&A expenses to be staring at the current level?

Yes, Manik, while there were certain one-off hits, there were certain one-off credits also as a result of that, which we're knocking off. And as we are working towards investing into our new strategy, some element of hiring which happens, gets reflected from an accounting perspective into G&A as opposed to S&M. So that's where SG&A is stabilized. Another element I want to call out is, last quarter, we also had a net write-back in our provision for bad and doubtful debts, whereas this quarter, there has been a marginal hit. So that swing also has had some kind of an impact in the overall change.

The next question is from the line of Sandip Agarwal from Edelweiss.

Ajay, I have 1 question with 4 subparts, and you hope we will be helping me with that clarification. First of all, Ajay, since you have joined and still now, and this question I've asked a few days back also, are you seeing a change in your time line which you are now dedicating towards business versus filling up your leadership gap, filling up your capability gap, filling up your geographic and planned gap? Is there a chance with these? I want to know that, is that progress on testing those issues broadly done? Or it's done to some extent so that is a user for you to -- for marketing and sales? And I don't mean to say that you are not doing a balance act or bring all of them together, you are definitely doing it. But my intention is to understand how much bandwidth you have been able to release from those processes, which will give me clarity that those processes have now stabilized. So that is 1 part of my question. Second part of my question is that you are in a very, very swift spot with almost 50% of your business coming in from hi-tech and manufacturing, which is like one of the best segments -- expected to be one of the best segments with the safety of manpower in the European region and given the significant amount of growth which is coming in this segment and moreover, the massive demand supply gap, it has been built in the consumer electronic side and all. So when do you see that growth coming to a very, very bigger number? I know that you have done well. But I still believe there is some leadership that not -- may not be at top level, but at some middle level, which is restraining our growth in that segment. So that is part -- subpart 2 of my questions. You want me to tell other questions now or you will first answer this?

Yes, Sandip. Let me first -- I've actually tried to make notes, but let me start with the first 2 questions, and then I'll wait for your other 2 questions. So Sandip, as you yourself pointed out, right? In my role, I work on multiple different counters, right? I work on sales and marketing, I work on delivery. I work on strategy. I work on operationalization of our strategy. I constantly work on making sure we have the best leadership in Zensar, be it market leadership or be it engagement and delivery leadership. We did a massive strategy refresh last quarter, and we have kicked off this operationalization of strategy into the first gear, and we'll continue to double down on that operationalization over the next few quarters. Now it is not that the mix is going to drastically change, right? There's a bunch of things that we've put in place. Now some of the -- this going one at a time, right? I did mention to you the last time we spoke is that we came off a healthy EBITDA, a healthy cash position. We are going to expand activity. We're going to expand our sales teams. We are going to expand the overall go-to market. And we have done a reasonably good job during the quarter. We've done some internal rotation. We have a new Head of Hi-tech Manufacturing, Harjott Atrii We hired a new Head of Consumer Services for Markets. We also hired a new Head of Delivery for Consumer Services. We've moved a few leaders of the firm around. And I feel very good about how the leadership team is shaping up. Now to attach to that, I'll actually start going into answering your second question. A testament to that is our hi-tech business grew by 13.5% sequentially quarter-on-quarter, right? And it was underpinned by multiple different areas of growth. Outside of growth in existing accounts, we also closed a fair number of new logos that will assist us in keeping momentum going in this vertical. Mind you, it's not just hi-tech that did well. Over the last several quarters, we have invested in our banking business and our insurance business. Banking showed a 5.2% quarter-on-quarter growth. That book looks healthy. We've had a large number of MSA closures. And over the next 2 to 3 quarters, we feel confident of that business as well. In terms of geographies, South Africa has done extremely well. That momentum will continue. U.K. saw a minor dip in terms of project completions and closures. But then our experience-led engineering story that is resonating extremely well. And we see an uptick in business out there, both in terms of new logo closures as well as some within our existing accounts. So give me a good deal of confidence in terms of how we are shaping as a business. Now like I mentioned, the strategy has -- we moved the strategy into the first gear, right? And as we did that, we have seen some early signs of success. And it shows that we are headed in the right direction. As we operationalize that strategy further, our objective of driving predictable sustainable growth, we feel pretty good that, as I told you the last time, we are down a quarter. It is going to fire in the next 3 to 7 quarters. I still maintain that.

So thanks for that elaborate answer on first 2 parts. The third question, I guess, is that I will -- I want to know is how many large deals consultant which I mean by is the external consultant who generally help in formulating and sourcing the large base. Are you already started engaging with those external consultants? Or do you believe in the strategy that you will build your own large bill team? What is your thought process on that? Because we have seen most of the mid-cap get associated with external large deal consultant then they give them that $25 million, $50 million 1 or 2 deals, which help them to do a massive operating leverage because maybe closure costs will go up the cost of supply side constraints, but the way it is -- the pricing environment is with where the demand is as in supply, I'm sure that it will be a very big opportunity for us. So have you thought on those lines? That is my third question. And my final question, and I apologize for the long question again. is that -- since -- I still believe that our EBITDA margins are much below their optimum level if you compare same size businesses. And I understand that we have done acquisitions, we are trying to accumulate it and we have just started transitioning and getting into our strategy and all. But do you think that hi-tech and manufacturing, although you highlighted there is an internal management -- internal person who is now leading that is a great thing to happen. But do you think that, that was the only gap in high-cave manufacturing and below that, there are no gap because when I speak to clients in the European market, particularly in that space, the feeling I get that there is huge demand, and there is no credible vendor or supplier today. There is no supply of mentor, no one who can submit that. So is it that -- is there a scope where we can fill those gaps within the hi-tech and manufacturing and that can boost our growth much higher what we are seeing today? And I'm not complaining about the current growth. So what I'm trying to understand is that do -- can we reach 30%, 35% growth in hi-tech and manufacturing the way demand environment is if we have the right leadership team below the top leadership and also these large bill consultants who can get us there? Do you have a different perspective?

Sure, Sandip. Sandip, that was 2 long questions, and I'll try to do justice with my answers. So first of all, Sandip is that traditionally and always within Zensar we have and will continue to have large deal focus. Now there are 2 aspects to this. As you yourself pointed out, Sandip, the first is how we engage with third-party intermediaries and third-party advisers. And this is both from a perspective of large deal inflows as well as it is in terms of how we shape these fields. Now we traditionally had a lot of focus on this, and we continue to have that focus. We will not diminish that focus. That is one. Second thing is that in order to meet this across the service lines, we have internal engine to support solutions in these large deals, and we are not going to dilute those engines, right? If anything, we will further enhance and strengthen those, right? That is what I can share with you right now is, are large deals are an area of focus for us? Absolutely. Are we working with third-party advisers, third-party intermediaries? Absolutely. Do we have internal champions and internal capability to manage and solution for these large deals? Absolutely. In fact, we have a very, very differentiated story. In this whole story that we have around experience-led engineering and experience-led infrastructure has resonated extremely well, and it continues to bide us well, both in small and large deals. So that is one part. That's your first question. Sandip, your second question, I would like to answer differently. See, if you look at how demand is shaping up, right, overall, and you would have heard this in commentary from overall in the industry is that it is a demand-rich environment. It is a demand-rich environment and that demand per wage across industry verticals, right? Even verticals such as retail, which were so badly impacted due to pandemic as we come out of the pandemic and as people start investing in increased digitalization and more aggressive digitalization, right? We have entered into an era where the demand environment is very positive. And this is not just hi-tech this is across verticals, right? Now our view of that is that this demand is largely in certain capabilities and certain skills. And in order to cater to that demand, we have clearly called out this 2 strategic growth opportunities, right? Traditionally, because of our investment in Foolproof and Indigo Slate are 2 banners under which we deliver experience services, we were strong in experience services. We have bolstered that strength by adding 2 very clear strategic growth areas. One is advanced engineering services through which we deliver complex engineering skills and through which we deliver cloud-native full stack services. That is an area where we see a lot of activity, a lot of uptick in demand. And by creating this sharp focus, I think we are setting ourselves up to meet the market demand. And that is the category in which there is going to be demand not just in high tech, but also in other industry verticals. But to your specific point, I, by the way, completely agree with you that hi-tech is a space where there is going to be a lot of demand. Now -- and it's not just advanced engineering services, closely attached to advanced engineering services is data engineering, analytics AI/ML. They kind of go hand in hand. And these 2 are big, big areas of thrust and investment for us. Sandip, I hope I will be able to answer your questions.

The next question is from the line of Nitin Padmanabhan from Investec.

I had a couple of quick ones here. One is on hi-tech considering there's been a reasonable recovery with the top deck within that vertical. Now how do you see it going forward? You did mention a couple of deals and things like that. Do you see any context that you could give in terms of qualitative sense on what those new entry points with new clients are? The second thing was on the retail vertical and any specific pass-through revenues this quarter. And finally, on margins, I just wanted your thoughts on how the salary increases, which would have impacted margins next quarter. And are there any offsets for that impact? Those are my 3 questions.

I will answer your first question, and I'll defer questions 2 and 3 to Navneet, and I'll add as needed with him. So Nitin, in terms of hi-tech, what we have seen is traction across board. So to give you a sense, right, as some of our largest relationships have stabilized and accelerated, right? And as I have mentioned, we are deeply focused on making sure that we deliver value to them and we constantly stay aligned to their business strategy and how they execute on their business, right? That has borne fruit, right? And as they have stabilized or they have accelerated their business, it has had a positive impact on us. Outside of that -- within the hi-tech space and also the question that Sandip asked, we see a lot of activity in advanced engineering services. So that is one place where we've seen a lot of uptick and a lot of activity. But that's not the only place. We also saw a serious amount of work within our experience services category within hi-tech space. So our experience services business also witnessed a fairly sizable growth within that space, right? So it has been across service lines and across the various clients that we have within our hi-tech business. So overall, we feel good about it. So this, of course, has been a very, very fruitful quarter from hi-tech business. And I feel quite positive about this business going forward, especially in line of the new leadership that we've brought in and in terms of what that leadership is doing to drive up business. And then for your -- Nitin, for your second and third question, I would request Navneet to chip in.

Yes. Thanks, Ajay. Yes, Nitin, so in terms of retail vertical, the numbers that you see are pure services-based numbers, and it's shown a modest growth of about 0.6% sequentially. There has not been any partial element associated with that. In terms of the margins, Actually, this quarter, if you'll see, our gross margin got impacted by 0.1% adverse. That's largely because we got positive on the exchange side, which was to the extent of about 0.9%. And we have seen supply-side pressures impacting our cost of delivery, which has also -- which has been one of the hits which we took this quarter. And the utilization also has dipped a bit. In terms of OpEx, our SG&A has gone up. That's in line with the investments that we had planned to do. And that's largely on track is what I would say. I would also want to iterate that we have announced wage hikes effective 1st of July across the board. So that is something which you will start seeing as an impact on a go-forward basis as we continue to invest in our sales engine and other strategic areas as a part of our operationalizing of strategy. In terms of operating levers, we are working on multiple levers, including pyramid optimization, productivity improvement. We are having a continuous focus on offshoring as an element. And we would look at every ways and means possible to how do we improve profitability in specific accounts. So that in a nutshell, summarizes the overall margin perspective from our side.

Sure. I just had 2 quick follow-ups, if I may. So one is Navneet, if you could quantify what could be the potential impact on margin because of salary increases? And two, Ajay, on hi-tech, if I understand there are very 2 dominant clients within the hi-tech, both on the experience space and the application space. Apart from that, so do you see the sort of traction within those clients sort of continuing in terms of momentum going forward? And two, do you think there are other new clients that you spoke about, which can actually fill in for any project-based rundowns that would happen in case there were some runoffs within that? So those were the 2 follow-ups.

Yes. Sure, Nitin. So what I'll do is I'll answer the first question. For the second question, I'll defer it to Harjott, who is the head of that business. So in terms of impact of salary increases, we normally don't give any forward-looking guidance, Nitin. But I would say that this salary increase will be typically higher than what we had given in the January early this year. So that's how it will work out. Over to you, Harjott, on the hi-tech questions.

Sure. Thanks, and am I audible?

Yes, you're audible.

Okay. So I think what we have done with a new Zensar, and a new strategy of Zensar, which is SEO centered, we've also launched the new HTM strategy, what we mean for our customers. So yes, we are cross-selling new services into our existing accounts, and we are acquiring new customers, new logos with our new SEOs as well. And a lot of focus in the new service offerings are on the areas where our HTM customers will spend more money. So we're aligned to where they will spend post-pandemic. And then it's largely new offerings around servitization as a service model, how do we help them do the reference architecture changes. Similarly, with the traditional industrial manufacturers, how do we enable a new reference architecture for connected operations. So our customers are seeing both our existing customers and our new customers are seeing a new Zensar and a new HTM team which is very domain-led, SEO-enabled and very much aligned to where their spend would be over the next 3 to 5 years. So we feel very positive about the coming 2 quarters as well.

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

Just in this quarter, with growth rate at 2.8% if I'm not wrong, 1.6% growth is driven through pass-through. And also, there is an effort to change from offshore to on-site. So in that scenario, is it wrong to say that the under-lining volume growth is lower than 4.8%? And second, I just wanted to understand in the new strategy, what would be the go-to market? Will it be verticalized or it would be horizontal-led as a whole? And I have a couple of more -- will ask once reply comes.

Navneet, if you can take the first question and I'll take the second question.

Yes, Sandeep, yes. So Ajay briefly covered earlier as well on the on-site mix part of it. But yes, there has been some element of pass-through revenues. So to that extent, the sequential growth in terms of services volume per se in constant currency will be slightly lower than the 4.8% that you have seen. So that's correct. But we see good momentum and volumes building up. One of the points which Ajay also highlighted is this has been one of the highest growth that we have seen in the last 6 years. and this is coming after, I would say, around 5 consecutive quarters of decline, where the trajectory has changed and it has changed in a very meaningful way. I will let Ajay tackle the second question.

Yes. Yes. Thanks, Navneet. So Sandeep, look, the last time we spoke, I did walk you through this big strategy refresh that we did, right? Traditionally, we had 3 x 3 x 3, right, which was 3 geographies: U.S., South Africa and U.K., Europe; 3 verticals, hi-tech, manufacturing and banking financial services, insurance and consumer services; and say 2 service lines, DAS and DFS, right, and the third one, funding experience services. What we have done is that we have taken what was an 85% block of services. And we have put a very sharp structure around these services in form of 5 SGOs, which is experience services, advanced engineering, data engineering, application and foundation. And to channelize these 5 SGOs into specific go-to market, we have launched 21 services through playbooks, which are crystallized, well-defined services that we are taking to market. And under each playbook, we've got multiple levels of content and material as well as in terms of how we have structured ourselves to support these SGOs and playbooks, right? Outside of this, as we operationalize the strategy, we have identified 4 pillars of operationalization: One is sales expansion; two is what we do with talent; three is what we do with our strategic partnerships; and four is what we do with our M&A. Now this quarter, we have started operationalizing this strategy. And we have seen some early signs of success, and it shows that we are headed in the right direction, right? In the subsequent quarters, as we step up this operationalization as we get into a higher gear of execution on this strategy, we will get to the objective that we have set for ourselves, which is to deliver predictable, sustainable growth, right? Right now, the way it looks like, the kind of market response that we have received, the positive response we have received from the clients as we have articulated this message to them, and as we have configured our services around these 5 SGOs and the 21 playbooks, we feel that we will be able to meet the schedule that we publish together with the strategy refresh, which is we are 1 quarter down. And in the next 3 to 7 quarters, we will be able to hit the stride and the cadence of delivering predictable, sustainable growth. Sandeep, back to you.

I think just a follow-up. So is it the sales organization is verticalized, especially in the key market in U.S.? Or it will be again used by a [indiscernible] So how is the sales organization vertical will be structured?

Yes. Yes, Sandeep, good point. So we operate in a matrix, right? The core sales organization reports into the vertical. And the SGOs and the playbooks and the service lines are represented by site-force teams that matrix with the vertical sales teams in order to deliver our solutions and the value proposition to our clients.

Okay. Okay. And just last thing. In terms order intake, this quarter has been $97 million. And last quarter, we $100 million. The 1Q to 3Q FY '21 average was $175 million. So despite we are seeing the demand being more early signs of positiveness from the client or new strategy, the order intake number has been declining as a whole so any thought on the same. And Navneet just wanted to understand your comment earlier about this year's EBITDA margins remain at a high teens. Is it still valid or you have changed your goal post?

So Sandeep, I'll take a go first, and then I request Navneet to add. So Sandeep, what we have done in course of -- especially the last 3 quarters, and we started this journey actually even prior, is the -- is to work on how we report our metrics. Internally, we have become much, much more stringent in terms of how we report our numbers, how we compute the numbers, how we report the numbers, we have become much more conservative, right? We have heard from the community, we have heard from you folks. We have also looked at how we used to report raw numbers versus qualified numbers. As we go forth, we will retain with stringent set of steps that we have taken in terms of how we report these numbers and the fact that we will be conservative on these going forward. Navneet, do you want to add and also take the second question?

Yes, sure. Actually, there is a good amount of logos that we have opened during the current quarter. And as we start fulfilling them and we are able to staff and start delivering revenues to them, those will also start reflecting in the order booking. So to a certain extent, the numbers that you see on order booking is not really reflective of how we are seeing the demand and fulfillment situation to pan out and resultant impact of it in the top line. So you should look at this over a period of time, how does it work. And you should be able to correlate it much better go forward is how we see the order booking scenario will be. In terms of your margin question. See, we -- along with the strategy, we had picked up and we talked about our margins, where see, we don't give any immediate quarter guidances, but we have said that over the mid to long-term as the strategy starts working out, getting to high teens level and maintaining that is something which remains as an integral part of our strategy. So we are committed to that. However, as you start investing, okay, there will always be a time frame when initially as the investments go in while the revenue outcome takes delivered over a lack on the investments, you could always see some declines or some shifts which happened in the margins in the interim. But from a medium to long-term perspective, we are really focused on what we have talked of and all our endeavors will be towards that. And what I would do is I would also invite Prameela to just talk about a few of what I would say, the operational measures and rigor that we are putting in, which should give us a leverage in the times to come from an operating perspective. Prameela, you would want to add?

I'll just add to what Navneet talked about. So our focus on cost optimization continues and 2 significant tracks that we are driving in a very accurate way is the whole pyramid optimization. In that towards this, we are now creating a very, very strong internal talent marketplace, that is reskilling and upskilling our internal talent in the big bet technologies that Ajay called out, whether it is advanced engineering, data engineering, AI/ML, our enterprise SaaS area. So we are upskilling an entire team. And also, we significantly upped our pressure intake over the last few quarters, and we will continue to do that in the year ahead. And our entire pressure program training has been focused on from day 1, we want our pressures to be ready in these new areas. We are crunching the pressure time to billability. These 2 will significantly help us increase our internal fulfillment as we respond to the increased demand in the market. At this, we believe, like Navneet called out, in the medium-to-long term, it will help us mitigate some of the impact we will see in the margin on account of the wage hikes. And of course, the continued focus on automation, on offshoring, these have been our focus areas. They will continue to be so in the quarters going forward as well.

The next question is from the line of Amit Chandra from HDFC Securities.

So my question is related to the sales and marketing investments. So have you filled all the gaps there? Or is there some areas where we need to make further investments? Also, if you can elaborate what changes have been made in terms of the key hiring changes in the new switch up and how the sales process being the incentive cluster has changed? And when do we see the large deals coming in? So this is the first question. And second question is on the insurance vertical. So if you can elaborate what is actually leading to the softness in this vertical? And is it client-specific? Or are we seeing announces nation looking here? So -- and when do we see stability in this vertical? Any more color will be helpful.

Yes. So Amit, I'll take the first question, and I will ask Nachi to pick up the second question. Nachiketa Mitra who Heads Banking Financial Services & Insurance for us. So Amit, the first question is that we have expanded the sales team as well as the engagement leadership team. So we have expanded over the quarter, both the go-to-market teams as well as the engagement team. This expansion has been not just in the vertical, but also in the geographies and very importantly, also in the strategic growth opportunity areas that I alluded to just a little while back. So it is across board. Now as we speak, so we have done -- we have done that over the last quarter or so. And as we look into the next 2, 3 quarters, we will continue to hire people into vertical and SGO sales and engagement teams. Although as we fulfill these positions, the pace of that hiring will reduce. So that Amit is the first question. In terms of deal flow, we take a very holistic view, Amit. The way we go after the market is both large deals as well as what we do with looking at our client areas opportunity as well as problem statements in terms of what we do with them proactively. And third thing is in this highly demand-rich environment, fulfill the demand that is steadily coming from the clients to service providers such as us, right? So it is all the 3 vectors, not just the large deals, right? So we are focused on all of these 3 vectors. So that's the first question. And for the second question, in terms of what we are doing with the insurance business, I would hand over to Nachi.

Are you able to hear me, okay?

Yes.

Thank you, Amit, for the question. I appreciate the opportunity to talk about our insurance practice. I just want to reiterate that as Navneet had mentioned in his statement that there are certain client-specific projects which are -- which came to an end and then another client got acquired by a larger organization, so some projects went on hold. So a couple of client-specific issues that caused a little bit of blip. However, what we are doing as a response to that is we are broadening our plate fill, right? So we are -- we used to be very, very focused on property and casualty segment within United States. So we are expanding that market. We are going after the larger clients who are in the property and casualty segment, but also, we are going after life and benefits. We are going out to insurance brokerage business. So that's number one. In terms of the way we are approaching the market, we are really focused on solution-led consulting-led delivery and sales. So deep commitment towards building up domain capability, we are reinforcing our partnership with Guidewire, but we are also looking at other platforms like Duck Creek. Right now, as we speak, we are training our workforce on Duck Creek and because there are opportunities in the market that we want to kind of tap into. Third thing is the way we are looking at the sales process itself, we are we are tweaking it a little bit, right? We are doing hunting impacts. So it's a client partner solution team as well as the hunters together going in with the prospects. So the conversion rates, we are seeing significant increase. And then, of course, the partnership. So as I mentioned, there are a lot of insurtech organizations that has -- are offering tremendous niche solutions, and we are trying to partner with them as well so that we are relevant for the future with our clientele, insurance clientele. I would take a pause and see if you have any clarification to what I just said.

No, sir, it was helpful.

The next question is from the line of Sandip Agarwal from Edelweiss.

So I have 2 questions. One is for Navneet first to start with. So Navneet, if you see, you have one of the highest gap in the industry between EBITDA margins and EBIT. And if you see this pandemic, this is actually against this gap and structurally should reduce this gap significantly, which means that you will -- even if you grow your revenue at 0% for the next 2 years, which is impossible to achieve in my view. Then also your earnings growth will -- 15% earnings growth should only come from this gap getting reduced because of the nature of the pandemic and the impact of it on the lease on the depreciation part of it. So I'm just trying to understand why that confidence is not showing up when you are talking about margins, number one? Number two, second question is to Ajay and Navneet, both. You have already spoken about the strategy, hiring transitioning and all that. Can you please give us some highlights that the new leadership, which you are hiring or the premier leaders you are hiring, what is your approach to hire them? Are you giving them a bigger upfront fixed salary, a bigger commission structure or you are giving them a huge piece of, which is largely back-ended because given huge fixed pay and huge variable pay is a temporary solution to the demand supply mismatch, but I think a back-ended huge option is something which creates the value. So what is your approach towards that, if you can disclose it, otherwise, I'm fine with that. And finally, in the worst of the pandemic situation, the large companies which has $20 billion, $25 billion of revenue, they also just pause for 1 quarter before they gave some kind of guidance and I'm not talking about quantitative guidance, but some benchmarking that we will be doing an industry growth that in the second quarter, first quarter something. What stops you when you already are in 6 to 7 months into the business, you have finished all your strategy and everything and you already are talking about so much of traction in all the pieces of business, what stops us on giving some kind of qualitative guidance rather than quantitative? I am not at all pressing you to go against your policy of not giving guidance. But at least some qualitative -- that we will be in top quartile within the mid-cap space or the small-cap space or industry growth or around that, something if you can give them, it will be very comfortable.

Sandip, thanks for the questions, I'll let Navneet answer, then I'll add to answer questions 2, 3. I'll also pull in Vivek. Go ahead, Navneet.

Yes. Sandip, I think your observation has been quite valid that between EBITDA to EBIT, there are not much -- there is a much more gap in Zensar. But that's also because of the acquisitions that we have done in the past. A good chunk of that gap is on account of amortization of intangibles, which comes as a part of our P&L. Now this amortization based on the nature of intangibilities, it goes on for a period of about 5 to 10 years. So as and when that amortization tapers off is when you will start seeing a tapering of that. Number 2 is, as we scale up in terms of growth, and you're right, we will probably not be investing in facilities incrementally as opposed to what we have already done. So that leverage will start playing out. And we've always talked about EBITDA as a number. We've never talked of EBIT as a number. And that's where you would start seeing over a period of time, some additional leverage on to EBIT as the gap over a period of time narrows down. So that part of your observation is right. I would not be able to comment in terms of the extent that you have talked of being 15%. But directionally, as we scale up, it should reduce. The second element is that we've also done an acquisition right now. So that will again start introducing another intangible charge in our P&L from Q2 of this fiscal. So that's where -- while the past acquisitions, amortization start tapering off, the new acquisitions amortization starts replacing it. Hence, it is much more easier for us to give perspectives on EBITDA, and that's where we have been talking largely on the EBITDA in all our commentaries. So before I just give Ajay to talk on the subsequent questions, one of the parts on guidance is that is what is our internal -- the strategy that we are talking about that we want to hit a phase where we are more predictable and we show consistency in our performance so that you are able to predict much more reliably as our growth comes out. And it won't be completely basis what the management is talking where will we end. But I'll let Ajay take those 2 elements as you answer this one. over to you, Ajay.

Yes. Yes. So Navneet, thanks. Sandip, picking up the second question, right? So Sandip, as I mentioned, I think the last time you and I spoke, is that from a comp perspective, right, our comp for senior leadership position is divided between fixed variable and stocks. I think we always had a very compelling comp and benefits package as well as a very compelling structure around fixed variable and stock. That was never a problem with Zensar. And that was a good practice, which we will continue with, okay? So that is first. Second Sandip, to your second question, right? So what we have seen in this quarter is that the right team is coming together, right set of services, clients are coming back, has generated momentum, right? In terms of operationalization of strategy, we have moved it into gear. So we've gone into first gear, right? Over the next few quarters, as we step up, as we go up into the higher gear, this strategy will take roots and will anchor and will start driving towards our objective, which is to get into a cadence of predictable, sustainable growth. Now I just want to be very clear that this quarter is not because our strategy has kicked in. There are green shoots that we have seen as we have gone into the first year, but the true impact of strategy will happen over the course of next 3 to 7 quarters. We are 1 quarter down. So Sandip, I hope that answers your question.

No. So Ajay, you have answered it quite elaborately, but I am still not very much clear what you're trying to say on the recruitment policy. And I, again, don't want anything to know on your strategy part of it. But at least what is your thought process like if you are seeing a very good industry tailwind going ahead and we all know that the supply is facing demand. This is a fact which has established in the last 18 months. So in that case, is getting manpower itself is very challenging, and we are facing it every day with every company when we are talking the are telling us the consultants are telling us then. So how are you going to fix this part? Because until unless there is a huge compensation, which comes from the top, getting and retaining the top 10 will be really challenging because if you go to other parts of giving high fixed costs and variable components, then you take 2 risks. One is that your margins keep on -- your [ CIGS ] keep on going up, which puts a lot of pressure for the SG&A to go down and which may not be good in the long term because then it compromises with your marketing strategy. On the other hand, if it is more coming from the back-ended ESOP, then the benefit is that everyone is benefiting from the journey and everyone is motivated towards that objective. So if you can at least give some qualitative comment on that, it will be of great help because this answer of having great strategy from beginning on the compensation part is something which we all are aware and we respect that. But if you can give some qualitative aspect, they will be really, really helpful.

Yes, yes. Sandip, actually, there is a third question you asked, right? So I will divide your question into 2 parts. One is what is our strategy for senior level hires? And what is our strategy for direct contributors, right? Senior level hires, I think we have a very good program in place, a very good comp and benefits plan in place, and we continue to attract top talent, right? So the hires that we have done in various businesses, we have actually ended up hiring the top talent in the industry. Your other question is related to the fact that we are in a demand-rich but a supply-constrained environment, which means supply is very inelastic, right? And most of that inelasticity of supply is in the area of direct contributors, and a lot of that is in terms of direct contributors in engineering and data engineering skills. That is a completely different bracket, right? And how we address that is how we address overall demand-supply equation for our business. And Prameela gave you a view of that a little while back, right, in terms of what we are doing in terms of upscaling, reskilling existing talent, what we did doing in terms of increasing engagement, what we are doing in terms of rotation, what we are doing in terms of amplifying our organic engine to bring in new talent. That is a second category, Sandip. We are focused on making sure that we do the best on both categories.

Ok, that's very helpful and thanks, and best of luck for your future purpose. And a great quarter honestly.

Due to the time constraint, ladies and gentlemen, we'll be taking the last question for today, which is from the line of Madhu Babu from Canara HSBC.

Sir, congrats on strong Aggregation. Sir, a while back, we were talking about taking permanent work-from-home employees. So how has been experienced with those employees have you hired some et cetera? And incrementally, how do you see the delivery changing towards post-COVID? Even after normalization, how much of your workforce will be on the work-form-home? And second, on BFSI, we have done 1 acquisition earlier on the interim but to being such large vertical and we have a kind of a smaller presence there. So with the current cash balance, would you like to be for the BFSI vertical with another acquisition. So these are the 2 questions.

Yes. Madhu, I'll request Vivek to answer your first question and for Prameela to add to it, and then I will come back to answer your second question. So Vivek, do you want to take the work from home and the talent on-boarding questions? And Prameela, if you can add, please?

Absolutely, Ajay. Thanks a lot, and good morning, everybody. Thanks, Madhu Babu, for the question. Yes, in fact, as all of us move, we have been pioneering in terms of the model of work from anywhere, and that is becoming extremely pertinent and relevant in the context of what the situation we are facing in the market right now, where every company is finding opportunity to ensure that supply base increases and that supply base fulfills the demand which is there in the market. So for us, to answer your question, it has been a very good experience. We have been able to engage with our Work from Anywhere employees very extensively, and it has helped us move into Tier 2 and Tier 3 cities to increase the supply base. So our experience has been extremely good, and we are going to further build on this opportunity which we have put together -- initiatives we have put in place. Over to you, Prameela, for the second question.

Yes. Yes. Thank you. Vivek, just to add to what Vivek mentioned, Madhu, Work from Anywhere has been an opportunity for us to tap into new talent pools going beyond the centers where Zensar has been operating in India. So a lot of our talent, both including senior talent as well as fresher talent now we're looking at on-boarding them from all over India. So that has been a big opportunity for us to really strengthen our talent supply channels itself. And so on the Work from Anywhere model, I mean we continue to deliver projects to our customers seamlessly across the globe in the last 5 to 6 quarters ever since we've gone to work from -- gone into this model. So we continue to strengthen our -- like what Vivek talked about, the engagement with our employees is one thing. Second is we're also strengthening our ability to virtually start projects, win projects, execute them seamlessly, being a digital company, the investment we've made in digitizing all the delivery process in Zensar over the last 3 to 4 years, that's become a big advantage for us to -- in this new virtual mode to continue to deliver a very strong -- I mean projects in a very strong way with process metric is not diluting the vigor at all. So we see that once, I mean, the vaccination for -- the second vaccination for most of our employees here in India once that happens, we will see -- going back to the office, we don't have the time line yet. We have not decided that, but it will not be everybody going back to office. We see teams in small numbers going back. We have already identified what are the kind of roles and projects which will be -- which can be executed in the hybrid mode. So that's -- we are waiting and watching how the whole environment unfolds for us. But this has not really impacted, it has further strengthened our talent supply chain, the whole Work from Anywhere situation now.

Right. Right. Thank, Prameela and Madhu, if I can answer your second question, which relates to M&A. So just to reiterate strategy, 5 SGOs operationalized through 21 playbook, right, which are specific service propositions to our clients, supported by 4 pillars: sales expansion, talent, M&A and partnerships. M&A, all future M&A that we do including the M3bi acquisition that we concluded -- that we just concluded, we announced the acquisition in Q1, we just concluded it. All acquisitions that we do have to support 1 or more of the stated SGOs. That is the first principle. The second principle that we will go by is that any acquisition that we do has to bring in capabilities, skills and market access. Just to take M3bi as an example, now while they support multiple verticals, the dominant play that they have is in financial services. So what they do is they not just augment skills in advanced engineering services and data engineering services, but they also bring to us client access in form of some very, very large clients, very sizable clients in financial services space and a couple of other verticals as well, but dominantly in financial services. And that is the strategy that we look forward to implementing and adhering to as we go forward. Our big focus areas from services perspective, from our SGO perspective, as we look into the next set of acquisitions, as I shared with you in the prior conversations that we had, is advanced engineering services and around SaaS platforms like SFDC, et cetera. Madhu, I hope that answers your question.

The next question is from the line of Varun Goenka from Nippon India Asset Management Company.

And a good set of numbers and very elaborate answers. Just 1 question. I wanted to understand our gross margin. What could be the drivers of our gross margin, which is actually, I would say, lower than some of our peers at the moment? And how that could trend or what could really drive that? It would also provide better understanding of the value addition that you're doing. So I just wanted to understand this line item of yours.

Yes. Varun, I actually request Navneet to take that question. Navneet?

Yes, Varun. In terms of gross margins, I think we've exited the quarter at 34.8%. I think for a company of our size and if you will see the trend of our gross margins in the past, this has been significantly higher levels as compared to the margin that we had been operating at in the past. So to a certain extent, it has gone up. We definitely see a good amount of headwinds coming in on account of the supply-side crunch which the industry is going through, the wage hikes that we have announced for. And while this is the case, we are also working on significant levers to improve these margins. I think Prameela did talk about the pyramid focus that we are giving on. That is something which will take some time to really start show up in the gross margins for us over a period of time as they are able to move and change the pyramid to much more lower experienced people so that the cost benefit starts realizing in the margins. We also are conversative of the on-site offshore mix. If you'll see about, say, 1 year or 1.5 years back, we had the onsite mix of our revenues used to be around 65% to 67%, at this moment, it's around at 58%. So we have already made a good shift. In comparison with other companies, I think these 2 reasons have always stood out as the reasons why our margins have been slightly -- the gross margins have been slightly lower both on account of a higher on-site mix as well as the per person cost that we have. And in both these areas, we have made a decent movement so far. But a good chunk of work also has to be done in the pyramid weight, which will take some time to deliver on. So we don't give any kind of a guidance on a gross margin perspective, but we have always reiterated that on an EBITDA perspective, what is the level that we want to get in the medium-to-long term, and we are all focused on getting to that as an end result as we work towards how do we improve our gross margins. But at this level, I think these are very high levels, which you currently see in the current quarter as well and there would definitely be in the short term, there will be some moderation which will happen to these levels.

Sure. No, that's very clear. So just to go a bit deeper on this. One on the offshoring mix ballpark directionally, will it keep improving in your favor for the next several years? Or how do you see that based on either the clients or your project requirements? Or how do we really understand not the next few quarters, but more maybe 3 years down the line, how do you see that looks?

Yes. So from a long-term perspective, we will want to have much more -- a bit higher offshoring mix. But it will still remain range bound until it makes a big shift. I think you've already made a quantum shift from the levels we were used to be operating in the past. So at this moment, for some period, it will remain within a range as over a longer term, we still work out, how do we get and drive higher offshoring as a lever for us.

Okay. And like your presentation shows that you've added a client. So as your deal sizes grow or as your client mining grows, will this at least give you additional lever to invest in your SG&A or maintain your margins to offset the supply-side issue or the -- that is not adding anything incrementally?

So from the current levels, I would say it's difficult to say to add further incremental to fuel the OpEx investments. And that's why we have been very clear that in the interim, there would be some element of moderation you will see on the margins on account of both of these, the supply side issues, the wage hikes as well as the continuing investments that we will be making as we have called out. And over a long term, from an EBITDA perspective, like I answered in the earlier -- one of the earlier questions as well. We maintain that we want to hit and be consistent around high-teen margin, which is the EBITDA range, and that is what all of us are focused on.

No, I really appreciate you guys giving a very realistic picture and operating expectations. I hope this is just the beginning.

The next question is from the line of Nitin Padmanabhan from Investec.

Just had a quick bookkeeping question. Of the total TCV wins that we have announced, what is the net new proportion?

Yes. So it would be around 50-50 as net new and 50% as renewals.

And the -- how are the tenures changing for you on the TCV?

The TCV tenures have not changed drastically for us. It ranges based on the deals. It can go on from, say, a 3 months to a 5-year tenure. So that's how -- it's a mix of all kinds of deals in the TCV at this moment.

Sure. Our shorter-term deals are bigger -- shorter tenure deals a bigger proportion at this point or?

Yes, that's very difficult to comment off-hand, probably we'll take that offline.

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

I just wanted to pick your brains on the aspect that everybody in the industry can prove to higher special talent. And in the past, whenever we have seen this kind of a situation, we've also heard rumors around the quality of talent. Do you think that becomes some sort of an issue maybe over the next 4 to 6 quarters timing? And second question was with regards to the possibility for value-based pricing for both Zensar as well as the industry as a whole, given you pick up comments from some of your peers about the possibility of some pricing realignment due to supply side pressures?

Yes, Manik. So Manik, as we know, right, so we are in a situation where supply side of the equation is very inelastic, right? It's a demand-rich, supply-constrained environment. And one of the biggest -- so -- and we are addressing this problem using multiple different levers, right? We are looking at expanding the scope of geographies that we operate out of. We are looking at expanding. We just went through the whole work from home. Already, we have people working from 28 cities. So outside of our core development centers in India and Pune, Hyderabad, Bangalore, we will look to expand outside, right, in line with whatever we have achieved thus far. Big lever is what we do with fresh talent. Without going into too much detail, we have created a very sharp plan in terms of how we onboard that talent. That is from Zensar-specific perspective, very, very sharp plan to activate that talent to onboard that talent to make that talent productive. From a macro perspective, industry-wide, Manik, I think what we will see is the rebound of effort from firms such as ours to really invest in onboarding that fresh talent and effort that in the last 2 or 3 years had diminished, right? And with the extreme inelasticity that we see developing, that effort is going to rebound, right? Now as we do that, yes, we have to be careful as to what we do with quality of that talent. But also, Manik, we have a buying community that is much more discerning, much more careful about the quality of the talent that is onboarded and the winners and losers in this space in terms of how you fare with fresh talent is going to be determined in terms of how well and how quickly can you make this talent productive. And we have put a very, very strong plan in place. We are piloting that plan, and we'll continue to develop on that over the next several quarters.

And I had a follow-up question for Navneet. Navneet, you said that the quantum of increments or the impact of these increments in 2Q will be higher than what it was in January on the 4Q FY '21 quarter. So that impact of reach was about 100 bps ex of some of the optimization. So should that be the benchmark? Or should the benchmark be more like 200 bps impact on margins because of [indiscernible]

Yes. So I have given you a direction perspective, we are not giving any particular guidance on this. So we're still to work out how it will impact on an overall perspective from our Q2 perspective. But I would just reiterate what I said it will be directionally much higher than what you have seen in Q4 financials, the way it has played out. So it will definitely be much higher than that.

Navneet, I appreciate that. My only question is, is that 100 bps or the comparison benchmarks used to be higher than 200 bps because that 100 bps also included the benefit of certain cost optimization measures?

Yes, yes. So like we said, the cost optimization measures will take some time to play out. So you should probably assume that the cost optimization impact will come in future quarters, not -- will not impact immediately. And that's largely on account of the supply side issues which the industry is actually going through.

The next question is from the line of [ Jannel Jane ] from Omkara Capital.

I had a couple of questions regarding how you see the growth going forward? And more specifically, what sort of growth do you expect to come from the acquisition that we recently made of the M3bi. And the second part of my question is about the utilization. Do you see that as a margin lever going forward? And if yes, then what levels of utilization do you hope to achieve?

Yes. So I'll take the first question, and I'll ask -- I'll request Navneet to take the second. So yes, as I mentioned, we feel good about the direction of our business. We put a strategy in place. We have called out that as we operationalize the strategy that operationalization will happen over several quarters. For the impact of that strategy to be felt in terms of achieving our objectives, which is to drive predictable, sustainable growth, it will take 4 to 8 quarters, and we are 1 quarter down. So we are not changing that trajectory. What we do see is some early signs of success, which point to the fact that we are headed in the right direction, right? But in order to achieve a cadence of sustainable, predictable growth for the future, for the whole strategy to play to take root, we stick by that -- by what we stated when we launched the strategy, which is 4 to 8 quarters, and we are 1 quarter down. For the second question, I would refer that to Navneet.

Yes, Omkara. So if you would see our utilization, especially during the pandemic period had gone up very significantly. And as demand started coming back, we've also done a good amount of proactive hiring, which is what you are seeing reflecting in our utilizations currently. As we have stopped off significant initiatives around pyramid optimization, which would mean that we will hire a good amount of fresh engineering graduates, there will be some impact on utilization as a consequence of that as well. However, that -- the cost of those will be significantly lower. So incrementally, it should not impact the margins very significantly, adversely. But we believe the utilization levels that we are currently at should remain within a narrow range. This should not move either way very sharply. And that is what we have also assumed in that we are talking anything with respect to our margin expectations from a go-forward perspective.

Okay. That's fair enough. And just could you give a number on what sort of growth you expect from the acquisitions? And what sort of -- will you still be looking at more acquisitions?

Yes. So with respect to the current one, M3bi, which has been concluded, its numbers will start flowing in from the Q2 of our financial year, which is the July to September quarter. For calendar year 2020, that transaction -- I think M3bi had reported revenues of about $26.75 million. From those levels, they have gone up a bit and which will start reflecting in our Q2 numbers. From a go-forward perspective, as Ajay has called out, a part of our strategy is to augment the capabilities and build and strengthen the capabilities that we want to in our focused SGOs. And that is something we would be continually looking at. And as and when there is something which makes sense, we'll go ahead and acquire it. As of now, there is no particular perspective as to how much proportion of our growth will come from acquisitions. As and when they start getting added into our numbers, we'll call it out as to what is the extent of organic. You can look at it versus what is it incrementally which has come from an acquired entity so that you get a much better picture on it.

The next question is from the line of Gaurav Konar from Augmenta Research.

Congratulations to the management for a good set of numbers. Most of my answers -- questions have been answered. Just wanted to quickly ask about the M3bi acquisition, which is with the top-line growth that we will be getting from these numbers being integrated in the results, will we be coming at similar margin levels as the rest of your business? And the second question I had is are there any more acquisitions in the pipeline for this financial year?

Yes. So Navneet here, can I just take that question?

Yes, Navneet, please go ahead.

Yes, I wanted to comment on the margin aspect that you've asked of. So in terms of M3bi, the revenues will start flowing in. See, whenever you make an acquisition, there is always initially an impact which comes to your P&L on account of the amortization of intangible assets, which in the initial years tends to be slightly higher than the revenue outflow, which comes in because the revenue will start flowing the growth start flowing in subsequently. So that is some dilution you will start seeing on the EBIT level straight away. And in terms of margins, M3bi margins at the time of acquisitions have been slightly lower than some margins. And we will call out in our next quarter results as to how it has performed differentially for you to be able to understand what's the impact on margins on it. So that's on the M3bi piece. In terms of future acquisitions, as I called out, and Ajay also had elaborated, we are continuously looking for targets in the focus SGOs we have. And as and when we actually come around something meaningful and get into any kind of [ NSPA ] or a definitive agreement, we will be announcing that to the market.

Yes, yes. And Gaurav, look, as I mentioned earlier, any acquisition we do going forward, including the M3bi acquisition that we just concluded, will need to support. We will do an acquisition only if it supports 1 of or more of our stated SGOs. Number one. Number two is the acquisition needs to bring to us 3 things: capabilities, skills and market access. Our approach has been -- towards acquisition has been tuck-in acquisitions to leapfrog capabilities, to bring in skills and to gain market access, and that overall approach is not going to change. We constantly look at acquisition candidates. And if we find one that is of the right value and the right fit with our approach and strategy, we will look at it seriously. We constantly evaluate what's out there in the market.

As there are no further questions, I would now like to hand the conference over to Mr. Ajay Bhutoria for closing comments.

Yes. Thank you, folks. Thanks for attending our call. Thank you for the great questions that you asked us. I trust and hope that we've given you clear answers, and we've given you a sense of our business. I look forward to connecting with you on an ongoing basis and wish you all a very good morning. Thanks a lot.

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