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Edited Transcript of KPIT.NSE earnings conference call or presentation 24-May-19 12:30pm GMT

Full Year 2019 Birlasoft Ltd Earnings Call

Jun 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Birlasoft Ltd earnings conference call or presentation Friday, May 24, 2019 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anjan Lahiri

Birlasoft Limited - Former MD, CEO & Additional Director

* Dharmender Kapoor

Birlasoft Limited - MD, CEO, COO & Director

* Rajeev Gupta

Birlasoft Limited - CFO

* Samit Deb

Birlasoft Limited - Chief People Officer

* Vikas Jadhav

Birlasoft Limited - Head of IR

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Conference Call Participants

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* Apurva Prasad

HDFC Securities Limited, Research Division - Research Analyst

* Ashish Aggarwal

Principal Mutual Funds - Senior Research Analyst

* Ashish Kacholia

Lucky Investment Managers Private Limited - Director of Research

* Madhu Babu

Centrum Broking Limited, Research Division - Research Analyst

* Riddhesh Gandhi

* V.P. Rajesh

Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager

* Vaibhav Badjatya

Honesty and Integrity Investment - Founder

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to Birlasoft Q4 FY '19 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Vikas Jadhav. Thank you, and over to you, sir.

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Vikas Jadhav, Birlasoft Limited - Head of IR [2]

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Hi. Good evening to everyone, and welcome to Birlasoft's Q4 and FY '19 Earnings Call with questions. As was said, I'm Vikas from Investor Relations. And joining us today on this call, we have our CEO and MD, Mr. Anjan Lahiri; COO, Mr. Dharmender Kapoor; CFO, Rajeev Gupta; and CPO, Samit Deb.

So please note that anything that we say, which refers to outlook for the future are forward-looking statements and must read in conjunction with the disclaimer, which we have given in the earnings press release, which mentions some clauses and other risks.

So now with this, I hand over the call to Mr. Anjan Lahiri.

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [3]

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Thank you very much, Vikas, and good evening to all of you. Good evening, good morning, I mean, to all of you. It's a very momentous call because this is the first earnings call of the new Birlasoft. As all of you know, we took the IT business of KPIT and combined it with the old Birlasoft. We took the strong enterprise capability that KPIT IT had and combined it with the extremely strong digital and other capabilities that Birlasoft had through the last 25 years of working. And this is the first quarter of the combined organization that we are proud to present the results of.

I also want to give a brief integration update to say that we had announced the deal on the 29th of January 2018, and we completed the deal on the 15th of January this year. And from last year to this year, it's been 1.5 years. We have been working diligently on various aspects of integration and the leadership structure, the organizational momentum and the go-to-market, the sales engine, et cetera, has all been integrated across the 2 organizations.

There are, of course, many other aspects left, particularly on the IT side and the process side, but the go-to-market and people integration is largely complete. It is a very, very, very proud moment where we stand.

I will pass it on to Rajeev Gupta in a minute to talk about some of the financial highlights of the quarter just ended. But before I do that, I also want to talk about a significant leadership update, which we want to talk about. And that is to talk about Dharmender Kapoor who is our Chief Operating Officer.

I joined this company as the CEO 4 years back -- a little over 4 years back, and DK was already in place as the Chief Operating Officer. It's been an absolute privilege leading this organization from what it was, a private company serving largely 1 customer, which had a large part of the revenue. From there, we took it to a transformation and through an integration.

And through that now, the integration is actually ahead of schedule from what we had originally expected. DK, not only was the Chief Operating Officer of the old Birlasoft but led the integration processes across the 2 organizations for the last 1.5 years and worked tirelessly across the leadership streams of both organizations.

And I'm very, very privileged and proud to be able to say that I am -- I'll be handing over my current responsibilities to a person as capable as him. The organization is in now in a state where I think there is a whole future waiting for it.

While we will open it up for questions in just a little bit, but Rajeev, I hand it over to you to talk a little bit about the financial highlights for the quarter just gone by.

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Rajeev Gupta, Birlasoft Limited - CFO [4]

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Thank you. Thank you, Anjan. Hello, everyone. This is Rajeev Gupta here. What I'd like to do is just spend a few minutes giving the highlights of this quarter and also the year that's gone by.

As most of you understand, the merger consummated as of 31st December 2018, and then Birlasoft led the 2 organizations, merged into KPIT, which we thereafter named as Birlasoft. So the year has a mix of revenues for the first 9 months and, of course, the 3 months that comprises of the KPIT IT business and Birlasoft.

So the last quarter, which is quarter 4, we had a revenue of $113.1 million and EBITDA of $11.9 million at an EBITDA margin of 10.6%. For the year, the revenue was $474.6 million at an EBITDA margin of 12.3% as was guided in the previous analyst call that we had along with KPIT.

On the balance sheet, there have been some significant, I would say, positive events since we assumed the management. So 2 things: we've reduced the debt by $20 million, and we now have negligible levels of debt on the balance sheet. As far as the cash, we've got a healthy cash of $75 million. So those are some of the key highlights that we have on the quarter.

I hand it now back over to Anjan.

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [5]

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And we'll open it up for the questions now from anybody.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Madhu Babu from Centrum Broking.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [2]

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Sir, so how would the transition now happen in management level? And we are very surprised by this decision.

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [3]

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Madhu, thank you for your question. Number one, you asked how will the transition happen at the management level, I would want to say that, actually, DK has been working with me across the organization from day 1. Before the integration and post the integration, he has been leading the entire integration process. We have 16 streams of integration. We work absolutely seamlessly. So he's very much on the saddle for the entire transition. And we are quite confident that it is very well in place.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [4]

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Secondly, sir, I think in terms of Birlasoft, I mean, you have given the metrics now for the first time. So we have shown all the 5, 6 verticals. So within these verticals, where do we see that where we have very good vertical-level competency and more of [an endpoint offering]? And just one more question on my side. On the digital transformation, can we give the subsegments of that?

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [5]

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Thank you very much. I'll request DK to both answer that question.

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [6]

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This is DK. If you look at our business that one of the major change during the integration process that we have done is that we have verticalized our business. If you look at the 2 verticals, which form the biggest percentage or the biggest pie of our businesses, the banking operation services and then the discrete manufacturing high-tech and media. These are the 2 biggest verticals that we have, and we have a good amount of competence in both the verticals. But at the same time, we also have business, which is significant in the life sciences, CPG, automotive and energy and utilities, and we have a good set of customers there as well.

When it comes to the horizontals, ERP and SAP and Oracle forms about 58% of our business. But it is the digital services, which is the second largest horizontal in the business that we have, and that forms about 38% of our business. While this 38% of the business is the direct or digital technologies or digital transformation business that we have. But as you all know, that SAP or Oracle also having significant part of their portfolio moving into the digital, so digital definitely is becoming present in every technology that we deliver to our clients.

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Operator [7]

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The next question is from the line of Vaibhav Badjatya from HNI Investment.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [8]

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I just have one question from an accounting standpoint. So this profit from continuing operation of INR 235 crores, that is what you have reported. So this INR 235 crores have the 12 months number both for Birlasoft and the non-auto division of KPIT? Or it is generated on that?

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Rajeev Gupta, Birlasoft Limited - CFO [9]

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So this is Rajeev Gupta. Let me take that question. So the first 9 months would be KPIT. The next 3 months would be KPIT IT business plus Birlasoft. So if you were to look at the profit for the entire year, the profit would be INR 2,480 crores. That's the profit for the period. That is all included.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [10]

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Sorry, can you repeat it, INR 2,000 crores profit, INR 2,000 crores?

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Rajeev Gupta, Birlasoft Limited - CFO [11]

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So INR 248 crores, that's the profit.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [12]

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INR 248 crores for 12 months of both Birlasoft and KPIT IT division?

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Rajeev Gupta, Birlasoft Limited - CFO [13]

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So this is the Birlasoft business alone. And what we are doing is, if you were to look at the press release, it's the complete Birlasoft and the KPIT IT business, excluding your discontinuing operations, which is the engineering business.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [14]

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Okay, okay. Got it. And secondly, for both the businesses combined, when you say that ERP is around 58% of the business, is that percentage for both the businesses combined?

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Rajeev Gupta, Birlasoft Limited - CFO [15]

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That is correct.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [16]

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Yes. So out of that 58%, how much is -- is it all traditional on-premise business or this includes cloud business? Or you include cloud and digital? Or do you exclude cloud?

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Rajeev Gupta, Birlasoft Limited - CFO [17]

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It includes both. It includes both. In fact, if we look at the new traction that we see, it is all coming in the direction of either SAP HANA or on the cloud.

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Vaibhav Badjatya, Honesty and Integrity Investment - Founder [18]

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So how much is the traditional on-premise business in this 58%?

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Rajeev Gupta, Birlasoft Limited - CFO [19]

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I would say that it would be 80% traditional, but 30% only cloud and HANA. But if I look at the growth perspective, probably the 80% growth is coming from the newer business whereas the traditional business is not growing as it used to.

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Operator [20]

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The next question is from the line of Ashish Aggarwal from Principal Mutual Fund.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [21]

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Yes, sir. I just wanted to ask a couple of questions. On the revenue side, we indicated that this quarter with a revenue of $113 million and the full year revenue is close to $475 million. So it looks like that on a Birlasoft plus KPIT IT business, there has been a deceleration on a Q-on-Q basis. And is my understanding correct in that?

And secondly, in the margins front, right, 10.5% margins in this quarter but margins 12.5% approximately for the full year. Is there any one-off cost we have built in, in this quarter with respect to the M&A?

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Rajeev Gupta, Birlasoft Limited - CFO [22]

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So on the first question, which is to say that $113 million, is that -- has there been a reduction? So we have seen a 2.2% reduction compared to previous quarter. Previous quarter, on a like-for-like basis, the revenue was $115.7 million. We have seen one of our major projects get concluded at the start of this quarter. And also we've gone through a situation where there was a discount asked by another of our major customer. But this $113 million is pretty much where it is bottomed out. And we should see improvements from here on. As far as the profit for the year or the EBITDA percentage, it is 12.3%. And there, I'm adjusting for the merger and the integration costs, which is 10 during the year.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [23]

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My question was this quarter, it looks like it's just gone down substantially. Any one-offs in the EBITDA in this quarter also?

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Rajeev Gupta, Birlasoft Limited - CFO [24]

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So for the quarter, the EBITDA margin adjusted is 10.6%. We have seen a few one-offs. So of course, there is merger and integration, which is adjusted for, there is retention bonus and there are certain stock option costs that we've had to pay in this quarter. So those one-offs, we still adjusted for, takes us to the 10.6%. And of course, the decline in revenue from the $115.7 million to the $113.1 million has led to lower EBITDA margin during this quarter.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [25]

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Sir, what is the margin we should take going forward for the company? Is 12% to 13% the right number to start with?

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Rajeev Gupta, Birlasoft Limited - CFO [26]

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So for the year, we have seen an adjusted EBITDA margin of 12.3%. As I said, we feel that the revenue has pretty much bottomed out. We don't see any lower revenues from here on. So we believe that the business, I think, we may not guide for what it is next year, but we feel this is the bottom. I think the only opportunity to improve from here on.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [27]

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But my question was -- because on a quarterly annualized basis, we are down almost 5% from here on, 5%, 6% decline in revenues for the next year. So even if we grow on a Q-on-Q basis, we might end up doing a low single-digit growth rate. Now given the supply issues, given the overage cost pressure in the sector, my point was can we expand our margins in a yearly basis going forward in FY '20?

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Rajeev Gupta, Birlasoft Limited - CFO [28]

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So there are 2 aspects to it. One, which we certainly see or rather we aspire for quarter-on-quarter growth from here on, so that should help us bring back on the revenue level. And from a cost standpoint, we pretty much see the cost to be stable. So that should certainly help us to improve the margin. That's how we look at it.

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [29]

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Okay. Got it.

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Operator [30]

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The next question is from the line of Riddhesh Gandhi from Discovery Capital.

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Riddhesh Gandhi, [31]

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Can you give us some solid guidance around effectively speaking your order book, how it stands now and how will at this point of the year and potential opportunities going ahead, strategically, how you guys are looking at the business? It will be helpful to give us some, actually, kind of investor presentation to just explain to us what strategically you guys are looking at, especially after the MD of the company has just resigned.

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [32]

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Yes. Correct. I think that's a good question. When it comes to the order book and looking at what is the revenue that we may have on the -- our aggressive business side, I think it is very much comparable to the industry standards that we have. So that revenue that we know that is there in our hand and we are working on that. But if we look at the business that was built in the organization earlier, it was very much on the ERP side and very much horizontal in nature for KPIT.

The opportunity that we see is on the cross-selling side because now that we have verticalized the business, we are making the vertical very technology-agnostic so that we are able to go and cross-sell any kind of service to our customers. There are approximately 50%, 60% of our customers who are single service-line customers. But we are doing very good business with them, and we have good relationship. That gives us an opportunity to go and cross-sell our other services. And we believe that that's something that is going to be low-hanging fruit for the organization that will bring the growth for us.

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [33]

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And thanks, DK. Riddhesh, thank you for your question. This is Anjan. I do want to -- you mentioned that color of the business, particularly, given that the MD has just resigned. I want to make a point that I am moving on -- a couple of points here. I'm moving on due to personal reasons as mentioned. I have worked tirelessly to work this integration, and I'm extremely proud about where the organization is. I also want to make it explicitly clear that I am not moving out due to anything to do with the business or anything that I believe in the business that I am not happy about or is not right.

The CK Birla Group, which has taken full control of the business, provides an enormous amount of support to all of its organizations, and the combined organization have really seen a lot of that benefit. And I personally absolutely believe that this organization is today poised structurally to be able to take advantage of what the market will offer.

The markets today, as I'm sure you'll hear from everybody else, is in an extremely good position where the customers are spending. We are spending in areas that is not mandated. What I mean to say is that over the last 20, 25 years, people were mandated to spend on Y2K. They were mandated to spend on ERP. They were mandated to spend on dot-com, and then they were mandated to reduce cost. Today, they are only mandated to improve the business in whichever way, shape and form they want.

The combined organization with its extremely strong enterprise capabilities and its digital capabilities with its consulting veneer, which puts it all together, is very well poised.

My last point, if you look at the overall industry, there are some 5, 6 very large organizations, everybody knows who they are. They are very strong, and they continue to be. The midsized space has fewer players, and fewer players have become fewer still as all of you know. But customers, absolutely look for a couple of large players, and they look for a midsized player in order to challenge the larger players.

So I can speak from personal experience as well as what we have seen, the market is okay. Which company will be able to take advantage of the market remains to be seen in the competitive world. I think at $500 million, 10,000 people, like the new organization, we definitely have the strength, and we definitely have the capabilities to take advantage. I feel bad that I am moving on, but it is purely due to personal reasons, Riddhesh.

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Riddhesh Gandhi, [34]

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No. The question was regarding with strategy, getting an understanding of, given this is -- your speech earlier of this is call, that whatever is helpful is to outline, again, at investor presentations where you can show us like-for-like what order book of the combined entity was last year, what is the directives there, where the growth trajectory is expected to be, what strategically the organization is looking to do. But we have no color in any of these aspects.

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Rajeev Gupta, Birlasoft Limited - CFO [35]

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So Riddhesh, we will certainly do more investment connects and analyst connects to give color. In fact, we've planned that out this coming Monday, Tuesday where we can collate the past pictures, give you a better view and highlight some of the areas that we see a significant opportunity at least on a go-forward basis, including some of the statistics that we are posting. We are just coming together. There's a huge amount of effort that's gone through. I think we've put through another -- a first in the integration. We feel we have stabilized though there are some other areas we feel we'll address for during this quarter, and we will plan meeting in the near future with you as well to cover some of our business plans.

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Riddhesh Gandhi, [36]

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Got it. And so just at a high level, if you are looking at FY '20, given where we started today, do we expect it to be [initiated]? If you can give us some sort of indication based on your existing conversations, both in pipeline? What sort of growth we'd expect on top line and in terms of actually at the EBITDA level as well?

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Rajeev Gupta, Birlasoft Limited - CFO [37]

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So this year, Riddhesh, I mean, there is a -- well, we've already capped out -- that there is certain strategy behind the line of funds. Certainly, it's around the integration. As I have mentioned to you, we -- or rather to all of you, we see that this quarter, we have bottomed out. So we should only see improvements from here on. One of the other priority in the parts of integration is absolutely to grow on a quarter-on-quarter basis. So while we refrain from the guidance, we will bring back to you some of this every quarter. I think the opportunity that we see as far as clarity is cross-selling. We have a larger base of customers now that has come through as part of the merger, and cross-sell amongst those customers becomes another big opportunity for us during this year.

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Riddhesh Gandhi, [38]

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Sorry. Just the question is more on -- I understand that Q4 is the -- actually, bottoming out. I just wanted to understand, is, I mean, that the -- should we be annualizing Q4 to sort of get the existing run rate of the business going ahead? Or should we be looking at FY '19 as we're actually continuing operations as the, actually, base of the revenue and the earnings? How should we be thinking about that?

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [39]

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So let me just take that. Number one, as you realize, it's been a quarter since we have brought the companies together. From a strategic standpoint, and Rajeev mentioned cross-sell, we see priority number 1, 2, 3 out of our top 5 priorities is to cross-sell. Our top 150 out of our 200 customers have revenues coming primarily from one single service line. So once you open one service line, it penetrates and then radiates. We see a complete focus on that.

We still have to get a better handle on what that translates into, into how we can -- what will be -- of course, we're not going to give guidance for the future. But we believe that in the next near future, in the near future, that's 3 to 4 quarters, if we can just focus on selling the capabilities that we already have into the customers that we already have, we will achieve a future, which is better than anybody else in terms of 2 organizations which just come together in a way like this. So that is the -- so we don't give any guidance because we are also not in the -- because that's not what we do here. We don't give guidance. But that's not (inaudible).

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Riddhesh Gandhi, [40]

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I'm saying if we leave across speaking of guidance going ahead, okay? We have been -- I understand that the integration has just happened, but obviously, this has been ongoing for years. So we have got some sense of what's going on, right? So -- and we know we've approached about INR 250 crores of profit after tax from the continuing operations in FY '19, right? Is that higher than what the existing run rate we should expect to be? Or is that roughly at or the existing run rate is? After which, we could build on so this cross-selling [cuts extra barriers to] opportunities. Or as you had -- or should we be looking at Q4 as the basic given there is run-off of a large client? I just wanted to get some sense on what level should we be looking at broadly as what are we buying today. Let's -- leave us a forward guidance.

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Rajeev Gupta, Birlasoft Limited - CFO [41]

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Sure. Yes. So with that, let me just sort of give a sense, right? So I think there are 2, 3 things. One, Q4 certainly is a baseline because that's the business that we now run. That is the baseline. From a revenue standpoint, we all have indicated we feel this is the bottom. From a cost standpoint, we feel that this is helpful for us going forward. So to your point, I mean, we certainly see more value in the business. We talked about cross-selling given the larger base of clients that we have. Our aspiration is to get to more quarter-on-quarter growth from here on. So if you really put all these together, then certainly, we see more prospect in this business from here on.

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Operator [42]

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(Operator Instructions) The next question is from the line of V.P. Rajesh from Banyan Capital.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [43]

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Yes. Just to follow up on the earlier question just asked. If I look at your EBITDA on Page 9, your Q4 is about -- adjusted EBITDA is what I'm referring to, is INR 83.2 crores, and that is roughly call it INR 332 crores if you just annualize that number. Now if I look at your 31st December '18 number and add that to the March quarter adjusted EBITDA and double that just to get a sense of annualized, it comes to around INR 363 crores. And then if I go to Page 10, your adjusted EBITDA is around INR 408 crores. So I think what I'm trying to get a sense of, as you see the business, which is more close to the current baseline. Should we assume that INR 332 crores is the baseline? Or should we assume it is INR 365 crores or thereabouts? Or is it north of INR 400 crores?

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Rajeev Gupta, Birlasoft Limited - CFO [44]

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Yes. Thanks, Rajesh, for your question. If I may again reiterate the point that I made earlier to Riddhesh, I think you're very well calibrated because you compared the current quarter, you also tried to compare the next quarter and then tried to project it. As I said, we see current quarter and of course, this is a business that we now start to manage. So we look at $113 million revenue to be pretty much the bottomed out baseline. Our aspiration is to grow quarter-on-quarter. Our ability to cross-sell is high. I think we've got the capabilities in terms of the core offerings and of course, the larger customer base. We don't see our costs -- or rather, we see our cost looking more stable from here on. So if you are to put all of that together, we see more prospects in this business comparing to the baseline of quarter 4 this year.

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V.P. Rajesh, Banyan Capital Advisors Private Limited - Managing Partner & Portfolio Manager [45]

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Okay. And should we expect that there will be some wage inflation in Q1, which will further depress this quarterly EBITDA of INR 83 crores?

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [46]

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I'll just request Samit Deb, our head of people function to reply.

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Samit Deb, Birlasoft Limited - Chief People Officer [47]

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Yes. The wage inflation is typically between Q1 and Q2. So about, I would say, the wage inflation gets split to 50% in Q1 and 50% in Q2.

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Operator [48]

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(Operator Instructions) The next question is from the line of Ashish Kacholia from Lucky Investment.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [49]

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Gentlemen, what are the kind of wage hikes that we are looking for, Q1 and Q2?

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Samit Deb, Birlasoft Limited - Chief People Officer [50]

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Wage hike is -- we are -- yes, we've mapped it to our industry standard, so we are expecting 6% to 12% as a range for offshore and 2% to 3% on-site.

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Operator [51]

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The next question is from the line of Apurva Prasad from HDFC Securities.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [52]

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Can you break down the onetime expenses for this quarter? You've mentioned some factors, but if you can quantify that, please.

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Rajeev Gupta, Birlasoft Limited - CFO [53]

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So Apurva, as I mentioned, there have been certain onetime expenses in terms of retention bonus stock options. We also had to spend a quantum on CSR and of course, our merger cost. And if you really put all of these together, then I would say that we've spent close to -- I'm just working the math out for you over here, Apurva, close to $3 million in terms of cost around merger integration during this quarter.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [54]

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And all of this $3 million is nonrecurring?

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Rajeev Gupta, Birlasoft Limited - CFO [55]

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Part of this is nonrecurring.

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Apurva Prasad, HDFC Securities Limited, Research Division - Research Analyst [56]

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And how much would that be?

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Rajeev Gupta, Birlasoft Limited - CFO [57]

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Almost, I would say, 30% to 40% would be nonrecurring.

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Operator [58]

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(Operator Instructions) The next question is from the line of Madhu Babu from Centrum Broking.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [59]

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Sir, just on your report, I saw 9,000 employees. How many are on-site, technical employees?

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [60]

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40% of our employees are -- at on-site.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [61]

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Okay. So that is usually higher-than-industry average and because of we are into this quality business and ERP kind of work. So offshore leverage, would that -- would it at all be a lever for you? For my other -- second is how much is subcontracted? Because I don't know if KPIT had a higher subcontract in that part of business. So what is the subcontracting as of now as a percentage of revenues?

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [62]

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It's about 7% of our people.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [63]

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Okay. As subcontractors?

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [64]

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Yes.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [65]

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Okay. So in terms of the mix shift towards offshore, I mean, how -- again, what is the timing of that? And how do you see this cross-selling to be really in -- on traditional services going ahead in the next 1, 2 years certainly to the next (inaudible)?

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [66]

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Yes. On the cross-selling side, if you look at -- most of -- as I have mentioned before that (inaudible) into the ERP are selling it to almost 50%, 60% of our customer and that we are really seeing cross-selling opportunity by looking at cross-selling digital services, data analytics where we see a lot of traction and of course, the application support and maintenance and ADM.

Now one of the key initiative that we have taken is that how do we really put the account management in place because it is the first time the combined organization will be putting the verticals into place and the account management becomes very, very critical for us, which is the first initiative that we have taken. And the objective of that is that how do we go in front of the clients, be technology-agnostic and be able to sell all the offerings that we have across multiple horizontals.

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Operator [67]

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(Operator Instructions) The next question is from the line of Ashish Kacholia from Lucky Investment.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [68]

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Sir, you have given the deal wins for the quarter in your presentation. Could you quantify the value of these deal wins? I mean, are these such actually large orders or these are like $0.25 million, $0.5 million kind of orders?

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [69]

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I would give that total for all the deals. It is upward of $50 million in total for the deals that are mentioned there.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [70]

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$50 million deals, one in one quarter, is it?

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [71]

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That's right. Yes.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [72]

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Okay. And this is mostly deals that have been sold to our existing client base only?

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [73]

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No, no. It is all the -- most of the deals are into the net new. But there are deals, which are the new business to the existing clients.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [74]

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No. So my question is this $50 million deal, this is -- or do you have some new logos in this? Or do you have -- when you say that you have a huge cross-sell opportunity, so we are able to find most of our existing logos for this $50 million kind of agreements?

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [75]

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No. This includes both. There are new logos as well as new business to the existing clients, which is [EN] business. This does not include...

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [76]

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So my question would be whether the $50 million is more heavily weighted toward existing logos? I mean, any percentage that you can give between 80%-20%, in the 70%-30%, whatever, between existing logos and new logos?

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [77]

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I would say, roughly about 50%-50%.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [78]

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50% between existing logos and new logos. So the deal wins for this quarter have been pretty substantial. It's a good run rate, too.

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Dharmender Kapoor, Birlasoft Limited - MD, CEO, COO & Director [79]

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Absolutely. Absolutely. No, I think one of the key advantage that has -- we have seen with the combined entity is the type of offerings that we have in our portfolio now. And the offerings that can combine with each other very well to make a much better value proposition. So for example, if I go in the sell-only ERP, then I may end up losing some of the other services with respect to the data or CRM space. But now, by bringing the 2 organizations together, our ability to cross-sell and our ability to combine these services together to give a higher value proposition to clients has improved. So we definitely are seeing good benefits of the capabilities coming together.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [80]

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Okay. And my second question is on your Slide #10, basically, you have said that there's a consolidated income statement for the quarter. So this is about INR 788 crores sales and INR 66 crores profit for this period. So this INR 66 crore is PAT, and this, you are doing this model and integration-related cost, which you cited about 30% on integrated. So basically, we can see that even in the next slide, in Slide 11, INR 248 crores is the yearly profit even if we take INR 66 crores as your run rate profit. So INR 250 crores profit has not gone anywhere. Basically, that is -- what is -- the investors are buying INR 250 crores of profit on an ongoing run rate basis quarterly and INR 250 crores on an annual basis. This is what we can treat as a baseline for which we are paying the current market cap, is that correct?

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Rajeev Gupta, Birlasoft Limited - CFO [81]

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Yes. I think so what -- of course, you've said it then asked it. I mean, this is the baseline. And as I have said earlier, we see this quarter to be a quarter where the revenue clearly has bottomed out. You will see improvements from here on. But from the baseline that you calculated, that is the minimum of what we see going forward.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [82]

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Okay. Is there any one-off in this INR 250 crores later on? Is there any chance that the company will say that there was a one-off income and there's INR 250 crores bottom line, which will not be recurring in FY '20? So I'm just trying to just cover my -- protect my floor here. That is the drift of my question. That, in this INR 248 crores profit after tax, what you have reported on a pro forma basis, is there any one-off gain in this -- they can be the one-off expenses that is different, but I am just trying to find out if there is any one-off gain in this INR 248 crores bottom line of FY '19?

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Rajeev Gupta, Birlasoft Limited - CFO [83]

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There are several variables, and of course, we're in the business to only improve from here on. I think there are clearly aspects that we see that should improve. There will always be, again, that you will try and see an upside and that you will compensate for a downside. So that's why we're in the business. But I don't think at this stage, we would worry too much in terms any downside.

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Ashish Kacholia, Lucky Investment Managers Private Limited - Director of Research [84]

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Okay. And are we anticipating any headcount movements along with the departure of Anjan?

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Anjan Lahiri, Birlasoft Limited - Former MD, CEO & Additional Director [85]

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I think, number one, I think the organization is in a very stable state. We have been working extremely well together. DK has been leading the organization. The structure is well enabled, and we don't expect any of that. Just to make it very clear, I am not going anywhere to do anything, and I'm not taking anybody with me. I am leaving for personal reasons. I'm going to take some time off. So no, we are quite confident.

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Operator [86]

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(Operator Instructions) Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to Mr. Vikas Jadhav for closing comments.

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Vikas Jadhav, Birlasoft Limited - Head of IR [87]

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Thank you so much for being here on short notice. If you have further questions, you can always reach out to me, and we'll be happy to respond. Thank you so much. Thanks for attending.

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Operator [88]

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Thank you very much. Ladies and gentlemen, on behalf of Birlasoft, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.