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Edited Transcript of MPHASIS.NSE earnings conference call or presentation 26-Jul-19 3:00am GMT

Q1 2020 Mphasis Ltd Earnings Call

Bangalore Aug 1, 2019 (Thomson StreetEvents) -- Edited Transcript of Mphasis Ltd earnings conference call or presentation Friday, July 26, 2019 at 3:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Nitin Omprakash Rakesh

Mphasis Limited - CEO & Executive Director

* V. Suryanarayanan

Mphasis Limited - Executive VP & CFO

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Conference Call Participants

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* Abhishek Shindadkar

Equirus Securities Private Limited, Research Division - IT Analyst

* Aniket Pande

Prabhudas Lilladher Pvt Ltd., Research Division - Analyst

* Ashwin Mehta

IDFC Securities Limited, Research Division - Director

* Hiten Jain

Invesco Asset Management (India) Private Limited - Research Analyst

* Madhu Babu

Centrum Broking Limited, Research Division - Research Analyst

* Manik Taneja

Emkay Global Financial Services Ltd., Research Division - Research Analyst

* Neerav Dalal

Maybank Kim Eng Holdings Limited, Research Division - Analyst

* Nitin Padmanabhan

Investec Bank plc, Research Division - Analyst

* Rahul Jain

Dolat Capital Market Pvt. Ltd., Research Division - VP of Research

* Ravi Menon

Elara Securities (India) Private Limited, Research Division - VP of IT Services & Internet and Analyst

* Shyamal Dhruve

PhillipCapital (India) Pvt. Ltd., Research Division - Analyst

* Sumeet Jain

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Varun Divadkar

Citigate Dewe Rogerson Ltd. - Manager of IR

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Q1 FY '20 Earnings Conference Call of Mphasis Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Varun Divadkar from CDR India. Thank you and over to you.

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Varun Divadkar, Citigate Dewe Rogerson Ltd. - Manager of IR [2]

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Thanks, Margaret. Good morning, everyone, and thank you for joining us on Mphasis' Q1 FY '20 Results Conference Call. We have with us today Mr. Nitin Rakesh, the CEO; and Mr. V. Suryanarayanan, the CFO.

Before we begin, I would like to state that some of the statements in today's discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available on the Q1 FY '20 results announcement release that has been sent to you earlier.

I now invite Nitin to begin the proceedings of the call.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [3]

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Thank you, Varun. Good morning, everybody. Thanks for joining our call today. Trust you had the opportunity to go through our Q1 '20 results and other operational performance information in the MD&A.

Earlier in the previous quarter, while discussing the FY '19 results, we had outlined the changes in the marketplace that are impacting the business models of various companies including our clients and how we are aligning ourselves to this changing market dynamics to help our clients manage this transition. We outlined our growth themes that are anchored around the twin concepts of Consistency and Transformation led by both Direct Core and DXC businesses.

We are happy to start this financial year FY '20 on the strong -- on the same strong footing. Our service offerings reverted around NextGen Services, focusing on cloud and cognitive by integrating our deep domain expertise with cutting-edge technology have been a strong enabler of our growth. We talked about the depth of capability and the intense focus we have been putting on strengthening the New-Gen Services centered around a modern GTM aligned towards agility, scalability and differentiation through the creation of capability tribes. Areas such as DevOps, NextGen app dev, legacy modernization, enterprise automation, NextGen data, cybersecurity and SecOps as well as a renovation of traditional AMS and IMS offerings during services transformation have actually started to show results. The impact of these capabilities is starting to get visible in bolstering our differentiation with services like DevOps and NextGen app dev both becoming the linchpin of new deal wins.

Combined with the intense focus on application of cloud platforms, Containerization and the need for an agile, digital, modernization approach, this approach is giving us the ability to win longer-term strategic deals with our clients. Growth has been very also encouraging across the spectrum of our client segments within Direct Core as well as in the DXC/HP channel.

To share a few sample examples of deals. We've been able to take on long-term application management businesses, apply the service transformation levers to generate significant run savings and bundle legacy modernization to redefine the application (inaudible) for large enterprises. Akin to what we call a zero-cost transformation approach, this has become a market-leading engagement model with significant replicability and scalability across clients as well as providing a good combination of [new dev] work along with enabling a longer-term revenue growth profile.

In another very successful pivot, our focus on design and engineering-led approach, where our lead architects work closely with clients for the right problem definition as well as the intervention required to address the same, create a significant shift left -- driven differentiation, positioning us very well in applying our T-shaped transformation approach. This has been extremely helpful in opening new clients as well as in expanding our wallet share within existing clients. Our win rates in planned acquisition especially in New-Gen Services has never been higher both from a quality of logos, or the profitability profile of the businesses being acquired. Combined with Talent Next and our delivery transformation program, we are also driving a transformation for our employees across the spectrum of sales, engagement, solutioning as well as keeping our delivery teams abreast with the new processes and embedding native approaches to embrace cloud and cognitive across the spectrum of all operations.

We have further enhanced our offerings on the cloud platforms and recently announced achieving the AWS Security Competency status. It differentiates Mphasis Stelligent as an AWS Partner Network member that provides specialized consulting services designed to help enterprises adopt, develop and deploy complex security projects on AWS. To receive this recognition, APN partners must possess deep AWS expertise and deliver solutions seamlessly on AWS. And we are one of the few handful companies worldwide to achieve this status. We have also gone live in the AWS Machine Learning Marketplace with some of our NEXT Labs offerings including deep learning algorithms. We'll share more details on these case studies and these developments in our upcoming Investor Day in August.

In Q1 '20, we won deals with TCV of $151 million in Direct International that sets the growth momentum for FY '20. 80% of these deal wins were in New-Gen focus areas. This strong deal wins momentum that we are witnessing consistently is reflected in our revenue growth. Consolidated gross revenues grew 2% Q-on-Q and 11.5% Y-o-Y in constant currency in Q1 with 0.7% Q-on-Q and 13.1% Y-o-Y on a reported basis. Revenue growth was impacted by a non-strategic ATM business. Excluding this segment, the core business grew 2.3% Q-o-Q in constant currency terms for Q1.

Direct Core, which constitutes 84% of Direct International business, grew 2.7% Q-o-Q and 17.2% Y-o-Y in constant currency terms on the back of a record growth year in FY '19. Growth is broad-based in Strategic Accounts, Blackstone portfolio and New Client segments. The investments in sales and marketing have been handsomely paying off. And I would like to highlight the significant growth achieved in the Blackstone portfolio which grew 55% year-over-year and in the New Client segment which grew 104% year-over-year in constant currency terms.

New-Gen Services now contribute almost 51% of Direct Core revenues in Q1 '20, representing a year-over-year growth of 35% on a reported basis. We continue to witness strong growth in Direct Core with great momentum in client wins as reflected in our elevated new logo closures as well as in New Client revenues, as I just talked about.

Pipelines continue to be robust with the approaches highlighted above being great positioning for our services. We will discuss the same in more detail in our upcoming analyst meet as well, as well as talk about the plans to move forward on an accelerated growth path. With plans to strengthen the GTM engine across multiple vectors.

Moving on to the DXC/HP channel. As mentioned in our previous quarter webcast, we continue to work diligently to apply consistent transformation through our partnership across all the vectors. Our strategic client engagement partnerships focusing on service transformation capability and the solution-led approach to GTM coupled with geographical diversification and industry vertical market focus is helping us maintain our growth consistency here as well. Q1 '20 revenue grew 2.5% Q-o-Q and 16.5% Y-o-Y in constant currencies. Our pipeline here continues to be robust as we increase our joint go-to-market efforts in partnership with DXC which should help us grow in line or slightly above market this financial year.

Digital Risk has seen stability with stable interest environment in the U.S. DR revenues grew about 1% Q-o-Q in constant currency terms as we ramped up capacity through the quarter to be able to service the demand generated from the turnaround in the mortgage volumes. We are confident of growing this business consistently in the coming quarters as we further convert the deals to revenue to move it closer to the stated revenue band that we operated in previously.

On the profitability front, we continue to operate in our stated EBIT band of 15% to 17%. The EBIT margins for Q1 '20 was impacted by visa costs, midterm salary increases and a onetime [plant specific] provision for receivables as well as ramp-up costs for a few large projects in transition.

As you can see from our utilization metrics, we took a few conscious operational decisions this past quarter, and we are now starting to shape the pyramid with more focus while ramping up to meet client demand in line with the deal closures as well as to max the landscape of these deals. As such, we saw a drop in utilization across the board especially including trainees in both apps and the PPS business.

This also enabled us to capture the revenue on sole deals as well as to service the pipeline that's the [pattern] of converting. We used the operating leverage to fund these investments. And with the primary focus on revenue growth combined with cost optimization, we were able to continue to operate in the stated margin band. We'll give you a little bit more color on the picture going forward in a short while.

Consolidated net revenue grew 1.9% sequentially and 13.3% Y-o-Y in Q1 FY '20 to INR 20,626 million in reported terms. Direct Core revenue grew 1.3% Q-o-Q and 19.2% Y-o-Y on a reported basis and 2.7% Q-o-Q and 17.2% Y-o-Y in constant currency, as I mentioned before. DXC/HP business grew 0.9% sequentially and 17.5% Y-o-Y on a reported basis and 2.5% Q-o-Q and 16.5% Y-o-Y in constant currency.

Operating margins declined 30 bps sequentially to 15.5%. We have certain puts and takes. The hedge gains added 50 basis points, and we had a marginal gain at an EBIT level from the Ind AS 116 change, but we invested almost 60 bps back in through additional bench and pyramid actions for future billability and also had an additional 40 bps impact from onetime [flagged] receivables and visa cost with the rest being balanced through operating levers. As stated earlier, with strong revenue growth and optimizations, we expect our operating margins for FY '20 to be in the band of 15.5% to 17% with an improving trajectory through the remainder of the year.

Our operating cash generation remained strong, and total cash including investments on the balance sheet as of 30th June stood at INR 21,580 million, which translates to about $313 million. Adjusted for the net loan repayment, cash and cash equivalents increased by INR 2,263 million (sic) [INR 2,623 million] or almost $37.7 million during the quarter.

We are pleased with the health of our pipeline. The capabilities that we are building across our service offerings with continued strong execution and differentiation in New-Gen Services, we are confident that these will be reflecting in our performance in the coming quarters which will help us to deliver our stated full year growth objective of above-market growth.

On that note, I thank you once again. I request the operator to open the line for questions.

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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 Nitin Padmanabhan from Investec.

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Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [2]

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Nitin, from a supply-side standpoint then, what you're seeing in the market? It would be great if you could give us some color there. I saw did have some midterm compensation hikes. Anything -- if you could throw some color in terms of how you'd see that going forward. Do you think there's room to do more of that? Or what is it exactly that you're seeing in the market?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [3]

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Sure. I think market is fairly polarized. There are 3 different vectors that are playing into the talent equation: firstly, the type of talent; secondly, the location, not just on-site or offshore. I think there are micro markets within offshore that are fairly different from each other across cities and even within cities. And thirdly, I think the ability to ramp up and create based on visibility and integration of that with your service offerings. So I think we've actually continued to work on all of these 3 fronts. Clearly, there is tightness in the labor market especially for new-gen skills especially on-site, and that obviously leads to an impact on both costs as well as the speed of ramp-up which potentially can start impacting growth. So we are pleased that we actually haven't yet seen that happen in any meaningful way either on our growth trajectory. And of course, we've used all operational levers to counter any impact of that on our margin trajectory as well. So that's the balancing act that is continuously work in progress.

On the hike -- wage hike, I think we took a decision when we launched Talent Next almost 6 quarters ago that we will link our employee progression across all fronts, whether it is monetary or career track, to their ability and their progression through acquiring new-gen skills. And that's why you'd be constantly seeing some of these trickle into quarters beyond just the Q2 -- end of Q2 or October cycle, which used to be our traditional cycle. So I think some of this impact will get diffused through the quarters. And we may still look at certain actions at the end of Q2 that will just be more like a top-up or a balancing act.

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Nitin Padmanabhan, Investec Bank plc, Research Division - Analyst [4]

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Sure. But how large are these interventions? Is it meaningful to impact the overall -- that we should assume that it's a meaningful number from an overall margin standpoint from a quarter perspective?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [5]

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I call out the -- so if you look at Q1, for example, I call out the impact of visa and these interventions in the range of 40 to 50 bps, as of course these are the onetime. But I think that we're talking about potentially a talent pool that shouldn't have to wait for the next cycle if they have displayed the ability to raise -- up-skill themselves, and that obviously means that we have the ability to then deploy them and generate revenue. And the fact that we obviously have some pricing leverage in new-gen skills affords us the ability to then apply that straight through to the employee as well. So I think these are meaningful interventions, but they're linked very closely to the way we are managing the business.

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Operator [6]

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(Operator Instructions) The next question is from the line of Aniket Pande from Prabhudas Lilladher. He seems to have lost his line, so we'll move to the next question which is from the line of Manik Taneja from Emkay Global.

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Manik Taneja, Emkay Global Financial Services Ltd., Research Division - Research Analyst [7]

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Nitin, basically, you've been making some investments in the European geography in the recent times. Could you help us understand what you're seeing on the ground there? And secondly, is pricing in Europe better than [uneasy] markets of U.S.?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [8]

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I think we saw Europe accelerate for us for about 2 years, maybe 6 to 7 quarters, and went from being 9% of our revenue in a growing revenue line to about 11% of our revenue. And now it's kind of stabilized at about 11%, I would say, for the last couple of quarters. And the reason is the rest of the company continues to grow very robustly as well. But we are still seeing definitely growth in Europe on a consistent basis.

The market's definitely a little bit more challenging today especially in the U.K. with all the macro uncertainty around Brexit. And of course, there are certain segments of the market in Europe especially in banking, investment banking, markets and trading, especially the banks that have a global footprint that are challenged. And there, I don't think it's going to go away anytime soon because they're pivoting from the global banking model to going back to their roots in their home markets. Luckily for us, the impact of that has been less muted, and hence, we feel that with continued investments and additional leadership changes as well as enhancements that we've made in that market over the last 6 months, we still think there is room for us to grow Europe faster than the rest of the company.

From a pricing standpoint, I think there isn't that much of a difference because the markets and the buyers are fairly mature from a price competitiveness perspective. But of course, I think from an adoption standpoint, U.S. still continues to lead adoption of new tech versus other parts of Europe. There are other micro markets. There are parts of banking, for example, in France that are fairly sophisticated, and there's a very active start-up ecosystem in France that is leading innovation. But from an adoption standpoint, that skill adoption, I think still the U.S. are [stealing.]

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Manik Taneja, Emkay Global Financial Services Ltd., Research Division - Research Analyst [9]

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Sure. If I can ask one more question, you've been doing very well with your top customer. If you could give us some sense of how do you see things playing out (inaudible).

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [10]

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Sure. I think -- sorry, I think somebody's phone rang. Sorry about that. The -- firstly, I think it's an important sign that our largest clients continue to buy from us. And I think we've been very clear that while we are very excited about the opportunity to sell new clients or new deals, must not happen is -- that should not happen at the cost of [voluptuous] gains in large strategic accounts. So I think that what we're seeing, and that's what we think is driving some of the growth that you're seeing in the large account as well as a category [indiscernible] what we call a strategic account growth.

But again, supplementing that with 2 new engines of growth, and I'm still talking about primarily in the Direct channel, I think we're very pleased with the progress we are now starting to see in the New Client Acquisition business. What that really means is we've created a fairly hypergrowth segment of clients that, for 3 quarters in a row, have now grown indiscernible faster and are starting to be meaningful when it comes to contribution to growth. For a segment of clients to grow over 100% on a Y-o-Y basis, it's fairly -- and consistently, we've seen this grow between 60%, 70% to 100%, this basically gives us a lot of confidence that our ability to generate interest, to show differentiation and bring in these large -- and I'm talking about some fairly large Tier 1 names across the segments we operate in, whether it's banking, financial services, insurance, even health care, we've started to see that impact. So I think that's clearly a very, very good sign for us for the long-term growth of the business.

And then we supplement that with the Blackstone channel that gives you an additional tailwinded growth environment from the point of view, constructing our growth profile.

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Operator [11]

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The next question is from the line of Abhishek S. from Equirus Securities.

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Abhishek Shindadkar, Equirus Securities Private Limited, Research Division - IT Analyst [12]

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Nitin, it would be helpful if you can reconcile the growth rates on a year-on-year basis across key verticals and if you can put them in the buckets of top customers. And the reason I'm asking is the year-on-year growth rate in BFSI is now down to almost high single digit. Our top customer continues to grow sharply. And likewise, the top 6 to 10 and others are decelerating from a top customer perspective. And still insurance and emerging industries is growing way higher on a Y-o-Y basis. So if you can reconcile these growth rates, that would be helpful.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [13]

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Sure. So I think firstly, it's your presumption on the top customer being in a certain industry vertical. I'm not going to confirm or deny what that industry vertical for that customer is because we don't have a policy of naming clients. I will reconcile the industry growth rates for you. What is happening in banking -- in BCM is that the Y-o-Y decline in Digital Risk is skewing the growth rate for the overall business. And if you add the -- if you actually look at the Direct Core business, which is obviously 80-plus percent of our Direct business, the Y-o-Y growth in banking has been over 11.5%. And a sequential growth has been over 3.3%. So that should tell you that for us, both on a Y-o-Y and a sequential basis, we continue to see good growth in the core IT services businesses in banking and capital markets.

To give you a little bit more color, there are segments of banking and capital markets, as we call it BFS in the industry, that are growing faster, and there are segments that are shrinking faster. Any consumer-facing segment, whether it's consumer bank, wealth management, consumer lending, payments, is actually seeing a fairly robust environment for investment led primarily by the fact that these are -- these require digital interventions that are fairly strong. However, there are parts of -- even these segments especially in the core services especially legacy. [indiscernible] legacy applications, that are actually not seeing growth, in fact, are being shrunk by clients actively. So that's the dynamic that's going on in BFS.

There are certain segments in BFS like global trading end markets, asset management, where there is pressure on their core business either because of interest rate or because of pressure on their fees or because of general headwinds in the trading business worldwide. And again for us, that is not a meaningful part of our client's segment, and hence, that gives us the ability to weather that slowdown, which a number of our peers have actually called out as well. So that's kind of what's -- that's a little bit of color on the banking and financial services of banking and capital markets side. Obviously, financial services is a little bit less immune to cyclical and interest rate headwinds than core banking is.

On insurance, Y-o-Y -- I think again, we had a specific issue with a client a couple of years ago that got washed through the system in FY '18. And beginning '19, you saw good sequential growth, and that's showing up in the annual growth rate of insurance as well.

Emerging has been a good business because that's a collection of -- and it's almost 25% of our Direct business. It's a collection of multiple micro verticals. We've called out areas like -- there is health care in there. There is high tech in there. Logistics and travel sits in there. We haven't broken it out because these are still fairly small, but almost all of them are in a hypergrowth mode right now given the -- one, the base effect; and two, the fact that we are now starting to create accounts that are at scale in these micro verticals. So that's why you will continue to see emerging industries grow faster at least as things stand today. So hopefully, that gives you a little bit of color on what's going on across the verticals in the business.

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Operator [14]

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The next question is from the line of Aniket Pande from Prabhudas Lilladher.

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Aniket Pande, Prabhudas Lilladher Pvt Ltd., Research Division - Analyst [15]

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Sorry, my line got disconnected earlier.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [16]

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No problem.

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Aniket Pande, Prabhudas Lilladher Pvt Ltd., Research Division - Analyst [17]

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I had a couple of questions actually. So first is on your insurance segment. So can you please explain us, I mean, what has caused drag in that and also on your outlook on your banking segment?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [18]

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I think I just talked about banking. For us, 2/3 of the business comes from banking and financial services. So we actually continue to see that very favorably because a lot of our clients, both large and emerging, especially the new logos, are actually giving us the belief that we have good, strong differentiation in the service offerings, hence, we -- our ability to drive wallet share will actually be fairly good.

On insurance, I think there is a sequential onetime impact from our product business in Wyde that is causing the distortion on a Q-o-Q basis. There was a project that ramped, that was delivered, and we haven't obviously backfilled it. But other than that, the core insurance business continues to be fairly strong as you can see from a Y-o-Y basis as well.

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Aniket Pande, Prabhudas Lilladher Pvt Ltd., Research Division - Analyst [19]

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Okay. And sir, secondly, on the Direct Core, I mean any specific trends with respect to banking sector and any change in client behavior you are seeing on spending environment over there?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [20]

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No. I think again I just talked about it in the previous question as well. I think there are parts of banking that are in investment mode because of the pressure from consumers. Consumer banking, payments, lending, wealth management, all driving growth for us as well as for spend growth in banking. But then there are the other segments that are not driving growth: I think asset management because of pressure on fees; and investment banking and trading because of the global macro headwinds is a drag. But again, keep in mind, across the board, the real investments are really coming through from either transformation or the ability to bring agility and customer experience and essentially taking money out of the way things were done 2, 3, 4 years ago, which was the legacy way of doing applications [and] infra management.

There is one other dynamic in banking that some of our peers have talked about which is this threat of in-sourcing, so let me address that also briefly. I think we are operating in a model where almost all large banks have a fairly hybrid approach to sourcing. And what we are now starting to see is what we call a best-in-breed approach. If there is a service line or a set of capabilities that are very strategic to the bank, they would like to find ways to invest in that themselves. If there are service lines that are very commoditized, they would like to sometimes not pay the premium or a service provider to run those commoditized services.

But as long as we have the ability to help them make the right decisions in deploying what we call in -- what I called out in my script the architecture and design-led thinking, then I don't think there is any girth of shifting left and helping them really define the right set of problems and finding solutions. And hence, our win rates continue to be very, very healthy when it comes to wallet share gains in existing accounts. As well as the rate at which we're winning new logos has also accelerated because of this same capability. And so, so far, while there are always going to be multiple sourcing channels, this dynamic of finding the right solution set, helping them to find the right problem through design workshops and then applying those interventions in an agile manner really helping us.

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Aniket Pande, Prabhudas Lilladher Pvt Ltd., Research Division - Analyst [21]

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Yes. And sir, one last question actually. So we are seeing since last 8, 10 quarters, your top 5, top 10 client concentration has been consistently going up. So basically, I mean my question is really on how can we execute that way -- so will it be margin accretive going forward?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [22]

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Well, in the same last 8 quarters, our margin has actually also gone up consistently. If you look at FY '18, FY '19, both those years, we delivered an increasing EBIT margin. I don't think the margin is an issue when it comes to large client growth. But I think the -- it was a very conscious strategy to find near to mid -- immediate growth in FY '18 and '19 through existing relationships while seeding ourselves for growth through Blackstone and New Clients. And hence, I spent time in giving you statistics around the growth in NCA, which is actually over 100% right now, which gives us the ability to then start creating new engines of growth. And hopefully, as some of these clients mature and scale with us, we'll start seeing them break into the top 5, top 10.

Now keep in mind the top 5, top 10 that you see are not the same names that we publish. We publish them by size every quarter. So some of that may not be in totally like-to-like comparisons. But as long as we continue to point broad-based growth across client segments, across geographies and across units within Mphasis, I think we'll be in good shape.

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Operator [23]

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The next question's from the line of Ashwin Mehta from IDFC.

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Ashwin Mehta, IDFC Securities Limited, Research Division - Director [24]

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Nitin, just wanted to get a sense in terms of the traction that you're seeing in the Blackstone channel. This is 5% of your Direct Core business last year. Where do we see this business from a 3-year perspective? And how many clients are we currently targeting? How should the scale-up be? Should it be more back ended, more front ended?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [25]

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I think we gave out some statistics. We talked about the fact that in FY '19, 3% out of the 16.5% growth that Direct Core saw came from Blackstone channel. I think at a broad level, they're about 6-odd percent of our revenue within Direct Core. And I think it's entirely possible for us to take it to healthy double digits. And it's been fairly consistent. Of course, there are cycles. There is a pipeline. We continue to make -- monitor the pipeline and as we convert, we make sure that we're filling it with new logos or with additional work from the same clients as well. So I think we are still fairly underpenetrated in the channel. There are over 100 companies. And we have barely at about 9 or 10 of them, as we gave the statistics out last time. And of course, we've added some more in the last quarter as well. But I think it's a -- for us, it's a secular opportunity.

Also, keep in mind that this is not a static pool. There are companies that get added. As they buy new businesses, they've raised 2 new funds recently that will also give us some strong entry points as they deploy these funds over the next couple of years. So I think it's a fairly well-oiled machine right now. We've invested significantly in understanding that channel, understanding the way they operate, what drives the deal partners and the portfolio companies and what are the touch points we can create in understanding how we're going to run with them.

So for me, this is -- I think we're very encouraged. In the last 6, 7 quarters, we've created a growth engine that is growing at 50-plus percent. But I still think there is a long road ahead because it's still fairly small percentage of our revenue.

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Ashwin Mehta, IDFC Securities Limited, Research Division - Director [26]

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Okay. Okay. So my next one is in terms of the midterm wage hikes that you have given. Do you see a more moderate wage hike in 3Q now?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [27]

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I think that is probably the way it's going to turn out because the whole idea was to link the wage hike more to people up-skilling themselves because that gives us the operating leverage to then redeploy them. Now how much of that will be top up versus how much of that will have to be put it in lump sum is something we haven't decided yet because we are still evaluating -- the market is pretty dynamic. We have a pretty strong pipeline, and we've sold some nice deals. So I think it's really a question of how all of these things balance out. But the idea was to actually dampen that impact instead of having it all in one quarter, rather make sure that we link it and create an incentive for employees also to act.

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Ashwin Mehta, IDFC Securities Limited, Research Division - Director [28]

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Okay. And just the last one, in terms of hedging, what is the rate that you can protect in FY '20?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [29]

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Surya, you can take that?

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V. Suryanarayanan, Mphasis Limited - Executive VP & CFO [30]

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We want to see...

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Operator [31]

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Sorry to interrupt you, sir -- sorry to interrupt, may I request you to repeat your answer?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [32]

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You're on mute. Can you repeat that?

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V. Suryanarayanan, Mphasis Limited - Executive VP & CFO [33]

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Yes. Good morning. This is Surya here. I think as we had earlier indicated, we'll see positive impact of hedging in the current financial year. So we are looking at about 50 bps going through incrementally in the current year because of the hedging.

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Ashwin Mehta, IDFC Securities Limited, Research Division - Director [34]

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Okay. Okay. And if I can squeeze just one last one in terms of the 4% sequential addition on head count this quarter, what would be the skew towards freshers here?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [35]

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Yes. I think we're not breaking the data out completely. But consciously, we are driving -- that's why if you can actually reconcile that with the utilization including and excluding trainees, you will see that our intake of freshers is actually up meaningfully in the last 12 months, almost, I would say, close to 50% increase in the number of freshers we are on-boarding. So idea really is to make that a conscious part of our pyramid optimization model.

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Operator [36]

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The next question is from the line of Rahul Jain from Dolat Capital.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [37]

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Congratulation on a strong execution. Nitin, you shared about the enhancement of the GTM and geo reach within the DXC channel. If you could share the same -- as the benefit of the same are visible, so what could be those things? And how more good start -- of the good start would help you from a [indiscernible] prospect on the business growth this year?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [38]

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So are you focused -- is this focused more on the DXC business only, or are you talking of the overall company from a geographical perspective?

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [39]

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DXC specifically.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [40]

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Yes. So I think if you look at the webcast document that we put out last quarter, we talked about the fact that in FY '17, almost 90% of our business used to be Americas. And I think we've actually now brought it down to about 2/3 is Americas and the rest is split between U.K., Europe and ANZ. So I think that is the diversification that has given us additional drivers of growth. And then that's something that we continue to expand on. Of course, that it required us to invest in these markets with both sales and solutioning as well as delivery coverage, but that is the investment that is actually paying off really well to us. So if you look at Page 7 of the webcast document, it breaks out the impact from regions. 7 and 8 gives you the regions as well as the type of services we are selling over the last 8 quarters.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [41]

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And given the good start, do we see a better prospect than what we were expecting on HP? Or this is just in line with our expectation?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [42]

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Well, the question is your expectations or our expectations? Because we've actually never really lowered our expectations from this business, but I think it seems like the analyst community, based on certain news flow from the client side, lowered their expectations. So I'm actually very happy to see that we've continued to grow this consistently. And I think we've been very consistent in saying that we want to grow this at least at or above the market. So I'm glad your expectations are likely to change, and some of the cloud will go away. But that's always been our position.

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Rahul Jain, Dolat Capital Market Pvt. Ltd., Research Division - VP of Research [43]

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Yes. That's it from my side. And it's always good to beat the expectation, so it actually helps.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [44]

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I'm glad that way as well. Thank you.

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Operator [45]

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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 [46]

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Sir, the ITO billing rate on-site, there was a steep moderation. And head count in ITO has been strong. So any view on that?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [47]

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It's transition-related. We are transitioning some deals that will require us -- that right now are not showing up in our billability, so that will correct itself.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [48]

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Okay. And second, on the New-Gen Services, I think recently one of a mid-cap [year] is starting the build a subsegment of digital, which are like UX and how much is cloud and so that -- within our 80% is in New-Gen. So can we give a breakup of which are the subsegments where we are seeing good growth?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [49]

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Yes. We can definitely give some more color, and we probably will do that as we present on the Analyst Day. So please book your slot. I think the thing you have to keep in mind is that a lot of these services are so tightly interlinked that it will be difficult for us to say that this is only U.S. and that is only data and that is only applications. So I think we'll present you a certain flavor. It will probably be along the 8 tribes that I talked about, from DevOps to NextGen app dev to legacy modernization because those are the 8 capability areas we are actually investing and building through. But we'll give you a little bit of color on that when we meet next time.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [50]

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And sir, on the buyback, I mean the buyback tax has been introduced I think [post this budget.] So we had done a buyback earlier. So how we should see the capital allocation? I think we have a [fairly] net cash of around INR 1,700 crore. So would we continue to stick with the mix of buyback and dividend? Or how should we see it?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [51]

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So I'll just give you an outline, and then Surya will add some more color to it. I think we've been -- if you look at it, we've never really put a policy or a stated goal of dividend versus buyback. But what we've done is we've followed the practice of giving out 50% of our -- at least 50% of earnings as net dividend which means, obviously, we've been paying out almost 60% on a gross basis. And we've just announced that last quarter, the shareholders have voted on it yesterday. So hopefully, we'll get to know the voting on that resolution as well.

Buyback has always been on a need basis or a case-to-case basis which the Board has considered given the cash position and the use of cash. At this point in time, [and even still] December, where we have no outlook. And that's kind of the way we are looking at it. Of course, the tax change will become a consideration when the Board considers the use of cash and capital allocation as we meet again.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [52]

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Sir, the last one from my side, in terms of hiring of any senior associates, you have not mentioned much over the last few quarters in the press releases. So when we ramp up all these New-Gen Services, so what kind of hiring has been done at the mid and senior level? Can you share any number on that?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [53]

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Yes. We have been giving out press releases. We can present some more color. There are -- there should be in our press section on the website if you missed them. We've added people, both from a technology -- tech competency perspective especially in the LT2 level, which means one level below the leadership team, as well as other -- in the lower levels, we've got a fairly robust program on re-skilling going on. We've added people in delivery and solutioning and, more importantly, even in our leadership team. In fact, in the last quarter, we added 1 new [people in my team.] That was also announced. We added a payments [-- in fact he's heading] globally, who came from Amex. So I think there's been a -- on a need basis, we constantly keep adding people. It's not done in [bulk.] Obviously, it's done on a bootstrap basis where we have the room and the need.

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Operator [54]

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The next question's from the line of Sumeet Jain from Goldman Sachs.

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Sumeet Jain, Goldman Sachs Group Inc., Research Division - Equity Analyst [55]

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Congrats, Nitin, for good execution. So firstly, I mean I want to understand, like you have seen a very strong ramp-up in your client add -- particularly in the Direct channel in the last 3 to 4 quarters. But if I look at the deal win momentum in the Direct channel, that has been fairly stable at around $150 million, so can you just comment when do you see that picking up going forward maybe both from the Blackstone portfolio perspective and ex of Blackstone?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [56]

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Sure. So Sumeet, that's a great question because I think that goes to the buying pattern and the buying behavior in the enterprise market that is now starting to show up in multiple smaller but more frequent deals versus every 3-year or every 5-years large megadeals, right? So in fact, there was a session hosted recently by an analyst firm -- a industry analyst firm called the death of the $1 billion deals. And the whole session was focused primarily on the fact that the buying behavior has moved more towards best in breed versus one large megadeal bundled into everything. So that's why I think when we enter a new account, it's typically using some of the Trojan horse services like DevOps or app dev. And then app dev, kind of multiple flavors from digital to data to really building a completely new application that they maybe be trying to launch in a new market or a new geography or a new segment. So those become really our entry points. Good news is these are logos that were traditionally considered as very mature buyers and, hence, very competitive logos, very difficult to enter because they were locked up by incumbents.

What we've seen and realized over the last 3, 4 quarters is that, actually, there are no mature markets. If you have the right level of differentiation, you should be able to drive the ability to open any logo you align yourself to. And that, to me, is the long term -- sign for long-term growth sustainability. Of course, some of that will start reflecting in the TCV wins. Some of that already is reflecting in the TCV wins. And in the same number of 150, 160 that you're seeing today, that number used to be -- 2 years ago was 80 -- 60 to 80, then we brought it 100-plus. So of course, we'll continue to focus on how we can ramp -- keep ramping that up further especially as we start getting to some scale in some of these accounts. Not all of them will scale also because each account has its own dynamic as well. And we may have entered an account through an AWS partnership agreement. We may have entered an account for specific engagement. Then it's up to us to ramp up our engagement models. And that's why I actually reference in the call, in my comments earlier, that we're now planning the next phase of our GTM expansion.

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Sumeet Jain, Goldman Sachs Group Inc., Research Division - Equity Analyst [57]

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Got it. Got it. And also, I mean can you just give us a sense of how much is the proportion of new deal wins and the recurring revenue within your deal win proportion?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [58]

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[Yes, no doubt] -- or you mean nature of revenue [versus?] Because we don't include renewals in our TCV wins. So these are all net new wins. There's no renewal in these numbers.

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Sumeet Jain, Goldman Sachs Group Inc., Research Division - Equity Analyst [59]

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Got it. And also on the overall Direct channel, I mean given that Digital Risk on a Y-o-Y basis is significantly down. But in the Direct International, Direct Core, we are growing pretty fast. So given these 2 dynamics, do you see a double-digit growth, [if any really,] in the overall Direct channel in FY '20?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [60]

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I think if -- as long as the sequential growth continues to happen in DR, which has now happened for the first time in 2 or 3 quarters, I think we'll be able to manage the Y-o-Y headwind because Direct Core has grown at about 17% Y-o-Y 2 quarters in a row now, which is kind of the highest -- it's edging at the highest rate of growth ever. And that's good news because that's the most competitive part of our business. So I think the expectation and the plan is to manage the DR business to take care of the pipeline that we've converted. And as we've done significant ramp-up in our digital capability in the last quarter to meet that pipeline, so I think as long as we see sequential growth in DR, we'll be able to manage the Y-o-Y issue.

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Sumeet Jain, Goldman Sachs Group Inc., Research Division - Equity Analyst [61]

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Got it. Got it. That's helpful. And then -- and maybe around the attrition levels if you can comment because we typically don't give those numbers, so where we are on [that]?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [62]

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I think the -- again, as I mentioned, the labor market is tight, especially in certain segments and certain levels. So I think that the vector that I talked about in terms of location, skill set type and level of employee, all 3 actually mean that the attritional level continues to be very different across these 3 vectors. If you look at -- I think the attrition is probably the highest in the lower end of the pyramid and fairly low at the top end of the pyramid for us, which in a way gives us a little bit of breathing room because that means that we have continuity in people who understand our business and are delivering the transformation both to our business and to our clients' business.

But I think from a historical perspective, yes, it's definitely elevated at the lower levels. But the reason why we focused strongly on taking some of the pyramid actions and the utilization discussion we had is really targeted towards making sure that we continue to see how we can manage the dynamic of both growth and cost.

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Sumeet Jain, Goldman Sachs Group Inc., Research Division - Equity Analyst [63]

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Got it. And just the last one, if I can squeeze up. I mean what is the impact of Ind AS adoption on margins, if you can quantify?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [64]

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Surya, do you want to talk about the -- so I think at the EBIT level the impact is marginally positive. But at a PAT level, actually, impact is 0. And Surya, you can elaborate how the PAT impacted [indiscernible]

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V. Suryanarayanan, Mphasis Limited - Executive VP & CFO [65]

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Yes. So Sumeet, as you know, with this 116 adoption effective April, the rental, which is for us predominantly on the leasehold properties, the change in the accounting standard has virtually reduced the rent and substituted by depreciation and interest. So the overall impact to the financials is virtually 0 because it gets offset from the depreciation and the interest.

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Sumeet Jain, Goldman Sachs Group Inc., Research Division - Equity Analyst [66]

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Got it. But what is the positive impact on EBIT margin? Like PAT it is 0, but what on EBIT margin?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [67]

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Yes, I think Sumeet, the impact on EBIT is also marginal because that got neutralized by, effectively, reclassification. So we really don't think there's a massive impact on EBIT. Effectively, it's a wash through the line. EBITDA definitely has been impacted because there are certain other changes that have caused the EBITDA to go up. But EBIT, not so much.

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Operator [68]

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The next question's from the line of Neerav Dalal from Maybank.

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Neerav Dalal, Maybank Kim Eng Holdings Limited, Research Division - Analyst [69]

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Most of my questions have been answered. Just one on the ETR. You've seen an increase this quarter, what do you expect it for FY '20?

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V. Suryanarayanan, Mphasis Limited - Executive VP & CFO [70]

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So I think we have given a range between 25 to 27. So I think that could be the ETR forecast for FY '20.

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Operator [71]

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The next question is from the line of Ravi Menon from Elara Securities.

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Ravi Menon, Elara Securities (India) Private Limited, Research Division - VP of IT Services & Internet and Analyst [72]

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Nitin, you've mentioned that there are some segments of customers where you're seeing growth as high as 100% Y-o-Y, and these are fairly large logos. But if we look at the client tiers, your $20 million-plus client count was flat Y-o-Y. $10 million-plus client count is down by 1 to 17. The $5 million-plus client is also down from 37 to 33. Just your $1 million client that's up slightly from 93 to 96. So are these fast-growing clients still fairly small?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [73]

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I think the 2 dynamics there to think about, Ravi, one is that the client count, for historical reasons, includes clients that we have Direct and from DXC. So if there is a churn in the DXC channels, that ends up distorting these numbers. We've many times discussed that we should actually change the classification, but then there's a pushback because people are -- want to be able to compare apples-to-apples. So we might actually, at some point, create a back trail and change the way we classify these clients. And in fact, that's a question we've had a few times already. So we'll see if there is a way for us to provide you some more color, so you can see how we are generating -- are we generating really small deals or are we generating decent sized deals. But for the most part, because the buying behavior is that -- is driven more by best in breed, it's unlikely -- I'm not saying it doesn't happen, but it's unlikely that you'll go in with the $50 million, $70 million, $80 million TCV deal. It might start as a $5 million, $7 million deal or even sometimes $1 million or $2 million deal. But the fact that we got entry into a Fortune 50 or a Fortune 100 bank, within a couple of quarters in itself is a fairly strong validation of the differentiation in the services that we have seen.

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Ravi Menon, Elara Securities (India) Private Limited, Research Division - VP of IT Services & Internet and Analyst [74]

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Okay. That's helpful. And secondly, your segment profits for IT, Communication & Entertainment, that's down 14.4% Y-o-Y although revenue's up 8.7%. So what's been the additional drag on profitability over the last 12 months here given that Digital Risk has already been a drag from even before that?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [75]

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I don't think Digital Risk sits in the ITC -- you're talked about the segment reporting in the MD&A on ITC, right?

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Ravi Menon, Elara Securities (India) Private Limited, Research Division - VP of IT Services & Internet and Analyst [76]

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Yes. Sorry, I meant the -- so Digital Risk would have an impact [indiscernible]. So what is exactly the reason for the drag on ITC?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [77]

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I think we talked about the fact that if you looked at the -- that is linked to the [earlier] comment I made which was that we've actually seen a drop in realized rate, and that is because there is a bunch of work that we are converting. That hasn't actually generated revenue enough for us to be able to make up for the cost of those resources. So that's what's -- creating a drop in the in-quarter profitability for that particular segment. But the same thing have happened in emerging as well because of the impact from a couple of large deals that required us to ramp up in advance.

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Ravi Menon, Elara Securities (India) Private Limited, Research Division - VP of IT Services & Internet and Analyst [78]

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Great. And one last question, just a broad comment of DXC/HP, you were saying that though DXC is in the midst of restructuring and doing a lot of layoff, you're continuing to see growth. I mean so how should we think about that? And why is that happening?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [79]

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So Ravi, what I would recommend is you spend some time going through the deck we published last quarter because we actually gave out a full transformation road map in the relationship and what is driving growth for us.

[indiscernible] I'd just call out 2 things and happy to give you more color at the Analyst Day as well because that's going to be part of our discussion. Almost 100% of our business used to be outsourcing, which meant we were an extension of their delivery in FY '17 -- til FY '17. If you look at Q4 '17, 100% of our [deliverables] really effectively T&M- driven delivery extension of HP's business. Starting FY '18, we started to really focus on transforming that by -- and I think we called out that in May of 2017, when we announced the partnership for being the application and cloud migration partner. And that for the first time, we started to go in there and apply more than just T&M levers and started to bundle those in 2-, 3-, 4-, 5-year deals even from the point of view of applying service transformation, nothing that we haven't talked about before. So that's the one big transformation lever that we applied to a point that only 20% of our revenue is actually now outsourcing-driven. And 80% of the revenue has an element of either applications transformation or a go-to-market partnership or service transformation. That's the first big transformation we applied, which means that we've now started to go to market jointly and create opportunity for DXC that leads to further opportunities for us. And in a way, we have taken at least some of the risk off the table when it comes to what is the transformation journey of their business per se. In fact, we're helping them accelerate that. The second transformation was regional and geographic that I talked about earlier. Both of these are given out or broken out in great detail. So if you want, we can definitely send you more information, but that's kind of the reason why we gave out that clarity on the last webcast.

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Operator [80]

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The next question is from the line of Shyamal Dhruve from PhillipCapital.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [81]

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So my question is on the service verticals. So in the recent time, the growth is largely driven by the ADM segments while we have seen the decline on the IMS front. So is it a planned strategy of -- is increasing that focus on the higher capability vertical for us, which is ADM? Or like whether IMS decline is largely due to the migration to cloud, and we are -- which we are not a compensate through the other deals.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [82]

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I think it's a bit of both, so I think you answered the question yourself. Firstly, a lot of the new investments being made by enterprises is actually happening in what market called digital, which by definition most of it is application development that is done in an agile or new age manner. So we call it a combination of DevOp and NextGen app dev. So if you break out the growth that we've seen, the fastest growth we've seen is really in application development. And the reason is that. On the IMS side, while we've seen some deals and we've also actually found growth, clearly, the headwind in the longer-term IMS business continues to be the deployment of cloud platforms. And that's the reason why I think while we will lead with service transformation, to bundle that into IMS deals, I think the real opportunity for growth continues to be in solution-led applications business.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [83]

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Okay. And my second question is on the mid-term salary hike which you gave in this quarter. So like I just wanted to get an idea like whether this trend of mid-term salary hike would continue going ahead as well like in FY 2020 -- sorry, FY '21, '22 or it is just like this yearly phenomenon due to these supply-side issues.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [84]

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I think the -- don't think of this as a midterm hike. I think we talked about the fact that we linked some of the wage actions to Talent Next and the ability of employees to upskill and certify themselves because the idea, at the moment, they are actually available for -- they've been re-skilled and are available for deployment in new-age projects. That creates an ability -- our ability to actually then derive more operating leverage out of the same employee pool. So I think the idea wasn't just to give a midterm hike because of attrition issues. The idea was to link it, create some incentive, have a risk-reward aligned in favor of the employee and drive that transformation faster for us. I think that dynamic will actually only accelerate as we go through, and we're focused on how we can make sure that we, as far as possible, make this a dynamic realtime exercise versus a once in a year exercise.

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Operator [85]

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The next question is from the line of Hiten Jain from Invesco Asset Management.

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Hiten Jain, Invesco Asset Management (India) Private Limited - Research Analyst [86]

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Sir, I'm trying to understand this lease accounting. Because if I look at depreciation and amortization, it has gone up sequentially from INR 20 crores to INR 55 crores. But correspondingly, the rent should have gone down. So I'm assuming the rent would be captured in G&A, but even G&A sequentially is up. So where do you capture rent in -- do you capture rent in G&A or somewhere else?

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V. Suryanarayanan, Mphasis Limited - Executive VP & CFO [87]

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So rent comes in -- both in the costs as well as G&A, depending upon the -- [well,] it is depending upon the employees in proportion to cost allocated.

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Hiten Jain, Invesco Asset Management (India) Private Limited - Research Analyst [88]

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Okay. It is also part of cost of revenues?

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [89]

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Yes.

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Operator [90]

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Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Nitin Rakesh for closing comments.

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Nitin Omprakash Rakesh, Mphasis Limited - CEO & Executive Director [91]

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Thank you, operator. And thank you, everybody, for your interest and your questions. And we continue to look forward to talking to you. And hopefully, we will see you at our Annual Analyst Meeting on August 9 in Mumbai. I think the invites have gone out, and we'll make sure that all of you have the details of that further. So look forward to seeing you guys there. Thank you so much.

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Operator [92]

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