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Edited Transcript of NIITTECH.NSE earnings conference call or presentation 23-Oct-19 12:00pm GMT

Q2 2020 NIIT Technologies Ltd Earnings Call

Oct 25, 2019 (Thomson StreetEvents) -- Edited Transcript of NIIT Technologies Ltd earnings conference call or presentation Wednesday, October 23, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Abhinandan Singh

NIIT Technologies Limited - Head of IR and M&A

* Sudhir Singh

NIIT Technologies Limited - CEO

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Conference Call Participants

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* Ashish Aggarwal

Principal Mutual Funds - Senior Research Analyst

* Dipesh Mehta

SBICAP Securities Ltd., Research Division - Information Technology Analyst

* Madhu Babu

Centrum Broking Limited, Research Division - Research Analyst

* Manik Taneja

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

* Ruchi Burde

BOB Capital Markets Limited, Research Division - Research Analyst

* Sandeep Shah

CIMB Research - VP

* Shashi Bhusan

Axis Capital Limited, Research Division - Executive Director of IT and Telecom

* Shradha Agrawal

Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile

* Tanmay Mehta

SBICAP Securities Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the NIIT Technologies Q2 FY '20 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Abhinandan Singh, Head Investor Relations and M&A at NIIT Technologies. Thank you, and over to you, Mr. Singh.

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Abhinandan Singh, NIIT Technologies Limited - Head of IR and M&A [2]

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Good afternoon and a warm welcome to all of you to our Q2 FY '20 earnings conference call. You'd have received our results by now. Those are also available on our website, www.niit-tech.com. To present along with me on this call are our -- is our CEO, Mr. Sudhir Singh; and our CFO, Mr. Sanjay Mal.

We will start this forum with opening remarks from Mr. Sudhir Singh, and post that, we'll open the floor for your questions. With that, I would now like to hand over the floor to Mr. Sudhir Singh, our CEO. Over to you, Sudhir.

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Sudhir Singh, NIIT Technologies Limited - CEO [3]

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Thank you, Abhinandan, and a very, very good evening and good morning to you across the world, folks.

We are pleased to report that we registered a good performance in quarter 2 fiscal year '20. On this call today, as I walk you through the results, I would like to call out the framework under which I shall articulate them. You are aware that in April 2019, we divested the GIS business, and on June 14, 2019, we closed the WHISHWORKS acquisition. I shall be discussing numbers and analysis only in the context of the continuing business, that is: excluding ESRI, which was divested; and including WHISHWORKS, which has been acquired.

Let me start off with an overall revenue analysis for the firm. We would like to share that revenues grew quarter-on-quarter in constant currency terms on an organic basis by 4.1% and 8.2% on a reported basis for continuing operations, and they reached INR 10,385 million.

In constant currency terms: BFS expanded 8.3% quarter-on-quarter, contributing to 16.7% of revenue; Travel, Transport and Hospitality was up 5% quarter-on-quarter, contributing to 27.8% of revenue; and Insurance grew 14.8% quarter-on-quarter, contributing 31.1% to the overall revenues. The Others segment collectively grew 2.2% quarter-on-quarter, and it now represents 24.4% of the overall revenues.

In reported terms: BFS expanded 9.4% quarter-on-quarter, contributing to 16.7% of revenue; Travel, Transport and Hospitality was up 5.8% quarter-on-quarter, contributing to 27.8% of revenue; and Insurance grew 15.3% quarter-on-quarter, contributing to 31.1% of overall revenue. The Others segment collectively grew 0.8% quarter-on-quarter and now represents 24.4% of overall revenues.

Americas, EMEA, APAC and India contribute 49%, 37%, 10% and 4%, respectively, to the revenue mix. The top 5 clients now contribute 28.6% of the total revenue, and the top 10 and the top 20 contribute 39.2% and 52.2%, respectively, of the total revenue. The broad-based growth is reinforced by the number of million-dollar-plus clients, which climbed to 95 this quarter. On-site revenues were stable quarter-on-quarter at 66% of total revenue.

With that, the revenue analysis commentary is complete, and I'm going to roll over to the margin analysis section. On margins, we are pleased to report that we registered a good performance in quarter 2. EBITDA margin for the quarter under review increased to 18.3%. This reflects a positive impact of 118 bps on account of margin improvement across all business units.

Effective tax rate for the quarter stood at 18.1%, which is a reduction of 810 bps from Q1 on account of reversal of deferred tax liability on intangibles in acquired subsidiaries after moving to the new tax regime. You will also recall that in the previous quarter, there was capital gains tax incurred on the sale of the GIS business. Normalized tax rate for the quarter stood at 22.7% after adjusting for reversal of BPL on intangibles that I talked about. The net profit for the quarter stand at INR 1,195 million.

Rolling on to the order intake section. The order intake story remains positive. We secured fresh business of USD 176 million during the quarter. Out of this USD 176 million order intake, the U.S. contributed USD 65 million; EMEA, USD 41 million; and ROW, USD 70 million. 10 new customers were added during the quarter. As I have noted in the past 2 quarters, we have primed our hunting engine to focus on select but highly scalable pursuits. We have also repurposed some of our hunters to drive accelerated growth across existing accounts. Order book executable for the firm over the next 12 months has expanded, and it now stands at USD 405 million.

I'm going to switch over to talk about delivery operations and capability augmentation measures that have been underway. In line with our focus of engaging with emerging technologies, we delivered high-impact projects for our clients. Using our proprietary intelligent content extraction framework, we call it SLICE, we built and deployed a feedback-adjustable mechanism for a U.K.-based travel tour operator, and leveraging SLICE again, we also developed an application to extract contacts from a large number of customer websites for a wealth management firm in the States.

The last quarter saw successful cloud migration exercises across geographies and clients as well. We moved entire legacy data centers and user desktops for 3 firms in the U.K., and we also moved the operations and applications for an asset management firm in the U.S. to the cloud.

In other developments, we also set up a security incident monitoring center for a U.K.-based regulator. For a regional multiline P&C carrier in the U.S., we have been part of their transformation program, including a greenfield implementation in a record time of 5 months. We also enabled digital partner business for commercial lines carrier by which agents and partners can quote and bind an end-to-end solution using a cloud-based API implementation. We implemented a large and complex border immigration system for one of the largest airports in the Asia Pacific region as well in this quarter. Moreover, we also completed outcome-based consultancy with a transportation service provider in the U.S., reducing their IVR wait time by more than 20%.

Cognitive technologies, which effectively use AI, which we've talked about, being a focus area for the firm, we are building multiple solutions that address business problems with AI, artificial intelligence. For a large financial management firm involved in equipment leasing, we have created a prototype that uses machine learning to interpret and provide options for leasing. For airlines, we have created a mobile experience which can help drive and grow their ancillary revenues. The way this works is that if one is delayed due to traffic on way to an airport, an offer is proactively made to passengers that fast tracks all airport formalities. We also developed multiple use cases, both text and voice, for a major insurance U.S. player using our conversational interactive framework, [IVERA].

As part of our strategy to transform select industries at their intersect with emerging technologies, we continue to invest and build capabilities across verticals, that's industries, and horizontals to deliver best-in-class solutions. A recent report published by HFS endorses our capabilities in cognitive technologies and the value we continue to deliver to our clients.

I'm going to talk about the people aspect now. Total headcount at the end of this quarter is now -- was 10,800, which reflects an increase in headcount of 503 employees. The utilization during the quarter has risen to 80.7%. Attrition has reduced to 12.3%, and the attrition metric continues to be best and lowest in class.

Balance sheet key highlights. Cash and bank balances stood at INR 7,659 million. CapEx spend during the quarter was INR 146 million. Debtors at the end of the quarter stands at 73 days of sales outstanding, which is the same as last year at this time. DSO, including unbilled, is at 89 days.

Commentary on the hedge position. Outstanding hedges in U.S. dollars of $71.79 million at an average rate of INR 73.08 to the U.S. dollar. In British pounds, we have GBP 17.99 million outstanding at INR 93.39 to the pound. And in euro, it is EUR 6.3 million at INR 83.92 to the euro.

Summing up, finally, with the outlook. Overall, as you would have noticed for the quarter under review, the company clocked robust revenue and margin growth. The fundamentals of the business are strong. Quarter 3, as you know, is a smaller quarter with furloughs. As a result, the growth we expect in quarter 3 to be moderated.

With that, ladies and gentlemen, I am done with the commentary from my end.

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Operator [4]

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So should we open it for Q&A now?

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Abhinandan Singh, NIIT Technologies Limited - Head of IR and M&A [5]

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Sure, please.

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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 Ruchi Burde from BOB Capital Markets.

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Ruchi Burde, BOB Capital Markets Limited, Research Division - Research Analyst [2]

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Congratulations on good performance. Now my question was regarding the client, the BFS client, where we had called out some challenges. Could you update us what's the status of that account today?

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Sudhir Singh, NIIT Technologies Limited - CEO [3]

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We called out the challenges at that point in time. Things seem to be stabilizing, but some challenges continue for the second quarter earnings.

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Ruchi Burde, BOB Capital Markets Limited, Research Division - Research Analyst [4]

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And you mentioned about furloughs will impact Q3 performance, but could you qualify regarding how do you see the quantum of furlough as compared to last year? One of your peer called out that there could be more than expected furloughs. So what is our expectation?

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Sudhir Singh, NIIT Technologies Limited - CEO [5]

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We expect furloughs to be in line with the kind of furloughs that we've seen in the past. And because the number of billing days is lower and there is a furlough impact on account of the holidays, we expect growth to be moderate.

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Operator [6]

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(Operator Instructions) The next question is from the line of Sandeep Shah from CGS-CIMB.

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Sandeep Shah, CIMB Research - VP [7]

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Congrats for a good set of numbers. Sudhir, just wanted to understand. Any impact related to Brexit, which leads to any kind of uncertainty in the coming quarters as a whole? Or maybe over medium term?

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Sudhir Singh, NIIT Technologies Limited - CEO [8]

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Sandeep, at this point in time, as you're aware, our exposure to the market is largely centered around travel transport, it's centered around BFS and it's centered around insurance. From an EMEA perspective, most of our exposure is centered around speciality insurance and airlines and airports. We have not seen a softening of demand at this point in time. And in the short to medium term, we do not anticipate a softening either.

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Sandeep Shah, CIMB Research - VP [9]

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Okay. And you said regarding the BFS client, there is some challenges even expected to continue in the coming quarter, 3Q. That is a right...

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Sudhir Singh, NIIT Technologies Limited - CEO [10]

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That is correct. This has been the second quarter in which those challenges have continued, and we do expect them to continue for a while.

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Sandeep Shah, CIMB Research - VP [11]

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Okay. And any softness in terms of the client decision-making in any of your sectors outside the BFS, where you called out 1 client-specific issue where you believe -- because on a -- there is like a very solid performance, consistent performance of Q-on-Q improvement in order intake, where you believe now with the volatile macro, that trend may be broken going forward? Is it that possibility? Are you looking at it?

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Sudhir Singh, NIIT Technologies Limited - CEO [12]

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Sandeep, for a firm that, in our case, is running at an annualized rate of close to $600 million now, we don't believe that macro changes, unless they are drastic, impact outlook from our point of view. Most of our growth comes on the back of increasing our wallet share in existing accounts or seizing wallet share from other competitors in the marketplace. To that extent, we do not expect macro factors to become a material reason for performance to get impacted.

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Sandeep Shah, CIMB Research - VP [13]

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Okay. And just last few things. On the margin, how should we look at it? Because at the EBITDA level, you always said that 18% is a new normal. But generally, in Q3, Q4 also, you tried to optimize the margin. So one can say there is more upward bias than the downward bias on a Q-on-Q basis at a constant currency. And second, in terms of the interim dividend, because last year, there is no final dividend, and we said that the new promoters of the management will take a call on the same. So can we fairly to assume that this interim dividend of INR 10 per share may even continue in Q2, Q3 and -- sorry, Q3, Q4? And in Q4, we may have a final dividend of the whole year of FY '20?

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Sudhir Singh, NIIT Technologies Limited - CEO [14]

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So coming to the first question, which is centered around the margin. We continue to maintain, Sandeep, that 18% on an annualized basis is the normal for the organization. We are tracking well to it, and we will continue to make sure that we deliver at least 18%.

On the interim dividend fund, as you're aware, in the Board meeting today, the Board has recommended an interim dividend of INR 10 per share. The dividend policy is something that has already been communicated and is already available on our website. There is no change to that policy at present. And the Board will continue to take a call on dividend payouts as per that policy moving forward.

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Sandeep Shah, CIMB Research - VP [15]

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Okay. So any quantification of that policy in terms of yearly payout we are looking at?

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Sudhir Singh, NIIT Technologies Limited - CEO [16]

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There's no quantification, Sandeep. As part of the policy, the Board will look at the parameters listed there before taking a call on what and if any dividend to declare in a given quarter.

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Operator [17]

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

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Ashish Aggarwal, Principal Mutual Funds - Senior Research Analyst [18]

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So just wanted to understand, there looks like some softness in outside top 5 clients, especially the 6 to 10 clients, top 6 to 10. Any specific issue with these? Or these are mostly on a quarterly application basis?

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Sudhir Singh, NIIT Technologies Limited - CEO [19]

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So, Ashish, this 4.1% growth this quarter has come on the back of a 4% growth in the previous quarter as well. So it's been -- and if you look at the last 10 quarter performance, sequential growth has been very robust. Client number, clients 6 to 10 that you're referring to have grown, but they've grown marginally. We do not anticipate any material weakening in that section moving forward.

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Operator [20]

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(Operator Instructions) The next question is from the line of Dipesh Mehta from SBICAP Securities.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [21]

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A couple of questions. First, to start with on data-related investment. Can you help us provide insurance subsidiary, which were revenue and margin break out?

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Sudhir Singh, NIIT Technologies Limited - CEO [22]

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Sure. So as we talked about last time, Dipesh, we will be providing data specific to subsidiaries that have not been -- where the payout is still ongoing. In light of that, the data for WHISHWORKS for this quarter is revenue was INR 425 million and the margin was 28%; NITL, which is our product platform company, where we always provide numbers, the revenue was INR 517 million and the margin was 28%, again.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [23]

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Yes. And coming to the business side now, BFSI seems to be a very strong quarter. Some of your peers has indicated some kind of softness in spending as well as client-specific challenges. So if you can help us understand, what drives strong growth for us in BFS, particularly considering 1 client where we are also seeing some kind of softness? So if you can help us understand area of strength. And in terms of build intake also, if you can help us understand the deal which you've indicated about $176 million, how it is divided across vertical. If you can provide some detail around it.

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Sudhir Singh, NIIT Technologies Limited - CEO [24]

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Sure, sir. BFS, in our case, Dipesh, is -- its NPAs fundamentally at play around the capital markets buy side, which is wealth and asset management. The innovation dollars flowing in there, with demand outlook that we look, the centrality of digital spend as the industry and the business leaders there understand it, continues to stay along the axis that we've seen it for the last 2, 2.5 years. So from the immediate client set, from the prospect set that we're going after, we haven't sensed any material softening at this point in time.

Can you repeat the second question, please? Because I might have missed that when you called out the second one.

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Dipesh Mehta, SBICAP Securities Ltd., Research Division - Information Technology Analyst [25]

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Yes. So we have signed $176 million deal for the quarter. And even if I want to look last few quarters, I think order intake remained very strong. So for this quarter, if you can help us understand vertical kind of incremental detail, how it is played out across vertical.

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Sudhir Singh, NIIT Technologies Limited - CEO [26]

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So Dipesh, the order intake has been broad-based. What I will do is I've requested my colleague to dig out the specific numbers. And before the -- by the end of this call or before the end of this call, I'll try to give you the hard numbers around that as well.

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Operator [27]

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The next question is from the line of Shashi Bhusan from Axis Bank.

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Shashi Bhusan, Axis Capital Limited, Research Division - Executive Director of IT and Telecom [28]

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Congrats on good quarter. So our deal win has seen a -- almost a dream run over the last 2.5 years or 3 years, I would say. So 2 parts to my question. What exactly is working well for us that is driving such a strong run? And how does the pipeline look like for H2? Are we geared up for improving it further? And is deal size for us getting better as well for us?

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Sudhir Singh, NIIT Technologies Limited - CEO [29]

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So Shashi, over the last 2.5, 3 years, and I think this is the 11th quarter in which I'm holding this firm, the things that we've talked about over a period of time are now fully in play and they're all in play now. The people, the leadership, we've talked about it multiple calls, is in the market. We like to think and more than like to think -- we believe we have one of the sharpest bank trends across the industry, one of the hungriest back-end and presales and solution teams out there.

So the people, the caliber of the team that's out there, the team that's been reconstructed in some ways is playing into this. Softer elements around culture and the near-maniacal focus that we have around execution contributes to it. The changes that we made in the compensation policy around 1.5 years back, where we commissioned structure for large deals was quadrupled, plays into this.

And like all other good things in life, it's a lot of factors that are in play out here, which have led to the performance at this point in time. Specific to the order intake number and the order executable number that you talked about, yes, it has been trending up. And yes, it has been trending up not for 1 or 2 quarters, but for 10 or more quarters at this point in time. This is, interestingly, the first quarter in the firm's history where the order executable has crossed $400 million. You heard me talk about 4.5 -- $405 million. So we look not just at order intake, but we also look at order executable side by side. Very pleased with the fact that for 10, maybe 11 quarters, order intake number has gone up linearly with no breaks. Order executable has gone up for 11 quarters with no breaks, and we crossed the $400 million milestone in this particular quarter.

And the largely pipeline that we are staring at gives us confidence that we should be able to convert a few sweet deals in quarter 3 and in quarter 4, which is the visibility that we have around large deal conversion.

So that's how we view the world, that's how I view the world, Shashi, at this point in time.

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Shashi Bhusan, Axis Capital Limited, Research Division - Executive Director of IT and Telecom [30]

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And is the deal size also increasing for us from where we were, say, 2, 3 years back, sir?

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Sudhir Singh, NIIT Technologies Limited - CEO [31]

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It's a mix, Shashi. It's a difficult question to answer, right? There are no answers to every business. You know our Pega business. The deal size there isn't increasing, but it's the deal velocity that we monitor. If you look at our vertical businesses, large deals. Of course, whenever you come across a large deal, by definition, are always more than $20 million. But the fact that the number of million-dollar-plus clients are now flatlining to 90 from 72 in the last, I want to say, 6 or 8 quarters. I think it's a testament to the fact that the deal size anecdotally at least has gone up, and clients that are getting opened as part of the [NN] hunting scheme are ramping up and crossing the $1 million threshold much faster. So to that extent, without giving you a very hard answer, what I will say is that yes, it is going up on an average.

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Shashi Bhusan, Axis Capital Limited, Research Division - Executive Director of IT and Telecom [32]

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At any point of time, say, today, how many large deals like USD 20 million plus that we would be chasing? And how is the conversion rate?

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Sudhir Singh, NIIT Technologies Limited - CEO [33]

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So we never really call that number out, Shashi. But the overall number is a number that's been climbing up over the quarter. And our conversion rate, again, has been called climbing up along with the overall number climbing up. That -- and that fundamentally is the reason why you're seeing the order intake and the order executable go up.

So that's summarizing the number of large deals in play. That absolute number has been flatlining up. The conversion rate, when it comes to large deals, again, has been climbing up, and it's that intermix that's been contributing to the order intake climbing up.

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Operator [34]

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The next question is from the line of Shradha Agrawal from Asian Market Securities.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [35]

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Congrats on another strong quarter. Firstly, I mean are we seeing a very strong growth coming through in insurance? So what led to this very strong growth coming from this vertical?

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Sudhir Singh, NIIT Technologies Limited - CEO [36]

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I'll return to the earlier answer that I gave, Shradha. It's -- part of it is the fact that the momentum buildup in insurance has now been ongoing for quite a few quarters. The other element to that has been a very large contract that was assigned to us in the current quarter at one of our largest insurance client. So it's been a mix of both. One is the more secular longer-term trend that we've been seeing in terms of revenues climbing up, growth momentum accelerating in the insurance sector. And the second is the fact that this was a quarter in which a material deal was signed with an insurance major from our point of view.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [37]

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Sure. Probably I missed it because I logged in late, sorry for this. And any other client-specific challenge across any of your verticals which you would want to call out? I think we had mentioned about 1 client-specific issue in the last quarter. But barring that, has there been any other incremental challenge across any of our clients?

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Sudhir Singh, NIIT Technologies Limited - CEO [38]

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Things are stable, Shradha. We like to keep it that way. And at this point in time, that's where they are.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [39]

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Right, sir. And in one of the questions asked earlier, you said that both the large deal pipeline and the conversion rate have been going up for us. So any quality -- any quantification you would give around conversion rate as to -- if that number was, say, whatever x number in last year? How has that number moved this year, by what percentage?

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Sudhir Singh, NIIT Technologies Limited - CEO [40]

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We don't disclose that number publicly, Shradha, but...

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Unidentified Company Representative, [41]

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(inaudible)

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Sudhir Singh, NIIT Technologies Limited - CEO [42]

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So it's a number that -- I mean it's a number that seems -- not seems to, it has changed materially for us. I'd just pocketed that for the time being.

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Operator [43]

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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 [44]

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Sir, our earlier acquisitions have been on Pega and Soft. So I mean would you look at something on the design side for the acquisition? Or would you like to grow it organically?

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Sudhir Singh, NIIT Technologies Limited - CEO [45]

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I would definitely like to look at things in the design side, Madhu, but it's also a capital play out here. We've always said that we are open to acquisitions as long as they dovetail with our strategy. Our strategy, as you know, is to be hyperfocused on just 2 industries, financial services and travel; and to stay hyperfocused around cognitive, cloud, automation and data. So if there's anything that fits into any of these buckets, we'll go for it. But at the end of the day, as you and I know, it's a function of getting the right target and having the -- and finding it at the right price.

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Madhu Babu, Centrum Broking Limited, Research Division - Research Analyst [46]

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So on the airlines, we would be competing with the Accentures of the world on the -- no, because it's a B2C vertical, and there's a lot of digital going out there. So last couple of quarters, how have we seen the expansion of the service offerings within airlines, sir, because that is an area where there are good investments on the digital play out in that sense?

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Sudhir Singh, NIIT Technologies Limited - CEO [47]

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So airlines, we've always competed with Tier 1 players. These days, it's impossible to work in the market, Madhu, and call out a deal as a deal in which the Tier 2s or the Tier 3s are playing. Everyone is jumping over everyone at this point in time for the large dollar of revenue that's out there on the table. So we've been competing with Tier 1s, and we continue to compete with everyone across the Tier 1 pool in the airline space. Airlines, as you know, has always been a very -- has always been a good hunting arena from our point of view, given the fact that airline competence is something that NIIT Technologies has built up over decades, not even years. And also given the fact that we have our own product in that space around revenue accounting, as you're aware of, in some of the world's largest airlines. We've done very interesting work with the airlines around cognitive use cases to begin with. There's very material pieces of work that are being done around data monetization and data modernization at this point in time. There is very interesting work that's getting done around making NDC compliant data standards in line with what IATA has mandated. There's very interesting work that's getting done around block chains, especially, in this space when it comes to baggage handling. There are interesting pieces of work that are in play when it comes to machine vision in the realm of cargo management. And we're doing some very interesting rollouts with some of the largest airports in the world when it comes to terminal operations. There is a ton of very interesting work that is going on in this space, and we continue to operate against and win against the Tier 1, Tier 2, Tier 3 players across the space.

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

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Sir, and is it the right time to carve another vertical because others is 27%, and there are multiples of verticals there. So now that you spent around 3 years and we have achieved success in the 3 verticals, focused verticals, so is it right time to carve another vertical from these others?

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Sudhir Singh, NIIT Technologies Limited - CEO [49]

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See, we, as a firm, as a management team and I personally have always believed that it's better to be deep than to be wide and try to be all things to all people. Two industries, from our point of view, have meant that from being a $409 million organization in fiscal year '17. This quarter, we've almost reached a run rate of $600 million. That gives us conviction that doing less -- I mean operating in narrower areas, but operating with depth, operating with SMEs and practitioners who know the industry and are not just bodies being thrown at a problem, is the right way to differentiate ourselves.

Having said that, you're absolutely right, 28% is a material number. If, at a point in time, we think that we have a bouquet of clients and more than a bouquet of clients, if we think through engagements, we have built deep domain plus tech expertise somewhere, we can always consider adding a vertical. And to that extent, we'll cross that bridge if we do think that we have enough ammo to be able to take competition on in that space.

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

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And last one on the CapEx and the acquisitions [versus] payouts. So how would that will span out over FY '20 and '21? How should we model the -- yes.

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Sudhir Singh, NIIT Technologies Limited - CEO [51]

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FY '21 is when we need to make the next payout for the WHISHWORKS team at this point in time, and that's going to be roughly around May of next year. The amount that we will be looking at payout will be roughly around USD 10 million to USD 12 million.

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Operator [52]

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The next question is from the line of Sandeep Shah from CGS-CIMB.

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Sandeep Shah, CIMB Research - VP [53]

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Just as a follow-up to the last question, strategically, if you look at -- you've already spent more than 2.5 years, and there is a handsome scaleup in the revenues. Going forward for the next 3 to 4 years, if you look at -- you believe we have to invest more in terms of scaling up and keeping the growth momentum actually almost similar to what we have seen? Because with the high base, similar growth may not be that easy, unless we have to strategically think in terms of either improving or investing into the gaps in terms of verticals, be in terms of services. Do you believe that is required? Or you still believe no, for the next 3, 4 years, we have enough fuel in terms of growing the engine on an ongoing basis?

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Sudhir Singh, NIIT Technologies Limited - CEO [54]

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I think growth requires material investments, and we've been making it, and we've been making it at scale, Sandeep. In the past, I've talked about and I think we've spoken many times every quarter on these calls. And I've talked about how we've invested a boatload of money in creating a complete consulting organization with a very strong on-site center of gravity. I've talked how in the last 2.5 years we've constructed under a leader from Microsoft a complete cloud business that has multiplied over the last 2.5 years for us in terms of revenue. I've talked about how we've hired some of the best talent in the market when it comes to data. This week, for instance, we hired [Arun] (inaudible) as the global digital leader who has a big data SME to run the entire digital business for us. So I am a very strong, very hard supporter of the fact that growth requires investments. We have been making investments. And when I always talk about the fact that 18% is the new normal and sticking to 18%, the reason why we're doing it is that everything between the gross margin and the operating margin is something that we've been plowing back into investments, in capabilities at the back end, in presales augmentation, in advisory functions, in sales payouts and collecting, integrating, coalescing the -- what we think is one of the finest sales teams out there in the market today.

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Sandeep Shah, CIMB Research - VP [55]

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Okay. Okay. Okay. And just in terms of the client mining, Sudhir, you believe there is a scope for improvement? Because there is an improvement between $1 million to $5 million account on a Y-o-Y basis. But you believe enough has been also done to scale up beyond the $10 million client? Or is it still a work in progress? How do you actually review that more services are being sold to the large customer or the existing customer on an ongoing basis? Some color on that will help.

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Sudhir Singh, NIIT Technologies Limited - CEO [56]

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Sure. So last year, our top 10 accounts grew 22% at the end of the year over the previous year. And that, I think, was a testament to the client partners, the renewed set that we had, bringing significant relationship leverage to build on those relationships.

Having said that, I think mining is never really done. We are building capabilities. We can always bleed those in. We've acquired new firms with new capabilities. We should be and we are trying to figure out how to bleed those service lines in. We need to keep taking away wallet share from our competitors just as we have in the past. And as is the case with any IT services organization, cross-sell as an opportunity is never complete.So I think there is significant runway still ahead of us when it comes to mining even more effectively than we have in the past, and we've done a reasonably good job in the past as our numbers will evidence as well.

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Operator [57]

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The next question is from the line of Manik Taneja from MK Global.

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Manik Taneja, Emkay Global Financial Services Ltd., Research Division - Research Analyst [58]

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Congratulations, Sudhir, for the good execution. I just wanted to understand a couple of things. Number one, essentially, in our case, also, over the last several quarters, we've seen a jump up in terms of our onshore mix of business, largely aided, and you've been talking about digital being a primary factor here. How do we see that going forward? That's question number one.

The second question that I wanted to understand was with regards to the breakup of order intake. So as part of your strategy, you've been focused more on the developed geographies. But this quarter, you've seen a significant order intake in ROW geography. So how should we be thinking about this from a go-forward basis?

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Sudhir Singh, NIIT Technologies Limited - CEO [59]

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Manik, the onshore mix, revenue mix for us is 66%. And I think it's held at 66% for the last 3 quarters. Over the last 7 quarters, that number, I suspect would have moved between 64% to 66%. We think 66% is a number that we'd like to keep it at -- around that. Can't guarantee an exact number, but plus/minus 1% or 2%. And everything that we're looking at by way of the complexion of the order pipeline leads us to believe that we'll continue to be roughly at this benchmark, 66% on-site revenue. That's one.

The second piece around order intake, rest of the world, for this quarter was -- you're absolutely right, was a big contributor. But that's been because a long-standing client that we had awarded us a large contract in the rest of the world space, and there was also a material win in the rest of the world around the BFS vertical.

So those 2 things are what have contributed to the order intake for APAC going up.

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Manik Taneja, Emkay Global Financial Services Ltd., Research Division - Research Analyst [60]

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Sure.

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Sudhir Singh, NIIT Technologies Limited - CEO [61]

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Interestingly, there is no more India and the rest of the world, right? I just want to call that out. This is outside India. The jump did not come from India. India, as you would have noticed, has now fallen to 4% of our global revenues, and it's been declining for quite a while now.

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Manik Taneja, Emkay Global Financial Services Ltd., Research Division - Research Analyst [62]

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Sure. And we saw very strong hiring in the current quarter. If you could give a sense on what will be the fresher intake here? And what -- did this hiring coming towards the end of the quarter?

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Sudhir Singh, NIIT Technologies Limited - CEO [63]

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So 503 was the number that I talked about, Manik. Out of those 503, roughly about 150. The exact number was 149 were freshers who were brought in. The hiring has been done in order to fulfill the pipeline that already existed and the pipeline that we see ahead of us in the next 6 to 9 months.

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Operator [64]

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The next question is from the line of Tanmay Mehta from SBICAP Securities.

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Tanmay Mehta, SBICAP Securities Ltd., Research Division - Research Analyst [65]

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Just one question on the operating cash flow. If you look at the period ended September 30, the cash flow is weak than the same period last year. So can you give some color around that?

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Sudhir Singh, NIIT Technologies Limited - CEO [66]

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Yes, Tanmay. The cash flow has been impacted essentially by the DSO number that's gone up by 6 days. We believe it's a temporary blip. The DSO number will come back, and we expect cash flow in quarter 3, quarter 4 to be very robust.

Before I -- before we get to the next question, there was a person earlier who had asked me for a breakup of the order intake numbers by vertical. I just want to call those numbers out. The total, as you know, order intake for the quarter was $176 million. Travel & Transport contributed USD 50 million. BFS contributed USD 20 million. Insurance contributed USD 40 million and others contributed USD 66 million.

Any other questions? We are -- be opening again.

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Operator [67]

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The next question is from the line of Shradha Agrawal from Asian Market Securities.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [68]

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Just a follow-up. Earlier when we had this GIS business, we had this typical seasonality wherein our Q4 used to be stronger. Now that GIS is out of our portfolio, so how do we look at the typical seasonality? I mean would it be like any other typical IT company wherein H2 would be weaker than H1?

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Sudhir Singh, NIIT Technologies Limited - CEO [69]

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No. I'm sorry. Did I hear you right? You said, for a typical IT company, H2 is weaker than H1?

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [70]

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Yes.

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Sudhir Singh, NIIT Technologies Limited - CEO [71]

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Well, we'd like to not be a typical IT company with a weaker H2 than H1. We are definitely planning for a stronger H2 than H1. And you're absolutely right. There was a seasonality factor that used to be in play when it came to the SV business from our point of view. That is now off the table, and you will not see that get reflected in the quarter 4 results as it was earlier.

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Shradha Agrawal, Asian Markets Securities Private Limited, Research Division - Analyst of IT and Textile [72]

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Sir, you've already called out that Q3 will be a moderate quarter. So we do expect, again, a bounce back in growth rates in Q4 back to, say, I mean, whatever, 4%, 4.5% organic cc growth as reported in the last 2 quarters.

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Sudhir Singh, NIIT Technologies Limited - CEO [73]

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It's a little early to call out quarter 4 outlook at this point in time. Quarter 1 and quarter 2, you've seen the numbers, 4% and 4.1% sequential growth, respectively. Quarter 3, as I said, will get moderated because of furloughs and lesser number of billing days. I will be very happy to answer that question exactly 3 months from now.

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Operator [74]

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(Operator Instructions) The next question is from the line of Ruchi Burde from BOB Capital Markets.

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Ruchi Burde, BOB Capital Markets Limited, Research Division - Research Analyst [75]

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My question was in part answered. This is regarding your rest of world large deal win, $70 million, this quarter. You mentioned that none of this refers to India deal win. Could you also now tell us about the profitability construct of these deals?

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Sudhir Singh, NIIT Technologies Limited - CEO [76]

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Ruchi, the deals continue to come in at profit construct, which is broadly equal to the EBITDA construct of the organization. We've always been very particular about that. And I think that's one of the overriding reasons why our margin profile is as robust as it is at 18.3%.

So we do not buy new margins to get deals. And that's the underlying assumption behind any hunting operation that is mounted by any of my sales teams across the world.

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Ruchi Burde, BOB Capital Markets Limited, Research Division - Research Analyst [77]

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That's reassuring to hear. Another question I had, pardon me if I had missed, I joined the call a little earlier. During this quarter, did we have any large deal, your comments around that?

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Sudhir Singh, NIIT Technologies Limited - CEO [78]

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Ruchi, this quarter, there were no large deals with more than $20 million in terms of the CV construct. There were material deals, and I talked about some of the deals in ROW, which is what pushed up the order intake number. But no large deals that I can point to which crossed the $20 million threshold.

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Operator [79]

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(Operator Instructions) As there are no further questions from the participants, I now hand the conference over to Mr. Sudhir Singh, CEO, NIIT Technologies, for closing comments.

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Sudhir Singh, NIIT Technologies Limited - CEO [80]

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Ladies gentlemen, thank you very, very much for having joined us from across the time zones that you operate in. I understand 5:30 to 6:30 is not the best possible time for all of you, especially in India, to step back and make time for the conversation with us.

As always, we're always excited to share our progress with you. And we deeply, sincerely and very truly appreciate the interest that you take in us as an organization. Thank you very, very much for your time. Good night.

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Operator [81]

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