Meanwhile, Manish Dugar, CFO, Mphasis says, “I would say that we actually delivered better than expectation on margin and while we were not getting the benefit of all the one times that we got last quarter, we still were able to using operating leverage and the revenue growth and were able to deliver on the top end.”What has been your read through from the quarter gone by about the incremental demand environment that we have been witnessing? Did the quarter pan out the way you expected?
Nitin Rakesh: I think we are very pleased with the fact that we ended the year on a note where we have not only come back to growth, but our biggest two businesses, BFS and TMT, are actually leading the growth. So, given the overall environment, the industry outlook, this is probably one of the better numbers that we have delivered, especially with the backdrop of the still uncertain macro that we are working with.
A lot of this is driven through everything we talked about in the last few quarters, the focus on in-account actions, extreme amount of focus on investing in relevant tech solutions, infusing a lot of tech and AI into these solutions to actually create a differentiation.
It sets us up very nicely for the end of the year and, of course, as we enter into FY25. So, very pleased with what we have delivered. I think some uptick in revenue conversion from TCV that was kind of lagging behind, so that helps.
Also seen some uptick in shorter duration, short burst deals, that is kind of very early indicator of discretionary spend pattern. I think, again, very early to call it, green shoots definitely visible, though overall quite intense few quarters but very pleased with where we ended up with Q4.
A slight miss on the margins as well. Walk us through what the tailwinds are and what the headwinds are at play.
Manish Dugar: We had called out last quarter that with the impact of the acquisition, on a like-to-like basis what we reported as 14.9% was actually 16%, which was an expansion of 0.5% over the previous quarter and we had said that some bit of that actually is one time and we were expecting the margins to be between 14.6 and 14.9 this quarter.
We ended up at the top end of it and I would expect this to be better than what the expectation was. Like we have been able to do for Blink over a two-year period we recovered the full impact of the acquisition, we expect that impact to be recovered for Silverline as well. I think the metric that actually reflects that is the EBITDA number and if you look at EBITDA we were at 18% last quarter and 17.9 quarter before and we ended up at 18.7% this quarter.
I would say that we actually delivered better than expectation on margin and while we were not getting the benefit of all the one times that we got last quarter, we still were able to using operating leverage and the revenue growth and were able to deliver on the top end.
What about the guidance for the new year, the FY25, and also your margin visibility there?
Manish Dugar: Our guidance to the community is we should be in the range of 14.6% to 16% on a reported basis which on a like-to-like basis will be 15.7% to 17.1% and that is compared to the 15.25 to 16.25 range that we had last year, which indicates that we have a north-ward bias. And within this range also our expectation is we should be moving if not to the top end, to the middle of the range very soon as we are able to get operating leverage and as we are able to make sure that some of these impact of acquisitions get neutralised.
But talking about operating leverage, after that 4% decline that we saw in FY24 which was clearly a challenging year for you, what kind of growth are you envisaging in FY25? Could it be high single digit or at least low double digits?
Nitin Rakesh: Yes, I think the way to think about it is from a guidance standpoint, we have called for the fact that FY25 will be a growth year and we do expect to deliver better than above-market growth, so that really means on a relative basis if the broad NASSCOM growth ends up being in low to mid-single digits, then we should definitely grow faster than that.
It is hard to pin a number because we typically do not provide a number guidance for the revenue side. Margin, we give a pretty strong guidance, which Manish just talked about, 14.6% to 16%. I think, as I mentioned, green shoots, we have called out bottoming of many businesses in the last couple of quarters. We have seen recovery come back in banking. We have had two quarters of sequential growth, so that definitely gives us some confidence going into FY25 about the fact that we should be able to see a decent growth year.
Deal wins have been quite soft for you. Is it just a timing issue? What is the pipeline looking like?
Nitin Rakesh: There are three things to think about when it comes to the TCV number. One, we had a massive bunching up in Q1. Now, definitely, we are still consuming a lot of that TCV and that gives us a runway for growth, also means that as you convert a bunch of deals, you have to convert the others through various stages of the pipeline and that action is on.
Second, I think TCV is a reflection of the total contract value, but sometimes there may be a seven-year deal and sometimes there may be a shorter duration deal. What we have seen this quarter is a pretty significant uptick in shorter duration, 0 to 10 million type deals.
What that means is these are typically quick burst consumption projects. Early signs are actually we are very happy to see that activity pick up because that is typically where the discretionary spend pickup happens. You are already working on a project and that gets ramped up or there is immediate new spend available to be consumed in the next 6, 9, 12 months that definitely converts faster than a longer duration 5-7-year deal.
We have seen some of that pickup in this quarter. So, given that ability to consume on a short-term basis at least some of these deals and the fact that we are still consuming the 1.38 billion that we signed in the last four quarters definitely gives us confidence that we should be able to convert that to revenue growth in the short to medium term in the next couple of quarters. On a sustainable TCV number, I think the leading indicator always is pipeline. Our pipeline is up about 5% on a quarter-on-quarter basis which means that a lot of the deals that we are working on, we obviously have a good chance of getting consummated in the next quarter or two. So, I think we will be pretty well-placed when it comes to signing new TCV and consuming them at the same time.
How is the Silverline acquisition scaling up and any more acquisitions that you have on your radar?
Nitin Rakesh: Yes, I think nothing to call out for, obviously, on a forward-looking basis because typically these are zero-one deals, but we are still fairly open to continuing to expand capability, and that has been the primary lever for us from an acquisition perspective. Coming to Silverline, I think it is still early days. We are still only in the second quarter for as we close that acquisition. One of the biggest thesis was to expand our footprint and relationship with the Salesforce, both at a tech platform level and of course, also at a go-to-market channel management level.
Both of those are progressing really well. I think the synergy pipeline has done really, really well. Synergy wins have been pretty interesting as well because it opens up another market that we were leaving money on the table for.
So, I think it is the absolute right time to do it given the focus on AI, especially the massive uplift that Salesforce is seeing in adoption of Einstein and their AI platforms. So, I think very well placed to capture that over the next 12, 18, 24 months. Integration is pretty much done. Obviously, we have prioritised large deal making and synergy over anything else at this point in time and that will hopefully play out as we expect over the next four quarters.