Vibhor Singhal: Got it. Got it. Great. Thank you. Thank you so much for taking my questions. That’s all from my side. I wish you all the best.
Jayesh Sanghrajka: Thank you, Vibhor.
Operator: Thank you. [Operator Instructions] The next question is from the line of Surendra Goyal from Citigroup. Please go ahead.
Surendra Goyal: Good evening, everyone. So I joined the call a bit late, so apologies if this has been answered before. But this case of project or a contract restructuring, re-scoping, is this like an isolated instance, or are you seeing multiple examples with this being the only significant one to really call out?
Jayesh Sanghrajka: So Surendra, this is one. We have called it out. It’s one-time impact of a large contract in financial services plan. It’s impacted our revenues by over 1% and therefore, margins are impacted by 1%. It’s a renegotiation and re-scoping of an existing contract. But at the same time, if you look at it over the last few years, we have got additional work from the client and the 85% of the work under this deal is still continuing with us. So that’s all I can offer at this point in time to comment on this as we could.
Surendra Goyal: Jayesh, my question was, is this an isolated instance, or are you seeing more such deals getting rescoped and impacted?
Jayesh Sanghrajka: So, I mean, the reason I say this is one-off or one-time impact is it’s an isolated impact. We have not really seen any other large contract being rescoped or renegotiated.
Surendra Goyal: Right, and does gen AI have any role to play in such re-scoping of contracts?
Jayesh Sanghrajka: There is no, I mean, the reason behind this rescoping or renegotiation has nothing to do with gen AI.
Surendra Goyal: And one last question, like how do you really base such things into your guidance process? Right, like would you be kind of baking in some kind of cost into the guidance? Because obviously, re-scoping seems to be a common theme. It was mentioned by another large peer of yours recently. So is there additional kind of impact built in, or this is a risk as it comes along?
Jayesh Sanghrajka: So when we give guidance, so when we look at what is visible at this point in time, we bake in everything in terms of, we know that the discretionary is going, so we bake that in. We know the large deals that we have signed, so we bake that in. We don’t expect, this is one-off incident, so we don’t expect any large incidences like that. So that’s not really baked in.
Surendra Goyal: Fair enough. Thanks a lot, Jayesh. Thank you.
Jayesh Sanghrajka: Thank you, Surendra.
Operator: Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Nitin Padmanabhan: Yes, hi. Good evening. Thanks for the opportunity. So Salil, you mentioned that the discretionary spending environment is similar to that of Q3 and Q4, and there’s no change. Is it, considering that Q3 and Q4 have seen higher declines versus the other quarters of FY ’24, is it fair to assume that Q3, Q4 from a discretionary spending perspective, has been the worst versus the whole of FY ’24? And we are basically assuming that that kind of a situation, is sort of continuing through FY ’25? That’s the first question?
Salil Parekh: So, on what we saw in Q3 and Q4, there’s obviously in a normal year, the differences between Q1, Q2, which are typically stronger, and Q3, Q4. Those are things to be layered into any view that we have. Looking backwards, we don’t have any specific comment on which quarter, where things were. We’ve talked, as you know, probably on starting with Q1 or even Q4 of the prior year. This sort of a view, but we have not given, let’s say, quantification of which quarter was where in that sense. Having said all of that, the general – observation we have is things change little by little by industry as well, and things evolve across geography as well, so there’s not like one picture that is there. We are more looking at it from that immediacy of the recent sort of discussions we’ve had with clients to what we’re having now for the future work.
Nitin Padmanabhan: And is this discretionary headwind specific to more specific or, let’s say, more pronounced in BFSI? Is there any such trend or is it broad-based?
Salil Parekh: No, nothing which is like that, very specific onto BFSI.
Nitin Padmanabhan: Sure. And lastly, see our utilization is at 83.5%, including trainees, and we think it can go up to 85%. Now, usually, at least over the last many years, pullback in discretionary has always been pretty sudden, so are we risking opportunity by maximizing on utilization? Is that something to worry about? Is there just a question out there?
Jayesh Sanghrajka: Even so, as I was saying earlier in the call, we have moved to an agile hiring model, right. If you look at an FY ’23 ’22 numbers of fresher hiring, more than half of the freshers were hired through off-campus cycles, right. So, we have that ability to dip into. We are at 82% including trainees and 83.5% excluding trainees for the quarter, so that’s why we are exiting. So, we still have – if you look at including trainee numbers, we still have 2%, 3% of headroom. Our attrition is still at a much subdued level of 12.6%, so we don’t see that as an additional stress as well. So, we will calibrate this as we go through the quarter and year and take corrective actions. We don’t really think that and – of course, if there is a need, we can always dip into subcontractors to capture the demand and replenish that through hiring. So all of those tools are available to us to capture demand, if there is a sudden change.
Nitin Padmanabhan: And lastly, from a margin perspective, at least in the near term, this 100 bps will be a tailwind and non-recurrence EBITDA cost will be a tailwind. So there should be a pickup in margin at least in the near term. That’s a fair assumption to make. Or do you foresee any other headwinds?
Jayesh Sanghrajka: Yes, so if you look at, I did give a margin walk at the beginning of the call as well. We had some tailwinds in this quarter as well, from the lower provision for doubtful debts it’s a provision towards client collectibles as well as for sale customer support. So, those are the headwinds – I mean tailwinds this quarter, which will become headwinds in the near term. So I think you have to factor all of those, when you are looking at headwinds and tailwinds.
Nitin Padmanabhan: So perfect. Thank you so much, Jayesh, and all best – and congratulations for the elevation. All the best for the year. Thank you so much.
Jayesh Sanghrajka: Thank you.
Operator: Thank you. The next question is from the line of Prashant Kothari from Pictet Asset Management. Please go ahead.
Prashant Kothari: Yes, hi. Thank you for the opportunity. My question was on this contract renegotiation, re-scoping thing. For one contract to make such a large difference of 100 basis points on revenues could mean that the contract needs to be like 6%, 7% of our revenue base, which seems just impossible to me. What am I missing here, if you can help me understand, please?
Jayesh Sanghrajka: So Prashant, it’s a renegotiation and re-scoping of a large contract. I don’t think we are giving any further color on this. It’s a large financial services contract.
Prashant Kothari: But the 100 basis points, is it like an accumulation of impact of several quarters in this one quarter, or this is just pertaining to this quarter alone?
Jayesh Sanghrajka: Yes, when you renegotiate a contract, you will have one-time impact on that coming from that, right, if it is a fixed-price contract. So, when you renegotiate, that is likely to happen irrespective of whether it is accumulated or not amount.
Prashant Kothari: Okay. Understood. And the – second question was on your margin kind of trajectory. I mean when you joined in, the margin used to be like a band of 23 to 25. I think it was low to 22 to 24 soon after you joined. And now we are operating in a band of 20 to 22. I just want to understand, like, what has been – I mean, is it a function of the large deals that have gone up a lot in our business mix or something else? Just kind of looking from that point to – today, what is changing the business complexion, which is leading to this lower margin, obviously, lower number of years, not just overnight?
Jayesh Sanghrajka: I think, Prashant, there are a number of factors on that, right? There are – I mean, there is – when we had an elevated level of attrition as well as elevated level of demand, we had to hire employees, you know, at a premium from the market. Demand supply equation had changed in the last two quarters. So, that was one factor even during the high-growth environment. The other factors are, you know, the business mix as well, the pricing pressure that we had on the core part of the business. So, I think there are multiple factors that have played over a longer tenure period that, you are talking about. I have been here for almost 11 years, so, I am assuming that you are talking about since I joined. But coming back to your questions in terms of, where we see, our endeavor is to grow margins from where we are today. We have said that in midterms we want to expand the margins from where we are. So, there is everything that we are doing to improve margins.
Prashant Kothari: All right. Okay. Thank you very much.
Operator: Thank you very much. Ladies and gentlemen, we will take that as our last question. I will now hand the conference over to the management for closing comments.
Salil Parekh: Thank you. So, thanks everyone for joining in. A few comments from my side. This is Salil. First, we are really excited. Our large deals were at $17.7 billion in the year, largest that it has been in any financial year. Very focused on cost efficiency consolidation with 90 deals overall. Second, we are doing incredible work in generative AI. We are really excited with the opportunities here. We are working across different areas of impact. One of the examples of 3 million lines of code that we have developed through generative AI, large language model is just amazing, amazing types of results we are seeing, at this early stage of the generative AI opportunity. Next, our margin program is working well. We are excited about it.
