Cigniti Technologies Ltd
NSE:CIGNITITEC
Cigniti Technologies Ltd
NSE:CIGNITITEC
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Earnings Call Transcript
Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to the investor call of Cigniti Technologies Limited to discuss the Q2 and H1 FY '23 results. Today, we have with us from the management, Mr. Srikanth Chakkilam, Chief Executive Officer, Mr. Krishnan Venkatachary, Chief Financial Officer; Mr. Vinay Rawat, Chief Revenue Officer; Mr. Raghuram Krovvidy, Chief Delivery Officer; and Mr. Sairam Vedam, Chief Marketing Officer.
[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Snighter Albuquerque from Adfactors PR. Thank you, and over to you, sir.
Thanks, Irene, and a very good evening to everyone. Before the call, we would like to point out that certain statements made in today's call may be forward-looking in nature, and a disclaimer to this effect has been included in the earnings presentation shared with you earlier.
The investor call may contain forward-looking statements based on the currently held beliefs and assumptions of the management of the company, which are expressed in good faith and, in their opinion, reasonable.
Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, financial conditions, performance or achievements of the company or industry results to differ materially from the results, financial condition, performance or achievements expressed or implied by such forward-looking statements.
The risks and uncertainties relating to these statements include, but are not limited, to risks and risks of expansion plans; benefits from fluctuations in our earnings; our ability to manage growth and implement strategies; competition in our business, including those factors which may affect our cost advantage; wage increase in India; our ability to attract and retain highly skilled professionals; and our ability to win contracts; changes in technology; availability of financing; our ability to successfully compete and integrate our expansion plans; liabilities; political instability; and general economic conditions affecting our industry.
Unless otherwise indicated, the information contained herein is preliminary indicative and is based on the management information, current plans and estimates. I now hand the conference over to Mr. Srikanth Chakkilam for his opening remarks. Over to you, sir.
Thank you, Snighter. Good evening, everyone. So just some quick highlights for the quarter. The company has again -- yet again accelerated its revenue in the current quarter by 10.2% to INR 416.65 crores in comparison to previous quarter. The company has been able to demonstrate this sort of growth for more than 6 quarters now, especially in an environment of uncertainty.
The company during the quarter has won 9 new clients. We have been especially focused on the quality of accounts that we are opening in the last 9 months and with more vigilance towards investment in sales and development and with various optimization measures that have been initiated that have been updated in the previous calls as well. The company has received a higher margin compared to the previous quarter.
EBITDA stood for -- EBITDA reported for the quarter stood at INR 60.76 crores, up by about 36%. And the company's net profit also has rised (sic) [ risen ] to INR 41.53 crores as against net profit of INR 31 crores in the previous quarter.
In its biggest brand move in a decade, Cigniti has unveiled a new brand identity and a new logo reflecting its renewed vision to help its clients in achieving the digital transformation objectives and achieve market leadership. This new brand identity is a thoughtful expression of our continued dedication for advancement and innovation.
And we've renewed our vision. We're now calling it together, we will build a better future through technology-led transformation. And we believe this is what will drive every solution as a collective group of people to achieve the mission and vision.
And just some quick updates on the acquisition as well. Following the -- we've largely integrated the acquisition, and we continue to invest in people and areas related to data governance, UI/UX, DevOps, digital strategy and architecture. We have been upselling all the newer services to our existing clients, and we've been getting positive feedback about the new offerings that can be provided for our existing clients. And we're excited about the possible outcomes in the next 2, 3 quarters.
Adding up to our industry capabilities, the leading firm -- analyst firm, ISG, has recognized Cigniti for its capabilities in power and utilities and retail sectors. In the previous calls, I've updated such recognitions for BFSI and HCLS.
And at a macro level, we are sort of seeing elements of uncertainty, especially with our diverse set of clients that we have. We have seen minor pullbacks in investments, certain tendencies of slowdown, but not in a full-grown manner yet. We continue to remain cautiously optimistic, and we will continue to focus on initiatives that will help us drive our vision and achieve our mission.
So at this point, I will hand over the call to Krishnan to cover the financials.
Thank you, Srikanth, and good evening, ladies and gentlemen. A warm welcome and advance wishes for Shubh Deepawali to each and everyone of you and your family members. And also, good afternoon and good morning if in case somebody has logged in from the overseas locations, considering the time zone.
I think the quarter, by and large what has been explained by Srikanth, has been predominantly a great quarter. We have achieved about close to 10.2% growth if you cut it in terms of rupee terms. But I think on the constant dollar currency terms, we have contributed 6.5% in terms of where we are, what we are dollar terms.
So we moved from $49.17 million to $52.3 million in terms of the revenue on the top line. On the bottom line, we have been able to do a remarkable recovery, as we have planned over the quarters what the investments have been done. There have been some amount of pressure in terms of midterm increments and various things, which has hit us on the -- impacted on the last financial year.
I think that went through ahead, and then that started yielding results in terms of onboarding of people or whatever it is, so the COGS could be kept under control. And we were able to get the full-blown availability of close to 150-plus resources into the current quarter, which has realized -- made us realize in terms of the margins, where we are.
When it comes to the question of the sectoral contributions, the revenue sector, BFSI continues to dominate, BFSI and retail and e-commerce followed by travel and transport and hospitality. The heartening fact is basically the travel and hospitality sector has started bouncing back, and we have been maintaining a good relationship. And we are expecting this to really start moving up in terms of contribution, though we are cautiously optimistic overall in general in terms of the market.
While the BFSI contributed about close to 22%, 23%, retail and e-commerce have contributed 17% and travel at about 13% and health care at about 13%. So these are [ main areas ] of contribution coming through.
While it is so, probably the revenue rates in terms of realization, as remind of segment for the quarter, with the positive news in terms of most of the negotiations, what we have done, basically have gone for a retribution and we [ expent ] some amount of cost increase on account of instability in terms of the recruitment, retention, considering the attrition or whatever it is will get priced in with this kind of cost inflations, which have come through.
So that's a heartening fact, which the sales team have done a wonderful job in terms of getting ahead for renewals and very surprising, which has come through. While we have ensured that the rates remained there, we are very confident that with our digital selling coming through in a bigger way, with Aparaa on the way, we should be able to realize better dollars in the coming quarters as we have upper hand in terms of trying to give the value-added services on an interim basis.
Coming back to the cost. I think the attrition, which has been there on the higher side and which has been lingering at quite high numbers across the industry, I think we have stabilized and we were able to see -- probably not -- the last quarter is not the measure, probably the year could be a better measure, it will improve basically. But we expect the attrition to drop down.
We still were there hovering around at the later stage when I'm coming on to the call. When you look at it at this point of time for the month, basically, I think we have done better. We have moved in the zone at about close to 25%, 26%. But I think for the quarter, it has been hovering around 28%. And know for sure that we are going to catch it up and bring it down when it comes to the year end as an average as to what we are -- to the attrition level.
In terms of the CapEx, there has been some amount of CapEx necessitated in terms of the need base with the employee numbers moving up and also on account of the accounting which has been necessitated due to acquisition of Aparaa for the value consideration sale in terms of both tangible assets and the goodwill and intangible, which needs to be clarified.
And those intangibles definitely get charged off. And that is one of the reasons in terms of the accounting, the depreciation is slightly on the higher side. We have controlled on the finance cost and the return on the other income, which we have generated fairly a good amount of cash flow over the last 2 quarters, which is roughly 44% of the EBITDA.
And what -- the conversion of cash flow is 44% of the EBITDA, and we have generated a good return equivalent to about 6% to 6.5%, maintaining a cautious vigil in terms of trying to be careful about the investment, not only protecting the capital, but moving ahead.
Out on the total receivable days, it has been very, very healthy in terms of about 42 days. And we have not seen the tendency of the customers in terms of either insolvency or kind of bad debts or whatever it is. And there has been a cautious approach in the overall scheme of things.
And given the stance where we are in and given the order book position, which is staying healthy, as it stands, I think we are confident of the quarters coming ahead, though we are not in the process of giving a -- I mean, as such, any guidance into where we are and what we are. But I think the run rates stipulate very clearly that we are in the territory and galloping ahead.
With these few words in terms of the financial number snapshot, I hand over the mic to my colleague and the CRO, Vinay Rawat, to lead us into the sales and the strategy and the market wheel as to where we are, what we are go. Over to you, Vinay.
Okay. Good morning, good evening, good afternoon to everyone. Thanks for joining this call. I think most of the points actually have been covered by Srikanth and Krishnan from finance and demand perspective. I just want to mention a few things.
Last quarter, we actually mentioned that we had initiated a new go-to-market strategy in terms of deepening our relationship and focus on accounts, which we already have. And I'm glad that our strategy actually is leading to a good result. We are actually deepening our relationship. We're expanding our footprint into our existing accounts, and that is definitely going to help us in selling additional services, which we have acquired through acquisition.
It's been a very secular growth across the different industry segments and customer base. That's certainly is healthy from our perspective. One thing which actually we have noticed so far is the demand for highly skilled and talented people continues to remain strong, which actually begins with the pressure or at least inflation in wages. We are seeing more that kind of spend on-site, which is especially in North America.
The other thing, customers certainly have become a little cautious. They're cautiously optimistic. Nevertheless, what we saw during pandemic, especially last year, that demand is something which is softening. Everyone is very cautious, especially about recessionary pressures, which is being anticipated in the industry. Especially, technology segment has become soft.
There are certain other places where we are seeing -- the customers are not -- they're not pulling off the projects right now, but they are definitely being cautious. And that -- from our perspective, the demand is still continuing to be strong. And I think we have enough room for -- to deliver the growth, which actually we have planned for ourselves for the next few quarters.
So that's the commentary on the market demand side I have from my side. I'll just -- if you have any questions, I will be happy to answer them. But back to your, Krishnan.
Yes. Thank you, Vinay. That's a good summary. And I will now request Raghu, our Chief Delivery Officer, to say a few words on our client experience and the kind of offerings which we have started putting on the table. Over to you, Raghu.
Thanks, Krishnan. Good morning, good evening, good afternoon all. I think in line with what Srikanth,, Krishnan and Vinay outlined, in line with the GTM strategy, we have been able to provide additional offerings and services to our existing clients, deepening relationships in the areas of digital engineering, data and analytics, AI/ML and so on and so forth.
Srikanth did speak about our integration largely completed. So that allowed us to increase our depth and breadth of expertise that we can offer to our clients, and we only expect this to grow quarter-on-quarter. And we also, on the supply side, have geared up in terms of ensuring we have strengthened our training, cross-training and upskilling programs that has allowed us to also improve our margins.
We have had an intake of freshers and junior skilled [indiscernible], which we worked upon over the last few quarters. We are also seeing an early sign of receding attrition, but too early to make a trend out of it. But I'm sure that when compared to previous quarters, we are able to hold our talent in a much better manner.
With all of these, I think alignment of GTM integration of the new skilled company that we acquired and our rejigging that supply to meet supply and demands, we are able to increase our footprint in our existing clients. Our customer satisfaction score continues to remain very, very strong. And it's also heartening to see our existing clients opening the doors for us to participate more deeply into their digital transformation programs.
So with that, I think, yes, so far so good, and we are in line with our progress versus plan. Happy to answer any specific questions any one of you will have later. Over to you, Krishnan.
Yes. Thank you, Raghu, for the brief note. And I invite now Sairam Vedam, Chief Marketing Officer, to give a little bit glimpse on the marketing efforts. Over to you, Sai.
Sure. Thank you, Krishnan and Srikanth, Vinay and Raghu. I hope I'm audible. Good morning, good evening and good afternoon for everyone. A quick update, most of them have been covered. Our reaffirmed, repositioned, revitalized, relaunched brand identity has got noteworthy global mentions across the ecosystem.
Global media, Tier 1 media globally, both in abroad and the U.S., both Wall Street and Indian media, in particular the Tier 1 media, acknowledged the revitalization of the brand. Adviser community and analyst community took note of the repositioning as an integrated digital player, bringing in both digital assurance and AI-led digital engineering capabilities. So that's from the corporate branding perspective, which is in line with our renewed mission and vision and aligning with the overall digital ambitions of the company.
The second update, as said, is an outcome of some of these constant endeavors. As a brand, we've been awarded as one of the prestigious brands of India from diverse segments of the business by the leading branding and advertising agency BARC. And our Chairman was also acknowledged for the contribution to the Indo-American business corridor on a sustained basis. So that from a recognition standpoint.
Just a couple of points while -- in the context about the ISG recognition of the vertical footprint. I'm also happy to say that Gartner actually mentioned and put Cigniti is the preferred Hype Cycle for managed IT services in the quarter that went by, which is a reflection that we've moved the needle from being a pure-play quality engineering company to both the digital assurance and as well as the digital engineering services company as an outcome of the recent acquisition that we spoke about.
And we continue to be recognized for our API testing capabilities, which is a very deeper aspect in the connected digital economy. So that's more or less -- and as I agree with all our executive management, we are cautiously optimistic. We are constantly listening to our customers and partner ecosystem and ensuring we cater to the growing needs of a talented employee base, which is the most important element of a brand.
So that's from my side. Happy to answer any questions. And I'll give it back to Krishnan.
Yes. Thank you, Sai. And I now leave the forum for the question-answer session.
[Operator Instructions] The first question is from the line of [ Ravi ], and he is an individual investor.
A couple of questions from my end. So just wanted to understand the steps taken in terms of margin expansion, because currently, we are seeing an average industry margin in the range of 15% to 17% for software testing companies. So what are the steps that we are undertaking to reach that kind of margins which are sustainable?
Okay. Do you have any other questions or you want me to answer this question-by-question?
Question-by-question would be very helpful, sir.
Okay, sure. I think as you have seen probably the way we have galloped from 11%, 12% margin to 15% almost nearby, with bringing in more efficiency in terms of reviewing the utilization buffer and blocked resources. And also, if you look at on a constant basis, where we have been trying to avoid the downtime in terms of the people joining, a lag time probably from the time the people join to people getting into the availability role.
While that continues to be the endeavor, it is -- the couple of steps, which are being currently taken out, clearly are that. We are trying to do on a continuous process in terms of a pyramid mix, which is going through. Second is that for the similar accounts where we are renewing, with the kind of cost increases, which we have observed over the last, say, about 6 quarters, now we are trying to go through for a revision at least -- if you look at it, the top 20 accounts contribute about 50%, and the rest of the accounts contribute about balance of 50% approximately.
So where we are trying to get through to the top 20 definitely for sure and then getting back to the rest of the accounts in terms of seeing where there the rate revisions can take place. So the first step of the pyramid composition changed. And the two is that we are now trying to look at it in terms of the rate revisions.
And the third point, in general that I have explained to you very clearly that with the offerings increasing there, we are trying to mine more in terms of the depth and breadth of the customers' accounts very clearly. We are trying to get better rates for our offerings like RPA or newer offerings. So that shall continue to contribute and where we try to look through the new edge technologies, including digital contributing.
So this is a continuous step. We are also clear and ambitious that we need to get to the 17%, but we don't put a pen down to say very clearly, this is the year we are going to achieve. But our endeavor is that sooner the better and where we need to get there. And it's a constant process. And the efforts, what we have done over the quarters, have given us benefits now, and we are confident of pulling it through and improving it.
That's helpful, sir. So going ahead, like the things that we hear on the recession and everything, I just wanted to understand, from your perspective, how is the business getting impacted. I mean do you witness a change in the client requirements?
I'll just answer in brief and probably invite Vinay to answer this, which he has addressed it in the beginning. I think over the last year plus, I think there's been a change in sales strategy invariably and where we have started focusing on mining the accounts, splitting the accounts into strategic accounts, growth accounts and nurture accounts.
I think that paved the way foundation, where we were also able to move away and capture invariably predominantly mission-critical applications in most of the cases and especially on the top 20 accounts. So what happens is that any kind of a decision, any kind of, I will say, not a recession, it's a cautious approach what is being adopted out or whatever it is.
It will not impact in a greater way to us. While I won't say that we are exempted from this and we are in the industry and we have to be a Roman in Rome and we will definitely get impacted, but the quantum could be miniscule. And we know that with the overall volumes, what we are trying to achieve, that will get adjusted.
And while we are working on the mission-critical applications, I don't think that's going to take a toll. While I stop here, probably I can ask like -- for Vinay to really give the market view in terms of what is the trend on that line and how are we mitigating this. Over to you, Vinay. Vinay, you are able to hear me? Looks like I think we've lost his signal. Yes, Mr. [ Ravi ], I think I've answered the question probably. Srikanth, would you like to throw a few pointers on this additionally, anything?
Yes. I mean -- so like Krishnan mentioned, I mean the kind of trends we're seeing is -- first of all, we have a diverse set of clients. So there are some pockets where there is an extreme impact in terms of how they'll react to recession in a not so good manner. And there are pockets of clients who use recession as an opportunity to grow. We have both the set of clients in our current roster. So that will probably provide a hedge against the overall scheme of things if there's an extreme scenario.
But having said that, the kind of trends that we are seeing at this point is -- like Vinay mentioned, it's not too extreme at this point, but there are pockets of areas where people don't want to replace resources if there is an attrition. And there are other areas where we have an opportunity to consolidate to the overall IT vendorship and provide value to the clients. So that is what we are seeing at this point in time.
Great. Just one last question I have from my end. Just on the continuation of the same, towards the long-term vision, are we looking for any more acquisitions in the coming quarters? If yes, then what are we looking for? Like in the same kind of offerings, or are we trying to add any new offerings?
So we are continuously evaluating companies. I mean, like I mentioned, we always [ seek -- look around ] to evaluate companies that will add to our capabilities, to our digital footprint, maybe a new geo such as near-shore. So some of those elements we're evaluating. Obviously, we continuously look at what our clients need in terms of newer capabilities, and that is where we usually try and get -- do some bolt-ons or tuck-ins.
I request the operator to unmute few of the Cigniti management team members. I think that is the reason that they're not able to speak.
They will be unmuted. The next question is from [ Anuj Kanwar of Family Office ].
First of all, congratulations on the good set of numbers. I just wanted to understand in terms of the kind of service that we offer to the clients. And are these services customized as per the client requirements?
Okay. Thank you, [ Anuj ], and thanks for the wishes. Raghu, I request you to take up this question in terms of the services what we offer to the customers.
Krishnan, if I understood the question right, it is what services we offer to the clients today, right?
Absolutely.
Yes. So yes, thanks for the wishes. And as you know, when we were a pure-play quality engineering company, everything related to test engineering, everything related to the services catalog that a typical independent testing company offers, we continue to offer those services to our clients, because that is still at the core of where we are.
From a digital engineering services standpoint, we have started offering services around native digital development, AI/ML, data and analytics and also in terms of RPA. So those are the new set of services that we have augmented to our quality engineering services at the core. This [ has enabled ] us to play the 9 yards of digital while still ensuring that the quality assurance is provided, which is very important in a digital transformation.
Okay. Yes, I had one more question. Could you tell me what is the general time taken to onboard a new client? And once onboarded, what is the time frame for the execution?
Krishnan, do you want to take that up?
No, no -- yes. I think it's a question to sales. Probably, Vinay, I can request you to answer in terms of turnaround time from the proposal to the conversion. And I just wanted you to understand the question. Yes, please go ahead.
Krishnan, can you hear me now?
Yes, I can hear you, Vinay. Yes.
Okay. Okay. I think I was muted earlier. So it actually depends -- like there are 3 types of businesses which we pursue. One is extension of our existing business. The second one is, in our existing business, we actually expand, which is new business in existing accounts. And the third one is new-new business. So I will start with the new-new business.
Typically, pursue time for a new customer can vary anywhere between 90 to 120 days. So 3 to 4 months is an average sales cycle for a new-new business. For existing new business, which I was mentioning, the cycle is somewhere around a quarter. And renewals, so the renewals depends on the budgeting cycle of the customer. From an overall renewal cycle perspective, it does not take, let's say, more than 30 days; however, we have to keep an eye on that on a continuing basis.
So therefore, I can mention that like it's a continuous exercise which have to be continued to remain engaged with the customer. Once we acquire the customer, from an execution perspective, it depends on the size of the team, it depends on the service which we offer to the customer. But the execution time actually will range anywhere between 4 to 8 weeks to begin the execution. And of course, after that, there is a continuous engagement with the customer. I hope I answered your question.
Yes. That was helpful. One last question I had. Also, if you can give some color on how the order book has moved to the end of the September and how much of that order book is from the recurring clients? If you can share the number compared to the June quarter, that would be really great.
Just to put it on perspective, very clearly, in a year on an average, probably, yes, about 15% of the contribution comes from the new revenue. And the rest of it is invariably from the existing clients. So that speaks the volume probably in terms of where -- and especially with the current strategy where we are growing with mining of existing clients.
And as it stands, our order book position seems very healthy. It is sitting at a position very clearly that's close to about $100 million in terms of the order book position, which we currently have in terms of the [ close to on positions ] with a healthy pipeline, which is over there. Comparing to -- it has been progressive over the quarter.
If you look through comparing to the last quarter to this quarter, I think there has been definitely a good uptick in terms of -- that is that -- because what happens is that the order book gets built, and then automatically, the order book varies invariably.
So if I look at it as a standpoint as of 30th of June to 30th September, as to where we are, to be very precisely, while we were -- at 30th June, we were there at order book position in terms of about close to say about $85 million or so.
Today, we are there in a position, which is roughly at about close to $101 million or so. So there is a healthy amount of trend in terms of where we are trying to cover up on wins and start building up, a good amount of pipeline is available for us. I hope I have answered the question.
Our next question is from [indiscernible].
Yes. So first of all, pardon me. Like I'm a non-IT guy. So just wanted to understand, can you help me in explaining this digital engineering business in a layman's language? Like what exactly do we do there and what kind of growth opportunities we have there?
I'll take it.
Yes, please go ahead. Yes.
It's pretty simple in the layman's language. If you look at any enterprise, right, any conventional business like a bank or an insurance company or a health care organization, they would have had add a lot of software applications. They are called typically legacy applications. And today's business mandates them to put such supplications on cloud.
There's a lot of data sitting -- data, it could be from sourced data from inside transactions, data that can come in from external interfaces that these applications will have. So today's companies want to mine such data and make predictive decision for efficient business outcomes. The third dimension in a lot of these enterprises are productized in general instead of relying on conventional standard applications, the legacy.
All of that leads to what you need is also the experience in these applications are delivered and consumed. Like how we use an iPhone or how we use an Android phone and pretty much everything happens over that. A lot of these applications today are either voice-driven, conversational-driven, where you can interact and talk or you can actually pretty much amplify the whole experience.
So a culmination of all of this and the ability to build such experiences for customers is one way of looking at what digital engineering is. It means building such applications. In the top, you will obviously have [indiscernible] much, much, much better than what it was, and it cannot be done slowly, and it has to be automated. And that part is digital assurance where you need to ensure security, you need to ensure that it is frictionless, and you need to ensure that they are well performing.
So if you start both of this, the ability to build new applications, renew the old applications that are there, make them cloud-ready and leverage data and also ensure through the process quality is taken care, not just an afterthought, but from the beginning to the end. So that's in a way if you have to look at the digital, it's called the uberization of experiences. So I will just stop here. And I just wanted to give you a glimpse of what it should be.
Yes, yes. It was helpful, sir. So what is the current market share you have?
Market share or market size?
Market share, sir, like...
Yes. So as a quality engineering digital assurance company, we continue to -- it's a $35 billion market. The digital engineering market is about $630 billion market. So we are obviously starting our journey towards being a digital engineering company. It substantially gives us headroom of growth. So I would say, quality engineering, we hold about -- we are there in the overall world top 10 players in terms of digital assurance.
And if it is only independents, it's probably in the top 3. But if you start with digital engineering, the beauty is, the current revenue size, we have billions of dollars of market to go and garner for. Our market share right now will not be comparable to any of the big companies, but the market share that we can garner is significantly larger for us to grow 10x, 15x whatever, right? So that's how we look at it. So there is a significant amount of headroom opportunity for us in those plays.
Okay. Sir, just a follow-up on this. So do we have any internal target for this market share? What are we planning to do in the next 2, 3 years in this?
I will let maybe Krishnan or Srikanth take that one.
Let me put it -- just summarize basically, in our growth plan to $1 billion where we are planning over a period of next 5 years is that, we will -- we are expecting that about 60% will come from the digital and advanced technology areas and the rest comes from the quality assurance and engineering area. That is just the target in terms of the end state where we are going to progress.
60% from digital, right?
Yes, absolutely on $1 billion journey.
Okay, okay, okay. Sir, I have one more question. Can I go ahead?
Yes, please go ahead.
Yes. So currently, the IT industry is facing an attrition issue in quite a some time. So you mentioned, currently, our attrition rate is around 28% and it will go down to around 25% by end of this year, right? So what are the measures we are taking to tackle this problem?
Yes. So I just wanted to make it very clear that I've not committed any time lines on 25%. The optimism is very clear that it will come down. While the trend today very clearly says that it's a declining trend, but we can't be complacent. So invariably, we are spending a lot of money, dollars, in terms of training the existing workforce in terms of upskilling and reskilling.
Two, we are trying to make the workplace which is more attractive. I think that's all money. It's not that which leads [indiscernible] invariably, so we intend to make the workplace better. We are trying to give them the customer experience in terms of trying to interact with the customer.
So there are a few of measures which we are trying to take out as generally done by people. But I think in our place, we are trying to give some amount of, what you call -- at a miniscule level, some better leadership roles and trying to give them the responsibilities to scale up.
I think we intend to make it more professional and personal space, something interesting. And there's a lot of measures, which HR is taking through and which is helping us and which we are very confident that it will help us to run through.
Apart from that, we also have this variable pay structure, which is available in the company, where the people get rewarded as the performance they contribute starts moving up, so there is a linear scale in which it oscillates. So I think these are the measures which we are doing basically to bring down on the attrition clearly.
Our next question is from Deepak Poddar of Sapphire Capital.
Sir, I just wanted to understand with regard to the vision that you mentioned. Now this 5-year vision is $1 billion revenue, that's what you mentioned?
Yes, that's the vision we're thinking, yes.
Okay. Because earlier, I think we were targeting around $500 million by FY '26, right?
Yes. absolutely. Now we are trying to look at it to accelerate it because of the kind of opportunities and the kind of offerings, which is getting rolled out on the table. We are trying to look at FY '28 or so ambitiously to reach $1 billion, both organically, inorganically coupled together. So I think it's always good to think high and start working. So that's the whole idea.
Our next question is from [ Vikas Verma ] of -- as individual Investor.
Congratulations on good numbers. My question -- sir, existing customers [Foreign Language].
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Our next question is from Keshav Garg of Counter Cyclical PMS.
I wanted to congratulate the management for doing the open market share buyback. So thank you very much on behalf of all the shareholders. And sir, I wanted to understand that in the light of what you said about the attrition trends prevailing in the industry, which hopefully should reduce going forward.
Sir, last quarter, we had an employee expense of around INR 240 crores. Sir, so going forward for the rest of the quarters of this year, you think that our employee expense should remain in this range only, around INR 240 crores, INR 250 crores? Or a significant jump is expected due to any increment or bonuses that you might be planning to give in the third or fourth quarter?
Our appraisal cycle is April. So invariably, the next appraisal cycle falls in April of next year. But coming back to the cost in terms of -- it is a variant of business basically, because we are running a business currently, which is 97% linear. 97% linear, [Foreign Language], it has to be people-dependent very clearly.
So [Foreign Language]. See, we have to look at it very clearly as to how do we optimize that cost and enhance the -- in the sense, control the costs -- COGS and then enhance the gross margin. That steps we will take invariably. More or less, you've also have seen that we should be able to retain these at these levels, but there will marginal variations depending on the business growth, which is happening around.
[Foreign Language] But if I start moving up the value chain in terms of trying to garner slightly more numbers, depending on the order, depending on the execution time, depending on the need, [Foreign Language]. But what is to be seen is that not the salary costs of taking it over there, the cost which needs to be looked at is clearly the margin at which where we are earning.
For example, [Foreign Language] if you look at the overall salary cost, it will include even sales and marketing. But that is a factor where I need to invest. I might not have invested in 6 months. When I see an opportunity in the market and if I don't prepare myself by investing into that upfront, which will take a share in a quarter or so in terms of the cost moving up, which is fine, because that is what will yield me over the next 6 quarters in terms of the results.
Sure, sir. Sir, also wanted to understand that if we see that in the past 5 years, we have grown by around 15% CAGR. Sir, so now in the next 5 years, to expect 45% CAGR, which is 3x the growth rate of past 5 years and also looking at the headwinds in the global economy and since most of our revenues are coming from Western markets, which are in probably some kind of economic turbulence.
So sir, you think that we have a realistic -- I mean it's always good to have -- to aim high, but sir, do you think that this is realistic and we might not do something reckless to chase this kind of growth, some kind of reckless acquisition, which can really hamper our financials?
No, it's a good question. Definitely, we are very cautious. While organic growth and -- the growth that we've talked about in terms of the trajectory is not just organic alone. It is both organic and inorganic. And inorganic has got its own share of positives and negatives. So we are well aware and cognizant of the fact, being a service delivery company, as to what is that kind of an inorganic growth which we need to do and what it can chew very clearly.
So while we have an ambition to be $1 billion, I said that billion dollar is a journey which we are trying to do. In that journey, automatically in terms of organic growth, I can come and talk to you about $200 million, I will grow at about 20%. At $400 million, I cannot say that I will still continue -- I'm confident that I'll grow at about 20% or 25%. But -- because I need to make my steps and amend over there to get to that level of 20%, 25% growth on that base at $400 million.
So while this combination runs through as a $1 billion journey, we are cautious and we have laid our plan very clearly, though we are not in the process of giving any guidance. We are cautious in terms of what comes from organic and what comes from inorganic invariably. So we are sure that we are monitoring the situation and we will not be doing any kind of a hasty decision to hamper the business or hamper the, what we call, the resultant valuation of our business.
Sure, sir. And sir, lastly, just wanted to touch upon these margins that -- I mean the company has shown dramatic improvement, better than expectation, especially looking at the picture on the whole and, in fact, other IT companies are taking a huge margin hit, whereas our margins have improved. So is -- I mean all congratulations to the management for pulling this feat.
Sir, but again, looking at the economic environment, the kind of price hike that you were talking about that you were expecting from your customers, so you think that we have a reasonable -- our clients and customers will be cooperative, since pricing should be under pressure if you're looking at the economic situation, whereas we are looking for a price hike?
No. I beg to slightly differ on the pricing. Probably, Vinay, you would like to take up this question in terms of the pricing?
Sorry, Krishnan, what was the question?
The question is that, there is a recessionary trend and global headwind. And we have talked about price rises signed by the customers. So his question is that will we have challenges? As against price reduction, we're talking about price increase. So that is the one which he is asking.
So it depends on the kind of services which we are, I'm sorry, providing to the customer. So if you take commodity services, commodity services actually do remain under price pressure because of the competitive nature of those services. However, if you take digital services where, as I mentioned earlier, the demand for highly skilled people continues to be pretty strong, and therefore, the pricing power actually remains to be with service providers.
So business as usual, run the business. Segment actually will remain under pricing pressure. Change the business segment actually will continue to provide better price points irrespective of the recessionary pressure. As long as I think the demand-supply gap continues to be there in the digital engineering services, the pricing power will remain with the providers.
Our next question is from [ Arun S. ], an individual investor.
I have a couple of questions.
Yes, yes. Please go ahead, Mr. Arun. Yes.
The first question is these digital services, are there operational challenges -- this is coming out as a new business. And second, does it require some product investment? The company run the risk of product write-offs in future where you have to invest for these businesses. That's the first question regarding the first one.
Second, the American inflation is largely services wage inflation. The cost of their corporates is only 10% commodity, [ 16% ] wages. With our exposure, our clients being largely American service companies, is that outsourcing more -- you find in some pocket customers so that they are able to rein in their inflation?
Yes. Just to answer your question, probably, I will bring both Raghu and Vinay to answer in terms of, what we call, the investments in product and also talking about the offshore model and inflation. But just clarify your point, basically, which I want to do is that we don't have -- effective 2017, we don't have asset accounting policy.
We don't capitalize any of the expenditure which has been spent on development. It is absorbed in the quarter in which it is spent. So with that clarification, you can be rest assured that there cannot be any kind of write-offs coming in the future, very clearly.
So with that clarification run through, I invite probably Raghu to speak on the requirement of, what we call, investing into this digital offering. And Vinay, for the market landscape in terms of more and more customers optimizing their costs and trying to outsource more, which could prove to be an opportunity, I think a light on these would be helpful.
Okay. Do you want me to take that first?
Yes, please go ahead, Vinay. Yes.
Yes. So I think your observation with regard to the wage inflation -- I mean obviously -- so as you know, the wage inflation is actually being driven by the inflationary pressure, which is there across the market, predominantly actually being driven by the energy prices. Nevertheless, one other thing which is obviously playing in favor of American clients is dollar being strong.
Having said that, the outsourcing generally actually is driven mostly by the supply-demand gap. So there is a dearth of talent, which exists in overall American markets, the American corporations that will continue to transform themselves into digital enterprises. And therefore, that transition requires significant amount of workforce to do that, skilled workforce to do that. And that skilled workforce is something which is not available here.
So beside the cost saving part, which is actually mostly used in running the business, but the same [ business ] is there most corporates actually are spending money today. When the business continues to remain under pressure on a year-to-year basis, that continues to be shrinking, that pie is shrinking.
So as I said earlier that I don't see in short term that demand is actually getting fulfilled, and that will continue to drive demand particularly for providers like us, who have a global delivery model. And purely from a demand perspective, as I said in my comments earlier that we are not seeing that demand trending down. There is a cautiously optimistic approach, which we are noticing, but the projects are not getting shelved. I hope I answered the question.
I think, Raghu, you would like to just step in to talk about in terms of any, I mean, blockades in the offerings, which involve huge investments in our products. That's the question.
Please note that the mic for Raghu has disconnected, and we are unable to reconnect him.
Not even products. More the question is around, is the organization able to adapt easily to offer more -- when you talk of mining the existing customers, the talent pool, say, from being a testing company to a digital company, there is a large transformation in Cigniti. Is it happening [indiscernible] at least for the next 2, 3 years as the transformation happens? Or we'll see margin expansion, provided the revenue comes at the rates our wage inflation keeps up?
Yes. Two things, Mr. [ Arun ] -- sure, go ahead. Go ahead. Yes.
Yes. Just to give you -- I think you heard from Raghu, Sai and Srikanth earlier that other predominant engagements that the customers actually have been on the testing as well as digital assurance side, now many of these customers, we have deepened our relationships. These customers actually have had many projects that we have been running on overall development side.
And they keep actually asking us to provide that help to them. Now we are proactively reaching out to them. How we are developing that talent is, one, obviously, reskilling the resources internally, where we have in internal talent development programs where -- through which we are obviously recruiting very actively in the market to acquire these skills.
In addition to that, you heard that we made an acquisition last quarter, which we completed -- last to last quarter. That acquisition actually has helped us to ramp up our skills in digital engineering skills. And we've also positioned ourselves to acquire business into digital transformation projects, which our customer -- our existing customers actually are pursuing.
In addition to that, from an overall positioning perspective, most of our existing customers actually have welcomed it. Nevertheless, it's certainly -- there's lots to be done, particularly with regard to the pricing for providing digitall services as compared to digital assurance which we do. And we are continuously working on that.
And as, I think, Srikanth mentioned in his commentary that we are seeing a good amount of traction, good pipeline -- opportunity pipeline in our customer base. All of our new customers, which actually we are pursuing currently, there we don't have a challenge of our position. And therefore, our conversations with those customers actually start at a digital engineering services level, with, of course, the quality engineering, which continues to be our focus, being at the core. So that's where we are. I hope I answered your question.
An extension to that, from a product standpoint, we typically don't end up building products. There are point solutions we try and build and try to leverage and reuse across clients. That is one. And the second one is we, of course, depend on the partner ecosystem to bring in all the deficiencies in case we have any. And we have a strong partnership and alliances team that -- these requirements.
Ladies and gentlemen, that was the last question for today's conference. I now hand the conference back over to Mr. Srikanth Chakkilam for closing comments. Please go ahead, sir.
Yes. Thank you. Thank you, everyone, for attending this call and clarifying all your questions. We look forward to the next con call. I wish you all a Happy Diwali and wish you. Thank you.
Thank you.
Thank you. Signing off. Thank you, everyone.
Thank you, everyone. Thank you.
Ladies and gentlemen, on behalf of Cigniti Technologies Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.