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Ladies and gentlemen, good day, and welcome to the Q1 FY '24 Earnings Conference Call of Happiest Minds, hosted by ICICI Securities.As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Sumeet Jain from ICICI Securities. Thank you, and over to you, Mr. Jain.
Thanks, Michelle. Good morning, ladies and gentlemen. Thanks for joining us today on Q1 FY '24 earnings call of Happiest Minds Technologies Limited. On behalf of ICICI Securities, I would like to thank the management of Happiest Minds for giving us the opportunity to host this earnings call.Today we have with us from the Happiest Minds management, Mr. Ashok Soota, Executive Chairman; Mr. Joseph Anantharaju, Executive Vice Chairman and CEO, Product Engineering Services; Mr. Venkatraman Narayanan, Managing Director and CFO; Mr. Rajiv Shah, President and CEO, Digital Business Services; Mr. Ram Mohan, President and CEO, Infrastructure Management and Security Services; Mr. Aurobinda Nanda, President, Operations and Deputy CEO of Product Product Engineering Services; Mr. Sridhar Mantha, CTO; and Mr. Sunil Gujjar, Head of Investor Relations.With that introduction, I will hand it over to Sunil for Safe Harbor statement and to take the proceedings forward. Thanks, and over to you, Sunil.
Thank you, Sumeet. Good morning to all participants in the call. Welcome to this conference call to discuss the financial results for the first quarter ended June 30, 2023. I'm Sunil, Head of Investor Relations. You can review our financial statements, quarterly fact sheet and press release which are uploaded on our website.The agenda for this call is as follows. Ashok will begin the call by sharing his perspectives on the business environment and our results, Venkat and Joseph will then speak about our financial performance and operational highlights, after which we will have the floor open for Q&A.Before I hand over, let me begin this with the Safe Harbor statement. During the call, we could make forward-looking statements. These statements consider the environment we see as of today and carry a risk in terms of uncertainty because of which the actual results could be different. We do not undertake to update those statements periodically.Now, let me pass it on to Ashok.
Thank you, Sunil, and thank you also Sumeet and ICICI Securities for hosting this call. A very good morning to all the participants on this call.I am pleased to share with you the results for the first quarter of fiscal 2024 for Happiest Minds, which is consistently and yet again delivered industry-leading performance both on total income growth and profitability at 4.7% quarter serial growth and 25.5% EBITDA. Our EBITDA margins have surpassed the upper band of our guidance band for 13 quarters in a row. The performance reflects our strong value proposition, which we bring to our customers.During the quarter, we achieved and crossed many significant milestones. Our headcount crossed the 5,000 mark during the quarter and we are now 5,048 strong Happiest Minds. I thank all Happiest Minds for their continued commitment and dedication over the years. I also express my gratitude to over 200 Happiest Minds who crossed 2 decades of association with us in this quarter. We closed a very successful Qualified Institutions Placement, or QIP issue of INR 500 crores, with strong support from reputed institutions across both domestic and international. I thank the financial community for their continued trust and support.As shared with you in my earlier conversations, we have set forth a goal of achieving $1 billion in revenues by FY 2031. Our guidance of 25% growth is based on that premise, we are on course to achieve that goal. I would like to reemphasize that the guidance of 25% doesn't make a distinction between organic and inorganic contribution. Our organic story continues to be strong as can be seen from the positive swing from the prior quarter. As we speak, our pipeline also remains strong and Joseph will cover more on this in his remarks. On our inorganic pursuit, though our pipeline looks good with multiple opportunities, we have not been able to take any one of them to closure as yet. Hence, if need be, we will update our revenue guidance later in the year depending on the progress we make on the M&A front in the next few months.With this, I end my commentary and over to you, Venkat.
Thanks, Ashok. Good morning to all. I will in the next few minutes, take you through certain financial highlights and hand it over to Joseph for a business update.Our operating revenues for the quarter was $48 million and this was a Q-o-Q growth of 3.5% and year-over-year growth of 12.7%. In constant currency, the growth was 3.5% Q-o-Q and 13.8% Y-o-Y. Our growth numbers is industry-leading and has showed a strong positive swing from a low quarter of last year -- fourth quarter of last year. In rupees, our total income was INR 405 crores, which has showed a sequential growth of 4.7% on a quarter-over-quarter basis and 22.6% on a year-over-year basis. Both EBITDA and resulting cash flow as we define it for the quarter breached the INR 100 crore mark and stood at INR 103 crores and INR 101 crores, respectively As Ashok mentioned, this is the 13th quarter in succession we have delivered 25% plus on EBITDA. At 25.5% of revenues, our EBITDA continues to be in the top-deck when compared to almost all other industry participants. Our EBITDA has grown 17.4% over the previous year. I would like to believe that our strong profitability numbers are a validation of our value proposition and disciplined execution. Our profit before tax was INR 79 crores and that stood at 19.4% of revenues, and while that after tax was INR 58 crores and at 14.4% of revenues. We have grown 3.5% on this metric over the same period last year.Our capital return ratios continued to be strong. Return on capital employed is at 33.2% and return on equity, 26%. Our cash conversion ratio also continues to be strong at 98.4% of EBITDA. We ended the quarter with a cash balance of about INR 810 crores, which now after the QIP has moved up to INR 1,200 crores plus. During the quarter, we raised INR 45 crores through issue of NCDs and INR 500 crore QIP raised by placing equity shares with qualified institutions. We received strong institutional support for our QIP and I thank all our stakeholders for their continued support and trust in us. The capital issue was predominantly to support our working capital requirements and also fund growth opportunities.Coming to certain other highlights for the quarter. Extremely happy to report that during the quarter, the Happiest Minds family has crossed 5,000 with a net addition of 130. Utilization for the quarter stood at a steady 74.6% while attrition levels have been nicely trending downwards, and we saw that at 16.6% on a trailing 12-month basis. As we speak, that number has come down to below 14%.During the quarter, we expanded our Pune and Noida centers. During the quarter, we also added 18 new logos, and $2 billion corporations into our $55 billion existing logos taking the total to $57 billion. Our repeat business was 86%, signaling the good growth that we are seeing in new business. If you recollect, we had signed up 17 new logos last quarter and 18 new logos this quarter and that's contributing to the good growth in new business. We ended the quarter with 243 active customers with an average revenue per customer of about $793,000 and this has kind of been constant and has been trending very close to this number over the last few quarters reflecting on our land and expand strategy.In conclusion, I believe we have had a good start to the fiscal with industry-leading growth and [Technical Difficulty]. On a metric that we closely track, which is revenue growth plus EBITDA margins, we are consistently above all other industry participants and players. For Q2, we'll be rolling out pay increases, covering a large part of our Happiest Minds family, which will be effective 1st of July and this could have a temporary effect on margins. As mentioned by Ashok, we'll provide an update on revenue guidance during or after Q2, while we continue to hold onto our EBITDA margin guidance of 22% to 24%.This concludes my update and over to you, Joseph.
Thanks, Venkat. Good morning to all the participants in this call. I'm very pleased to share with you the results for the first quarter of the fiscal year 2024.At 4.7% quarter-on-quarter growth in total income, our performance continues to be the best in the industry. This growth was led by Product Engineering Services and Analytics CoE, Americas and India geos and BFSI and EduTech verticals. At these times, when businesses are looking for compressed timeline for execution and faster results, our results demonstrate that we continue to be a partner of choice in their journey to stay relevant and enhance efficiency in their operations to our customers. I'm proud to share with you that we now have our first customer contributing more than $20 million in revenues. We have been working with this customer for the past 8 years and this is a validation of our land and expand strategy as well as the quality of our execution. What started as a product engineering work for their platform is now well entrenched into all our business unit offerings and also leveraging our CoEs of analytics, artificial intelligence and automation. We now work with 57 large enterprises that have more than $1 billion in revenues. This count have increased by 2 in the last quarter itself. In the past quarter, we have quite 80 new logos to add to the 60 new logos from Q4 of last year, which has driven up our share of new business. It is gratifying to see that several of these new logos are already on a $1 million run rate.Now to give you a flavor of conversations we are having with customers, starting with the US geo. The EduTech industry continues to leverage digital to channelize their effort to the changing needs of your stakeholders. In the reported quarter, we were the beneficiary of a vendor consolidation exercise with the US client that is a leader in the K12 space, who chose us to be the sole provider for M2M Product Engineering Services. We started focusing on healthcare and life sciences a couple of years back and to build expertise that we had already gained from providing engineering services to some of the large, reputed and global companies. From this quarter, we have started calling out this vertical separately in our fact sheet. In the reported quarter, we were chosen to provide cloud-based product lifecycle management solutions for a global leader and innovator in the BioScience industry. The acquisition of SMI in January has provided further impetus to our growth story in this space.In the Europe geo, we did see some impressive wins during the quarter. For example, for a global high-tech engineering group based in Europe, we were chosen to design and implement a modern data platform on Microsoft Azure. In another instance, a global talent fulfillment enterprise chose us to implement Microsoft's Power Platform to improve employee experience and provide actionable intelligence for decision-makers.In the Middle East, we worked with some of the large businesses out there. In one instance, Happiest Minds was chosen to provide consulting-led operational technology solutions for a large enterprise in the oil and gas industry. We continue to get called for strategic initiatives by large enterprises in our home turf. Through our consulting-led approach, we're helping a large automobile services company in India to build and develop, deploy their B2C platform. In another instance, we were chosen by one of India's leading education groups to build their platform for medical student PG test preparation.On Generative AI, which is a highly strategic area for us, we are setting up a Gen AI division with a charter of driving significant Gen AI business by building organizational capability on OpenAI and Bard, developing multiple use cases in each domain put in together GTM to take these offerings to market and working with customers to implement these use cases. We are building an initial team of 100-plus people with deep expertise in Gen AI, which we expect to scale further shortly. Apart from helping customers realize the full potential of this technology, these engineers will be building our own solutions. We have already engaged with multiple customers on various use cases and also helping them to take advantage of co-pilot for productivity improvements. We are also deepening our partnership with the large hyperscalers like Microsoft, Google and AWS in this space.We believe the technology can have a positive impact in three areas; automation to improve processes and enhance employee productivity; transform to enhance customer experience; disrupt to create new business models by leveraging large language models on proprietary data. With our deep domain knowledge and technology depth, I'm confident that Happiest Minds will unlock the full potential of Gen AI for our customers and our engineers to be better programmers.Moving on to other updates. Our integration of SMI is now complete. I'm happy to share that we're able to cross-leverage teams and capabilities in both directions and achieve synergies together as one entity. But to give you some flavor on the demand environment, our pipeline remains strong and as we speak, we are chasing several large opportunities cutting across geos. Our clients remain focused on executing compressed transformations to achieve cost optimization, stronger growth, more agility and greater resilience. We believe in the world we live in, all strategies lead to technology and just being at the core of decision-making. We are all ears to our customers' changing needs and being relevant across the enterprise from the front line to core operations to corporate functions. I strongly believe that our ability to advise, shape and deliver value-led transformation, leveraging the breadth of our services across all industries, geographic markets and CoEs is what differentiates Happiest Minds.With this, I would like to end my commentary and open the floor to Q&A.
Thank you very much. We will now begin the question-and-answer. [Operator Instructions] We'll take the first question from the line of Sumeet Jain from ICICI Securities.
So my first question is actually on the margin side. If I look at your employee costs, that were a bit elevated this quarter, despite low wage hikes announced in the quarter. So any particular reasons for the elevated cost of revenue this quarter?
Venkat, I guess this is for you.
Yeah. So we had a slight increase in our on-site people cost. That's one reason because the mix changes quarter-to-quarter. The campus joinee cost also has come in, some of that cost has also come in at its full force this quarter. Other than this, we have not seen any other change, Sumeet. In fact, we are optimizing on the subcontractors reasonably well and that's been the reason.
Got it. And can you also comment around your hiring outlook for the year? I guess you mentioned around 1,300 fresher hiring for the full year. And I think contrary to a lot of other IT companies, we have seen at least the headcount growth for you. So can you just comment around the both fresher hiring target as well as lateral hiring based on the demand?
Yeah. While I just give the overall numbers, I'll ask Joseph to add this because we had talked about a 25% growth guidance as Ashok had referred to in his commentary earlier and which translated to about 1,300 people to be added during the year. In that addition, we had a pipeline of freshers as well, which was about 400 plus. 240 plus will be joining this month as we speak and the rest is scheduled over a period of time going over the financial year.Again, I should caution you that our growth of 25% has both an organic and inorganic element to it. So the number of people that we hire will also function of the people that we add from the company that comes into our fold. For example, last year in December, our numbers went up by 400 coming in from SMI and this year, we are progressing well on the pipeline that we talked about earlier, and that will impact the number or will add to the number that we'll add to the Happiest Minds family overall. So we had talked about 1,300, it'll be a function of laterals, it'll be a function of the campus joinees, and also the new additions or members we'll add to the family through M&A.
Just a couple of more points I wanted to add there, Sumeet. One is, I think we will be looking at increasing the utilization and therefore, some of the additional business would come from the pool that we currently have. And secondly, we also want to take a little bit more of an agile view because there is a plurality of skill sets required and we want to make sure that the numbers that we hire and the skill sets, we take a more agile and nimble approach to our headcount addition.
I think another question is on more of a longer-term strategic outlook. I think when you gave a target of around $1 billion by FY 2031, just wanted to understand how much you want to grow by mining existing clients where you already have 240, 250 customers and how many number of more clients you want to add. And within that client context, if you can also give us a brief highlight as to how many Fortune 500 or [indiscernible] clients you have, which you can scale up substantially over the next 8 to 10 years?
I guess, Venkat again, both you and Joseph.
Yes. Sumeet, I'll just give you a certain data points after which Joseph can add. So we have got $55 billion corporations in our client roster right now. We've added 2 more to that count this quarter. So the number of clients that we have in the $1 billion corporations, which has got deeper pockets to spend on IT is consistently on the increase.The second is when you scale up to $1 billion, you have to have more of the $1 million, the $10 million, $20 million number of clients and as Joseph remarked, the first client of ours has moved to the $20 million bucket, whereas we have added a nice list of clients to the $1 million to $3 million bucket, which is about at 43 right now, and those clients have to now increase and they have to get into the $3 million to $5 million, $5 million to $10 million, $10 million to $20 million kind of a range. And at the same time, we should aspire to add that $50 million, $100 million, $150 million or $100 million, $150 million client in this journey that we have towards the $1 billion mark.Existing client business, repeat business is about 86% like I said, so mining your existing clients so that they grow to become these larger clients and towards your revenue contribution is something that will be the area of focus and that's nicely planned out in our long-term planning we have. We look at the account development plan on how each of the clients contribute to the topline. And to that, we'll add the inorganic part that we have been talking about.Joseph?
Yeah. Just to add to what Venkat said, Sumeet, we will have to obviously focus on both mining our existing business and new logos. And the new logo focus will be on the $1 billion corporations or Fortune 2000 that can give us the ability to mine and grow further once we invest in acquiring these logos. And while the percentage of repeat business could fluctuate a little bit, but we'd like to see it at around 90%, 92%, which will ensure that we have enough new logos and business from new logos coming in, which will allow us to mine these accounts and grow them. And as you would have seen from my commentary, there're a couple of examples that I gave where both customers that have been around for 8 years or 9 years successfully implemented our land and expand strategy, and that will continue to be an area that we will invest and focus on acquiring new logos and ensuring that we put in place the right processes and approach to mine these accounts. And I think that's what will allow us to meet the $1 billion goal that we have by 2031.
And just last question from my end is, I mean in the scaling up of the business, how will be your focus on different industry verticals, given that EduTech is the biggest vertical for us right now? But if you look at the global IT services space, which is a very small vertical overall and BFSI and the retail verticals, which are very big globally, but are still small for you, the competition is very high, but then the scalability opportunity is there for you. So just wanted to understand how you want to scale up your individual industry vertical segments and there, if any inorganic opportunity you'll get, what will be our focus on the M&A side?
Let me take this one to start and then hand it over to the two of you. Sumeet, one of the things that I'd like to highlight is that as you grow, you also begin to expand different verticals. And I won't give you the exact numbers here, but you can see how healthcare has taken off for us in the current year. It's become fairly significant, maybe Venkat or someone can give you the exact percentages. And therefore, it is a huge growing area to start with and clearly a new platform for us in terms of adding to whatever organic growth that we had.As far as M&A, it's really a much more a question of saying, really speaking there are opportunities everywhere. We're not saying, hey, we want to do the M&A to increase our presence in, let's say, BFSI. We would have to look at the opportunities as they come and see to what extent there is a strategic fit. And anybody with a very strong technology offering, which cuts across multiple verticals is also a very good candidate.So that is a comment and then maybe over to Venkat and Joseph to see if they'd like to add and maybe even Rajiv might want to have a comment on this.
Yeah. So just wanted to give healthcare number. We have done a little bit of reclassification, but thanks to the new customer that we added from the last quarter, it's currently at 12.9% of our revenues. So you see how it's become substantially a large part of the vertical focus. And it was always there and we had not called it out separately and we have started calling it out from this quarter as we had mentioned in the last quarter.
And just to add to that, Sumeet, for the next 8 years or so, till we get to 2031, I think we will be looking at trends in each of the industries to grow and as the opportunities present themselves and we make investments and acquire business, you would see movement of revenue share of different verticals going up or going down. For instance, healthcare and life science, we see a lot of potential and some of the capabilities that we are building in are on the leading edge and that would allow us in things like bio-informatics and medical devices, and that will allow us to differentiate and get business, so it gives us an opportunity.Again, you talked about BFSI. We've put in place a strong team of domain experts to focus on that area. And as we speak, there is a lot of GTM activity and a couple of new logos that have got acquired. So this will be something that will be more of a journey. And in this fast-paced world, we have to look at opportunities, disruptions taking place in each of these verticals and jump as quickly as possible onto these. For instance, 3, 4 years back, it was EdTech and that's how we were able to grow significantly by helping the customers in this space, travels from more of a paper-based approach to a digital approach. And now, the next step would be adoption of Gen AI and other technologies that this vertical would benefit from.So Rajiv, if you want to add anything, please go ahead.
Yeah. So, just one more thing as well. Joseph talked about BFSI industry group and capabilities that we have built. We did the similar thing for retail CPG as well. So we got a very senior person, industry leader to head up that unit in the last quarter. At the same time, I think that we've been very focused on the areas that we are strong in, right? So like in the BFSI world, what can we do with security services, what can we do with the risk management side of it, what can we do with using the newer way of looking at Generative AI or ChatGPT, et cetera, in that market segment? So I think that we are very focused on utilizing the newer technology [Technical Difficulty] business model, especially on the retail CPG side, how do we work on connected devices, et cetera. So I think by adding the utilities with the industry group leader, at the same time, staying focused on the niche technology areas that we are strong in, I think we'll continue to grow those businesses as well.
[Operator Instructions] We will take the next question from the line of Dipesh from Emkay Global.
A couple of questions. First about the Q1 performance, whether it was in line with what management expected? Because last time, you said some kind of right shifting of revenue, which impacted Q4 performance and you expected Q1 performance to be in line with your full-year guidance. I just want to get sense about it. And if I exclude acquisition then Y-o-Y growth seems to be in single-digit. So just wanted to get your perspective whether Q1 played out the way you expected.Second question is about just want to get a perspective on your high-tech and travel, media and entertainment vertical. Seems to be some kind of softness, partly high-tech had impacted because of reclassification, but otherwise, also it seems to be weak. So if you can give some perspective.And the last question is about top 2 to 5 clients, seems to be weak. Last time also, I think it was showing some kind of softness, but it seems to be temporary, but I think that weakness per se, so if you can give some sense.
I guess Venkat, you could take the first and the last part and then on the specific vertical oriented, again can be both Joseph and Rajiv.
Yeah. So for starters, if you look at it, Dipesh, our repeat business has come down to 86% and it was 90%-plus. So we had signed up 17 logos, I said 18 logos this quarter. 17 logos, it takes time to ramp-up, build the muscle, build the team around it and then start building. So that's what we had referred to as certain right shifting and that's shown up. 86% is what our repeat business has come down to from the 91%, which means the new business is picking up from this quarter, which is what we had preferred to.With respect to year-over-year growth, that tends to happen. We added about $2 million, $2.5 million in the last quarter from the acquisition and that continues to be part of our topline this quarter. So it gets adjusted. And like I said earlier, we look at these acquisitions, which are more capability-based and focused on clients as organic growth than inorganic. So just a shift in thinking on that front.Joseph?
So the high-tech vertical, as you rightly pointed out, Dipesh, there was a reclassification because many of our health tech accounts were previously classified under high-tech, and so that's the reason why you see a drop in the high-tech percentage of revenue. Now on travel, media and entertainment, most of the revenues is from the media and entertainment space. And one of our customers in the -- as you know that segment, especially the area that we are focused on, which is streaming media is going through a little bit of recalibration right now. So one of the customers that we have, one of our largest customers, which is a movie and parks company, we are looking at -- they are going through an internal, I would say kind of re-strategizing and that has delayed some of the decision-making and they also optimized costs but it is also throwing up opportunities for us and we expect that over the next couple of quarters for some of these trends in the TME space to reverse.Rajiv, do you want to add anything on any other verticals?
I am guessing that question was high-tech, media, entertainment, right. I think the other one was the top 20 accounts if I recall correctly. And that growth is compared to the previous quarter has picking up and I think you'll see quite a bit of progress on the top 20 accounts as well. So overall, whilst there was a little bit of right shifting in the last quarter and we continue to be -- the good news is, there is no cancellation of contracts. There is still a little bit of delay in signing, but overall, the acceptability of the solutions we provide continue to see good positive voice from the customer.
Just last question is about the demand environment compared to, let's say, over last few months, any improvement you are witnessing or you are still witnessing more or less same kind of client behavior in terms of elongated sales cycle, as well as client are only cautious in terms of spending, so if you can give some perspective.
So I guess here, all three of you could say something. Ram may get a chance also.
You want to start, Ram?
Yeah. So if you really look at the demand from the infra and security perspective, we are seeing a continuous growth in terms of security. As [indiscernible], people are looking at ring-fencing their environment with the security-related services and tools. So we are seeing the growth there. With respect to cloud, we are seeing -- consolidation has happened and many customers have already moved to cloud. But at this point of time, they're looking at cloud optimization and also multi-cloud environment managing. That is what we are seeing growth in terms of multi-cloud management.The third area where we are seeing growth is in terms of automation where, especially, enterprises are looking at automating their operational aspects. So that means, their IT operation automation is another area where we are seeing some work coming from, especially from US.Joseph?
Yeah. And just to get at the broader level, Dipesh, I think there are few areas where customers continue to invest. If you look at the broad digital space, customers are pulling money from or optimizing money from other areas and investing in digital. And as I mentioned last time as well, it's an imperative for them, a strategic imperative and they need to continue to invest in their digital infrastructure to just stay on pace with their competition. And in that, a few areas where we are seeing increased interest, one is on the modernization space where we are looking at taking their existing applications and converting them more into platforms on the cloud. The second is in terms of analytics and usage of AI. So a lot of data platforms being built and data science being applied to leverage this data. We're also seeing customer interest in low-code, no-code to optimize some of the development costs and another area is on the process automation space where, again, they can extract some savings that can be used elsewhere. In the last six months, as I mentioned, we've had quite a few of our customers start exploring the potential of Gen AI and that's an area again that we are engaged with our customers and we feel very bullish about opportunities that are coming and will come in this area as well.
Just a couple of things to add. This is Rajiv. So while we continue to be vigilant on the macroeconomic environment, but there are just in terms of numbers and I think Venkat mentioned, we did sign 18 new logos this quarter, 17 logos the previous quarter. So our ability to sign new logos and selling the digital transformation services continued to be attractive. Just adding a couple of areas, analytics side, Joseph touched upon, especially on the predictive analytics side, we continue to see traction. ESG has been -- we have signed at least 3 customers over the last 3 months or so on the ESG side helping companies become not only ESG compliant, but at the same time, looking at different ways of doing business. So this is just adding to what Ram just said.
We'll take the next question from the line of Manik Taneja from Axis Capital.
While on the revenue growth guidance, you've said that you will essentially look to update us after second quarter numbers. My question was with regards to the way we should be thinking about the medium-term outlook for our margins given the fact that in Q1 FY '24 itself, our margins are probably down about 350 bps on a year-on-year basis, and we are yet to essentially implement wage increments. I do understand there is an element of investments in prices, but how should we be thinking about our medium-term operating margin outlook.
Sure. I'll just make one comment and pass it over to Venkat. The key thing here is that while margins may have some variation here or there because of some things we pointed out going ahead, the compensation increases and so on, the fact is we've sustained our EBITDA margins and we remain actually second only to one, obviously, very large company in the entire industry.With that overview for more details, I think it's a good idea to pass this to Venkat.
So Manik, we have conducted those simulations and that's how I'm holding onto the margin guidance of 22% to 24%. There can be ups and downs and like you've been saying there were quite a bit of credits that we used to get during COVID and post-COVID because of work from home and all of that. Just mentioning that we have got a substantial part of our people coming back to work, which I covered in my commentary as well. We are adding to our centers in Pune, Noida. We expanded in Bhubaneswar. We are seeing people come there and we are trying to make investments to get more people to office there as well. And as we speak, [Technical Difficulty] expansion in Madurai. These are all things which will cost [Technical Difficulty] on the front of rentals and associated costs, which was not there during the COVID time and [Technical Difficulty] 22% to 24% margin bracket. The real health of the business from a margin is on the gross margin around the contribution from business front and that, except for these wage increases and the 1% up, about 2% that goes up and down, we've been reasonably consistent on that front, Manik.
Sure. And the second question was with regards to, just a clarification on the way number of days essentially impacts our sequential growth, given the fact that almost 75% of the business use to be on T&M billing, how should we be thinking about or what impact did it have been in Q1? And simultaneously, how should we be thinking about the higher number of working days in September quarter?
Yeah. Very valid point. In fact, if you remember, in Q3, we came back and said that we had more than expected holidays and the election day and everything, which really played spoilsport, Q3 of last year. So compared to that, we have got 61 days in Q3 this year. So we have to plan in advance to see how we can take away that variability in our revenue stream because as we grow larger, each day is $1 million. I'm just giving you a number, and so it's important to manage that and also leave plan, the sick leave, calendar and all of that. It has to be managed a lot better. So huge amount of focus needs to be there on the operations front. So yes, there is going to be -- Q3 we know there could be potentially 1 billing day less and we need to plan ahead for that. Q2, hopefully, will continue to be the same number of 62, 63 days that we have traditionally seen.
Sure. And would there be 1 higher working day on a sequential basis between July, August, September and April, May, June?
No, it's 1 lower, right, for September. For Q3, it will be 1 lower, Manik.
I'm saying, July, August, September, which is the Q2 of fiscal year.
July, August, September would be the same. Joseph, 62, right?
63.
63, correct, 63.
Yeah. In fact, I think Q3 will be 60 days actually. 61, and the leave calendar, leave hitting us badly.
The next question is from the line of Utkarsh Katkoria from PGIM India Mutual Fund.
I'm sorry if I've missed the first few minutes in the beginning. I just wanted your thoughts on your long-term revenue growth outlook where we see the Company, let's say, 5 years from now and beyond. And what would be the drivers, which verticals and how we try to get there?
Sure. I'll just take the one first part and which, as you said, you probably missed the beginning and I stated that we have a $1 billion goal by 2031 and we are very much on target to achieve that. I did also make a distinction that our guidances have not made a distinction between organic and inorganic growth. Obviously, at our size, organic growth can be very lumpy and therefore it's very difficult to be able to state those numbers. However, we also did say that we may restate that guidance for the current year based on the way M&A progresses. And so far we've not been able to do a deal. That doesn't mean it won't happen. We have got a good strong pipeline, but we have to be very selective in the way we go and select our deals. It doesn't overly concern us simply because we are still very much in target for achieving our long-term goals.Then we've got the verticals where we have actually addressed that quite a bit in the earlier part, but I can get Joseph and Rajiv again to speak a little bit about that. I do want to highlight that as we progress, we do continue to grow new verticals in a way and then they begin to get focused on, and healthcare and life science is one example. It's come on now to our fact sheets and it's grown very significantly. It will be a new growth driver because we've got many segments within that where we believe we can take a very unique positioning.But with this, let me hand this over to Joseph and Rajiv.
I just made this point a little earlier that we would constantly be -- the first part I would like to make is that over the last couple of years, we've been building depth in some of the domains that we are presenting and Ashok talked about healthcare that we started two years back. Recently Rajiv mentioned that we brought a retail CPG head, a seasoned industry veteran in EdTech and media, entertainment as well, we've built a team of BAs that understand the domain, and this will be a driver for our growth going forward, taking the lead and getting more upstream engagements.Having said that, I think we will have to continue looking for disruptions in each of these industries and they may happen at different points of time and therefore, to name a specific vertical right now that would sort of sustain us for the next five or 10 years would not be right. I think we have to take more nimble approach. Ashok did talk about healthcare. As we speak, there are multiple opportunities in different sub-segments of healthcare. And if you look at all the verticals, they are still depending on the company, they're either starting some of their best initiatives are mid-way and so there are opportunities in all of these verticals. If you look at analytics AI, if you look at automation and I think Gen AI will touch all of these verticals and the study that we are putting in place will allow us to take our offerings with a twist of domain capability into all of these verticals. So I feel that the growth will be broad-based. The revenue share of different verticals could vary depending on where we get more success and where we are able to expand quickly.The third point I'd like to make is that our account expansion and land and expand will continue to be a critical strategy for us. We will continue trying to break into accounts with very fine-tuned offerings and then make sure that we use our land and expand strategy to grow these accounts and as we mentioned, we have $57 billion customers right now and we will continue adding more. This will be another avenue for growth.
[Operator Instructions] We'll take the next question from the line of Rithvik, a freelancer.
My question is that the Sri Mookambika Infosolutions, so will it have any positive impact on the bottom line of Happiest Minds as a whole?
I'm not sure I got that Venkat, but if you have, then just go ahead and answer that.
Can you repeat the question?
The recent acquisition of Sri Mookambika Infosolutions, will it help in expanding the profitability of the Company?
Okay. Yeah, Venkat, go ahead.
Sir, Venkat sir has been disconnected. So may we request you -- somebody else from the management could answer this question?
Is Venkat not available at the moment? Something wrong with his line?
Yes, sir, he has got disconnected.
Okay. I can maybe briefly take this up, and maybe Joseph, you can. I think, what I understood from your question is you wanted us to tell you if the SMI acquisition will have an impact on our profitability, is that the right one?
Yes.
So two things we've clearly seen in the first quarter after that acquisition and you've seen that we've sustained our position as being the second highest in the entire industry in spite of the fact that there are many multi-billion dollar companies and we've been able to sustain that EBITDA. That's one point. Second is that overall when you look at the size of the acquisition, it was really very small. So either way, it could not impact. But thirdly it's come in like we look at all the acquisitions as entities, which deliver good margins, we never look at loss-making, we don't look at medium profitability. So we are looking at people who are typically in the range of say 20% even if we are 35%. And therefore, on a percentage basis, we don't expect any dilution. When we do these acquisitions, maybe a marginal 1% or something, but we've always kept that position by saying that our guidance is really 22% to 24%, though we've been delivering above 25%. So we're in a good shape as far as that recent acquisition is concerned, and also our plans for future acquisitions.Joseph, I don't think you'll need to add anything more, do you?
Sure. No, Ashok. The only point out would have made is that there are synergies that we are already extracting out of the acquisition in terms of healthcare and supply chain expertise that will help us in acquiring more business. That's only the other point I would like to add.
My second question is, what is your take on the de-dollarization of the world economy on Happiest Minds books? So many countries are doing away with the US dollar. So how does it take an impact? And I've seen the first quarter. So you've made INR 8 crore profit on the currency hedge. But how do you see de-dollarization of the world economy?
Sure. Is Venkat back on the line?
Yes, sir. He is available now.
Sorry, I don't have an immediate answer. This is something that we are tracking. The Indian IT industry has always benefited from the way dollar has moved versus the rupee. And that's been something that's been factored into our model as well. So de-dollarization, I'm not too sure how to answer because 72% of my business comes from America. So it has to be dollar, India is 55%, so that gives me the balance on the rupee front, but other than that, I don't know.
Venkat, actually, I don't see how this can impact us. I'll really just [indiscernible] here. If you just look at our sales between dollar, which is clearly dollar trade, look at sales in rupee, which is huge. We have sustained our profitability in spite of doing such a large percentage of our business in rupees because most other large Indian IT companies don't get this percentage. And therefore, all of this is really not linked with how world order is changing frankly. There is a change, but that is much more in terms of people sorting out a lot of bilateral deals or saying we'll do trade with X, Y, Z country in their currency or our currency, but frankly we're not even in that business.
I have a last question. My last question is on the take on the blockchain technology. So you've spoken about automation, you've spoken about having a dedicated workforce like in the ChatGPT segment AI. So what is your take on the blockchain technology, any plans for that?
Sridhar, do you want to tackle or address that?
Sure. So now, of course, with blockchain, we started actually working on the blockchain around 4 to 5 years back. And at this point in time, our point of view is as a technology, blockchain is well proved. However, it has more of a narrow set of use cases compared to AI, which has much broader set of use cases. What I meant by that is, whenever there is a distributed ledger and trust is required in those kind of use case and architecture, we continue to use blockchain, and it'll continue to be one of the disruptive technologies that we are focusing and we'll try to incorporate as well as based on the architectural needs and the client needs, wherever there is a trust and the distributed ledger is required as part of the solution, we are incorporating. So it'll continue to be part of our arsenal as a disruptive technology.
Sir, the participant has left the queue, and that was the last question for today. I would now like to hand the conference over to Mr. Sunil Gujjar from Happiest Minds for closing comments. Over to you, sir.
Thank you all for joining us today. We thank ICICI Securities for hosting this call on our behalf. We look forward to interacting with you. You can reach out to us on ir@happiestminds.com. Thank you.
Thank you.
Thank you.
Thank you very much, sir. Thank you members of the management. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.