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Ladies and gentlemen, good day, and welcome to Happiest Minds Technologies Q4 FY '23 Earnings Conference Call hosted by Motilal Oswal Financial Services Limited. As a reminder, all participant lines will be in a 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'll now hand the conference over to Mr. Mukul Garg from Motilal Oswal Financial Services Limited. Thank you, and over to you, Mr. Garg.
Thank you, Tanvi. Good evening, everyone, and thanks for joining us today on the Q4 FY '23 Earnings Call of Happiest Minds Technologies Limited. On behalf of Motilal Oswal, I would like to thank the management of Happiest Minds Technologies for giving us the opportunity to host this earnings call. Today, we have with us Mr. Ashok Soota, Executive Chairman; Mr. Joseph Anantharaju, Executive Vice Chairman and CEO of PES; Mr. Venkatraman Narayanan, MD, and CFO; Mr. Rajiv Shah, President and CEO, Digital Business Services; Mr. Ram Mohan, President and CEO, IMS Mr. Arvind Nanda, President, Operations and Deputy CEO, PES; Mr. Sridhar Manta, CEO; and Mr. Sunil Gujjar, Head of Investor Relations. I will now hand over the call to Sunil Gujjar for a safe harbor statement and to take the proceedings forward. Thank you, and over to you, Sunil.
Thank you, Mukul. Good evening to all participants in the call. Welcome to this conference call to discuss the financial results for the fourth quarter and year ended March 31, 2023. I'm Sunil, Head of Investor Relations. We have published our financial statements, quarterly fact sheet, and press release on to our website. Please have a look at it. The agenda for this call is as follows. Ashok will begin the call by sharing his perspectives on the demand environment and our results. Venkatraman 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 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. Thank you also, Mukul and Motilal, also for hosting this call. Good evening to all participants in this call. I am pleased to announce that Happiest Minds has delivered outstanding results for FY '23 with 23.7% revenue growth and 26.2% EBITDA margin. We have missed our revenue growth target by 1.3%, mainly due to the right shifting of some Q4 revenues. This has been more than compensated by delivering an EBITDA margin of 26.2%, exceeding the upper band of guidance of 22% to 24%. In view of our strong business pipeline, we are planning also a record addition of 1,300 people. Accordingly, we are retaining our FY '24 revenue guidance growth of 25%. While Joseph and Venkat will provide you with details of our results, I want to provide you a perspective on our results in the context of the Indian IT industry and where Happiest Minds is today. Many of the larger companies with whom we benchmark ourselves have reported sharply lower guidances for FY '24 and also reported ramp-downs in accounts. We have been able to sustain our growth guidance on the basis of a very strong pipeline. The reason is also that the challenge, of course, is in a different order. If you look at a $10 billion company, to grow at just 5%, it has to create more than one happiest months. At our signs of about $200 million, to grow at 25%, we need only $50 million of new business. And this is something which we see well within our reach considering our pipelines. I should also highlight that we've been able to sustain our #1 or #2 position in comparison with all our peers on EBITDA percentage, growth percentage on an index of EBITDA versus plus growth on a year-over-year basis. This year, we have chosen the highest levels of corporate governance as our theme for our integrated annual report. At Happiest Minds, we have established corporate governance practices well before the company was listed in 2020. Fundamentally, striving to function like an exemplary public entity since our inception, we have been able to achieve benchmarks. As part of our vision to be known for the best corporate governance standards, we have made continued strides to deploy leading-edge technology for the dissemination of information and educating our stakeholders. Through this, we've been able to drive sustained growth and also build a reputation for transparency and disclosure, which is higher than anybody else in the industry. I would like to highlight a few of the recognitions we have achieved for corporate governance and the awards which have been conferred on Happiest Minds. Golden Peacock Award for Excellence in Corporate Governance 2022. ICSI Best Grovel Company in the listed segment for the medium category. ICAI for excellence in financial reporting. You can see we've made a virtually clean sweep of all of these. And Happiest Minds stands for excellent corporate governance. And this is a triple confirmation of our disclosure, transparency, and governance practices. Venkatraman was recognized by CII as a leading CFO for the year 2022 at the CFO Excellence Awards. I was humbled and being conferred ICS's Lifetime Achievement Award for Corporate Governance. I have accepted this on behalf of all the Happiest Minds who have helped me to create this great institution. In addition, the other area where we are continuously recognized is in the area of great places to work, which Joseph will tell you about. To conclude, Happiest Minds growth was broad-based with all our business units, operating geos and centers of excellence, delivering excellent results. These results were enabled by the contribution of our delivery teams, technology, and domain groups, and the support of all of our corporate functions under the leadership of our Executive Board. With this, I conclude my commentary and pass it on to Venkat.
Thank you, Ashok. Thanks, Mikael and Motilal Oswal team for hosting us on this call. A very good evening to all. And in the next few minutes, I'll take all of you through some of our financial, operating, and business highlights. For the year, our operating revenues have grown about 24% in constant currency. This was slightly lower than the 25% guidance we had provided at the beginning of the year. The surge in vacations in Q3 and the right shift in revenues in Q4 were the primary causes for this. Coming to profitability. This is the 12th successive quarter where we have delivered EBITDA of more than 25% and 26% for the quarter and 26.2% for the year, we have beaten our guidance of 22% to 24% and [indiscernible]. Looking ahead for FY '24, as mentioned by Ashok, we are guiding on revenue growth of 25%, and EBITDA continues to be in the range of 22% to 24%. We are looking at a good Q1 based on our deal closures and healthy pipeline. Coming to the specifics on the quarter and the year. For the quarter, we reported revenues in dollar terms of $45.9 million. In constant currency revenues, that was a growth of 1.3% and a year-over-year growth of 17.6%. In rupees, total revenues were INR 386 crores, a growth of 3% sequentially and 24%, 24.5% year-over-year. EBITDA stood at INR 101 crores, and that was 26% of revenues while showing a year-over-year growth of 23.4%. We have been able to maintain a strong EBITDA profile while taking increases on people costs and absorbing campus joiners and trainees into our fold. Our EBITDA numbers continue to place us amongst the top league of comparable companies. PBT was INR 79 crores. That was 20.4% of revenues, while PAT was INR 57.6 crores and 14.9% of our revenues. Our cash conversion ratio continues to be strong as in the earlier quarters. We generated free cash flows of INR 99 crores, which is about 99% of EBITDA. During the quarter, we raised debt through the issue of nonconvertible debentures to the extent of INR 45 crores, and we have a pipeline totaling another INR 80 crores, which would be done before the end of this quarter. On our QIP, our Board and shareholder approvals are valid till October 2023, and efforts on that front continue, and we'll keep you updated on that progress. Finally, our results for the quarter include that of SMI, the company we acquired in January 2023. For the year, operating revenues were $178 million, showing a growth of 24% in constant currency. Operating revenues in rupees showed a growth of 31%. Total income was INR 1,450 crores, showing a growth of 28.3%. We closed the year with an EBITDA of INR 380 crores, which was 26.2% of total revenues, showing a growth of 29%. As mentioned earlier, we continue to be the top league of comparable companies on this metric when taken on a yearly basis as well. PBT for the year was INR 310 crores. This was 21.4% of total revenues, showing a growth of 26%. Finally, on PAT for the year, we closed with INR 231 crores and 15.9% of revenues, showing a growth of 27.5%. So suffice to say, revenue growth, EBITDA growth, PBT growth, and PAT growth. EPS for the year was at 16%, showing a growth of 27.5%. Coming to our capital return ratios, they are comparable with the best in the industry. Return on capital employed and return on equity were 33% and 28%, respectively. We ended the year with cash and cash equivalents of INR 790 crores, and our DSO was at a very healthy 55 days. That's a build DSO. As briefly mentioned earlier, during the quarter, we acquired 100% equity interest in [indiscernible]. SMI brings in deep domain capabilities in and around our healthcare vertical and aligns very well with our PES, a product engineering business. And not only that, it also takes us into Tier 2 locations of [indiscernible]. During the year, we increased our capacity across our offshore delivery centers in Bangalore, Noida, Bhubaneshwar, and Madura. In the U.S., we added 2 new offices in New Jersey and Seattle. We ended the year with 237 customers, that was a net addition of 31 for the year. Our average revenue per customer for the year was at $803,000, which has been consistently moving up. And it was, if you recall, about $630,000 a couple of years back. This is a steady increase and is a testament to our land and expand strategy. Our total headcount at the end of the year was 4,917, and net additions for the year were $750. Our utilization for the quarter was at about 74.6% compared to the 80.1% in Q3. As we had mentioned, we had onboarded 250 campus joiners. They have become part of our available workforce, and that was the main reason for this drop on a Q-o-Q basis. For the year, our utilization is at about 78%. As we had mentioned in earlier calls, we were running at the high 80%, and we would like to typically be in the range of about 77% to 78%. We are seeing easing and supply side constraints and attrition on a trailing 12-month basis has dropped to 19.8% compared to the 22.7% in the previous year. We expect this number to further trend downwards. Happy to state that keeping in line with our progressive dividend policy and capital allocation discussions, our Board of Directors of the company at their meeting held today have recommended a final dividend of INR 3.40 per share subject to shareholder approval. This would take our total dividend for the year to INR 540 per share. Looking ahead, we'll continue to make investments in our people and capabilities. We'll be adding about 450 campus graduates this year. We'll be continuing to expand our delivery centers in India with an immediate focus on Pune and Noida. Thank you for all your continued support, and we look forward to the same during the year. Over to you, Joseph.
Thanks, Venkat. Thanks, Mukul and Motilal as far for hosting this call. Good evening to all of you. As can be seen from the numbers, overall, we had an excellent year as reflected in our broad-based growth across our business units, centers of excellence, and focus markets. The numbers reflect our continued ability to operate on our strengths and to position Happiest Minds as a trusted partner for our customers' strategic initiatives. We had our first $20 million customer created in this current quarter. Our total clients in the $5 million to $10 million group have increased by 2 to a total of 6. And in the $1 million to $3 million category, we have an increase to 13. These metrics validate our effective land and expand strategy. Our internal customer satisfaction survey showed a net promoter score of 60 and an overall satisfaction level of 7.86 on a scale of mine. We believe these numbers to be in the top tier among comparable companies. The result of this survey indicates our efficient and quality delivery, engineering excellence, and prudent account management practices. On the people front, we are also delighted to be recognized by the Great Place to Work Institute. For the second time in a row, Happiest Minds was recognized among the top 10 India's best workplaces in Health and Wellness 2022. We continue to receive recognition from GPW as one of the most attractive employers. We were named among the top 25 India's Best Workplaces in IT and IT BP in 2022 and top 50 India's best workplaces for women in 2022. This recognition, along with the excellent customer survey result reflects the commitment of each and every Happiest Minds to our vision of Happiest Fees for Happiest Customers. I will now talk a little bit about some of our wins during the reported quarter. For a large edtech company, which supports learners and institutions, we were chosen as a strategic partner to provide a broad range of digital engineering services. In the reported quarter, a large loyalty program provider in the ANZ region chose us to provide consulting support and implementation services to enhance security and privacy environments around the data and cloud. We have been chosen to provide engineering services leading 5G for the connected car program of an Indian headquartered global automotive company. We continue to make investments in technologies which are either becoming mainstream or will become mainstream in the next 2 to 3 years. These include Generative AI, ChatGPT, Metaverse and Web 3.0, Analytical AI, Global Local Applications, and Quantum Computing. We believe that ChatGPT and Generative AI will be transformative and offers huge potential and opportunity for technology services companies like us and to our customers. We have initiated a task force under our CTO to look at building solutions on ChatGPT and develop use cases for different verticals and are already in discussion with multiple customers to help them leverage this technology. On the environmental Socit Healthcare commitment front, Happiest Minds sponsored 1.9 million meals for the school channel under the AkshaPata program during the year. Since inception, we have contributed 6 million meals. We also partnered with an environmental agency to plant 163,000 tree couplings. Happiest Minds also partnered with an NGO to extend medical support to underprivileged young children between 1 to 15 years of age having Type 1 diabetes. Now I'll talk a little bit about the current demand environment. During the quarter, we saw an improvement in business sentiment as customers digested various macroeconomic and geopolitical factors into their plans and budgets. Decision-making that typically would have happened in December around the budget got pushed out into Jan-Feb, resulting in revenues getting shifted as controversial. Our pipeline exiting Q4 is very strong with several large opportunities in an advanced stage of the sales life cycle. We have all already seen a couple of large deal closures in the first half of April, leading to a good start to the fiscal. The areas where we are seeing penrose of our Happiest Minds, migration to cloud, modernization of legacy applications and platforms, monetizing data by building customer data platforms and applying analytics, AI to turbocharge analytics initiatives, automation of various processes to extract cost savings and leveraging IoT to increase connectivity and data collection. With this, I conclude my commentary and open up the floor to Q&A.
We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Vimal Gohil from Alchemy Capital.
And congratulations on the excellent quarter, and very heartening to see the guidance. The first question is on guidance itself. If you could just highlight how much of this 25%, how much of that will come from inorganic initiatives, if at all? Because if I were to look at the Asrat, that comes very close to 8% every quarter. So just wanted to get a sense of any inorganic acquisitions that are being built in. I have one more question after that.
Vimal, thanks for your question. One thing I should clarify is that even if you see the year which has just gone by, actually, 98% of say growth has been all organic. So when we give a guidance, we actually really, in a way, stick out one and say whether we do an acquisition or don't do an acquisition, we'll achieve that. So the current guidance is based on the fact that we've got a good pipeline. And therefore, we expect we will achieve the number. Does it mean there will be no acquisition which will happen? Maybe, but we can't factor that in because acquisitions are uncertain. We are very lumpy, and you don't know when you'll do a deal. We haven't done much, as you know, in the last 3 years. In one sense, we can congratulate ourselves because valuations have come down, and we'll get cheaper opportunities. But we are very selective. And therefore, in that process, when we get the acquisition, we'll achieve it. If we do or we don't do, our guidance remains 25%.
Right. Understood, sir. Sir, one question on this whole debate around -- and one of your closest peers, EPAM, on Friday, highlighted the discretionary spending is almost drying up with some of their clients and the industry. How do you look at that environment? Because your guidance clearly indicates that there is no dearth of work. So there are 2 very, very opposing views. And the market for cost takeout projects seems to be heating up. How are we positioned over there?
Sure. I'll pass this to my colleagues to answer. But I think the essence of this is this one, we are not seeing any decline or something in the growth available to us. That's one. Two, we're in a digital business. It's not that we don't take cost takeouts for our customers, but we are transforming their businesses at all times. And the third is, of course, to be a little humble about it, is to say that, look, the challenge of a $10 billion company to grow at even 10% or 5% for that matter, means virtually growing another Happiest Minds. We were to get only $50 million of business with our organization, with our field force, with our leaders, with our COEs, with all of them. I see that we have no difficulty in getting to that capability and level. So I can get both Joseph and Rajiv to add to that.
Just a couple of additional points, Vimal. The first point is, what we are seeing is that the areas that we are working on the distantiate of our customers, they're not discretionary anymore. They are a core part of the technology that they use to deliver services to their customers, to engage with their customers, or to provide services to their employees. And therefore, they need to sustain these platforms, these applications, the analytics that they've already built, and the current situation is not discretionary in nature. And the second is, as I highlighted in my commentary a little earlier, we've seen a good buildup in the pipeline in Q4. And as we speak, in the first half of April, we had a couple of closures, which are already contributing significantly to the Q1 growth. And we see the pipeline moving faster than it did, maybe in Q3 or the earlier part of Q4, which is giving us the confidence to provide this guidance. Rajiv?
So well, I think that if you look at it from the industry perspective, customers are looking for 2 ways of managing the business, right? One is the revenue growth, and the second one is becoming more profitable. And within that context, I think that we do implement digital-ready platforms to help them become operationally efficient to take out the cost and give you an example that we have invested significantly in the low-code environment, and we have grown quite a bit over the last year. Now that helps them with getting their platform builds faster. At the same time, it helps them reduce their long-term maintenance cost as well. So from that perspective, there is a cost takeout play that you can talk about, but it's becoming more and more efficient. At the same time, the spending itself is also getting reprioritized. And going back to the, or related to BFSI sector, while there was more focus on risk and compliance is moving more into risk and control. So there is more and more operational risk, there is credit risk, et cetera. The spends are going up in that segment as well. So overall, we continue to see growth as a show of what Joseph highlighted. The pipeline is strong, and we continue to make an impact in the customer environment for them to really help grow the revenue at the same time, become more efficient.
The next question is from the line of Mukul Gar from Motilal Oswal.
Just a follow-up to Vimal's question. When we are talking about the demand environment, you mentioned that there was a bit of a ride shifting which happened this quarter. Any sense whether that is something which is more industry-specific and also in terms of the pipeline which you are seeing? Are you seeing different kinds of client behavior across industries? So it was a bit surprising to see your growth in Hi-Tech this quarter because that's one area where a lot of companies are highlighting concerns. So if you can just give some sense on how we should think about different industries moving forward.
Sure. I'll again begin this and pass it on to my colleagues. The first thing, Mukul, is that after what is the right shifting we are talking about. It is really 1%. After all, that is close to our guidance for the year. And that's literally because as the year began, a few entities have not cleared their budgets or frozen their budgets and, therefore, not released new orders. It's nothing dramatic in terms of saying, hey, there was a downturn, or some segment is slowing down. It has nothing to do with any of that. And that we're saying you will see reflected in the fact that we are sustaining our guidance for FY '25, we don't give quarter-wise guidance.But again, hopefully, you'll see numbers which might reflect a little bit of that right shifting also there. Now with these more details, I think I'll again pass it over to Joseph and Rajiv.
Sure. Just reflecting, as you asked the question if there's anything specific industry-wise. And some of the revenues or opportunities that got moved out or delayed, they cut across the industry. So I really wasn't able to draw any correlation to a specific industry, Mukul. I think it was more of customers waiting till the last minute to make sure that they're factoring all the factors that are out there and developments into their budgetary decisions. I think that's what was driving this.
Like Joseph said, I think that we haven't seen any specific inside of any industry segment that has shifted. I think a couple of examples that I can provide is that one of our customers had a delay in launching their own platform, right, which affected us and really going after and implementing in some of the customer environment, that has nothing to do with budgetary or whatever, but at the same time, they wanted to include some of the newer technology tools in their newer platforms, and they just delayed some of the revenue recognition that we were planning to get as well. So overall, there is no shift. Rob, if you want to add.
Yes, even in the case of Infra and security, that's what we have seen. We have seen a couple of right shifts, but that has got nothing to do with any business environment or market situation. It is more on the timing of the RFP, there was some delay in the RFP. There was some delay in terms of the meetings which our customers had in terms of deciding on the other piece. So those were the reasons why we are seeing a right shift, and it has got nothing to do with the market condition, at least in the infra-and security side.
And just talking about high tech, the most of that Venkat punched out, SMI is aligned with product testing services, and most of the revenue is in the high-tech segment, which has contributed to the increase in the high-tech segment. Otherwise, you would have found the numbers to be consistent with the other verticals.
Sure. And just a follow-up to this. Is it fair to imply, given your excellent guidance, that the visibility on the demand side continues to remain as strong as what you guys have been seeing for the last 2 years, again, the associate addition and the plan seem to indicate that the visibility is quite good, but I would love to hear some thoughts on how the demand visibility is out there.
Sure. I'll take the first one and then let my colleagues jump in, Mukul. So if you look at the demand environment, as I said, it continues to be promising and strong. And what is giving us the confidence to provide this guidance is that many of the deals that we have closed in the pipeline are quite large in size and spanning across quarters, which ensures that we have visibility of revenues into the entire year. And if you continue converting some of the opportunities that we have, it will contribute to this growth that we have been talking about. So again, on the demand side, we haven't seen much of a drop. If you look at how we approach the customer, it is about helping them put together the proof of concept, start with the consultative engagement, help them really drive the outcome. And everybody in the customer environment that we have today continues to look at what business outcomes are we driving. And from that perspective, I think that we haven't seen much of an impact from the demand market, and that's why we are quite optimistic about the guidance that we have provided as well.
Sure. And my second question was on the sales investment side. There was a slight moderation this quarter. How should we think about investment into SG&A for FY '24, especially given the aim to deliver a 25% growth in a tough year? Are you still kind of penciling in a 22% to 24% operating margin, kind of easing off from this year more because of the growth aspirations? Or is it something which will stay on credit levels?
No. The 22% to 24% has been the guidance that we have given over the last 2 years, and you're holding on to it. Like I've been mentioning the year before last, it was COVID and we had credits, and that came in as a good surprise. Last year, we had a Benevolent exchange rate scenario between the U.S. dollar to rupee, which helped us. Right now, we have considered those -- both of them have kind of played out to their full. We have taken into account those factors. And also the investments that, like you said, that need to be made in technology competence and sales as required, the main heads as required. And that's why we are still maintaining the 22% to 24% guidance while, obviously, the intent is to continue to do better.
I just add one more point. I think that if you look at over the last 6 months, we have added quite a bit of sales capacity and capability in the U.S. market. So hiring quite a few hunters, I mean, a significant number of hunters in the U.S. market. We continue to add more and more capabilities on our business analyst community as well. And we continue to enhance our technology architecture pool as well. So we continue to look at all aspects of how do we really approach the customer and how do we really put together a value proposition for us to convert the deal.
The next question is from the line of Dipesh Mehta from Emkay Global.
Just 2 questions, data related. How much has SMI acquisition contributed in Q4? And related is about how many employees get debt because of the transaction?
About $2.4 million is what is coming from the SMI acquisition for the quarter. Like Ashok mentioned, 98% of our business is organic, and it's less than 2%, which has come from SMI for the quarter. On the people side, I think we have added 381 people, 381 people, including the not-billable people. So not billable people into our headcount from the acquisition.
So if one adjusts SMI acquisition this quarter, organic number appears to be weak. Even on a Y-o-Y basis, your revenue growth is likely to be slipping closer to double digits, around 10-odd percentage. So I just want to understand now if one looks organic purpose seems to be slowing down. Now you are guiding for acceleration in organic revenue growth. So can you provide what is changing compared to the last couple of quarters?
So if you look at how Q3 went, we had clarified that we had a vacation impact, which had come in. So that was one impact. And then when it came to Q4, it was that right shifting, which has happened, which is what Rajeev and Joseph talked about. It will be made up part of that through the numbers that have come from the acquisition of SMI. So it was not that we had mentioned that 25% growth guidance for the current year was fully completely organic. We had said that we didn't have anything. In the earlier quarters, we didn't have any rate on acquisition. So we hold it as growth from either way. We will do the growth. And at the end of the quarter, they came this nice acquisition, which fitted very well into our business. And that's how we went ahead and closed that. So that's the same reason why I talked about how our Q1 pipeline looks like, the confidence that Q1 numbers that we have ahead of us as we stand in May, gives us the confidence to give us an outlook based on Q1, Q2, and for the year.
Also, the key thing to remember is that we are saying our guidance is quite irrespective whether we do an acquisition or we don't do it because we can't do it. And we have taken the confidence of saying, but we'll do the 25%. That's why we're giving that guidance. Now we get a guidance where acquisition changes the numbers. That's also well and good. If we don't get it, then we should still target to get 25% results.
The next question is from the line of Regal Hawa [indiscernible] Company. [Operator Instructions] The next question is from the line of Dinesh Kudai from Techno Welbilt.
Congratulations team on achieving greater Q4 results. I have one little question about [indiscernible] utilization percentage. In Q3 '23, it was 81.1%, whereas in Q4 '23, it is now 74.6%. Can you please put some light on it?
Mad, you want to take that question on that?
Yes, sure. All right. So we had hired around roughly 300-odd trainees. Last year, they came in and joined us the month of August and September as they were back as trainees, and the training got over in the month of December. So we were not confident in the billable utilization because of that. And they moved into real people for Q4, and that was a drop in the utilization number.
The next question is from the line of V.P. Rajesh from Banyan Capital Rises.
My first question is more of a clarification. So when you are guiding for 25% revenue growth in fiscal year '24. Should we just assume that that's going to be all organic? And anything that comes on top from an acquisition or more of those, that will be on top of that?
No, no. We are actually being silent on the acquisition, which means we are saying we want to make a commitment to the market. We don't know whether we'll do an acquisition or we won't do an acquisition, but we'll commit to 25%. So I think that is the exact statement.
Okay. And then given the confidence you have around this guidance, are there any lumpy deals in your pipeline that is driving the service?
So as I mentioned earlier, the pipeline is -- we've seen a buildup in the pipeline as the quarter progressed, Q4, and this has continued into Q1. We had several closures as brought up in our press release as well as, as I mentioned earlier, in areas that customers will need to sustain for a long period of time. We're helping them with some of their core digital platforms and which gives us long-term visibility. And again, as I mentioned, we've already had a couple of closures from the pipeline that we had in the first half of April that will provide significant revenues in Q1 itself. And we have visibility throughout the year on these projects and initiatives, and this has given us the confidence, the conversations we've been having with our customers, the kind of opportunities or needs that they've been discussing with us. This is what is giving us the confidence to come into a 25% guidance.
That's helpful. But my question was slightly different. What I was trying to understand is that if there are a few large deals, which are driving this growth guidance, or this is like business as usual, a lot of small- and medium-sized deals in the pipeline, which is giving you the confidence? That's what I was trying to understand.
Maybe I'll answer properly. We do have several large deals. Some of them closed in Q4. A couple of them are closed in the first half of April, right? And we're in the process of ramping up all of these opportunities, and that's what is giving us the visibility to provide this guidance along with the business-as-usual kind of deals that we are getting.
Got it. And last question is on the margin. Now that the cost pressures are seen to be coming down in the industry. So your guidance of 22% to 24%, are you sort of doing any investment? That's why you've been consolidating on the guidance because if you're going to grow at 25%, one would expect that your margins will also expand.
Yes. While there is an overall improvement in the attrition and people and supply scenario, we work on specialized technologies, and there is a demand for those people. Maybe earlier, a gentleman or Mr. X would have had 5 offers. Today, he is having 2 offers. That's the way I would look at it. So for good people, there is, I think, a good demand. And the other thing is when things get a little murky in the market, people also tend to stick on and not move. So then you need to do that much more work to get them to move. And these are the reasons that really come into play when you were discussing compensation and similar with prospective candidates and employees at Happiest Minds. So that continues similar to last year. This year, we are also adding 450 campus joiners. It was 250 last year. Now it's two times that number, including training, it was 300 last year this time, it will be 450 plus another 50 trainees. That will be about 500 people. So we have not -- we are going to stick to those commitments, and we'll continue to honor them. So if you look at it really, there is a good pipeline, which also means that we have to look for those people who can help us deliver on our commitments to our customers. And that will mean that the cost pressures may not be as bad as it was maybe a couple of quarters back, but it is going to be there. But you should also consider that I'm not going to get that headroom or the tailwinds that I had from the dollar versus the rupee, there was a depreciation of almost 8.4% last year. So that's not going to come through this year, right? So we'll have to plan for that as well.
The next question is from the line of Sumit Jan from ICICI Securities.
Sir, my first question is on your guidance. Can you quantify the size and the nature of the deal that you have won versus giving you the confidence of a strong growth in 1Q? Because typically, whichever companies are supported till now, all of them have been guiding for a significantly weak Q1 because of the banking prices and the way other reasons we have seen at a macro level. So can you quantify the nature of the deal that you have learned in which areas and how it will impact or which industry or which service line?
I think the way to answer this one is that maybe some of them who have been dealing with the banking industry, the traditional banking industry in particular, they are the ones who got most impacted because the whole environment there has slowed down. and there's a lot of cautiousness. Now we are lucky that none of them were our customers. Another type of environment which got affected are some tech companies, but our upside growth is very strong and has always been for that matter. We didn't have, for example, Twitter as an account. Now when you look at it, I would say it was the absence of negatives because other than that, we are not projecting anything different from the past. We're saying we grew 24% last year. We'll grow 25% this year, and the overall pipeline is strong. It is really continuing to grow in the segments where we are strong, increasing our presence in segments in which we were not relatively strong in the sense we had not taken off, but we are now expanding, healthcare is one search area. So it will certainly appear on the radar as a specific industry which we will start reporting on. It is things like these which we're adding to the momentum and giving us the confidence to say that yes, we can sustain these numbers on a larger base.
So what I can add. Just one more thing. I think that our strategy has been land and expand, right? So 92% of our business comes from repeat customers, and based on where our customers are and where their spend desire as well as the initiatives they have, I think that gives us a good visibility going forward as well.
Got it. And what risks do you see to the guidance if the macro situation decelerates in U.S. or Europe, particularly, do you think there will be any risk to this guidance going forward or probably in the second half and also, how are you factoring in the growth during the quarter? Are you seeing a ramp-up in the second half of the year because at least all your competitors who are more banking-focused and maybe high-tech-focused are clearly guiding for a ramp-up in the second half after a slowdown in the first half? So are you also passing in any pickup in the second half? Or is it going to be steady growth every quarter?
Sumit, the way to look at it is repeat business at 92% continues to be strong. So like Ashok mentioned, the 25% growth, we exited with about $177 million, $178 million would be about $42 million to $43 million in terms of additional business that needs to come. So you're looking at new, new business of about $10 million balance coming from existing business. This is an overall structure of $10 million to $12 million coming from new, new business and about $30 million coming in from your existing customers and pipeline. So to ask me about the risk, it will be with respect to our existing customers and something not going south with them because that especially will not give you time to quickly book, build and build and also recognize. So that's the risk that we see because what's happening is we're looking at our Q1, we have looked at our Q2, we know where our current pipeline is going to take us and where our customers will take us in the next 2 quarters. And that's the confidence on which this 25% number has been given out. So if you ask me what's your risk? It is customer-specific because you've got $43 million customers and $120 million customer x number of $5-plus million customers kind of a thing. And we are in discussion with them and constantly building up our supply to meet their requirements. Like Ashok mentioned, in Hi-Tech, one large company, if they had to enter as an account as a customer, if that goes down south, it's going to impact you. And there is an element of luck that we have had until now. So I was talking about this when COVID hit our exposure to travel [indiscernible]. But anyway, after that came the next question of why aren't you in Ukraine? Why aren't you in Eastern Europe? So frankly, we were looking at Europe. And then suddenly, the Ukraine war happened. We weren't there. So again, thank our Lucky Star. Now last year, the banking and the traditional BFSI got hit. We had about 10%, and our business in BFSI was -- it's not a traditional banking. It's about mid-sized banks or large-sized banks, but they are looking to change the way they do banking and the way they digitize themselves to do better banking, especially security kind of work and all of that. So this is not discretionary. It has absolutely a required amount of work that needs to be done. So we didn't get it. So third time lucky, and these are things which we have to keep looking out in our IPO document. #1 the risk is obviously customer risk, our geography risk or currency risk. Those are the risks that we have to obviously keep in the back of my mind, but guidance typically does not take into account something which has not happened as of today.
Nothing really untoward. Well, there's always a high probability of one risk or the other coming and hitting you in this world. That's a fact. Though you can't say that I can pinpoint that this will go wrong. For example, nobody anticipated COVID, nobody anticipated Ukraine. Nobody anticipated that all these banks will certainly fail. And yet, the probability of something happening is high. That is true. So we better always be aware and be nimble to act when such an event happens.
Just adding a couple of additional points to what Joseph mentioned. One is you talked about whether any of them had growth in the second half. So we made sure that we've not backloaded our growth and that it's been fairly uniformly distributed with a little bit maybe front-loaded actually because we wanted to make sure that we don't put too much pressure in the second half of the year. The other point is if you look at our percentage of India revenue is at 16% among the highest of all Indian IT service companies. And we're doing this business at a good margin and at the rates that we want to do business at, that I would like to do business at. And this market is growing, and there's quite a bit of demand out there. As we see, cutting across the industry worth is banking, whether it's industrial, manufacturing, pharma, there's a fair bit of demand out here. All of them are embarking on digital initiatives, and we will focus more on India that will act as a derisk to anything that happens in, let's say, Europe or in the U.S.
Got it. My second question is around your M&A strategy. So can you elaborate on your revenue strategy, will it be driven by scale or around capabilities or entering into a new geography? Can you please elaborate more?
So we've sat together as the Executive Board and come up with several criteria for our acquisition. And we want -- as we've said, we want to acquire a company that is mostly, if not purely digital, that's profitable. We don't want to get into a turnaround kind of story. And along with that, we want to make sure that we get a strategic differentiator. We would like to get a company that would give us depth of capabilities in a certain vertical, in a technology where we are like currently, or give us entry into a few large accounts in specific areas that we have targeted. And that's what we are looking to do for each and every M&A candidate. We weigh against these characteristics, look at their profitability profile, the growth that they've had and then take a decision because we want to make sure that we get this right. and don't have it as a drag on our performance.
The next question is from the line of Faisal Hawa from HG Hawa & Company.
Yes. So, sir, we are giving a guidance of 25% in rupee terms. But last 2 to 3 years, we are almost doing like 35% to 40% revenue growth. So are we being a little more conservative than necessary? That's one.
Faisal, we are giving our guidance in constant currency. In dollars. It's a rupee, which has been growing at 30%, and that's also thanks to the way it has moved versus the dollar.
Yes, about even the rupee, we are growing almost like 38%, 39%. So do you feel that the rupee-dollar equation being in our favor, we could actually continue with that kind of thing?
This won't happen. We're not budgeting for it at all.
Sir, and our capacity utilization of people is falling. So any trend that could be read into it? Is it falling?
It has just fallen for this quarter.
Okay. It's something which is a little out.
So as Venkatraman motioned out earlier, we inducted around 320 half-gas mines from campus in August, and their undergoing training till Jan. So they were not included in the billable headcount, which we base our utilization on. These folks came into the billable account number in February, and that's why you see the drop in utilization. On the other hand, what you see is over the next few months, as we get these people built, they would all contribute to revenue, while the cost would remain the same, which will give us a little bit of advantage or the leverage from a margin perspective. And also improve the utilization.
And sir, how do we see the opportunity of EduTech playing out? Because a lot of these players may not be now having the funds from VC or PE funds to really fund their further projects. So will that still continue because that's a fairly big segment of our revenues? That's one. And secondly, sir, I mean, we are getting projects from across the board. I mean with so many verticals. So I mean, where do you see the big traction coming from?
Sure. So if you look at EduTech, Faisel, we don't work with any of the start-ups and most of our customers, except one, and that also is a large B2B education provider who's based out of India. And so therefore, they're pretty stable from a financial perspective. We don't have any other customers in India. And even in U.S., we don't have any startups in the education space. There are companies that are either public or owned by fees. And so the cash and other things, we are well funded. So cash is not an issue. Many of them have been running strategic initiatives, and I did mention a couple of them in my commentary about the wins that we've had in a pretty large transaction, significant wins, and we continue to see a decent pipeline in this space because there's a lot happening actually, the expectation of students, what professors want or of their systems and technology they have, all of that is changing. And so the mutation technology providers have to keep adapting themselves as well.
So since we are one of the fastest adapters to new technologies, how fast do you feel that we can adapt to that ChatGPT to actually automize most of our software solutions and let go a large part of our workforce or retain them?
That is not easy right now. If you look at ChatGPT, there are maybe some industries where you could have them replacing people. But in the technology space, it's more of an enabler and a productivity enhancer. It will help make the life of a developer a little easier and help them look at some of the more complex challenges that they have, look at how to add more value to customers and ensure that the quality of whatever technology core platform they built is better, and that's the advantage that we get from a technology perspective.
So are we already looking at retaining people to use ChatGPT as a really cut down on the hours that we take to complete any kind of a project?
As we speak, we have a couple of task forces. One is looking at more of -- from a customer perspective, how we can adopt this technology. We have a few POCs and solutions that we've built. We have identified use cases specific to each domain, and we are in discussion with a few customers to help them adopt this technology and use it. From an internal perspective, we've been looking at core pilot and Codex, which are more oriented towards the development environment, to see how we can leverage these internally and maybe even for some of our customers to enhance productivity of developers. All this is work that's underway.
Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Sunil Gujjar for closing comments.
Thank you for joining us today. We think Motilal Oswal Financial Services for hosting this call on our behalf. We look forward to interacting with you. You can reach out to us on ir@happiestminds.com. Have a good evening. Thank you.
Thank you. On behalf of Motilal Oswal Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.