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Onward Technologies Ltd
NSE:ONWARDTEC
Onward Technologies Ltd
NSE:ONWARDTEC
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Earnings Call Transcript
Transcript
Other Earnings Calls
Ladies and gentlemen, good day, and welcome to the Onward Technologies Q1 FY '24 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Ms. Asha Gupta from E&Y Investor Relations. Thank you, and over to you, ma'am.
Thank you Lis Ann. Good evening to all of you. Welcome to the Q1 FY '24 Earnings Call of Onward Technologies Limited. The results and presentation have already been mailed to you and you can also view them on the website at www.onwardgroup.com.
To take us through the results today and answer your questions, we have with us Mr. Jigar Mehta, Managing Director of Onward Technologies Limited. He will start the call with the financial performance and business updates for the quarter, which will be then followed by the Q&A session.
I would like to remind you that anything that is said on this call that reflects any outlook for the future or which can be construed as forward-looking statement must be viewed in conjunction with the risk and uncertainties that we face. These risk and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with the SEBI and subsequent annual report that you can find it on our website.
Having said that, I will now hand over the call to Mr. Jigar Mehta. Over to you, Jigar. Jigar?
Thank you, Asha. Can you hear me?
Yes.
Great. Thank you. Good evening, everyone, and thank you for joining our Q1 FY '24 Earnings Call today. It is a pleasure to speak with all of you again. Let me start with our quarter Q1 performance, and then I'll give a quick update about the business.
I am very pleased to report that we have started the fiscal year 2024 with strong revenue growth of 27.7% on a year-on-year basis. We continue to execute very well as demonstrated in our double-digit EBITDA margin, which is now at 12.1%. And we did have an exponential growth of that to INR 10 crores plus in Q1 '24, which was at INR 1.2 crores the same time last year, in last financial year.
We had a small dip in terms of revenue quarter-on-quarter, which has to do with the large number of client exits that we did in the India BU, which also resulted in a headcount reduction. This happened in Q4 and a bit of start of Q1. This has reduced our headcount, it reduced our high volume, which was there in the India BU, which was the INR billing that we do. And that's where there was a small dip. Otherwise, it was a phenomenal quarter from our operational -- inter-operational efficiency perspective.
The quarter also shows and demonstrates in spite of so many external macroeconomic factors, we have strong long-term relationship with our customers, and we have an amazing team, which is in place for the last several years, and we continue to add a lot more towards that, which I'll also talk about later in the conversation.
Our goal is to gradually get close to being an aspirational brand, improving our margins continuously and at the same time, having a strong run rate for FY '24 or FY '25. We continue to see momentum. So, as you are aware, we are focused on 3 industry verticals. Our first and the largest is industrial equipment and heavy machinery, which now contributes 53% of our revenues. Our second largest is our transportation and mobility vertical, which contributed 35% of our revenues in Q1 and the healthcare and med-tech life sciences vertical, which contributed 9% of our top line. We see beautiful traction across all 3, which also I'll talk about through the presentation today.
There's also been a continued effort, which we have shared earlier. We invested a lot of capital over the last 2 years post-COVID in building up our digital services, competencies and capabilities, and I'm very happy to see that now this quarter, we've seen a massive jump, which is now at 37% of our revenue compared to 8% same time in Q1 of last quarter -- last financial year. I would also like to reiterate that our goal in the digital business as we see moving forward over the next couple of quarters and until 2026 is will go as high as 50% of the overall revenues of the company, and the balance 50% will be mechanical engineering and embedded engineering with complete exit in the next few weeks, months from our ITeS business in India.
Today, we have been -- we are now spread across -- we have done some consolidation of offices where we're in the same cities. We now have 13 offices across 6 countries, and our revenue mix continues to remain healthy. U.S. and Canada contributed 39% of our revenues, Europe contributed 12% and India, which is our revenues, which is from global MNCs but INR-billing contributed 49% revenue in this quarter, in Q1.
We continue to spend a lot of our times in terms of strategizing in terms of high-quality clients. Now this quarter, we have we had 98 clients that we invoiced in Q4 of last year, which we brought down to close to 80, 85, and we added several clients this year, taking our now active clients to 93, out of which 15 contributed more than $1 million each in terms of revenue.
I'm also delighted to share that our growth from our Top 25 clients, continues to grow well and now it's 85% of our revenue, which shows the potential both from our existing clients and the long-term mature relationship that we have as we are moving up the value chain, which is moving from pure play mechanical engineering services to digital services. And at the same time, large number of new clients that we have won post-COVID which are all at a stage, which can have exponential growth over the next few years.
Again, all the new clients are in the digital services space, and that's what gives us the confidence that we will hit the benchmark of 50% that we've been talking about. We are also continuing to focus deep client engagements and mining both our top 5 clients and top 10 clients as well and investing a lot more in terms of centers of excellence, in terms of capability centers, in labs, embedded labs, in particular, digital labs, and we see a lot of opportunity as we keep expanding our services in the U.S. and Europe.
Our team strength has now been -- is at 2,646 end of Q1, which is spread across about, 90% plus in India, and the balance is spread between U.S., U.K., Germany, Canada and the Netherlands. We see an exciting opportunity there in terms of rationalizing again. As we keep growing and as we keep adding more and more depth, we do believe our headcount is not going to be very significant as we transition large number of India BU towards the global business model, towards mainly export, which also will give us a huge leverage in terms of margin expansion.
In terms of hiring, we continue to hire large number of people, while we exited the ITeS business in India and about 200 people exited end of March, early April, we also added a lot of people both -- actually in all 3. One is on leadership. We'll continue to hire a lot of people from a domain perspective, which we did in our automotive business, we did in our industrial equipment domain in the vertical, health care and recently we appointed new leader for our Rail Transportation. We also added a new CFO, which we spoke about last quarter. So continuing to strengthen the international business unit, the India business unit and the G&A functions.
Number 2, we have a very active, successful TAP program, which is the Talent Acceleration Initiative that we did last year, with 300 engineers, that was extremely successful. That entire program is now matured, and everybody has been deployed on projects. Our customers appreciated that a lot. So, we're going to launch Phase 2 of our TAP very soon. It's already started in small, small pieces in Pune, Bangalore and Chennai centers, but we will add a lot more depth as soon as we see some better factors out there in the market.
As a summary on the technologies, we've been on a path of transformation for the last few years and even more so aggressively post-COVID. As we pivot the company from India business to global business, focused on export and pure-play services revenue -- from pure play revenue from mechanical engineering, more and more towards digital and embedded skills. This is leading to very mature, very good growth for us, good visibility for us. Our customers have been appreciating that, and we are confident that we believe we are on the right track towards our journey of $100 million in revenue with double-digit margin.
I also would like to share while I open it up for question and- answers that we have released the Q1 press release. We've also shared the Q1 earnings deck with all the ratios. We will also be releasing over the next couple of days, the new investor deck, which will give you a lot more insight about the transformation journey over the last 3 years and where we are going over the next few years.
So, again, thank you, everyone, for all your trust in us. I will now hand over the floor to the operator to start the Q&A session. Thank you very much.
[Operator Instructions] The first question is from the line of Sugandhi Sud from InCred Asset Management.
Congratulations on the very strong traction. So, if you could quantify the impact of the client rationalization that you've done in the Indian business unit. If I look at your Top 25, it seems to have grown at a very strong clip of around 49%. So if you could quantify the impact and give us some kind of outlook on what can be expected? Of course, you've given a FY '25 outlook and you've reiterated that as well. Also, I noticed that you are gaining good traction on the automotive client addition. So it's like 8 clients now. I think in FY '22, this was 6 clients. So, what is our wallet share here in these clients? And how many $1 million plus arrangements do we have? What's the expectation within automotive? Yes, those are my 2 questions.
Yes. Hi, Sugandhi. There was a lot of questions there. Som hopefully, I remember it in my notes, but please let me know in case I miss out something. So, on the first part was on the India business unit. So, India business unit for us is 2 businesses that we have, right? So, first business -- so India business is global MNCs, large companies with capital centers in India which we invoice in INR, right? So that's how we have defined it. So, the first part, we have 2 businesses there.
One is the business that we did on the ER&D space and the digital space. And the second business that we have is this historic business from erstwhile Onward eServices, which was a 100% subsidiary, which is the ITeS business. So, every year, we evaluate the businesses, which are coming to a natural end is where we gradually exit and all those engineers, team members, projects, which are working on those projects, get transitioned to the customer payroll and/or to the customer's new preferred supplier, right.
So that's what we have done in a very big way every year for the last [ few ] years, and now that revenue, if you look at the earnings deck, is down to only 2% of our revenue, which is left, right. So 2% of our revenue comes from ITeS, which is what we have stated earlier, we will exit in the next few quarters, right, and then bring that down to zero. I believe that was your first question. On the growth side -- sorry go on.
So that largely the impact is visible in the ITeS business. But even if I look at the reported numbers for ER&D, it has slowed down somewhat. So is there any rationalization that's happened within the ER&D business also? And indirect relationships that we have with Captives and -- relationships that we have with Captives?
Sure. So, I look at it from 2 different perspectives. So, if you look at our revenues from India BU, which is where you will see the category revenue by geography, our revenue last quarter versus this quarter continues to remain the same. So while we exited ITeS revenue substantially in India, which came down from 8% to 2%. So actually, our revenue has gone up substantially in the ER&D space from the India geography perspective.
Yes, understood. That's right.
Correct, right?
Yes.
That's the first part. And on the second part, on the ER&D revenues, it came down is because our -- actually the digital revenues where we were pivoting towards, we did multiple pilot projects last year, and all of them started showing a lot more traction about -- from February of last year. And that's where majority of the billing came in Q1, and that's where you see a massive growth on the digital side. And that's where all -- and we had readymade supply engine or the readymade supply in terms of capacity. And we've been investing in the TAP initiative and the program. So all of them got matured or got absorbed in those client projects. So we could invoice very, very quickly.
On your second question on automotive. So automotive is something which has been our biggest strength, right? It's a vertical that we've been part of for a long time with a lot of domain experience, which predominantly happened on the mechanical engineering side. Over the last few years, we've been investing on embedded electronics, which includes ADAS, which includes AUTOSAR and numerous other areas. They're all showing very good traction.
So, over the last 1 quarter, the 2 large companies, 1 North American, 1 European, we became a preferred supplier. There is no invoicing in these new customers yet, but you will see our goal, and we believe they'll become our largest client in the next few quarters or years. They are the biggest companies out there. They come strictly through very strong references from the existing customers of ours, and that's how we've been growing.
So we have, out of 11, 8 where we are registered direct supplier. Now we have to build capacity, capability, and obviously offices close to their head office or where the R&D centers are to mine and engage with the client more effectively. Similarly, in this quarter, we have onboarded people focused on rail transportation as well, so that will become a very strong focus area for us in Europe and U.S.
And the fourth part is, if you see the revenue by industry, we have something -- we had a substantial portion of our revenue, same time last year, 11% coming from Others category. Now that has been dropped to almost as low as 3%, which we will exit completely, and we see a massive opportunity on the health care side. And that's where we actually on-boarded a lot more SME this quarter, and we'll continue to do that over the next few quarters as well.
[Operator Instructions] The next question is from the line of Ketan Chaphalkar from Evaluate Research.
Yes. So, congratulations on excellent set of results. And my question is regarding the contribution from the digital segment. So, your digital segment is now contributing almost 37% of your revenues. So, I wanted to ask a question about it that, what is the maximum percentage you're trying to actually look in this particular segment? As well as the next question is that, what kind of revenue growth do you see in the future of -- the overall revenue growth and the margin?
Yes. So, on the digital side, again, so we've shared this earlier, we believe we can be at a good balance of 50%-50%. The avenues -- the opportunity to grow in digital is much faster and much more -- continues to be substantially high because of demand environment and such. But we do believe there is equal opportunity for us, both on the ER&D side and the digital side. So, we would like it to be balanced at 50%-50%. But, again, if something grows much faster, which has a much big potential and it's sustainable or recurring, we are very open to that. About 50% is what we believe we will be at, when we started this investment about 2.5 years ago.
And on the second question, on the future potentials, we are not sharing quarterly numbers, but what we do believe we are focusing on and which we have shared in the last 2 quarters as well, in our earnings calls that we are, instead of focusing on very strong top line growth, we are focusing on [ balanced ] growth, which will deliver double-digit EBITDA margin, and that's where we are happy to share that we've delivered 2 quarters in a row, and our goal is to maintain that and keep improving and growing on top of that.
The next question is from the line of V.P. Rajesh from Banyan Capital Advisors.
Huge congratulations, Jigar. Fantastic results. First question is about the $100 million target for financial '25. Do you think majority of that can come from the organic growth or are you thinking about acquiring some businesses to get to that number?
Hi, good evening. So, as we have shared earlier, again, $100 million was the aspirational goal that we had a few years ago, post-COVID and we believe -- we continue to believe that, when we shared that 2 years ago, the organic versus inorganic, the demand environment has been very positive and receptive for a young company like us. And we do believe, as of today, we can get there organic. But we are not averse to inorganic or M&A opportunity. If there is a right company, which comes our way, which is also supporting our existing clients, we will be very happy to look at that and channelize investments there. So, we are open to look at both the options and towards the milestone that we have shared with everybody.
Got it. And in terms of margin, are you thinking about reinvesting the excess margin that you probably would be getting because of the operating leverage back into the business? Or you think the margin from here 12% can inch to, let's say, 15%, 16% over the next couple of years?
So, we just -- the way we look at it is we have just started, right? It's been -- we've had couple of good quarters, and there's a long way to go. We're still a very young company. We are about INR 119 crores, INR 120 crores a quarter. There's a huge opportunity for us to scale both top line and bottom line. So it's all about just keeping our eye on the ball, focusing on execution and our current customers. I again would like to stress to the point or reinforce what we believe our biggest strength today is that, we have 93 live clients, where we are preferred suppliers to them.
Our objective and the growth projections that we have shared, will come -- majority of them is going to come by building better client engagement models with our existing customers. So, we do believe the hard work is done now, it's really the focused on execution, and that's the kind of team that we are building towards. So, the opportunity is beautiful both for top line and bottom line growth.
Right. But just specifically in terms of margin expansion, do you want to share some sort of guidance on that for at least fiscal '25? Once you are achieving $100 million, what kind of EBITDA margin you can have?
So, the guidance that we have shared and you will see that in the deck which is getting released in a couple of days as well in the next 48 to 72 hours, it will be -- what we have shared is mid-teens. We are just not getting into the specifics so early.
Understood. Okay. If I have more questions, I'll come back in the line.
The next question is from the line of Parth Kotak from Alpha Plus Capital.
Hi, Jigar. Congratulations to you and your team for a great set of numbers. So a lot of my questions have already been answered. Particularly one question, I think last quarter, you shared, you would probably throw some more color on the scope of the work that you're doing with the newer clients that have been acquired. So, if you could share some of that would be really helpful.
Good evening. So, again, the challenge for us and our thing is we can't share too much of the work that we do with the clients as we shared earlier. It was very happy -- very happy to welcome everybody to our offices and our design centers to the work that we do. We can't get into client-specific work because of intellectual property. But very happy if you guys would like to take some time and visit our centers. So you can deep dive into some of the amazing work that we're doing for our clients.
Sure. Sure, will do that.
The next question is from the line of Aditya Padhi from Girik Capital.
Hi, congratulations on good set of numbers. I just have one question. I just wanted to understand the ITeS business that you're all...
Sorry to interrupt. Aditya sir, your audio is breaking up.
Okay. Is it clear now?
No, sir, it's still breaking up. Can you use the handset mode while speaking and not speakerphone.
No, no, I'm using a handset mode, but it's still not clear. I can come in the queue again.
Sir, you may please proceed with your question.
Okay, yes. So, just wanted to understand the ITeS business that you've been letting go, any impact on the margins that you can comment on?
So, these are -- the margin profile of our ITeS business in India is -- this is less than 20% gross margin as compared to the 35%, 40% gross margin standard that we work. But more than the margin side, it is more about, these are business which are not long-term sustainable. These are maintenance contracts, which is very high manpower and those are in the industry verticals which we are not aligned to or focused on investing in for the last 5, 7 years. So, it's more of those client contracts. So it's a combination of multiple factors why we have chosen to exit the ITeS business.
Okay, okay. Got it. Okay, that was the question from my end.
The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities.
Yes. So I have a couple of questions. So, what is our client win ratio when we bid for any project or something? Second, what differentiation we are offering to set ourselves apart from the competition because ER&D is very evolved space, and many global and domestic peers bid for the same set of clients globally. And third, what optionality and adjacencies do we have in our current service practice?
So, me address the questions one by one. So, first question was about what is the client win ratio, if I understood correctly?
Yes, sir. Yes.
Okay, great. So again, so let me clarify again. So our -- we don't have a sales engine, which goes after building new clients. That's not Onward Technologies. We have done that already. Our focus and 95% or 98% of our team and the leadership team 100% of our leadership team is focused on executing and building better relationships with our existing clients, right? So, we don't have a sales engine per se, which is now -- which was there last few years. We have won the clients, now it's all about executing.
So, when we have given a guidance for the next few years, it's about executing and mining and farming our client relationships much better. And that's what gives us the confidence that we can get there if we can build the right capacities and the capabilities and the domain experience for our customers, right? Now in each customer -- each OEM that we operate, which is a large, let's say, manufacturing company, whether it's industrial, automotive, rail or med-tech, you are one of the few preferred suppliers. So let's say in some companies, they only have 3, some have 5, some have 10. And your opportunity is to bid for projects, every RFP that comes out from that customer.
And in that, I think, we have a fairly decent -- very good success ratio based on the capacities that we have, right. And that's what, again, gives us the confidence about the way forward. But let's say, if a customer tomorrow is looking for a large autonomous driving project and let's say, they need about 200 SMEs in Munich or Germany, that's not -- Onward Technologies is not the right company who can actually -- we cannot overnight build that kind of capacity and capability, right. So that -- there are different companies who do different work. So, that's the first part.
Your second question if I -- it was about how do we differentiate ourselves?
Yes.
So, we differentiate ourselves from 4 -- particular 4 main points, right? For us, the first part for us is why our customers continue to work with us. And I think what the feedback they've given us is we're a company of the right size, right? We are not a large company. We are a very focused niche ER&D services company, right? So it's a right sized company. We are publicly traded. We are debt-free and we have a management team which has -- who have all experience working in large Tier 1 companies. So they've been there, done that. So right size partnership is one.
Second is a very significant part is agility. We are able to, even for a company of our size and with the financial resources that we have, that was the reason why we raised equity 18 months ago from Convergent, is our ability to ramp up delivery teams in U.S., in Europe, in other parts of the world is very good today. We have the financial resources and the management team who have been there, done that, so actually they [ came up ], and that's what our customers are appreciating more and more.
Third is the global delivery model. We earlier, if you see our history, pre-COVID, we only had center in Pune. Today we have 5 centers, right? We have centers in Pune, Chennai, Bangalore, Hyderabad and Navi Mumbai, and at the same time we have a substantial number of our technical teams working at client sites in Europe and U.S.
And large -- and last point, being a young company is our cost effectiveness. We continue to be, we believe, at least 20% to 30% lower cost compared to any North American or European company. So our competition is mainly those companies which have a huge cost structure in Europe and U.S. We are not necessarily only competing with Indian companies. And these 4 models we have seen is a good blend about in terms of ramping up to where we want to go in the next few years.
Okay. One follow-up -- yes, yes. So, one follow-up to the question, like what revenue application we have from let's say 4-year or 5-year down the line? Because [ the places are growing ] very rapidly. And it looks like EMS and all are...
Sorry, I can't hear you clearly. Can you please speak up?
Yes, now am I audible? Hello?
Much better, yes.
Yes. So, sorry for that. Anyway, I have one more question on to the asked question that what revenue expectation we have in absolute terms, let's say, 4-year, 5-year down the line, considering the CapEx and the capital flow, which our client industries are experiencing, be it EMS and even emobility and et cetera, what ballpark estimation we have to reach in-turn oversight?
Sorry, can you elaborate your question a bit more? What is our revenue potential is the question? Or revenue vision?
Yes. Revenue and revenue mix.
So, our goal for the next few years is to get to $100 million in revenue which will come which we believe the ideal mix for us is 50% coming from R&D services which is mechanical and embedded and the balance 50% will come from digital engineering.
Oh, okay. Yes. Thank you. I will get back to you for more questions. Yes.
Thank you.
The next question is on the line of Pratap Maliwal from Mount Intra Finance Private Limited.
So, last quarter we had said that we were seeing a bit of a slowdown in the macro. So, is there any update here, any delays that we are facing because I believe we were at a 15 customers at $1 million level in Q3 as well and it's been a couple of quarters where we haven't actually increased that number. So, are we facing any delays on the demand side?
There is definitely a slowdown in the market what we are seeing. We are not seeing delay from client sides not yet from our clients because keep in mind our clients have selected us. Majority of our clients we have won in the last 18 months to 2 years, and we have clear visibility in terms of ramp-up with them because they all are in new areas as you guys already know, and so far we are not seeing that. The opportunity for us is more about the transition or the transformation that we are going through internally away from the old businesses to the new businesses. So, that's what we are seeing.
On the second question on number of clients which are $1 million- plus, I think you will see that more and more increase over the next few quarters and years. But again, please keep in mind our vision which we have shared earlier. It's not about getting more customers or a sales engine or trying more stuff. Those big investments have been done and you can see the high quality of clientele that we have today.
It's more about execution. It's more about having 10 customers, which potentially can generate $10 million revenue per year. So, if we can get there with a very good blend of offshore revenue, I think that will keep us in a very good bucket and give us an avenue for future growth as well over the next few years.
Okay. Now, as I understand for our $100 million target, now we are focusing on our top 25 customers who currently contribute about 80%-85% of our revenues. So, do we have any internal targets for FY '24 as to how many clients we actually hope to scale to maybe the $3 million or if possible the $5 million mark, because I believe client mining will be very important for us. So, do we have any internal targets around that?
Yes, of course, we have internal targets, yes. But we are only sharing how many $1 million clients we have for the next few years.
Okay. Now, ITeS is now down to our single-digit level. So, now I don't think the company should be transitioning out too many employees because that vertical is now that revenue contribution is quite less now. So from here on, can we expect maybe employee additions to kick in from the following quarters now or what is our goal around employee addition?
So, a great question. So, let me clarify again. The first point is absolutely right; #2, in terms of employee additions. For Onward Technologies to grow towards the milestone that we are talking about, while employee additions will continue, it's more transitioning people-trained personnel which are in our India BU to our export revenue. So that's what is happening beautifully within the organization for the last few years. So, somebody who is invoicing at INR, who is trained up to 2, 3, 4 years is now moving to our global revenue we export whether it's offshore or onsite. And that's where the real exponential margin difference will come in for us as well.
No, I got it. But what I'm asking is. Yes.
So, you're giving longevity, you're giving career path, you're giving international career path to people. That's how the attrition will go down and that's where the whole culture of the organization will change. And we have seen that beautifully play out for us in the last 5 years.
Yes, but now that portion of revenue is just 2%. So, we wouldn't really have too many employees to transition to those newer new age digital engineering skill levels, right? So, that's why I was asking. So, now can we expect maybe more hiring to go up?
Sorry, I think we misunderstood. I'm not talking about ITeS. ITeS, we will go to zero and that will end that conversation. I'm saying ER&D people. Let's say people who are working on autonomous driving projects, people who are working on telematics, people who are working on Autosar, on adaptive Autosar or on some new age technologies, sensor development, IoT, emobility, right? Now, those people who are trained in India will now -- are now getting deployed for global projects.
Right? So then they get trained in captive center work in India. After 2, 3, 4 years, we have an opportunity where the customer also wants lower costs and we deploy them with other people and the beautiful transition happens where they move on to different projects in different geographies.
Okay, sure.
In an ideal mix, we don't need -- and that's where you will see revenue per employee go up, margin per employee go up over the next few quarters as we keep maturing the business model.
Okay, understood. Best of luck for the coming quarter.
The next question is from the line of [ Agam Shah ], an individual investor.
Most of my questions are answered. Just a quick...
Sorry to interrupt, Mr. Shah. Sir, there's a lot of background disturbance from your line.
Am I audible now?
Sir, you are audible. Can you move to a silent zone?
Yes. See, most of my questions have been answered. Just a quick question on the $100 million target which you have set. Is that fiscal '25 or '26? The new target to achieve that internally [ for billing? ] Hello?
Sorry, I can't hear you. What's that? Can you repeat again?
I'm just asking the internal vision of reaching $100 million. Is it intended for fiscal '25 or '26? The new target?
'25-'26.
'25-'26. Middle of that. Is it fair to assume that?
Sorry?
Is it fair to assume that middle of '25-'26?
'25-'26 financial year, yes. That's what we have shared, yes.
The next question is from the line of [ Kashyap Shriram ], an Individual Investor.
Actually, I think -- this is Shriram here, Jigar. It's not Kashyap Shriram. Just 2 questions. First is, firstly, congratulations. Terrific results. The employee count has been kind of coming down from close to 3,000 in Q3, and now it's come to 2,600. Does the EBITDA margin improvement have anything to do with this employee count coming down? Or how much of the EBITDA increase is to do with the employee coming down -- count coming down?
Hi. Good evening. So, 2 different questions. So, the first part is -- EBITDA, I'll answer the second part first. So, the EBITDA margin is to do with our international business growing. Right? So, there are 2 parts. So, one is international business growing on-site and offshore. That's one part. And the second part is, in the India business that we are doing, we're not just providing mechanical engineering now. We're also providing digital engineering and embedded electronics. So, it's a combination of both of these very important points, why our EBITDA is going up.
On the second point, on why the overall headcount, consolidated headcount is coming down. So, if you see the data that we had shared maybe 2 or 3 years ago, we had more than 1,000 people in our ITeS business in India.
Yes, yes.
Right? And which was under the erstwhile subsidiary, which was Onward Eservices. And that's where maximum headcount of Onward was, which has now come down substantially.
Got it.
You're welcome.
So, when we met in Mumbai, I think...
[Indiscernible] Sorry.
Yes, understood. I got it. When we met in Mumbai, the kind of guidance you gave was, expect us to do better than the preceding quarter on all parameters. The revenue has kind of taken a dip. Would you have some comment for it? Or is it just the one-time dip that you kind of correct from the subsequent quarters?
I would like to believe so. I think everything else has been very good, including that DSOs improved substantially, compared to the previous quarter. Our cash flows have gotten stronger. All our ratios have become much better. Utilization is much better. I think the revenue, I think, will probably, it's a one-time dip because of the large number of contracts that ended or that will be jointly exited, mutually with the customer in Q4 and early Q1. But we do believe that we have the right team and execution team in place, process in place that we can catch up.
Superb. Jigar, terrific. And wishing you and your team great success for Q2 as well.
The next question is from the line of Gouri Mishra from Narotam Sekhsaria Family Office.
Congratulations, Jigar, on a great set of numbers. We were talking about revenue per employee. I want to get an idea. So, I have started looking at the company only recently. How has revenue per employee improved in the last 4 quarters?
Sorry. The question is how has it improved? Or why has it improved?
I mean, why -- what was the revenue per employee 4 quarters ago? And what is it now? So, I want to see the revenue per employee growth. And are we seeing that growth coming from E&RD (sic) [ ER&D ] or the digital?
Sure. So, I don't have the data in front of me. I'll have my finance team or E&Y can share the data with you on email.
Okay.
If you look at the headcount, our headcount has come down. We have gone from INR 240 crores in revenue to INR 440 crores. And actually, our headcount has come down from 3,100 people to 2,600 people. So, I think there is a huge play there. But let my team come back to you with the exact specifics.
Okay. And do we see it going? Because if we compare it to other ERD (sic) [ ER&D ] players and all, their revenue per employee is far higher than what the company is doing right now So, is that one of the objectives -- that's one of the objectives to improve the per employee revenue and improve margins that way?
I am not sure about the other ER&D companies. But we do believe we have a huge play in terms of both in our international business unit and our India business unit to keep improving, adding more value to the customers and obviously getting higher bid rates.
That's the play that we have as we transition from the erstwhile old mechanical engineering IT business of Onward.
Yes
The next question is on the line of Kaushal Kedia from Wallfort PMS.
Yes. Jigar, congratulations on a good set of numbers. What I want to know is that TAP is not a recurring program, right?
TAP is Investment into Hiring and Training. So, it's part of L&OD, which is part of HR.
But is it a recurring program? Is it a continuous program?
Continuous. Continuous program, yes.
What is the kind of cost that we incurred on TAP? Is there a -- can you give me a number that we incurred last year and this year, maybe?
Sure. Again, that's exactly in the new presentation that we are sharing, which is the investor deck in the next few hours or 48 hours. You will have all those breakups and exact details. And I think that's the question people have been asking about in the past. We put it together along with the E&Y and which we will share with everybody.
Okay. All right. That's it.
But this ballpark number, last year, I think, we spent about INR 10 crores.
And this year, it will be more or less or in the same range?
It will continuously be. I mean, our hiring cost is broken up into various parameters. So, under the TAP initiative, it will be very similar, if not much more. Just to clarify again, TAP is Talent Acceleration Program, which is -- what we are saying is we hire PGETs, we hire GETs, we hire a lot of engineers from IITs, and other similar world-class colleges. Or we take people from our own internal teams, which are working on old-school technologies and give them an opportunity to up-skill and re-skill, where we invest the entire capital, including certificates, training, coaching, towards that. And that training goes on for anywhere from 6 months to 15 months, based on how much of the transition or transformation we have to bring into that individual or that teams, and what our customers want.
So, do we have a retention program also in place? Do we have a signed agreement in place to retain the human capital, who goes through TAP?
Absolutely. Anybody who goes through training will sign anywhere from 18 months to 3-year agreements, which are allowed in the various states that they work. But again, keep in mind, those things are very positive and good. It's more about the quality of work. If you provide good quality of work to your teams, to your engineers, especially young minds, we have not seen attrition or any such thing as a challenge.
Sir, there were 300 people in the TAP program last year. How many would be there in the TAP program this year, roundabout?
How many will be there this year? As I said, we will keep hiring. We have to keep investing. We have to keep hiring. I can tell you end of the year how many did we absorb. [Indiscernible] We already knew where we are. If you go to any office of Onward, any center, any city, there will be continuous training, which is happening.
Okay.
The way I would like to look at it is a very important part of our recruitment engine or our engine to build up our capabilities. Why is it special in Onward compared to maybe some of the larger peers that we know of? The larger peers have been doing it for decades, which is hiring freshers and training them. For Onward, it's very new. And that's what we started sharing last year, or last 18 months ago.
Okay. Okay. And is there a breakup of the cost that you can give for the new center that you set up? How much of it did you expense out last year?
Absolutely. That's exactly what's coming on the new investor deck.
Okay. Okay. All right. Okay. That sounds great. And I would love to visit the center. So I'll maybe get in touch with the IR.
The next question is from the line of Nishid Shah from Ambika Fincap.
Yes. Hi. This is Dhruv here. Congratulations on a good set of numbers, Jigar. I have a couple of questions. First is, on your deal pipeline, how is it shaping up? My question is, coming from the annual report, you have mentioned that you have won a multi-year deal. So are we looking to sign more such deals?
Yes. Again, we don't use the word deal pipeline. It's more about mining existing customers. Absolutely. We have amazing visibility from, I would say, a large number of our existing suppliers. They all are ramping up capacity, capability, or soft-shorting more and more to reduce their investments or their R&D spends. So the visibility for us is very exciting. It continues to be across all the 3 industry verticals. Majority of the work that we see with the maximum demand even today is on the digital side; followed by the embedded electronics; third, mechanical. And that's where we are ramping-up. And that's in the same format how we are ramping-up capacity and capability.
So the big investment, Dhruv, that we did in last few years, last 5, 6 years in terms of sales and building up the global engine. I think that's very well matured and the cost has been inbuilt. Now it's more about execution and farming and building on the engagement that we have with the customer. And the new clients that we win are all through references. With of course amazing work by our teams, but it's more about references from a client who is asking us, who is referring us to a new potential OEM. And that's been very exciting for us for the last 4, 5 months
Right. Right. And another question I had on the software-driven vehicles, which you have mentioned in your annual report. So are we investing in the IO, or are we just helping the customer build the software there?
So in our business model, if you see, one of the key differentiators that we have in our any client engagement, our first line says 100% of the IP is owned by a customer. And that gives us a huge leverage or huge levy in terms of building trust with the customer where they want to be. Because a lot of the large Automotive OEMs, Industrial OEMs have signed contracts with large Indian players in the past, where those companies started getting into manufacturing as well, or have a vision to the end of IP.
We don't have that. We are very clear IP is owned by the customer. And that also becomes a big differentiator for us. It's 100% -- to answer your question simply, 100% is owned by the customer. We are just a services company.
Right. And lastly, Jigar, we have mentioned about the top 3 European OEMs, which you are helping in the EV platform. So I just wanted to know, what capabilities do we have in EVs and what is our right-to-win there?
What's our right-to-win there? I think right-to-win is as good as anybody else. I don't see much of a difference between us and what our customers tell us. You visited our center, so you have a better feel of it. It's more about having the right capacity and the capability when the customer wants it. So as I shared earlier, we had an opportunity where the customer wanted us to build a large team locally in Germany. We couldn't do that because we didn't have a center there. We didn't have the resources or that kind of investment. That itself would require a multi-million-euro investment upfront for a few months. So we did not do that. But in other cases, we have a beautiful opportunity and we continue to ramp up capacity, capability and everything.
Got it. Great, and congratulations once again.
The next question is in the line of [ Amit Mittal from Blue River Capital. ]
Jigar, So just I have a quick question. So if I look at our results, right, I mean, if I look at this geographical segmentation, our North America revenues are declining quarter-on-quarter. So are you seeing any weakness in terms of the overall demand? [Indiscernible]
Sorry to interrupt Mr. Mittal, we are not able to hear your question clearly.
What I was saying is, if I look at our geographical revenue segmentation, our U.S. revenues have declined quarter on quarter. So are you seeing weakness overall, or considering you're channelizing all our energies towards the U.S. and Europe, it's a bit surprising to see the revenues declining quarter-on-quarter?
Nothing in particular [ for us, ] as I said, I'm very happy to see that we are at INR 119-plus crores revenue this quarter. As I said, we exited a large number of contracts. Some customers, we could have won better in Europe. Some could be in the U.S., a same U.S. customer could invite invoice in Europe or invoice in INR as well. So we have a combination of that. Absolutely. Right. So if you see our revenue from our top 25 clients actually has increased. So it's not going down that much.
Sorry. Is there another question?
Considering where we are at the end of Q1, are we on course to hit our FY '24 targets, especially on the revenue side?
Absolutely. I don't see much of a challenge. And as I said, my focus is on -- we continue to believe we have a very good pipeline. We have good traction and good visibility. Our focus is on execution now. And I think if we can keep executing and external scenarios don't change, I think we should be fine.
The next question is in the line of Jay Jain from Finnovate Financial Services Private Limited.
Congratulations on a great set of numbers. I had this question. So, you had mentioned about getting into the high-tech and semiconductor space by FY '25. So, has there been any development or update in that area?
Yes. Hi. Good evening. Again, great question. Thanks for bringing it up. I should have clarified that earlier. Because we saw amazing opportunities in the 3 focus industry verticals that we have. We said we'll invest in 2025. That's the plan even now. And I think based on how the traction goes in Q2 and Q3 of this year, I think we'll have very formed plans for the high-tech semiconductor vertical for next year. But it's definitely something that we want to invest in and we believe we can win, because a lot of the capabilities that we have can be cross-utilized in that space as well. So, it's an opportunity -- definitely a growth opportunity for us in the future.
The next question is on the line of Sugandhi Sud from InCred Asset Management.
Yes. I just wanted to understand if you're experiencing, what are the trends that you're seeing on the attrition side? And the headline number that you mentioned in the annual report is pretty high. So if you could break down -- if there is any impact there on account of -- if you could break down the change in employee numbers into how much you've -- how many new hires you've done and how many have left? And give us an idea about how that has trended?
So, multiple questions. Let me simplify that. So, attrition for us, obviously the market has changed compared to the same time last year and attrition has slowed down drastically. So, we do believe, we feel very good about where we are and we are very much more comfortable today than we were again 12 months or 18 months back when attrition was at an all-time high. So, that's the first point. But we can't share specifics about each thing because that goes very deep into our client engagements and client relations, but we are at the lowest it's ever been that I can remember post-COVID and it's getting better every quarter -- or every week, sorry.
Where do we see attrition? We continue to see attrition at places where our clients are not back in office, right? So, we have various instances where our clients are working remotely, even today, not back in offices. Their offices, their campuses, their centers are all completely empty and that's where the struggle definitely has been for us at the L0, L1 level, which is engineers less than 2 years experience because then they're not learning anything effectively or not getting managed.
Where we don't see attrition is where people are working in our offices, right? So, where there's offshore work, there's delivery work or any kind of work that people are working in onboard offices and that shows the depth of the beautiful part of our culture today. We're not seeing any attrition there or very marginal attrition there.
Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments.
Thank you again everybody for joining us this evening for our Q1 Earnings Call. We're very excited about where we are today and we are committed in making progress. We are hopeful in terms of the investments that we've done over the last few years. And again, this quarter, we continue to hire a lot of people and invest in both domain capability and building up competencies in the new areas. And I highly recommend to everybody that please reach out to our managers if you're interested further and visit our offices, whether it's in Pune, Chennai, Bangalore, or Hyderabad, to get a much more feel about the deep delivery experience or the domain experience that we are building for our customers.
So thank you again and look forward to talking to you again next quarter.
Thank you. Ladies and gentlemen, on behalf of Onward Technologies, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.