Zensar Technologies Ltd

NSE:ZENSARTECH

Q1-2026 Earnings Call

[Manish Tandon, executive]

[Audio Gap]

5.5% in Telecom, Media & Technology. 2.9% in BFSI, 5.2% in health care, while Manufacturing and Consumer Services declined by 4.1%. Effective July 1, we have announced the salary hikes for all our employees as per schedule, unlike some of our industry peers. Our LTM attrition further improved to only 9.8% from 9.9% in the last quarter. Our gross profit stood at 30.5%, sequential growth of 20 bps Q-on-Q and order book remains healthy.

We saw continued resilience in our key accounts and a healthy pipeline of AI-driven deals fueled by our ongoing investments in emerging technologies. Looking ahead, while we anticipate some macro-driven variability in client budgets, our diversified portfolio and focus on high-value offerings positions us well for sustained momentum.

With that, I will now request Pulkit to provide an update on critical financial data.

[Pulkit Bhandari, executive]

Thank you, Manish. Good day, everyone. Thank you all for joining this call. I will take you through some of the key business and financial metrics for quarter ending June '25. Overall, macro environment remains challenging with growth slowing in both U.S. and Europe, along with business capital expenditure showing only marginal improvement. We are seeing CIOs pausing on net new spending due to macroeconomic uncertainties.

However, GenAI remains in demand, 62% of CEOs and senior executive identified AI as defining the future of competition for the next 10 years. We are committed to fostering sustainable relationships with our clients by leveraging robust farming strategies, enhanced with AI-driven value propositions and cost takeouts -- and cost takeout deals.

The reported revenue for the first quarter of financial year '26 stood at $162 million in U.S. dollar terms, reflecting a growth of 3.3% sequentially in reported terms and 1.9% in constant currency terms. Our EBITDA this quarter stood at 15.2%, a drop of 40 basis points quarter-on-quarter. Decline was majorly due to investment in sales and marketing and increase in travel and other spends. Our PAT for the quarter stood at 13.1%.

Some other key highlights. Quarter-on-quarter growth in all key service lines, added order book of $172 million in this quarter, which is 11.7% growth Y-o-Y. Average tenure of our order book is increasing with more complex and high-quality engagements, including managed services. Cash, including investments, stood at $315.7 million, DSOs improved by 1 day sequentially and stood at 72 days. On the ESG front, we have successfully completed reasonable assurance audit for BRSR, Core and limited assurance for selected GRI parameters for FY '24, '25 for the first time and submitted the same as core assurance report on stock exchange. Our CDP score for 2024 has been revised from C awareness to B management level post core appeal.

With that, I will now invite Vijay, our Chief Operating Officer, to comment further on Q1 FY '26 results.

[Vijayasimha, executive]

Thank you, Manish and Pulkit. Greetings, everyone. I will share details about our operational efficacy, service line performance and AI journey. Our utilization for the quarter stood at 84.3%, which is 40 basis points higher than year-on-year. The rigor associated with accelerated fulfillment and capability enrichment continued in Q1 FY '26. We had a gross addition of 728 employees this quarter.

Our voluntary attrition reduced to 9.8%, which is 10 basis points reduction sequentially and a Y-o-Y reduction of 18 basis points. Service lines. We have organized some of our service lines to deliver -- we have reorganized some of our service lines to deliver additional value to our clients. our advanced engineering services, experience and engagement services practice have now been reorganized into products and platforms, including CMO services.

The share of revenues from our service lines increased to 68.9% in Q1 FY '26, which is 170 basis points higher quarter-on-quarter and 380 basis points higher year-on-year. On a quarter-on-quarter basis, products and platforms, including CMO services grew by 10.1%. Cloud infrastructure and security services grew by 5.2%, data engineering and analytics grew by 2.5%. Enterprise application services grew by 1.3%.

On the AI journey, we launched ZenAI, our GenAI accelerator platform. Our clients have been extremely appreciative of the key features of this platform, namely connected intelligence, multimodal search and enterprise-grade Agentic AI models. ZenAI increases engineering velocity enhances value realization and legacy modernization programs and help optimize AMS and IT operations cost, underpinned by a solid responsible AI framework, prompt guards and agent observability engines, this platform ensures transparency and helps democratize AI.

We continue to deliver significant value to our clients in key AI engagements. A couple of examples. We partnered with a leading global fintech company to develop a GenAI-powered solution that helps customers identify a wide range of suitable investment opportunities by aggregating data from multiple stock exchanges and financial data sources. The innovative use of model context protocol enabled implementation of streamlined workflows and unlocks smarter decision-making in the retail operations space. Leveraging this, a South African retailer has been able to reduce manual efforts by 65%.

In Q1, we significantly accelerated our AI capability building initiatives by enhancing our Ignite AI Academy learning programs across foundational, deep tech, techno-functional and thought leadership dimensions. The enhanced program has received highly positive feedback from our clients and are driving meaningful outcomes. GenAI capability enrichment has now been made mandatory in every employee's annual learning and development plan.

With that, we can now open the line for questions.

[Operator]

[Operator Instructions] The first question from Nitin Padmanabhan from Investec.

[Nitin Padmanabhan, analyst]

Nice to see good growth in most vertical, especially TMT. Do you believe the headwinds on TMT are largely behind us? So that's the first one. The second is just your thoughts on MCS considering we have had 2 relatively softer quarters, how do you see that going forward? And I have a few more.

[Manish Tandon, executive]

Yes, Nitin, thanks for the question. And thanks for your message on the results. Yes, we are very pleased with the results based on what we are seeing in the industry. I would say on TMT, again, I think the worst is behind us, but will there be consistent growth? I am not sure at this stage because as you -- as we see every day, some of the larger players are announcing layoffs and so on.

So I would say the worst is behind us, but will we see consistent growth, I'm not sure at this stage. On MCS, we were coming off a very, very strong Q3 of last year. And hence, it has been slightly muted. Also, the impact of the Liberation Day is felt much more on manufacturing and retail sector than in others because this is the first order impact, so to say, on these sectors. And hence, we are seeing a little bit of impact there. With that said, I think we should see growth in MCS in the next -- in Q2 is what we are projecting.

[Nitin Padmanabhan, analyst]

Great. So from a pipeline perspective, do you think it still looks good? And do you think it sort of get back to that $200 million kind of range that we have had in the past? Or does that look challenging at the moment?

[Manish Tandon, executive]

Yes, I mean, see, again, it's the uncertainty in the market that will ultimately reflect in the pipeline. And also, there is a seasonality associated with the pipeline. So that's why when we do pipeline comparison and order booking comparison, we try and do it with the same quarter of last year. And there, we have grown about 12% or so, which is a good sign. Hopefully, we will continue to see growth in order bookings and in pipeline year-over-year in subsequent quarters also. But the uncertainty is definitely having an impact.

[Nitin Padmanabhan, analyst]

Got it. Just one last question for Pulkit. Pulkit, how should we think about margins on a going-forward basis, considering the ESOP cost and other things?

[Pulkit Bhandari, executive]

So I think one of the costs which is going to play out next quarter is definitely going to be ASR. As Manish called out, that we are probably amongst a few companies which have done the salary hikes across the organization. And which is a very reasonable hike, I would say that we have taken up. So to that extent, will there be an impact on margin? Will we -- again, on the ESOP side, it is still outstanding. The scheme is out there for consideration. And as and when basically that comes into play, that will have some impact on margins next quarter.

So I would urge and request you to kind of have these 2 factors into consideration when you triangulate the overall mid-teen guidance that we kind of gave on margins. I would not give the exact number today, but I would say these 2 factors are definitely going to have some impact.

[Operator]

The next question is from the line of Manik Taneja from Axis Capital.

[Manik Taneja, analyst]

Congratulations on the steady performance and heartening to see the sequential growth on the TMT side. Manish, basically, since the time you came on board, we have seen a steady increase in our on-site -- in our offshore digital revenue delivery and while you've said that we don't plan for a particular number, but it'll be good to understand as to how much room do you see in terms of further optimizing that, our offshore revenue delivery? That's question one.

The second question was with regards to the sequential increase in subcontractor expenses that you have seen. If you could talk about what's driving that? And the third one is, you've continue to maintain a very steady utilization rate while hiring numbers haven't gone anywhere. When should you probably be thinking about hiring essentially catching up with the remaining growth. Those would be my 3 questions.

[Manish Tandon, executive]

Yes. So first question Manik is, as I said, I'll repeat what I said before, I don't solve for offshore percentage or on-site percentage. I base it on client demand more than anything else. It, of course, helps us that around our offshore revenues are going up as a percentage. It helps the margin, but please also remember that it puts pressure on the top line also because then the top line doesn't grow as fast as it could be. And I hope you guys are noticing that. Your second question was on subcontracting costs.

So Pulkit, do you want to take that?

[Pulkit Bhandari, executive]

So subcon costs will basically come back in line with basically what it has been previously. There were third-party costs, which have got incurred this quarter, which will kind of get normalized. And there has been some headcount increase as well there, which will also get normalized.

[Manish Tandon, executive]

And what is the third question, Manik?

[Manik Taneja, analyst]

The third question was with regards to headcount. Basically over the course of last several quarters, you've just been optimizing our utilization headcount has largely been unchanged or in a very small way, where it has start to catch up with regards to our revenue growth?

[Manish Tandon, executive]

We don't want it to catch up with revenue growth. If we are doing a good job on AI and so on, then actually we should be able to deliver higher revenues with less headcount. That is what our AI is all about, right, to some extent. And second is we put in a lot of hard work and effort in maintaining -- optimizing our cost model and improving our utilization. And as I said, the lead times for hiring, et cetera, have come down, and we have tweaked our model to be in line with the lead time in hiring also. So this is a very good thing, something that with Vijay, I, Pulkit and others are very proud of.

[Manik Taneja, analyst]

And the last one was just especially tale with Pulkit with regards to ESOP impact. If you could talk about the potential impact on margins from the proposed ESOP plan. If you could just help us understand that from a modeling standpoint and go-forward basis?

[Pulkit Bhandari, executive]

Yes. So if you're talking about the historical plan, it's a different thing, but the current plan is still under consideration. It hasn't been approved as yet. And a lot will depend in terms of how the plan gets improved, how also the grants happen because the chart starts happening from the date of the grant. And a lot will basically determine -- a lot will be dependent on that.

[Manish Tandon, executive]

But we remain committed to making sure that we are in the mid-teens margin range.

[Pulkit Bhandari, executive]

Yes.

[Manik Taneja, analyst]

So inclusive of some of these costs or the investments which you want to [indiscernible].

[Pulkit Bhandari, executive]

Yes. Despite this, basically, it should be in the same ballpark range, yes.

[Manik Taneja, analyst]

And I'll get back to the queue, but just to clarify on the wage hike that you implemented from July, if you could call out the extent of offshore and onshore wage hikes and is it for all our population -- all of your population...

[Pulkit Bhandari, executive]

So the wage hike is across the board, including offshore and onshore, but we don't give a split in terms of how much is there. Of course, the wage hikes in India will be slightly higher versus what you will see in U.S. and U.K. and South Africa. So it is all dependent on that particular geography, but we don't give a split in terms of the quantum of the wage hike.

[Operator]

The next question is from the line of Sandeep Shah from Equirus Securities.

[Sandeep Shah, analyst]

Congratulations again on a good execution in difficult times. Sir, just within TMT, is it the top line has also contributed to the growth and what has driven, is it the earlier areas which we used to target as higher budget or we are mining that client in terms of entering into newer areas? So just wanted some clarity.

[Manish Tandon, executive]

We have opened new logos. We are mining them. And obviously, for the large client also, we are trying to open new areas. So I mean it's very difficult to say exactly how much has come from renewals versus this thing, but if you're seeing growth, then that is primarily coming from existing new and net new. So that is where the growth is coming from in TMT.

[Sandeep Shah, analyst]

Okay. And any progress in terms of large deals. I do believe we have done well in the second half of the last financial year. And in one of the analyst meet, you said we are targeting for one large deal every quarter. So can you give some color in terms of closure, if any, in this quarter? And how the pipeline is looking on the large deal, both on Q-on-Q and Y-o-Y?

[Manish Tandon, executive]

Y-o-Y, it is definitely looking good, I think, the pipeline. Closures depends on a lot of things, including luck. And all I would say is we are working hard and just watch this space, is all I can say.

[Sandeep Shah, analyst]

Okay. And sir, just a related question, one of your large peers have said, large deals are coming more on cost takeout and vendor consolidation and there is an extreme pricing pressure. So are we also witnessing that kind of a pressure in some of the large deal pursuits?

[Manish Tandon, executive]

We don't go after existing large deals. We create large deals. So for us, large deal is about being innovative and solutioning, not about bidding for things which have been bid for, rebid and bid for 15 years in the past. When you do that, then it's always a race to the bottom. We don't want to be in that race.

[Sandeep Shah, analyst]

Okay. And just on margins, 2 questions. Pulkit, just wanted to understand, is there any onetime R&D credit which generally happens in this quarter. And second, in the second quarter, we may have a headwind from wage hikes as well as ESOP, and in the third quarter, because of furloughs, generally margin gets impacted because of the higher bench cost. So in that scenario, you believe the margin walk could be slightly tougher in the next 2 quarters? And still, we believe we could be closer to 15% for the full year?

[Pulkit Bhandari, executive]

No, no. So let me give you some qualitative aspects for next 2 quarters. But more importantly, for this quarter, the first question that you asked, if there's any R&D aspect to it. All I can say is that, if there is something which is, say, one-timer, they may be like a compensating element to that. And to that extent, basically, what you see is more normalized margin than anything else, at least for this quarter. And we'd rather not go into any small one timers here and there because that is part and parcel of the business, may happen, may not happen. So that you can ignore for now, that's response to your first question.

Second, going forward, I think, as I have mentioned before, there are 2 factors which are going to play out, right? ASR and ESOP, as and when it gets approved and implemented. The time frame of approval is what we know. The time frame of implementation is something which we do not have full clarity as of now, yes. And that will also determine basically what the next quarter looks like in quarter after that.

Also, will these 2 factors have some impact on margin? Absolutely, they would. At the same time, right, are we taking actions on costs? Are we taking other -- are we tapping on to other levers? Yes. And to that extent, there may be a lead lag effect but you should factor these 2 aspects. At the same time, we will exercise those levers over a period of time, but they may not be a matching concept on everything all the time, right? So you have to be mindful of that.

[Sandeep Shah, analyst]

Okay. And just a last clarification to what Manish sir said in our opening -- in one of the replies, I think offshore has increased materially. So is it fair to assume volume growth is actually much better versus the headline growth of 1.9% on a Q-on-Q.

[Manish Tandon, executive]

Yes. Volume growth, not in terms of number of people, but our PPR and PPC has been increasing slightly, so to say. So the whole idea of using AI and all this is trying to do is more with less. So it's kind of difficult to break up and say, because if I say volume, then you say last year, you -- last quarter, you had 10,700 people, this time you have 10,600 people. This is not pure volume but it's a factor of several things, including improved productivity, improved utilization and better PPR and PPC.

[Operator]

The next question is from the line of Shradha Agrawal from Asian Market Securities.

[Shradha Agrawal, analyst]

Congratulations on another good quarter. 2 questions from me. Last quarter, we had highlighted our aspiration of double-digit growth in '26, given 1Q has been a broadly good quarter for us. So I'm assuming we stay with that commentary of aspiration and double-digit growth this year.

[Manish Tandon, executive]

That was a question or hope or aspiration?

[Shradha Agrawal, analyst]

That's a reaffirmation that I want from your end on the double-digit growth guidance.

[Manish Tandon, executive]

No, no. That was before Liberation Day happened in the U.S. But first of all, we never -- I never have said that we will do double-digit growth. All I said is that we are committing to showing growth every quarter. And that is what we are focused on from an execution perspective that we want to be predictable, we want our -- to be sustainable in terms of our margins, predictable in terms of our growth. And that is what we are focused on. I never promised double-digit growth. But yes, I did promise that we will try and grow sequentially every quarter, which has been the case by the way for us for the last 12 quarters, except one quarter, Q3, where there was a furlough -- last furlough.

[Shradha Agrawal, analyst]

On that aspect again, so with steadiness in the top accounts, so do we expect a lesser seasonality of furloughs in Q3 that might happen this year?

[Manish Tandon, executive]

See the furlough is not just about top account or this thing. Furlough happens in sectors, including banking, technology, there are certain geographies where furloughs happens. So it's too early. I mean we are in July. Furlough happens in December. It's too early to make any predictions on that. The only prediction that we can make is that furlough will happen. To what extent, we don't know.

[Shradha Agrawal, analyst]

Right. And sir, just the last question, our top accounts have done very well this time around with the top 5 clients growing almost 5% and top 20 growing 7%. So is it more broad-based across the top client portfolio are driven by 1, 2 accounts that we've seen such strong traction?

[Manish Tandon, executive]

No, it's not broad-based. In fact, if you noticed, the number of $20 million accounts have gone up from 4 to 6 same quarter last year was 4, this quarter, it's 6. Similarly, 10 million-plus accounts have gone up and similarly 1 million-plus accounts have -- $5 million to $10 million accounts have also gone up. So overall, this is more broad-based. And that is the way we like it to be.

[Operator]

The next question is from the line of Girish Pai from BOB Capital Markets.

[Girish Pai, analyst]

Manish, 3 months back, you had talked about a right shifting of demand, especially in the month of March. Has that demand come back in 1Q? Or has it been right shifted again into the next quarter or the quarters ahead?

[Manish Tandon, executive]

There is a right shifting of demand. I mean that is why if you look at the order bookings, they are less than the previous quarter. And as long as the tariff uncertainty prevails, people will focus on only the essential project. They will not focus on new capital projects, for example, and so on. So uncertainty is having an impact, definitely. And you have seen it in the results of IT companies across the board. So I don't know whatever has right shifted has come back or not. But the uncertainty continues to persist.

[Girish Pai, analyst]

Okay. On this aspirational double-digit number, you didn't want to kind of commit to that. But would FY '26 be a better growth year compared to FY '25?

[Manish Tandon, executive]

We hope so. But again, we try not to give forward guidance and we take the safe harbor statement seriously. So we will not give our forward guidance. But as a management team, we are committed to make sure that for our shareholders, for our employees and for our customers, every quarter is better than the previous one.

[Girish Pai, analyst]

Okay. You talked about a salary hike starting 1st of July. What will be the impact from a basis -- I mean the number of the basis points impact? And how -- what are the offsetting factors that you kind of think about, either in the next quarter or the quarters ahead? What are the levers that you're kind of working on?

[Pulkit Bhandari, executive]

So I think this question has come up now multiple times. So rather than giving you an impact in terms of percentage terms because the revenue is still something which is under works. I can give you a quantum in terms of salary hikes. So we are looking at somewhere close to $3 million of wage hike in fact, which is going to come in Q2. And as regarding absorption, something similar to what I said earlier. It is a lead lag situation where strikes are implemented now. The recovery of -- on the basis of prices on the basis of growth happens over a period of time. So that's the only framework that you'll have to work with. But yes, so there's a number that you are looking for, it's $3 million in terms of quantum.

[Girish Pai, analyst]

Okay. My last question, Manish, is regarding talent cost. And while the supply side seems to be like pretty good right now, attrition is low, is there a pocket on the supply side where there is a cost pressure, still there like AI talent -- is the AI talent cost inflating at a faster rate that it used to, say -- I mean, than the normal inflation in salary costs?

[Manish Tandon, executive]

Fortunately, we don't need people like Facebook needs, where you have to pay $10 million and $100 million to attract AI talent, some super genius, or whatever, super-intelligent or whatever. AI, we are creating our AI talent ourselves. It is not that all this talent is available in the market. So we are -- AI is such a new technology that we have to create the talent from within. So I wouldn't say that AI is an area where we are going to spend a lot on talent but obviously there will be pockets where the technology costs will be higher. There's this cybersecurity stuff, for example, or there will be 1 or 2 hot technologies here and there, there will be -- talent will be more expensive. But that is part of the industry.

[Operator]

The next question is from the line of Jalaj Manocha from Svan Investment.

[Jalaj Manocha, analyst]

First of all, congrats on a good set of numbers. So Manish, this is one thing, one observations specifically as you talked about the slowdown specifically in retail and manufacturing, specifically you gave a flavor to the U.S. economy. But when I see for the sequential growth, it appears that Europe as an economy has degrown and U.S. has done better. So where is this mismatch coming from? How should I read these 2 things together?

[Manish Tandon, executive]

U.S., we are executing well. Europe, we have not executed as well as we wanted to. Also, there were certain one-off revenue things because of the large deal that we signed in Europe, which is having -- which might be creating a bit of a distortion here and there. But overall, we are very bullish on Europe.

[Jalaj Manocha, analyst]

Okay. So I just wanted to understand...

[Manish Tandon, executive]

They have a fairly aggressive target for this year.

[Jalaj Manocha, analyst]

Okay. No, sir, I was just trying to understand that you had told about that manufacturing and retail not performing so well because of the tariff issues in the U.S. But then the degrowth has happened in Europe economy or Europe as a geography, and vis-a-vis I compare it with the verticals, it happens to be manufacturing. So just trying to have a geography flavor there.

[Manish Tandon, executive]

Yes. So geography flavor, as I said -- see, we have signed a large deal which was announced in March, April -- April or May. Yes. So there could -- there are -- there have been some distortions because of that in revenues from Europe. But overall, as I said, it will get cleared pretty soon and you'll see revenue growth back in Europe very quickly.

[Pulkit Bhandari, executive]

So I think the point is that don't link Europe macroeconomics with basically our Europe performance, as Manish is calling out that we could have done better in terms of execution, which is what we are pushing to do now.

[Jalaj Manocha, analyst]

Understood. That explains. And my second question was with regards to deal wins. So should I consider it that you also alluded in one of your -- in the commentary, your prepared remarks that we have had a managed services flavor coming to our deals. So the average tenure is increasing. So should we -- shouldn't we have a higher growth or accelerated growth in the deal wins in that scenario?

Just wanted to have your thoughts around that? And basically, would it give us the top quartile or the 1 quartile move each year as we had discussed at the start of when Manish had joined? So are we comfortable with the current set of deal wins we're having right now?

[Manish Tandon, executive]

We can always have more deal wins. Are we comfortable? Based on what I'm seeing in the industry, we are, I think, pretty well placed compared to others. But can we do more? Yes, we can and we will do more. And yes, as we do more managed services, we will see larger deal duration. This will be reflected in the order bookings. And you can see year-over-year, order bookings are seasonal to some extent. And as you can see, our order booking has -- year-over-year gone up by 12%.

[Pulkit Bhandari, executive]

And just -- that you just spoke about in terms of how is it reflected in the order book. Don't see it for just this quarter. You have to see it for last, I would say, few quarters and then look at the managed services part. So last 3 quarters were more than $200 million in terms of order book. And that also -- it's not that managed services or deal duration is specific to this quarter. It has been the case over last, I would say, 4 quarters. So the deal duration has gone higher than what it was before all this while. It's happening on this while, yes.

[Operator]

The next question is from the line of Nikhil Choudhary from Nuvama Wealth.

[Nikhil Choudhary, analyst]

Congratulations on strong numbers. Manish, I just want some clarity on manufacturing and consumer verticals. You have rightfully called out at the beginning of last quarter that this is the vertical which will get impacted. But what's ahead from here on? Is it fair to say that this vertical will also start going, although maybe lower than company average, but will deliver growth from here?

[Manish Tandon, executive]

At least Q2, I am predicting growth in this vertical. Beyond that, again, there is a lot of -- and this is -- this manufacturing and consumer is the industry which has the first order impact of tariffs. So what will happen post that, I don't know. But at least Q2, we are projecting growth in this vertical.

[Nikhil Choudhary, analyst]

And second one, in Africa, we have been growing slower than the company average, right? In last quarter, you have highlighted you have made some strategic investments, also hired some senior leaders. So any update there? Or has that geography now bottomed out and you are seeing incremental momentum, especially in deal win and pipeline?

[Manish Tandon, executive]

Yes. The new leader has taken over as of 1st April And we are -- he's on the job, all of us in the company are supporting him. And we are seeing some green shoots but green shoots turning into flowering plant takes some time. So hopefully, in the next couple of quarters, we will see the impact.

[Nikhil Choudhary, analyst]

Sure, Manish. Just one more time trying my luck on deal win side. So the comment you have made that the tenure of the deals are improving, the complexity of deal is improving. So is it fair to say that your ACV is also showing basically accelerated growth, maybe higher single digit, low double-digit type of growth while we have overall deal win number?

[Manish Tandon, executive]

No, the ACV is not -- if the deal duration is actually increasing, then the ACV is actually going to come down, right? It is not going to increase.

[Nikhil Choudhary, analyst]

No, no. So what I mean is, with the deal itself is going. Is the ACV is also growing, let's say, high single digit. Obviously, it will grow lower than overall deal win because of the tenure, but is it growing faster, let's say, in high single digit?

[Manish Tandon, executive]

You mean the ticket size of the deals, right? From an ACV perspective, the ticket size of the deal is increasing, yes. That is the -- if that is your question. Yes.

[Nikhil Choudhary, analyst]

Basically, Manish, I wanted to understand if ACV is growing on Y-o-Y basis, in let's say, high single digit more or less leaving...

[Pulkit Bhandari, executive]

No, no. That guidance, we will not give, that, is ACV increasing at a particular percentage or not. But structurally, ACV is going up versus last year, but we'll not give any percentage around that or any number around that because that's a direct reflection to the revenue as well.

[Operator]

The next question is from the line of Nitin Padmanabhan from Investec.

[Nitin Padmanabhan, analyst]

Manish, in -- for my question, you alluded to some headcount cuts by large tech companies. So just wondering, are you worried about any risk to the experience services business from this?

[Manish Tandon, executive]

Yes. We are worried about some of the impact that it might happen on particularly the marketing side of the experience services business because one of the areas where AI is disrupting significantly is in the marketing space. Because a lot of content generation is happening using AI. And while we are also using it to our benefit but there is a downward pressure on budget because of that. And yes, it's a good catch, Nitin, that you're right, that experience services, particularly on the marketing side or the Indigo Slate side of our business may get negatively impacted because of that.

[Nitin Padmanabhan, analyst]

But is it a significant portion of the overall Indigo Slate business or just a part of it?

[Manish Tandon, executive]

It's a part of it. It's not a significant part of it, but it's a part of it. I mean it depends on how do you define significant. That this is their business is $7 million to $8 million a quarter business. So in the overall scheme of things, it is not that critical for us.

[Nitin Padmanabhan, analyst]

Got it. . And did this -- last year, we won 2 large deals is what I remember. Have those started converting to revenue? Or we are yet to see them begin to convert or reach steady state?

[Manish Tandon, executive]

They are starting -- they have started to convert into revenues.

[Nitin Padmanabhan, analyst]

Right. But have they sort of achieved steady state or will continue to have benefits from this even on the following quarters?

[Manish Tandon, executive]

Steady state of the structure -- the deal structure that we use is try to annualize and straight line the revenues to the extent possible. Because we don't want too many ups and downs, right?

[Operator]

The next question is from the line of Dhanshree from Choice International.

[Dhanshree Jadhav, analyst]

Congrats to the entire management for great performance in Q1. My question is regarding the -- last time you had said 44% of the pipeline is AI driven. So if you can give more color on how -- is there any change in that commentary and how is our conversations with the clients with regards to AI pipeline?

And more if you can tell something on Agentic AI, of our Agentic AI focus and how these things are leading to our growth in focus services, as you spoke about like you are transforming the advanced engineering services to having the product and platform. So what is the future of long-term plan we have set in for this, like if you can just throw some more light or elaborate on the strategy, that would be helpful.

[Manish Tandon, executive]

As I said in my opening comments, as far as AI and GenAI is concerned, we are not just adapting to change. We are engineering the change. And we are one of the few companies who have reported this time formally as to what percentage of our pipeline is AI-infused or AI-led and also what percentage of our order bookings is AI-infused or AI-led.

So we are playing this game to win. This is a fork in the road, the way we see it, it's the fork in the road for the industry. And we want to win, we want to win this time as the industry turns. And we are doing everything in our power to make sure that we come on the -- we take the right fork and come on the winning side. I would encourage you to read our press release and our analysts, this thing, the case studies and so on that we highlighted. That is showing -- as I said in my opening remarks, this is the first time that I told the team to give all the case studies need to be of critical projects, need to be AI-led or AI-infused. So all the projects are AI-led and AI-infused and it will give you an idea of the kind of work your company is doing.

[Dhanshree Jadhav, analyst]

And if you can just, let me know out of the [indiscernible].

[Pulkit Bhandari, executive]

We don't give a bifurcation of net new.

[Manish Tandon, executive]

You are breaking up. I didn't hear the question, sorry.

[Dhanshree Jadhav, analyst]

Yes, out of the total TCV win, what was -- what is the net new percentage you can share, net new wins per se?

[Pulkit Bhandari, executive]

Order book. We don't...

[Manish Tandon, executive]

We don't want to normally give those breakups.

[Dhanshree Jadhav, analyst]

And the last question is on our top -- the top client account. So last time when we had interacted, you had mentioned that has come down from a certain percent to around high single digits. So is this maintained or it has further come down or increased, if you can share?

[Manish Tandon, executive]

It's around 10% or so is what I remember. I'm not tracking it very closely, but it is around 10%.

[Operator]

The next question is from the line of Sandeep Shah from Equirus Securities.

[Sandeep Shah, analyst]

Just if I look at the cash generation led to war chest of closure to around 15% of the market cap. So any expected usage of the cash? Are we also looking for slightly bigger size M&A to accelerate our journey to $1 billion, which may help us to grow even faster once we achieve $1 billion?

And second, in terms of outstanding hedges, if I look at, it has declined on a Y-o-Y basis by closer to 75%, 80%. So is there any change in the strategy in terms of hedging?

[Manish Tandon, executive]

Right. So great question. I think, first of all, you guys should do something about the market cap rather than me trying to do something about the cash, you should do something around the market cap.

[Sandeep Shah, analyst]

You commit double-digit growth, then it will automatically happen.

[Manish Tandon, executive]

Second thing is cash is an asset, not a liability. And third is, I'll ask Pulkit to take that question as to how -- what he want to do with all the cash that we have.

[Pulkit Bhandari, executive]

Yes. No. So I think when you look at the current cash balance, of course, there's a dividend, which is outstanding. And the dividend roughly to the tune of $29 million will get paid out, I would say, sooner than later. So you should adjust cash for that. Despite that, our cash balance is good. More importantly, our cash conversion on a yearly basis has been pretty good for the last few years.

As regarding future plans, I think we are open -- we want to invest. We want to invest in terms of large deal creation. Also, capital allocation from an M&A perspective, we're always looking for ideas, right? And for the right idea, we would go in. Of course, they are far and few right ideas. So we have to be patient and kind of wait for the opportunity to come our way.

But I would say that, yes, I think it's something which is going to help us in fueling growth in many ways. And when I say large deal creation, I mean to say that basically, we can structure deals, we can invest upfront in order to create large deals, which makes sense. But at the same time, we'll be extremely prudent in whatever we do. So the idea is not to -- and that's why the cash has got accumulated because we've been very prudent, and we've been very mindful of the usage. And we'll keep you posted in case something comes up and there's an update for all of you.

[Sandeep Shah, analyst]

Yes. And sir, just on hedges?

[Pulkit Bhandari, executive]

Sorry, what was the question there?

[Sandeep Shah, analyst]

Outstanding hedges have declined Y-o-Y by 70%, 80%. Any change in strategy?

[Pulkit Bhandari, executive]

So it's -- the market is -- the FX is like extremely volatile, right? And to that extent, it makes sense to just be as conservative as you can, and that's what we are doing. So we've moved from certain positions, and we are just focusing on, I would say, balance sheet hedges. That's what we are doing. Because in the current environment, taking positions either way is -- as per us is not advisable.

[Operator]

The next question is from the line of Girish Pai from BOB Capital Markets.

[Girish Pai, analyst]

You had mentioned that in the EU, U.K. market, you had some issues with some large deal. Was this the Tesco deal that you won? And has that -- has the revenue kicked in, in 1Q? Or will it kick in starting 2Q?

[Manish Tandon, executive]

We don't answer questions on specific clients, Girish, you know it well.

[Girish Pai, analyst]

Okay. You spoke about NCS being impacted on -- because the first order impact of tariffs. Manish, in your opinion of which particular sectors would have a second order impact, I mean, according to your thoughts?

[Manish Tandon, executive]

I mean second order impact, see, again, if -- then second order impact -- if manufacturing and consumer have the first order impact and the second order impact is -- as you know, the U.S. economy, 70% of the U.S. economy is driven by consumers. And if there is a consumer weakness on the consumer side, then everything becomes fair game including banking and financial services, credit card debt, mortgage default, everything becomes a fair game. So as long as the consumer is resilient, as far as this economy is concerned, second order impact will be limited. But if the consumer is not resilient, then everything is going to be fair game.

[Girish Pai, analyst]

Okay. My last question has to do with vendor consolidation deals, in the market, are you seeing them becoming more competitive compared to, say, from a pricing standpoint, a productivity passback standpoint compared to, say, 6 months back?

[Manish Tandon, executive]

See, vendor consolidation deals are a race to the bottom. We don't want to -- we don't want to get consolidated out definitely. And we have created -- in most cases, we have enough client relevance and mind share that we will not easily get consolidated out. But proactively going after vendor consolidation deals is a race to the bottom, I don't think I'm ready for it.

[Operator]

As there are no further questions from the participants, I now hand the conference over to Mr. Manish Tandon.

[Manish Tandon, executive]

Thank you, everyone. Thank you, Shradha, and all of you for attending this call. As always, it's a pleasure to interact with you, get your perspective as valuable investors and shareholders. From a management perspective, as I've said, we are deeply committed to executing well and trying to outperform the industry to the extent possible. And hopefully, we will continue in the same -- with the same momentum as we interact for Q2 and beyond. Thank you.

[Operator]

Thank you very much. On behalf of Asian Market Securities, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.