Datamatics Global Services Limited (DATAMATICS) Q4 FY23 Earnings Concall Transcript

Datamatics Global Services Limited (NSE:DATAMATICS) Q4 FY23 Earnings Concall dated May. 02, 2023.

Corporate Participants:

Pratik Jagtap — Investor Relations

Rahul Kanodia — Vice Chairman and CEO

Sandeep Mantri — EVP and Chief Financial Officer

Analysts:

Pallavi Deshpande — Sameeksha Capital — Analyst

Pratap Maliwal — Mount Intra Finance — Analyst

Akshat Mehta — Sameeksha Capital — Analyst

Darshit Jhaveri — Crown Capital — Analyst

Pranav Mashruwala — Dolat Capital — Analyst

Arpit Shah — Stallion Asset — Analyst

Keshav Kumar — RakSan Investors — Analyst

Unidentified Participant — — Analyst

Harshit Toshniwal — Bottomsup Research — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Datamatics Global Services Limited Q4 FY ’23 earnings conference call. As a reminder, all participant lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] I now hand the conference over to Mr. Pratik Jagtap from E&Y, Investor Relations. Thank you and over to you sir.

Pratik Jagtap — Investor Relations

Thank you Aman. Good afternoon to all participants in the call today. Welcome to the Q4 and full-year FY 23 earnings call of Datamatics Global Services Limited. The results and presentation have been already mailed to you and it is also available on the website of the Datamatics. In case anyone has not received a copy of the press release and presentation, please do write to us and we will be happy to send you all. To take us through the results today and to answer your questions we have with us the top management of the company represented by Rahul Kanodia, Vice-Chairman and CEO; Sandeep Mantri, EVP and Chief Financial Officer; and Mitul Mehta, EVP and Chief Marketing Officer.

Rahul will start the call with brief overview of the quarter on business which will be then followed by Sandeep talking on financials. We will then open the floor for question-and-answer session. I would like to remind you that anything that is said on this call this gives any outlook for the future or which can be construed as forward-looking statements must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual reports, which you can find on our website.

With that said, I now hand over the call to Rahul, sir. Over to you sir.

Rahul Kanodia — Vice Chairman and CEO

Thank you Pratik and a very warm welcome and thank you everyone for joining our quarter-four FY ’23 earnings call. We’re glad to have you on the call today. I’m extremely pleased with the overall performance of the business during the year. This was the first-quarter in which we surpassed INR400 crore revenue mark. This revenue growth was broad-based, driven by all three segments of digital operations, digital experiences, and digital technologies. Despite the global economic situation, we managed to maintain a healthy margin throughout the year. We had a strong EBITDA growth of 25.5% with an EBITDA margin of 16.6% for financial year ’23.

I will briefly touch upon each of our segments and their performance. The digital technologies. Our EBIT margin saw considerable improvement from 2.2% to 9.1% in quarter four of financial year ’23. Primarily due to renegotiate prices and tighter cost controls. Going-forward we are actively focusing on hyperscalers and depending on — and deepening our client relationships as our growth strategy. Our deal pipeline for the next year remained strong. In digital operations, we witnessed strong growth on the topline and our EBIT margin improved from 19.5% to 23% on a sequential-quarter basis.

Traditionally, our Q4 tends to be better than Q3 due to the cyclicality of some of our projects, which requires us to ramp up headcount in Q3 and execute in Q4. In digital experiences through our top — our top-line saw a slight decline in quarter four EBIT margins continued to be strong at 28.2%, we have a healthy pipeline and our business will grow on the back of new customer acquisition. Going-forward, we anticipate that these operations will continue to generate strong margins in the same range as this year. We are seeing supply-side challenges easing off, which would help us in optimizing our cost for the next financial year.

In quarter four of ’23 we signed the total contract of about 20 million and added about 21 new customers. In line with the account growth our capabilities and strengths demonstrated to our existing clients have resulted in several deal wins which remained strong for the quarter. I’m happy to share that we have recommended a total dividend of 100% which is INR5 per share. On a concluding note, I’d like to add that while there is some amount of slowdown across the globe due to macroeconomic factors, we do not see a material impact on the deal wins or existing clients spend. We expect to see a sustained growth momentum for financial year ’23, ’24 given a decent pipeline of opportunities. This makes us optimistic about the overall demand and confident of maintaining an overall revenue growth of 14% to 15% in financial year ’24.

With that, I will now hand over the call to our CFO, Sandeep Mantri. Sandeep, over to you.

Sandeep Mantri — EVP and Chief Financial Officer

Thank you, Rahul. Welcome everyone and thank you for joining us in Q4, and full year earnings call. Let me start with the financial performance for GY ’23 and then I will take you through the FY ’23 numbers. Our Q4 FY ’23 revenue stood at INR416.3 crores, which is up by 11.7% on a sequential basis and 32.9% on a Y-o-Y basis. As Rahul highlighted, it was a milestone quarter for us as we exited the revenue mark of INR400 crores for the first time ever in a single quarter and was ably[phonetic] supported by all the three segments.

Our consolidated EBITDA for the quarter was at INR84.1 crore, which is up by 42.7% on a sequential basis and 63.5% on a Y-o-Y basis. Our cost optimization strategy coupled with other initiatives helped us maintain a double-digit healthy EBITDA margin of 20.2%. Our consolidated EBIT for the quarter, was it INR75.3 crores, reflecting tremendous growth of 50% on sequential basis and 78% on a Y-o-Y basis. EBIT margin for the quarter was at 18.1%. Our other income on a consolidated basis stood at INR5.3 crores, which is a decline of 50% sequentially and 56% Y-o-Y basis. Primary reason for the decline is the exchange gain which was not there in this quarter.

Our quarterly PAT after NCI was at INR59.7 crores. This is a growth of 30.2% on a sequential basis and 30.9% on a Y-o-Y basis. Our tax-rate for this quarter was at 27% compared to 25.3% in the last quarter — previous quarter three FY ’23. Our EPS for this quarter is at INR10.13 per share, which is higher than the last year same period which was at INR7.73 per share. When we see segment-wise revenue performance digital revenue — digital operations revenue was at INR187.3 crores, which is a growth of 22.6% on a sequential basis and 31.6% on Y-o-Y basis. Operational EBIT margin was at 23%, its contribution to total revenue was 45%.

Our digital experience revenue was at INR59.5 crore, which is a slight decline of 2.7% on a sequential basis and there was a growth of 48.8% on a Y-o-Y basis. EBIT margin was 28.2% and its contribution to total revenue is 14%. Our digital technology was at INR169.5 crores. This is a growth of 6.8% on a sequential basis and 29.4% on a Y-o-Y basis. EBIT margin improved to 9.1%, although the margins were negative in the first two quarters of FY ’23, this segment has performed very well and we will see continuous improvement in the margin trajectory of digital technology segment with contribution to total revenue was 41%.

Now coming to annual numbers FY ’23 financials, our full-year revenue was at INR1459.2 crores, which is a growth of 21.5%. Our EBITDA was at INR242.6 crores, which is again up by 25.5% as compared to last year. EBITDA margins stood at 16.6% on annual basis and we aspire to maintain similar kind of margin next year as well. Our EBIT was at INR207.6 crores, which is a growth of 29.8% Y-o-Y and EBIT margin stood at 14.2%. Our other income for the year was at INR38.7 crores, which is a growth of 47% on a Y-o-Y basis, primarily due to exchange in SEIS incentive and better investment income.

Our PBT before exceptional item was at INR243.4 crores, which is a growth of 32.7%. Our PAT after NCI was at INR189 crores which is a growth of 20% on a Y-o-Y basis. Tax rate for the year was at 23.9%, which is slightly higher than our expectation of 23%. EPS for the full-year was INR32.05 per share as compared to INR26.71[phonetic] in the last year, a growth of 20% on a Y-o-Y basis. If you see our segment-wise revenue mix for FY ’23 digital operations revenue, was at INR630.7 crores, which is up by 21.9% and EBIT margin for the digital operations margin 22.2% on annual basis.

Our digital experience revenue was at INR219.3 crores, which is up by 38.8% and margin was at 26.4%. Our digital technologies revenue was INR609.1 crore up by 15.9% and EBIT margin for the full-year was at 1.6%. We continue to maintain a healthy balance sheet as on March 31st, 2023 our cash and investment net of debt [indecipherable] stood at INR498.2 crore. Our DSO was at 67 days for the full-year as compared to 74 days as of March 31, 2022. In terms of geographical footprint US remains our largest geography with 54% of our business coming from here, followed by India at 27%, rest of the world, including UK and Europe at 19%.

In terms of industry footprint BFSI continues to remain the largest segment of us, which include 24% of our revenue; followed by education and publishing which is 22%; then technology and consulting at 19%; non-profit or non-government organization at 12%; manufacturing, infra, and logistic at 12%; retail was 8% of our business; and other segments up 3% of our total revenue. Our client concentration remains very healthy with top five, 10, and 20 clients contributing to 24%, 37%, and 52% respectively.

The Board has recommended a total dividend of INR5 which includes INR3.75 final dividend and INR1.25 special dividend per share for the year ended March 31, ’22-’23. With this, I will now pass on the call to operator to open the floor for question. Thank you for your patience and continued interest in Datamatics. Thank you. Operator?

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Pallavi Deshpande from Sameeksha Capital. Please go-ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Congratulations on a very good quarter. Just wanted to understand on the digital technology side, I was driving the turnaround and the strategy going ahead. I think you mentioned about the margins also the suspension[phonetic]. Could we see some new client additions.

Rahul Kanodia — Vice Chairman and CEO

So we are looking at new plant addition quite significantly. Our margins improved because of certain negotiations as I mentioned and also tighter cost-control. I do going-forward, we will be focusing on hyperscaler logistics like microsoft power apps, AI, cloud. Those analytics, all of those areas. And that we’re beginning to get some very good traction on that plus deepening our client relationships. So these will be the main drivers for growth. Our focus on the US continues and that’s also giving us some very good traction. In terms of margin stability I think the margins will be stable. We may have a dip this quarter because of the increments, every company goes through the increment cycle around April.

So in this first-quarter, we have dip and this will normalize through the course of the year. So I think we should have a fairly healthy margin going-forward.

Pallavi Deshpande — Sameeksha Capital — Analyst

So we had a lot of volatility in margins that we saw in quarters [indecipherable] we see stability and do we see I mean stability at what levels [technical issue].

Rahul Kanodia — Vice Chairman and CEO

Can you repeat the question?

Pallavi Deshpande — Sameeksha Capital — Analyst

We saw a lot of volatility in the quarters in FY 23 for this [technical issue] because of the large client drop of.

Rahul Kanodia — Vice Chairman and CEO

That’s correct.

Pallavi Deshpande — Sameeksha Capital — Analyst

The stability we see is 4Q margins are we [indecipherable]

Rahul Kanodia — Vice Chairman and CEO

No, no. The stability will be there. So the client that shown has now stabilized. In fact, this is marginally grown. So I don’t see an issue on that front. Plus we got a very healthy pipeline with good margins coming in. As I said we’ve negotiated prices so we should be okay. Having said that of course. We see in the market, a little bit of an issue with the BFSI segment, particularly in the US. Having said that, so we think there’ll be a little bit of softness in the BFSI, but our pipeline is healthy and our pipeline is good. So I’m not concerned, from a data analysis point-of-view. But yes, at the industry level, we may see a little bit of slowdown, particularly in that regard. But as far as very much concerned I don’t see that impacting us majorly.

Pallavi Deshpande — Sameeksha Capital — Analyst

Great. Having said it is good to know becuase the BFSI [technical issue] you’ve seen those companies actually on [indecipherable] status, including the environment is tightness and liquidity. You know, what is driving overall, the environment in the US.

Rahul Kanodia — Vice Chairman and CEO

Sorry. You are not very clear. Your line is not very clear. And also, the question is not clear. If you could repeat yourself.

Pallavi Deshpande — Sameeksha Capital — Analyst

Just wanted to understand the space like in this — in the IT space — in the IT space [indecipherable] reported numbers which shows that the bond rate is coming down for them. The losses were down, does that indicate to you more sanity in the marketplace, in the [technical issue] particularly.

Rahul Kanodia — Vice Chairman and CEO

Yeah, so, you’re right. So there will — there is some sanity coming in. Valuations have become more realistic than what they used to be. I think the company has stopped burning the way they were. They were I think unnecessarily burning. We are getting fairly good traction and our deal sizes are increasing, the customer acquisition rate has gone up, so I think we are well-positioned as far as [indecipherable] we are also getting some customers move it out and then switching over to [indecipherable] products. But overall, we are getting some very good traction in that space. And the annual coverage for our products have been extremely good. The customer feedback also has been very-very healthy.

Pallavi Deshpande — Sameeksha Capital — Analyst

And in terms of the price negotiation you mentioned, what would be the kind of price uptakes.

Rahul Kanodia — Vice Chairman and CEO

So through the course of last year at varied points, we did negotiate with several customers and we were able to raise prices anywhere from 5% to 30%. Of course, each customer, each project was very different. And that should go through for this year as well because we have already renegotiated. So last year because it happened through the course of the year, you do not see the full impact. This year, you will see the full impact. And of course, we continue to talk to many of our customers for right sizing[phonetic] Fortunately what’s happening is in the Western world, America, and Europe in particular going through huge inflation. So, their cost structures are going up and because of that they recognize that they may need to pay higher because their our own cost structure is going up. So we are finding it little easier in negotiating prices to the customer.

Pallavi Deshpande — Sameeksha Capital — Analyst

And sir, lastly on the acquisition side if you could update and how I’m looking at that now and are we hopefully, as a way to completing are doing it either.

Rahul Kanodia — Vice Chairman and CEO

So we are in dialog we have initiated dialog with several customers or prospects or target companies. We are looking at making acquisitions somewhere in the range of $20 to $50 million this year. Having said that ee are not just going to buy a company for the sake of buying the company, because the due-diligence has to be fairly through and then this has to fit our strategy and fit into our customer acquisition and deepening our expertise. So in that sense, we are looking for good fits. Fortunately, we are in dialog with some companies and I’m very hopeful that in this financial year, we should be able to close some deals.

Pallavi Deshpande — Sameeksha Capital — Analyst

And in the digital technologies [indecipherable].

Rahul Kanodia — Vice Chairman and CEO

That is correct.

Pallavi Deshpande — Sameeksha Capital — Analyst

I’ll come back-in the queue for further questions. Thank you.

Operator

Thank you. The next question is from the line of Pratap Maliwal from Mount Intra Finance. Please go-ahead.

Pratap Maliwal — Mount Intra Finance — Analyst

Hi, am I audible to you?

Operator

Yes.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay, and thanks for taking my question. Congrats on a good set of numbers. So last quarter we had said that we’ve taken some price hike that we renegotiated certain deals with customer and that some of that effect will come in the next quarter as of Q4, so I just wanted to ask you got strong growth of about 11.7. What portion of the growth was due to the price hike and what portion may be was due to the ramp-up of deals won during the year?

Rahul Kanodia — Vice Chairman and CEO

I don’t have that breakup. Some of it is not easy to get because some of it would be increase in business from customers for whom we hiked the prices. So it’s a combination of both volume increase as well as price hike, some of them are new customers. So I don’t have the breakup, but that number may not be the easiest one to calculate.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay, understood. Now, last quarter you had given a guidance where we get about 15% growth for FY ’24 now despite such a strong quarter in Q4, we kind of given a range of 14% to 15%, so just trying to understand are we baking in some kind of conservatism in our outlook for FY ’24 or has something changed materially in the demand outlook, could you just give us some clarity on that.

Rahul Kanodia — Vice Chairman and CEO

So there is no — there is no impact on the demand outlook that remains equally robust, but one is seeing some softness in the US, BFSI sector and one is seeing some headwinds, particularly out in US and Europe. Many of the countries are predicting slower growth. So we think that there could be some softness. However, as far as Juggernat[phonetic] is concerned we are still seeing a very healthy pipeline, so I don’t see that as an issue, but we are being a bit cautious because we want to know which [technical issue] in the next 12 months. Because of these economic challenges that we are having, inflation and recession and so on.

Pratap Maliwal — Mount Intra Finance — Analyst

And you just called out that the deal wins for the quarter was about 20 million, did I hear that correct?

Rahul Kanodia — Vice Chairman and CEO

That’s correct.

Pratap Maliwal — Mount Intra Finance — Analyst

And this is in range with our normal range or what is the normal range that we usually get.

Rahul Kanodia — Vice Chairman and CEO

Typically ranges about 15 odd million, 15 to 17 million, so 20 million is in range with our regular thing.

Pratap Maliwal — Mount Intra Finance — Analyst

And we expect this to carry on even in FY ’24.

Rahul Kanodia — Vice Chairman and CEO

Yeah, we expect as of today where we stand. We expect that trend to continue.

Pratap Maliwal — Mount Intra Finance — Analyst

Okay sir. Thank you. Thanks for taking my question and congrats on a good set of numbers.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Akshat Mehta from Sameeksha Capital. Please go-ahead.

Akshat Mehta — Sameeksha Capital — Analyst

[technical issue]

Operator

Yes, please use the handset, Akshat.

Akshat Mehta — Sameeksha Capital — Analyst

Hi. Congratulations on a good quarter and thank you for the opportunity. I have a couple of questions here. What is the kind of new wins for this quarter [technical issue] in terms of employee costs. So what is the kind of hike that we are planning [technical issue].

Rahul Kanodia — Vice Chairman and CEO

So can you — can you repeat your question.

Akshat Mehta — Sameeksha Capital — Analyst

Increments.

Rahul Kanodia — Vice Chairman and CEO

Yeah, the increments would overall range approximately averaging about 10% to 10.5%, but obviously it’s not the same for everyone. Some high-performance will be carrying higher, some low performance will be lower. There is churn. So, yeah, overall average approximately 10% to 10.5%.

Akshat Mehta — Sameeksha Capital — Analyst

Okay.

Rahul Kanodia — Vice Chairman and CEO

So you will see an impact in Q1, because obviously the increment is coming now, but it will normalize over the course of the year.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. Secondly talking of which area you going to the [indecipherable] experience and technology. And obviously there are different solutions that we [indecipherable] the most growth coming out of at the moment.

Rahul Kanodia — Vice Chairman and CEO

I think we are getting a fairly even growth across-the-board, if you see, our growth was highest in the digital experiences last year. But this year we’re looking at a fairly balanced growth across all these three segments.

Akshat Mehta — Sameeksha Capital — Analyst

Okay. Thank you, I will come back.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. [Operator Insructions] The next question is from the line of Darshit Jhaveri from Crown Capital, please go-ahead.

Darshit Jhaveri — Crown Capital — Analyst

Hi, good evening, sir and thank you so much for taking my question. I hope I am audible.

Operator

Yes.

Darshit Jhaveri — Crown Capital — Analyst

Yeah. Congratulations on a great set of results. So I just wanted to ask, so we are planning for 14%, 15% growth, but our margins, you’re probably looking at the same range that we did this year, but will we also have some kind of operating leverage that could drive our margins even higher.

Rahul Kanodia — Vice Chairman and CEO

Yeah, we are looking at some of those operating benefits and leverage and we should be able to improve margins a little bit for sure. I think on an overall basis, we could be looking at plus or minus about 1%, so that could happen as we go through — through the course of the year. Both through operational efficiencies that [indecipherable] so we have multitude of factors that contribute to it. But you’re right. So there would — there should be some improvement in margins as well.

Darshit Jhaveri — Crown Capital — Analyst

Correct sir. And sir, in organic acquisition that we are looking at so that will also give us higher revenue than our 14%, 15% or 14%, 15% would be organic, and whatever we get from our new acquisition would be another, correct sir. Is that my understanding correct?

Rahul Kanodia — Vice Chairman and CEO

Yes, that is correct.

Darshit Jhaveri — Crown Capital — Analyst

Correct. Okay, sir. So around what kind of [indecipherable] are we looking in that position in terms of which segment or when could we close. Could you give some more details about the acquisition that we have planned.

Rahul Kanodia — Vice Chairman and CEO

So we are looking at acquisitions in the hyperscaler areas, which I mentioned earlier, around Microsoft power ups for cloud, those kind of technology areas. We’re looking at companies in the range of $20 to $50 million, it could be one acquisition or it could be two or three smaller ones. That was unclear as we — as we go through the process of discussing with target company and negotiating with them, so that’s quite clear, which way to go, but somewhere in that range.

Darshit Jhaveri — Crown Capital — Analyst

Okay sir. And any sort of timeline that you could see in the second-half of the year, nothing concrete, but just a small range that could help.

Rahul Kanodia — Vice Chairman and CEO

That is correct, nothing so concrete threfore I don’t expect anything significant in this quarter or the first-quarter, but depending on how negotiations mature there could be something in Q2 or Q3.

Darshit Jhaveri — Crown Capital — Analyst

Okay, okay sir. And, sir, any other risk that you could see was that we could face, or we are on a stable pipeline of [technical issue].

Rahul Kanodia — Vice Chairman and CEO

I think we are in a fairly stable pipeline. I don’t at this point, see any risks [multiple speakers].

Darshit Jhaveri — Crown Capital — Analyst

Correct sir. Thank you so much for answering the questions. All the best. Looking-forward to great numbers sir.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. The next question is from the line of Pranav Mashruwala from Dolat Capital. Please go-ahead.

Pranav Mashruwala — Dolat Capital — Analyst

Hello. Yeah, hi. Can you hear me?

Operator

Go ahead. Yes, we can hear you.

Pranav Mashruwala — Dolat Capital — Analyst

Yeah, so yeah. I just wanted to ask about the India plants — India got about 27% of revenue, how do you see growths planning on for India and contributing to our FY ’24.

Rahul Kanodia — Vice Chairman and CEO

So India has traditionally grown very well for us. However, India tends to be a little lower-margin. It’s a very price-sensitive market. So our focus is now increasingly focusing on the US and Europe. So, definitely we are improving in our proportionate ratio India might slow-down, although India in itself is growing and is very healthy, but we will put more effort on the US and Europe so proportionately India will be a little lower.

Pranav Mashruwala — Dolat Capital — Analyst

And BFSI segment. Any particular specific pockets of areas of AUC slowdown [indecipherable].

Rahul Kanodia — Vice Chairman and CEO

Not in particular, we do not see a fairly healthy pipeline, but yes, many of our customers who are in that segment. This is normal sight now because possible that some of them start tightening the purse strings, but right now we don’t see that happening on the ground in terms of my current deal pipeline and the flow I don’t see that, but given the situation in the US, it’s possible that some of them could slowdown a little bit. So we are being cautious, because we are still optimistic because we don’t see the impact now on our pipeline.

Pranav Mashruwala — Dolat Capital — Analyst

Finally on the Education Learning segment. So how do you see the outlook.

Rahul Kanodia — Vice Chairman and CEO

So bulk of lot of our business is more in that segment is mostly in the traditional education space and not in the Edtech[phonetic]. The edtech has been impacted quite significantly. So I don’t see an impact on Datamatics because the larger part of our business is in the traditional education phase.

Pranav Mashruwala — Dolat Capital — Analyst

Thank you.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. Our next question is from the line of Arpit Shah from Stallion Asset. Please go-ahead.

Arpit Shah — Stallion Asset — Analyst

Hi.

Rahul Kanodia — Vice Chairman and CEO

Hello.

Arpit Shah — Stallion Asset — Analyst

Am I audible?

Operator

Yes sir, slightly muffled. We request you to be a little closer to the mic. Thank you.

Arpit Shah — Stallion Asset — Analyst

Yes, just wanted to understand is there any one-offs [technical issue] because on a very high sequential growth of around 20% or so. I just wanted to understand if there was any one-off in digital operations.

Rahul Kanodia — Vice Chairman and CEO

No there was no — there is no one-off deal. We do tend to have a little higher quarter in Q4 typically compared to Q3. That’s been a traditional cycle that we see normally. So I think that in this quarter, probably stronger, but yes, there is no — there is no one-off that caused a spike.

Arpit Shah — Stallion Asset — Analyst

Okay. I just wanted to understand. Have you seen any kind of J-curve in digital technology markets. Could it possibly move from [indecipherable] 9%, and are you seeing double-digit kind of margin in this business or how does it look like.

Rahul Kanodia — Vice Chairman and CEO

So yeah, so if you are asking whether the 9% will go into double-digit of maybe 12%, 13%, 14%, 15%, so that will happen as we improve our operations. And as the price renegotiation has a full impact so it should improve. But I don’t have a figure to exactly where it will end-up for the year. But yes, it should improve. Obviously quarter-to-quarter, there will be some fluctuation as we mentioned earlier, Q1 it might go down a little bit because of the increments, but then it will normalize through the course of the year. But hopefully it should improve a couple of percentage points.

Arpit Shah — Stallion Asset — Analyst

Okay, and now the product business sit under the digital technologies products.

Rahul Kanodia — Vice Chairman and CEO

That is correct.

Arpit Shah — Stallion Asset — Analyst

Okay, AFC project[phonetic] we signed a couple of quarters back in digital technologies.

Rahul Kanodia — Vice Chairman and CEO

That is not correct.

Arpit Shah — Stallion Asset — Analyst

Is that landing [multiple speakers]

Rahul Kanodia — Vice Chairman and CEO

Ramping up well we’ve got several prospects that we are talking to, but these are — these are very tender-driven projects and they are semi-government in nature. So they take time to materialize and they are chunky deals. So when they materialize you get a $20, $30, $40 million deal. But yes, they do set into digital technologies and we are in active dialog with several prospects, but nothing will close in the next perhaps towards the end of this quarter or maybe early next quarter we might have something happening.

Arpit Shah — Stallion Asset — Analyst

Got it. In the third-quarter of FY22. We have seen [indecipherable] digital technologies and after four or five quarters you meet that 9%. So do you see any risk and this number would move back to, let’s say, lower single digits.

Rahul Kanodia — Vice Chairman and CEO

No. I don’t see that at this point in time. We had a slide because of our large customer had chosen a multi-vendor strategy and therefore a large chunk have moved out, which course and also what happened last year is that the whole IT industry went through a crazy phase of secured salary hikes. So there is a combination of salary hike plus squeezing from customers, what is the result I don’t expect that to happen now. We are already see supply-side easing off. So I think that is what we should look at.

Arpit Shah — Stallion Asset — Analyst

Got it and we saw about 11% to 12% sequential revenue growth for Q3, so I have been guiding for 14%, 15% kind of market share. Just trying to be conservative or do you have any ramp down of any different kind of revenue adjustment that we have to make or what is it why this 14% or 15%.

Rahul Kanodia — Vice Chairman and CEO

We don’t have any ramp down, we are just being a little cautious given the situation in the US, there is a little — a little uncertain and volatile, particularly [indecipherable] segment. So we are being cautious. So-far, large deal pipeline is concerned, we don’t see an impact, but yeah, but we don’t know which way the [indecipherable].

Arpit Shah — Stallion Asset — Analyst

And the 20% margins, we have done this quarter that continue or will come back to 16% to 17% kind of number which you did for FY23.

Rahul Kanodia — Vice Chairman and CEO

No, it will come back to 20% per quarter, it is not going to 15% — that level. It will come down a little bit. So on an annual basis, we had 15.6%, and I think for the next year or so we should be in the same range between 16% or 17%.

Arpit Shah — Stallion Asset — Analyst

Okay, okay. Thank you so much.

Operator

Thank you. [Operator Instructions] The next question is a follow-up question from the line of Pallavi Deshpande from Sameeksha Capital. Please go-ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Sir, on the digital technology side [indecipherable] for the organization so how many would have been on the digital technology side.

Rahul Kanodia — Vice Chairman and CEO

In the quarter I don’t have that number for you. For the year.

Pallavi Deshpande — Sameeksha Capital — Analyst

Okay, 21 was for the quarter right in that content.

Rahul Kanodia — Vice Chairman and CEO

So we are running at about if we had 79 for the year. So roughly 20 per quarter. A good chunk of them are coming from the digital technology. But I don’t have that breakup handy with me right now. But suffice it to say that we have 40% to 50%.

Pallavi Deshpande — Sameeksha Capital — Analyst

What will be the share of implementation work that we do on the digital technology spend.

Rahul Kanodia — Vice Chairman and CEO

I don’t have that breakup. How much implementation versus software support development [multiple spakers].

Pallavi Deshpande — Sameeksha Capital — Analyst

And on the education and learning side or would that be lower-margin than the overall margin side.

Rahul Kanodia — Vice Chairman and CEO

No, no, no that’s fairly healthy margins.

Pallavi Deshpande — Sameeksha Capital — Analyst

And what will be the [inecipherable] if I can assume?

Rahul Kanodia — Vice Chairman and CEO

So increasingly, we are going more on those platforms and technology rather than headcount. So we see a disproportionate increase in revenue versus employee headcount. But this year we would have added approximately 1,200 employees net increase. Next year I think we should be in the range of about, depending on the growth rate, of course at about maybe 1,400 or 1,500 employees.

Pallavi Deshpande — Sameeksha Capital — Analyst

Assuming a growth rate of 15% development that [multiple speakers]

Rahul Kanodia — Vice Chairman and CEO

But our employee headcount may not decrease in-line with the revenue increase.

Pallavi Deshpande — Sameeksha Capital — Analyst

Thanks. And last one, on the India business and this automated fare system. The testing phase have showed that we are seeing the business [technical issue]

Rahul Kanodia — Vice Chairman and CEO

Can you repeat your question. Your line is not clear.

Pallavi Deshpande — Sameeksha Capital — Analyst

The automatic fare systems, which you have and what will be the share of that in the India government [technical issue]

Rahul Kanodia — Vice Chairman and CEO

Our India revenue is about — give me a second so it’s about, a fourth of India, 25% of India from the AFC.

Pallavi Deshpande — Sameeksha Capital — Analyst

And I just wanted to then get [indecipherable] I think you mentioned that is lumpy and [technical issue].

Rahul Kanodia — Vice Chairman and CEO

So these projects tend to be lumpy and chunky because they come — when they come it’s a large deal otherwise it doesn’t come for a while. So it’s not that every month or two months we are signing new deals. And therefore, the next deal and because it’s very tender-driven. It depends on certainly guidelines and timeline given by the government and therefore, it’s very hard to predict, but yes. I do expect sometime around the end of Q1 or early Q2. We should have potentially something maturing. Well, of course that depends also, whether we win the deal, or not so yeah, we expect to hopefully sign the next deal.

Pallavi Deshpande — Sameeksha Capital — Analyst

And in terms of businesses like getting a lot about the low-code no code. How are these PAT driving growth in the new areas.

Rahul Kanodia — Vice Chairman and CEO

We are implementing it. For us it is doing quite well. We are implementing several projects using low-code no code, so therefore we’re generating more-and-more business on those platforms and the margins also fairly heavy. So we’ve worked optimistic on pushing the low-code no code solutions into the market. We are beginning to see some internal productivity benefits gains as well, but they are still in the vertical pilot phase internally.

Pallavi Deshpande — Sameeksha Capital — Analyst

I mean in terms of other business this application modernization how is that.

Rahul Kanodia — Vice Chairman and CEO

So that’s done, that’s done well and low-code no code is part of that application modernization.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right, okay. And on the investment — last year-on the investments in the product I think that you mentioned in the last call that you are nearly with that for the marketing side that we need to ramp up. So we will be in a hurry now kind of what will be the kind of [indecipherable].

Rahul Kanodia — Vice Chairman and CEO

I think, I mentioned in the previous quarter we are spending about INR40 to INR50 crores, in that sense, we will sustain that for now. And as we spend more on marketing the growth will happen. So the growth and the marketing increase kind of offset each other, but we will sustain about INR40 to INR50 crores.

Pallavi Deshpande — Sameeksha Capital — Analyst

Thank you so much.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. The next question is from the line of Keshav from RakSan Investors. Please go-ahead.

Keshav Kumar — RakSan Investors — Analyst

Hi. Good evening, sir, just one clarity on the margin guidance and we are expecting digital technology margins to hold above the current and eventually to a double-digit number. Why are we guiding for sub 17 margins on an annual basis.

Rahul Kanodia — Vice Chairman and CEO

So we are just being cautious, because we really had some concerns on how the US market may pan-out as I mentioned earlier, our [indecipherable] is equally robust. We don’t see that as far as data management is concerned. But if the headwinds in the industry grow stronger then we will not be able to push that back. So we’re being more cautious in that. However, we did mention that we do expect some improvement in margins. So I’m hoping that we will see improvement, but very difficult to calculate the figure right now.

Keshav Kumar — RakSan Investors — Analyst

Right, thanks, sir, that’s all from me. Thank you.

Operator

Thank you. The next question is from the line of Arpit Shah from Stallion Asset. Please go-ahead.

Arpit Shah — Stallion Asset — Analyst

Yes, thank you for letting me again. So I just wanted to understand the capital allocation and the kind of acquisitions we are looking out. So we are looking mostly on the transaction side or there is more on the product side how that will.

Rahul Kanodia — Vice Chairman and CEO

No, we are looking at acquiring in the product space. We have our own IP, and that’s what we’re going to push in the market. As I mentioned earlier, we are going to double down on that because we are getting very good traction from customers as well the analysts. The acquisition will be more in the hyperscale space which is around cloud, power ups, [indecipherable] sales force. It’s all on the services side.

Arpit Shah — Stallion Asset — Analyst

In fact, we’ve only had any capabilities or you will be looking to add [technical issue]

Rahul Kanodia — Vice Chairman and CEO

Can you repeat that capability or?

Arpit Shah — Stallion Asset — Analyst

Looking at numbers the acquisitions are you trying to add capabilities [Indecipherable].

Rahul Kanodia — Vice Chairman and CEO

We are vending our capability and of course, there will be a natural augmentation of some customers as well. The small [Indecipherable].

Arpit Shah — Stallion Asset — Analyst

Got it. What is the typical, let’s say capex you’re targeting or the kind of paybacks you are targeting from acquisitions.

Rahul Kanodia — Vice Chairman and CEO

So it depends deal-to-deal. There is no formula but we traditionally looked at about five to eight times and if it goes well, then we can recover and recover cash in less than five years, if it doesn’t go well, then we would recover over 10 years, but five to eight is roughly the range we typically look at, but then of course it depends deals to deal and it depends on what area of technology, the target company is in. And how much they have in terms of their own IP and Platform versus services. So that would vary predominantly as a high-level [Indecipherable].

Arpit Shah — Stallion Asset — Analyst

Got it, thank you so much.

Operator

Thank you. [Operator Instructions] The next question is from the line of [Indecipherable] as an investor, please go-ahead.

Unidentified Participant — — Analyst

Hello. Am I audible?

Operator

Yes, please go-ahead.

Unidentified Participant — — Analyst

So first of all, congratulations to Rahul sir and Datamatics for the wonderful results. My question is something related to everybody is talking nowadays and it is about nothing but Chat GPT, so I just wanted to know what is your take on Chat GPT and how are you going to leverage that with Datamatics.

Rahul Kanodia — Vice Chairman and CEO

So we have — we are piloting about 20 odd projects using open AI and other AI technologies which includes GPT and LLM. Chat GPT is of course consumer version of it that’s something that we are using at the enterprise-level, because a lot of that information then go to Microsoft, but if you look at just GPT or LLM there are several projects that we are currently implementing for other pilot at a pilot level. Also testing out the efficacy of it from a legal perspective and compliances. And so those things are being evaluated as we decide how do we implement this technology for our customers.

Unidentified Participant — — Analyst

Okay, sir. So that’s it from my side. Thank you say much. And once again congratulations.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of [indecipherable] from Swan Investments. Please go-ahead.

Unidentified Participant — — Analyst

Thanks for the opportunity and congrats on good set of numbers. So two questions quickly. One is I wanted to understand.

Operator

Your voice is not very clear. Can I request you to pick up the handset.

Unidentified Participant — — Analyst

Is it better, am I audible?

Operator

Yes, it’s slightly breaking. I request to come in-network area as well.

Unidentified Participant — — Analyst

[Indecipherable]

Operator

Yes, go-ahead please.

Unidentified Participant — — Analyst

My first question was it that the margins in particular into business is something to do with business are varying. So is it in investment mode, or how could you — could you give some color to that. And secondly I wanted to understand that what would be your [indecipherable], do we see in this business going-forward in a good case scenario.

Rahul Kanodia — Vice Chairman and CEO

Yeah, so the margins were varying last year because as we mentioned that one of our larger customers decided to have a multi-vendor strategy. So there was a squeeze on the revenues from there. It was a very healthy margin customer, but at the same time, you have the salary hikes that was growing the IT industry which is the [indecipherable] supply-side challenges that we had as the industry level. So that really squeezed the margins. Over the course of last one or two quarters, we improved that steadily. I do expect that to improve going-forward as well. We talked this last quarter at about a 9% margin. And that is of course after all the investments that we’re making in our products and our platform with that. Given that our product and platform should remain steady and the revenue should grow I do expect some improvement on margins there as well, plus one or two customers that we talk about larger ones that have also stabilized, so I think we should see an improvement in margin. But having said that, we are equally being cautious or conservative given some softness in the market in the US and Europe, and therefore, we are projecting a conservative number. Having said that, it’s very hard to predict exactly where it will be next year, but I do think that we will be significantly better than the last financial year.

Unidentified Participant — — Analyst

Got it. Not just next year. But otherwise, what would result in a normal scenario.

Rahul Kanodia — Vice Chairman and CEO

In a normal scenario it should get to the high teens for sure and that is, again, that is a growth because the next two to three-year it will certainly get better.

Unidentified Participant — — Analyst

Got it. Fine. Thanks a lot.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. Next question is from the line of [indecipherable] Please go ahead.

Unidentified Participant — — Analyst

Hello, am I audible?

Rahul Kanodia — Vice Chairman and CEO

Yes.

Unidentified Participant — — Analyst

Yeah, is the high exposure to US markets [indecipherable] in this quarter.

Rahul Kanodia — Vice Chairman and CEO

The forex gain in this quarter will be so our other income is about INR36 to INR37 crores, which include forex gain as well. [multiple speakers] you’re talking about revenue than it is around 4.5%, because of forex, so I think constant-currency growth was about [multiple speakers] and we declared a 21.5%. Between 17.5 and 21.5, that is the currency impact.

Unidentified Participant — — Analyst

Okay. Thank you sir.

Operator

Thank you. The next question is from the line of Harshit Toshniwal from Bottomsup Research, please go-ahead.

Harshit Toshniwal — Bottomsup Research — Analyst

Hello. Hi, sir am I audible?

Operator

Yes, please go-ahead.

Harshit Toshniwal — Bottomsup Research — Analyst

Yeah, firstly, congratulations for a great set of numbers, which could go out-of-the park. Two questions on the technology side, if you can give some breakup of what is the core product revenue and what is the services revenue within that and the reason I’m asking is that because you are seeing that and large part of margin improvement is because of our tie-up with hyperscalers, so when you say that you mean that our products like [indecipherable] et-cetera, all of those are now they’re on hyperscalers platform and we are getting more traction and business through that distribution channel. Is that the reason of margin improvement to a large extent. And the reason why I’m trying to separate is that because within the enterprises IT services business would be where we would want to do the acquisition. So some color on what has been the trajectory on that particular part within technology.

Rahul Kanodia — Vice Chairman and CEO

Yeah, so we traditional break-up the products and the services business. But I think [multiple speakers] the hyperscalers are all-in the services space. The hyperscalers is not our product. Our product business is quite different, although it’s all technically into the same hyperscale area, but the ones that we’re talking about are third-party platforms like Microsoft and Salesforce and cloud and things of that. So those we are going to be focusing on. We do have a practice in that already today but our focus is going to increase in the next year.

Harshit Toshniwal — Bottomsup Research — Analyst

It has been sorry to ask this because, I just wanted to understand that when we say that the hyperscalers, then do we mean that our product is there or we work for Microsoft, Salesforce, et-cetera or we work for implementation of sales force at different clients. I’m just trying to understand that or do we work directly for these hyperscalers.

Rahul Kanodia — Vice Chairman and CEO

The 3rd one where we implement these platforms as clients indicating it.

Harshit Toshniwal — Bottomsup Research — Analyst

Okay, typical IT services implementation business.

Rahul Kanodia — Vice Chairman and CEO

Yeah, implementation and building solutions around it on-top of it.

Harshit Toshniwal — Bottomsup Research — Analyst

Okay, so the margin improvement has come because of the growth in that particular business.

Rahul Kanodia — Vice Chairman and CEO

Also, the other traditional IT business. So we have all of the.

Harshit Toshniwal — Bottomsup Research — Analyst

And the other part which I’m asking that the investments in the product that is something which we are doing in our own in-house build products of [indecipherable] which we are having now, that is something which is yet to yield revenue and there is some scope of margin improvement through that, if you can help us understand that particular segment, is that profitable right now in itself and secondly it seems the distributor for all those products for us.

Rahul Kanodia — Vice Chairman and CEO

Yeah, so we have multiple distributors or dealers resellers in the US and in India. That product is not profitable in the investment mode. So we are investing, as I mentioned we are investing about INR40 to INR50 crores a year and we will sustain that level of investment. But in the beginning we saw some very good traction, we’re getting many-many deals and mid larger size deals. So we’re still very bullish with aggressive investment, we see the product business typically gives you return of five to seven years roughly. I know we are probably still in year four. So we still have next two to three years to go from an investment strategy point-of-view, to see the returns that we are expecting.

Harshit Toshniwal — Bottomsup Research — Analyst

And that is actually positive because, hello.

Rahul Kanodia — Vice Chairman and CEO

Yes.

Harshit Toshniwal — Bottomsup Research — Analyst

That is actually positive. It means that our services margin is actually much more than 9%, it is just that because of the product being there it appears to be lower, but otherwise the real margins are much better than the ones which gets reflected. [multiple speakers] And one last question if I may ask on the acquisition part, which you mentioned that when you are saying that you are looking out for acquisition. So does it mean some smaller players who are doing implementation of sales force et-cetera. We are looking for some kind of players who have some revenue obviously in that segment or anything specifically because the reason I asked that, when you say that eight to 10 times earning. I’m just wondering that kind of assets which will be available are those kind of valuations. So some more clarity on how exactly or what stage are we at should we expect something over the next six-seven months over the coming year or do you think that it is still that we are not yet very close to where exactly we can find those kind of opportunities.

Rahul Kanodia — Vice Chairman and CEO

No, we are in dialog with some companies. So finding the opportunity is not a major challenge. I think the bigger challenge is making sure that the company is the right fit and the financials are appropriately to that. So we did look at some companies, we dropped them at the last-minute because some reason we were not comfortable with that. So companies are available, valuations are fair. Right now with the market coming down, we are getting better value from an acquisition point-of-view and we will make sure that we acquire a good company for sure.

Harshit Toshniwal — Bottomsup Research — Analyst

So I could be more — I think the service implementation one.

Rahul Kanodia — Vice Chairman and CEO

Yeah, these are the service implementation one. You are right. And I expect that sometimes in the next — this financial year, we should be able to close a deal or two.

Harshit Toshniwal — Bottomsup Research — Analyst

Understood, understood. I think that’s all,just hope that this kind of results keep on continuing. Thanks a lot.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. [Operator Instructions] We have a follow-up question from the line of Pallavi Deshpande from Sameeksha Capital. Please go-ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Just wanted to understand the product side of the business so which geographies you’re targeting and also mentioned it is showing good traction to currently where are the [indecipherable]

Rahul Kanodia — Vice Chairman and CEO

So the primary geography is the United States, that’s by far the dominant market, there is some element in Europe as well. We simply are based in India, we have a footprint in India as well, although our focus is more in the US than India. So if you look at our the largest PAT to be America and India. America has been number one, then followed by India.

Pallavi Deshpande — Sameeksha Capital — Analyst

I did not get the last one.

Rahul Kanodia — Vice Chairman and CEO

The largest PAT will be the United States, followed by India.

Pallavi Deshpande — Sameeksha Capital — Analyst

That’s it from me.

Rahul Kanodia — Vice Chairman and CEO

Thank you.

Operator

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to the management for their closing comments. Thank you and over to you.

Pratik Jagtap — Investor Relations

Thank you everyone for participating on this call, and thank you for your confidence in Datamatics. We hope that next year remains as robust and I’m sure, together we will — we will enjoy the fruits of it. Thank you again for being on the call, look forward to talking to you next quarter.

Rahul Kanodia — Vice Chairman and CEO

Thank you very much.

Operator

[Operator Closing Remarks]