eClerx Services Limited (NSE: ECLERX) Q2 2025 Earnings Call dated Nov. 06, 2024
Corporate Participants:
Asha Gupta — VP:Investor Relations
Kapil Jain — Managing Director and Group CEO
Srinivasan Nadadhur — Chief Financial Officer
Analysts:
Sandeep Shah — Analyst
Aayush Rastogi — Analyst
Shradha Agrawal — Analyst
Debashish Mazumdar — Analyst
Unidentified Participant
Rahul Jain — Analyst
Presentation:
Asha Gupta — VP:Investor Relations
Hi everyone. Good evening participants. Welcome to the Q2 FY ’25 Earnings Call of eClerx Services Limited. Please note that this webinar will be recorded. To take us through the results and to answer your questions, we have with us the top management of EClerx represented by Kapil Jain, Managing Director and Group CEO and Srinivasan Nadadhur, Chief Financial Officer.
We will start the call by brief opening remarks by Kapil, followed by Srinivasan, who will be sharing the financial update and then we will open the floor for Q&A session. As usual, I would like to remind you that anything that is mentioned on the call that gives any outlook for the future or which can be construed as forward-looking statement must be viewed with the conjunction — 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 perspectives, file with SEBI and subsequent annual reports, which you can find on our website.
With that said, I will now hand over the call to Kapil. Over to you Kapil.
Kapil Jain — Managing Director and Group CEO
Thank you, Asha and good morning everyone, it’s been an excellent quarter for us and I’d like to share highlights of our performance for FY ’25 Q2.
Operating revenue in Q2 was $98.8 million, up 6% sequentially and $12.8 million year-on-year, driven by exceptionally strong growth in our financial markets business and supported by customer operations business. In rupee terms, Q2 operating revenue was INR8,318 million, up 6.4% quarter-on-quarter and 15% year-on-year. Margins have shown a strong sequential improvement as well. This is attributable to three key reasons, strong revenue growth, improved utilization and some one-offs. Srini will cover the one-offs in some more detail.
EBITDA for Q1 was INR2,288 million at a margin of 27.1%, while PAT for the quarter was INR1,402 million at a margin of 16.6%. Our analytics and automation business is INR19 million this quarter, up 10% sequentially, which is a positive sign. Our financial markets business had an exceptional Q2 with strong offshore and onshore growth in the client lifecycle business, contributing to most of the growth. The momentum in this business continues to be strong and we see demand in both change and BAU areas of this business.
The growth in customer operations was driven by the care business. Digital had a mixed quarter with growth in data operations segment but offset by a slowdown in the creative business. In client geographies, growth in North America was strong, while Europe for us continues to remain challenging.
ACV of the deal wins for the quarter was a strong INR28.9 million. Roll-offs in Q2 were higher than Q1 and the full impact of these roll-offs will be felt in Q3. These roll-offs are related to short-term projects which have come to a planned end. However, the pipeline continues to be strong. Our delivery remains strong. Our value proposition continues to resonate well with clients and the medium to long-term growth momentum remains intact.
Let me also provide commentary and outlook for each of our three businesses. We continue to see broad opportunities in financial markets, in KYC, onshore consulting and delivery. We are in conversation with a broad set of potential clients and are working on several active RFPs. With some of our clients, we are also starting to uncover opportunities in tech and change area. And given our strong domain, strong delivery, we believe we can meaningfully grow our presence in the change area. In the digital business, fashion and luxury saw a decline with global fashion houses reporting less client demand, particularly out of China.
This is likely to continue for the next couple of quarters. We see budget outlook improving on high-tech, retail, manufacturing and distribution. We have also seen initial successes in cross-selling our MarTech and data engineering services to some of our clients in financial services space, which we see as a positive sign.
In customer operations, the industry continues to see pressure around revenues and subscriber growth. Despite this, because of our strong delivery, we see continued strength in existing client growth and client diversification. We have combined technology and analytics under single leadership.
This will help us position our services better, improve agility and enhance the value proposition for our clients. As I mentioned earlier, we are seeing a pickup in demand for change and transformation services in our financial services space. Finally, I’ll conclude with awards and recognition and hand it over to Srini for more detailed commentary.
In customer operations, we were recognized by one of our large clients as a most insightful and innovative partner in their annual partner summit. Our QA360 Quality As a Service platform used for call monitoring, scoring and auditing in the customer operations business won the CIO100 India Award. We won silver award at the 2024 Brandon Hall Awards for Excellence in Learning & Development in the category of Best Custom Content.
Our award winning entry was a transformative learning and development project designed to enhance the communication skills of analysts and senior analysts in financial market operations. The win marks our seventh consecutive year of winning at the Brandon Hall Awards. I think people are key assets and this really differentiates how we are delivering services to our clients.
Industry analysts have started to recognize our market leadership across products and services. In the last quarter, eClerx was rated as a major contender in RPA products and in customer experience management services America and as an expert in finance and accounting peak metrics assessments by the Everest Group. I’d like to thank all our clients, employees and stakeholders for their support and confidence in us.
And over to you Srini.
Srinivasan Nadadhur — Chief Financial Officer
Thank you, Kapil and good evening everyone. Let me provide a little more detail on our financial performance. So as Kapil mentioned, operating revenue was $98.8 million, sequentially grew by 6% in USD terms and 5.7% in constant currency terms. On a year-on-year basis, revenue increased by 12.8%. Total revenue for this quarter was INR8,447 million, up 5.2% sequentially and 14.8% year-on-year. Other income for the quarter was INR128 million, lower than the previous quarter since we completed the buyback in July. The EBITDA of INR2,288 million is up 22% sequentially and 4.5% Y-o-Y. The PAT of INR1,402 million for the quarter is up 26% sequentially and 3.9% Y-o-Y.
As Kapil mentioned, the reasons for the margin expansion are threefold. One is the increase in revenue leading to operating leverage. The second is, the higher utilization in the quarter. So the excess bench that we were carrying in Q1 in anticipation of future work became billable in Q2. The third is, because of some one-offs in the previous quarter such as sign-on bonuses, higher 401k contributions and change in the calculation of provision for leave. The impact of these one-offs on margin is about 85%. The exit headcount has increased by about 480 to 18,227. Attrition is at 22%, which is higher than Q1 as we had anticipated.
On the key business metrics slide, the top 10 client concentration is now up to 63%, a result of a strong growth in top clients in financial markets and customer operations. DSO is 77 days, compared to 81 in the previous quarter. Our new office spaces in Chandigarh and Pune will go live in Q3. And the new space in Mumbai will go live early Q4. So there will be an increase in seat counts and G&A and depreciation costs will go up in Q3 and Q4.
Thank you, everyone. With this, we conclude our prepared remarks. We can now move to the Q&A. Back to you, Asha.
Questions and Answers:
Asha Gupta
Thank you, Srini. Thank you, Kapil. We will take the questions now. First question comes from the line of Yash Mathur. Yash, I have unmuted your line. Please go ahead. Yash, we can’t hear you. Yash, you are on mute. I think, we’ll move for the second question. Another question is from the line of Sandeep Shah. He is from Equirus. Sandeep, I have unmuted your line. Please go ahead.
Sandeep Shah
Yeah. Can you hear me? Yes, I can.
Asha Gupta
Yes.
Sandeep Shah
Yeah. Congratulations on a superlative performance both on revenue as well as margins and even pre-cash flow. So the first question, despite a strong growth, the demand commentary looks slightly mixed where we are bullish on BFSI but we are also slightly cautious about the other segments. So can you elaborate in detail, how the second half will look like with all the comments which you have given on tailwinds and headwinds? And you also commented the roll-off being higher in 2Q versus 1Q and will have a full quarter impact in 3Q. So directionally, how do you see the growth in the near term and its impact on the margins?
Kapil Jain
Yeah. So Sandeep, thanks for the question. Like I had said in the beginning that the strategy that we had put in place was to see how we can cross sell and upsell in our existing set of clients. So that seems to be working well.
In terms of the overall guidance that we had given was that three things. We had said that we will be in the range of 24% to 28% on EBITDA for the full year, which we are saying we will. Second, we have said we will show sequential growth year-on-year on the absolute EBITDA number. And third, we said that we would be in the top quartile of the growth amongst our peer growth. And the medium term outlook, short to medium term, the H2 outlook is in line with what I had just stated and what we had stated earlier as well.
The overall strategy in terms of tech and change, which I alluded, as well as cross sell, as well as growth on the back of strong delivery, that all is continuing and we are seeing green shoots in that area, as well as in terms of some of the analyst rankings.
Sandeep Shah
Okay. Okay. So what is the nature of these roll offs? Is that project completion or these are customer specific issues?
Kapil Jain
No, these are project completion. So they are — they were short term projects that we started sometime earlier in the year and which have now come to a planned end.
Sandeep Shah
Okay. Okay.
Kapil Jain
So there is no roll off that we have had, which is on because of delivery issues. And this is as part of the business.
Sandeep Shah
Okay. So if I understood correctly, in Q3, Q4, we may do well, but you said on Y-o-Y, even on a Q-on-Q directionally, it should be a positive growth?
Kapil Jain
See, I think to expect the same growth that we have delivered in Q2, I think may not be appropriate. I think, and we do not give forward-looking guidance, but in terms of medium to long term outlook, stays positive, which is backed by the good pipeline that we have, as well as in terms of some of the success we have seen on the initiatives that we had embarked on, which I had alluded to at the start of the year.
Sandeep Shah
Okay. Okay. I will come in the follow up. Thanks and all the best.
Kapil Jain
Sure, Sandeep.
Operator
Thank you, Sandeep. Next question comes from the line of Aayush Rastogi. He is from B&K. Aayush, please go ahead. I have unmuted your line.
Aayush Rastogi
Yeah. Hi. Thank you. Thank you so much. So a couple of questions. So on G&A side that you mentioned that, you know, that it could be on the higher side, what we have seen in 2Q. So what’s the comfortable band that you are eyeing for the 2H or maybe like for the full-year, if you can just guide us in terms of percentage of revenue? That’s the first question.
Second question is on acquisition front. So, what sort of capabilities or in terms of implementation of those capabilities are we sort of eyeing for or is it more of a less like that we are looking for the customer operation side of the business, maybe to the near shore? So these are the couple of questions and then I’ll have a follow-up.
Kapil Jain
Right. Thanks. So on the G&A thing, we expect about max about 50% to 70% impact, a bit impact as a percentage of revenue in Q3 and Q4. On your second question on M&A, so our priorities remain unchanged. So we continue to look for assets which can meaningfully add to what the capabilities that we have. Financial markets, we are extremely strong in delivery of KYC services. So something upstream to that in terms of consulting or advisory would be of interest to us.
On the digital side, something on analytics would be of interest as would something in the creative space. On the technology side, we have, we are users of Salesforce and Adobe platform from the operation side. And we’d like something that gives us an edge on the implementation side of these products. So we are looking for assets on in those areas. And on the customer operation side, something on near shore might be of interest to us. The priorities broadly are the same that we had listed out last quarter. We haven’t changed.
Aayush Rastogi
Yeah. Okay. Next question is like, basically for if we eyeing for that we have commented in the last earnings for that we are eyeing for the double digit kind of a growth, that’s an aspiration. So it seems easily achievable for them. So is it fair to assume if you see the ACV trend for us for the one edge, it looks pretty strong? So fine to assume that we would be eyeing almost like for a mid-team kind of a growth, which is kind of doable for the full year.
Kapil Jain
So, Aayush, we don’t offer forward-looking guidance, but the overall progress is good. And I think we continue to stay what we had stated when I had presented overall strategy for this year and the future. And I think our outlook stays positive for medium to long term. Quarter-on-quarter aberrations may happen, but the full-year, what we are saying, we still stand with it. On the growth, I had said top quartile. So unless something happens, what you’re saying should be achievable. And then on the margins as well as on the sequential growth on EBITDA.
Aayush Rastogi
Thank you so much.
Asha Gupta
Thank you, Ayush. Next question is from the line of Shradha Agrawal. She’s from Amsec. Shradha, please go ahead.
Shradha Agrawal
Yeah. Hi. Congratulations to the team on an exceptionally strong quarter. Two, three questions from my side. Just again, persisting on the guidance, if at all, you can indicate for 3Q, given that ACV this quarter has been relatively soft and on a Y-o-Y basis, it is actually declining. From that perspective, how should we look at growth trends in the second half of the year?
Kapil Jain
So I think quarter-on-quarter Shradha aberration may happen. I think if you look at sequentially, we have shown a marginal increase, Y-on-Y. Yes, because I think in terms of sometimes it does take time and also the clients are taking longer in decision making. That’s what we have seen because the overall market is volatile and we are cautious. However, given the pipeline growth, the momentum we are seeing in the business, I still feel in terms of restating what we had said earlier.
And as I said earlier, that forward-looking guidance we have not provided. So I’ll reserve my comments on that. But for the full-year, we continue to stay positive and in line with what we had stated earlier.
Shradha Agrawal
And so just again, again, insisting on the same thing. Generally, employee addition has been one lead indicator of revenue growth for us. And despite a good uptick in utilization, our employee count is almost up almost 2.5%, 3% on a sequential basis. So is it reasonable to assume a two and 2%, 2.5% kind of sequential growth going into 3Q?
Kapil Jain
I’ll repeat the same.
Shradha Agrawal
Okay. No worries. And again, on the growth, if you look at growth, this quarter was driven more by the top account and the emerging clients were relatively soft. So any demand trends or variance in demand between the top and the emerging clients that would be helpful?
Kapil Jain
So I think what we are trying to do is also look at new buying centers in our top clients. And like I said earlier, we have seen some success. It’s only been six months from the time when we had formulated our strategy and thinking. So that gives us confidence that there is still an opportunity in taking our service offerings, product type services into our large clients as well as in emerging markets. There is an opportunity for cross selling some of our product type services in customer operations as well as in finance and accounting. And that’s really where we have to double down and focus on as we move into H2 as well as for next year.
Shradha Agrawal
Right. And just last bit on financial markets. We’ve been showing strong growth in this segment for two quarters, three quarters in a row now. And given the expectation of further lowering of interest rates, do you think traction in this segment can further pick up or demand should get further strengthened in this segment for us going ahead?
Kapil Jain
And we don’t anticipate a slowdown, but compliance and regulatory, I think SEC and FCC, I think is something that we’ll continue to see in terms of whatever the growth we have seen, there is little amount of volatility on the compliance base because let’s say, if someone has got one of our clients, some clients will get, let’s say, a timeline by when they have to complete certain regulatory requirements. And that’s really where we support our clients, which drives the demand and growth.
Shradha Agrawal
Great. Thank you. And all the best.
Kapil Jain
Thank you. Thanks, Shradha.
Asha Gupta
Thank you, Shradha. Next, we have follow-up questions from Sandeep Singh. Sandeep, please go ahead.
Sandeep Shah
Yeah, thanks for the opportunity again. I just wanted to understand how to look at the ACV conversion, which we have started reporting two quarters, three quarters back in terms of conversion to revenue. So because last year we were at $90 million-$92 million. This time we could be close to $100 million. And that on a top line looks like a bigger jump in the next year. So can you give us color in terms of how to arrive at an approximate growth rate based on ACV, keeping in mind the roll-offs will continue year-after-year?
Srinivasan Nadadhur
Yeah, so basically ACV minus roll-off should be the net addition to revenue in any year.
Sandeep Shah
Okay. So Srini, just the normalized business or demand environment, what could be the annualized roll-off figure?
Srinivasan Nadadhur
Yeah, normal figure — normal value is about 15% to 20% in a year.
Sandeep Shah
15% to 20% of the top line?
Srinivasan Nadadhur
That’s right.
Sandeep Shah
Okay. And Srini, in the first quarter, if I recollect in the earnings call, we said we will pull up margin on a Q-on-Q basis from 2Q to 4Q. So now with new facts, do you still stay by that statement, where 3Q margin higher than Q2, Q4 margin higher than Q3 with some amount of headwinds you called out?
Srinivasan Nadadhur
Yeah, so if you remove the impact because of new facilities going live and if you remove the impact of the one-off in Q2, then I think we, and then based on that, if revenue growth continues to happen, then we believe that what you are saying holds good. So if you remove the — then the key determinant of margin is basically revenue growth.
Sandeep Shah
Okay. Even revenue growth happens, even with one-off, we can be still better on a Q-on-Q in Q3 over Q2?
Srinivasan Nadadhur
Yeah, removing the one-off.
Sandeep Shah
Okay. Okay. And can you explain the nature of one-off sign-on bonus and why you believe those are one-offs will not come in the Q3 as a whole?
Srinivasan Nadadhur
Of course, senior management sign-on bonuses. So we will not come again. So that was one. The second is usually after bonuses are paid, the contribution to 401k increases in that quarter. So that is why it is high. I am talking about the event. So that is the other one-off. And the third one is that when we make provisions for leave encashment every quarter, we basically use the approximate calculations for that. And in Q4 every year, we do an actuarial valuation. But this time, we did an actuarial valuation in Q2 itself, which led to a reduction in the provision.
Sandeep Shah
Okay. Okay. Thanks. All the best.
Srinivasan Nadadhur
Thank you.
Asha Gupta
Thank you, Sandeep. [Operator Instructions]. We have next question from the line of Debashish Mazumdar. He is from SPAN Investment. Debashish, please go ahead.
Debashish Mazumdar
Good evening to the management team. Congrats on a very good set of numbers. I have two questions. First is related to the vertical exposure that we have. From the numbers of your exposure to geography and clients, it seems to be the large part of the growth is driven by financial services, which has definitely grown much more than what is our overall company growth would be in this quarter. And the luxury segment must have been significantly impacted.
So if you can give us some amount of indication that how the financial services, customer segment, and the digital segment growth going forward over the period of next two quarters to three quarters, and what are the opportunities you are seeing there? So that is the first question.
And second question is for Srini. If you can quantify of the 85 bps Q-o-Q one-offs that you were talking about, how much of that is related to that bonus signing and change in accounting policies, and how much is driven by your higher utilization and higher revenue growth?
Srinivasan Nadadhur
Yeah. So the 85% to 90% is entirely because of bonuses and leave provisions. There is no, it does not include the higher utilization or the revenue.
Debashish Mazumdar
Okay. Okay.
Kapil Jain
So Debashish, in terms of, like I said earlier, in financial markets, the demand is driven on the back of compliance and regulatory work, as well as increased activity in different asset classes that we support on the market side.
On the customer operations, the demand is driven on the back of existing clients, as well as cross-sell opportunities in other verticals. And on digital, we are seeing, again, cross-sell opportunities of MarTech analytics into financial services clients. The softness we are seeing is in the creative side on the CLX business, which is primarily due to the low demand that is coming in from China.
Debashish Mazumdar
Great. Kapil, one more question, if I can add. If you can also help us to understand, since you joined, how the structure of the business changed in terms of focusing on existing top 10 clients or the annuity business or the focus more on maintenance business? So is there, what are the kind of changes that you have implemented and where are the benefits that we are seeing today, if you can help with that?
Kapil Jain
So, Debashish, I think our delivery was very strong and then our ability to offer prototype services as well as embed technology in everything we are doing was a unique differentiator. That gave a very strong platform to go and take this value proposition to the client and drive the growth momentum. And that is what we are seeing. I think, the opportunity to cross-sell, upsell, I think we are seeing that.
And the overall strategy of One eClerx that we are driving, I think is helping us in front of the client as well as with our sales engine, as well as on the employee side, because instead of three individual businesses, it’s One eClerx, $350 million, 18,000 people, I think resonates well with the client. And so that’s really what we are embarking on. And I think, what we are seeing is the green shoots that we are seeing of the strategy that we have laid out.
Debashish Mazumdar
Okay, so just to understand one more thing here, before you joined, we were significantly focusing on clients beyond top 10, so that our exposure to a few of the clients gets reduced. At least from the last two quarters numbers, it seems to be that the focus on the top 10 clients has come back. So the point that I’m trying to understand that, is it because the top 10 clients have started growing because of the initial green shoots that we see or it is the incremental proposition that we are taking to those clients that is helping us to win new businesses?
Kapil Jain
It’s a combination of both, Debashish. And that will also help us de-risk the risk in our top 10 clients, because we are looking to see how we can find newer buying centres in our top 10 clients. And it’s not that the focus is not there outside of top 10 clients. I think, the focus continues in outside of top 10 clients as well, on taking our product type services and cross-selling our — let’s say, which I mentioned, our customer operations, financial, finance and accounting, as well as our MarTech and analytics business. And we are seeing good traction on the change, tech and change side, which is what I had alluded even in the earlier earnings call, that given our strong delivery domain and product type services, renders well with the client’s agenda on change.
Debashish Mazumdar
Okay. Okay. And one last question, sorry. So, we are hiring the senior leadership over the last two quarters, three quarters aggressively. So, do we think that the senior leadership hiring is done and the large part of the employee cost escalation is behind us?
Srinivasan Nadadhur
The senior leadership under Kapil, that hiring is done.
Debashish Mazumdar
Yes, Yeah.
Srinivasan Nadadhur
That is done. But under the senior leader, we will decide on a case-to-case basis on whether we need to strengthen in certain areas, add more sales muscle in other areas and so on. That continues to happen on a case-to-case basis.
Debashish Mazumdar
Okay. So, broadly what I am trying to understand that employee cost as a percentage of revenue, is it like at the level that we are today? Will we be able to see that falling trend going forward apart from the salary high quarters that we see? Apart from that, is there any possibility that our employee cost as a percentage of revenue will keep on coming down from here?
Srinivasan Nadadhur
That is a little hard to say. And the reason, maybe Kapil, maybe I can comment on that.
Kapil Jain
Yeah. The reason I say that is, if we are moving into more change and analytics kind of work, then the employee cost in those areas is higher. So, it is kind of hard to say, definitively that the employee cost has peaked.
Srinivasan Nadadhur
So, Debashish, I think we will continue to add sales engine, right? Sales bandwidth. And in terms of, I think I said earlier as well, when we are looking at hiring, sales bandwidth, leadership hiring, we look at in terms of what is the contribution we will have both on the top line and the bottom line. And I have said that, yes, absolute margins are important. For me, what is important is the overall EPS degradation and sequential growth and EBITDA. And that continues to be the focus. And we will continue to be in the band of what I had stated between 24% to 28%. So, all the decisions that we are making is taking that into consideration, not in terms of, okay, like, yes, there are a lot of input metrics that we monitor and measure. But at the outset, these are the three guiding, like sort of a mouthful that we have, which we look at when we are making some of these decisions.
Debashish Mazumdar
Sure, sure. Thank you so much for answering my question. Thanks.
Asha Gupta
Thank you, Debashish. We have a follow-up question from Sandeep Shah. Sandeep, please go ahead.
Sandeep Shah
Yeah, thanks, thanks. Just a clarity, Srini, you are saying because of the new facility, Q3 and Q4, each will see a 50 bps, 60 bps Q-on-Q increase in a G&A cost as a percentage to revenue?
Srinivasan Nadadhur
Q3 for sure, Q4 maybe a little lower than that.
Sandeep Shah
Okay.
Srinivasan Nadadhur
Yeah.
Sandeep Shah
And how the depreciation will look like?
Srinivasan Nadadhur
I think about the same. I think it will go up by about the same percentage.
Sandeep Shah
In terms of 50 bps, 60 bps higher?
Srinivasan Nadadhur
Yeah, that is what I estimate. I have not looked into it in more detail.
Sandeep Shah
Okay. And looking at the strong growth in Q2, especially in the top 10 clients and BFSI, there could be a follow-up impact because those projects might have started in between the quarter, end of the quarter, may have some impact in terms of a positive growth in Q3 as well. Is this the right way of looking at it?
Srinivasan Nadadhur
Yeah, that is fair.
Sandeep Shah
Okay, okay. Thank you.
Asha Gupta
Thank you, Sandeep. [Operator Instructions]. We have next question from the line of Krish Beriwala [Phonetic]. Krish, please go ahead.
Unidentified Participant
Yeah. Am I audible?
Asha Gupta
Yes.
Kapil Jain
Yeah, Krish.
Unidentified Participant
Yeah. Hi, Kapil. So, just one question. Can you share some details around our current pipeline and how is it against, let us say, start-up tenure in terms of size or average tenure and nature of these?
Kapil Jain
So, I think our pipeline, Krish, is up from when we started the year and it is broad-based. The pipeline involves the opportunity that we had seen in the beginning, which is cross-selling. So, there are opportunities on that front. We are also seeing a pipeline, which is of larger deals compared to what we had seen earlier. So, that is another good sign.
And as well as across the three businesses, that is financial market, customer operations, and digital, and in tech and change. So, overall pipeline momentum is positive. Like I said, in digital, we are seeing a little bit longer timelines in terms of decision-making.
Unidentified Participant
Got it. That is useful. And just one follow-up on our top five accounts they have done very well this quarter. Is the growth broad-based within those top five accounts or driven by one or two?
Kapil Jain
Sorry, is it broad — what is the question? Is it broad-based or?
Unidentified Participant
I mean, is the growth broad-based within those top five accounts or driven more by one or two accounts?
Kapil Jain
No, it is more broad-based. It is not just dominated by one or two accounts.
Unidentified Participant
Okay. Perfect. Thank you so much, Kapil. And best of luck.
Kapil Jain
Thank you.
Asha Gupta
Thank you, Suresh. We have next question from the line of Rahul Jain. He is from Dolat Capital. Rahul, please go ahead.
Rahul Jain
Is my line audible?
Asha Gupta
Yes.
Kapil Jain
Yes.
Rahul Jain
Yeah. So, two questions. Firstly, from the margin outlook that you have shared earlier, since we might see a growth, our shipping operations this year versus the previous year, do you see that once the growth is back, this path would get narrower towards the upper end in the period to follow? Or do you think, this is more a strategic thought process so you would continue to address back into the business and stay in this broad band even from a medium-term perspective?
Kapil Jain
So, at the moment, I think the commentary that we have given on the band is for this year, for FY ’25. For FY ’26, I think we really need to evaluate the situation, which we are just in the starting. So, we need to evaluate whether the band will change upwards or downwards. We haven’t come to any decision on that yet.
Rahul Jain
Sure. And secondly, we highlighted about the opportunity that we need to be analytic as well as market size. It would be great if you could share some thought process. What is the size for this practice at this point? And how the competitive landscape is here? My understanding is that this is a very scattered market. So, I think, any color on these elements between them?
Kapil Jain
So, I think our analytics automation was what we did was we combined, as I have stated earlier, the analytics and technology. We brought it together, which has resonated well with the client and in terms of the overall value proposition that we are able to take. And in terms of overall competitiveness, we have a good roster of clients and I think a very strong referenceable client set. So, we continue, we are positive in terms of the momentum that we will be able to drive on the analytics side.
Rahul Jain
Anything more on the size of the business and also any seasonality that you have within your portfolio in the MarTech business, if that could be?
Kapil Jain
So, I think in the creative business is where we see the — where we had said that we are seeing softness in demand. On the campaign management and performance analytics, we continue to see good demand. And I think in terms of size of the business, we do not give individual split of the businesses. So, I’ll reserve, but like I said, we — from what we are seeing in the market and from our clients, we are competitive and we have a good value proposition for a client.
Rahul Jain
Right. So, Kapil, what I’m trying to understand is generally this kind of businesses, they do have spikes both up and down. So, is there a way to understand the seasonality like Q2, Q3 to be bigger quarter for such business or there’s no such trend that we have identified in the past?
Kapil Jain
I think it’s a little difficult to identify the trend in quarter-on-quarter. I think we look at anything we are doing, we are looking at how we create medium to long-term value both for our clients and shareholders. So, I think in terms of quarter-to-quarter seasonality, we haven’t seen or identified a trend.
Rahul Jain
Thank you, guys. Best wishes.
Kapil Jain
Thanks, Rahul.
Srinivasan Nadadhur
Thanks, Rahul.
Asha Gupta
Thank you, Rahul. Next question we have from the line of Varun Pa. Varun, please go ahead.
Unidentified Participant
Yeah, thanks for the opportunity and congratulations on strong quarter. Just one question. So, within the three business verticals, can you explain on the cross-sell and upsell opportunities in detail? Maybe if you can give or state one or two examples to explain how we are upselling and cross-selling?
Kapil Jain
So, for example, our MarTech stack, we have had a win in the financial services client. So, that’s one thing. Our customer operations in high-tech area, one of our product-type services. So, those are some of the successes we have seen, which is these are the two large ones. And I think on the back of this is giving us the confidence on our ability to cross-sell and upsell. And the reason in, I think our delivery, as I had mentioned again, is very strong. So, the internal client act as reference when we are cross-selling and upselling to other stakeholders in the same client.
Unidentified Participant
And on the upselling side, if you can give an example too?
Kapil Jain
So, I think in terms of looking at adjacent area and on the overall change and tech stack is where we are seeing upselling because we have domain product-type services and looking at change, driving transformation is where we feel there’s an opportunity for upsell.
Unidentified Participant
Okay, got it. Thanks.
Asha Gupta
Thank you, Varun. We have next follow-up question from the line of Debashish Mazumdar. Debashish, please go ahead.
Debashish Mazumdar
Hi, Shini. Yeah, am I audible?
Asha Gupta
Yes.
Srinivasan Nadadhur
Yeah.
Debashish Mazumdar
Yeah. Srini, one follow-up question on margin. So, effectively what we are communicating is this quarter our core EBITDA margin is 26%, which has 85 bps of one-off, which will not be there next quarter, one-off benefit, which will not be there next quarter. So, is it like we are starting Q3 around 120 bps-130 bps lesser compared to Q2? Or is there something I’m missing?
Srinivasan Nadadhur
How did you get 120 bps-130 bps?
Debashish Mazumdar
So, 85 bps is the one-off and then 50 bps impact, you said, because of the new — yeah.
Srinivasan Nadadhur
Yeah, that’s the fair statement, yes.
Debashish Mazumdar
Okay. And do we have enough leverage, enough levers available to kind of nullify some of this 120 bps-130 bps impact that we will be seeing sequentially?
Srinivasan Nadadhur
So, it’s largely based on revenue growth. If there is revenue growth, then we should be able to do it.
Debashish Mazumdar
So, the question that you answered on Sandeep’s question on few of the new projects that is getting started, because our ACV in Q1 was very, very strong. So, is it fair statement to assume that in Q3 may not be at 5%, 6%, but we will have a reasonable amount of handsome growth that we’ll be making in Q3 that we’ll be able to maintain some amount of margin benefits, I mean, some amount of margin that we’ll be losing in Q3?
Srinivasan Nadadhur
I think the way you should look at it is put both ACV and roll-off together. I think you’re only looking at ACV.
Debashish Mazumdar
No, Srini, what I’m trying to understand is even if you — so, in H1 put together, our average ACV growth is around 35%-36%. And even if you assume 12% to 15% roll-off, I think getting a 12%, 13% growth in this year will not be a very big trouble. And in that case, our sequential run rate is supposed to be, I mean, the sequential growth ask rate is supposed to be 3%, 3.5%. So, is it a fair assumption that in next two quarters, the CQGR will be 3%, 3.5% to reach a 12%, 12.5% number for this year?
Srinivasan Nadadhur
The assumptions are fine, but what we don’t have is the visibility into that. I can’t really —
Kapil Jain
So, Debashish, I think, again, I think you’re asking in terms of — I had mentioned that we will be in the top quartile of the industry peer segment that you evaluated us on. Now, whether that is 12%, 13%, 15%, 9%, that’s something I think, it’s your guess as well as mine. Right? So, we will be in the top quartile.
On the margin in terms of whatever impact, one-off whatever, we will be in the range of 24% to 28% and we will show sequential EBITDA growth. These three things I have said, we will stick to it and we will maintain that and we will deliver that 3% to 3.5%.
Debashish Mazumdar
Sure, sure. Thank you so much.
Kapil Jain
Thank you.
Asha Gupta
Thank you, Debashish. We have follow-up question from Sandeep Shah. Sandeep, please go ahead.
Sandeep Shah
Yeah, just a question on capital allocation. We generally prefer a buyback as a method of cash distribution. So, with the tax ruling change in the budget, do you believe our priority may be now more towards dividend or priority continues to remain on a buyback?
Srinivasan Nadadhur
I think we will definitely have to examine it. As you said, there is no difference in buyback and dividend anymore other than the reduction in dilution. So, we have to examine, but there’s, I guess, a lot of time for us to do it.
Sandeep Shah
Okay. Okay. Thank you.
Asha Gupta
Thank you, Sandeep. [Operator Instructions]. As there are no further questions, I will now hand over the floor to Kapil for closing comments.
Kapil Jain
Thank you, everyone. And once again, I’d like to thank all our clients for having the confidence in us and all employees, my colleagues who have worked very hard to deliver the quarterly performance that we delivered. And thank you all for your support and look forward to talking to you in the next quarter. Thank you very much. Thank you.
Asha Gupta
Thank you, everyone. You can disconnect.