eClerx Services Limited (ECLERX) Q2 FY23 Earnings Convall Transcript

eClerx Services Limited (NSE:ECLERX) Q2 FY23 Earnings Concall dated Nov. 11, 2022

Corporate Participants:

Srinivasan Nadadhur — Chief Financial Officer

PD Mundhra — Executive Director

Anjan Malik — Co-Founder and Director

Asha Gupta — Investor Relations

Analysts:

Unidentified Participant — — Analyst

Manik Taneja — JM Financial Services Ltd. — Analyst

Hitesh Arora — Unifi Capital Pvt Ltd. — Analyst

Sandeep Shah — Equirus Securities Private Limited — Analyst

Shradha Agrawal — Amsec — Analyst

Sameer Dosani — ICICI Prudential — Analyst

Siddarth Maheshwari — — Analyst

Ruchi Burde — BoB Capital — Analyst

Presentation:

Operator

Got based on the bursting that there some issue and share, not able to log-in, but he is trying to sort it out. So now. To destock give out Hounslow. Well, sure. I think we can give it a minute or two. Srini, because if you can maybe get a 100 plus attendees so people also assemble. All right. Do you want to kick-off, Srini?

Srinivasan Nadadhur — Chief Financial Officer

Yeah, I can do that. Hello, everyone, and good evening. Welcome to eClerx’s Earnings Call for Q2 FY ’23. The performance in this quarter was robust, so revenues came in at $82.5 million, which is up 3.7% quarter-on-quarter, and 4.6% in constant currency terms. Total revenues for the quarter were INR6,712 million, up 4.9% quarter-on-quarter. Due to the strong revenue growth, as well as operating efficiencies that we were able to generate, and also helped by the depreciating rupee, margin performance was stronger with EBITDA of INR2,023 million at a margin of 30.1%, which is up 8.8% quarter-on-quarter. Net profit was INR1,259 million at 18.8% margin.

The Board has approved a share buyback of up to INR300 crores through the tender offer route at a maximum price of INR1,900 per share. This will be put up for shareholder approvals shortly. Do note that our payout to shareholders remains consistently high as per our stated policy. So, from FY ’18 to FY ’22, we have paid out approximately 70% of net profit and 70% of approximately a free cash flow to shareholders, including taxes.

In Q2, we also paid our dividend of INR1 per share, we also completed the process of issuance of bonus shares. The indicators on the key metrics slide are largely stable. We do want to call out one important metrics. The number of clients in the $1 million to $3 million bucket has moved up from 22 to 27, which I think is reflective of our ability to deepen relationships and grow with our clients.

Headcount in Q2 was slightly higher than Q1. This is because of two factors. One, is lesser hiring in Q2 and the second is, something that I alluded to in the Q1 call itself. We were carrying excess bench in Q1, which now got converted into billable staff. Attrition moved up by 8 percentage points from Q1 to Q2, which is slightly lower than the 10% increase in the same period last year. We do see attrition easing, we see number of resignations going down in Q3, and we believe that the peak is behind us. Given the uncertainties in the global macroenvironment, we expect to get better visibility into calendar 2023 outlook in the next quarter or two. On margins, we continue to believe that our goal of 28% to 32% remains appropriate.

As always, thank you for your support and belief in us. We can now move to the Q&A. Jathin, has Asha been able to join and will she moderate this Q&A?

Operator

Sir, she is still trying to join. She is not able to join us, sir.

Srinivasan Nadadhur — Chief Financial Officer

Okay. Then I can probably moderate it. So anybody with questions, you may please raise your hands, and then we will go into the Q&A.

Questions and Answers:

Srinivasan Nadadhur — Chief Financial Officer

So the first question is from Ruchitha. Ruchitha, please go ahead.

Unidentified Participant — — Analyst

Hi. Am I audible?

Srinivasan Nadadhur — Chief Financial Officer

Yes.

Unidentified Participant — — Analyst

Yeah, so I had a couple of questions. So, the first one is regarding the brute outlook for a top client, so if I were to see the growth in the past two quarters, since we have privately been led by our top 10 clients. I just wanted to understand, what kind of growth momentum do we expect in these clients, going forward? And is there any sort of signs of weaknesses considering the macroenvironment? Also in extension of that, our emerging clients don’t seem to be growing at the same pace, as I talked to 10 clients. So just wanted to understand how should one read this, does this indicate any sort of signs of a slower decision-making or a potential slowdown?

And the second question pertains to the BPaaS revenue, [Indecipherable] seems to have remained muted for the past two quarters, so just wanted to understand the discrepancy? That is all from my side. Thank you.

Srinivasan Nadadhur — Chief Financial Officer

PD, do you want to take that?

PD Mundhra — Executive Director

Yeah, I can take the first one, and perhaps Srini you can take the second one. So in terms of growth composition across clients, if you look at the revenue mix slide in the deck, you’ll see our top 10 have been growing at about 20% year-over-year, for the last two or three quarters. But our emerging clients, the $0.5 million plus segment has actually been growing closer to 30% if you take an average of the last three quarters.

So I do think that overall sort of the goal of the company, which is to grow emerging faster than the top 10 and therefore create less concentration. That is broadly working. And the other data point to that, I think, if you go back and look at the metric slide, and the number of million dollar plus clients, today, we have about as of last quarter 43 clients that are million dollar plus. And if you looked at that same number a year ago, that number was only 36. So I think both those are reasonable indicators that growth has been broad-based and, you know, our client concentration, we do think will come down.

Having said that, it’s great for us that the top 10 are also growing at 20%. They still continue to be a large chunk of our revenue base. If we don’t see growth there that would have had an adverse effect on overall firm growth rate. So we’re very happy to see growth in the top 10, but it is good to see that growth outside the top 10 has also been strong.

Srini, you can talk about BPaaS, please.

Srinivasan Nadadhur — Chief Financial Officer

Thanks. I think, when you look at BPaaS revenues, instead of looking at it Q-on-Q, there is usually not much variation from one quarter to another. It may be more helpful to look at a longer-term view and look at year-on-year performance. And you will see that, it has actually increased. That is one. The second is, that usually a lot of the BPaaS revenue for us it’s in quarter three and quarter four, because of pending work that our clients have which are based on transactions and unit price. So you will see that quarter four usually is the highest in terms of BPaaS revenue.

Note that, excluding FY ’21 quarter four, because there was Personiv revenue addition in that quarter, which was all 100% FTE. So that sort of broad deal cut down. But otherwise I think long-term, you will see this metric up and it’s kind of difficult to move the metric in very sharp terms, because it requires having a conversation with clients and getting them and convincing them to move from FTE-based pricing, which is what they are used to into managed service kind of pricing. So it will take time to move up, but that is what our growth is.

Ruchitha, any other questions from your side?

Unidentified Participant — — Analyst

Yeah. Thank you so much. Just wanted to follow-up, we do not see any sort of weakness in our top clients, to me like what is our outlook going forward for the top clients? Anjan, do you want to take that?

Anjan Malik — Co-Founder and Director

Maybe that’s a hard one, but I think if you look at — I’d say, we look at two metrics. One is, internally we look at pipeline, and then I guess we look at conversion rates. So I’d say, pipeline is continues to be pretty strong, but conversion rates have definitely slowed. So if that’s an indication of a slowdown, then I would take it as one. So certainly, while people want to spend, there is a slowdown at which they are making decisions and that’s been noticeable.

The second part of it, obviously is uncertainty at our clients, right? So you’ll see as many of our customers, many of them make up the global indices are facing their own headwinds. So many of these guys are reducing headcount, they are reducing spend. So we would expect in the medium-term that to have an impact on the IT and the BPO industry, but it’s unquantifiable at this stage.

Unidentified Participant — — Analyst

All right. That was very helpful. Thank you.

Srinivasan Nadadhur — Chief Financial Officer

The next question from Manik Taneja. Manik, please go ahead.

Manik Taneja — JM Financial Services Ltd. — Analyst

Yeah. Hi, good evening. Am I audible?

Srinivasan Nadadhur — Chief Financial Officer

Yes, clearly.

Manik Taneja — JM Financial Services Ltd. — Analyst

So, I had a couple of questions, really like you mentioned about the aspect that you’ve done very well in terms of the number of $1 million plus customers. Customers increase in terms of customers at the lower-end. When I look at our client metrics, it appears that we might have been doing — we might be doing well with our top customers, as well as probably adding customers at the lower-end. But the migration of some of these customers to higher revenue buckets usually that is something that still remains low. So would that be a fair reading? That’s question number one.

And the second question was to essentially get a sense of what you are seeing across the three parts of our business in terms of financial services, customer care, and the [Technical Issues] if you could help us understand that. Thank you.

PD Mundhra — Executive Director

Hi, Manik. Thanks for your questions. So, I’ll take the first one and I’ll request Anjan to respond to the second one on segment-wise outlook. So I think yeah, broadly speaking, you’re right, that the larger the revenue threshold you apply, the harder it is for us to consistently migrate people up into those tiers. So for example, it’s much easier for us to migrate a client from $500K to $1 million, than it takes to migrate a client from $1 million to $3 million or $3 million to $5 million. And there will be a drop-off, right? So in terms of percentage of clients in any given tier, whom we are able to successfully migrate up to the next threshold. There will be a drop-off.

Having said that, I think even if you look at sort of the larger clients, $3 million plus clients, we have seen an increase from 12 to 16 over an eight-quarter period. So over two years, we’ve seen a 33% increase in that cohort. And obviously, if you look at the $1 million to $3 million clients, I mean, there has been a much larger increase there from 16 to 27, over that same two-year period of time. So I think you’re right. Creating $10 million clients for us is a difficult event for us and it’s not a very common event. But it does happen. But hopefully, if we can create lots of $2 million, $3 million, $5 million clients, that will help us maintain the momentum.

And I’ll hand over to Anjan to respond to the second part of the question.

Anjan Malik — Co-Founder and Director

So, Manik, I feel like that’s sort of the broad strategy of specialization in product investment, combination of onshore and offshore has continued to play out for us, which means that, demand in the pools that we’re playing has continued to be strong. So I think, there was an observation made earlier about slowdown in emerging clients, but I think certainly, because a lot of our growth continues to come from existing clients as you know. That pool of demand we’ve seen to be strong.

I think, as I’ve said, there has been some slowdown, because of uncertainty at the edges, but we still seem to be growing relatively quickly and we — there seems to be a fair amount of demand for the book of work at least that we service. And I would say that that’s consistent across the two big books in markets, which is sort of client lifecycle and trade lifecycle. And the two big books in customer ops, books on care and engineering services. And broadly around the high level of free books that we have in digital, which is focused on content marketing, automation, and analytics.

And I think the one other thing I’d say that’s helped us in the last year, year and a half, I think sort of this pivot towards automation and analytics, where we’re beginning to sort of win more work on the periphery of those big product areas, where guys are hiring us to do sort of what we call, Subject Matter Expertise-related Automation and Analytics. So I think all-in-all we feel, I would say, relatively sanguine, but obviously, if you start seeing clients disappear or in down markets sort of shutdown, then I think it’ll be a different game, but we can’t predict that micro level event.

Srinivasan Nadadhur — Chief Financial Officer

Manik, any follow-up question?

Manik Taneja — JM Financial Services Ltd. — Analyst

Yeah. So the other thing that I wanted to get your thoughts on is the fact that, like you alluded to in your opening remarks that we paid more than — so while our historical policy has been to pay 50% of our earnings as in the form of dividends/buyback, but over FY ’18 to FY ’22 that payback, that return to shareholders has been much higher. So should we assume that as the new normal in terms of policy, in terms of returning cash to shareholders?

PD Mundhra — Executive Director

Srini, should I take that?

Srinivasan Nadadhur — Chief Financial Officer

Yes, please.

PD Mundhra — Executive Director

So Manik, these — say 50% as a target. One thing to keep in mind is the other competing application or cash could be acquisitions. So to some degree, where we end up in terms of payout ratios is also a function of acquisition opportunities that we see and we are able to close on. So, over the five year period that Srini did the measurement for, we had one deal that we closed with Personiv. And so therefore, there was more cash available to return to shareholders.

I think, broadly speaking, we all feel that there is not much utility to accumulating large cash balances in the company, because given our conservative investment philosophy, return on cash, our treasury cash will be low and I’m sure shareholders have a much higher opportunity cost of capital that they would target. So we will keep some buffer for capex and for opex and some for liquidity, but beyond that, excess cash we want to return.

Manik Taneja — JM Financial Services Ltd. — Analyst

Thank you, and all the best for the future.

PD Mundhra — Executive Director

Thanks.

Srinivasan Nadadhur — Chief Financial Officer

Thanks, Manik. The next question is from Hitesh Arora. Hitesh, please go ahead.

Hitesh Arora — Unifi Capital Pvt Ltd. — Analyst

Thanks. Congratulations on a good set of numbers. Just any visibility on the roll-offs thus far and any specific outlook for FY ’24 that you have, you can throw a little more light on?

Anjan Malik — Co-Founder and Director

PD, I will take care of this. So, roll-offs this year has been lower than FY ’22, which itself was a much low — was a low year obviously for us. So I think, we’ve been held by that. I think in terms of the future, we don’t see anything significant or material, which is coming up. And I think that’s — it’s been a positive situation as far as roll-offs are concerned.

Hitesh Arora — Unifi Capital Pvt Ltd. — Analyst

And that visibility you would have, let’s say for the next six months or something or more?

Srinivasan Nadadhur — Chief Financial Officer

Well, usually, it’s about 2 months to 3 months. And bear in mind, that all our clients can cancel, most of our clients can terminate contracts with 30 or 60 days of notice.

Hitesh Arora — Unifi Capital Pvt Ltd. — Analyst

Okay. Fair enough. And we are presumably given our run rate, we are still should be comfortable with the double-digit growth, I’d presume for FY ’23 at least?

Srinivasan Nadadhur — Chief Financial Officer

Yes.

Hitesh Arora — Unifi Capital Pvt Ltd. — Analyst

Okay. Anything specific on the outlook from the clients that from your conversations, I know you alluded to in the previous question, but anything more specific that you can talk about what your clients are saying in terms of offshoring the business, et cetera, to India, or in your other marketing verticals anything more that you can help us understand your business better would be very helpful.

Srinivasan Nadadhur — Chief Financial Officer

PD, you want to take that?

PD Mundhra — Executive Director

Actually, I think, Anjan, you might do a better job of responding to that in terms of general client environments and feedback.

Anjan Malik — Co-Founder and Director

So, I think the demand for India continues to be pretty strong, where we have clients that already have very large GICs and already have very large exposure to India vendors. They are looking at second sites, but I would say, in general, that’s peripheral. And the demand for India is very strong. So I’d say, the — I think that certainly sort of the geopolitical risk, one. And two, India’s performance during, sort of the whole COVID stand down was very, very positively received. So I think, broadly, that’s a very good positive for India-based work. I think, anything beyond that again is client-specific, we don’t really share. And I think there is no specific trend to speak of, as opposed to the one that I just mentioned.

Srinivasan Nadadhur — Chief Financial Officer

Okay, Hitesh, any follow-up question?

Hitesh Arora — Unifi Capital Pvt Ltd. — Analyst

Okay. I’ll come back in the queue.

Srinivasan Nadadhur — Chief Financial Officer

All right. Thank you. The next question is from Sandeep Shah. Sandeep, please go ahead. And Asha, I’ll hand over to you, if you are online.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Yeah, thanks. Thanks for the opportunity. Can you hear me?

Srinivasan Nadadhur — Chief Financial Officer

Yes.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Yeah. Just a question in terms of recruitment. So this quarter is a soft recruitment, where we have added 0.6% of the last quarter base. And generally, there has been a good correlation of your recruitment with the future quarters’ growth. So, is it more to do in anticipation of some sluggishness of demand in the second half? Or is it more to expect that bench coming on a billable roll and there could be a utilization improvement and the growth is unlikely to slowdown from what we have seen on a Q-on-Q basis in the first half and second half?

Srinivasan Nadadhur — Chief Financial Officer

I think largely, we were — it is the second. So we were carrying very high benches in Q1, both because the attrition was high, plus we were expecting some work to get billed in Q2. And attrition has eased up significant in the first couple of months of Q3. And we’ve been able to get our utilization up by getting the — some of the people on the benches billed. And that is why you don’t see a — as significant jump in the headcount numbers as we saw in Q1.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay, okay. So, this is helpful. And just a follow-up. Srini, last time you said that the SEZ regulation in terms of working from home threshold from mid-of-October, which I believe got delayed. So in that scenario, is it fair to say now our expectation of 28% to 32% is reinstated versus earlier, because of which you were saying it could be 28%, 30%, rather than 28% to 32%. And in terms of follow to earlier question, with expected higher utilization, is it fair to say with wage hikes also behind, margin we have an upside on a going-forward basis rather than downside?

Srinivasan Nadadhur — Chief Financial Officer

So, the second question, first. Yes, I guess, so high utilization should definitely help. And because the return to work norms have been relaxed and the government is not in any pressing hurry to ask people and insist this to come back to work, I think that will also probably help our margins in some way.

PD Mundhra — Executive Director

I do want to add — sorry, one thing, Sandeep, is that, if you look at our numbers, we have been beneficiaries of rupee depreciation in terms of revaluation income. So we’ve had between INR15 crores and INR18 crores of revaluation income, both in Q2 and Q1. And obviously, nobody knows if that will continue or in what direction the rupee will go. So to some degree, all of these benefits that we’ve been talking about may potentially be required to fill the gap that goes away if the rupee depreciation stops, right. So that’s why I think we — Srini, made that comment in his opening remarks that, that range of 28% to 32% is appropriate.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay, okay. And just last thing, in terms of what Mr. Anjan had said, some uncertainty in decision-making and conversion of the deal pipeline has been slightly slower. So do you believe that this may have an impact even in the second half? And secondly, what proportion of our portfolio or revenue which you can describe as a discretionary versus annuity sticky or defensive portfolio?

PD Mundhra — Executive Director

Anjan, do you want to take that?

Anjan Malik — Co-Founder and Director

Yeah, I mean, I think, I would say, a very large percentage of our book of business is what I would call critical services, which is what we’ve always maintained. I think that is continuing. I think, I had prefaced my previous comment by saying that, the overall pipeline is bigger, but conversion rates are slower. So if you do the math, I guess on that, you’d expect almost — you shouldn’t expect a slowdown on basis of that. I was giving anecdotal color that decision-making cycles are definitely slower, because people are waiting [Technical Issues]

PD Mundhra — Executive Director

We may have lost, Anjan, temporarily. But I just also to supplement his remarks, I’ll quantify this a little bit. If memory serves me correctly, if you look at last financial year, in terms of sequential growth rates, we were usually 5% plus in almost all the quarters, right? Whereas if you look at this year in the two quarters so far, that number has been somewhere between 3% and 4%.

So to some degree, there is already a reflection of a slowdown as compared to last year. But I would also submit in the same breadth that last year was an exceptional year, for us and for the industry, because we grew 20% [Technical Issues] year-over-year. And many of our — much larger peers also had scorching growth rates. So undoubtedly, there is a slowdown from last year. Maybe things continue as they are, maybe they’ll slowdown a little bit more. But regardless, I think at least for this year to the question somebody else asked, we still anticipate a fairly decent year-end certainly double-digit growth rates.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay, okay. And yes, any quantification on our discretionary portfolio percentage as a percentage to total?

Srinivasan Nadadhur — Chief Financial Officer

It’s about 70% non-discretionary and 30% discretionary.

Sandeep Shah — Equirus Securities Private Limited — Analyst

So 30% is discretionary and 70% is annuity repeat business.

Srinivasan Nadadhur — Chief Financial Officer

That’s right.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay, thanks. Thanks, and all the best.

Asha Gupta — Investor Relations

Thank you, Sandeep. Next question comes from the line of Ayush Rastogi. Ayush, I have unmuted you, please go ahead. Ayush, you can speak. Ayush, are you there? Yeah. Ayush, your line is unmuted. Please, go ahead. Maybe we can take next question.

Next question comes from the line of Shradha. Shradha, your line is unmuted. Please, go ahead.

Shradha Agrawal — Amsec — Analyst

Yeah, hi. Can you hear me?

Asha Gupta — Investor Relations

Yeah.

Shradha Agrawal — Amsec — Analyst

Yeah, hi. So I just wanted to understand the demand trends in Europe, especially in the context of CLX Digital, are we seeing anything particularly soft there compared to other segments or other geographies?

Srinivasan Nadadhur — Chief Financial Officer

PD, would you like to take that?

PD Mundhra — Executive Director

Sure. So, you know, I will sort of break up the CLX business into two parts. I think the part that faces the luxury brands, which is the majority of the book. We continue to see fairly strong demand, so there has been no slowdown there yet. There is a smaller part of the revenue that faces retailers and also industrial clients. There we seem to have seen more of a slowdown, but on a consolidated basis, we still expect CLX to grow this year, compared to the last year. Of course, the last thing I’ll say is, in reported terms, there they will have a tougher year, because the euro has depreciated whatever 15% against the dollar. So in reported dollar terms, the picture doesn’t look as strong, but at least in native euro terms, we should see decent growth this year, on the portfolio as a whole.

Shradha Agrawal — Amsec — Analyst

Got it. And, sir, in the total headcount number, we have seen a good jump up in the tech services headcount number. So what does that relate to?

Srinivasan Nadadhur — Chief Financial Officer

So there is some amount of investment that we’ve been making on the tech for the last, I think 6 months to 9 months in — for advertising some of our services, taking who is available for the chosen line of services. So that is one of them. And the second is that, in general, our tech services have seen good pickup. So, that is the second reason.

Shradha Agrawal — Amsec — Analyst

Sorry, and just one clarification. What is the number between annuity and discretionary that you gave out to the last participant? I just missed off on that.

Srinivasan Nadadhur — Chief Financial Officer

70% and 30%.

Shradha Agrawal — Amsec — Analyst

So 70% is annuity.

Srinivasan Nadadhur — Chief Financial Officer

Non-discretionary, yes.

Shradha Agrawal — Amsec — Analyst

Okay. Got it. Thank you.

Asha Gupta — Investor Relations

Thank you, Shradha. Next question comes from the line of Ayush. Ayush, please go ahead. Ayush, you can speak right now.

Next question we will take from the line of Sameer Dosani. Sameer, please go ahead, I have unmuted your line.

Sameer Dosani — ICICI Prudential — Analyst

Yeah. Thanks for the opportunity. I think, on financial markets side, right? So two parts for the business. one is trade cycle and client cycle. Can you just give an outlook because the capital markets has been very volatile? And if you can just throw some light what’s the outlook there in terms of overall segment?

PD Mundhra — Executive Director

Anjan?

Anjan Malik — Co-Founder and Director

We — I mean, I think it’s been pretty bullish. It’s been one of our fastest-growing businesses over the last three years and we haven’t really seen any slowdown in that business. So both those areas, for example, the client life-cycle business tends to be driven by regulatory pressures and compliance pressures that has only continued as there’s been more government focus and more regulation put on banks and other financial institutions.

And the trade lifecycle business, the area that we play in which is the institutional part of the business, it continues to be a very volatile and it’s driven largely by volatility and complexity of businesses and I think that’s continued. So the clients that we work with which tend to be the large global banks, they have seen their market share increase and so, as a result, we’ve seen our business increase. So both those demand books, we are seeing is healthy at the moment.

Srinivasan Nadadhur — Chief Financial Officer

Okay. So few banks across the world have been facing issues in terms of their mortgage businesses are — some of them have also having bankruptcy issues. So are there any clients that we deal are at the risk of bad — if you can speak about that? And also second part, client lifecycle, whenever there are recessionary pressures, do you think there is some regulation levy available to the clients where they will say, let’s do KYCs or just updating databases if you can delayed it for 12 months? Again if you can just throw some light on that.

PD Mundhra — Executive Director

I can’t. Yeah. I mean, it’s hard for me to answer what regulators think. But if you look at past history, I feel that regulators don’t seem to really care much about recessions or growth, I think they care a lot about compliance. And I think once — I think broadly there is a feeling that the banks have made a fair amount of money over the last decade and compliance is number one. So we don’t see a reducing overhead and compliance, we are only seeing increasing more and that’s continuing.

I think the second part of the question which I think you asked first was, do we have any clients that we see under financial duress? That’s hard to say. I think certainly, we don’t have any clients in the banking space that are on the verge of bankruptcy, I’m very happy to say, which was more than we could have said in 2000 May. We do see some clients that may have to sell parts of the business, but that’s the minority of our business. The majority of our business, I think as I said, the large global banks that are actually increasing market share in this marketplace. So as I said it’s a wait-and-watch but the immediate to medium-term still looks pretty sanguine.

Sameer Dosani — ICICI Prudential — Analyst

Understood, Understood. And my second question is around this — the video business and the customer care business that we do. So here, I think, if you can just throw some light what is the outlook because — If you can just share an overall color or what is the outlook here? Thanks.

Anjan Malik — Co-Founder and Director

Do you want me to take that, Srini and PD?

Srinivasan Nadadhur — Chief Financial Officer

Yes, please.

Anjan Malik — Co-Founder and Director

So I think, if you would ask anybody about the long-term prospects of the call center business — care business, we all know that voice is moving towards chat. auto whatsapp help and what we call omnichannel help which is sms, text, web, etc. So we –in our businesses, I would say well poised because that’s sort of the transition that we’ve been really helping our clients make. Because our first foray into the space when we started almost six-to-seven years ago, wasn’t that chart would become the intelligent chat space. And that’s a growing part of the business [Technical Issues]

Asha Gupta — Investor Relations

Sameer, is that —

Anjan Malik — Co-Founder and Director

— opportunities that I think, we’re probably seeing that. A lot of people that had left India in the care business or in the first part of 2000’s and sort of reassessing India given sort of I guess, broadly improvements in communication, capability in terms of technology and in terms of skills. So I think they [Technical Issues]

Asha Gupta — Investor Relations

There is —

Anjan Malik — Co-Founder and Director

Can you hear me? I think [Indecipherable] there

Asha Gupta — Investor Relations

No, your line was lost.

Srinivasan Nadadhur — Chief Financial Officer

Now we can hear you.

Anjan Malik — Co-Founder and Director

Asha, are you able to hear me?

Asha Gupta — Investor Relations

Yes now. Please go ahead, Anjajn. I think we are not able to hear you Anjan, now.

Anjan Malik — Co-Founder and Director

PD, do you want to take that question because, I think my — I don’t know what’s going on, but I’m sure losing this access?

PD Mundhra — Executive Director

Yeah, sorry, so the question was about raw demand on the customer care side, right?

Srinivasan Nadadhur — Chief Financial Officer

Yes. Yes.

Anjan Malik — Co-Founder and Director

Yeah.

PD Mundhra — Executive Director

Yeah. So to the point that Anajan was making at least in the near-to-medium term, we continue to see reasonably good demand, especially for the kind of work we are doing. Because we are not really doing a lot of Level One work. Most of the work we are doing is either in chat or I would say level two, level three kind of support for clients. And there’s also some consulting work that we’re doing with clients in terms of helping them improve the efficacy of their Customer contact processes. And also in the last couple of years, if I look at actual growth, the business has performed fairly well. So long way of saying at least I think in the medium-term — in the short-to-medium term we remain positive about prospects.

Sameer Dosani — ICICI Prudential — Analyst

Understood. Understood. So — and lastly if I can squeeze in. So I’m not sure whether our business has impacts of furloughs because IT services has this impact of furloughs because of lower working days. So do we also see that impact and do you have some visibility on that because you would have two to three months of visibility, right? So if you can just share that, it would be helpful.

PD Mundhra — Executive Director

So for us, it is much lower. So the part of — the operations part of business there is no concept of furlough [Indecipherable] to the extent that we are doing IT support and the staff of mitigation bank [Phonetic] work in the IT services area. And there might be some impact of the furlough for those specific [Indecipherable] but I think, it is a very small portion of furlough.

Sameer Dosani — ICICI Prudential — Analyst

Sir, but our financial markets would deal with volumes and volumes are generally lower in Q3. That would have an effect, right?

PD Mundhra — Executive Director

That is not do with IT, isn’t it?

Sameer Dosani — ICICI Prudential — Analyst

Okay. No, no. I’m saying overall the financial markets as a segment, the volumes — the derivative volumes and everything would be lower so that would have an impact or?

PD Mundhra — Executive Director

No, that will not have an impact, because clients pays mostly in that world by — on an MTA basis. And they don’t go up and down that dramatically.

Sameer Dosani — ICICI Prudential — Analyst

Okay. Okay. Thanks. Thanks, that’s it.

Operator

Thank you, Sameer. Next question comes from the line of Siddarth Maheshwari. Siddharth, I’ve unmuted your line, please go ahead.

Siddarth Maheshwari — — Analyst

Yeah. Hi. Am I audible?

Operator

Yeah.

Siddarth Maheshwari — — Analyst

Yeah. I have one small question. If I look at the utilization percentage then except like in Q1 of FY’23 and Q2, [indecipherable] were quite high in the range of 78% to 80%. I’m talking about let’s say last six quarters, before FY’23. So what is the reason for that? Is it like, you just said that since the constant-currency growth rate has also come down. So whether these two things are connected or anything else?

PD Mundhra — Executive Director

So it is not related to currency, presumably it is related to the base that we are carrying. And the amount of attrition that we are facing and therefore we have to carry that excess bench. So in the last, three or four quarters, our bench across the businesses has been pretty high. And it’s only now that we’re seeing attrition going down a bit and therefore I expect that the utilization should improve in the next one or two quarters.

Do bear in mind that it takes some time for the utilization to pickup as people are more confident that attrition is going down, therefore they don’t need to carry some excess staff and so on. I think 80% is sort of unusual in the sense that, I don’t — it was probably a one-off, 77% — 78%, it’s probably the long-term average for us.

Siddarth Maheshwari — — Analyst

Okay, sir. Thanks. So you are saying this is purely because of high attrition?

PD Mundhra — Executive Director

Yeah. Thank you.

Operator

Siddarth, are you done?

Siddarth Maheshwari — — Analyst

Yeah. Thank you. I’m done.

Operator

Next question comes from the line of Ruchi. Ruchi, please go ahead.

Ruchi Burde — BoB Capital — Analyst

Thank you. I joined the conversation slightly late. So pardon me if it is a repeat. I can see the onsite revenue has declined here. So in a — we got challenging macro typically consulting is what gets impacted. That’s more discretionary in nature. Is that the reason for the onsite revenue decline or there is some other explanation for this?

Srinivasan Nadadhur — Chief Financial Officer

Well, there is actually no reason. The decline is very minimal and I don’t think we should be reading too much into it.

PD Mundhra — Executive Director

And Srini, could CLX conversion into dollars be part of that? Does that get included in onsite revenue?

Srinivasan Nadadhur — Chief Financial Officer

I will have to check. Maybe that is one reason. I need to check that.

PD Mundhra — Executive Director

Yeah. We can check and come back to you, Ruchi.

Ruchi Burde — BoB Capital — Analyst

Okay. Thank you.

Operator

Thank you, Ruchi. Next question is a follow-up question from Sandeep Shah. Sandeep, please go ahead.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Yeah. Hi. Thanks for the follow-up opportunity. Yes, I think in the initial remarks, we clearly said that CY’ 23 IT budget clarity will come with the Q3 results. But any interaction with the client gives you slight worry that CY23 could be a tough year versus CY22 or you believe it could be other way where macro slowdown may lead to incremental outsourcing and offshoring which even Mr. Anjan was saying that demand from India and offshoring from India has been becoming much much in the demand in the last two-three years?

PD Mundhra — Executive Director

Do you want me to take that Srini?

Srinivasan Nadadhur — Chief Financial Officer

PD yes, please.

PD Mundhra — Executive Director

So, Sandeep. I mean, I think given choice you’d always want clients to be having enjoying sort of strong trading conditions as opposed to having challenges in their business, because we feel broadly speaking that environment is more constructive for people like us and situations where they’re slashing budgets and so on and so forth.

In terms of — I think it’s hard to say but given everything you read about the global economy and you guys will know better than us on this front. It doesn’t seem like 2023 is going to be stronger than 2022 from a macro perspective. So I think if we are able to continue these, the growth rates that we’re currently experiencing that seen 4% quarterly growth rates that we’ve seen for the last, couple of years that would not be a bad outcome. But I think you’ll get more clarity as we said in the opening remarks in the next quarter or two as to what the environment looks like. But in terms of aspirations, I think if you are able to match FY’24 with what we will do in FY’23 that’d be a good outcome.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay. Okay. And just really a follow-up, how to lead this 30% discretionary portfolio challenging environment which would be the case in CY23? So how the pattern for this portfolio in terms of revenue growth earlier years of slow down?

PD Mundhra — Executive Director

So again, Sandeep, I think we have to look at it on a portfolio basis. So we have a portfolio where it’s good to have something that are defensive something that are more, if I can use that term High EBITDA and the combination of those two things hopefully helps us deliver at least some kind of a steady performance across cycles.

So I don’t think that feel — I don’t think we’re uncomfortable about that mix in the portfolio and all the remarks in the outlook that we are sharing with you is based on the specifics of our book.

Sandeep Shah — Equirus Securities Private Limited — Analyst

No, this is helpful thanks and all the best.

Operator

Thank you, Sandeep. [Operator Instructions]. We have a follow-on question with the — from the line of Sameer Dosani, Sameer, please go ahead.

Sameer Dosani — ICICI Prudential — Analyst

Yeah, so just wanted [Technical Issues]

Operator

Sameer, we are not able to hear anything.

Sameer Dosani — ICICI Prudential — Analyst

So lot of these companies — lot of these, can you hear me now?

Operator

Sameer we are — yeah now better. Can you please repeat your question?

Sameer Dosani — ICICI Prudential — Analyst

Yeah, yeah sure. So lot of these banks are putting freezing on hirings and, they’re also laying off people. So I mean, I broadly understand that it would be two things one is that they would rather than firing people they would rather insource the work and make their resources utilized or they would, since there is the hiring freeze, they would incrementally give more volumes to your — to companies like you. So what is the kind of scenario that is playing on, you think? Which is a more beneficial scenario? So if you can just highlight, that would be helpful.

Srinivasan Nadadhur — Chief Financial Officer

So I think that, so I think obviously it was more beneficial for us if the work does not get insourced. But I believe that there is a difference between the kind of work that we do, versus what traditionally gets done by the captives. And Banks have to keep that in mind because the profile that is required for each of these — this is a work –it is different. So it’s nothing. it’s typically not as straightforward as it seem, seeing that you want to [Indecipherable] deposit that you don’t want to fire your guys.

What was the second part of your question? Sorry?

Sameer Dosani — ICICI Prudential — Analyst

Sir, I was asking whether, clients would — much would insource rather than firing people or if there is a fleet they would give more work to you. Is there some of — any of the scenarios [Speech Overlap]

Srinivasan Nadadhur — Chief Financial Officer

Both options [Speech Overlap] exists but I think there were plans to — want to variabilize their costs as I expected that they would want to move if they are under cost pressures, then they will put outsource because that’s the scenario where you can fix up-and-down more easily than go with your own staff.

Anjan Malik — Co-Founder and Director

In fact, Srini can you hear me [Speech Overlap] because I think that’s a very good point. Just wanted to add one observation on this that in the last, three years actually we’ve seen a lot of roles move from GIC’s and captives to vendors partly because lot of captives felt that they weren’t very resilient during the COVID period and the period of high attrition. And I think in recent times we’ve had more conversations with banks — actually non-banks were to Srini’s point they want to show reductions in overall FTE because today the GIC’s and the India captives don’t get treated like as a low-cost center, they are just treated as an FTEs and so when there push for reduction in headcount, The India centers get treated the same ways.

Actually in an ironic way that’s an opportunity for vendor organizations, including ones like and actually, that I can have a larger impact on discretionary spend, i.e., the book — the part of our book that shows up as discretionary spend could actually flex upwards in times like this because, people are looking to variabilize their costs therefore it’s better for them to have those things is done by third-parties and have it done by themselves.

Sameer Dosani — ICICI Prudential — Analyst

Okay so. I mean since you highlighted that a lot of the work has moved — I mean, there’s a push enough for that [Technical Issues] move to us. So if you can just quantify right what is the portion of work that you would be doing is still [Technical Issues] house or with the captives versus what you’re doing for the client, if you can just — is there something possible to, you can just maybe?

Anjan Malik — Co-Founder and Director

There’s no way to do that, because there’s no way [Speech Overlap] because it’s not volume that we functional [Speech Overlap]. We do different things for, different organizations, so actually that’s a difficult exercise.

Sameer Dosani — ICICI Prudential — Analyst

Okay. Understood. Understood. And this will be more limited financial markets or the large segments — the customer [Indecipherable].

Anjan Malik — Co-Founder and Director

Oh! yeah, I think the financial markets tends to be the part of the industry that’s the most what I would call outsourced [Indecipherable] to the most mature buyers. The [Indecipherable] business by definition is very-very brand-oriented. So there is more a decision between vendors and decision between locations versus doing it in-house versus outside because, very few people today would still want to run care centers in-house simply because of the constant fund that the third-parties provide. And I think, in the digital part of our business it’s really about skill in many instances the skills that just doesn’t exist in-house so a lot of that skill has to be bought from the outside.

Sameer Dosani — ICICI Prudential — Analyst

Okay. I mean. I was asking this portion of work, moving from captives to your organizations may [Technical Issues]. I mean, which segment this has happened more? I mean, is it the financial markets or in the [Indecipherable].

Anjan Malik — Co-Founder and Director

That tends to be across all three, but it’s now noticed in the banks recently.

Sameer Dosani — ICICI Prudential — Analyst

Okay, understood. Yeah. Thanks and that’s it from my side.

Srinivasan Nadadhur — Chief Financial Officer

Thank you, Sameer. Next question comes from the line of Sunderasan. Sunderasan, please go ahead.

Unidentified Participant — — Analyst

Yeah. Hi guys. I hope, I am audible.

Operator

Yeah.

Srinivasan Nadadhur — Chief Financial Officer

Yeah.

Unidentified Participant — — Analyst

Congrats on the extensive numbers. I just have a, couple of questions. What will be the revenue mix from Personiv during the quarter and what would be your outlook on headcount addition going forward?

Srinivasan Nadadhur — Chief Financial Officer

PD, do you want to take that?

PD Mundhra — Executive Director

Yeah, let me take the second one and you can take the first one. So honestly, I think headcount addition, we don’t have any target. It’s a more dynamic thing, which is a function both of where we are in terms of benches and what we see in terms of client conversions. Because ultimately, I think, our staffing model is fairly flexible and it can respond reasonably quickly to changes in either direction. So even in our internal budgeting, we don’t reset any headcount targets and that is managed more dynamically through the year.

In terms of where we sit right now, as Srini had mentioned in response to an earlier question that we are at about 75% utilization. If you see longer-term, we’ve been closer to the 78% kind of range. So clearly, there is some room for us to slot utilization up a little bit, so we don’t need to hire as aggressively right now. But that’s just a near-term sort of outlook.

Srini, over to you on Personiv.

Srinivasan Nadadhur — Chief Financial Officer

So on Personiv, I think, this quarter we have grown pretty much in-line with the rest of the business. But in Q1, they had very strong growth. When we acquired then, they were about 10% of revenues give or take, so that may have moved up slightly.

Operator

Sunderasan, is this — your question is answered?

Srinivasan Nadadhur — Chief Financial Officer

Yes, Asha. Thank you.

Operator

Thank you. Next question comes from the line of Darshan. Darshan, please go ahead.

Unidentified Participant — — Analyst

Yeah. Hi, can you hear me?

Operator

Yes.

Unidentified Participant — — Analyst

Yeah. Thanks for the opportunity. First of all, congratulations for a good set of numbers. Sir, I had a question relating to your acquisition strategy. In the previous quarters, you had alluded to the fact that because of low-interest rate regime, there was a lot of PE funds who were acquiring entities at much higher valuation multiples. Now that the scenario has reversed, are you seeing any possible acquisition opportunities in the coming quarters? Do you think that the valuations have become more reasonable now and there are potential gaps that you can fill through acquisitions now?

PD Mundhra — Executive Director

Srini, why don’t you take that?

Srinivasan Nadadhur — Chief Financial Officer

Yeah. So, we are looking at opportunities and I think, qualitatively speaking, we’re probably seeing little more opportunities than we used to see in the past. I’m not sure, the valuations are at a level where it is seen — meaningful or interesting for us. We will gave a quarter or two for that to come to levels, which would be interesting for someone like us. But we are seeing more opportunities being sent our way.

Unidentified Participant — — Analyst

And what would be the areas be in terms of opportunities, which particular segments, which particular geographies are you seeing there?

Srinivasan Nadadhur — Chief Financial Officer

Your question is which geographies that we are seeing today?

Unidentified Participant — — Analyst

Which geographies and which particular gaps that you feel, you want to fill-up, possibly?

Srinivasan Nadadhur — Chief Financial Officer

Okay, so you in terms of — if I look at our three business then, in financial markets something on the buy-side would be of interest to us. In digital, anything on analytics in areas that we don’t service today. It’s just that, we do a lot of work-in product marketing and operator intelligence, so anything that is around that or that would be of interest. And in customer operations, something on providing care services to non-telco, that would be of interest to us.

Unidentified Participant — — Analyst

Right. And and secondly, in terms of the cable business in US, are you seeing any slowdown or are you seeing any revival — I mean, how is the current opportunity set over there? Because of late, we have seen that a lot of the traditional media channels have also become — have adopted OTT in a big way, so how is it impacting our cable business?

Srinivasan Nadadhur — Chief Financial Officer

Anjan, do you want to take that? Your connection is still okay?

Anjan Malik — Co-Founder and Director

Yeah. I mean I think, cable cutting has been a trend over the last decade, so that’s something that has continued. I think, you’ve seen that as a result most of our clients have moved onto streaming themselves as opposed to just being cable providers or connectivity providers. And we’re certainly seeing a part of our business growing, providing servicing do the streamers directly. And, of course, as I said, one part of our business is around engineering services and obviously if you’re in the business of providing any kind of connectivity, you’re also providing help desk support to those people that get their connectivity, so that’s been an area of growth for us.

So net-net, yeah, I think the business that our client base is mutating, they’re moving towards a different set of services, including obviously providing — becoming owners and providers of content. But so far, that demand hasn’t — the nature of demand has changed, but the demand has stayed or in fact, increased.

Unidentified Participant — — Analyst

Right, so net-net, it has been stellar growth engine for you.

Anjan Malik — Co-Founder and Director

Yeah, because I think the industry is mutating and we support the industry in aggregate.

Unidentified Participant — — Analyst

Understood. Okay, thanks and wish you all the best for future quarters.

Operator

Thanks you, Darshan. Next, again there is a follow-up question from the line of Sandeep Shah. Sandeep, please go ahead.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Yeah, just last bookkeeping question. Srini, if you look at this realized rupee-dollar for us, it’s slightly different than the average spot rates, which we see for the others. So is it fair to say, all the gains and losses on the matured hedges goes in the revenue line?

Srinivasan Nadadhur — Chief Financial Officer

It will going into operating deficit, that’s correct.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay. And how do you see based on the engineered going-forward, will it improve in terms of gain in the revenue line or do you believe it may have some more impact because rupee is depreciating as well?

Srinivasan Nadadhur — Chief Financial Officer

I think, there will be some [Indecipherable] currently 81.5, right? Now average at the rate if you can say is for Q3 78.8. So I think, that tells you what Q3 is likely to be in terms of gains or losses in FX.

Sandeep Shah — Equirus Securities Private Limited — Analyst

Okay. Thank you.

Operator

Thank you, Sandeep. Next question is again a follow-up question from the line of Sameer Dosani. Please go ahead, Sameer.

Sameer Dosani — ICICI Prudential — Analyst

Just a clarification. So this year 20% to 32% gains — margin rates that we get includes our other income, right?

Srinivasan Nadadhur — Chief Financial Officer

Yes. Our EBITDA calculations is based total income, not operating.

Sameer Dosani — ICICI Prudential — Analyst

And just to understand, so if you can explain me, how does the ESOP policy work? Because we have fund advise, so if you can just explain how does the ESOP policy work overall?

Srinivasan Nadadhur — Chief Financial Officer

So, ESOP is branded to staffs in the top 1%, both India and outside. And ESOP’s are granted at the money I think, at the prevailing market price on the day we have the Board meeting for the year and there is a lock-in for three years. And after three year period is over, the employees have another three years to exercise the options. Typically, half of the ESOPs are time-based listing, so, three year period is all that really matters. And the remaining half is based on performance of the business.

Operator

Sorry, to intervene, I think, we are almost out of time, so I would suggest that if you have a follow [Speech Overlap] perhaps you can connect separately.

Sameer Dosani — ICICI Prudential — Analyst

Sure. Okay. Thanks.

Operator

Thank you everyone. As there are no further questions, we will now close the earnings call. I’ll hand over back to the management for closing comments.

Srinivasan Nadadhur — Chief Financial Officer

Thank you everyone for joining the call. I hope, it was useful and informative. And we’ll see you back in three months’ time. Thank you very much. [Operator Closing Remarks]

Operator

Thank you everyone. Have a nice weekend. Thanks.