Expleo Solutions Ltd (NSE: EXPLEOSOL) Q4 2025 Earnings Call dated May. 23, 2025
Corporate Participants:
Phani Tangirala — Managing Director and CEO
Periakaruppan Palaniappan — Chief Financial Officer
Unidentified Speaker
Analysts:
Asha Gupta — Analyst
Athreya Ramkumar — Analyst
VP Rajesh — Analyst
Anuj Sharma — Analyst
Bhavik Mehta — Analyst
Rohit — Analyst
Ramkumar — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to XTO Solutions Limited Q4 and FY25 earnings conference call. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation. Conclude should you need assistance during the conference call, please signal an operator by pressing Star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from Eny LLP Investor Relationship. Thank you and over to you ma’ am.
Asha Gupta — Analyst
Thank you. Mano Good morning to all participants in the call. Welcome to the Q4FY25 earnings call of Exfilio Solutions Ltd. The results and press release have already been mailed to you and you can also see the same on company’s website. In case if anyone does not have the copy of press release and presentation, please do write to us and we will be happy to share with you.
Representing the management Today we have Mr. Panee Tangirala, Managing Director and CEO Mr. Periyakarupan Palani Apan whom we will be referring to as Mani. Mr. Pani will start the call with a brief overview of the quarter and year gone by which will be followed by Mr. Mani who will be giving you the brief update of the financials. After that we will open the floor for Q and a session. As usual. I would like to remind you that anything mentioned in this call which gives any outlook for the future or which can be construed as forward looking statement must be viewed in conjunction with the.
Operator
Risk and uncertainties that we face. This risk and uncertainties are included but not limited to what we have mentioned in the prospectus file with SEBI and subsequent annual report which you can find on our website. Having said that, I will now hand over the floor to Mr. Panee. Over to you sir.
Phani Tangirala — Managing Director and CEO
Thank you very much Asha and a very good morning to all the investors and thanks a lot for continued trust in us. And as you would have seen the results published, we had a good year with a 7.1% year on year growth to 1041 crores rupees and the EBITDA margin improved by 80 basis points to 16.2, the details of which Mani will cover during his presentation.
But I mean I would like to more focus on where I left last time in the earnings call where we had this three or four prong approach which I have talked about and I want to start by picking from there and then seeing how this has contributed to it. As you can recollect we have these four major points that I have emphasized not just in the earnings call but also in several different investors meetings as well.
The first is this year we are focusing heavily on our existing customers to grow and that was a plan at that point of time and we have taken adequate actions towards that to see how we can grow our existing customers, improve the diversification of our services within the existing customers and not spreading ourselves thin on our marketing expenses to all the regions and everywhere.
But a significant amount of that spend also can be put in account based marketing on the existing customers is the first one as a part of that initiative after I spoke to you all last time. We have now identified our top 20 accounts contributing to 70 to 80% of our revenues and have identified seven key account managers who have been long in the system who are subject matter experts and very effective account managers to run these accounts so that a very focused effort is put on each of these accounts and they together with our marketing teams have been driving the account based marketing initiatives so that these accounts are grown.
The results are fruitful. At least 75% of those accounts have started to show significant difference with those interventions that we have planned. So which is working according to our plan. The next prong which we have, which I have talked to you last time is on focusing on when it comes to go to market, focusing on the regions which made us a good which have shown us good results in last year I talked. About US and Middle east. They continue to promise us as promised, we have channelized our spend in that particular region and also in the Middle east, primarily us. We have focused heavily this year in the last one quarter where I myself was there attending AI and data conferences, making our visibility extremely high and focusing on the QSR industry because one of our largest QSR customer is sitting out of us. So they are a big advocate for the work what we are doing and we are leveraging on it and data AI, specifically in Quick Service Restaurant Group is what we have done heavy campaigning on one major roundtable initiative has already happened in New York City and the second one will happen in Chicago in September and and we continue to stay invested very heavily and we are seeing a very good prospect on that. On the Middle east front. We did say that we will expand our Middle east footprint into Saudi Arabia and now I’m happy to say that we have the entity created, our subsidiary created in the Kingdom of Saudi Arabia and it is operational and we will do a launch, soft launch and then with a bit of fanfare in the months to come and our marketing team is fully geared to tap the current growth so that we get benefited by having our own offices there that is on Saudi. But having said that, our Dubai is continuing to grow. This place where we have a good amount of presence almost literally in every bank and that is only improving and we, we are proud to say that at this point of time we have the highest number of people ever in Dubai which we never had that kind of a number. So the Middle east continues to promise. While in my earnings call last time I have definitely said US and Middle east are the two areas which we will focus. But a new entrant, India is certainly. I am not able to ignore it because as you all know, the advent of gccs in its current shape and form has come very strong and we don’t want to be left in that particular game. So we have pulled our cards and we have gone into the industry to see where in our areas of strength we can help these GCCs. As we speak. We are now working closely with 22 GCCs and these are at initial stage and I am expecting some results to come with all these 22 from June end or July onwards. So that’s a significant. And we have brought back India into a focus. And in the last two quarters India has shown a significant promise in terms of both revenue growth and also in terms of the headcount growth also. So the strategy has slightly been expanded beyond US and Middle east now to India. So that is the second prong, the first being the growing the existing accounts and the seven account managers I talked about. Second is the the emerging markets on US and Middle east, expanding it to India. And the third is on the. You remember we talked about we want to do a huge diversification and want to make our presence right in the AI and data side. As a part of that, I have also mentioned last time that we have made significant investments in 2024 when it comes to having people hired and the solution architects who are specialized in artificial intelligence and Gen AI and data capabilities. So to a great extent we have done extremely high investments without any revenue in 2024 because we know that this is going to be a platform creation investment. And that is done. Now fortunately, with all these 60 plus associates whom we have hired for AI, we have now created Explore AI as our platform based on which we will serve all our customers who don’t have to really go and do all things by themselves. It’s a platform where there are ready built accelerators made available using the LLMs and various other facilities, the copilots, whatever is related to AI. Our tools and our accelerators have been loaded into the Xplio AI platform and we have done close to 50 proof of concepts globally, not just for our direct regions but also. But a bulk of it have come from Europe and that has all happened until Jan this year and we started to taste some success out of which as we speak until April we started getting revenue on the AI front at least on four different accounts. So whatever efforts have been paid spent are now getting paid for and we will continue to focus. And the group is also committed to be invested in our AI initiatives. So we have set up this AI lab in Pune and there is an execution team also that has been identified for this. So the third prong which I talked about is well in control and shape. And the last one which I talked about is given the geopolitical situation and the macroeconomic conditions in Europe, there is an extreme slowdown. But if you remember, I have talked about taking that as an advantage. To reduce the cost for our group customers by moving significant chunks of work to India has been our focus. This is exactly what we have gone to all our group customers with the help of the group and we have made a pitch to them to see how they can reduce their costs. One, by infusing artificial intelligence. Two is by moving more and more work to. So that has already started paying off as the results have clearly shown that internal revenue that is coming from group has significantly grown beyond our budgets. That trend is something which I am expecting to continue in this particular quarter, the current quarter and the future quarter. And that will have a significant positive impact towards the end. So having said that, the markets in Europe continues to be dismal. Auto is further spiraling down Aero though the supply chain issues are still not sorted out, but nothing much is going on. R and D primarily for the big giants like Airbus have order books for next 10 years. So there is no, no motivation to invest in innovations and new products. So that is what predominantly the engineering team of ours depend on. But there is significant maintenance upgrades of the aircrafts which is still going. So in a nutshell, Aero and Auto are continuing to be the way they are last year, but with the kind of a war like situation everywhere, the defence seems to be growing and we are already seeing some tailwinds assisting us on this front where coupled with the make in India initiative on the government offsets that are available for us, we are foreseeing the defense revenues to go up in this particular area. So that is on the industry wise, banking and financial services continue to be promising like because while we are talking on artificial intelligence on one side, there is a significant modernization still not done for most of the countries, especially in apac, India and some Middle east countries. So the digitization and then being ready for artificial intelligence, those are the things which are happening. So bfsi, I am extremely confident as a new thing. Retail and QSR is a focus industry for us and we are doing campaigns all over and that is definitely showing. Promising. That is definitely promising. And from our front, some of the results, what you have seen are an outcome of our very stringent methods of pulling operational expenses into. Control in 2024 25. That has really helped us to get Those profits up by 80 basis points this year and the same focus will continue. We have set ourselves very stringent targets when it comes to our costs and we don’t expect to shoot them when it comes to oex. At the same time, this year will be a special focus on our SGA and then we will see how we can rationalize our expenses on the SGI front and thereby translating into higher benefits.So these are some of the initiatives that we are taking and with this I will hand over to Mani to cover on the financials before taking any specific questions that you may have. Once again, thanks a lot everyone. Money
Periakaruppan Palaniappan — Chief Financial Officer
Yeah, thanks Sunny. So thanks to all the investors and analysts who have joined the call. So I’ll start my brief by starting with the comparison of quarter on quarter financials so operating revenue for the quarter ended March 25 is at 2,558 million compared to 2005. 76 million in the prior quarter which is a 0.7% drop in revenue mainly due to few project closures in our auto industry due to the headwinds the industry itself is facing at large.
Total income however is flat at 2603 million between the two quarters and the higher forex gain in this quarter is compensating for the reduction in operating revenue. EBITDA for the quarter is at 15.6% versus 16.9% in the prior quarter primarily due to the impact of wage increments that we gave in this quarter.
Ebit stands at 12.5% versus 12.1% in the prior quarter and it is higher in this quarter mainly due to one time depreciation cost that we had in the prior quarter. PAT is at 9.1% versus 7.4% in prior quarter and is higher by 1.7% due to higher forex gain of 15 million in this quarter compared to the 51 million loss that we had in the previous quarter. I’ll now move to the year on year comparison of this quarter performance.
The operating revenue for the current quarter is at 2005. 58 million compared to 2005. 54 million in the same period last year which is a growth of 0.2% mainly due to improvement on on site opportunities out of Middle east and US regions. Total income is at 2604 million versus 2572 million which is higher by 1.2% mainly due to forex gain of 15 million in this quarter compared to forex loss of 56 million in the same quarter last year. EBITDA remains flat at 15.6% between the two periods, mainly due to wage increments in the current quarter being fully offset by savings we made in keeping our operational cost under check to protect our margins. Ebit stands at 12.5% versus 12% in the same period last year, mainly due to higher depreciation in the same period in the last year. Profit after tax is at 9.1% versus 5.7% in the same period last year and this increase is primarily coming From Forex gain of 15 million in this quarter compared to 56 million in the same period last year. Now we’ll talk about the full year highlight. Operating revenue for FY25 is at 10,248 million versus 9,649 million in FY24. This is a growth of 6.2% and this growth is primarily coming from improvement in our onsite revenue in Middle east and the US region. Total income is at 10,410 million versus 9,724 million for FY24. This is a growth of 7.1% and the incremental growth beyond the operating revenue primarily due to higher interest income from our higher cash balance. EBITDA for FY25 is at 16.2% versus 15.4% in FY24, an increase of 80 basis points mainly due to higher revenue, improved utilization and keeping our bench in control while we managed our discretionary spends effectively offsetting some of the impact that came from our wage increments we gave this quarter ebit stands at 12.3% versus 11.9% in FY24, higher by 0.4% and this is due to the same reasons I mentioned earlier, partially offset by higher depreciation cost. Profit after tax is at 9.8% versus 9.1% in FY24, higher by 0.8% again due to the same reasons I mentioned earlier. Eps is at 66.52 rupees versus 58.27 rupees in FY24, higher by 14.2%. Cash position stood at 2002. 94 million at the end of FY25 versus 18. 40 million at the end of FY24 and that’s the end of my brief. Thank you.
Questions and Answers:
Operator
Thank you very much sir. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on their Touchstone telephone. If you wish to withdraw yourself from the question queue, you may press STAR and two participants are requested to use handsets while asking a question. Ladies and gentlemen, we’ll wait for a moment while the question queue assembles. We have a first question from the line of Athreya Ramkumar from Ithought pms. Please go ahead.
Athreya Ramkumar
Hi, good morning and thank you for the opportunity. So my first question is with respect to our engineering division and if you take a look at you know the revenues for the over the past three years from FY23 it’s actually the declined by 10 crores. And the entire logic of merging the companies was to increase group revenues and maybe increase offshoring as well. And even in the commentary you had stated that there are a lot of talks going on. But if you take a look at the numbers that’s not happened so far. So what is exactly happening here and what is the outlook for this? Because if you take a look at other companies operating in India they are not, you know, they have not been flat for the last few years. So that would be helpful. That’s my first question. Thank you.
Phani Tangirala
All right, so there is funny here, I’ll address it. So if you look at engineering business For Xplio Solutions Ltd. It is still a small fraction of the total. I mean so primarily this is non engineering digitech and minority coming from that. And if you look at the industries we are flying in there. So it is on auto, aero, defense and transport. These are the four major industries where we are. And in my initial comments I have already told how the auto and aero business is really going down.
So now with that there is a cascading effect of a slowdown that is coming from Europe for us because bulk of our engineering business is internal revenue for us and that is having a significant impact. But exactly the reverse is happening on the defence side where because of the situations what I have mentioned earlier. So we have now seen a very good traction coming where those defense projects which otherwise was running in France and Germany the clients themselves are pushing it to be done from India one for cost purpose and second is to take the benefit of offset and the make in India benefits.
So these are the ones which are coupled and I’m seeing a good growth. But you are right, if there is anything that can be done significantly then engineering is one because it is on a decline phase primarily coming on two industries. But we have now made some investments in terms of even the transport side expanding it to our direct markets in Asia where the. Metro lines and those are things which are heavily picking up in the APAC countries. And with our significant strength coming from group, those are the ones and defense, these two together should bring our engineering services back. I’m not promising significant growth, but it won’t be probably we will be seeing the end of our decline very soon.
Athreya Ramkumar
Okay, so but initially in your initial commentary you were talking about good traction with the group customers to offshore business. Shouldn’t that need to at least some growth for the Indian business? Because we have been trying to do this for a while now. So what’s exactly happening on that front?
Periakaruppan Palaniappan
Yeah, so when I said there is a significant improvement in our internal revenue, we have to see that it is not limited only to but not excluding engineering. Very frankly it includes the other industries which includes financial services, insurance and retail and so many other energy, utilities and life sciences pharma are also there apart from that aero and auto. So the outlook which I have given primarily increased internal revenue is taking every other industry into consideration and which includes not just engineering but significant portion coming from digital again so those cannot be taken as a linear answer for engineering. Also engineering the slope or the, the angle at which it is growing will be slightly lower than the digitech as we currently see.
But overall it is much better than 2024.
Athreya Ramkumar
Thank you, that’s helpful. And another question on the number of clients itself. So it’s, you know, the number of clients has now declined to around 201 and it looks from the outside that you are probably reducing the tail. And in your, I think if I am not mistaken you had stated that around your adding around 10 to 12 clients to help them with their GCCs in India. So you know, so could you please talk about the client additions itself and especially with respect to the gccs, you know the obvious like bigger companies where the quantum of deals or the quantum will be above $1 million or. Yeah, anything on that would be helpful sir.
Periakaruppan Palaniappan
So one is I’m not very frankly too much carried away with the number of clients because while we are adding clients we are doing a massive exercise of compartmentalizing all our customers into four quadrants where the high revenue high margin accounts to low revenue low margin accounts and the low revenue high margin and high revenue low margin. So, so we are putting them into four and as in many organizations we generally have this long tail which are falling under the low revenue low margin and with the demand. And the resource crunch which is prevalent in the market, we want to make the best use of our resources to be working in high revenue, high margin accounts rather than being wasted in low revenue. So to the extent of cannibalizing some of our low revenue, low margin accounts, we don’t mind doing that because to stay in business we may have to take harsh decisions. So at times that means that number of additional new logos that we have added could have been been offset with the number of customers that we are losing or we want to exit is also something which we have been bold enough to take those calls because at the end of the day we have to be profitable to our shareholders is the underlying message. So whether it is 201 or 212, I mean very frankly that data doesn’t determine the actions what we do. Sometimes this number can be high, sometimes the other number can be high. Now coming to your GCC question there also we have, with the help of the NASCOM information provided, we have got access to all the GCCs that are either already set up in India or planning to set up in the next one year or so. And we then have done a mapping with our global group to see how many of those which are already our customers is the first bucket. Second bucket is where they are looking at GCC components which are in our sweet spot, I mean where we have a significant expertise in. And third is opportunities opportunistic. So when we put it into these three, obviously they became our top priority. So we are working with our big customers from Europe. They are the number one customers where we have MSAs already in place and they are setting up their GCCs in India so we don’t need a separate MSA. So, so we are talking to them in order to see whether we can create a center of excellence for them in their GCCs in a build, operate, transfer model which could be anything between two to three years. I mean I don’t want to go in quantifying that number. But when we offer a center of excellence and innovation center for them in India, from a GCC point of view for a period of three years, you can easily guess what could be the sizes. So those are the first targets what we are attending. And then the second are those where we are very strong in this industry and through partners we got to know, we got introduced to several GCCs who are not looking for someone to be carpet bombing everywhere. I can do anything. We are not going with that strategy. We have some capabilities on our side. We have been a quality organization for very long and we are telling them that we don’t want to go in every other right from their space requirements to sourcing requirements is not what we are pitching. We are saying that quality is an integral part of any of the GCCs that you do and we don’t mind building a quality assurance practice for you running it for next two or three. Years and the third year we’ll do a transition and then pass it on to you from third year in case they want otherwise we don’t mind continuing. So that is the pitch we are taking and that is a significant response from most because many of those countries who have set it up here are themselves dark on how to take this up, though our biggies are helping on it, but at the same time a focused effort on a specific service is always being welcomed.
Athreya Ramkumar
Thank you for the detailed commentary. That’s helpful. Just one last question on the —
Operator
Mr. Ram Kumar, we request you to rejoin the queue.Thank you so much ladies and gentlemen. In order to ensure that the management is able to take questions from all participants in the conference, please restrict yourself to only two questions per participant. Should you have a follow up question, we request you to rejoin the queue. I repeat, please restrict yourself to only two questions per participant. We have our next question from the line of VP Rajesh from Banyan Capital. Please go ahead.
VP Rajesh
Yeah, hi, thanks for the opportunity. So funny. My first question is regarding the revenue growth you expect in the next couple of years given the comment you gave on the various industries. Just trying to get a sense what kind of growth you can expect given you said BFSI is going to be strong and certain other industries are going to be with.
Phani Tangirala
I mean that will be to put it in actual numbers very very difficult at this point of time. But let me confirm that as we are in the first quarter I can guarantee that this is going to be a better quarter than the previous and we are only looking at it but at any point of time one month before Operation Sindur we never knew it is going to come with that kind of volatility in the market.
I don’t want to commit myself a number but it is extremely promising both from revenue and EBITDA point of view. But I can specifically talk about some industries. The industry that we see significant growth continues to be BFSI and retail and then defence will add in the H2 of the this year and life sensors and pharma is also growing. Insurance is going to remain flat. Auto is showing a slight decline. Arrow is showing a slight decline. So from these indicators I can give but I quantifying it at this point will be hello, did you manage to get my answer?
VP Rajesh
Yes, yes, yes, most of it. Thank you. Yeah. My other question is on the margin side. You know previously we had guided around 16 to 18% range and obviously we have landed in that. For this period. The question is that, you know, do you think that kind of use can be continued for the next couple of years or are you investing more which will potentially, you know, have a drop in this margin?
Phani Tangirala
Yeah, I mean, as I mentioned in my opening remarks also that we have extensively worked to keep our operational expenses under control and we have significantly brought that down over the last one year. And as I said, we will focus not only on SGA this year, but we will maintain the lowest amount of OAX what we have recorded last. So these two will only reflect in either maintaining or improving the current percentages. That is, at the end of the day, our whole game plan is to see that how much we can pass on the benefit back to the shareholders.
And in a way our group also is only looking at that as a primary thing. I don’t think so. We will do anything to slip it down unless there are any unforeseen situations come. But Mani, if you want to add a word or two.
Periakaruppan Palaniappan
Yeah, so mostly I will echo your thoughts. Funny. So we don’t have a specific number, so to say, but I think it will be, as we have said in the past, it will be range bound in the range of 16 to 18% and we are currently at 16.2. So we are only striving to improve it further.
VP Rajesh
That’s very helpful. And in your commentary you had also mentioned that you are thinking of AI as the foundational strategy. And I also noticed that your headcount is starting to come down. So if you can just comment about that, you know how you’re thinking about using more and more AI and how are you measuring it more importantly and what impact would it have on your headcount.
Phani Tangirala
At this point of time? I’ll be lying if I say that our reduced headcount is anything to do with artificial intelligence. What will happen very soon? There are multiple areas where we are deploying AI. One is on all of our fixed bid projects. We are trying to see where we can get the efficiency gains using artificial intelligence. Thereby, since it is a fixed bid contract, any saving there goes directly to the bottom line. So that is one thing we are doing more importantly than anything else.
On our operation side we are using AI is where this year my biggest plan is to see whether the SGA can be brought down by use of AI, be it on recruitment side, be it on marketing side, be it on inside sales, lead generation and every of those where a mass of profiles have to be looked or information has to be looked which is otherwise done manually. Today we are very proud to say that my sales enablement team. Has totally come out with a AI based solution which will enable our global sales team sitting at any location just to give verbal commands as prompts to our Explore AI engine. And it gives whatever information be it case studies or presentations. So those are the kind of things and then for our talent acquisition teams influx of AI to see whether the best match of profiles are given once the job description is uploaded. So same goes with finance, same goes with reporting everywhere on the non delivery side and within the delivery side where there are fixed bid contracts where how can we bring automation and bring down the efforts is something what is going to happen that is on we want to be AI ready at our own operations first even before going and preaching to others on what we can do to bring their costs down. So that is one. But at the same time at the nine yards of the software development cycle, right from the requirement phase then into the design phase to development, to testing, to production and post implementation support at every point of the SDLC lifecycle, be it agile or waterfall. We have accelerators that have been added into the Xplio AF platform which will accelerate whatever it is done today manually, including code generation through Gen AI and Copilot. All those accelerators are put in which this benefit will of course reduce the number of people going forward. But the value what we get out of the same reduced number of people will be much higher. But I mean again I will repeat the current dip in the number. I don’t want to take the credit or give that credit to AI. That is purely because we have been very strict on our bench and we have cut down our bench to a very low number. That’s where the, the overall headcount is coming down though. The revenue is growing at 7%. What you have seen.
VP Rajesh
Got it. And just one quick question. Why did our depreciation number come down?
Phani Tangirala
Maybe Mani can answer that.
Periakaruppan Palaniappan
Yeah, so we had investments like a couple of years ago. All of this has come to an end. So that’s why our depreciation is going down.
VP Rajesh
Okay, all right. Thank you and all the best.
Phani Tangirala
Thank you.
Operator
Thank you. We have our next question from the line of anu Sharma from M3 Investments. Please go ahead.
Anuj Sharma
Yeah, thank you for this opportunity. A few questions. One is on the, on the exercise which we have done on the top 20, 30 customers. You know what has been the assessment on that? You know what, what has been what is our existing wallet share in those custom and how do you. What is the potential scope for us to mine these accounts? Some insights into that please.
Phani Tangirala
Okay, so yeah, so today our. Fortunately our risk concentration on these accounts is not as bad because the top 20 customers are contributing to around 60% of our revenue. So one is we are not at a very high risk on the risk concentration. Second, in terms of wallet share in the current context, that is a very difficult answer to give because earlier when we were only a QA player, quality assurance player, we used to Enjoy anything between 70 to 80% of wallet share because there are very few independent software testing companies at that point of time.
And for this organization quality services are the only services that we provide. Now we have for the last 10 years we have expanded ourselves beyond quality. We are now into business analysis, we are into software development, then we are into DevOps, DevSecOps, data data management, data governance and then quality assurance, quality engineering, production support, application management. When you spread yourself into that, then we’ll definitely not be in the position to say that our wallet share is anymore by 60%.
But having said that, that is what exactly I see it as an opportunity than as a negative thing. Because if I am enjoying 80% wallet share and I have one service to provide, then my ability to grow in my existing account is only limited to the balance 20% which is not with us. Now we lay low at anything between 15 to 25% valid share. That means any piece of innovation we bring in or the differentiation we bring in, then that piece of work can come to us from a different vendor. That’s a huge possibility. That is exactly what is happening now that we are able to make inroads into the AI space at a very initial stage because we started our AI journey in 2023 when many are even contemplating what to do on that.
So that first mover advantage in a way helped us to get some of those things. So I’m not too much worried about having a lower wallet share. I’m only seeing it as an opportunity.
Anuj Sharma
Yeah, no, that’s interesting your way of thinking of converting. Converting scenario into opportunity. Second point is, you know you did talk about cost management. You know, can we, can we assume that the bulk of the cost takeout is done or the low hanging is done or that there is way to go in the cost. You talked about SGN and other areas. How much more do you think you can take out cost?
Phani Tangirala
Yeah, see we are in people business and OEX is where the bulk of the cost it’s in which we have optimized and we want to keep it at that levels but the situations won’t remain. The same. And so based on the situation. See the whole point here is not about the quantum of the cost but on our agility to identify based on the situation. If there is a lull period coming in, we have to act now. Then act after two months will make a lot of difference. So that agility has been brought into the organization. So now our focus has been so much significant on the predictability and forecasting that if we see that there is a trend going down, God forbid, I mean we are not seeing that in the last several months. But if there is a prediction of a dip in the future, then we will act on the resourcing now rather than waiting for it to happen and then it is a little too late. So from an OEX point of view we brought it to a very decent and we don’t want to go below that. But from an SGA point of view I see a huge scope. But there is unlike oax, SGA has only some limitations below which you can go but net net we being agile to the situation will make us more prudent than a fixed plan here.
Anuj Sharma
Okay. Okay. And you know you. You guys have been receptive on the dividend thought. So appreciate that. Is it a one time, is this a one time event or you guys are putting into place a policy which may be possibly communicated to the shareholders.
Phani Tangirala
As an organization though we have a dividend policy. Our primary outlook is to invest it more into acquiring a part of business which can complement us growth. That is our top priority. And like what we have done last time, when we run short of that and when we don’t see any M and a kind of an opportunity coming in the next few months, that’s when dividend becomes our second priority. But even as I speak to you, if you ask me with so much happening on the outside, it is always better that the cash being put to use in a most optimum way by acquiring the skill or the skill base that can only complement in delivering better because that value which it adds is a significant multiplier than just paying off dividend. My thoughts.
Anuj Sharma
All right. All right. If. If I can, you know, put in one more. You, you talked about, you know, transiting, transit, transit transitioning from Q and A to a lot of other offerings. What has been the success ratio out there especially in the existing top clients.
Phani Tangirala
So significant. I mean if you look at our. If I don’t take count the engineering and I count my typical quality assurance services against the digital services which. We have expanded into now the Digital services form 48% of our total services and 52% are the quality assurance services. I mean, that is where we have reached in 10 years. So I would say that the acceptability is high because primarily our digital services we started just like how I did mention for AI. We are starting with our existing client base. These top 20 customers whom I’m talking about are, some of them are as old as 25 years. So we enjoy very good trust levels with each other that if we introduce a new service, they will consider that that is the confidence with which we are going with our existing base. So to answer your question, the diversification has extremely worked well for us.
Anuj Sharma
All right, thank you so much. Thank you.
Operator
Thank you. A reminder to all participants, please restrict yourself to only two questions per participant. Should you have a follow up question, we request you to rejoin the queue. We have our next question from the line of Bhavik Mehta from Roots Venture. Please go ahead.
Bhavik Mehta
Thank you for the opportunity. Sorry to interrupt. Mr. Bhavik, we can’t hear you. Can you speak a little louder? Yeah. Can you hear me now? Yep. Yeah. So my question was around agentic aip. Since you mentioned that lot of the new transformation work is around AI. So at first if you could share like what percentage of the digital transformation currently would form AI services. And as an add on to that, I wanted to understand that since primarily XPLUE is focused on BFSI given 70% or more is coming from that sector and agentic AI is a big trend globally around BFSI where very large corporates are moving to develop a lot of solutions around that. So are you doing anything around that or are you seeing any requests from your customers around that?
Phani Tangirala
What is the first question? Digital revenue from.
Bhavik Mehta
Yeah, AI revenue. Yeah. A part of AI is overall revenue and the second was around 18 ticker.
Phani Tangirala
Yeah. So as I said, the AI is a combination of AI and data, if you, if I have to put it that way, because it becomes very difficult to separate AI and data together, that forms close to 7 to 9% of our total revenues coming out of it. Within that, the bulk of it comes more from data, which is the underlying need for moving into the AI related services. @ this point of time, most of our customers on a revenue generating side are extremely cautious at implementing AI. And so I won’t say that agentic AI is something which at least we have seen coming. In any of our existing customers. But having said that, there is an important area where we want to position ourselves. Because as I speak here today we are looking at 6000 independent software service providers across the globe who are providing AI related services purely on AI related services. Because this is what is the trend. There are so many platforms, so many tools that have come, this very soon is going to become an overcrowded market where there is unlimited number of people wanting to enter this area. So this is exactly what made us think last year and we want to position ourselves differently. And in a quarter from now I will make a major announcement therein. When it comes to AI, how xplio will position itself totally differently because we don’t want to let go our legacy of being a quality assurance partner and AI is like what Internet is in 1983 and electricity is in 1878 when it came. Everyone want to use it, but nobody really knows how to use it. And more importantly, nobody knows the perils of it or the way. As you can see, as the data size is increasing, the number of cyber security attacks, the data is also increasing. And then you are blindly believing into a black box and ask them generate me a code, give me a requirement document or whatever you ask it gives you. And you tend to believe that it is true. So there will be this madness will come to some reality check very soon. So I won’t go into too much detail, but the positioning where we will be in the future is less on service provider and more on AI assurance. That’s where if you see our biggest pitch, what we have made in us where we tested this into the responsible AI space and the biggest QSR company in the world has really gone with us in those services is what we want to be in. We want to be alongside the customer, regardless who they will go with them as their AI provider. But we want to be their assurance partner for that we need to have that kind of an ammunition. But our labs are today providing and the kind of the know how and the skill set and this and the skill base with the people point of view is what we are building. So the strategy will be for us
Bhavik Mehta
Is xplio AI a step in that direction to create a platform sort of showcasing what your capabilities are or it’s more to keep up speed with what’s happening around.
Phani Tangirala
There are two things, I mean we can’t totally we say that we will apply in the area of assurance. Without proving that we are in the space of AI and can do things ourselves. Right. So to start with Explo AI is accelerator repository which is a platform where all our repository of differentiators and accelerators are kept in one place which will speed up the current which is like a service providing at this stage Explore AI is limited to speeding up and transferring the benefits back to the customer using a platform. So that is where it is stopping. What I am talking which will make a major announcement in the next quarter is the future direction where XPLIO will position ourselves slightly differently to be an assurance partner. These two are two different things. So I just gave heads up. But be rest assured this will be made public very soon where our positioning will be significantly different and that will be a hu huge differentiator and not too many players are playing in that particular area. Bhavan.
Bhavik Mehta
Sure. Then my next question is around the finances. So there is a.
Operator
Sorry to interrupt. Your two questions are up.
Bhavik Mehta
So it was related to AI itself. So this. I’ll put in one question. So there is a related party loan of 115 crore. Can you just comment on that?
Phani Tangirala
This is very much within the limits that the board has already approved and shareholders also have approved. Yeah. So will this be available to us when we require it say for an acquisition or something around that or it’s a long term bound loans at arm’s length pricing. So they will be. I mean when the cash is required. Definitely that will. It will be made available.
Bhavik Mehta
Sure. Thank you.
Operator
Thank you. We have our next question from the line of Rohit from I thought pms. Please go ahead. Hello. Thank you for the opportunity sir. Good morning. So sir, one question I had was in your commentary you have spoken about US and as that being a focus area for you and you’ve given a very positive commentary in North America. However when I look at the revenue it seems it’s still flat. So can you just help me understand why is that? And also FY26 is coming here. What kind of growth are you seeing? And will given the slowdown that you’re seeing in Europe will you see decline in the Europe revenue? That is. That’s my first question and I have one more question.
Phani Tangirala
Okay. So when it comes to US one is US is a market where the initial trust levels to build up is something which will take a bit of time. So that is where we are staying invested in. As I said we have seen growth and I don’t know where. You are referring money from 16% to 12.9.
Rohit
Okay. Feel free to give.
Phani Tangirala
Yeah, so but we will. There is a traction and we are extremely upbeat about it. And even the explore from a group side we have agreed now to synergize because our aero auto and transportation business running from group in Canada and North America and the explo solutions are now working together to increase. And we have decided to invest as I mentioned before on the QSR space data and partly a good combination of engineering and digital area is on the product lifecycle management where being a partner of Siemens Team center for the last 25 years, we have some good credibility in US region and that is where we are leveraging on some of the partnerships to build this whole thing.
So these are all the investments, in fact what I have talked about. Some of the marketing initiatives that we have done are also all the sowing the seeds and these are all future. You will realize that when it shoots like a bamboo, it takes time for it to grow. But US is a market. When the trust is established, then you can see the offshoots outside the ground very quickly.
Rohit
No, sure. Sir, I think, I mean it’s really quite encouraging to hear your commentary today. So you are positive next year that North America will grow from whatever base it is, is my understanding correct?
Phani Tangirala
Absolutely. We are putting most of our in the US because unlike many of the software companies that fly out of India where 60 to 70% of their revenues come from us, ours is exactly the opposite. I mean we have very little share and that has historic reasons, but we want to break that this time. And that’s where we are investing heavily and our group is supporting big time on that.
So with these things, that’s the whole reason why I’m able to be very confident that we’ll make a significant inroad and with all our investments going. Right, sir, my second question is in terms of putting everything together on three prongs that you had said and notwithstanding the slowdown, whether it is the Middle east, whether it is India, whether it is us or whether it is the focus on GCC all putting together. So you expect FY26 to be a better year than FY25, both in terms of revenue and margin. Of course uncertainty is is very high in today’s time. But I mean given whatever you’ve been doing and some of these initiatives you’ve been working on for more than 3, 4/4 now. So would it be a fair assessment given today? Given what we know today, FY26 will be a better year than FY25. And sir, just one more comment just before I join back sir, on this payout and capital allocation. First of all, I would thank the board for taking our feedback which we’ve been giving to pay out dividend. Sir, my point is of course what you said makes absolute sense that it makes the first priority is to invest in the business. However, if you see sir, we already have like around, I mean we have about 250crores cash and we’ve also given a loan. So if you add that the business has about 350 crores of cash intrinsically and we are going to generate another eighty hundred crores we are already generating in terms of cash. So I mean if we can be more. I mean of course if we have an opportunity then I completely agree on that. But till then I think if we can be more consistent and more liberal, that is really. Helpful. Sir, even the direction from the independent directors have been not to sit on cash. And that is not something which we also enjoy doing it. But as the months roll in, you will for sure see that either we go for an acquisition, if not, probably a dividend is an option. But the intention is never to sit on a pile of cash. That at least ever since I have taken over, I have made it very clear that the cash has to be put to best use, failing which it is to go back to the shareholders. So to answer your first question on that kind of an outlook, what you have asked on 2026 is something not what I can’t do. But if we have to maintain the way it is in 2025, definitely I don’t have a job, right? I mean, so I only have to make it better than what it is. And trust me, that is where it is. But directionally a single digit growth is where we are heading to. But with all these efforts, I will be more than happy to be surprised with a double digit.
Rohit
Sure, sir. Thank you.
Operator
Thank you. We have our next question from the line of Ram Kumar from I thought pms. Please go ahead.
Phani Tangirala
Yeah, thank you. Thank you for the follow up. So just on your response to one of the previous questions, so what was your commentary for the European market in European region in FY26 are we expecting it to decline given the subdued outlook there?
Unidentified Speaker
Yeah, as I said there also I’m seeing it from two angles Atria. One is these two industries, especially auto. I don’t see any hope for recovery at least in 26 because with all the Chinese.
Phani Tangirala
Cars already running on roads and Europe was almost taken aback, waking up a little late to notice the change coming through. They were hitting them very hard. So auto I am not. Aero is a supply chain issue which once it gets sorted, I think we’ll be bouncing back in 2026. And that’s the directions which I am getting both from Airbus and Boeing.
Now with the Spirit being split and bought one half by Airbus and another, a huge amount of supply chain issues there are addressed and then there are some remaining which they are also fighting very hard. So if that happens, then I think these two markets will come certainly and now coming to other industries or same industries.
The other positive thing is if Europe is failing, then the costs are under pressure. And when the cost pressure comes in, offshoring is the medicine, right? So from that point of view, there is a significant talk going on where a bulk of the work which is currently being done in Europe, be it France or Germany, the clients themselves are mandating it to be pushed to offshore.
So that is the positive for Xplio Solutions on these two industries. On the other industries like banking, financial services and say licenses Pharma, the outlook is promising primarily from artificial intelligence because life sciences is the industry which is the biggest beneficial. And healthcare also is the biggest beneficial of artificial intelligence, be it from the medical images, scanning or predicting based on the medical images, or in the preparation of medicine or in robotic assisted surgeries. AI is playing already a bigger role and then this will come to a greater speed in life census.
When it comes to banking financial services, the biggest area will be on the credit scoring and then fraud, fraud detection and automated agentic underwriting. These are the ones which are totally those jobs which are otherwise done. The professionals will be replaced and as I speak it is already happening. So the first two industries because of the pressure will get benefited.
The second two industries on the financial services and the life sciences. Pharma is by virtue of adopting emerging technologies on AI is where we are betting big on that. So either way, 2026, the outlook on all the four industries, major industries other than defense, which anyway is growing, we’ll see a positive outlook not just for xpleo as an industry. These four in India will show a significant growth.
Ramkumar
Great, sir, thank you for the detailed outlook and. You know, you had mentioned that we are looking to broaden our service offerings and broaden our service offerings. So, you know, could you please highlight what exactly we are, you know, we’re looking at and maybe acquisitions would be targeted towards those areas. And what is the headcount visibility that you have for the coming year? These two would be useful.
Phani Tangirala
So the broadening the services is something we have already done and I don’t think so that anything beyond will be added. We have moved from a quality assurance to quality engineering now to nine years of software development and then plus engineering services. So I don’t think so there will be anything beyond that. The only broadening, which I meant at that point of time without going too much into detail in my commentary, was on the AI assurance, which I said that in the next quarter we’ll have a major announcement coming our way where that is an area where we want to embark very big, very big. And that will be a huge differentiator. That’s what the underlying point, which I meant by expanding our services.
And to your second question on the headcount. So very frankly I stopped looking at the headcount and more looking at the revenue and the profit at this point of time. So the revenue and the headcount will follow the same 6 to 7%. You may see that the headcount has dropped. That is primarily because of the initiatives on the bench management that we have taken. It has come down now. It has been brought under control. Now going forward, most likely the revenue and the headcount line will be parallel to each other. Otherwise the entire last year you would have seen that the revenue is growing up and then the headcount is coming down.
Right. That may not happen in this year because we have cut it to the skin now. So it will follow the same path of revenue.
Ramkumar
Sure, sir, thank you. I would just like to echo what the previous speakers had to say about capital allocation. So we are close to 300 crores on the balance sheet and even so, without touching that, we make around 100 crores a year. So if we pay out at least, you know, 80% of that, you can add another 20 crores to the cash balance on the books. I feel, you know, that should be enough for any M and A because we’ve been searching for a target for close to two years now and we haven’t found anything. So, you know, any clarity on the payout structure would be very helpful. Sir, thank you so much.
Phani Tangirala
Certainly, as I said before, not just the investors, we have also a pressure from the independent directors to consume and put the cash to best use. And we will let you know if any of these things coming in the coming days for sure, but the direction is only towards that not to sit on pilot.
Operator
Thank you. Sir, we have our last question from the line of Rohit from I thought pms. Please go ahead sir.
Rohit
Thank you for the opportunity again. So one question I had tangential to what you’ve been talking about in the automotive side. So given a lot of our customers are European auto majors and this whole transition toward TV has taken them. I mean the Chinese have really impacted them. So are we, are we as a group or as HBO India? Are we looking at penetrating any of these Chinese OE’s or. That is too difficult. Any thoughts on that?
Phani Tangirala
Yeah, you almost answered it by putting that word that is difficult. Very frankly to get into Chinese OEMs is not easy because they keep cards extremely close to their chest and bulk of their R and D. And those what we can do, they already do it in the regions which are much more cost effective for them. Having said that, there is some synergy. There are some companies, OEMs who have outlets in India which we are trying to work with. But we never know with the kind of geopolitical situation. If something breaks between India and China, then what will be the situation?
So we are extremely cautious on that and very frankly there is enough and more outside the auto for us to focus than going into the country which is extremely self sufficient in terms of these needs. So we are not going all out and remaining our scope only to an opportunistic level when it comes to working with Chinese OEMs.
Rohit
Got it. And sir, on the Aero side, in terms of. So you mentioned that Aero will see a recovery very soon, but I wanted to understand. So one of our big customers, Airbus, I’m seeing a lot of other Indian players are actually winning deals and we have sort of not been able to announce anything. So just wanted to understand have we lost any market share or what is happening there? If you can share anything.
Phani Tangirala
In fact, compared to 2024, our revenues in Airbus have improved and it has significantly improved. But our area of contribution to Airbus has been mostly on the design phase. So that’s where I was talking about. Those are the years five, seven years back, be it 380 or 330, any of these aircraft, every five years you get one, right? So with the demand. After 380 and after improvising the long range 330, I don’t think so there is any new model even in the minds of Airbus at this point of time because their order book is already full with the existing aircraft. So there when their investment is less on the new products, obviously we will have an impact. Having said that, we are also playing very tactfully and where the refurbishing of the aircrafts and those kind of things are happening, we are entrenching into it. And as probably we come close to the end of the year, you will see that we have grown in Airbus as well. Okay?
Rohit
Okay, got it. Thank you sir, and all the very best for this year. Thank you.
Phani Tangirala
Thanks everyone. It has been very good set of questions and thank you so much for being trusting us and staying in. Please stay invested in us. Thank you everyone for joining the call in for the great questions.
Operator
Thank you sir. On behalf of xpio Solutions limited That concludes this conference. Thank you for joining us and you may now disconnect your lines.
Phani Tangirala
Thank you.
Periakaruppan Palaniappan
Thank you.