Firstsource Solutions Ltd (FSL) Q4 FY23 Earnings Concall Transcript

Firstsource Solutions Ltd (NSE:FSL) Q4 FY23 Earnings Concall dated May. 05, 2023.

Corporate Participants:

Ankur Maheshwari — Investors Contact

Vipul Khanna — MD & Chief Executive Officer

Dinesh Jain — Chief Financial Officer

Analysts:

Rahul Jain — Dolat Capital — Analyst

Mohit Jain — Anand Rathi — Analyst

Shradha Agrawal — AMSEC — Analyst

Dipesh Mehta — Emkay Global — Analyst

Ruchita Ghadge — I-Wealth — Analyst

Sameer Pardikar — ICICIdirect — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Firstsource Solutions Limited Q4 FY23 Earnings Conference Call. As a reminder, all participants’ lines will be in a listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note, this conference is being recorded.

I now hand the conference over to Mr. Ankur Maheshwari from Firstsource Solutions Limited. Thank you, and over to you sir.

Ankur Maheshwari — Investors Contact

Thank you, Vikram. Welcome, everyone, and thank you for joining us for the quarter-ended March 31, 2023 earnings call for Firstsource. For taking us through the results and answering your query, we have with us [Indecipherable] Vipul Khanna and Dinesh Jain, the CFO. Do note that the results, the factsheet and the presentation have been emailed to you, and you can also view this on the website, www.firstsource.com.

Before we begin the call, please note that some of the matters we will discuss on the call, including our business outlook, are forward-looking and as such are subject to known and unknown risks. These uncertainties and risks are subject to — are included but not limited to what we have mentioned in the prospectus, filed with SEBI and subsequent Annual Reports that are available on our website.

With that said, I hand the call over to Vipul Khanna to begin the proceedings. Vipul?

Vipul Khanna — MD & Chief Executive Officer

Thanks, Ankur. Good morning, everyone. Welcome and, thank you for joining us today. Ankur and Dinesh, I’m coming across clear and okay?

Dinesh Jain — Chief Financial Officer

Yeah, Vipul.

Ankur Maheshwari — Investors Contact

Yes, you are.

Vipul Khanna — MD & Chief Executive Officer

Okay, all right, very good. Alright, let me start by giving you an overview of our fourth quarter performance This quarter, our revenue de-grew 2.8% year-on year in constant currency and came in at INR15,568 million or $190 million. This implies a growth of 2.5% quarter-on-quarter in constant-currency. Operating margins improved by 21 bps year-on year and 220 basis points sequentially to come in at 11.6%. I’d like to reiterate that our margin performance in H1 was an aberration and the corrective actions that we’ve taken have got us back to a normalized margin range.

The diluted EPS in Q4 grew by 7.3% year-on year and came in at INR2.02 for this quarter. For the fiscal 2023, the recorded revenues of IMR. INR60,223 million or $750 million, implying a constant-currency degrowth of 1.1% over fiscal 2022. Excluding market and acquisitions, we achieved constant-currency growth of 13.7% year-on year.

Operating margin for the year was 9.4%. These numbers are firmly in line with our recent guidance. This was clearly challenging has our unique business mix was negatively impacted by unprecedented macroeconomic cyclicality. Made a final long-term strategy to ensure that our go-forward business mix is more balanced and can better manage this external variability and also position us for more sustainable longer-term growth.

As a quick reminder, the key components of our strategy are, one, to diversify within the DSM and CMT verticals and expand into select new sub-segments of healthcare and CMT, with the overall goal of reducing exposure to macro cyclicality and driving the next phase of our growth.

Two, drive growth in our chosen verticals by building adjacent capabilities by systematically adding new clients and by growing existing strategic accounts. And three, leveraging our digital tools and services to create more cost efficiency and build new digitally powered solutions.

We’re as much focused on harnessing rapid developments in AI, especially generative AI. Against this strategic chamber, we had a number of critical achievements during fiscal 2023. Let me first start with the team of diversification.

In BFS, we made good progress in growing the collections and UK BFS segments. We are pleased with the organic constant-currency growth of 18.3% in our BFS portfolio ex-mortgage. In CMT, we reduced our concentration of our topline from 80% of CMT revenues in fiscal 2022 to 70% in Q4 of fiscal 2023, by consciously growing the other parts of this segment. Excluding the top client, this portfolio has grown strongly at 44% year-on year, led by growth in EBITDAC [Phonetic] and collections in the communications segment.

We continue to build new capabilities in adjacent areas, for instance in syncrime ops [Phonetic] and BFS, and extending our digitally empowered contact center solution for the ethic world to drive a drive a better learner CX. We launched our consulting practice idea and our data integrity practice.

In the first year, we converted four consulting engagements to annuity contracts. The utility segment within the diverse vertical grew nicely 43% year-on year, albeit on a small base, on the back of our DECS or digitally empowered contact center offering, its maturity and digital connections.

Let’s talk briefly about our delivery ecosystem. We expanded our delivery footprint to two new geographies, Mexico and South Africa, and further strengthened our Philippines operations to help address the increasing challenge of sourcing the right talent and the client need for greater value extraction. Now, we are present in six countries.

And finally, driving growth through new client additions and systematic account mining. We added 73 clients — new clients this year and we did well to expand most of our key relationships across non-mortgage BFS, CMT and HPHS.

Our approach for fiscal 2024 continues to these building blocks. As we look forward to the start of the new fiscal, I’m confident that we have reduced cyclicality in our business, even as the global economic environment and sentiment is increasingly uncertain.

From a current vantage point, we are expecting to achieve constant-currency growth of 2% to 5% in fiscal 2024, with an operating margin range of 11% to 12%. This factors in a sequential decline in Q1 followed by steady growth from Q2 onwards. This guidance assumes a 3% revenue headwind from our mortgage business, given H1 of 2023 was higher than H2 of 2023, a 3% revenue headwind from our onshore-offshore estate rebalancing.

I have spoken previously about our intent to grow offshore more meaningfully. I’m pleased with the progress. We are in advanced discussions with a couple of key clients to realign their onshore-offshore footprint during this fiscal year. While the absolute revenues realized will decline due to billing rate differential, we expect the margins to expand.

Operating margin will benefit from the multiple initiatives in fiscal 2023 to take cost out and protect margin erosion. We are now back to a normalized margin range. The key levers that we have factored in our operating margin guidance are margin recovery across mortgage business and the acquired businesses, onshore0offshore rebalancing and growth in our digital service line. Operating margin should remain in our desired range through this year.

Let’s talk in detail about the key trends in the industry segments to give you a better color on our growth drivers. Starting with mortgage, the last 12 months, 18 months have been turbulent for this industry, to say the least. The mortgage segment clearly took the bulk of the mindshare for both you and us alike. We believe that the industry has moved past the worst of the volatility triggered by this unique economic cycle.

Interest rates have been moving within a narrow range, and the industry expects a modest pickup in volume over the next 12 months. We are confident that we can manage any further volatility without a material impact on our overall performance, especially considering that this segment now contributes less than 9% of total revenue.

For our portfolio, we also believe that volumes have more or less bottomed out and we should not see a material decline unless there is a significant shift in the macro environment. We continue to focus on adding new clients and scaling capabilities to accelerate diversification beyond origination. Most of the pipeline activity currently is around servicing and capital markets. For fiscal 2024, we are projecting mortgage to operate closer to our Q4 fiscal 2023 exit run rate for H1 and then moderate growth in H2 based on recent wins and current pipeline.

In the collections segment, the consumer credit metrics continue to soften, which is a positive for our business. Overall, US card delinquencies rose to 2.25% versus 2.09% in the last quarter and the charge-offs were at 2.55% versus 2.11% in the last quarter.

Over the last couple of weeks, most of the large US banks declared their Q1 calendar 2023 earnings. The consistent theme across these commentaries were, one, consumer debt is now higher than pre-pandemic and credit tightening has begun; two, consumer balance sheets are still quite strong and remain near all-time high, driven by low unemployment rates and high wages; and three, delinquencies, while still below 2020 levels, are expected to rise.

The provisions made for credit losses by these bank are gradually climbing each quarter. Considering the above trend, we expect our collection business to witness a gradual recovery throughout the year. The sales activity and the new client additions remain strong, and we added six new clients in Q4 of fiscal 2023.

For fiscal 2024, our key priorities for the collection business are, one, we continue to diversify collections as a multi-industry offering with penetration into FinTechs, auto and across telecom and utilities; expand geographically to the UK; three, stay focused on the digital collections platform roadmap and reduce new client on-boarding timeline; and four, drive revenue and margin growth in our legal collections segment.

UK BFS continues to deliver strong growth. We are actively pursuing expansion across our key banking relationships by penetrating into new divisions and focusing growing offshore. There is continued focus on digitization of contact centers through call deflection, through self-serve [Phonetic] and chat. We continue to see good growth in fin crime operations as well.

The growth in UK BFS has helped us diversify in the broader BFS segment and derisk from mortgage concentration. We expect the momentum to continue well into fiscal 2024, with a sharp focus on new client additions and more offshore business activity.

Shifting to healthcare, this segment remains steady. The business continued to grow well and clocked an 8.7% year-on year growth for fiscal 2023 in constant currency terms. The growth rate has slowed down, primarily from conclusion of project-based engagements, delays in gate closure and continued softness in the provider segment.

Our provider business has witnessed significant headwinds over the last couple of years due to the public health emergency enforced by the US Government. As per the recent government notification, the PHE or public health emergency will finally be lifted on May 11, 2023, so a week from now, fingers crossed, ending the automatic Medicaid enrollment provision that has been placed — that has been in place since 2012.

This change is expected to result in an estimated 5 million to 14 million people losing their Medicaid coverage. A large part of this segment is likely to be uninsured, a segment our eligibility services and patient access practice focus on. We expect strong growth vectors to emerge from this change in H2 of fiscal 2024.

In the HealthPlan segment, we are witnessing somewhat of a slowdown in deal closures, especially where the solution involves significant transformation or digital intervention. Having said that, the deal pipeline remains strong. We’re seeing good traction proactively working with clients in moving parts of value chains offshore. We continue to scale our capabilities and have made small starts in the higher value appeals and grievances and claims automation [Indecipherable].

For fiscal 2024, our focus for the healthcare segment is to reverse the revenue decline in provider and scale offshore across both provided and HPHS. Over the last 12 months, 18 months, we had several marquee wins in our digital intake practice in HPHS. Now, the focus is on wrapping up these engagements and further strengthening the digital intake platform. And the last piece I’ll mention is that we are going aggressively in the Plan B tough market to build on the couple of wins we’ve had in the last 18 odd months.

The CMT segment continues its strong growth trajectory. In fiscal 2023, this segment grew 14% year-on year in constant currency. We’ve done well on two areas, one, scaling our US CMT business which will incubated in building from scratch organically. This segment is now more than 4% of the overall revenue and growing nicely. This remains one of our key priorities for fiscal 2024 and we expect to see meaningful growth in this segment. And second, adding new capabilities and markets.

Over the last 2 years, we successfully made inroads into EdTech, Digital Media and Tech verticals. We’ve added several marquee clients and are witnessing good growth momentum here.

And finally, our relationship with our topline remains strong. During the year we added high value work offshore, underpinned by increasing client confidence in our capabilities. We continue to explore newer [Phonetic] growth opportunities and their estate.

It’s been a while since we spoke about the worst business segment. This segment primarily focuses on utilities and other industries, which are still early stages for us and where we are evolving our strategy and offerings. You would recollect that when you deal with one of the top three utility providers in the UK [Technical Issues], our relationship has significantly strengthened since and we are today one of their top three outsourcing partners. We expect this relationship to grow considerably in fiscal 2024 on the back of the recent [Technical Issues]. We’re in the process of expanding our delivery footprint in South Africa [Technical Issues] and then extend to other UK investments. We feel good that we now serve two of the top-five UK utility companies. somebody.

In summary, while fiscal 2023 was a challenging year for our cyclical businesses, we are pleased with the progress in building rest of the business, diversifying our portfolio and progress on our digital offerings. We look forward to updating you over the coming quarters on progress [Technical Issues].

Let me now hand over the call to Dinesh to give an overview of our financial results.

Dinesh Jain — Chief Financial Officer

Thank you, Vipul. Good morning, everyone. Here is a quick snapshot of our financial for the quarter and full-year ended March 31, 2023. Revenue for the fourth quarter came in at INR15,568 million or $190 million. This implies a year-on year growth of 0.8% in revenue terms and constant currency terms a degrowth of 2.8%. For the full year, revenue came in at INR60,223 million or dollars terms $50 million, implies a year-on year growth of 1.7% in rupee terms and constant currency terms a degrowth of 1.1%.

On the margin front, operating margin came in at INR1,799 million or 11.6%. This is an expansion of 220 basis points quarter-on-quarter. For the year, margin came in — operating margin came in at INR5,633 million or 9.4%. Profit after tax came in at INR1,413 million or 9.1% of the revenue for the quarter, a year-on year margin improvement of 50 basis points. For the year, it came — profit after tax came in at INR5,137 million or 8.5%.

Our cash generation always remains strong. We generated INR7,634 million cash from operation and our free cash flow was INR7,130 after adjusting capex of $514 million. The closing cash balance, including investment, stood at INR2,111 million. Net debt stand at INR6,159 million or $75 million, which when compared to last year almost 26% lower. Last year, our debt was $8,013 million or $106 million.

ESO came in at 60 days versus the 61 days last quarter. Tax rate for the full year was around 16.5%. For the FY24, we expect to be a range of 18% to 20% and in that, we also factor that — you guys are aware that UK tax rate is moving from 19% to 25%, so that will have also the — some percentage increase in the tax rate which we are seeing.

On our forex hedging, we have coverage of GBP44 million for the next 12 months, with average rate of INR102 to the pound, and coverage of $60 million with average rate of INR84 to a dollar. For to 12 months to 24 months, we’ve also done some coverage on pound book, which is GBP12.5 million, with an average rate of INR105 to the pound. In addition, we also take some of the option product which do realize better forward rates and those are the option products which does not have any impact due to the currency movements to the negative side.

This is all from my side. Now, I’ll open up for the Q&A and move back to the moderator.

Questions and Answers:

Operator

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] We’ll take our first question from the line of Rahul Jain from Dolat Capital. Please go ahead.

Rahul Jain — Dolat Capital — Analyst

Yeah, hi. Thanks for the opportunity. Just wanted to get little bit clarity on the operating margin side outlook that you have shared. Based on the kind of savings that you have done in this course of quarter-end you’re seeing growth coming back into the business. And — so from that perspective, you think this 11% to 12% margin is a bit on the conservative side or you think some more cost factors, that would — you need to take during the course of the year, which makes you think that this is the ideal margin for you for the next year?

Vipul Khanna — MD & Chief Executive Officer

Hi, Rahul. Look, operating margin, as we said, we’ve steadily been improving after a very rough H1. Q4 was 11.6% and we’re guiding to 11 — 12% for the year. I think we’ve done well on the cost discipline and aligning our cost to the business volumes that we had, especially mortgage. As we go into the next year, as you said, there will be some growth, decent growth sort of coming virtually across segments. But we also want to be cautious against the uncertainties in the economic environment, quite — the environment is very dynamic. We want to make sure that we are cognizant of that.

There were some elements of our growth investments that we had moderated out in the last year. I think we’ll also kind of go back to some of that, so that’s kind of another put into it. And overall, I think we feel good that we’re starting off a good base and if we can get the momentum through the year, we should be able to kind of meet this profit margin, the operating margin.

Rahul Jain — Dolat Capital — Analyst

Right. And second question, you said about this public health emergency I think finally taking a pause. So from this perspective, is this — is there any understanding from past or any feel that you are getting from the conversation, that how this could shape up, you’re expecting it to pickup in H2, but how is the general behavior then, any reading on that, how it should go back?

Vipul Khanna — MD & Chief Executive Officer

Sure, so look, I think the Central Government is making it — devolving it to the states to figure out how they want to roll back this requirement of automatic enrollment. So, every state will take its own course, obviously it’ll driven by political and philosophical considerations of each state. So, it will be kind of a gradual roll-off.

At a simplistic level, we think the demand will come in two ways, one will be a catch-up demand for people, as they fall-off they’ll be like, quick go and catch-up there. And then there will be a more settling in of a new equilibrium or getting the equilibrium back to sort of the old pre-COVID days, right. So, I think there’ll be a little bit of a bumpy demand to catch-up and then it’ll settle into a new routine.

We are having great conversations as states plan, as well as providers get ready for this fall-out to start happening. Some of them are preparing, some other we’re proactively engaging. We’ve had some wins for getting ready for both healthplans and providers to catch the fall-outs so that they don’t lose revenue, because each time somebody falls off is there any loss for them. So, we see that sort of decent demand coming through. So, we’ll see wins, we’ll see traction, but. I think the revenue will start to come more towards H2 in this segment.

Rahul Jain — Dolat Capital — Analyst

Sure. That’s it from my side. Thank you.

Vipul Khanna — MD & Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take our next question is from the line of Mohit Jain from Anand Rathi. Please go ahead.

Mohit Jain — Anand Rathi — Analyst

Hi, sir. Three questions, first is if you could help me understand this growth in telecom, outside top client and then other diverse segment. Is there a one-off or something that you have experienced this quarter given the growth guidance or do you think this can continue? So, that’s one. And then two follow-ups.

Vipul Khanna — MD & Chief Executive Officer

So, in both this has been a very ground-up — as I said, ground-up organic build. So, it started from small wins, like the utilities example started with one-offs and they were one of the challenge partners. They gradually earned the right to be like the main partner now and others kind of shifted to the challenger thing. And if the growth that we’ve seen is in a long-term sort of vanity contract, so on the utility side it’s not one-off and on the strength of that, we won a second top-five client. It will again start small, but at least we can diversify the mainstream offerings out there.

Likewise [Speech Overlap]…

Mohit Jain — Anand Rathi — Analyst

The ramp-up is done or will it continue in 1Q…

Vipul Khanna — MD & Chief Executive Officer

The ramps will kind of continue through, into the next fiscal.

Mohit Jain — Anand Rathi — Analyst

And you were talking about telecom [Speech Overlap].

Vipul Khanna — MD & Chief Executive Officer

Same, so there the segments that we’ve been focused on, whether it’s the non-UK communications or the EdTech and Tech segments, that’s been slow gradual build organic. So, the wins are they started small, some of them are starting to look like one of the — as I mentioned, one of the EdTech clients that we had signed in the education testing space. When I add up everything that we signed-up, it’s a good 5-year, $15 million, $16 million TCV now. So, it’s kind of coming to be a big client on basis that we kind of go back to the market to further the improvements, so…

Mohit Jain — Anand Rathi — Analyst

This is in the [Speech Overlap].

Vipul Khanna — MD & Chief Executive Officer

You go ahead.

Mohit Jain — Anand Rathi — Analyst

Okay, sir. Telecom outside topline we should see more like US growth than Europe growth?

Vipul Khanna — MD & Chief Executive Officer

There is some Europe growth as well, but more pronounced in the US.

Mohit Jain — Anand Rathi — Analyst

Right, sir. And the second one was your guidance, now why there should be a decline in 1Q, meaning — I was just guessing could be collections, maybe, but if there is no one-off then what is giving us that decline. Subsequently, the growth appears relatively slow at, say, 4% midpoint for next year.

Vipul Khanna — MD & Chief Executive Officer

So couple of reasons for that, one, there is an element of seasonality from collections and open enrollment from HPHS, which will taper down in Q1. Second, there were some project-based work, especially in Healthcare, which has gone down, is winding down. That can have some impact. And then finally, the large DPAS [Phonetic] deal in HPHS that we had announced, it had a — it had an implementation phase which had meaningful revenue, that phase has come to an end and now we’re into steady-state. So, that also has an impact on the start of HPHS revenue. Those are the three main factors for Q1 mean, somewhat lower than Q4.

Mohit Jain — Anand Rathi — Analyst

So, mostly driven by healthcare decline, rest of the verticals are fine?

Vipul Khanna — MD & Chief Executive Officer

Healthcare, and some amount of seasonality in collections.

Mohit Jain — Anand Rathi — Analyst

Collections, right. And sir, guidance at 4%, like we’re coming off a very low base. Is there like some ramp-down, etc., which you are anticipating or the market is tough, because I thought we would probably do around five at least at the midpoint. So — and 2% also felt like more flattish.

Vipul Khanna — MD & Chief Executive Officer

So Mohit, as I said, we’ve identified and called out two headwinds. One is the year-on-year decline from mortgage because H1 started strongly. Right now, we’re assuming Q4 run rate expanding with some modest growth in H2 from mortgage. So, that’s about a 3% headwind year-on year.

And then, we have the unusual almost revenue decay of about 3% from the onshore to offshore movement. That’s a proactive strategy. We have been vectoring our growth — new growth for offshore. But in our existing portfolio, we have this movement which will — which is most likely to come into this year. So, we wanted to call it out at this stage, that in a couple of clients you see this movement, so that’s another 3%.

And I add the 6% to the midpoint that you — for instance, that you picked up. We start to get into sort of late single-digit, early double-digit sort of growth trajectory, but these are the two exceptional things which we’re calling out.

Mohit Jain — Anand Rathi — Analyst

Okay. And the last one for Dinesh sir, is there any payout left for FY24 or are we more or less done with the payout related to acquisitions and the subsidiaries stake?

Dinesh Jain — Chief Financial Officer

Acquisition-related all — there were no payout done because the — we have already — they have not achieved the target yet, so that has been closed for both the acquisitions, so there is no more pending on that. On the equity-related, there is one more revenue target which we have to achieve in FY24 and on that basis, there is a payout for that. But as of today, I think it’s a whole year available and where we still have discussion with them going on how much revenue they will be — going to bring on the table and accordingly we’ll come back as we get a more — during the year, but…

Mohit Jain — Anand Rathi — Analyst

[Speech Overlap] amount was $11 million odd for 2024?

Dinesh Jain — Chief Financial Officer

No, 2024 will be I think $4.5 million.

Mohit Jain — Anand Rathi — Analyst

And then 2025 will have another payout?

Dinesh Jain — Chief Financial Officer

No, [Indecipherable], only the FY24 is the one year which will have…

Mohit Jain — Anand Rathi — Analyst

Okay, perfect sir. Thank you.

Operator

Thank you. We take the next question from the line of Shradha from AMSEC. Please go ahead.

Shradha Agrawal — AMSEC — Analyst

Yeah, hi, congrats on a good quarter. Just on the guidance bit again, so what is the kind of decline that we are expecting in 1Q?

Vipul Khanna — MD & Chief Executive Officer

Sequential decline?

Shradha Agrawal — AMSEC — Analyst

Yeah, sequentially.

Vipul Khanna — MD & Chief Executive Officer

At this stage, we think it will be between 1% to 2%, maybe slight — yeah, that range.

Shradha Agrawal — AMSEC — Analyst

1% and 2%?

Vipul Khanna — MD & Chief Executive Officer

Or let’s call it 1% and 2.5%.

Shradha Agrawal — AMSEC — Analyst

Okay. So, this is primarily related to the project work ramp-down that we’re expecting in healthcare?

Vipul Khanna — MD & Chief Executive Officer

Healthcare, the implementation phase being over for a large program and then the seasonality of Collections.

Shradha Agrawal — AMSEC — Analyst

Because if we…

Vipul Khanna — MD & Chief Executive Officer

[Speech Overlap] seasonality of…

Shradha Agrawal — AMSEC — Analyst

Right. So, if we talk of a 2.5%, 3% decline in 1Q, then I think, starting 2Q to get to the mid end of the guidance, you would have to do some heavy-lifting. So, what kind of visibility do we have to be talking of achieving the mid end of the guidance this year, talking of a 3% kind of a decline in 1Q?

Vipul Khanna — MD & Chief Executive Officer

Yeah, so the way we are looking at it, it translates to a TQGR [Phonetic] of about 3.5% to 5% from Q2 to Q4, right, in those three quarters. I think if you think about the collection, I think it will build up. We’ve seen signs for that. We have good traction in the Healthcare segment from a dealings closure standpoint, which we know is under implementation. And as we get into Q2, we’ll start to see revenue kind of booked from there.

I talked about growth coming back to provider, so we’ve been conservative for H1 for providers. We think it should result into something meaningful in provider. And then, our new businesses that we are talking about, right now, obviously they’re on small base, so we are expecting pretty good revenue growth from them. So, I think we add up all that, we feel pretty good about the guidance that we’re giving at this stage.

The newer businesses, obviously you know that they’re still pretty young. The pipeline is building. So to that extent, the pipeline is binary in the sense, you don’t have a big pipeline that if you — even if you lose two-thirds of the deal and even one-third of the deal, you’ll kind of get your numbers.

Today when your smaller pipeline is binary, if we have some good wins, right, we should have better numbers. If we don’t, that’s what we’re modeling at this stage on the 2% to 5% guidance. So, I’m trying to give you colors of the different businesses and how we think it will play out through the year to get to that 3.5%, 5%.

Shradha Agrawal — AMSEC — Analyst

So, it is based on more of hope of recovery in second-half because the seasonality — collection business seasonality will play out and the healthcare provider segment growth will play out only in the second half. So maybe we are talking of very high growth rates in 3Q23 and 4Q23 and that is just based on hope of recovery, right, I mean, rather than anything concrete in the deal pipeline as such currently?

Vipul Khanna — MD & Chief Executive Officer

No. I wouldn’t say that. What the growth — even for provider, when I’m talking about H2 growth, it will come on the deals, it will come on the conversation that we have — we are having now or the wins we’ve secured, right. We’ve told that in providers the revenue build takes a while because your inventory builds up and then sort of when the collections — the revenue billing for that happens for our client, after that we get done, right.

So, there is a while, even if you win a large deal, it takes a while. So, we baked all of that in when we’ve given you guidance of 2% to 5%. We’ve taken a little bit or a broader range this time.

Shradha Agrawal — AMSEC — Analyst

Right. Just for this quarter, the other expenses did see an increase, significant increase. What was it related to?

Dinesh Jain — Chief Financial Officer

I think other expenses is not a — this isn’t the new collection business which we bought, which is illegal. As the revenue grows up in that segment, there is also the work we do with the business associate which is part of other expenses. So, that’s the reason this expenses is higher, but that is along with the revenue which we get through that. So, I — there is no exceptional as such.

Shradha Agrawal — AMSEC — Analyst

Okay. And Vipul, would it be possible for you to call out the exit run rate in the mortgage business and similar for collections in UK BFS?

Vipul Khanna — MD & Chief Executive Officer

So, mortgage we were closer to INR17 [Phonetic] for Q4. The — I don’t have the breakdown between collections handy, but collections put together, we were closer to INR32 million, INR33 million. Ankur, is that right?

Ankur Maheshwari — Investors Contact

Collection I think was closer to INR36 million.

Vipul Khanna — MD & Chief Executive Officer

INR36 million.

Shradha Agrawal — AMSEC — Analyst

Okay, sure.

Vipul Khanna — MD & Chief Executive Officer

But also keep in mind that today, you know, because as we expanded collections, it’s become like a — still dominated by BFS, but there are components of that which go into CMT and — CMT as well and reverse, which is utilities. So to that extent, we look at it as horizontal, but what you see when we gave to you the vertical numbers, right, which is banking, CMT and healthcare, so it doesn’t necessarily say [Phonetic] that all collection goes into BFS now.

Shradha Agrawal — AMSEC — Analyst

This INR36 million is spread across the three verticals that you’re talking of or is this only BFS collections?

Vipul Khanna — MD & Chief Executive Officer

No, this is all industries except healthcare.

Shradha Agrawal — AMSEC — Analyst

Okay, got it, yeah. Thank you and all the best.

Vipul Khanna — MD & Chief Executive Officer

Thank you.

Operator

Thank you. We take the next question from the line of Dipesh Mehta from Emkay Global. Please go ahead.

Dipesh Mehta — Emkay Global — Analyst

Yes, thanks for the opportunity. Yes, one clarification on the prior question, collection when we say INR36 million it is only BFS collection or you include other thing because I heard it is ex-healthcare, so it in a way include utility related collection business also. There we have seen INR4 million swing quarter-on-quarter but collection is not seeing any kind of uptick. So, if you can clarify, that is first question.

Second question is about healthcare. Vipul, how you judge over performance in healthcare for FY23? You think it meet your expectation or it is below expectation, and — or exceed expectation? And what led to that deviation in your opinion and how you expect it to evolve in next few quarters?

Second thing is about — third question is about margin. Now, there are few things which are very supportive to margin. First is about 3 percentage of sources, which you highlighted. Second thing is provider business recovery, which is more profitable than rest of the business. And third thing is, now no significant revenue decline kind of segment where we have challenges from margin management perspective. Despite that, our trajectory is different than Q4. Ideally it should be at least Q4 and above Q4 kind of trajectory. So, what plays out in terms of the way you think buildup of margin over medium-term?

Fourth question is about — more about — to understand this data integrated practice which you launched during the Q4 for Tech industry. How one should understand that practice, what we do? And what would be the potential TAM sale [Phonetic] kind of opportunities? Thanks.

Ankur Maheshwari — Investors Contact

Let me take the first question and then probably I’ll hand over to Vipul. So on collections, the number that we speak of includes BFS, [Indecipherable] this is — effectively all non-healthcare collections is captured in that collections number. And the healthcare collections is part of the provider business.

Dipesh Mehta — Emkay Global — Analyst

Then Ankur, in that case, the INR4 million swing, which we are seeing in our diversified industries should also get reflected in collection revenue trajectory, which is not the case. So, what explains that deviation?

Ankur Maheshwari — Investors Contact

So, that was all entirely coming from the collections vertical. I think as Vipul talked about in his opening remarks, that growth is a function of our effort from the large clients — larger decline in [Indecipherable] area, as well as new wins and some element of growth coming from collections that had declined. So, the entire is definitely not [Technical Issues].

Dipesh Mehta — Emkay Global — Analyst

Because if I remember correctly, last time we highlighted collection is around INR34 million, INR35 million for Q3. This quarter we are saying INR36 million.

Ankur Maheshwari — Investors Contact

Yeah. I mean we can go through the numbers — I mean that [Speech Overlap]…

Dipesh Mehta — Emkay Global — Analyst

Sure, we can take it offline.

Ankur Maheshwari — Investors Contact

[Speech Overlap] the numbers are, we can be certain…

Vipul Khanna — MD & Chief Executive Officer

Okay, on the healthcare question, Dipesh, let me give you some color and then I’ll come to sort of where I think in terms of — against my expectations. So, let me take HPHS first. HPHS in fiscal 2022 and towards the end of 2021 had some pretty meaningful wins, good trajectory, right, and good quality wins on digital intake, DPAS and sort of classic member services, client services, etc. Lot of them have very large health plans.

I think H2 of this year, we’ve taken almost somewhat of a natural breather to make sure that we execute on those complex engagements, get the focus of the organization to deliver to them. That’s kind of one factor to keep in mind.

Second, now that we are serving eight of the top 10, some with decent size relationships, some that we just opened, wherever meaningful growth will come, these guys are already on to their third or fourth generation of outsourcing. Their process is pretty sophisticated, pretty long. And even if you — even when you win a deal in that very competitive RFP environment, the switch out from their existing invariably another partner to a new one takes longer, right, it’s not classic I have this kind of come and help you do that.

So, the pursuit timeline as well as the execution and the switch timeline is longer is one of the learnings that we’ve taken. Now that we go and play sort of head-to-head with the — for the big health plans with the big boys, that’s sort of one phenomena, which has kind of played out for us in this year.

The digital intake platform, which — we took it as an entry strategy to break-in with these accounts, it got us some wins, but it had some execution — an execution cycle to develop that. And we’re still on that have to kind of develop and complete that development.

So, when I put those two factors, I think it’s kind of moderated some of the growth in a good way that it has allowed has to build the foundation more. I think the pipeline is strong. We’re off to a good start in April in terms of the new deal wins. But overall, I would still expect that FY24 for HPHS will be with this sort of mid single-digit growth and then sort of starts to accelerate there.

Providers, we have talked enough, what has yielded. We play in a specific segment, which was the most impacted by PHE. Now, we are hoping that once PHE goes away, the market comes back in new manner, looks more digital solution, look for more automated solution and we are ready for that. But 2023 was kind of a rough in terms of the momentum there and lack of momentum there.

So overall, we’re kind of disappointed by how provider played out. But the team has worked hard, we’ve expanded our strategy. We’ve started off on a good note thus far in this quarter in terms of the types of wins that we wanted. Some of it we’ll come back and talk in — when we finish Q1, once we lock it out to give you sort of how that expands it.

Still very bullish about this segment, if I take the next 2-year to 3-year view, both payer and provider. I think there’s lots of headroom for growth there for us and for that segment. This year for HPHS was a little bit of a moderated year, but it should pickup. That’s the healthcare part.

On the data integrity practice, this largely goes to the big value chain. At the entry level end is the data labeling part and the top end, it starts to get into data architecture and sort of data guardianship and stuff like that. With the increase in sort of machine-learning model everywhere, not just in the big tech companies and platform companies but even other business enterprises starting to embrace it, we think it’s an attractive opportunity. That’s why we’ve come in.

At the low end, there is obviously a lot of smaller players as well and distributed around the world, including tier three, tier four. But as we get into more sophisticated stuff in the middle part, not even the high-end IT work, but even the middle part, we think there is enough bulk there for us to kind of get in and make a jump.

Also, this allows us to break into the tech segment. These guys mature buyers. The world serves them. This becomes one of our entry strategies to get into the big sign vendors, big sign sort of client base, and start to look around further. So, those are the two drivers for us to get into data integrity.

We’ll segment out the time for you on this one and where we want to play and come back, so that we don’t give you the big base number which a lot of consultants are throwing about data integrity. I want to come with a number which we are targeting and not go either low — too low end or too high end.

On the margin question, yes, we had hard work to kind of bring to sort of where we did on our operating margin. Next year, we will obviously, as I said — you identified, we’ll get some lift from mortgage recovery, we’ll get some lift from provider. The takes against that is we will get some amount of marginal impact from the IndAS accounting benefit we had in fiscal 2023. That’s helped us in 2023, so some of it will kind of not be there in 2024, we have to work for that.

But overall, I want to be cautious in terms of what we guide. It’s early on, right, lot of uncertainty in the market out there at this point in time. So, we’re going to make sure that we start cautiously. And as things kind of play out, we’ll see if we need to do anything else to the margin guidance at this stage. But for this number, 11% to 12%, we feel good. We see good path to sort of achieving this number at this point in time.

Dipesh Mehta — Emkay Global — Analyst

Understood, thank you very much.

Vipul Khanna — MD & Chief Executive Officer

Dinesh, anything to add in the margin — anything to add on the margin question?

Dinesh Jain — Chief Financial Officer

No, Vipul, we’re okay.

Operator

Thank you. We take our next question from the line of Ruchita Ghadge from I-Wealth. Please go ahead.

Ruchita Ghadge — I-Wealth — Analyst

Hello, sir. A very good morning and congratulations on a good negative numbers.

Vipul Khanna — MD & Chief Executive Officer

Good morning.

Ruchita Ghadge — I-Wealth — Analyst

So basically, I missed your opening statement. So, if you could just repeat, what was the guidance under sales side? And if I heard it right, the operating margin is what you’re saying this 11% to 12% guidance?

Vipul Khanna — MD & Chief Executive Officer

The revenue growth guidance, Ruchita, at this stage we are saying will be between 2% to 5% for fiscal 2024 after baking in a 3% headwind from the mortgage business year-on year decline from — given H1 was high, and about 3% headwind from the offshore-onshore estate rebalancing we expect that some of our key clients in later part of this year.

Ruchita Ghadge — I-Wealth — Analyst

Okay, and the operating margin, which currently in FY23 you did around 13%, so that are reducing it further?

Vipul Khanna — MD & Chief Executive Officer

No, we did 9.4% for the full year. Our quarterly run rate was 11 — Q4 run rate was 11.6%.

Ruchita Ghadge — I-Wealth — Analyst

Is it the EBIT margin that you’re talking about both depreciation?

Vipul Khanna — MD & Chief Executive Officer

Yes, operating margin is the EBIT, yes, you’re correct.

Ruchita Ghadge — I-Wealth — Analyst

Okay, so that you’re guiding for 11% to 12%?

Vipul Khanna — MD & Chief Executive Officer

Yes.

Ruchita Ghadge — I-Wealth — Analyst

Okay, got it. Thank you so much. That is it from me.

Vipul Khanna — MD & Chief Executive Officer

Thank you.

Operator

Thank you. We’ll take our next question from the line of Sameer Pardikar from ICICIdirect. Please go ahead.

Sameer Pardikar — ICICIdirect — Analyst

So, thank you for the opportunity. Book keeping questions from my side. So, what is the mortgage number for FY23?

Vipul Khanna — MD & Chief Executive Officer

The full-year number?

Sameer Pardikar — ICICIdirect — Analyst

Yeah.

Vipul Khanna — MD & Chief Executive Officer

Full year we more like $92 million, 93 million.

Sameer Pardikar — ICICIdirect — Analyst

Against $216 million that we put in FY22, is my answer [Phonetic] correct?

Vipul Khanna — MD & Chief Executive Officer

Correct.

Sameer Pardikar — ICICIdirect — Analyst

And what will be the rough breakup of coordination and servicing in that number for FY23?

Vipul Khanna — MD & Chief Executive Officer

For Q4, it was more one-third origination, to two-thirds servicing. For the full year — Ankur, do you have it handy, for the full year what’s the distribution, FY23?

Ankur Maheshwari — Investors Contact

Yes, I have it here. So, for full year, I think it was about $35 million and $158 million in servicing.

Sameer Pardikar — ICICIdirect — Analyst

Okay, thank you for the answer.

Operator

Thank you. We take the next question from the line of Dipesh Mehta from Emkay Global. Please go ahead.

Dipesh Mehta — Emkay Global — Analyst

Yeah, thanks for the opportunity. This is slightly medium-term question. Just wanted to understand potential impact from generative AI or ChatGPT on overall business. How much volume impact you expect through automation over next 3 years, 5 years? And can you highlight portion of business, which is likely to get first impacted, where it is easier to automate versus, let’s say, very difficult to automate kind of process? Thanks.

Vipul Khanna — MD & Chief Executive Officer

Yeah, sure. So, this is a very hot topic everywhere, Dipesh, rightly so. We’ve — we are thinking of generative AI impact in two or three dimensions. One is the external dimension in terms of how do we bake that into our products and services. In terms of where it impacts most, logically from an outside-in, if you look at it, Chat is a good use-case. Today when we humans chat with a customer, once generative AI is able to work within an enterprise boundary and work through sort of extracting data from different systems like a billing system, a customer activity system, a pricing system, whatever else sort of comes out of there, product databases, etc., once generative AI is able to work and pull out data from very structured databases, then I think it’s a good use-case for Chat to become very smart and generative AI helping humans kind of do that.

Likewise, theoretically, we could see at this stage — we’ll get there medium-term, but as you see more-and-more voice-to-text conversion real-time and then through that text you can use generative AI to help an agent answer or service a question better, that provides for a better CX and obviously far more greater efficiency in servicing that part.

So, those are sort of clear examples of using it. Then there are obviously intermediary use-case of saying, can I use it efficiently for doing after-call work, so typically if I take 10% after I finish a call to capture what happened in my conversation with Dipesh so that the next time Dipesh calls I have reference to that, that part, the 10% or the 15% work can be automated, right. That’s kind of the possibility. And then you can extend it further to say, I can use it far more efficiency for internal training purposes, training folks and stuff like that.

As far as impact on back-office systems is concerned, I think that will be a little bit longer. At this stage, it looks like it be a longer-haul, because by definition what you’re doing in back-office is the exception processing. If systems could process what they call doing in straight-through processing rate, it could have gone through, right.

So, if you look at claims example in healthcare, today most of our clients would have auto claim adjudication rate depending on who they are and sort of how their systems are setup, anywhere from 70% best-in-class at 90 some percent auto adjudication rates. What we do as an industry, as Firstsource is the fall-out, which is the 30% to 10% or the 5% fall-out which happens.

Those are invariably pretty complex required data which we require judgment, etc., and empathy as well kind of doing that. There for us to find a specific use-case of generative AI which can work specific to client environment and the rule set that they would have done in their engine, that’s the longer-haul. And we’ll see movement there, but it will require some specialized investments out there by industry players and we are looking broadly to say whom do we partner with and where do we apply it first.

So, an area to really, really watch for, it’s an important development and we are all-in — we are on it, both externally and internally, to make sure we use it as an opportunity and then do what is right for our clients to kind of convert to that. Sorry long answer, but I wanted to give you a color sense of how we’re thinking about it at this stage.

Dipesh Mehta — Emkay Global — Analyst

Yes, thank you very much for decoration [Phonetic].

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would now like to hand the conference back over to the management for closing comments. Over to you, sir.

Vipul Khanna — MD & Chief Executive Officer

Great. Well, thank you all. Thank you again for your interest, your engagement and your good questions. Until the next time, thank you and good-bye.

Operator

Thank you very much, sir. Ladies and gentlemen, on behalf of…

Dinesh Jain — Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]