Happiest Minds Technologies Ltd (NSE: HAPPSTMNDS) Q2 2025 Earnings Call dated Nov. 14, 2024
Corporate Participants:
Sunil Gujjar — Head of Investor Relations
Ashok Soota — Executive Chairman
Venkatraman Narayanan — Managing Director and Chief Financial Officer
Joseph Anantharaju — Executive Vice Chairman & CEO, Product & Digital Engineering Services (PDES)
Sridhar Mantha — CEO, Generative AI Business Services (GBS)
Analysts:
Apurva Prasad — Analyst
Chirag Kachhadiya — Analyst
Vidyadhar Dhamane — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to Happiest Minds Limited Q2 FY ’25 Earnings Conference Call hosted by HDFC Securities. [Operator Instructions] Please note that this conference is being recorded.
I now hand the conference over to Mr. Apurva Prasad from HDFC Securities. Thank you, and over to you, sir.
Apurva Prasad — Analyst
Thank you, Steve. Good morning, and thank you all for joining us today on the Q2 FY ’25 earnings call of Happiest Minds Technologies Limited.
On behalf of HDFC Securities, I would like to thank the management of Happiest Minds for giving us the opportunity to host this earnings call. So today, we have with us from the company, Mr. Ashok Soota, Executive chairman; Mr. Joseph Anantharaju, Executive Vice Chairman & CEO, Product & Digital Engineering Services, that’s PDES; Mr. Venkatraman Narayanan, Managing Director and Chief Financial Officer; Mr. Rajiv Shah, Executive Director; Mr. Ram Mohan, CEO, Infrastructure Management and Security Services; Mr. Sridhar Mantha, CEO, Generative AI Business Services; and Mr. Sunil Gujjar, Head of Investor Relations.
With that introduction, I’ll hand it over to you, Sunil, for Safe Harbor and to take the proceedings forward. Thank you, and over to you.
Sunil Gujjar — Head of Investor Relations
Thank you, Apurva. Good morning to all participants in this call. My apologies for a delayed start because of a small glitch. Welcome to this conference call to discuss the financial results for the second quarter ended September 30, 2024. I am Sunil, Head of Investor Relations. We hope you had an opportunity to review the earnings release we issued yesterday. Let me quickly begin the agenda for today’s call.
Ashok will begin the call by sharing his perspectives on the business environment and our results, Venkat and Joseph will then speak about our financial performance and operational highlights, after which we will have the floor open for Q&A.
Before I hand over, let me begin with the Safe Hrbor statement. During the call, we could make forward-looking statements. These statements consider the environment we see as of today and carry a risk in terms of uncertainty because of which the actual results could be different. We do not undertake to update those statements periodically.
Now let me pass it on to Ashok.
Ashok Soota — Executive Chairman
Thank you, Sunil. Good morning to you everybody. I’m happy to inform you that Happiest Minds has delivered our best growth results since the last two years. We have had double-digit serial quarter-over-quarter growth, which is 12.7%, and the year-over-year growth is 28.2% year-over-year. The transformational changes we initiated this year are all gathering momentum. These changes include the acquisition of PureSoftware and Aureus, the creation of our Gen AI business unit named as GBS, hiring a senior leader to expand net-new sales, which we call as NN sales, and creating six industry groups, each headed by an industry manager. That’s a lot of changes, and the full impact of all these changes on revenue and growth will become visible in the quarters ahead.
PureSoftware and Aureus teams, now part of Happiest Minds family, are geared up to drive synergies. We will expand into each other’s accounts, cross leverage our complementary skills and capabilities. For instance, we took our Gen AI services to a large global financial services provider who is a customer of PureSoftware.
Our third — our award-winning banking as a service platform from PureSoftware with a very strong brand recall in Southeast Asia and Africa, is now being taken to new markets such as Philippines. India is a large market and so far unexplored for Arttha, and our combined teams will lead the entry of Arttha into India.
Our Gen AI business or GBS continues to take rapid strides in building a leadership position by being a thought leader through innovation, strong partnerships with technology tool providers. We see huge potential for replicable sales. And when I say replicable sales, I mean a new class of solutions is becoming available through Gen AI, and you can take that to many customers. We have such opportunities in areas like research, customer service, learning and contract management. Maninder, our Chief Growth Officer, who joined us in Q2, is now in-charge of net-new sales and has already built a healthy new logo pipeline across our focus industry groups. We expect many more logo — new logo wins, which will grow as the accounts are transitioned to the respective industry managers. Each of our industry groups are maturing, all of them are into engines of growth. And you can see from the results that some are already leading the growth like BFSI and healthcare.
We have developed strong capabilities in bioinformatics, which are unparalleled in the industry. With in-house experts on areas like molecular biology, data scientists, engineers and healthcare domain specialists, we work with some medical research community from prestigious medical institutions in India and abroad. In the reported quarter, a European health research Institute shows Happiest Minds to build their AI and ML data platform. In another instance, for a leading medical care organization in India, Happiness Minds will leverage imaging analytics to review medical information and aid diagnosis. These are all very high-end, very specialized areas, which I believe there is probably nobody within the country would ever be able to deliver because of the expertise we have built up.
Let me briefly share my views on the outlook. The results demonstrate our continued ability to continue to manage our business with rigor and discipline in a very dynamic business environment. With the transformational agenda that I outlined, we are very excited about the future as the outlook has never looked better than what we see today.
Before I pass this on to Venkat, let me congratulate him as he was recognized during the quarter as the leading CFO of the year in the IT, ITES sector at the CII CFO Excellence Awards for ’23-’24. I’m sure Happiest Minds will continue to be benefit — benefited by his leadership, and Venkat along with his colleagues at the Executive Board and other senior leaders, including from the integrated teams of PureSoftware and Aureus will play a very pivotal role in the exciting phase ahead for Happiest Minds.
With this, I conclude my commentary and pass this over to, Venkat. Thank you.
Venkatraman Narayanan — Managing Director and Chief Financial Officer
Good morning. Thank you, Ashok. Let me begin my commentary by sharing the financial operational highlights for the quarter, followed by the half years. For the quarter, our revenues in constant-currency was $62.4 million, showing a good growth of 12.7% on a Q-o-Q basis and about 28.2% Y-o-Y. The growth was driven by a stable pricing environment, higher volumes and the full-quarter consolidation benefit coming from PureSoftware and Aureus.
Our total income for the quarter was INR549 crores, showing a growth of 12.1% over the previous year and a 28% on a year-over-year basis. We reported an EBITDA of INR119 crores, showing a growth of 1.3% over the previous quarter and 12.8% over the previous year. EBITDA as a percentage of total income stood at 21.7% this quarter. The drop from 23.9% in the previous quarter was primarily due to the pay increases that we instituted for most of our people, which was rolled-out effective July 1dy, which had an impact of almost 200 — 230 basis points. The more important aspect is the investment of about INR9 crores — INR9 crores to INR10 crores that we have made in the quarter in our Gen AI business, which is another 150 bps. We have also made investments into the new sales engine with Maninder and his team, and that’s also had an impact on the financials — on the EBITDA.
EBITDA for the quarter adjusted just for the pay increase and the Gen AI investments would be about 24% plus and like the previous quarter, reflecting the fundamental strength in our business and our commitment to investment in new and current technologies. So if you adjust for the pay increase and the investments that we’re making as a services company, which gets consistently evaluated on profits into new technologies and expansion to new markets, our EBITDA is higher — slightly higher than the last quarter and maybe even similar to what we saw in the last year.
It is to note that on pay increases, we have gone ahead with our regular cycles, backdrop of many of our peer companies who have either deferred or canceled their regular cycles. So that’s something that’s in the press. As mentioned by Ashok, we have made significant investments into our new sales force and that too has, as I said, impacted our margins. Our current sales and sales support team is about 62 plus. I’m happy to share that our margins of 21.9% — 21.7% [Phonetic] is within the guided range of 22 — 20% to 22% for the year.
From this quarter, we have started showing operating profit, which is defined as EBITDA excluding other income over operating revenues. This has grown from INR92 crores in the previous quarter to INR93 crores in the current year. It stands at about 17.9% of revenues compared to 19.8% in the previous quarter. The operating revenues takes out the slight noise that you can have due to other income. So with this, we are able to even isolate that noise and show you the margins. The drop in operating profit is primarily on account of the same point that I made earlier, which is pay increases, investment in GBS and the new — new sales team. Growth in subsequent quarters, both volumetric and in terms of selling higher priced services like Gen AI and repeatable sales services like Gen AI, we should be able to get back to our earlier levels of profitability.
Moving from operating margin to PBT, the meaningful change that has happened is the increased interest cost on account of borrowings made for acquisitions. Non-cash costs, which is amortization of intangibles from acquisitions continue to remain the same as last quarter. PBT between quarters despite these changes remain at about INR67 crores. So it remains constant. Now that the cost of acquisitions have stabilized, this would be the base for future quarters. We have from this quarter started reporting in our presentations the metric of cash EPS along with the diluted — normal diluted EPS, because I believe cash EPS gives an alternate and realistic view of shareholder returns shown of non-cash accounting charges, which one seems to take in larger proportions as we grow through acquisitions. Our cash EPS for the quarter was INR6.18 per share compared to INR6.11 in the previous quarter, and INR5.64 in the previous. Cash EPS for the quarter has just shown a growth of 9.5% Y-o-Y. Normal diluted EPS for the quarter was INR3.29 compared to INR3.39 in the previous quarter and INR3.90 in the previous year.
Coming to our half yearly performance, our revenues for the first-half of this year was $118 million, a growth of 23% in constant-currency. Total income for the half year stood at INR1,038 crores, a growth of 24.5% Y-o-Y. Just as a number, we have reached the INR1,000 crore mark by half year end, and so for the year looks far, of course. EBITDA has grown to INR235 crores from INR208 crores, showing a growth of 13.1%. EBITDA as a percentage of revenue is at 22.6%, which is in-line with our forecast for the year of 20% to 22%. Operating margin has grown to INR185 crores from INR174 crores, showing a growth of 6.4%. All the reasons shared earlier for the quarter, which are investments in Gen AI business, new sales team, pay increases have had an impact on margins even for the half year, and it’s despite all of those that we have shown expansion in absolute terms.
When we come to PBT, we have taken an additional non-cash charges of about INR17 crores of cash and one-time acquisition cost of about INR6.5 crores. This is for the half year. These have pulled down our PBT from INR157 crores to INR136 crores. That’s because of the acquisition amortization and the one-time acquisition costs that we had in the first quarter. So that’s an impact of about INR23.5 crores. We just pulled down the PBT. Adjusted for that, our PBT continues to grow and expand in absolute terms.
Here is why I said the cash EPS number gives a clearer picture of our financials and growth. Cash EPS for the first-half year stood at INR12.34 compared to the INR11.83 in the last year, showing a growth of 4.5%. EPS for the first-half was 668 — INR6.68 compared to the INR7.92 in the previous year.
Switching gears to some operational metrics. Our DSO on a — on a consolidated basis stands steady at 83 days. Cash on our books stands at about INR1,470 crores. We continue to report solid cash conversion ratios and our half yearly free cash conversion was about INR232 crores, which is about 98.4% of EBITDA. Return on capital metrics of ROCE and ROE are at 23.1% and 13.5%.
We closed the quarter with 6,580 Happiest Minds and during the first-half, we had 144 campus joinees — or Happiest Minds join us from campus. Trailing-12 month attrition has inched up slightly to 14.4% from the 13.5% in the previous quarter. Our utilization during the quarter was 76.3% compared to 78.2% in the last quarter. And the dip primarily is because of the campus hires and Gen AI continuing to be in the 20% to 25% utilization as in the previous quarter.
We ended the quarter with 281 customers, $59 million customers, $82 billion [Phonetic] customers or customers who have got revenues of more than $1 billion and average revenue per customer of $842,000. So if you look at all these metrics and take it together with a repeat sales of 95%, it gives you a fair handle of the solid ground that we are currently on.
Coming to our acquisitions, we have made satisfactory progress in integrating the acquired entities, driving operational synergies, ERP, people and process integration plans and various other back-end support systems which are in advanced stages of completion. Progress on these are tracked and measured regularly. What is more important is the integration at the sales and delivery customer upsell, cross-sell standpoint, all of which is happening at a very ferment pace. As of today, we have about 700 plus open positions and this is in anticipation of both a demand build and existing demand from our customers.
We are building capacity across our delivery centers in Bangalore, Pune and Noida, and we have added about 500 in the first-half of this year, and we are looking to expand into a larger delivery center in Hyderabad. So we have signed-up for a 120, 150 plus center in Hyderabad, which should also become operational during the third quarter.
Finally, in-line with our progressive dividend policy, the Board of Directors of the company have recommended an interim dividend of INR2.50 per equity share — INR2.50 equity share. Record date for the payout has been fixed as November 6, 2024. Cash flow on discount will be INR38 crores, very similar to the interim dividend paid out in the last year.
Coming to the outlook for the rest of the year, we are hopeful of meeting our revenue growth projections of 30% to 35% for this fiscal. We are beginning to see positive changes in the demand environment and like the rest of the industry, expecting to see a fill-up in the fourth quarter. While Q2 is a quarter with pay increases, which we — which I talked about, Q3 is one with lesser number of working days due to vacations and furloughs by clients. We are also likely to see a small [Technical Issues] on account of the — on account of the — the pay increase for the leadership team. On margins — coming to margins, both of the above, the lower working days and the leadership pay increases will have an effect and which we will address in Q3.
With this, I conclude my commentary and pass this over to Joseph. Over to you, Joseph.
Joseph Anantharaju — Executive Vice Chairman & CEO, Product & Digital Engineering Services (PDES)
Thanks, Venkat. Good morning to all the participants in the call. Building on a strong and transformational Q1, we have delivered yet another quarter of strong performance across all fronts. The results demonstrate Happiest Minds commitments to its customers to deliver value at-scale, our ability to keep ahead of market and technology shifts, add value to our customers’ transformation initiatives and be the partner of choice in their strategic imperatives. Our results and growth have been well-rounded with all geos and verticals, demonstrating excellent performance.
We have expanded our base of deep client relationships through our strong account mining practices and proactively anticipating the needs of our customers. We received an industry-leading Net Promoter Score of 65, extending the impressive NPS scores that we have received over the last few years, which is a validation of the commitment of our Happiest Mind to our mission of happiest people, happiest customers, and the drive to deliver value in our execution.
During the reported quarter, our U.S. $3 million to $5 million customers have increased by four to a total of six, while average revenue per customer ticked up to $842,000. We worked with 59 customers who contribute more than $1 million in revenues, up from 58 last quarter. We worked with $82 billion corporations, which offers us scope to increase wallet share and drive growth through the efforts of our newly formed industry groups.
I would now like to share some interesting work that we are doing with our customers. Our rich experience in mobility, analytics and IoT allow us to combine machine-generated data with human insights to help develop products that reengineer businesses to drive effective outcomes. In the reported quarter, this new win entails Happiest Minds to provide consulting-led solution to develop unified IoT platform for a North American-based energy tech company. Customers are seeking to reinvent their business and looking at new ways of working by leveraging AI technologies to drive productivity. For a European Health Research Institute, Happiest Mind is building their AIML data platform, leveraging advanced analytical techniques to help them discover new paradigms.
Our IMSS business enables agile infrastructure through a consult, transform and manage approach in hybrid and multi-cloud digital environments. I’m happy to share that during the quarter, we won our single largest multi-year multi-million dollar deal to provide cybersecurity services for one of the largest pharmaceutical contract manufacturer.
During the reported period, we launched Happiest Mind Secure360, a Gen AI-powered cutting-edge solution designed to deliver unmatched speed and precision in identifying and responding to cyber threat. This solution enables organizations to address even the most complex and unprecedented security incidents at three times the speed of traditional remediation processes. During this quarter, Happiest Minds was chosen as a strategic cybersecurity partner to oversee end-to-end design and implementation of cybersecurity program for one of the largest banks in India.
But talking about our generative AI business unit, which is enabling companies to accelerate their digital transformation by leveraging the power of Gen AI. Our 120 Gen AI specialists along with the large — larger 350 plus AI specialized workforce are working on 25 different projects as we speak with several of these POCs moving to production and starting to deliver business value. Happiest Miles is also co-creating solutions with our customers in the areas of employee productivity, audio sentiment analysis, information retrieval and contextualization and persona-based virtual engagements. PRO-TEST our Gen AI low-code, no code test automation platform, streamlines and automates the testing processes, enabling rapid development cycles and enhancing software quality.
Happiest Minds is a proud member of the Microsoft AI Partner Council program, a recognition of our AI expertise and our commitment to driving digital transformation through Microsoft’s AI ecosystem. For large beverage maker, we are leveraging Microsoft Azure AI to implement a Gen AI solution to drive workforce efficiency and improve utilization of customer-facing assets. For a world’s leading digital wind platform in the energy sector, Happiest Minds was chosen to drive their Gen AI innovation aimed at field data collection and retrieval. Faster collection and retrieval means the possibilities of superior resolutions and lower downtimes.
An innovator and technology leader, Happiest Minds is also rapidly adopting Gen AI internally to drive productivity. We have identified a list of areas and use cases across various corporate functions and have put together a plan to execute on these use cases, which is being driven by our GBS business unit. For instance, our recently rolled-out SmileSbot has been trained on our people policies and contextually retrieves and answers queries and questions related to our HR policies. Our talent acquisition teams are piloting the use of an in-house developed resume matcher, the Gen AI-based solution that automatically matches the job prescription to matching profiles, enabling recruiters to source profiles faster.
Talking about our acquisition, we have established joint go-to-sales with PureSoftware and Aureus and teams with focused effort on cross-selling both ways. This initiative is being led by industry group heads who are working closely with Aureus and PureSoftware sales and delivery teams to ensure expertise is leveraged both ways to serve our customers better. For example, we were able to take our Gen AI services to a large global financial service provider who is a customer of PureSsoftware. The sales teams on both sides are very excited about the value proposition of the larger Happiest Minds entity and are striving to spread their wings into each other’s accounts. During the quarter, our award-winning platform, Arttha, was implemented for an Africa-based market-leader in logistics and supply chain.
Coming to the demand environment, we are seeing customers continue to leverage a wide range of digital technologies to reinvent their business and drive productivity and growth. While geopolitical uncertainties continue, the continued good performance of the U.S. economy, the resolution of the U.S. election in a rather desisive manner and the cut in interest rates are acting as a tailwind, encouraging customers to start planning new transformation initiatives for 2025. We’re already seeing trends of this in sectors like BFSI and capital-intensive sectors like manufacturing and expect other verticals to demonstrate a similar behavior.
Customers continue to look for ways to leverage their data using analytics and AI, while using Gen AI to bring in operational efficiencies and drive revenue growth. Our expertise and ecosystem relationships, the significant investment and early leadership positions in promising technologies like Gen AI, AI, automation, IoT and other digital technologies will help us capitalize on these opportunities that we expect to come our way.
With this, I conclude my comments. Operator, we can open the floor for Q&A. Thank you.
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Apurva Prasad
Hey, thanks for taking my question and good show on margins. So I had a question on the H2 outlook which you partly gave, but just to understand, if I look at the growth guidance even at the lower end of 30%, that translates to over a 6% sequential growth in the next two quarters. So wanted to understand if that visibility is there in terms of deals, SOWs, especially as Q3 will be having furlough and working days impact.
Ashok Soota
Venkat? Hello Venkat, did you get the question and are you getting to respond to it?
Venkatraman Narayanan
Yeah, yah, sorry, I was on — sorry, I was on mute. I was on-mute, sorry, Apurva, thanks for asking. Yes, that’s the number that’s out there. We — who realized that there is going to be that amount of — increased amount of work that needs to be done to convert that number or reach that number to 30%. Today, we are at about 24% in dollar terms or constant currency of about 24.2%. So there is that growth that we have to bring in. You know, because we had acquired PureSoftware and Aureus, we had baked in a certain expectation coming in from Arttha Banking. Arttha Banking, you know, it’s a — it’s a product that award winning product — banking platform that is there. The revenue flow from there tends to be lumpy. So we have got a very good pipeline on that front and there is expectation to close at least two large deals in the next two quarters. So that’s one.
The second is, yes, we had — we had taken a little bit of an aggressive vision on the growth coming in through cross-sell, upsell because that’s the only way to drive integration. There is no way to use it, acquire companies and say, you achieve your numbers, we achieve our numbers kind of a thing. So there was — there is a significant element of cross-sell, upsell that’s there on both sides and we are seeing quite a bit of traction happening.
The third upside that we are really looking for are some of the large deals that are in the pipeline. Joseph did allude to one large deal. We did add two significant $5 million run-rate customers during the quarter. It may be $5 million or slow — slightly below $5 million, but we have added during the half year rather, two $5 million clients, which we are expecting to ramp-up.
And the fourth is the Gen AI, POC to work — a steady stream of work, repeatable sales is what we are looking for. These four are have been baked in. And finally, we have the new, new sales engine firing. Maninder has joined in, but there has to be a certain amount of fairness. You can expect from a team which is just about joined. But while that be so, he is also contributing quite a bit to the pipeline adding.
Ashok Soota
Venkat, can I just — I’ll add — excuse me a second, I’ll just add to what Venkat just said. And I think you’ve given a very good comprehensive response. I’m just asking you Venkat a question here. Would it be fair to say on that question, which said that we’ll have a 6% average needed in the next two quarters, that Q3 will be a little lower and Q4 where the bulk of the benefit of some of the large deals, including even that bioinformatic deal that we are working on, they will start generating revenue in Q4, and therefore clearly Q4 will be better than Q3, heading towards on a grand total basis along the lines you’ve indicated. Would you say that’s correct?
Venkatraman Narayanan
That is happening. That is absolutely right, Ashok. So,
Ashok Soota
Okay, then back to Apurva.
Venkatraman Narayanan
[Technical Issues] banking license deals also.
Ashok Soota
Okay, Apurva, back to you.
Apurva Prasad
Got that. And just on the point of the seasonality, wanted to understand PureSoftware and Aureus through the quarters, what’s the normal seasonality? Does it tend to get stronger Q3 on Arttha?
Venkatraman Narayanan
What we have seen as a trend in Q4 tends to be the best quarter because that’s when budgets gets released across the — and it’s — it’s about a six-month to nine-month sales cycle and we — it’s a term license kind of a structure. So Q4 is when, you know, last two years, last year for sure we saw that. And this year as well as we go through the financials, that’s what we are seeing. Q4, Q3, Q4 is when the sign-offs happen about. And to be very honest, as a services company, some of this — we had our IP and IP-linked sales in the past. We contribute — about 10% comes from that sort of a business. But a pure product business and the lumpiness is something that we will now start seeing. As this starts growing, we’ll have to plan to see how that will get factored into our revenue — revenue projections and flows.
Apurva Prasad
Got that. The other question really I had is, trying to get a more medium-term view on — with the restructuring done on the industry groups, with the verticalized structure with the investments that you called out earlier in building the sales engine. I’m trying to understand the opportunity in the large client cohort versus the mid-market client segment over the medium-term, how can sort of that revenue per client number look like over the next few years?
Ashok Soota
Joseph, I guess you could take that.
Joseph Anantharaju
Yes, Ashok, I was just about to. So our goal of creating the industry group and then in sales was to ensure that we bring in more focus, specialization and accountability to both of these functions. And the charter for the new logo sales team has been to pursue larger deals and to target more of larger customers. We do have a $82 billion customers that I already talked about, but I feel that going forward we should be targeting more of these companies so that the initial deal sizes themselves pick up and become larger as this group starts functioning. At the same time, the industry groups that we formed, the industry group heads will be working closely with our account managers and client partners to further expand into our existing customers, especially the large customers and increase our wallet of share and which should also again start driving growth. Both of these I expect will lead to over the next few years an increase in the number of $1 million customers, $5 million customers and $10 million customers, but at the same time driving up average revenue per customer.
Apurva Prasad
Got that. Thanks a lot. I’ll get back in the queue.
Operator
Thank you. [Operator Instructions] The next question is from the line of Chirag from Ashika Institutional Equities. Please go ahead.
Chirag Kachhadiya
Yeah, I have a couple of questions. So as we aim for a $1[Phonetic] million kind of top-line post FY’30, what would be the thought process on this onshore, offshore mix because if I look at from industry perspective, the companies which have [Indecipherable] have a relatively high pace of revenue, the mix is around 60-40 or so. So, question number one is that.
Second, our margin is relatively higher on EBITDA if I look — consider it from ex of wage hike impact and all, going forward as we aiming for such a high-growth, more than 20% for next three, four years, is there any impact on margin and all, or we will go in-line with the — what industry standard is that comparable to the other similar size of company?
Third, the ad-tech vertical, when you think that it will be back to the normal growth trajectory. Yeah.
Ashok Soota
You asked lots of questions in between, so maybe if we can split some of those into one-by-one. Let me just take the very first one on on-site offshore, then I’ll pass this over to both Joseph and Venkat for some of the other aspects. You know, when you talk about our on-site offshore ratios, actually we’re very pleased with that percentage. I mean, of course, we’d like to get more because it drives more revenue. It — as you’ve noticed, it helps to improve our margins. It’s also giving much higher value to the customer because after all, they’re bringing down the cost of their project. It’s also an indication that in contrast with other people who’ve got a 60-40 ratio, we are actually delivering more volume and proportion. If you take like-for-like, we are delivering lots more volume because we are charging at a lower rate for the offshore. And so therefore we are not — the reasons why we want to increase on-site is to get more consulting-led business out there and use it as a front-end for generating more business, which we finally drive offshore. So it’s a good healthy mix we have. We are not upset about the fact that somebody is 60 or 40 and we are 15.5% down to 11.4% this half year, simply because even our new acquisitions have got a very large proportion of offshore. So it’s a good healthy place to be in. But let me pass this over to either Joseph or Venkat for answering some of the other questions you asked.
Venkatraman Narayanan
The second question I’ll take on the margins part. See, this is what I alluded to. Typically, we have a — you have a pay increase cycle and then you have dollar to rupee changes which can go either way, and that’s how the industry has been buffeted by ups and downs on the margins other than certain other aspects like sales and delivery kind of a thing. So margin prediction according to me is the most difficult part. So to that extent, we are expecting to continue this margin range of 20% to 22% in the medium-term. I think that’s the question that you had in mind.
But yes, the question is how much of that we should invest into our business for the future. And we have said this in the past, we will not hesitate because of margin constraints or margin that we have to show in investing into new business, which you are now seeing that we have taken. So restructuring into verticals, getting a new sales engine and investing into Gen AI, doing the acquisition for both capability, reach competency, all of these need investments and it has a certain margin impact on the financials, but we have not hesitated looking at evaluate the longer-term strategy and go ahead and make it. But even with all of that, the focus will be to make sure that we are in the 20% to 22%. We pull all stops to make sure that the efficiencies of the pyramid is there, integration brings you certain size and scale. So the base increases, but at the same time there is possibility to bring down certain costs, common overlap costs, cross-sell, upsell so that we get more bank for the buck. These are the areas that we are focusing on.
So if you look into our financials right now, now, half year over half year, you will see elements of all of that coming out, which is what I said. Some of — some of this really get muted or gets covered by [Technical Issues] are happening, but you adjusted for all of the points that I mentioned, you will see [Technical Issues] Again, looking into the future, maybe a platform like Arttha Banking will require more investments. It’s just not that it’s compute ready, it’s a plug-and-play situation. You have to continue to make that investment to make sure that it becomes $40 million, $50 million, $60 million, whatever the roadmap for them — for that product is. And one should not hesitate to do that if there is a market for potential and there is a reason to make that investment from a long-term financial standpoint. But yes, I do understand in the short-term, medium-term quarter-over quarter there could be those ups and downs and — but we will — we’ll rather explain it to the — to the investor rather than not make the investment.
Joseph Anantharaju
Can you just repeat the last question, Chirag?
Chirag Kachhadiya
Yeah. Your outlook on ad-tech vertical?
Joseph Anantharaju
Sure. See, if you look at the tech vertical, Chirag, on a quarter-on-quarter basis it has shown growth, right? And so what we’ve seen is that it tracks the rest of the company performance and — but if you look at the sector as such, you have to break it up into three segments. The first is higher ed, then you have K-12, and then you have more of professional education. And what we’re seeing is that out of these three, the Higher Ed segment has got impacted by some structural challenges that you’re having, especially in the U.S. market with the number of enrollments coming down and universities being under cost pressure, and that’s getting reflected in some of the business and traction that higher ed companies are getting.
K-12 has performed well, but I think it’s a slightly cyclical business because there’s an upgrade and then for the next few years they tend to leverage some of the investments they’ve made. The area that we are seeing a lot of improvement and investment happening is in the professional education space. As you can see, there are lot of new technologies coming in. This rapid evolution in how people need to constantly keep upgrading themselves and this is leading to multiple opportunities in the — in the market that customers are stepping in or existing customers are extending their products. And we are focusing more on this segment to get more traction and grow this segment.
Chirag Kachhadiya
Thank you for detail explanation and all the best. Thank you so much.
Operator
Thank you. [Operator Instructions] The next question is from the line of Apurva Prasad from HDFC Securities. Please go ahead.
Apurva Prasad
Yeah. Thanks for the follow-up. No, this is on the GBS unit. I’m trying to understand how is the conversions that you’re seeing from pilots to production, then what’s the size of the GBS in terms of resources that are currently there and what’s the expansion planned here or perhaps in terms of customer coverage? So I’m basically trying to understand with the investments that you’re making in this, what’s the scale that is being targeted here over the medium term? Sure. Sridhar, I guess you’ll take this. I will add a little bit to what you’re going to say.
Sridhar Mantha
Sure, Ashok. Thanks for the question, and I’ll break it into two, three parts. The first one is the POCs to orders, right? Of course, by being constantly working with the digital technologies we always understand it will take few quarters for the customers to do the prototypes and then move them into the production. So broadly the kind of work we are doing is working with the digital products and platforms to add generative AI oriented features, those are moving to the production much faster because they want to sell as part of either their SaaS solution or as part of the product generative AI features. However, the place where things are taking a little bit more time is on the IT organizations where selective use cases are moving from the POCs to production, whereas the other low priority use cases are staying in the POCs, probably being deferred by a quarter or two and then they would like to take it forward into the production. That’s how the market is moving, more like a technology [Technical Issues] certain platform companies and IT organization with critical use cases and slow movers for waiting for the ROI to be.
The second part of the question is, in terms of the team size and the competency that we have. So when we formed the GBS as a separate business unit, a few strong leaders from the organization we pulled out and put as part of the core team and then we went to the market and also hired addition people. And as Joseph mentioned as part of his earlier note, we have at this point in time 120 people who purely work on generative AI-based projects, which are supported by 350 plus AI and analytics enter of excellence so that the projects that have the dependencies between generative AI, etc., we can bring them together.
Now in terms of the last point on how we are seeing as the work and the investments and the business growing. Now, of course, we continue to proactively develop our own use cases and repeat solutions as Ashok mentioned, because we are creating a new kind of opportunity where semi-finished Gen AI solutions can be taken to the market, Ashok already shared four distinct examples.
Now the other area we are looking at is, our internal strong solutions like Arttha, right, which are like addressing various banking-related functions, of course, can benefit significantly from generative AI. So we’ll add the way we are adding generative AI features to the customers’ products, very similarly we’ll add to the Arttha platform and other IPs and solutions we have also.
Ashok Soota
Very good. Sridhar, I guess you’ve covered a lot of what I had wanted to say, but I’ll just — Apurva highlighted this point on replicable sales. I had mentioned, for example, that we’ve got — when a new application comes up, the moment you do one customer, you can begin to say, can I take the same application to multiple ones. I identified four areas in my opening talk, which said research, customer service, learning and contract management. I believe in almost all of those, we’ve already got our first customer. Now we begin to look for multiple ones.
I’ll give you an example of research. If we are doing a research application for an R&D organization, actually there must be at least 30 research organizations we can take them to, in India alone I’m talking of. Supposing we don’t do a 30, maybe we’ll do eight or 10. Now that repeat customer makes a lot of difference, a much quicker sell because we’ve been able to demonstrate that it has worked for somebody and the margins will keep improving on those sales because now your own incremental cost, you’ll still charge the customer the same amount. These won’t be giant type orders. But if you then take eight such orders, then it becomes a very healthy order and executable with a really high-level of efficiency as we go ahead.
Apurva Prasad
Got that. Thanks for the explanation. And just final couple from my side. The on-site resource reduction was fairly steep this quarter and we also saw T&M go up substantially. Any explanation for this?
Ashok Soota
Joseph?
Joseph Anantharaju
I think if you look at it overall, as Ashok pointed out, Apurva, both Aureus and PureSoftware are mostly offshore-centric and that has led to a drop in the offshore — the offshore on-site ratio. And the other thing that we’re also seeing is that given some of the budget constraints, customers have been trying to get better bank for the buck and leveraging offshore more.
I think the COVID-induced remote working has also given customers more comfort and got them used to having larger teams offshore and doing some of the work that they wouldn’t have done earlier offshore, which gives them the benefit of managing the budget better. These are some of the trends that we’ve seen.
Venkatraman Narayanan
Joseph — Apurva, sorry, I thought I had to interject. I think there is a typo in the — in the numbers Apurva because it is 211, it is showing 412. So it’s a typo error on the face of the financial metrics. If that’s what you’re referring to, we’ll have that checked and corrected. But just to give — continue, it has remained same quarter-over-quarter in terms of revenues and in terms of headcount because we look at the daily MIS that comes out, it’s the same. But Joseph, just to give you the number from FY ’24, 211, it has gone up to 412 as per our PPT in FY ’25 Q1 and then come down to FY ’25 Q2 to 274. So that is something which is not right. We’ll check it and come back to you and update the presentation, Apurva.
Joseph Anantharaju
Thanks. Thanks. Good catch also.
Apurva Prasad
Thanks for that. And, Venkat, just finally on margins, puts and takes for the next two quarters, part of wage increase for senior leadership, I think that should happen Q3. But generally from here on, as if I look this as a base level, how should we look at margins for the next two quarters?
Venkatraman Narayanan
That’s what I said. Hopefully, we have — when I say margins, I’ll now restrict it to EBITDA and operating margin first. EBITDA and operating margin should be stable except for the wage increases and we should see upsides. The dollar-rupee is a little bit of a joker in the pack, but hopefully we have covered that for the next 12 months or nine months on a weighted-average with proper hedges. And Arttha Banking, while it has got that lumpiness in terms of sale, it also contributes to margin. So I’m giving you all the pluses on the optimistic side.
On the minuses, it’s a senior management wage increase that we are talking about and some more investments into newer technologies that may be required because if that has to be done — that has to be done, including investment into Arttha. So for example, if Arttha has to be sold in India, it requires a little element of investments, we’ll go-ahead and make it. I don’t think that’s going to stop us from — anything is going to stop us from doing that. So, on the minuses, that’s what I see. But like I said, it’s a very, very tricky situation on margins because of all the things that happen simultaneously and now that we are a — with humbleness, I say we are a much larger company running at about a $280 million run rate, exit run rate for the year, it’s — it’s becoming that much more finer to maintain and predict margins with a greater level of accuracy than the 20%, 22% that I have given out right now.
Apurva Prasad
Got it, got it. Thanks and wish you all the best.
Ashok Soota
Thank you.
Venkatraman Narayanan
Thank you, Apurva.
Operator
Thank you. The next question is from the line of Vidyadhar Dhamane from Sohum Asset Managers. Please go ahead.
Vidyadhar Dhamane
Thank you. Good morning. In the first quarter I think we were told that the hit from the amortization increase and intangibles was INR6.8 crores and INR1.3 crores for part of the quarter, and for the full quarter it’s going to be INR19 crores. But in Q2 the DDA has gone up by just INR1 crores. So, Just trying to understand what’s changed?
Venkatraman Narayanan
Yeah. So, Vidyadhar, thanks for asking that question. It’s an accounting thing. So if you notice, we had about 15 days to close the books after integrating PureSoftware and Aureus last quarter. So it was — I would say a literal hurry to get the valuation. So we closed it and we set provisional valuations and went ahead and closed the books. After that, we did a extremely intensive exercise of about one month. Got multiple experts looking into the valuation and the allocation of PPA and looked at what the industry practices and that’s what we have done in terms of the allocation of PPA, the Monte Carlo simulations, assigning probabilities for earn-outs and all of that. And we relooked at that provision valuation and after getting one report, maybe actually we talked about two, three valuation experts and revalued the whole thing and have now plugged in the final valuation number. So which is what is the number that you’ll see.
It has an impact on two aspects. One is, there is this amortization unwinding interest and both of them, one sets up the other. So last quarter it was for 48 days. This quarter, like you rightly said, this is for 90 days. The number remains the same given all the real-time value that we get.
Vidyadhar Dhamane
So what was earlier guided to be INR19.1 crores for the full quarter is now going to be what? What’s that number now?
Joseph Anantharaju
It will be 14 [Phonetic] Now what you see in Q2 is for the full quarter.
Vidyadhar Dhamane
That’s — but that’s as I said at least the amortization which is the major part is up by just INR1 crores. So it looks like 8.3 [Phonetic] has gone to 9.3 [Phonetic]
Venkatraman Narayanan
That’s right.
Vidyadhar Dhamane
9.3 is like a sustainable. Is that correct?
Venkatraman Narayanan
No, no. Why don’t you look at the half year. In the half year, last year we had INR11 crores. We have the amortization and unwinding cost coming from two acquisitions, which is PGS and OSS, sorry, and SMI. So that’s for the last quarter. Some of them will trail off. In the current quarter, in Q1 for about 50 days or 48 days we had INR14 crores with amortization and unwinding of all the four companies of PureSoftware, Aureus, and the two other companies of SMI and PGS. In Q2, it’s the same. The only difference is in Q1 you had 48 days for the large two acquisitions, whereas in Q2 you have the full impact. But Q2 has not gone sequentially, you would have expected a sequential increase to about INR19 crores. It has not happened because we relooked at the provisional valuation that was done in Q1.
Vidyadhar Dhamane
So, the DDA which you have in this quarter is a sustainable one.
Venkatraman Narayanan
That’s right. 14.06 [Phonetic]
Vidyadhar Dhamane
The other changes which happened in-line with [Speech Overlap]
Venkatraman Narayanan
Any further acquisitions. In fact, it will go down because I am expecting one or two to trail-off. The PIMCORE intangible write-off was done over four years. So that’s almost done for four or five years because effective useful life is also something that we have to evaluate. PGS, PIMCORE was over five years, SMI was over six, seven years. PureSoftware, the assessment that has been done is eight years, PureSoftware and the Aureus. So PIMCORE will slide off. So it will only improve in maybe…
Vidyadhar Dhamane
And what will be that impact?
Venkatraman Narayanan
The 14.06 will actually reduce by a couple of crores.
Vidyadhar Dhamane
Okay. But that is from FY ’26, is it?
Venkatraman Narayanan
Yes, yes, from the first quarter.
Vidyadhar Dhamane
So Q3, Q4 is similar to Q2 and then next year…
Venkatraman Narayanan
Yes, yes.
Vidyadhar Dhamane
[Indecipherable]
Venkatraman Narayanan
That’s right.
Vidyadhar Dhamane
Okay. Thanks a lot.
Venkatraman Narayanan
Thank you. No, just, so you sign-off the — that’s the reason why we have started calling out cash EPS because a smaller company relative to our size, these charges can have an unknowing impact on your PBT and financials. So one needs to be aware of that and that’s why the cash EPS.
Operator
Thank you. Ladies and gentlemen, that was the last question for today’s conference call. I would now like to hand the conference over to the management for their closing comments.
Sunil Gujjar
Thank you. Thank you all for joining us today. We thank HDFC Securities for hosting this call. We look forward to interacting with you. You can reach out to us on ir@happiestmind.com. Good day.
Ashok Soota
Good day, everybody. Bye.
Operator
[Operator Closing Remarks