Happiest Minds Technologies Ltd (NSE: HAPPSTMNDS) Q3 2025 Earnings Call dated Feb. 05, 2025
Corporate Participants:
Sunil Gujjar — Head of Investor Relations
Ashok Soota — Executive Chairman
Venkatraman Narayanan — Managing Director & Chief Financial Officer
Joseph Anantharaju — Executive Vice Chairman and Chief Executive Officer – Product & Digital Engineering Services
Ram Mohan — President and Chief Executive Officer – Infrastructure Management and Security Services
Sridhar Mantha — President and Chief Executive Officer – Generative AI Business Services, Chief Technology Officer
Analysts:
Aditi Patil — Senior Research Associate
Prasad Padala — Analyst
Vinesh Vala — Analyst
Ruchi Burde Mukhija — Analyst
Sumeet Jain — Analyst
Presentation:
Operator
Please wait while you are joined to the conference. The conference is now being recorded ladies and gentlemen, good day and welcome to Happiest Minds Technologies Limited Q3 FY ’25 Earnings Conference Call hosted by ICICI Securities Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal the operator by pressing the star then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over To Ms Adity Patil from ICIC Securities. Thank you, and over to you.
Aditi Patil — Senior Research Associate
Thank you, Steve. Good morning, ladies and gentlemen. Thanks for joining us today on Q3 FY ’25 earnings call of Happiest Minds Technologies Limited. On behalf of ICICI Securities, I would like to thank the management of Happiest Minds for giving us the opportunity to host this earnings call.
Today, we have with us Mr Ashok, Executive Chairman; Mr Joseph Anantha Rajo; Executive Chairman and CEO, Product and Digital Engineering Services; Mr Venkat Ram — Mr Venkat; Managing Director and Chief Financial Officer; Mr Rajiv Shah, Executive Director; Mr Ram Mohan, President and CEO, Infrastructure Management and Security Services; Mr Shreedhar Mantha, President and CEO, Generative AI Business Services; and Mr Sunil Gujar, Head of Investor Relations.
I will hand it over to Sunil for safe-harbor statement and to take the proceedings forward. Thank you, and over to you, Sunil.
Sunil Gujjar — Head of Investor Relations
Thank you, Adity. Good morning to all participants in the call. Welcome to this conference call to discuss the financial results for the 3rd-quarter ended, 31 December 2024. I’m Sunil, Head of Investor Relations. We hope you had an opportunity to review the earnings release issued yesterday evening. Thank you. For this call, let me quickly outline the agenda. Ashok will begin the call by sharing his perspectives on the demand environment, our business environment and our results. Venkat, Joseph will then speak about our financial performance and operational highlights, after which we’ll have the floor open for Q&A.
Before I hand over, let me begin with the safe-harbor 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 conversity 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
Well, thank you, Sunil, and good morning to everyone. Happiest Minds has reported another quarter of strong deal momentum and performance with a revenue growth of 28.5% year-on-year and we are set to report our best performance since the IPO in absolute terms. We launched four transformational initiatives this year, which included the acquisitions of Software and Aureus. The success of the same is evident from our year-over-year growth. The other three initiatives will accelerate our organic growth in the year ahead. These initiatives are the creation of the Gen AI business unit, verticalization into six industry groups and induction of our Chief Growth Officer. At our Generative AI business services, we are collaborating with our clients to explore opportunities for leveraging generative AI to enhance business value, increase efficiency and productivity.
Our goal is to integrate generative AI features into their products, services and provide them with a competitive advantage. The adoption of this promising technology has picked-up speed with our customers embarking into enterprise-wide adoption. Apart from the projects we have already delivered in these few months, we have about 15 projects in a proof-of-concept stage, which will lead to significant orders and projects in the next fiscal. I will leave Joseph to describe our success in the other transformational initiatives. We will persist in advancing the transformational agenda we have set forth, which I believe will position Minds for a very, very superior performance in the years ahead. With this, over to Venkat. Thank you.
Venkatraman Narayanan — Managing Director & Chief Financial Officer
Thank you, Ashok. Good morning all. We continue our march into the second-half of this fiscal with a good set of numbers. At 28.2% year-over-year growth in constant-currency, our industry-leading performance has only accelerated since the beginning of this fiscal. As Ashok alluded to, our results are showing results of this — are showing the impact of the solid execution backing our transformational agenda that we undertook at the beginning of this year.
Our revenues for the quarter in dollar terms stood at $62.7 million. Lower working days, higher leads and a better furloughs affected our seasonally soft quarter. However, we were able to compensate for the same by virtue of higher volumes and improved utilization. In rupee terms, we reported a total income of INR554 crores, showing a growth of 0.9% Q-o-Q and about 27.5% Y-o-Y. Our EBITDA, including other income came in at about INR117 crores, which is 21.1% of our total income compared to 21.7% in the previous quarter. In growth terms, EBITDA has grown 11% over the previous year. We have maintained our margins despite continuing to make investments into our new business unit of generative AI business services, which is what I call as a — which is in a start-up stage and continues to be in an investment mode.
The fast-paced changes, one is seeing in the AI space is something we must take head-on as we try to develop and grow our GBS business. The other transformational steps of verticalization and establishing a full sales team in the US and India to drive new sales, which is a departure from the structure we had in-place until recently of the hybrid sales teams are also investments we are making for the longer-term health and growth of our business. Our EBITDA margins are after the above investments and continue to be within the guided range of 20% to 22%. This is our 18th quarter where — where we have performed in-line or ahead of our margin guidance.
Operating margins stand at INR92.7 crores, which is about 17.5% of our total income and has shown a growth of 12.5%. Adjusted for investments on GBS, the new sales team and investments in verticalization, EBITDA and operating margins would have been like the previous year and at least a couple of percentage points higher than what they have been currently declining at. Our PBT for the quarter came in at INR69 crores, which is 12.5% of our total income, showing a sequential growth of about 1.8%. Year-over-year growth of PBT, I would say is not very relevant as we have certain large non-cash charges related to acquisition in this quarter and the previous quarter.
PAT came in at INR50 crores, showing a sequential growth of 1.2%. Given the non-cash charges, a metric which reflects the health of our business, our growth and profitability is the cash earnings per share. Cash EPS removes the noise one from GAAP accounting for these non-cash accounting costs. Our cash EPS for the quarter was INR6.165, showing a good year-over-year growth of 12.6%. Annualized cash EPS stands at about 25 per share compared to the 23 in the previous year. A quick highlight for the performance for the nine months. We reported revenues of $181 million, showing a growth of 25% in constant-currency. Rupee revenues were INR1,591 crores, showing a growth of 26% to 25.6%.
EBITDA stood at INR353 crores, growing by 12.6%, while operating margins at INR278 crores grew by 8.4%. We reported a healthy cash balance, cash-and-cash equivalent balances of about INR1,495 INR495 crores with a strong continued strong conversion ratio of 97.5% of EBITDA. Our DSO continues to be stable at about 84 days. Capital ratios of ROCE at 21.8% and ROE of 14% continue to remain strong and we continue to focus on these metrics. We have flexed our delivery engine with an increased uptick in our utilization — utilization levels for the quarter stand at about 78% compared to the 76.3% last quarter and 76.7% for the same-period last year. So we have to get the utilization numbers up and this is definitely a lever available to us and we are working to get back these two — these back to the 78% to 80% numbers that we earlier used to have. Campus grants are slowly getting into billable mode and this is definitely going to help on utilization numbers. We have reported net people additions in Happiest mines of about 50. We ended the quarter with 6,630 Happiest mines. Attrition has seen a small uptick and it stands at about 15.3%, which we believe is more a seasonal phenomenon and we expect this to trend downwards in the next quarter. Finally, I’m happy to share that on February, we signed agreements to acquire the Middle-East business of Gas Technologies Limited. Intention of this transaction is to consolidate existing customer relations in the region along with a local delivery team with capabilities in application development, maintenance and infrastructure services. Almost all of the business that comes to us through this consolidation will fall within the BFSI vertical and the IMSS business unit. The transport business comes with 90 plus people, a few very good customer relationships, new customer relationships and a few deep customer relations within you know some of our existing customers. I take this opportunity to welcome the newest happiest Minds into our family and now look to expanding on the relationships by taking our capabilities in BFSI vertical, Banking and other capabilities into these acquired accounts. Middle-East will become a significant contributor over the next year and we will be making more investments in the region. Talking a little about the future, we aim to close the year with margins to be in our guided range of 20% to 22%. For the nine-month period, we are ahead of this guidance number. On revenues, as mentioned earlier, we have given a forecast, again, not a guidance of about 30% to 35% growth for the year. Consolidation of pure software and got slightly delayed in our first-quarter due to which we had a shortfall — shortfall in the growth numbers in the first-quarter. However, as you have — as you may have noticed, we have in subsequent quarters done a Q-o-Q growth of 27% and 28% and to do a similar and better, if not better number than Q4 and our attempt will be to come as close as possible to the 30% growth number in constant-currency that we had set for ourselves. With this, I conclude my commentary and we’ll pass this on to Joseph. Over to you, Joseph.
Joseph Anantharaju — Executive Vice Chairman and Chief Executive Officer – Product & Digital Engineering Services
Thank you thanks, Venkat. Good morning, everybody. As we reflect on the past quarter, it’s encouraging to note that we have maintained our momentum in our transformation agenda even during the period typically characterized by seasonal weaknesses such as furloughs and vacations that result in fewer working days. Despite these, I’m pleased that we have achieved solid revenue growth while upholding our impressive margin profile. This performance reaffirms our commitment to driving sustainable progress and adapting effectively in a dynamic business environment. Product digital engineering services-led their performance with a growth of 28.2% year-on-year. All our focus markets have reported good set of numbers. Seven out of eight verticals have registered good growth with the exception of, which is seeing some softness in some sub-segments.
Our customers rely on us for a distinctive blend of services that encompass engineering, transformation, data analytics, artificial intelligence, cloud solutions and cyber security. With a dedicated team of 6,630 professionals at Happiest Minds, we embody a diverse array of roles, strategists, industry experts, functional specialists and technology. Together, we collaborate closely with our clients across various industries to not only understand the unique challenges, but also to shape and deliver exceptional value-aligned strategic goals. We continue to make progress in our efforts to build large customer accounts. During the quarter, we have added another $10 million customer taking account in this cohort to three. The number of customers in the US, the $3 million to $5 million cohort has increased by one to total of seven.
We worked with 278 customers and our average revenue per customer increased significantly during the quarter to $898,000, inching towards the $1 million mark that we’ve set as a goal. We are $85 billion corporations that our customers with more than $1 billion in annual revenues will contribute to 47% of our overall revenues. To put things in perspective, this count of $1 billion customers were 60 same time last year. These customer engagement metrics demonstrate our keen focus on customer happiness and effective execution in terms of account mining, farming and acquiring significant new clients. The verticalization of our industry groups, which we announced earlier this year is now empowering our sales team to collaborate closely with domain experts within their respective sectors. This alignment allows us to better understand and respond to our customers’ needs through our consulting and solution-oriented approach.
Our GBS business unit continues to see demand across various sectors, specifically with high-tech for product innovation and user engagement, while sectors like travel, retail and tech and manufacturing are implementing Gen AI to enhance customer and employee experience and optimize operations. We continue to strengthen our collaboration with Microsoft and AWS. Leading our strong partnership with Microsoft Azure AI, we’ve implemented conversational interface that Coke Cola beverages Vietnam, improving their efficiency. With Botgage and, our other alliances in the ecosystem, we’re helping build scalable AI innovations for our customers. During the quarter, a global leader in parcel spend management and supply-chain planning chose us to develop a Gen AI-powered chatbot that simplifies data querying, offering real-time insights and dynamic visualizations to make informed data-driven decisions with ease, thereby improving user experience and driving operational efficiency.
With onboarding of our Chief Growth Officer recently, we have put in-place a large account strategy targeting new logos of consequences. The team is coming together and has already built a good pipeline. The reported quarter saw some good new logo wins, some of the noteworthy are. For a US logistics tech provider, Happiest Minds is driving their digital transformation agenda and building intelligent conversational dashboards using Gen Ad. We have incubated strong partnerships with leading hyperscalers and ISVs through which we are innovating, co-creating solutions which our customers need. In the reported quarter, our strong capabilities in the Microsoft Power platform enabled us to win an engagement with a global med-tech company to build their engineering platform. We are excited about the opportunity to better serve our clients and differentiate in the market, leveraging the capabilities and reach of the acquisitions we made this fiscal year.
Our acquisitions are helping us establish presence in adjacent markets, while we are enabling their growth by giving impetus to their pre-sale solution capabilities by enhancing the offerings with our domain and technical capabilities. In the reported quarter, an American multinational financial services company shows business of Happiest Minds to transform the enterprise content management systems. In another case, a US health tech company chose Pure software to provide them infrastructure management services-based on the capability of our IMSS business unit. The pure software and audios, companies we acquired in the past year have been successfully integrated under one happiest mines and we are together driving efficiencies in sales, delivery and more importantly, operations. We will continue to work with focus to advance our positioning of services amongst customers on both sides. Enterprises are adopting quantitative risk assessment techniques to prioritize risks and allocate resources.
Cyber security continues to be a business imperative for our customers. Through our comprehensive offerings in this space, we are helping business naggregate towards a global regulatory convergence. During the quarter, a Middle East-based global bank chose us to provide risk and governance consulting services. In other updates, I’m pleased to announce that Happiest Minds has been recognized by Gate Place to Work as one of India’s top 100 Best Workplaces and as one of the best companies for women in India by Aptar and Saramount. These prestigious accolades underscore our commitment to fostering a diverse and inclusive workplace and our superior execution of these strategies. Let me share my insights on the demand drivers for Happiest Minds. The financial services sector in the US is thriving bolstered by a robust economy, stable inflation and a balanced job market. Our strong narrative in the banking, financial service and insurance space enhanced by our recent acquisitions position us well to seize these opportunities. Healthcare and life sciences , now among the top three verticals for RPS mine has grown very rapidly in the past year and we are building momentum to be a formidable player as a digital health partner for our customers in the areas of personalized medicine, value-based care and biosimilars. We are also witnessing a positive shift in the retail and consumer products industry with discretionary pressures easing. While demand trends remain stable across most sectors, we have observed some softness in the tech space, especially the higher ed sub-segment as customers reassess their business strategies amid disruptions caused by changing student preferences. However, it’s encouraging to note that technology continues to be central to their decisions and we do see more focus on the workforce development subsegment in this space. Our customers are prioritizing key technology areas such as artificial intelligence, application modernization, cloud solutions, transformation initiatives and cyber security with investment flowing into these areas. I believe this upcoming calendar year will open new frontiers for growth for Happiest Mile to the combined impact of our four transformational initiatives and an improved demand environment. I’m genuinely excited by the prospects that lie ahead for our company. With this, I conclude my commentary. And operator, we can now open the floor for Q&A.
Questions and Answers:
Operator
Thank you thank you very much. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchstone telephone. If you wish to withdraw yourself from the question queue, you may press star N2. The participants are requested to use handset while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles participants who wish to ask a question may press star and one. The first question is from the line of Adity Patel from ICIC Securities. Please go-ahead.
Aditi Patil
Hi, thank you for the opportunity. My question is on the FTEC vertical. In prepared remarks, you shared some color on this vertical, but can you let us know the outlook in top client? It has — the performance in top client has been soft since past few quarters and also extra top client should we expect recovery in this vertical?
Joseph Anantharaju
Sure. If you look at the previous — first touch the previous quarter and then get into the broader segment outlook as well as what we see coming. So for the past quarter, there were two main reasons why we saw a dip in our quarterly revenue. The first was one of our customers, a mid-sized customer, I would say, had a captive center in India decided based on their P strategy to in-source all of that work. And so that had a fair bit of impact. The second one was for one of our customers in the K-12 space, we completed the development of their platform and as a result, the size of the team got reduced because you need a smaller team to continue adding features and supporting the platform.
Now if I look at the broader segment, you can — if you look at the segment, you can broadly break it up into four areas, higher ed K-12, which is a schooling of professional development or workforce development. And I’ll keep universities as a separate thing because it is an ancillary of ed-tech. We’ve not really done much with universities because it’s a very specialized segment. Most of our work has been in higher ed and that’s the area that has got impacted significantly due to changing customer preferences, the digital transformation and also some secular trends around enrollment and costs that these universities are facing. So one of the — as part of our FY ’26 strategy, one of the strategies that we’ve identified is to leverage some of the strengths that we have in this space to parlay that into service offerings for the professional workforce development where there’s a fair bit of focus and investment that’s going just to look at how to upskill multi-skill and reskill the workforce with all the rapid changes that you’re seeing both in terms of technology and business models. And so that will be something that we will be focusing on closely.
The other thing that we’re looking at is to see if there are some channels that we can develop to look at the top universities that tend to develop their own platforms as well as take a couple of the leading platforms and be the implementation partner. So these are two strategies that we will make among a few others that we’ll be looking at to get back a growth and stability in the tech segment.
Ashok Soota
Okay. Joseph, if I can just add to that, Ashok here. You know, I think we should also be clear on our expectations from the ag-tech market. Even in today’s economic times, we have an interview from a lady called Deborah of a venture capital entity and she says may stay-in the slow lane this year as companies grapple with artificial intelligence. The fact is it’s been a very-high growth segment right through the pandemic, et-cetera. The good thing for us is that even while this is going to be steady or lower-growth rates than perhaps some of the others. We are clearly seeing ourselves well-positioned in verticals where there is a high-growth rate and we are in a position to leverage and take advantage of that growth rate.
The first is, of course, as Joseph mentioned, healthcare from virtually nowhere has become our third-largest vertical and we see strong continued growth. We’ve got a great presence in BFSI, which has also come through our acquisitions as well as some of the developments that we have been undertaking. So one segment will offset the other. We don’t want to project that is going to be a major growth segment for us. Of course, it will grow and recover from where it was. But if the whole segment is slow, there’s very little for you to do to be able to make it as a major growth driver.
Aditi Patil
Thank you. Understood. Thank you for the detailed color. My second question is about on banking platform. So in previous earnings call, we had mentioned about the strong pipeline of traction we are seeing in the banking platform. Can you share how the pipeline is shaping up over here? And have we already won some deals or other deal closures in unexpected lines?
Joseph Anantharaju
Sure. So if you look at last quarter, the growth in the BFSS segment, if you notice the BFS segment was the best-performing segment for us last quarter. And I would attribute a big part of that to the ATA banking platform because we were able to close two deals, finish the implementation and the recognition of those revenues is what has led to quite a bit of the growth that we see in the BFSI vertical. So looking at the current quarter and next year, there are two, three things that are happening. One is the organic pipeline that Pure software has, perhapsa banking platform continues to be good and it should be a one of the contributors to our growth and to the growth of the BFSI segment during this quarter.
We’ve also taken a strategic view to Arthur and we’ve put together a couple of task forces, one of them to look at-the-market that we want to take different markets and use cases that we want to take Arthur Banking into. Therefore, what is the functionalities that we need to be added, what is the strategy we need to adopt and what is the go-to-market that we should be doing. This is in parallel to all the efforts that we are making. The second is we are seeing quite a bit of traction in the Indian market. We’ve been in discussion with a few of the banks and many of them are undergoing their digital transformation initiatives and they’re looking for a digital banking platform like Artha, which will provide their customers with the kind of experience, digital experience that they’re used to.
And here again, we have quite a few good conversations going on and we are very like I’ll overlay that with the comment we made about the LN team and the Chief Growth Officer. So that team is coming together really well and the BDMs that we have in India, they’ve been able to open up a few of these doors. And so we are very excited about the prospect of that Arthur brings Brings to the table in terms of non-linear revenue, establishing our BFSI capability because we built — we have our own platform that should — that should make us very credible with customers in terms of our capability in the banking space. So it’s both direct revenue and leverage that we get from that excites us.
Aditi Patil
Okay, got it. And can you remind us is for Artha, is Q3 seasonally strong or Q4 a seasonally strong quarter.
Ashok Soota
We have — it’s sort of lumpy and we have seen Q4 to be reasonably strong. So Q3 was good. We are looking at a much better Q4 from Banking as far as revenue growth are concerned. We know license has got two elements. One is the implementation service, which was over a period of time, but the license — being a term license, you — the revenues get recognized on call-off or on closing the transaction. So Q4 is good. Just one more point to add to what mentioned, mostly recent acquisition or whatever the consolidation that we did in the Middle-East of gas technology. This is into many of the large banks in the Middle-East. And as part of the market, diversification today is very strong in East Asia and parts of Africa, we are seeing quite a bit of cap possibilities in the Middle-East and this consolidation also will help us open up these stores from taking banking platform into those customers.
Aditi Patil
Okay, got it. And so is the acquis like what is the timeline for completion of acquisition?
Ashok Soota
It’s — we should be done this, in fact, the SPS which we signed, it was more of a transition of business because we had certain common customers and they had a large presence in the Middle-East with about 90, 100 people and two very good BFSI customers and relations about nine to 10 of them. So those come on to our — we get it onto our roaster and we take it on from here. So closing should happen. Closing in terms of payment should happen in the next one or two days.
Aditi Patil
Okay. So we should see like incremental revenues from acquisition in Q4 itself.
Ashok Soota
Yes, there will be — there will be something that will come from them because it is you know, we share customers, right? So obviously, there is no cross-sell, it will be lot more of selling into the same customer, consolidating those relationships into the existing customer and then we’ll have to sell into those new customers, which we put in. But yes.
Aditi Patil
Okay. And can you share about progress on the — so we have been focusing on-net new deals, adding net-new logo. So can you share progress on this?
Joseph Anantharaju
Yeah. So you know as I stated earlier and Venkat also mentioned, at the beginning of the year, we took a very strategic decision to separate out our business development, our sales team, which was hybrid till then into farmers and client partners and hunters who would focus on NN new logos. And we have Manendar who joined us as the Chief Growth Officer in August. And he’s been putting his team together and we have most of the team in-place a very seasoned sales executives. And what we’ve done is we’ve tried to bring in people to align them with the workflows that we have. So each sales BDM is — has significant years of experience and depth in one vertical and that will be the primary vertical. And so this team is mostly assembled one or two more members to be brought on-board and they came together in the November-December timeframe.
Very happy to state that we already seeing very healthy buildup of pipeline, as I mentioned in my notes at the beginning of this call. And we already have one closure and couple of prospects in very advanced-stage, which should lead to decent size — decent-sized revenues. So I think the strategic initiative that we put in-place has taken root. It’s a — it’s in the execution phase right now and we already seen output out of this. We had seven new logos cutting across various geos and verticals last quarter and we expect this momentum to continue into Q4 and into FY ’26.
Aditi Patil
Thank you. Thank you. I will join back-in the queue.
Operator
Thank. The next question is from the line of Prasad Padala from HBI Mutual Funds. Please go-ahead.
Prasad Padala
Hello. Hello. Yeah, hello, everyone. Very good morning. So in terms of the — I mean, good to know that your comments about the order pipeline deal wins, etc. But any quantitative color if you can provide that would be great, first. And second, so would that actually translate to a better organic growth for next year?
Joseph Anantharaju
When you say qualitative is it more from a quality?
Prasad Padala
Yeah. In terms of deal wins, are they like substantially better than over the — like last three year average or is it like more in-line with what it had been there?
Joseph Anantharaju
So we had the — as I said, the team came together in November-December timeframe. And if we had one closure already and couple of them will surely get close-in this quarter and pretty good size. Apart from that, there is a good healthy buildup of pipeline because this team has right now is focused on India and North-America. We decided to take-up because these are two largest geos and instead of spreading ourselves thin, we decided to focus this team and build a team in these two and implement the strategy in these two geos. Next year, we will extend it to probably Europe, AMG is too small right now. And if you look at India, as I was saying, there’s a huge a synergy with Arth and in a couple of verticals, we are seeing a good traction. One of them is in the BFSS case. We are — we just got panel by two of the public sector banks and we are in discussion to both take Artha to them and provide other services.
Additionally, for one of the largest public sector banks in India, we are providing them with managed security services and it’s a pretty large deal and we are adding additional components to this offering. We are also seeing quite a bit of traction in the industrial and manufacturing space. And in North-America, as we speak, there are at least three or four prospects that I would say are in an advanced-stage and hopefully should close during this quarter. We have salespeople that are covering Midwest and East Coast from New Jersey and the Bay area. So we have coverage across. And we also have brought on-board a season BDN in Canada because we see quite a few opportunities out there and this sales leader has sold into the Canadian market. So in all, I think as I said, our NN pipeline is looking strong. It’s not a number that we share. But I can say that it’s been among the best that we’ve had. If you look at just the NN base or the NN part of our business.
Prasad Padala
Got it.,
Ashok Soota
If I can just add to that. There is a good question here. And essentially, if you will notice, we said we had four transformational initiatives taken earlier this year. The one was clearly designed to show growth in the current year and that is the acquisitions, which has been demonstrated by the results. Now if you see the other three, Joseph has talked about some of them in length. I’ll again reemphasize what I said in my opening remarks. If you just take Gen AI, we reached a point where we are executing maybe about upwards of 10 or 15 proofs of concept, maybe 80% of those will get converted into orders. They need not be giant sized orders, but they can clearly add to a very significant amount in terms of revenue, inorganic growth in the next year, which wasn’t available this year because you had to go through the POC stage to be able to complete it. Those numbers are not even reflected in the pipeline as yet, because we will include them in the Pipeline once we finish the POCs and we then get a firm indication from the customer that they will go-ahead and convert to the larger order. So that’s one fundamental area of growth. Joseph has talked about the progress on NN in quite detail, both in his own opening remarks and in response to your question. And the third area was, of course, the industry growth and verticalization we did. Obviously, you have industry managers settling into new roles, each one taking a varying degrees of time to build-up their own pipelines, which is progressing. In some areas, it’s happened a little faster than the others. And my belief is that in the next quarter, all of these will become major engines of our inorganic growth. So, that’s really the thrust for the next the next year going aheadrising out-of-the changes we made in this year.
Prasad Padala
Okay. Understood. Thank you so much. Also, if I may just extend the question. So how much of it is of the improved pipeline is a function of the strategic initiatives are you taking and how much of it is because of the market is now looking better? I mean, I mean, is it — is the second thing — I mean, I mean, the first one is more clear, I think, in terms of how you explain. I’m just trying to understand the second bit and if you can give some color on that.
Ashok Soota
This is you again.
Joseph Anantharaju
So yes, both go hand-in-hand, as you would understand, it becomes difficult to really peel it out. And as Ashok also emphasized, all of these are working hand-in-hand, right? The acquisitions have got us depth and banking platform, which positions us well in BFSI, which is an area that I think showing more signs of growth than others and the fact that we know that we verticalize and have a BFSI vertical with a IG Head and the delivery and sales aligned to it helps us go-to-market better, right? Similarly for healthcare, right, we have some leeways that we’ve got from pure software. They have a few customers in this space getting us some new capabilities, but they are benefiting from some of the capabilities and work that we’ve done in the healthcare IG, which has a — which has a health — which has IG Head. And we’ve built some really good cutting-edge capabilities working with scan and with Happiness Health. So all of this we are able to take to-market. So I would say it’s very synergistic and goes hand-in-hand and kind of acts as a catalyst for each other. That’s how I would look at it.
Prasad Padala
Got it. Thank you. Thank you so much. That’s all from my end. Thanks. Yeah.
Operator
The next question is from the line of Vineshwala from HDFC Securities. Please go-ahead.
Vinesh Vala
Yeah, sir. Thanks for giving me the opportunity. Well, my question was on the retail vertical where you see ease in some discretionary spending which is coming in. So can you highlight on that vertical?
Joseph Anantharaju
Yeah. So we are — we are seeing a decent traction in two areas. One is, if you look at the retail segment in US, especially the — some of the mid-sized retail companies, which have been a little behind in their digital transformation strategy, things like e-commerce, leveraging analytics, using some of the technologies like Beacon and others that a lot of personalization, as you know, we see these companies undertaking or getting into the next phase of the digital transformation journey with a lot of emphasis on analytics and AI. And so that’s one area that we are seeing quite a bit of traction. In the CPG space, I think some of the CPG companies are customers or we’ve signed them up recently. And we’ve seen that in the last six to eight months, they all went through a little bit of a strategic review at the beginning of last year. And towards the end of 2024, we saw that these reviews were getting completed, organization restructurings were being done and therefore, new initiatives started being initiated and executed. And we are beginning to see that reflecting in additional requirements and pipeline. And as you see for last quarter, we did have the retail CPG vertical showing pretty good growth of around 3% to 4% quarter-on-quarter.
And we expect to just to continue. One of the strategies that we’ll be playing out, especially on the CPG side of the vertical is to focus on how do we expand our presence and mine more aggressively in the customers that we have. As I said, we have some of the top — among the top-10, I would say, we have four of the companies as our customers and they all pretty large they have pretty large IT spend. So there is no fair bit of opportunity out there. And so we’ll have to take a very focused view to our account manning and expansion, which again I think our whole verticalization strategy would help by bringing delivery, sales and domain together to come up with account development plans, account strategies and to go about it in a very focused manner?
Vinesh Vala
Okay. Thanks, sir for elaborate answer. Another one was on the BFSI vertical, as you told that the recovery is there in the US market. So wanted to know that among the sub-segments, which are the sub-segments which is showing the recovery or it is across all the verticals? And another question was on the margin front that you told that the margin lever, so utilization, which would be — you would be improving it to 78% to 80% is the range you are comfortable with. So what are the other levers which would be helping us to get the margin?
Joseph Anantharaju
Yeah. Sure. I’ll take the BFSI question and let talk about the margin, okay. So if you look at BFSI, I would say that the banking and financial services is, I would say, more than insurance is an area and especially banking is an area that we are seeing a more of a propensity to spend. I think the insurance sub-segment, especially given what’s happened in California, right, they may be a little bit more, I would say careful in how they would approach it. But on the banking and financial services side, we are seeing, as I said, the growth that we had in Q3 and the growth — the growth that we would have in Q4, a pretty big contributor would be the banking and financial services space. On the insurance front, what we’re doing is we are taking a very focused approach. We have a few large — we’re doing two things. We have a few large customers. And so we are figuring out what is the top strategic imperatives for them because many of them are — again, they’re going through what I said the CPG companies went through last year. They’re doing a little bit of a strategic review of their priorities and I think in the next six months that should get done and then they should start rolling out initiatives. In parallel, we’re looking at what are the current pain points and how do we really address them in a very focused manner.
The other thing we’re doing is we’ve come up with for the — for some of the smaller insurance companies, we are coming up with — coming up with a productized service offering where we put together what we call an insurance in a box that covers all the way from sourcing a customer to signing them up to getting their claims, underwriting. So putting the kind of 60% to 70% or 80% completed offering and take it to take it to the market. We’ve had a couple of customers already sign-up for this in South Africa. And based on that experience, we are trying to see if we can replicate it in other geos as well. These are some of the things that you’re doing in the BFSS space. Venkar, do you want to take the margin question, please?
Venkatraman Narayanan
Thanks sir. On the margins, you know, there are quite a few variables going-in favor and some of them going against. But I — let me highlight the big ones. The big one is obviously the foreign currency, it’s — it is likely to help us the way things are moving. Second is obviously utilization, utilization, yes, we have to get it up from the 76% 77% upwards to 80%. So that’s a good lever that’s available to us. The third is, you know, our third banking, what we have seen is it has got a very positive impact on margin because the moment you call-off a license, it’s almost all of it is to the bottom-line. So it helps us immensely on margins and that’s the way non-linear business works. Now If I were to give you some of the things which are kind of I shouldn’t say depressing, but let’s say the investments, the investments into Gen AI, we did call-out that number is about 1.5 million. We are today running at about a run-rate revenue of about INR24 crores, INR25 crores for the nine-month period. So and it’s still — you know we are investing money. It’s about INR1.5 million for the first three months — six months and now it’s running at about $0.25 billion for the first up to the Nine-Month period. So that’s something that’s been subsumed into these — into these numbers. The second thing is we have gone ahead and given pay increases, the variable pay, we have not missed any timelines on that like what most of the other companies or peer group companies have done. We have not resorted to any of those pushing things or keeping — keeping the numbers at a lower — lower level than what the typical industry expectation is. So the foots are you know, these aspects of investments, the new sales engine, which we talked about is there is a lead-lag effect that’s also impacting the now and year margins as we speak. But despite all of that nine-month period, we have done 22.1% in EBITDA. Like I said, we are giving you both operating margin and EBITDA and EBITDA is at about 22.1% and ahead of the guidance of 2022, we would like to-end the year within the guidance range or ahead of the guidance range. Next year, obviously, pull out all stocks to make sure that we continue to improve margins because consolidation benefits will start showing up. You had some transformational acquisitions three of them and gas, all of them, you know, we will start showing consolidation benefits as we progress.
Vinesh Vala
Thank you. Yeah, thanks,. Last thing, can you quantify me the wage impact during this quarter on the margins?
Venkatraman Narayanan
This quarter we have — for the senior profile, so it will be about 0.6%, if I’m right. If I’m right. That will be the number. 0.6%.
Vinesh Vala
Okay, got it. Thanks. Thanks for the detailed answer. Thank you.
Venkatraman Narayanan
Thank you.
Operator
The next question is from the line of Ruchi from ICIC Securities. Please go-ahead.
Ruchi Burde Mukhija
Thank you for the opportunity. A couple of questions. On this year, we saw a large acquisition taking precedence, which will pull off our growth in a way our organic growth would be single-digit or largely. So as you commented the BFSI traction is building, we have put in new teams at-work. As we proceed towards next year, you see the organic growth for our business catching-up and could possibly running toward double-digit trajectory. Is that something we are aiming for
Venkatraman Narayanan
Ruchi, the question, if I were to saying this year’s growth organic is single-digit and next year we would like to — you would like to know what kind of a number that the sun has been double-digit? Is that what the question was to say?
Ruchi Burde Mukhija
Yes. Do we see organic growth traction improving with the combination of demand improvement and the efforts that the company has potentially.
Ashok Soota
Yes. See, first you know, I’m not being apologetic about the growth because of this year, I’m not — because we don’t split the growth into organic or inorganic, which is growth because this year we have given the base for the last year-on that base, we have — we have grown reasonably well in the current year. Going-forward into the next year, this will be the base and the expectation is to continue the organic growth. We have said that we’ll be at least 1 to 1.5 times market, which is what we have said as a long-term growth target. This is something that we had set-out even at the time of our IPO and we continue to hold-on to that,. So right now, we are in the planning stage for next year. We’ll come back to you after Q4 with what we are seeing. But yes, we are seeing good traction on the new sales engine, the verticalization, the acquisitions that we have made, the consolidation that we are seeing in some of the market spaces, generative AI services kicking-in, we could see decent amount of growth and also aided by — aided by what we are seeing in the market.
Venkatraman Narayanan
So just to add Jose, you go-ahead and then I’ll add a liner. So go-ahead.
Ram Mohan
So this is Rah,. Just to add, so we mentioned about the two things, two engines, right? One is the Chief Officer looking at the accounts and also creation of the business unit. Both these will contribute to the organic growth. Just wanted to mention that.
Joseph Anantharaju
So I’ll just add just so that we’re not hedging around with our answers, I’d say we’d be disappointed if we don’t move into double-digit organic growth next year. But as Venkat said, you’ll get more definitive ideas about where we are heading. And when we’ve done the plan exercise, which we are in the middle of. But we are well-poised with all the initiatives we are telling you that at least three of the four transformations are actually directed towards increasing organic growth for the next year?
Ruchi Burde Mukhija
Got it. For our guidance, we mentioned we want to land as close to 30% mark as possible. This imply a very acceleration in March quarter. Now with furloughs reversing platform good seasonality in the quarter, we imply that the March quarter would be substantially growth a quarter. Is that right understanding?
Venkatraman Narayanan
Or that’s what I said. If you’ve looked at our quarter-over-quarter, which is Q2 and Q3, we have done 28% 27% to 28%. That’s the kind of a number that we are going into with into Q4 and for the benefits of some more movements that we get from the gas consolidation and the reversals that you talked about in terms of our work days. But see, we did have furloughs. We did catch-up quite a bit of that through certain revenue enhancement measures, which obviously will be a base that we’ll have to work on into Q4. But attempt, I keep saying attempt will be to touch that 30%. And as of now, it looks to be about 28%, 27% 28%.
Ruchi Burde Mukhija
Understood. And just a clarification. For insurance vertical, you mentioned the may have impact. Do we have direct exposure to now the largest insurer in that geography, State Farm insurance is or we are talking a general implication on the insurance verticals.
Joseph Anantharaju
Just talking about general implication on the insurance vertical. Our customers are more Europe-based insurance companies. That’s where we have larger presence, if I may adds and you know, and those are the customers that I talked about that we would be among the top-five insurance companies in the world. And those are the customers that I talked about that we would be focusing on with very specific strategies.
Ruchi Burde Mukhija
Understood. Thank you and all the best.
Ashok Soota
Thank you.
Operator
Thank you. The next question is from the line of Sumit Jain from CLSA. Please go-ahead.
Sumeet Jain
Yeah, hi. Thanks for the opportunity. So my questions are largely around your generative AI business. I mean, it’s still very early days and just 3/4 of revenue disclosure from your end. But for the last two quarters, we have not seen any material pickup out there. So want to understand how are you defining the kind of work what you are doing in generative AI, what all kind of work actually entails in it? Because when we look at Accentures reported Gen AI revenues or order book, there is a substantial growth. So just want to understand that.
Ashok Soota
In Sweden on the call.
Venkatraman Narayanan
Yes, Ashok.
Ashok Soota
Yes. I will let Sweden take this.
Sridhar Mantha
Yes. So one of the things we have done is because we wanted to very closely track what is purely generated AI, right? There could be always a possibility of a much larger project, which is typically a.NET project or a architecture, which also could be having a generative AI component, right, and a multimillion dollar very large RFP. There could be very small project of generative AI. However, internally, we are very clear of not tracking it. So that way by creating the GBS as a separate business unit, we wanted to completely focus on the generative AI and the solutions primarily around generative AI. So that way the revenue that goes into the PDS or IMSS Is not at all countered as the generative AI related projects at all. So that actually makes us purely to track generative AI projects and that could be — I’m not necessarily saying is doing it, that’s one of the fundamental differences compared to many other organizations, which could be having very large projects with small generative AI component and counting on it. And the second thing is, as with any technology adoption, as you also rightly pointed out and Ashok repeatedly reiterated, many of the customers are actually in the mode of especially the digital transformation. They wanted to try a few prototypes and then only they want to move forward and that’s the reason why we repeatedly keep talking about the POCs. That being said, we do have very few customers who are either technology pioneers or willing to take the risk, they are willing to make a little bit more progress compared to the POCs. That’s how broadly we are looking at the revenues and Ashok and as well as Joseph already covered about the small upticks we started seeing and we surely will see it in the next couple of quarters.
Ashok Soota
And, you may also want to talk about a little bit of the replicable sales and the fact that, Ashok, many of these are horizontal applications which cut across other industries.
Sridhar Mantha
Absolutely Ashok. I think in the previous call, Ashok, I traded it a lot. See, naturally market is trying to figure out what they can do with the generative AI technologies compared to any other technology we have seen. Here the changes and innovations or the new large language models, reasoning models, they’re coming very, very rapidly. So most of our customers are trying to solve very similar problems and trying to figure out how things will work-out. Hence, the approach we have taken a couple of quarters before itself is to take a problem that we solve for one customer and try to take it to other customers.
And in the previous call, Ashok did talk about a research companion where either research organizations or academic institutions where researchers are trying to actually look at what they can do with generative AI to help with their research. So, the second and the last one I’ll talk, for example, is most of you will be going to public companies’ websites as investors and there’ll be a lot of PDFs that are available on the website, right? So for example, if you really want to know like how it was trending in the last three years or how was specific information one year back, you have to go to the specific PDFs typically are posted on the website. So we created investor relationship bot, which actually uses a large language model and as you naturally can visualize, this is applicable pretty much for most of our customers where a simple chat interface to all the financial information publicly available on a specific organization’s website can be conversed against. We also have taken it and along with Microsoft, we have put it on Microsoft Azure Marketplace so that most of our other customers and new prospects can actually utilize this. So similar to this, we have multiple repeatable solutions that we are doing horizontal or somewhat horizontally specific vet like?
Sumeet Jain
Got it. So just to clarify, the foundation work-in terms of data analysis, data aggregation or let’s say, some bit of a cloud migration to access to the GPUs, that part of the work you are not including in GBS, but more in IMS access, right?
Sridhar Mantha
Absolutely, absolutely.
Ashok Soota
Absolutely. That’s right, Sumit.
Sumeet Jain
Okay. Okay.
Ashok Soota
I thought I would just clarify that. We are trying to be as you know, clear on that distinction, but it’s becoming a little difficult because we are just not able to figure out when that handover takeover happens, but we are trying to do that as possible.
Sumeet Jain
Okay. Got it. And are you seeing with the launch of deep couple of weeks back, are you seeing the inferencing cost to come down materially that discussion happening with your client base and a lot of POCs probably moving to implementation stages. Any advancement in discussions happening on the back of it?
Venkatraman Narayanan
I’ll take it and joke that.
Sridhar Mantha
Yeah, sure. I’ll take this, right. So naturally, like when we started six months back with ChatGPT, which is like a mega model or extremely large model. And as you rightly pointed out, inference is quite expensive, right? And however, in the last six months plus itself, industry is constantly coming up with smaller models, right, which are much more efficient. And of course, is still considered as a revolutionary step on the top of the smaller models. So that way as part of our work, we are constantly looking at smaller language models, which are typically 1.5 billion to 7 billion parameters as opposed to be extremely large 175 plus billion parameters models, right? So we already are actually working with our customers on how to make inference much more efficient with smaller language models and Deep turns into a logical next step. And of course, with all the innovation happening, there’ll be many more similar kind of steps. My point is, there are scenarios where we use extremely large language models and there are scenarios where we use smaller language models and market already has quite a few and is a next evolution on the top of it.
Sumeet Jain
Got it. And maybe just last question in the interest of time. I mean, obviously, Gen AI is being counted as to provide significant productivity benefits to the IMS service line as well as product and digital engineering services. And we saw that one of your larger peer did pass-on a lot of productivity benefits to one of the largest hyperscalers and even you work with them. So want to understand, are you also passing on these benefits to them or are you able to retain them? Any thoughts?
Ashok Soota
I can take this. I think when could you should really handle this as a much more like a margin-related issue that is really coming on. And I may add a little bit to what you would like to say.
Venkatraman Narayanan
I think when we started the sole Gen AI and the impact on the — there are two impacts. One is on the supply and the demand. And I think the demand-side, Srigar has covered in great detail. On the supply-side, the expected contraction or you know, at the development-stage is between 5% to 10%. How much of that we are seeing in new business, we are beginning to see some bit of that. The ask being, yes, you’re using AI, automation co-pilot and the similar tools, we should see the benefit. So I’m talking about it from a pricing, modeling RFP bid situation, that’s something that’s coming up.
The second is whenever you are in an RFP mode, typically in the IMSS business, there is an ask of saying because earlier also there used to be something called efficiency gain that we used to give whenever we start a model for a three-year, four-year transition of an infra project, there is always an efficiency gain. And frankly, you know what is there out two years, but the third year and fourth year efficiency gain as a percentage taken based on certain best guests and best guess and estimates. Right now, you have tools which permit you to show that and quantify that when you do your RFP. So two-ways to look at it. On the supply-side, yes, the efficiency gains are being passed on in renewal, there is a request.
In renewals rather than request, you know when you plan out your team structure instead of 10, it’s already in-line right and that kind of a thing. But the demand is making up. So I recently what I’m trying to talk about Nadella talked about it as a paradox, I think they want paradox or something like that. Where said that the demand will outstrip the constraints on the supply. So that’s what we’ll see going back many, many, three years back.
Ashok Soota
Actually,, in simpler terms, the fact is that the margins in the business are not going down because of this. And because of Gen AI, our product is the improvement. The product is the improving because it brings down our costs. Obviously, it leads to a lower-price for the customer, but that’s not at the cost of our margin. So that’s when you say, yes, you’ve passed the benefit because you’ve got a lower-cost and now you’ve passed on that benefit to the customer and the margin remains the same. In leading-edge applications which again Joseph and Mantha referred to, many of them are leading-edge applications. We obviously aim for margins which may even be higher than our average margin which we have across the business
Venkatraman Narayanan
It is, it is, Ashok. That was the other point. The bill rates on Gen AI services is, you know, superior to even our traditional and I wouldn’t want to say traditional, but our PDAs, athletics and related services. Digital services, if I put it back.
Ashok Soota
Yeah.
Sumeet Jain
Right. So the margin opportunity is very clear, but does it imply that your revenue opportunity comes down because initially there is a more deflationary environment and probably the paradox kicks-in after some time where the volumes come in, which will be reflected in your GBS revenues maybe with few quarter Lag?
Venkatraman Narayanan
Where again, I’ll just take this one again. On all leading applications, you’re really seeing the value you’re providing to the customer, which they could not have got elsewhere because of the expertise we have built on areas in which we are focusing doing more-and-more applicable sales. There’s another very interesting thing here. And when Jose — when talked about replicable sales, frankly, the more you do this, you take the same solution to, say, three customers and we’ve got many of them even right now in the pipeline. The moment you’ve done that, your own cost of production comes down far more than the customer could logically have expected. Would — would this per se have led to reduction in the top-line, which is what you’re alluding to, not necessarily? It’s a — it’s a little bit of a hybrid here because what you’re doing is you’re getting more revenue being generated, which would not otherwise have been available.
And on a per-order basis, you may say, yes, you passed on that productivity benefit. It has cost you a little less and that benefit you passed on and that reflects as a reduction in what could have been the revenue. So that’s what the thing is. The net effect is we’re not expecting any decline in revenues as a result. We are really saying we’re looking-forward to very solid inorganic growth, particularly with GBS, organic growth, particularly with GBS.
Joseph Anantharaju
To add, Ashok. So most — all the customers that we’ve engaged with are at least on the Genie and I’d say broadly on the AI side, customers even last few years, anything related to AI and maybe even data engineering, Snowflake and things like that,, skills like that. Customers understand that these are high-end skill and therefore, they are willing to pay as Vancourt pointed out, the rates that you get are at a premium for some of these skills, especially on the Gen AI side. And all of these engagements are being done at a fixed-price. So we — we do an estimation and we apply the higher rates and we also track the margins from these. And there as pointed out, they are on the higher side and there’s no revenue drop-off. Whatever effort that we are expanding, we recover that in terms of the pricing that we use. And in some cases AWS and Microsoft do land up providing what they call for in Microsoft’s case like seat funding to get some of these things started. A little bit of that offsets the customers’ cost. But for us, we get whatever revenue for whatever effort that we put in.
Sumeet Jain
Got it. That’s very helpful. That’s all I had. And thanks for taking my questions and detail and all the best.
Operator
Thank you. Thank you. Thank you. Ladies and gentlemen, due to time constraint, this was the last question. I now hand the conference over to the management for their closing comments. Thank you.
Sunil Gujjar
Thank you, operator, and thank you all for joining us today. We thank ICICI Securities for hosting this call on our behalf. We look-forward to interacting with you. You can reach-out to us on ir@happiestminds.com. Good day.
Joseph Anantharaju
Thank you. Thank you, everybody. Bye-bye.
Venkatraman Narayanan
Thank you, everybody.
Ashok Soota
Thank you.
Operator
On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.