Happiest Minds Technologies Ltd (NSE: HAPPSTMNDS) Q4 2025 Earnings Call dated May. 13, 2025
Corporate Participants:
Unidentified Speaker
Sunil Gujjar — Head, Investor Relations
Ashok Soota — Founder, Chief Mentor & Executive Chairman
Joseph Anantharaju — Chief Executive Officer, Member of Executive Board & Executive Co-Chairman
Venkatraman Narayanan — Managing Director , Chief Financial Officer, Executive Director & Member of Executive Board
Sridhar Mantha — CEO of Generative AI Business Services
Vinesh Vala — Research Analyst
Ram Mohan — President and Chief Executive Officer – Infrastructure Management and Security Services
Analysts:
Unidentified Participant
Chirag Kachhadiya — Analyst
Aditi Patil — Analyst
Piyush Kumar Pandey — Analyst
Sumeet Jain — Analyst
Vinesh Vala — Analyst
Presentation:
operator
Ladies and gentlemen, good day and welcome to Q4FY 2025 earnings call of Happiest Minds Technologies hosted by STSC Securities. As a reminder, all participant lines are 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 an operator by pressing start and zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vinesh Vala from SDFC Securities. Thank you. And over to you, Mr. Wallow.
Vinesh Vala — Research Analyst
Hi everyone. Good morning ladies and gentlemen. Thanks for joining us today on Q4FY25 earnings calls of FPS9 Technologies. On behalf of HDFC Securities, I would like to thank the management of FPS Minds for giving us the opportunity to host this earning call. Today we have with us Mr. Asok Suta, Chairman and Chief Mentor Mr. Joseph Anand Raju, Co Chairman and CEO Mr. Venkat Venkat Raman Narayanan, MD, CFO Rajiv Shah, Executive Director Ram Mohan, CEO, IMS Services Sridhar Manta, CEO, GBS Business Sunil Gujar, Head of Investor Relations I will hand it over to Sunil for safe Archiber statement and to take the proceeding forward.
Thanks and over to you Sunil.
Sunil Gujjar — Head, Investor Relations
Thank you Vinesh. Good morning to all participants in the call. Welcome to this conference call to discuss the financial results for the fourth quarter and year ended March 31, 2025. I’m Sunil, head of Invest Relations. We hope you have had an opportunity to review the earnings release we issued yesterday evening. Let me now quickly outline 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’ll have the floor open for Q and 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 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 — Founder, Chief Mentor & Executive Chairman
Thank you Sunil. Good morning to all the participants in the call. Happiest Minds has delivered an exceptional performance for the year with constant currency growth of 25.6% which makes the reported fiscal performance the best year since our ipo. In absolute terms the growth was backed by a superior margin profile which we have maintained in our guided range for 19 quarters. In a row. Let me touch upon 10 strategic transformational changes launched by Happiest Minds since FY24 and going ahead through FY26. The latest change is the one we announced on 19th March 2025 regarding our apex organizational structure.
As you all already know, Joseph is now our Co Chairman and CEO. Joseph has been a part of Happiest Minds since its inception and I’m sure Joseph will drive Happiest Minds towards accelerating profitable growth and strategic strength. Let me start from where these ten transformational changes began. After a few years of delay, we finally completed two acquisitions, Pure Software and Aureus whose results were integrated in Q1 of FY25. The wait was well worth it because both the organizations have a culture which is similar to ours. They were both cash accretive and have contributed to our growth and they have helped us deliver well above industry average performance for the fiscal three more transformation changes followed in the second half of FY25.
We did say these changes would begin to make an impact in FY26 which you will see starting from this fiscal Reorganizing Happiest minds on an IG wise basis and creating five new industry groups was the first of those changes that we launched in FY25. We were also the very first company to recognize the potential of Genai by creating an independent business unit headed by Srira Malta, a Happiest Minds veteran and our Ernst wild CTO for 12 years. We appointed Chief Growth Officer Maninder Singh and gave him the responsibility for net new sales. Manindo’s team is already making visible impact by bringing in new locals.
These transformational changes will show great growth in FY26 and even more so in FY27. Assuring us of healthy organic growth in FY26 and then FY27. In effect, if you see that we have delivered obviously very good growth in FY25, we are saying we are well positioned for double digit growth right through on a three year cycle beginning from FY25. The four transformational changes of FY24 were followed in FY25 by the organization changes mentioned earlier. Joseph will talk about the 6th to the 10th transformational initiatives. I now hand these over to our Co Chairman and CEO Joseph for his address.
Good morning Joseph.
Joseph Anantharaju — Chief Executive Officer, Member of Executive Board & Executive Co-Chairman
Thanks Ashok. Good morning to all of you. Let me start by thanking Ashok and the board for the trust they have placed in me. I’m very confident of continuing to deliver industry leading growth in based on the quality of our leadership and talent. The transformational initiatives we have initiated and the strong customer relationships we have developed. Over the last 14 years, happiest minds has delivered yet another year of solid performance across all fronts. The growth was broad based and across industries and geographies, product Digital Engineering services led the growth with 27.9% with all our core markets of US, India and Europe showing good growth.
In the recently concluded customer satisfaction survey we have received an industry leading net promoter score of 63 and our customer happiness score has increased to 93% which reflects the commitment to delivery excellence. During the year we have added 4 customers in the U.S. $5 million to $10 million cohort taking the total to 10 and 5 customers into the U.S. 3 to $5 million cohort taking the total to 7, validating our sustained efforts to widen our presence among our existing customers. With a Land and Expand Strategy we are 6,632 happiest minds and during the fiscal year we added 1,464 new happiest minds.
As Ashok mentioned, I would like to elaborate on how we are driving transformation through innovation, integration and industry expertise. The recent changes to our apex organizational structure mark the first step in building a stronger future ready company. The current Executive Board will maintain continuity this year while we transition to our next generation leadership team focused on long term profitable growth. In the last few weeks I’ve been talking to leaders from Happiest Minds, Pure Software and Aureus to understand the aspirations and forge an integrated organization structure that I target to announced in the next four to six weeks.
Private equity firms have become increasingly influential with Happiest Minds seeing a significant rise in PE owned customers. We are shifting from tactical to strategic engagement with PE firms, entrusting this responsibility to a senior leader to lead this effort. Our offerings will support both PE firms and their portfolio companies including due diligence, post acquisition, roadmaps, security, risk management, modernization, innovation, consulting, cost optimization, Gen A adoption and integration of acquired entities. We will leverage existing customer relationships to build these connections and deliver tailored solutions. Over the past decade, our Land and expand strategy has grown many accounts to 2 to 3 million dollars with some even reaching 5 to 10 million dollars.
With our HIPO initiative, we aim to scale key large accounts to $20 million and create more 5 to $10 million by investing in dedicated client partners, aligning incentives and prioritizing these accounts. The formation of a dedicated MN sales team has freed up bandwidth to enable this focus. Again. The move to verticalize has allowed us to bring different functions together and bring a sense of shared ownership and collaboration to enable this hypo strategy. We also see a strong potential in the expanding Global Capability Center GCC segment. We will tailor our offerings based on GCC maturity, from strategy and compliance Support for new GCCs to innovation modernization and data driven value creation for established centers.
As the IT industry has come under pressure in recent years, we have been feeling that it needs to be strengthened by a product and SaaS solutions approach. We are fortunate in gaining one such product, Arta, in the BFSI space. Through our acquisition of Pure Software, our product team has been enhancing the capability of this product and moving to a SaaS platform. Both the product and the SaaS solution will coexist. We plan to create a separate P and L and invest in market specific features and go to market strategies for India while expanding internationally into Europe and North America through partnerships and enhanced digital banking capabilities.
The last transformational change I would like to share is a revolutionary healthcare product which is expected to be available for launch by Q1FY27. At this time we have the Board of Directors permission to make a directional statement. The final decision to include this in our offerings will be taken by our Board only when the business plan is ready. Towards end of FY26 there is a fear that development of the product will require large capital expenditure and strain our resources. Let me assure you that even in the first full year this business will run on a cash positive basis.
It’s also important to mention that our product is being developed through the unique bioinformatics capability of Happiest Minds of which we have been speaking during the last year. Let me share my view on the demand environment. We have put up a great show in an environment of elevated uncertainty amidst higher tariffs, reciprocal measures and continued geopolitical risk. Businesses are recalibrating their approach to work in such an environment by being efficient through streamlining operations and de risking their supply channels. Technology is at the core of such an exercise and we at Happiest Minds with our AI led approach are transforming the way our customers operate with our innovative solutions and services.
Demand remains resilient in certain industries like BSSI and healthcare. We are the trusted partners for our customers in their digital transformation with cloud, data, AI, automation and security being top priorities in the reported quarter. An American insurance broker chose Happiest Miles to build their client data portal, leveraging our strong capabilities in Microsoft’s power platform. Actors like manufacturing, industrial and retail are seeing softness due to delayed decision making and a wait and watch approach by clients. They’re helping our customers navigate this elevated uncertainty by accelerating the digital transformation initiatives which reap immediate dividends. For example, in the reported quarter, a US manufacturer of intelligent fluid flow equipment chose Happiest Minds to build their next generation connected products to enable automated fault detection and diagnostics and realize energy savings.
With Gen A built on top of distilled twins. In reported quarter, we empower traditional energy and utility technology enablers with data driven real time virtual models that simulate, analyze and predict the operational behavior and performance of its physical counterparts, eliminating manual bottlenecks in data collection and entry Friends, As I come to the end of my talk I want to step back and look at the IT industry. The year FY25 is witnessing flat growth for some of the majors and negative growth for for a few others, we have delivered a healthy double digit growth, albeit some of it inorganic.
Recent global developments have clouded the prospects for the Indian IT industry. We want to state emphatically that at Happiest Mind we see no recession driven slowdown. Thanks to our 10 transformational changes and to our dedicated teams including those from Pure Software and Aureus, we see a good view ahead for next few years and we expect to deliver healthy double digit organic growth not just in FY26 but also FY27 due to the momentum we are building up through our 10 strategic transformational changes. With this note of excitement at the potential of these transformational initiatives, I would like to invite Venkat, our MD and CFO to share with us our operational and financial performance.
Venkat, over to you.
Venkatraman Narayanan — Managing Director , Chief Financial Officer, Executive Director & Member of Executive Board
Thank you Joseph. Good morning to you all. I’ll start with an overview of our financials for the quarter followed by the year and then give some specifics. Our extremely healthy revenue and productivity performance underscores our vision of accelerating profitable growth. We remain committed to balancing growth and margins, ensuring continued value creation for our shareholders. Coming to revenues, we have done well. Both our Q4 revenues in constant currency have grown both sequentially and annually by about 1.1% and 27.9% respectively. Our annualized quarterly exit run rate in dollars takes us over a quarter of a billion mark while delivering compounded quarterly growth rate cqgr of about 6.3%.
Since our IPO which is 18 quarters. This is for sure an industry leading performance. Operating margins for the quarter is at rupees 79 crores and 14.6% of revenues. Operating margins have dropped sequentially and year over year. You know this will need a little bit of an explainer first. During the quarter we had a sudden reneging on income payment obligations by one of our customers. Having business with government agencies in the U.S. requiring us to make a provision for bad and doubtful debts of about 12.5 crores. Since we ceased work with the customer at the start of Q4, revenue from them also saw a sharp decline during the quarter we started business.
Beginning of Q3 had a nice ramp up and then we also worked during the months of January and January. But what we did is we had to write off or make provision for the Q3 revenues and also not recognize revenues in Q4 for any of the revenues from this customer adjusted for this bad test because I see this as a one off. Despite all planning and thoughts, our operating margin stands at about 17% and very much like the last quarter as I’ve covered in my earlier interactions, we continue to make investments in our new and incubated Gen AI business services, the GBS vu, while adding significantly to our new sales team across the world.
Our quarterly investment on Dabao is about 10 crores with annual numbers being approximately 40 crores. Adjusted for the said investment, our quarterly operating margins stand close to the previous year. Coming to EBITDA adjusting only for the bad debt that I talked about, we are at 21.4% and very much like in the previous quarter and in line with our guidance of 20% to 22%. After accounting for investments that I just mentioned on GBS and New News sales, our EBITDA was largely in line with levels seen in the previous year. At this point it’s natural to ask about the status and progress of our GBS and sales investments.
The dedicated GBS unit currently has about 120 dedicated people. They are currently on a utilization of about 34.5%. Meanwhile, our new safety funder Maninder is now seven members strong and they are.
operator
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Venkatraman Narayanan — Managing Director , Chief Financial Officer, Executive Director & Member of Executive Board
Please press Star zero Again, an integral part of the transformation agenda covered by Ashok and Joseph. Our investments are beginning to show immense progress and performance and outcomes of these are wired into our growth plans for FY26 and forward. Now. Profits before acquisition related cost is at 13% versus 14.6% in the previous quarter. The drop is primarily on account of the bad debt. Our acquired companies are doing better than what was estimated at the beginning of the year. Earnouts paid over and above the original provision that we create on account of better than estimated performance get routed through a charge to the P and L.
These charges or adjustments are shown as part of our exceptional item. Ideally, such excess provisions or payout should be a capital cost. Our accounting Standards have a different treatment for the same. To give you a context, we have approximately paid $90 million for our acquisitions made last year. This is cash and upfront payments that I’m talking about. On top of this we have performance based earnouts for the acquisitions that we have made totaling of about 45 million. The 19 million upfront plus earnout for performance on a best estimate basis. I’m talking about the best estimate basis based on what we estimate their performance gets accounted as assets and intangibles.
Initial accounting for these are all in the balance sheet with amortization of intangibles and imputed interest cost, not real interest costs are charged to the P and L over many years after acquisition. Now any subsequent measurement of the earn out here I’m referring to the $45 million on account of subsequent better than estimated performance hits. The PNL in our case in the current quarter we have taken an additional such exceptional hit of $1.5 million. The fact is that better payouts means better performance. Such variances when compared to the amount of run outs or intangibles that we have on account of these acquisitions are very small and in my view bound to happen.
Maybe a little complicated, but what I’m trying to say is the exceptional item that you see you must have seen in our financials over the last three or four years and they related to acquisitions and because of a quirk or a standard of accounting we have to take it as a P and L hit, which is really not a P and L hit from a business standpoint. What we have done from this quarter is adjust these accounting charges or what I would prefer to call as noises in the pat to show an adjusted PAT and adjusted EPS from a business perspective, in my opinion these are a better financial measure.
Now adjusted pat for the quarter is 9.9% versus 10.7% in the previous quarter and 14.7% in the previous year. The drop QOQ is on account of the bad debt. I keep coming back to that and slightly higher tax provisions while that of the year over year is on account of the above bad debt and the tax provision. And also of course the GBS and the investments that we made into GBS and the new while on earn outs. I’m happy to share that we are not bidded for smi our company and the company is now fully integrated into happiest minds.
We are only now left with earnouts of your software and Aureus and and Batu for one more year. Now coming to the full year we have reported revenues of about 244 million for the year which is a growth of 25.6% in constant currency. In the early days we had given a forecast of about 28 to 30% so compared to that we are slightly short and I have covered this in all our earlier fractions. Total income grew 26.4% to 2,162 crores. Happy to say that we are a 2000 crore company right now and that’s a threshold that we covered this year.
Operating margins have grown by Rs. 17 crores and as a percentage of operating revenue it is 17.3% compared to 21% in the previous year. Adjusted for the bad debts our operating margin nicely corrects upwards to 18% and when corrected for the GBS and new sales investments of 40 crores approximately 40 crores this becomes 20%. EBITDA at 462 crores showing an absolute growth of 41 crores and at 21.4% of total income is within our guidance range of 20% to 22%. I’m not getting into the details of adjustments or acquisition related costs and exceptional items as they have been called out clearly in our presentation and have covered this above.
The quarterly level Adjusted PAT which is path adjusted for acquisition related charges and exceptional items give you a better view sans accounting noise adjusted PAT for the year stood at 246 crores which is about 11 lakh 11.4% versus 254 crores in the previous year. Adjusted EPS was almost constant and compared to the previous year compared to the previous year at about 16 rupees 37 pesa per share. Coming to some of the operational ratios, our cash conversion ratio versus EBITDA continues to be good. Cash on the books at year end is about 1,472 crores. DSO remains stable at about 88.
We could obviously improve that to 84 and 82 that we have seen in the previous quarters. Our capital return ratios stand healthy at 18.3 and our ROE which is ROE at 18.3% and ROE at about 11.9% a slight reduction versus the last quarter because of reclassification of some of the carrying acquisition carrying costs. We should see this nicely improve in the coming quarters and our target is to get ROCE back to 20% plus our utilization for the quarter remains stable at about 77.4%. Utilization is something that we could flex to a range of about 78 to 80% and this is one of the levers available to us going forward, attrition on a 12 month period has inched up to 16.6% and we are continuously working on the same and should hopefully see it drop in the next couple of quarters.
Happy to say that keeping in line with our progressive dividend policy and capital allocation discussions, our board of directors are subject to approval by the shareholders. Recommended a final dividend of 3 rupees 50 paiset per share including the already paid interim dividend of 2 rupees 55 cent. The total dividend for the year will be rupees 6 per share. My areas of focus for the future will include, amongst others, maintaining industry leading margins. We have sustained 19 quarters of top EBITDA despite heavy investments in transformations and we aim to preserve and enhance these margins through value creation and effective profit lever management mergers and acquisitions.
We pursue new M and A opportunities and ensure the smooth integration of recent acquisitions. Managing people, culture and outcomes is critical to driving growth and profitability. We start the year with a reasonably strong pipeline of deals. While organic growth continues to be our foundation, MLA will serve as an additional growth driver. Adapting to industry changes will be the final one. The Indian IT sector is undergoing rapid transformation and we must remain flexible to seize new opportunities. With this I conclude my commentary and we can open this for Q and A.
Questions and Answers:
operator
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press Star and one on the touch tone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Once again, a reminder to all the participants that you may press Star and one to ask a question. The first question comes from the line of Chirag Kachadia with Ashika Institutional Equities.
Please go ahead.
Chirag Kachhadiya
Hello? Am I audible? Hello?
Venkatraman Narayanan
Very clear, very clear.
Chirag Kachhadiya
Yeah, yeah. Okay. So thanks for the opportunity. I have a question on the quantum part of growth first thing. So if I look at the performance it’s little lower than what are some of years in mid cap and small cap category has reported. Can you put some light? What’s that? Why we. Think that in terms of the goal and second with respect to the ad tech vertical, what’s the trajectory from here onwards?
Venkatraman Narayanan
As I mentioned, we had nice already meet you. We had nicely gone on. We had ramped up to about $1.5 billion with that customer that I talked about which unfortunately we had to stop work starting January 1st. So during a quarter that you have to take a $1.5 million drop in revenues but still cover up for that and come out with 1.1% growth in constant currency and then 2.6%. I think if you adjust for that, since we are doing, we have done pretty well. I’ll turn this over to Joseph for the second part.
Joseph Anantharaju
Thanks Venkat. So as I’ve mentioned Chirag in the. Past, edtech segment. Is going through challenges and if you look at the EdTech segment you can break it up into four broad sub segments. The first is the higher ed segment, that higher ed tech segment called the Pearsons and others. Then you have the universities which is part of the higher ed ecosystem. You have the K12 and then you have more of the workforce development professional and others. The segment that’s really challenged right now is the higher ed segment. They’re going through quite a bit of churn for various reasons. Drop in the higher cost of education, drop in enrollment, the catchment area in terms of teenagers dropping because of fertility rate, multiple issues.
So our strategy while we are looking at extending higher ed presence from the providers to universities and we are having some success out there as we speak we have two, three conversations going on. The main pivot and strategy that we’re doing is to focus more on the workforce development space. As you know with all the rapid changes, Genai and other technology changes and business model changes, upskilling and multi skilling of the workforce is becoming very important and there’s fair bit of investment going in this space and during the strategy session that was one of the areas that we identified.
We have, we have some good offerings that we put in place and we’re taking these to market. My expectation is that during the year we will continue making progress on this front. Call. Recording has now ended.
Chirag Kachhadiya
Okay, thank you.
operator
Thank you. Next question comes to the line of Patil with ICICI securities. Please go ahead.
Aditi Patil
Thank you for taking my question. My first question is on BFSI and Healthcare vertical. Firstly for the quarter there was a decline in healthcare vertical. Can you let us know what led to this decline and operator request has been initiated. If you’d like to cancel this request please press Star zero again. So apart from how much of this was contributed by Artha banking platform and for a longer term view we are focusing on BFSI and healthcare vertical. So what is our growth strategy here in terms of what kind of sub segments or clients are we targeting in this vertical in these two verticals?
Venkatraman Narayanan
Thanks Aditya. Let me take BFSI first and then. I’ll come to Healthcare in the BFSI segment which has become our largest segment band far, we’ve had contribution during the year from Pure Software and Aureus. As you know, one of the reasons for making these two acquisitions was the concentration of revenues in the banking segment in Pure Software and Insurance in Aureus. And during the quarter there was a fair bit of contribution from the ATHA banking platform. Quickly we see a jump in atha revenues during Q4. It’s a little seasonal. That’s contributed to the growth in bssi. We did acquire a couple of customers in the Middle East, ADCB and Bank of Muscat that has also contributed to the growth in bfsi.
And BFSI is one of the segments, as we also pointed during the last earnings call, which is seeing some green shoots and increased spend. And the expectation is that during FY26 this will be a segment that will contribute handsomely to our growth. The other segment that we are quite very bullish about is health care and life sciences. During the quarter we did see a dip. That’s because one of the large customers, they tend to have a ramp down again, a significant seasonal ramp down during Q3 and the ramp up was delayed. But towards the end of the quarter we did see a ramp up and that should normalize revenues.
Apart from that, in our press release we had shared that we have signed two SOWs totaling $20 million which should continue into next year as well and this should enable and drive the growth of the healthcare and life sciences sector. In terms of focus areas, some of the areas that we are focusing on in the healthcare space as we have mentioned, bioinformatics is an area of promise that we’ve been investing in and we’re looking at continuing to make these investments and take this offering to market. We’re also looking at the medical devices segment that we’ve been building capabilities in.
We have a few customers in this space and we believe that with more data driven approach being taken by medical device providers and leveraging data, it will be a good confluence of our GBS analytics and aicoe and our healthcare capabilities. Pharma continues to be an area of focus because of some medical devices operator. Request has been initiated. If you’d like to cancel this request, please press Star zero. Again, leverage of data in coming up with molecules and also in the trial phase. So these are areas that we will be focusing on. The other area that I’d like to talk about is the commercialization process phase. Once a molecule has been tested and approved, there is a lot of modernization and analytics and data engineering that we can bring to the fore out here because the pharma companies are trying to form a view of patients and the development of consumer data platform and applying models to understand the data better is an area that we’d be able to help these companies out.
Aditi Patil
Okay, got it. My next question is on. You have announced the healthcare product in bioinformatics. So what would be the amount of capex of which you would be investing for the same in FY26?
Venkatraman Narayanan
As I mentioned in my talk, you know, we are in a very. We are still in the exploratory phase and putting a business plan together. We’re making some investments that are already included in the plan and the CapEx that we would need. All of that would get finalized when we present the plan to the board. And again, as I pointed out, we expect this once we launch this in FY27. We expect it to be cash positive right in the first year. So I don’t see much of an impact from a CapEx standpoint out here.
Aditi Patil
Okay, so the CapEx investments or the. Investments in operator request has been initiated. If you’d like to cancel this request, please press Star zero again.
Ashok Soota
Word special. I can just add to that at the moment the product is being developed and it’s really a billing opportunity for happiness minds. So therefore, when we talk about all these sows that Joseph has talked about, one of them is this. We may decide to take the product to the market ourselves, in which case we would still have a positive cash flow. So at the moment it’s just business.
Aditi Patil
Okay. Okay, got it. And in the IMSS vertical, if we see the segmental margin, there was a sharp decline in margins both on YOY and QOQ basis. What led to this decline?
Joseph Anantharaju
Ram. You want to take that round?
Ram Mohan
So basically if you really look at. The last quarter, we acquired predominantly on site centric and that had a much lesser margin and that was the one. Which actually drove the margins low because. Most of the work that you’re doing there is on site.
Aditi Patil
Okay, got it. Okay, that’s it from my side for now. Thank you.
operator
Thank you. A reminder to all the participants that you may press star and one to ask a question. May next question comes from the line of Jiyush Pandey with central broking. Please go ahead.
Piyush Kumar Pandey
Am I audible?
Joseph Anantharaju
Yes, yes, please go ahead. We can hear you. I’m sorry, Piyush, could you repeat that?
operator
Mr. Pandey, if you have muted your phone, please unmute your phone and go ahead with the question.
Piyush Kumar Pandey
Am I audible now?
Joseph Anantharaju
Yes, please go ahead Piyush.
Piyush Kumar Pandey
So broadly I want to know like what are the key projects which we are doing in the generative AI space for your clients?
Joseph Anantharaju
Sure. Sridhar. You want to share some perspective, Sridhar?
Sridhar Mantha
Sure. Thanks Joseph. Hey Piyush, in terms of the total projects in the last 12 months starting from zero, currently we are working on 35 distinct projects, Piyush. And I’ll repeat one example Joseph quoted as part of his opening statements. I’ll give a couple of examples and I’ll then talk about broadly how they are. So we are working with global leader in the software for electrical power systems and for them to actually create the digital twins of the motors from the field. Collecting the data about the motors is becoming very error prone. So we actually created a generative AI solution that can actually interpret various parameters of the motors very quickly by looking at two or three pictures the field personnel takes in the field with the help of the current large language models that can easily interpret the information from the images and the understanding of the motors so that the data entry aspect drastically becomes completely with zero errors.
So that way the overall efficiency of the digital twins will go up drastically. And we are doing many repeatable solutions which in the previous sessions Ashok did talk about. One of them is talking to the data. Pretty much the enterprise run on the data and irrespective of the BI and the simplicity of the reports, it is still cumbersome for the people on the move. And we created a talking to the data kind of solution so that people can quickly ask a question against complex databases and warehouses and and we are working with a passive spend management and a supply chain provider and we integrated a genai solution as part of the platform so that the entire BI and the data complexity can be completely simplified by people asking simple questions in English and they’re getting the right kind of answers.
And in terms of the overall kind of concluding statement I want to make pre issues we have been working on a lot of POCs and more than 50% of them already started moving and moved into the production. And also recently we started seeing more complicated solutions which are more like a gen power solution as opposed to a standalone gen AI solution where we are building complex backend layers along with the front end solutions that will be having a kiosk, avatar based interfaces and chat based interfaces and we are doing this solution for one of the large airports in United States.
These are few examples for you.
Piyush Kumar Pandey
Okay, second question is I say how do you plan to reach revenue of $1 billion by FY? 31.
Ashok Soota
Maybe I can just take this question. Hello. Given the slowdown that has happened in the last couple of years for the industry as a whole, not so much. Our numbers have actually been very good, but we’ve also got impacted to the extent they could have been even higher. Now we are taking a look at this and we are very optimistic about the current year as you can see. And we will maybe do a cost correction by saying maybe we need a year or two more in order to reach the level. The goal will remain the same, but we will evaluate this in detail when during the course of the next quarter and if not by the next quarter by October we will restate where we stand on that goal.
It is a matter of good governance. I am glad you have brought it up because once we have stated it, we should either recommit to it or say okay, maybe the date needs to shift by a year or two.
Piyush Kumar Pandey
Thank you. That’s all.
operator
Thank you. Next question comes from the line of Vineswala with HDFC securities. Please go ahead.
Vinesh Vala
Yeah, thanks. Thanks for giving me the opportunity sir. So, given some softness in the edtech sector, how are we capitalizing on the high growth verticals like healthcare and and what are the specific strategies will be used to drive the growth in these verticals? And one more thing, in this quarter our healthcare vertical had a sequential decline. So is it related to any client specific thing or some issues overall?
Joseph Anantharaju
Sure. Let me take the healthcare vertical first and then we’ll talk about dssi. So the healthcare vertical, just to address the quarter on quarter movement, as I mentioned earlier, that’s because one of our large customers in the healthcare space, they do a seasonal rundown in Q4 of their year, right which is October to December quarter and the ramp up was delayed as a result of which we seen an impact for revenues during the quarter. Having said that, we remain extremely bullish on the healthcare segment and as I shared earlier, we have signed a couple of sows totaling $20 million which will start yielding revenues in a couple of cases.
We’ve already ramped up the team and it’s positively impacting our Q1 revenues. The focus or the areas of focus in healthcare will be bioinformatics, not only for the products that we talked about but for services that we are providing to our customers. Medical devices which are more on the which leverage data and use fair bit of AI. We’re also looking at the pharma space. How do we help customers shorten the time period required to come up with new molecules and to go through the trial process, again using a lot of data and AI. And in the commercialization phase, customers are looking at how do you make data easily available, how do you leverage all of the data that you get from patients and drive that back into their sales and marketing strategy.
So those are the areas that we will be looking at in the pharmacy.
Ashok Soota
Can I add one point and this is, you know, apart from the seasonal ramp down that you pointed out in one of the customers, actually one of the major reasons is that one large customer came to the end of a project and then began a new platform. That platform took a little time to pick up but is really picking up full speed now. As Joseph mentioned, that’s getting reflected in the next quarter data or the current quarter data.
Joseph Anantharaju
Thanks Ashok.
Vinesh Vala
Okay, got this one.
Joseph Anantharaju
And on bfsi, you know, one of the as I again shared, one of the areas that’s showing a lot of promise and good growth is the Artha banking platform from two angles. One is the direct revenues that it provides and also the pull through revenues once you implement Artha. It also helps us differentiate with some of our banking customers. Again taking a product or a solution centric approach in the insurance space. We’ve come up with insurance in a box concept which leverages a customized low code no code platform on which we built various components of the typical insurance workflow.
And we’re taking this as an 80, 90% baked solution to the mid market segment in the insurance space. Our hope is that we will be able to scale this to the larger insurance providers as well. The third area that we’re looking at in both insurance and banking and especially in insurance, is how do we help customers customize the approach to their CRM solution? By helping them move away from the standard CRM solutions that are available out there and build customized CRM solutions that are data driven and then ensure that underlying that would be your customer data platform that will allow for again a lot of analytics AI to be superimposed.
On top of this it could be platforms like Palantir or Azure on the data lake side. The other area we’re looking at with customers in the banking insurance space is helping them in modernizing some of their customer experience. Some of them have carried out, they digitized their offerings but they’ve done this around 10 years back and there’s fair bit of progress that’s been made whether it’s adding a genai front end to it or just modernizing the customer experience on the front end side. A lot of customers are also looking at how do you modernize or to look at the.
The legacy platforms that they have have not kept pace with the technological changes that have taken place. And so there’s a scope for carving out some functionalities and helping customers build customized applications or platforms out here. Part of it is ata. ATA serves its purpose and in some cases customers, they want to build their own customized applications. These are some of the offerings that we are taking to customers in the BFFI space.
Vinesh Vala
Thanks. Thanks. That’s all for my side. Thanks for the elaborate answer.
operator
Thank you. Next question comes from the line of Sumit Jain with CLS here. Please go ahead.
Sumeet Jain
Yeah, hi. Thanks for the opportunity. Actually, my questions were again around the generative AI business unit. So you started disclosing your revenue proportion from that particular business segment and it’s just 2% of your overall revenue. And when we compare that, you know what Accenture or Capgemini are giving, it’s almost 5 to 6% of their overall business. So is it that you are slightly behind the larger peers out there or is it. The definition is different. Can you just explain how easy it is for a company like Happiest minds with a $200 to $250 million revenue to actually pivot their business much more faster towards a fast growing service line?
Joseph Anantharaju
Sure. You know, as you rightly pointed out, Sumit, I think it’s how each company defines generative AI. Can you can add AI, you can add data element to it. We believe that the revenues that we’re getting is industry leading. Could we do more? Absolutely. And that’s a goal that we’ve taken for ourselves. And the way we look at generative AI is there are three distinct sources of revenue. The first is direct revenue, which is what we are. We’ve been very strict about it, which is what we’ve been sharing. Then there is other AI and data elements and that is what our analytics and AI CoE provides.
And the third is the pull through revenue. As Sridhar pointed out, customers are taking a Genai first approach. And so they’re building a backend and putting a Genai front end to it. And that’s the third element. The backend that we build for our Genai solutions is the other source of revenue. And in terms of capability, rest assured, we are very confident that the kind of team that we put together and the capabilities that we’ve built in this space is as good, if not better than the other companies out there. This is reflected in the number of conversations that we’ve been having with our customers.
As Sridhar pointed out, we’ve had more than 40, 50 conversations and POCs that we built. Some of them very, very interesting use cases and we will continue focusing and building our capabilities. That’s the reason why we built this as a separate business unit. Operator request has been initiated. If you’d like to cancel this request, please press Star zero again. Structure so we’re making all the right investments. We have the capability and we expect traction to continue increasing during FY26.
Sumeet Jain
Got it. That’s helpful. And just digging deeper, can you just explain the unit metrics out there on the contract characteristics out there as to how is the pricing, the profitability and are they more fixed price or time and material based? Can you just throw some light on that? Operator request has been initiated. If you’d like to cancel this Request. Please press star0
Joseph Anantharaju
again has been fixed price. Because you initially have conversations with the customers, scope it out. In many cases we iterate the business use case with the customers, talk to the customers, come up with a list of use cases, identify the ones that would have immediate impact. And then in some cases we do get partners like Microsoft AWS to provide a little bit of funding to get started. And so this is mostly a fixed price that we’re doing in terms of pricing. This does get us premium pricing because it’s a differentiated capability, a cutting edge capability.
At the same time, since you need to build capacity and capability upfront, the utilization is on the lower side in this business unit. And as we start getting more and more business, we expect that utilization number to go up and to have a positive impact on both the profitability of the business unit and overall of the company.
Sridhar Mantha
If I may add to what Joseph shared. So I’ll add two points there. The first one is of course in the Q1 and Q2 of the last year we used to have heavily the fixed bid projects because the clients are trying to address the point problem leveraging generative AI. But slowly in the last couple of quarters we started moving into the other engagement models with few customers where there is a reasonable clarity on their roadmap of various generative AI features they want to add. We started actually moving into the external engineering model and also the large airport example I have given.
We started seeing larger RFPs with generative AI being a core feature within that. And we’ll start seeing that shift as we move into this year which will make the engagements being larger and multiple use cases moving into the production etc. And larger RFPs. And when it comes to utilization, it was in a way planned compared to other Business units. Because the technology being so young and new, we have large team that is internally working on various prototypes and demonstrations and competency development. And those people moving into the client projects and taking these PoCs to the customers and converting them into the client project.
And that’s the point Joseph is eluding compared to the last financially this financial year. Slowly we will move towards better utilization. But still consider the overall technology space. We still will be having a relatively larger pool of the people who will continue to do R and D and keep creating new solutions.
Sumeet Jain
Got it. That’s very helpful. And my last question is around your utilization. I mean, you guys obviously are operating at 77, 78% levels. But when I look at the larger peers, they are at mid-80s. Accenture is at 91%. So is there like a difference in the way these are being calculated across companies? But I fail to understand how utilization for you is far lower. Larger peers.
Ram Mohan
It’s got to do with the way things are calculated. You know, we have always said that our maximum possible utilization is between 83 to 85%. That’s what is maximum possible. It’s billed days by billable days people. You know, the definition of capacity also varies between customers. So uniform definition is something that we need to clear. So ours is a maximum possible is 8,384. And we are at about 77.4, within which GBS is at about 34.4 or 35%. So there is quite a bit of room for improvement in GBS to perk up on the utilization front.
PDES is lower at about 74%. So that’s picking up. Pure software is at a number of 80.181%. I would say if you keep those metrics, we have got a headroom within VUS and at the company level to do better.
Sumeet Jain
Got it. That’s very helpful. That’s all from our end. And all the best to the team.
Ram Mohan
Thanks.
operator
Thank you. Next question comes to the line of Shishoban with Anand. Please go ahead.
Unidentified Participant
I hope my voice is audible. Hello.
Joseph Anantharaju
Yes, you are loud and clear.
Unidentified Participant
Perfect. Thank you very much for the opportunity. Just a couple of questions. One is how would you penetrate the organic and the inorganic growth in Q4 and FY25? The second question is basically on the amortization. The acquisition related amortization. It’s almost 51 crores in this financial year. How should we model that for 26 and 27? Along with those exceptional items which you mentioned? These are the two questions.
Joseph Anantharaju
Thanks, Sushant. So we have not Been giving a split by, you know, the organic inorganic. Because if you look at pure software on RDS has been with us for almost all of the year, started in Q1, so 11, 11 and a half months. It’s almost integrated. In fact, RES is fully integrated. Pure software is working very closely with us. So it’s not easy bare or possible to give an exact number of who did what and how do you attribute revenues. So that’s on the revenue side as far as amortization is concerned. You’re absolutely right. 50 crores is what we have.
This is something which is, you know, something that I shouldn’t say came as a surprise, but this is the cost of doing an acquisition. You have this, you have intangibles being written off through the estimated life of a customer. If it’s an intangible at seven years, some of the five years, if there is a product like banking involved in it, there is another definition for it. So frankly, while there is some science behind it, it’s a cost which comes out, which actually flies on the face of business logic, at least to me, because we are not replacing anything with this money.
But in any case, that said, you should see intangible at about the 9 to 50 crores next year as well. In fact, slightly higher maybe because you will have some part of the intangible being get tested for impairment. So I’m just saying from an estimate standpoint, take around, take a similar number and an impact for an additional 30 or 40 days for next year. That’s on that exceptional item. Again I said, you know, we estimate a certain payout at the beginning of the year for runouts. We did $90 billion worth of acquisition and 45 million is run out.
So you see, there is a huge amount of run out. Accounting requires me to make an upfront judgment how much of this 45 will be paid. Whatever I take in as a judgment goes and sits in the balance sheet that goes in as intangibles and then gets written off if I make a wrong assessment or if I shouldn’t say wrong assessment. If my assessment is slightly on the lower side, it impacts the payout when they do better than the performance. So we have to balance what we think is performance and what we think is the intangible portion of such performance and then keep doing it upon a quarter on quarter basis.
Frankly, if you ask me, you should adjust these to the VAT or PBT because none of them are cash charges except for maybe run out. You are now paying for performance. If somebody is performing much better than what we estimated we are paying them slightly higher. So to me a debit of exceptional item or what is in terms of additional payout is good news while a credit is not such a good news because they are doing lower than what I estimated them to do and my prayer is always that they do better than what we thought they will do and we pay that as a purchase consideration.
Accounting asks for it to be written to the pl so take a similar number is what I would say.
operator
Thank you ladies and gentlemen, we have reached the end of question. I would now like to hand the conference.
Joseph Anantharaju
And just one point Moderator Sorry just one point. I think in our presentation we have got exceptional item in minus. We will correct that. I just noticed that and hope your question was not coming from that. So exceptional item is actually hint to the pnl. We will show that we’ll correct that part on the presentation. Upload Updated Presentation thank you over to you.
operator
Thank you on behalf of Happiest Minds Technologies. That concludes this conference. Thank you for joining us. You may now disconnect your lines.