Mphasis Ltd (NSE: MPHASIS) Q2 2025 Earnings Call dated Oct. 17, 2024
Corporate Participants:
Nitin Rakesh — Chief Executive Officer and Managing Director
Aravind Viswanathan — Chief Financial Officer
Analysts:
Nitin Padmanabhan — Analyst
Sudheer Guntupalli — Analyst
Vibhor Singhal — Analyst
Sandeep Shah — Analyst
Nitin Jain — Analyst
Dipesh Mehta — Analyst
Manik Taneja — Analyst
Aayush — Analyst
Rahul Jain — Analyst
Chirag Kachhadiya — Analyst
Presentation:
Operator
Good morning, ladies and gentlemen, and thanks for joining the Mphasis Q2 FY 2025 Earnings Conference Call. I am Dorgan, your moderator for the day. So we have with us today Mr. Nitin Rakesh, CEO of Mphasis; Mr. Aravind Viswanathan, CFO; and Mr. Vinay Kalingara, Head of Investor Relations.
As a reminder, there is a webcast link in the call invite mail. The same presentation is also available on the Mphasis website, www.mphasis.com, in the Investors section under Financial and Filing as well as on both the BSE and NSE websites. Request you to have the presentation handy. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]
Before we begin, I would like to state that some of the statements made in today’s discussion may be forward-looking in nature and may involve certain risks and uncertainties. A detailed statement in this regard is available in the Q2 results release that was sent out to all of you earlier.
I now hand the floor over to Mr. Nitin to begin the proceedings of this call. Thank you, and over to you, Nitin.
Nitin Rakesh — Chief Executive Officer and Managing Director
Thank you, Dorgan, and thanks, everyone, for joining us today. I appreciate your interest in Mphasis. There’s a lot going on all over the world. I thought I would begin by shining light on a few key highlights from our vantage point and then discuss our industry. We’ll start with the macro. Mid-September, the Fed commenced monetary policy easing with the 50 basis points cut. There seems to be an increasing consensus that the economy is heading towards a soft landing. That said, geopolitical tensions are still elevated and the US elections next month, continue to create a climate of caution.
As mentioned in our previous call, this cautiously optimistic environment, tech spend is still viewed as a strategic priority. The gradual but steady recovery seen across our client segments continues with client sentiment showing an uptick. Overall, we characterize the spending environment as moving steadily in the right direction.
A major portion of this is driven by the increasing focus from enterprises to implement AI at scale. Across industries, businesses are aiming to maximize value from transformation while staying focused on costs and ROI from their investments. As we see an at scale adoption of AI powering this transformation, we also see clients progressing towards becoming an AI-first business by rearchitecting to incorporate an AI-first stack, rethinking processes to incorporate AI-led services and moving towards an operating model driven by AI augmented services. In the long run, we believe this will lead to an AI-led economy that transforms our enterprises operate and thrive.
In this era of AI, particularly GenAI, there is significant shift expected in how tech services and consequently, value to clients is delivered. While we see that AI projects are moving from POC or pilots to broader implementations, we also see emergence of AI-led solutions employing digital workers or AI agents. These Agentic AI systems function autonomously as collaborators capable of decision-making and actions. With digital assistance from humans, these systems can evaluate situations and execute actions to meet predetermined objectives.
As we discussed in our last call, this leads to a potential for disruption of services delivered in the traditional labor arbitrage model and a shift from model where people run software to software running software, a shift from labor arbitrage to technology-lead arbitrage. Our NeoZeta and NeoCrux platforms use the powerful combination of GenAI and Agentic AI to augment human capabilities with intelligent AI agents.
Software-led services like NeoZeta and NeoCrux completely changed the economics of modernization costs. With the emerging economies of such tech arbitraged solutions, the business case of modernization becomes more attractive as it reduces the labor-intensive approach and removes the bubble cost. With this, we are able to help clients rapidly and efficiently progress on the modernization journey while delivering savings in the process.
Our savings and transformation theme is principled on this approach. We are already able to deliver productivity through WorkFusion and other neo platforms of AI agents acting independently or unrelated tasks or in concert like humans with different subpopulations fine-tuned to excel at particular tasks. Some examples of this in deals include transforming business operations for a leading global asset management firm and a leading Canadian bank.
Mphasis is delivering an AI-enabled platform implementation to transform operations delivering 70% digital containment and improving agent productivity by 25% to 30%, while also improving the quality of service. Expanding AI adoption and customer experience for a leading global pharma company, our services revolve around managing, supporting and enhancing AI agents who answer external product queries from doctors, field reps and patients as well as internal queries for HR services, etc.
Expanding AI adoption for developer productivity, the NeoCrux platform built by Mphasis has cut the manual effort by 50% for quote [Phonetic] quality while fixing security vulnerability issues for a multinational finance and insurance company.
Our pipeline continues to reflect this expanding AI adoption with 35% of the pipeline being AI-led. We see opportunities in several of these archetypes, especially in areas such as Agile ITOps, NextOps in areas such as data engineering and modernization. Our overall pipeline is up 23% year-over-year. All pipeline metrics are green with broad-based pickup in deals across sectors and geographies.
Proactive deal pipeline is strong, with the majority of our pipeline from proactive pursuits. Every composition of large deals in the pipeline also underscores the digital transformation and accelerating digital adoption continues to be core theme for our customers. Almost all the pipeline continues to be tribe-driven, architype-led and is also well distributed across verticals and key themes such as data, modernization, cybersecurity, Agile Ops and platforms.
As I mentioned earlier, the pipeline remained strong even after three large deal wins in this quarter, and conversion has been steady and both our BFS and non-BFS pipeline continues to grow.
Q2 saw a higher share of proactive deal wins as we stayed focused on dealmaking. TCV wins for the quarter was at $207 million. First half wins now at $526 million, three large deals in second quarter and six large deals in the first half of the year. We have broad-based TCV wins across verticals, client pyramid and strategic customers. Conversion to revenue pace has also picked up through Q2, and we continue to be structurally forward leaning, making investments where we expect demand.
Looking at the quarterly view of performance by segment, we continue to push for revenue growth, which is anchored in our strong client mining model and tech-led offerings. Q2 FY ’25 revenue came in at $421 million, a growth of 2.4% sequentially in constant currency terms and 5.4% year-over-year. Direct business accounted for about 96% of our overall revenue in the quarter.
Our clients continue to look for best-in-breed solution providers for a combination of cost takeout and transformation programs. We expect the pace of revenue and deal conversion to continue to pick up through the year, propelled by our themes that we mentioned earlier today.
Our direct revenue for the quarter increased by 2.4% sequentially in CC terms and grew by 6.2% Y-o-Y in second quarter FY ’25. For the quarter, our anchor geography US grew 2.4% sequentially and 8.4% in direct Y-o-Y. EMEA region showed a sequential decline of 1.3% in constant currency terms, but we’ve been seeing good client wins and will continue to see traction here as we build the business through the remainder of the year.
Our core service line, Enterprise Apps, constitutes about 71% of revenue and grew 2.2% sequentially on a constant currency basis in Direct Apps. BFS segment grew 3.5% sequentially and 2.6% on a Y-o-Y basis as projects continue to ramp up. We continue to see signs of recovery in our mortgage business.
Moving to our vertical performance. As guided in the previous earnings call, we saw fairly secular growth across verticals. At an overall company level, BFS was up 3% sequentially in second quarter and specifically in Direct BFS up 3.3% sequentially. Overall, insurance grew 1.1% sequentially and TMT led the growth with 5.4% driven by wins in recent quarters.
Others grew sequentially at 1.6%, and we see stability in this segment with new client and deal wins with a healthy pipeline across segments, including in healthcare over the last few quarters. Performance in our direct business in these segments on a Y-o-Y basis also healthy, with revenue ramp-up in new customers leading the way.
Looking at our client pyramid, our top 10 accounts grew 2.1% sequentially and our 11 to 30 accounts grew 11.2% sequentially. New client acquisition revenue continues to grow well, sustaining its strong growth trajectory at 14.3% year-over-year. Client mining starts remained fairly steady, both sequentially and Y-o-Y.
Coming to our financial metrics. We delivered to our philosophy of maintaining margin in the stated band while making investments for growth. In this quarter, EBIT margin expanded sequentially by 40 basis points to 15.4%.
Reported operating profit for the quarter grew 6% sequentially and 7.4% Y-o-Y basis. Gains in cash flow hedges increased margins in Q2 by 20 basis points. Our EPS of INR22.4 for this quarter represents a growth of 4.6% sequentially. Cash flow generation at $51 million for the quarter was at 100% of net income. DSO 73 days increased by five over previous quarter mainly due to delayed collections in the last week of the quarter.
In summary, this quarter, we’ve continued to retain our focus on execution and building for the future with the AI adoption. I’ll leave you with a few points. We’ve been executing with a focus on the micro amidst a busy macro environment. We continue to gain from our tech-led account-focused strategy and seeing stability in key verticals and geos, while at the same time, seeing green shoots trend across our portfolio.
We entered the second half of the fiscal year with a strong pipeline, reflecting consolidation opportunities and modernization deals driven by the savings-led transformation thesis. Focus on this thesis is helping create enterprise-led adoption of AI across our customers. We also reported broad-based wins across verticals and client pyramid, and continued higher share of proactive deal wins.
We are seeing improved trajectory of TCV-to-revenue conversion and pace of ramp-ups and steadily improving monetization of order book. We also saw steady growth across our verticals and client cohorts with BFS and TMT driving the growth. We delivered expanded sequential growth in margin within the targeted band of 14.6% to 16%.
Coming to outlook, a few key messages for the upcoming quarters as we look at driving steady and sustainable growth. We will release a focus on execution in an environment that is steadily moving in the right direction. However, we are focused solely on the micro. We do expect Q3 to have reflect normal seasonality and growth to still be led by the BFS vertical as well as continued recovery in our mortgage business. We are maintaining our sustainable EBIT margin band of 14.6% to 16%, while also maintaining our revenue guidance for the full year FY ’25.
On that note, let’s open it up for questions, moderator.
Questions and Answers:
Operator
Certainly, sir. Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Nitin Padmanabhan
Hi, good morning. Thanks for taking my questions. So Nitin, this quarter has been pretty solid. I think it’s been the best in the last 10 quarters, and pretty much in line with what you suggested as a bottoming out, which we have seen. The only standout here is that if we look at the client bucket, it looks like there is one drop off. Is that — if you could give some context to that. And in the context of things bottoming out, is there anything that worries you in terms of any broad specific or broad client specific issues on a going-forward basis that you would really worry about? That’s the question on — from that perspective. And then I have one more. I’ll get back once again.
Nitin Rakesh
Sure, sure. Nitin, I think if you look at — I think you’re referring to the client bucket in the second category. I think the normal fluctuation quarter-to-quarter, nothing major to call out in that segment because this is a trailing 12-month data. And I won’t be surprised if that reverts back to where it was a quarter ago in the next quarter or two as well. So I don’t think there is any specific thing to call out on that front.
I think in terms of your other — your corollary question around anything else to call out from a top client segment, I think category of client wise, if you look at the top 10 customers have grown sequentially by 2%. The next 20 have grown at 11% sequentially. So I think our focus on driving growth through the next set of accounts, we call it the Focus 20 accounts is actually really paying-off.
From a top client perspective, clients will go through their cycles and businesses — of businesses and spends. I think our goal is to work with every client to ensure that they meet their goals as well as we meet ours, and we continue to retain, maintain, grow wallet share. Not all of them will grow at the same pace at the same time. But as a cohort, I think at this point, we are fairly well positioned, and that’s the reason we’ve reiterated our full year guidance.
Nitin Padmanabhan
Got it. So there is no specific query on any large loss of share or any such thing on any of these platforms. So that’s a fair understanding.
Nitin Rakesh
If there will be and we will call it out. I think at this point in time, as I said, right, we are — we don’t know what will happen in the future. But at this point, we are very focused on executing to the focus that we’ve driven with both top 10 as well as focused only list of customers.
Nitin Padmanabhan
Sure. The second thing I wanted to understand was around the mortgage business. Now here, it’s a little — there’s some dichotomy here. So when interest rates have come down, you will see mortgage rates come off and then it’s risen back up quite a bit. So in that context, how are you seeing that business in terms of the shape of recovery over the next maybe six, 12 months? How should we broadly think about it? Will it be — do you think that it will be gradual? Or do you think the historical spikes, how should — how would you think about in volume directionally at least? That would be second one. And finally, from a deal wins perspective, we’re historically been above the $300 million and this time was slightly lower. Are you seeing any impact because of elections in terms of decision-making or anything getting pushed out? So those are the two questions.
Nitin Rakesh
Sure. See, on the mortgage side, it is — I mean, I think the market got too excited and the 10-year declined by about 80 basis points or 90 basis points even before the post-Fed cut happened. So Fed cut short-term rates by 50 bps and the mortgage — and the 30-year climbed by 50 bps after that. So I think there is definitely two things have been established. One, the cycle has peaked and we are in a direction of travel that is easing of the monetary policy. Second thing that is established is, there’s a lot of uncertainty around the pace of that direction. I think we’ve seen some uptick in mortgage business in Q2. I think we called for it. We also cautioned that we don’t expect a rapid recovery. That was not the base case, and that’s how it’s played out.
And if you look at the lines of business in mortgage, I think the first expected recovery was going to be in the diligence business, and that’s where it happened in Q2. Volume uptick is barely noticeable. I think there is some uptick in volume. But since, especially in the last 30 days since the interest rate cut, I think there’s a lot of pickup in conversation with customers around the expected pickup in refi volume in calendar Q1.
So I think we do expect that things will gradually improve, but I don’t think we’re expecting a rapid recovery until the rates fall a lot more. But that definitely means that there will be some tailwind in that business. And then go back to previous levels? Answer is absolutely yes. When it will go back, it all depends on how quickly the rates recover because remember, the mortgage business, real estate market, housing is a big portion of the economy. It will have to unlock at some point. I think we’ve seen the first phase of unlocking with the diligence business and the secondary market volume of MBS Securities. I think we’ll see more activity on refi and origination because there is a pent-up demand there.
On your second question around TCV and the numbers. I think the two trends have emerged in the pipeline. First, there are still a lot of transformation leads. I think the sales cycle there is a little bit elongated on two counts: one, parts are still fairly ROI-focused. Is this program still delivering the ROI? What’s the time line expected on ROI? Two, is there an element of AI infusion, which basically means that more stakeholders get involved and the cycles become longer. So that’s definitely at play. We definitely saw some decisions getting pushed into Q3. Obviously, we are focused on executing. That’s the reason pipeline is actually up 23% Y-o-Y. It’s actually up sequentially as well in low single digits. So I think pipeline is strong, decision-making on transformation deals with additional element of AI infusion definitely creating a little bit of elongation on the decision cycles.
Second trend that we’ve seen emerge in the last three months. And I think this is something that was called out by ISG yesterday in their quarterly release is that there is an uptick in IT operations leads, and that is led predominantly by a desire by clients and some of these deals in our pipeline actually out of cycle deals. They were not due for renewal. We’ve seen another provider who was running app maintenance. We were doing AppDev, ITOps, service desk. There’s a bunch of deals like that where the desire from the client is maybe I need to actually see if the AIOps proposition gives me an exponential savings opportunity of 30% to 40%. And hence, I can redeploy those savings into my new initiatives around AI.
So I think you will see an emergence of — I think it’s still early days there, but that’s definitely causing an uptick in deal activity, especially in the ITOps, infra and applications or management deals. So I think that will create an interesting — that is creating an interesting opportunity for us because that’s a segment of the market where our right to win was low even that there was always a scale play with shared services models and widespread global distribution of talent. If you’re dealing that with pure people-based services, I think players like us have a pretty strong right to win in that business as well. So I think those are the two big trends to follow-up in the pipeline and the TCV.
Nitin Padmanabhan
Okay. Thank you so much, Nitin. Very helpful, very clear. Thanks, Nitin. All the very best.
Nitin Rakesh
Thanks.
Operator
Thank you. The next question is from the line of Sudheer from Kotak Mahindra. Please go ahead.
Sudheer Guntupalli
Yeah. Thanks. Hi Nitin, congrats on a good quarter. So just double clicking on some of the questions asked by the previous participant. So logistics and transportation this quarter, I think there is a bit of a decline while most other segments had seen a good recovery. So any specific thing to call-out, especially around the top accounts within this vertical, logistics and transportation?
Nitin Rakesh
So, Sudheer, there’s a marginal decline. I think it’s $1 million that’s creating — I think that’s the only red on that chart. As I mentioned earlier, I think clients will go through their own spend cycles and business cycles. We just have to stay focus on executing and staying very close to where we can add value. There will be potentially puts and takes. It’s not a one client vertical. So I would stay very focused on executing to the cohort of clients there between logistics, airlines, railroads and transportation. Nothing else to call out at this point.
Sudheer Guntupalli
Okay, Nitin. So just reconfirming, there is no major loss of wallet share or loss of client in this segment. Is that right?
Nitin Rakesh
Nothing to report at this point, Sudheer.
Sudheer Guntupalli
Okay. Thanks, Nitin. Thank you so much. That’s it from my side.
Operator
Thank you. The next question is from the line of Vibhor Singhal from Nuvama Equities. Please go ahead.
Vibhor Singhal
Hi, good morning, everyone. Thanks for taking my question and congrats, Nitin, on solid execution in this quarter. So, Nitin, my — two questions from my side. One is on the banking segment. We saw a good recovery in this quarter. And I want to talk about banking segment, excluding the mortgage part. What is the traction that we are seeing in that segment given that we’ve had the first rate of interest rate cut, the results that have been declared by the clients like Wells Fargo other players as well for the past week and so we have been quite upbeat about the prospects, and more and more things are coming about to possibly a soft landing in US. So what are the bank conversations with the BFSI segment around? And how do you see this vertical playing out over the next one to one-and-a-half years?
Nitin Rakesh
I think it’s — firstly, thank you for the execution comment. It’s definitely taken a lot of effort to get the business to where it is, especially with all the macro action that I talked about.
If you look at BFS, we actually called for bottoming in BFS business about nine months ago in the December quarter. We saw uptick in BFS in the last two quarters. And this quarter, obviously, it’s picked up pace aided by both the non-mortgage and of course, a little bit of the mortgage side also helped this quarter, but majority of the growth came outside of the mortgage business in Q2.
Three things to think about. Firstly, I think the reason we were able to call a bottom in that business nine months ago was purely based on uptick in small deal volume in year spend, ACV versus TCV uptick. And we — I think we called that six months ago, and we are seeing some of that even in this quarter, both in terms of TCV. And more importantly, the revenue conversion has actually picked up as well. So even if a deal was sold 12 months ago, 18 months ago, consumption definitely has picked up in the last three months to six months. That’s good news, and that’s what’s helping us deliver the revenue growth in the very short term.
Then if you look at segments of BFS, I think we — the consumer banking was pretty stable. The NII expansion helped a lot, but there were parts of the business that were either market-linked. Wealth management was a little bit stressed for a period of time because of high interest rates and the RIA platforms was struggling to make money. And then we obviously looked at the CIB segment, which is the Corporate Investment Banking segment. It was very, very stressed until about three months or six months ago. We’ve seen gradual reopening of capital markets not quite on the IPO side yet, but definitely on the secondary side, M&A activity, trading activity, and that’s what’s reflecting in almost every bank earnings in the last one week as well.
So I think banks have at least called for victory in terms of soft landing. Obviously, there is still not a lot of consensus around it, even though increasingly, people are assuming that, that’s where we are headed. And that actually bodes well for the next at least two quarters to three quarters. Some issues still have to be worked through, pace of activity, pace of recovery in interest rate decline. I think all of that will go back into this element. Good news is because of soft landing, the health of consumer and the losses on consumer credit are going to be well contained.
We are also seeing increased spend coming out of RegTech. KYC, AML, fin-crime continues to get a lot of news flow and a lot of investment from banks given just the amount of work that they have to do to keep up with the sanctions and the activity on that front as well. So I think overall, three dots definitely is a trend. Three quarters of growth in BFS sequentially, obviously, starting to show up in Y-o-Y as well, and we do expect that to continue. Obviously, you have to keep in mind the seasonality issue for Q3. But in general, I don’t think that — I think that trend is well established on the BFS front.
On the insurance side, I think for us, it’s a little bit more of a micro bottoms-up play. I’m happy it grew 9% Y-o-Y this quarter. We’ve seen sequential growth in that as well. And I think deal activity there is pretty good for us to continue to look for growth in the coming quarters as well.
Vibhor Singhal
Got it, got it. Thank you so much. That was really helpful. My next question is on your opening commentary, which you mentioned about the GenAI adoption and Agentic AI [Phonetic] pipeline and specifically on the NeoZeta platform that we have. So I think in our last discussion, we discussed a lot about how legacy code modernization is an opportunity that we are kind of approaching via these platforms. So what is — I mean, what are you — I mean, again, what are you talking — obviously, speaking about in terms of client conversations? Are the clients opening up to the legacy code modernization part? How are — I mean, what is the kind of projects? I mean, if there’s any uptick in projects going from POC stage to live stage? Just some color on that would be really useful.
Nitin Rakesh
I think the short answer is yes. That’s why 35% of the pipeline right now and the pipeline is sitting at a record number. 35% of the pipeline is AI-led. A lot of that is a combination of modernization deals. Also a lot of it is a combination of infusing NeoZeta and NeoCrux in an ADM construct, for example. Because what NeoZeta is doing is actually helping map the entire application landscape and convert that into a knowledge graph that actually becomes the foundation for your applications on a go-forward basis. And that becomes a very powerful nerve center or a dashboard for an enterprise to then maintain applications, enhance them, test them, when they onboard a new customer, what changes need to be done, simulate the test points, similar test cases, create user journey.
So I think this is early days yet, but good initial adoption in the pipeline, good initial alpha and beta customers. We’ve infused that into the AWS foundry as well already. So I think that is, as I mentioned, it is early days. Adoption at scale is definitely on every enterprise’s mind, and we are trying to see what’s the best role we can play and take a forward-leaning approach on becoming a partner of choice for AI adoption at scale. Something we saw actually on the cloud side as well over the last five years. So I think it’s a similar trajectory, but a faster adoption cycle in my view.
Vibhor Singhal
Got it. Got it. Sir, one last question from my side on some bookkeeping question kind of thing. Our DSO days jumped sharply Q-on-Q from 68 days to 73 days, and our cash has also come down from June to September quarter. Any color on that could be really helpful.
Aravind Viswanathan
Yeah. So the cash has come down largely due to two reasons, right? We made a dividend payout of about $124 million, and we also repaid some of the loan we have taken for one of our acquisitions of about $67 million. So if you look at cash flow generated from business, the operating cash flow was about $50 million, which is 100% of PAT. So to that extent, I wouldn’t say cash has come down. Yes, the cash flow generation was a little lower, but it’s just a good benchmark to start from.
DSO went up a little bit in this quarter, marginally up Y-o-Y, up by about five days sequentially, largely because some of the collections slipped through to the first week of October. So I do think we will cap on that every coming quarter.
Vibhor Singhal
Nothing to worry about that. It’s just a time charter thing, we should recover it in the next quarter.
Aravind Viswanathan
We’re generating 100% of PAT, right? So it’s — that can’t be a concern, right?
Nitin Rakesh
Yeah, I think there’s nothing to call out specifically on that issue.
Vibhor Singhal
Sure. Great. Thank you so much. Thanks. Thanks, guys. Thanks for taking my questions and wish you all the best.
Nitin Padmanabhan
Thank you.
Operator
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Sandeep Shah
Yeah. Thanks for the opportunity and congrats on a good execution. Just wanted to understand, Nitin, some of your large peers are calling out increasing demand, cost takeout as well as vendor consolidation. So are we also witnessing such change, especially on vendor consolidation? And are we worried about the same? Or are we looking to capture increasing wallet share through vendor consolidation in some of your top accounts as well as the new accounts from other vendors?
Nitin Rakesh
So, Sandeep, I’ll answer it in two ways. I mean, I’m always worried about vendor consolidation in my top accounts. And hence, we have to always be very, very focused on protecting our wallet share. We have to protect the core motion in every account. And there always will be puts and takes depending on the cycle of a customer, their spend pattern, what they’re going through and so on and so forth. But broadly, the focus is to make sure that in our top accounts, we constantly gain wallet share and stay very vigilant.
If you then look at — and obviously, as I said, right, top 10 cohort grew 2%, pretty much in line with the company. But the next 20 grew at 11%. And a large portion of that growth is a combination of two things. One, we are using some of our tech-led offerings to get a foot in the door tip of the spear. And then very quickly, we are expanding our wallet share in those accounts, obviously, consolidating other smaller player or, in some cases, even taking share from a larger player, because a lot of clients are at a point where they’re always looking for a challenger mindset.
One of our top client — top 30 clients told us that they have too many champions, and they’re looking for the challenger. And that’s part of the reason why we were able to actually consolidate our position and actually grow that account pretty rapidly in the last 12 months. So that’s very much part of the next Focus 20 account growth.
Even within banking, for example, we have a number of customers where we only acquired them in the last three years. We’ve talked about it quite often in the last couple of years. We went from having five out of the top 10 banks to actually having 15 out of the top 15 banks in our client portfolio. A lot of that really is wallet share gain because it’s not like they’re spending a lot of net new money. Yes, spends are going up but a lot of that is coming from us gaining share from incumbents or smaller big.
So I think consolidation will always be a play. It becomes an even bigger play at times of pivot. We’ve seen that a few years ago, 2020, ’21, we’ll probably see some of that play out again in ’25, ’26 as I think I mentioned this when I talked about the trend that we are seeing in the pipeline where some clients are already starting to look for AI-led IT operations. That will actually create another opportunity for players like us to create new wallet share through consolidation of those service types as well. So it’s not just a cost play. It’s almost always a proposition. And can you deliver a service better? Can you deliver it in a different way? Can you deliver it in a more tech-led way?
Sandeep Shah
Okay. Okay, thanks. And just the commentary about the deal pipeline across key markets, key verticals has been bullish in the 1Q call as well as bullish in 2Q call. So do you expect the TCV win, which has been slightly sluggish and tapered in the 2Q versus 1Q can pick up in 3Q and 4Q?
Nitin Rakesh
I mean I would love to tell you, yes, the reality is it all depends on conversion of some of the large deals. Do we have the deals in the pipe to get to that trajectory? Answer is yes. But we are also very, very tactically focused on ensuring we take every deal. I mean, $0.5 million deal that can be consumed within the quarter is actually very valuable as is a $100 million deal that will be consumed over three years or five years.
So I think it’s a combination. It is — I did mention that some of these deals did slip into Q3 purely because the clients scrutiny on ROI and AI infusion is a little bit high right now as a number of stakeholders you have to deal with have increased. I mean, there used to be a CIO, then there was a CDO, then there was a Chief AI Officer now. So I think the stakeholder management on the client side is going through a little bit of a transition and change, and that’s leading to a little bit elongation in cycle, especially around transformation. So I think as we convert those, definitely, opportunity exists for us to have a pretty robust set of wins in the second half.
Sandeep Shah
Okay. And in your opening remarks, you call out furloughs to be normal. So to achieve our industry-leading growth, the growth momentum needs to be maintained in 3Q, 4Q. So are you worried the seasonality may impact the growth in 3Q, 4Q?
Nitin Rakesh
I think we modeled it. I said we will follow the normal seasonal patterns. So we modeled that. We still have obviously 10 weeks to go in this quarter to manage it. So do all of our peers. And then I think we have enough of a visibility into the remainder of the year to maintain where we are in terms of our FY ’25 guide.
Sandeep Shah
And the last question, how do you see margin outlook in the second half? Are we also still believe that the margin will have an upward bias 3Q, 4Q over 2Q levels?
Aravind Viswanathan
No. So I think we’ve been talking about our range between 14.6% to 16%. We delivered 15.4%. If you look at the upward bias kind of happened already from Q1 to Q2, right, as we improved about 40 basis points in the quarter. So I think we will stick to that range. And I think we’re quite confident that we’ll operate. I mean obviously, there are puts and takes and seasonalities around Q3 being historically weaker than Q2, but I think we are very confident to be in the range that we have kind of talked about.
Sandeep Shah
Okay. Thanks and all the best.
Operator
Thank you. The next question is from the line of Nitin Jain from Fairview Investments Private Limited. Please go ahead.
Nitin Jain
Yeah. Thank you for the opportunity. So I have two questions. First one is on the TCV. The deal wins, they have stayed consistently between $200 million to $250 million for the last, I think, five or six quarters. Although you have indicated that you’re seeing better conversion from TCV to revenue, but with the Fed going through an interest-rate cut scenario, do you think — do you believe this will pick-up going further?
And the second question is, you spoke about sequential growth. So I just want to double-click on that. How should we read into this quarter’s sequential growth given that last quarter, we had seen a revenue decline. So if you can elaborate. Thank you.
Nitin Rakesh
So Nitin, I don’t think we had a revenue decline last quarter. I think we had about 0.5% sequential growth in Q1, about — around a 2% in Q4, and then this is a 2.4%, it’s probably one of the better ones in the last few quarters. So I think we’ve talked about executing the order book, consuming the sold book of business. Consuming the in-year short-burst deals that we’ve been talking about for the last six months and that’s what’s leading to the Q2 growth that you’ve seen that is pretty broad-based across verticals.
As we look at sequential growth on a Q3, Q4 basis, it’s fair to assume that Q4 will be better than Q3. I just leave it at that and then we can do the modeling on what that will mean for us to continue to deliver to the guide that we’ve given. Not to forget that we’ve seen consensus uptick already in the last 60 days or so purely based on the industry outlook as well.
On TCV, I think — I think we — I answered that in detail in the previous question as well that the making pace is definitely elongated cycle, purely based on multiple stakeholders and scrutiny, additional scrutiny even from sectors that are now starting to open up. But we are compensating for that through, as I mentioned, the assumption of TCV that was already previously sold. Especially in some of our top accounts, for example, we don’t really have to go sign a new SW [Phonetic] because we have unconsumed as sort of spends that we haven’t fully consumed over the last 12, 18 months.
And similarly, as we convert some of these larger deals, that can change very quickly with one or two deals coming into closure, just like we had $170 million deal last quarter and even this quarter, we have $80-plus million deal in one of our clients in TMT vertical. So I think it’s a — the lumpy nature of large deals will continue to influence the overall TCV number metric, but we are baking that into our current order book and then kind of looking at what Q3 and Q4 look like.
Nitin Jain
Sounds good. Thank you.
Operator
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Dipesh Mehta
Yeah. Thanks for the opportunity. Couple of questions. First about, if I look BFS growth and adjusting for top client, it seems it makes robust [Phonetic] measure of the growth this quarter. So if you can provide some color, it seems it is not more participating kind of growth. So if you can put out — call out some more details around it?
Second question is about IT-led [Phonetic] system or transaction which you announced framework agreement. Whether the strategic customer is existing customer or it is a new customer? And if you can provide more detail about vertical and overall thought process around the transaction?
And last question is about the productivity improvement, which you highlighted in the presentation from AI-led kind of thing. Now it is a fairly high number 30% to 70%. Do you expect it to a deflationary pressure over medium-term growth trajectory for sector as a whole? Thank you.
Nitin Rakesh
I think the first question — answer is pretty straightforward. You are not able to see that growth broad-basing because you’re looking at LTM data. And that’s why if you look at Q-o-Q data, it’s 2.1% Q-o-Q top 10 and 11.2% — 11% to 30% [Phonetic] growth sequential. By definition, that means that it’s not just one or two accounts, it’s actually a combination of accounts, especially in the next 20 layer that is driving this growth, especially in BFS, we’ve seen that play out actually for us.
So I think that’s a simple data point I will guide you to, it’s mentioned in the deck as well. Second, [indecipherable] transaction is a vendor consolidation transaction where we’ve taken out an existing vendor at an existing customer in the TMT vertical. And the deal has been structured on a long-term basis. And the accounting wise, it’s probably showing up in the footnotes because that’s how the best way to account for the dealers, but it’s really a large deal sold on a vendor consolidation basis in an existing customer. That is a relatively new customer, but has grown rapidly in the last four quarters.
And the third one around deflationary impact of productivity. I think it will definitely have an impact, especially for service companies that have a large book of operations businesses, especially around ITOps, infra, service desk and some elements of contact center, customer service. Those are the early hot spots when it comes to applying AI productivity. And I think I mentioned that in the comment around the pipeline and the shape of that pipeline as well.
So for players like us, we see that as a right to win in an area where we were not very competitive earlier. We didn’t really have a right to win in a large five-year AMS deal that was purely based on a per ticket price. Now we think we have a right to win because we can really take a 50% effort reduction point-of-view on it versus a per ticket cost price point-of-view on it.
So I think there will be a redistribution of wallet share for those who get it right, and there’ll definitely be pain for those who are already sitting on a big book of business that is susceptible to challenging through this tech-led disruption.
Dipesh Mehta
Understood. Just on the first question. Now if I look, let’s say, BFS added $7 million, top client added $6 million and that was I was referring to from a sequential perspective, but broadly you are indicating growth is relatively [Speech Overlap] and maybe this quarter might not…
Nitin Rakesh
No, no, Dipesh, that’s an LTM — you look at the LTM data, because I don’t think — I don’t know if that’s — I’m reading it right, but maybe, Aravind, you can check it.
Aravind Viswanathan
So Dipesh, what is the hypothesis that…
Nitin Rakesh
$7 million added in top account.
Aravind Viswanathan
Okay.
Nitin Rakesh
But that’s an LTM data.
Aravind Viswanathan
Certainly the concern is what?
Nitin Rakesh
It’s not [Speech Overlap]
Dipesh Mehta
[Speech Overlap] this quarter number only. Both numbers are for the quarter one and quarter two I’m comparing. So that is the Q-o-Q number. It is not TTM, but maybe I can take it offline.
Nitin Rakesh
Sure.
Operator
Thank you. The next question is from the line of Manik Taneja from Axis Capital. Please go ahead.
Manik Taneja
Hi, thank you for the opportunity. I actually wanted to [Indecipherable] around the given number. Do you think the — given the current backlog where you’ve spoken about some of the flow-through deals emerging in terms of smaller transactions and thereby we continue to see the lag [Phonetic] TCV to be modest while revenue growth continues to improve. That’s question number-one.
The second question was with regards to the onsite/offshore revenue mix both for us as well as for the industry. Over the course of last two, three years, more specific for the industry, we are seeing this work has move towards higher in the [Indecipherable]. Do you think now with a lot of focus on AI-related engagements and where projects are starting small, we would see a reversal on that trend for the industry as of it?
Nitin Rakesh
I think I’ll take the second one first. I mean, at least for us, onsite/offshore is not an objective function. We don’t manage the business with onsite or offshore. We manage the business with west-shore [Phonetic]. Wherever we need people to service the customer at the right profitability of the business, we will actually service it from that geography.
Also for us, there is a little bit — we’ve discussed this in the past. Anything that is not in India, it’s an onsite for us. So even if I add people in Mexico, Costa Rica, Taiwan or Canada, or Dallas or Florida, that will all show up in on-site. And hence, I think some of that near-shoring split is not showing up, which I think we should correct over the next couple of quarters, we’ll start — we’ll see if we can report out the nearshore segment separately.
I don’t think that’s a trend. Again, it’s a question of how some of these deals get structured. If I create an AIOps app management deal, and that requires 100 people. Traditional model was 80 of them should be offshore, 20 of them should be onshore. We may get to a point where I need 60 people, 30 onshore, 30 offshore, but the deal will actually make a lot more sense.
So I think it all depends on how this evolves. I think the labor [Phonetic] of our model will definitely be — well, it will still be relevant because that’s not — we’re not shifting away from that model. But I don’t think it’s going to be an objective function. I don’t think it will be more an outcome of what’s the best place to deliver the services from. But broadly, if you look at headcount mix, I think, has not changed that dramatically for us or for the industry. And I don’t think that will change going forward. But the direct linkage from headcount to revenue will actually definitely be a focus area for most companies in the industry.
On your first question around TCV, shape of TCV and revenue growth, I think there will potentially — depending on size and nature of deals, there is — it is likely that you may see TCV growth that may not seem very large, but you may still see revenue growth purely based on the fact that if I’m able to consume either order book until it lasts or short duration deals that I’ll be able to show growth, but reality is to grow sustainably over the next 12 months, 18 months, we have to obviously convert some of the large deals in the pipeline as well, and that’s the focus right now.
Manik Taneja
Sure. And if I can you broadly further on one particular aspect, this quarter’s presentation once again focuses or highlights the how focus selling strategies. Is this a return back to our original thought process because in between you are talking more about a vertical-oriented approach that’s account-based selling that we have that has yielded very good results for us through the last few years.
Nitin Rakesh
I think the — what we’ve tried to do is to balance the account-based focus with the vertical cohort mindset. So it’s not that we went away from being account focused. We actually created a combination of accounts that sat in the same vertical to create a cluster approach or an account cohort approach and create scalability, fungibility and repeatability across those solutions. So — but the account-based focus never really went away. And that was almost always the pivotal focus for us was to create an equals one, which is every account is a unit of P&L and that’s when it gets the most attention. And that’s what really works for us in superscaling and superizing these accounts as well. But attempt has been from a scalability and a repeatability perspective to create these account cohorts or clusters that we can then manage as P&Ls.
Manik Taneja
Sure. Thank you and all the best for the future.
Nitin Rakesh
Thank you.
Operator
Thank you. The next question comes from the line of Aayush [Phonetic] from B&K Securities. Please go ahead.
Aayush
Hi, good morning. [Indecipherable]
Nitin Rakesh
Aayush, you’re not very clearly audible. You’re not very clearly audible. If you are on — please pick-up the headset. Go ahead.
Aayush
Is it audible now?
Nitin Rakesh
Yes.
Aayush
Yeah. So just wanted to understand a couple of things. On the top account side, are you seeing any kind of a pressure from the top account because if we see a trajectory in this quarter, definitely it has grown, but the last few quarters have been a bit of a pain on that side. Can we also understand that logistics will be — will be on the growth trajectory going forward?
And the second question is that this is the very first quarter that we have seen broad-based growth, but how confident are you that this broad-based growth would be kind of getting sustained for the next couple of quarters or going-forward for the full year?
Third question is on margins. So this quarter definitely, we have given improvement in margins, but we have the wage cycle that is being divided across the period. So is it have been linked to that we haven’t given the wage hike in this quarter that has led to the margin expansion because if I see the employee benefit expenses have come down sharply on a quarter-on-quarter basis as a percentage of revenue. So these are the three questions.
Nitin Rakesh
I’ll — I think I addressed the first two questions already, but I’ll reiterate. We said we modeled our sequential growth based on which we are guiding at least for FY ’25 to be where it is. We do believe Q3 will be seasonally weak, but we do believe that we have the ability to continue to deliver to what the full-year should look like. And that, as I said, right, three quarters of sequential growth, we do believe that we bottomed the business in December and we’ve continued to execute on the order book, the pipeline and the sold business.
On your specific questions around logistics, again, as I said, right, the view right now is baked into what we believe is likely to play-out. I think there is not much delta between Q2 — Q1 and Q2 or even Q4 and Q1, Q2, so that business is at least this point in time seems pretty stable. And if you — if we do see anything else to report, we will report that. At this point, our focus is to execute across all verticals of LNT [Phonetic]. And I think we’ve done a pretty good job in building out new verticals there, especially airlines, railroads. We’ll continue to execute on that as well as we go-forward.
On your last question, Aravind, maybe you want to take the question on expenses.
Aravind Viswanathan
So if you look at salary, I think two, three things kind of played out, right? One is that we saw a lot more onsite-centric growth and therefore, you saw onsite utilization go up, which meant that the overall cost did not go up as much. Secondly, like we had talked about some amount of pickup in DR and that again becomes a non-linear kind of growth. So therefore, there are lot of puts and takes, but Aayush — but this is broadly how the cost kind of played out and resulted in a margin expansion of 40 basis points.
Nitin Rakesh
Yeah. I don’t think there’s anything to call out on wage hikes per se. I think it’s pretty much BAU on that front.
Aayush
Thank you. But just extending on the margins, if I can ask. So going forward, if I see like to reach the 16% high-band of the margin, it could be a call-outs for the 3Q and 4Q whereas for 14.6% on the lower side of the currently what we want to be reporting. So where are we like most comfortable that — what are the margin levers that we are having that can lead to on the upside of the margins that guidance that we have, that is of 16%. If you can just also quantify for the same?
And very last question on adding to this is on the headcount addition. What sort of projects are we eyeing for the headcount because headcount addition is still it’s not positive for us whereas for the peers it has been positive for the past couple of quarters, plus they are also commenting that they are hiding for the pressures as well as of the laterals also. Thank you.
Aravind Viswanathan
Sure. See, I think we have given a range, Aayush, right, so between 14.6% and 16%. I think right now in the quarter gone by, we’ve delivered probably higher than the midpoint of the range, right? So it’s not 16%, it’s not 14.6%. I think it’s a range that we are comfortable with. I think we’ll operate in that range in the near-term, right? There could be a little bit of ups and downs, but largely we are comfortable where we are. So that’s a point on margin.
On headcount, I think, we’ve kind of shown growth keeping headcount flat, which I think is a positive, right? It obviously depends on the nature of growth. We obviously have flexibility in our supply-chain to increase the headcount. I think we will take a very prudent call based on the line of businesses we see growth, the amount of infusion of AI that we can do on delivery and take a conscious call.
Nitin Rakesh
Also, I think from a peer group standpoint, if you mentioned that some of them have added headcount, especially on the pressure side, I think our utilization was actually much lower than theirs. They optimized utilization about 18 months ago. We continue to operate at a much lower utilization because of whatever supply-chain metrics we had at that point. We’ve improved utilization even this quarter, which basically tells you that we are converting headcount to billable and we’ll continue to do that as much as we need to. And then at some point, if you see a net addition of headcount, that’s going to be an outcome, not an objective function per se. So I think this is a pretty rigorous rolling 90-day headcount forecast that gets baked into by service line, by geography, by skill-set. And that’s what drives the headcount metrics, but it’s not a vector function. We’re not working backwards from how many people should we hire from lateral or campus, we are working forward from how many people do we need in the next 90 days to be able to deliver to the customer.
Aayush
Sure. Thank you so much. I’ll join the queue again.
Nitin Rakesh
Thank you.
Operator
Thank you. We have the next question from the line of Rahul Jain from Dolat Capital. Please go ahead.
Rahul Jain
Yeah, hi. Thanks for the opportunity. Congratulations, Aravind, on new role. My question is, I mean, of course, this has been asked in many ways. I’m just trying one more way. The way you are talking about confidence — confidently about the deal without — with the number being weak, is it a way to look at it that the ACV data on a Y-o-Y basis is much better. That gives me confidence. Is that the way to measure it or it would be like a continuous win and sprint, so that is how you get a confidence that things should continue to stay better hereon?
Nitin Rakesh
Yeah, I think there are two-ways to look at it. One is definitely there is a higher proportion of shorter burst deals that basically means that I may be able to consume that within the year. So yes, the percentage of ACV to TCV is probably higher in 2024 than it was in ’22, ’23. Second, we are coming off of a down-cycle. There is still unconsumed SRW spend that we are consuming right now, for which I don’t need to go sell new TCV, right?
I think we mentioned this maybe a year-ago that a $30 million one year deal got converted into a $30 million two-year deal and we are consuming some of those deals as we speak, of which I don’t need to actually go sell a new deal. So elongation of TCV to revenue conversion is actually paying dividend right now because we are actually able to consume that TCV, as the cycle turns back. And that’s kind of what we are seeing in actually many accounts.
Rahul Jain
So in a way what you’re trying to say, your unexecuted order book continues to remain high. That is the metric that is giving comfort.
Nitin Rakesh
Yes. Unconsumed order book. Because we did say that TCV to revenue conversion was actually stressed for almost four or five quarters.
Rahul Jain
Right. Fair. Thanks.
Operator
Thank you. The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.
Chirag Kachhadiya
[Indecipherable] Just one question…
Operator
Sir, sorry to interrupt, but the line for you is very muffled.
Chirag Kachhadiya
Hello, is it better now?
Operator
Not really, sir. If you could please change your handset mode?
Chirag Kachhadiya
Hello?
Operator
Yes, yes, go ahead.
Chirag Kachhadiya
So I have just one question. Yeah. So I just have one question. Other than BFS, which vertical you are more comfortable that it will support the growth and all-in the second-half as well as in FY ’26?
Nitin Rakesh
Yeah, I think we basically called for BFS and TMT to be leaders. Almost three quarters in a row, they have been delivering on that promise and we still believe there is upside left. I think we said we’ve called for stabilization in others, i.e. healthcare, which also has kind of stabilized and shown growth this quarter. We talked about insurance being a Y-o-Y growth story as well because we have been working on recovering that pipeline. So I think pretty much broad-based, led by BFS and TMT. And I think we have some more work to do to get it a lot more broad-based across regions as well, and that’s also underway as we speak.
Chirag Kachhadiya
So some of our peers has been settled in TMT vertical. So what differentiation we are providing that to be more comfortable with the TMT vertical as part of the [Indecipherable]
Nitin Rakesh
I think the tech-led, account-led challenger positioning that we are taking with some of those established large accounts for our peers is the reason why we are able to replicate some of the success that we’ve had in other verticals in TMT as well. And obviously, we’ve invested over the years in building domain expertise, whether it is embedded engineering, R&D, software engineering, device validation, product engineering and all of those are helping right now to expand not just the number of logos, but wallet share in those logos. And I think I gave the example of a TMT customer where we signed a large deal with a consolidation play this quarter.
Chirag Kachhadiya
Okay. Thank you all the best.
Nitin Rakesh
Thank you.
Operator
Thank you. Ladies and gentlemen, that will be our last question for today. I would now like to hand the conference over to Mr. Nitin Rakesh for closing comments. Over to you, sir.
Nitin Rakesh
Thank you all again for joining us early in the day. I think we covered a lot of ground in the last 60 minutes. Thank you again. Wishing you and your family a wonderful upcoming festival season and looking forward to speaking to with all of you in the new year.
Operator
[Operator Closing Remarks] If you have any further questions, please reach out to Mphasis Investor Relations at investor.relations@mphasis.com.