Sonata Software Ltd (SONATSOFTW) Q3 FY23 Earnings Concall Transcript

Sonata Software Ltd (NSE:SONATSOFTW) Q3 FY23 Earnings Concall dated Jan. 24, 2023.

Corporate Participants:

Samir Dhir — Chief Executive Officer

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Jagannathan Chakravarthi — Chief Financial Officer

Analysts:

Baidik Sarkar — Unifi Capital — Analyst

Mohit Jain — AnandRathi — Analyst

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Amit Agarwal — Individual Investor — Analyst

Dhaneet Sawla — Individual Investor — Analyst

Sameer Dosani — ICICI Prudential — Analyst

Debashish Mazumdar — B&K Securities — Analyst

Amit Chandra — HDFC Securities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Sonata Software Limited Third Quarter 2022/’23 Results Update Conference Call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

[Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Samir Dhir, CEO from Sonata Software Limited. Thank you, and over to you, sir.

Samir Dhir — Chief Executive Officer

Thank you, Thanvi. Hello, everyone. My name is Samir. Good evening to all of you, and I hope 2023 has started well and on a great note for you and your families. A very warm welcome to all of you on this conference call to discuss our strategy and goals, and the financial results for the quarter Q3, which ended on December 23 — 31, 2022.

It is my pleasure to share the progress we have made with respect to our vision and growth trajectory for Sonata. My executive team and I are continuously working judiciously to accelerate our growth and build scale, and scale in terms of large deals, large clients, markets, partnerships and talent.

I’m also happy to inform you that the succession — CEO succession transition process is successfully completed between Srik and myself, and I’m delighted to serve — have the opportunity to serve our clients and our team members globally across all business lines of Sonata.

With that, let me provide you with an update for our four-year goals that I outlined in the last call. We are taking strides in line with our commitment to scale our international business to be $0.5 billion in four years and be known in the market as the modernization and digital engineering experts, and also scale our India operations aligned towards our strategy to gain market share with end-to-end annuity contracts in data and cloud modernization opportunities. In addition, we’re committed to our ESG goals to achieve our sustainable development goals as we move forward.

Let me start with the update on scale. Our clients have accepted the need to modernize and evolve on a continuous basis. And even in these uncertain times, spend on modernization initiatives is continuing with an objective to achieve faster, more efficient and automated business systems, which are typically hosted on cloud. Towards that, we are making investments in our GTMs, the go-to-market strategies, all focused on modernization and automation primarily in our key markets, which is the U.K., U.S., Europe, India and ANZ.

We will strengthen our solutions for our key verticals, which is TMT, telecom, media and high tech, manufacturing, retail and travel, BFSI and healthcare. If you recall, we launched BFSI and healthcare as specific verticals we want to focus on about two quarters back.

We have also focused on emerging technologies and maturing our capabilities in AI. We are aligning our go-forward structure to enable this growth. Towards that, we are delighted to create the role of a CTO, and Raj — Raja — Raj is going to take[Phonetic] be the CTO for the Company go forward. And this role is being created to excel as an engineering powerhouse and build capabilities and solutions consistently with a dedicated focus on deepening practices and competencies.

Sonata is well positioned and is focused in a laser-sharp manner using its Platformation framework, leveraging our lightning tools, and lighting tools are leading — industry-leading suite of tools for accelerated modernization programs for our clients. In addition, our partnership with Microsoft is going from strength to strength. Once again, we received the Microsoft Business Applications 2022 and ’23 Inner Circle award. We’re truly delighted with that achievement.

We recently also achieved the status for Microsoft Cloud solution partner and attained all the six new Microsoft solution partner designations covering data and AI, innovation, modern work and security. Towards that, these investments that we’ve been making in the recent quarters have enabled us to win large deals. We’ve announced four large deals in this quarter, but I’m going to cover a summary of two large deals that we have recently won.

The first one, a U.S.-based large electric utilities client, with operating revenue of nearly $15 billion and over 13,000 employees. This client delivers power to 15 million consumers in the U.S. Client wanted to provide an enhanced experience to their consumers by ensuring efficient field management, service management and also wanted to automate mobile workforce management to improve service optimization and scheduling.

Our teams judiciously worked with the client and proposed a solution to build and — develop and build and implement a new platform to transform our client’s servicing model and improve field workforce, improving productivity immensely. This is a two-year program, and this is a large deal for Sonata as we move forward.

The second one is for a Australia-based client, which is — which have — who have revenue greater than $1.5 billion. They improve road safety for motorists. They’re headquartered in Brisbane, and they serve approximately 1.75 million members. The client runs their core systems on legacy platforms, limiting their ability to scale and provide enhanced member experience to requisite compliance. So our teams got together and proposed a platform that will be built for them to modernize and transform their core business application suite using omni-channel and connected organization with customer 360-degree view.

We will bring our expertise and skills in CRM, Azure, AWS and data to deliver the required outcomes. This is a three-year program, and again, a large deal for Sonata. We are very delighted that our investments and the inroads that we’ve been making for the last three, four quarters are really helping us win these large programs as we move forward.

On the topic of scale, we continue to scale our operations from a people perspective. We are continuing our talent attraction strategy. Towards that, even in this quarter, in the Jan-March quarter, we’ll continue to take the freshers from the college. We will take around 150 freshers in this quarter again.

We’ve also launched our Sonata Spark program, which was really to ignite entrepreneurship in our team members. Towards that, we have — we’re delighted that we’ve got several entries to give innovative ideas that we want to take to our clients as we move forward. This is our effort to encourage entrepreneurship within the company as we move forward to bring the technology expertise of our engineers for our clients’ benefits.

Moving from scale, talking about ESG. We’re very proud to receive a score of management category which has been given to us by Carbon Disclosure Project, CDP 2022, for all our actions and efforts towards building sustainable practices in business towards transparent and opening reporting — open reporting. This places us amongst the top 27% of the companies in the IT sector. It’s a start for us, but we’re delighted that we have started with 27 — top 27% category and will go from strength to strength from here on.

At Sonata, honesty and integrity and transparency are our core values, and good corporate governance is how these values are translated into day-to-day practices for us and our team members. We’re delighted that Sonata won the coveted Golden Peacock Award for Excellence in Corporate Governance in 2022 again, second time in a row. These accomplishments just go on to show the commitment that we have and the executive team of the company have towards the ESG initiatives as we move forward.

With that, let me provide you an update on the financial performance for the quarter Q3. I’m delighted — I’m really delighted to report that we had a very strong performance for our international and domestic business, both. In the international business, we grew sequentially in dollar terms 4.8% and Y-o-Y 13.3%, and our operating margins are at 23.8% for the international business. The domestic business, gross contribution, which is what we measure in domestic business, grew sequentially 5.8% and 25.8% Y-on-Y.

Within the quarter, we added headcount — net headcount of 140 engineers across the company. We are witnessing steady reduction of attrition. In Q2, we reported 21% attrition. And in Q3, with all the investments and efforts that we’ve made, we’re going to come in at around 15% attrition for the quarter. So we saw a precipitous decline in attrition about 6 percentage points in the quarter.

We’ll be offering salary hike in the current Jan-March quarter as per the earlier practices of Sonata. We’re going ahead with those investments to make sure that we are competitively paying as an employer, which will have an annualized impact of roughly about 1.2% on our margin, and we expect to recover these margins in about two to three quarters’ time.

We plan — we invest — plan to invest close to 1.5% in the coming fiscal, like we’d outlined earlier as well, to continue to invest in our verticals, market solution and partnerships and in brand building in FY ’24 to really continue to enable our scale and continue to become a value-added partner for our clients.

So that’s the summary for the results for this quarter. In summary, we are very optimistic about our long-term growth prospects. We’re delighted and excited to serve our client base and the industry that we serve with in. We aim to be in the top 25% quartile for revenue performance. Like we have done this quarter, we want to stay in that league, go forward as well.

We continue to see good momentum in Q4. Going into Q4, our pipeline and our — all lead indicators from sales perspective are looking very strong. So we think not only Q3, we’ll have a very solid Q4 coming up as well. We are resolute in our belief that much like this quarter and coming quarters, we will continue to take market share away aggressively from competition and enable our clients and our people to achieve exceptional outcomes.

Thank you. With that, let me turn it over to Sujit to provide an update on the India business, and he will then hand it over to Jagan for his comments on our financial performance. Sujit?

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Thank you, Samir. As Samir already mentioned, we had a very outstanding quarter. We continue to grow our cloud business as well as our infrastructure business in Indian market. We strongly believe that our market growth will continue in the coming quarters.

Most of our enterprise customers who are going through their business transformation process, we believe it is not going to reverse, and all those processes will continue with our — at our customer end and we will be working with our customers through all these transformation projects.

Going forward, we’ll continue to focus on our existing customers, which help us in building our annuity growth. While focusing on the enterprise customers, we will also continue to work with some of our new alliances to get into some new customer segments like the corporate segment.

Thank you. Passing on to Jagan.

Jagannathan Chakravarthi — Chief Financial Officer

Yeah. Thanks, Sujit. Good evening, all. We’ll start with the update on the financial performance. As mentioned by Samir, the quarterly revenue growth for the international business in terms of — in dollar terms has been very, very strong at 4.8% and in rupee terms, it has been strong at 6.3%. The year-on-year growth in dollar terms has been 13.3%, and in terms of rupees, it was 23.9%.

The PAT has been up for the quarter by 4.4% and yearly growth of 20.5%. The domestic business, gross contribution has grown by 5.8% quarter-on-quarter and 25.8% on year-on-year.

Our ROCE in international business continued to be strong at about 37% and in Indian business, continued to grow with 42% of ROCE. The RO — return on net worth has been very, very strong in both the businesses, at Indian business is 6% and international business is 37%.

The earnings per share has grown 4.3% quarter-on-quarter and 20.3% year-on-year. We had an earnings per share of about INR8.5 per share this quarter.

The consolidated financial trends. We covered the revenue and profitability, and the EBITDA also for the last eight quarters has been pretty strong, with a CQGR of revenue growth of 6.2% and EBITDA CQGR of 5.3%. The PAT CQGR has been 10.3%, indicating a strong profitability of the business.

The international business has been very, very strongly growing for the last many quarters now. We had a very, very strong growth of — for this quarter also with PAT of 16.6% and EBITDA of 25.2%. So the domestic business has been very, very strong. The domestic business continued to grow well with their EBITDA CQGR of 8.3%. Their gross contribution has been growing at CQGR of 5.1%, and PAT has been very, very strong with CQGR of 14.4%.

Now moving on to the key metrics. Our international business — in international business, with — we have disclosed the geographical trend of the revenue, seems to be strong. This quarter, Europe has been strong for us as well as the rest of the world has been strong for us. The number of customers added very, very strong for this quarter at 20, and client concentration remains at the same level for top 10 and top 20 customers. Number of $1 million customers continued to grow up for us, and this quarter has been one of the strong performances of 46 customers more than $1 million.

So the vertical mix what we have mentioned here, we have reported the earlier vertical what we were reporting till last quarter, as well as Samir confirmed about the new verticals what we are going to monitor or focus on for the coming years. So we have given the new vertical mix of revenue also for that asset transition now for people to understand.

So we have covered the top go-to market, what is the performance for quarter three of last year, current year and last quarter as[Phonetic] the current quarter. We are actually covering this to give a view of what is our go-to-market strategy and what are the areas, how we are going to serve the customers. This data has also been given to get a feel on the new reporting what we are going to follow and the data carrying with all our — all the investors. So this actually helps us to highlight that our technology focus or the business focus what we have and where we are going to serve the customer.

With this, I conclude my update on financial performance. Thanks to all of you who have joined the call, and we will continue to focus on growth and scale in the coming quarters. Thank you.

Samir Dhir — Chief Executive Officer

[Technical Issues] open for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital. Please go ahead.

Baidik Sarkar — Unifi Capital — Analyst

Hi, Samir, Sujit and Jagan. Congrats to you and the team on a good print. A couple of questions, predominantly around your large deals. Could you qualitatively flesh out what is the exact space and capabilities we’re targeting here and how deep this funnel is? I ask this in the context of vendor consolidation that is currently underway. And the numbers from your bigger peers indicate consolidation at their end, right?

So given our relatively smaller size, I’m just trying to understand the strength in our positioning and the key risks to our assumptions from here in our full-year journey.

Samir Dhir — Chief Executive Officer

Sure. Hi, this is Samir, and let me take this on. So I think the deals that we just discussed earlier, they are essentially around modernization for our clients’ estate. As you know, this is an era where customers are truly committed to spending money to make sure that their consumers stay loyal to them, they can reduce the customer churn and they can provide superior customer experience.

So both the deals that we shared earlier today are in that direction. They are going to modernize their agenda from a customer experience perspective, modernizing their platforms. And we will bring our capabilities from modern technologies, like cloud and data, to transform their experience.

So they are really not in the consolidation space, per se. They’re in the modernization and revenue acceleration space for our customers. At this point in time, for not only these deals, other deals that we are seeing, we continue to see the spend and the demand environment really robust from a modernization agenda perspective, as I outlined earlier.

Baidik Sarkar — Unifi Capital — Analyst

Sure, sure, sure. And quantitatively, I understand you don’t give out a 12-month order book, per se. But given the traction your business, is there a range that you can help us imagine?

Samir Dhir — Chief Executive Officer

Yeah. So like we — we have outlined that we are steadfast towards doubling the size of the business in four years. We will have — we are on that path already. This quarter is a resounding outcome towards that strategy. So we’ll continue to — continue the journey as we move forward as well. We do not see any aberration. Of course, as market pivots, if it does pivot, there are some softness people are talking about. But at this time, we are not seeing any softness in our pipeline or order booking at this point in time. To the point Jagan mentioned earlier, starting next quarter, we will also start sharing with you our order booking summary as we are rehashing out our investor information.

Baidik Sarkar — Unifi Capital — Analyst

Yeah, that’s very helpful. Does our four-year aspiration of $0.5 billion have a large inorganic assumption to it? Or how should [Indecipherable] organically?

Samir Dhir — Chief Executive Officer

Yes. I think it will be a combination of largely organic, but there will be some inorganic tuck-ins we will do as we move forward to really bolster our capability set more than anything else. We are not looking to acquire properties from a scale perspective, but we’re definitely looking to acquire properties from a differentiated capabilities perspective to augment our modernization agenda that Sonata is marching on now.

Baidik Sarkar — Unifi Capital — Analyst

And just one last question before I get back into the queue. How should we read your incremental 150 bps investments on go-to-market and SGA? Given the traction in our business, will the operating leverage neuter this out? Or should we assume a like-to-like 150 bps cut in our margins for FY ’24 for the whole year normalized?

Samir Dhir — Chief Executive Officer

It’s a great question. I think we expect the leverage to kick in, which will give us the incremental dollars we need to invest in the business. But we also expect around 1% to 1.5% incremental investment over and above the leverage that we discussed to continue to invest in the business as we scale forward.

Baidik Sarkar — Unifi Capital — Analyst

Right. So, [Indecipherable] for the entire year, I think it’s fair to assume 100 bps, 150 bps kind of a downtrend just for your services business. That’s the print reading for ’24.

Samir Dhir — Chief Executive Officer

That’s right. And that’s just to accelerate towards the $0.5 billion journey we talked about earlier in four years’ time.

Baidik Sarkar — Unifi Capital — Analyst

Sure, sure. And if I can just squeeze in one last question to Mr. Mohanty. The — again, acceleration in the domestic business this year was good. Any expected softness that I think you should imagine, say, probably not immediately, but maybe three, four quarters down the line, just reading the print of all the ISVs and all the product majors worldwide?

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

If you could just repeat the question, if you don’t mind? Hello?

Baidik Sarkar — Unifi Capital — Analyst

I’m sorry. Do you want me to repeat the question?

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Yeah. Can you just repeat the question, if you don’t mind?

Baidik Sarkar — Unifi Capital — Analyst

I was just trying to understand. Obviously, the traction in your domestic business is strong now, and this will take us through the next few quarters. But just given the softening commentary from OEs world over, be it Microsoft or an Oracle, its relative softness or an absolute softness. But do you — would you expect this traction to probably taper down towards end of FY ’24, early ’25? Or do you have no indications leading to that as things stand today?

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Today, there is no such indication. And whatever is happening with most of the OEMs, from the customer point, we believe that most of the commitments which they have made in terms of the contractual agreement to use the software, that will continue to be there. I mean, assuming that at some point of time, even if there will be some softness, that will be more which is on the pro side, but the base contracts will continue. So whether it is Microsoft or Oracle or any of the hypescalers or any of the other OEMs, none of them have — till now has not indicated regarding any slowness in the market.

Baidik Sarkar — Unifi Capital — Analyst

Sure. Best wishes to the team. Thank you.

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mohit Jain from AnandRathi. Please go ahead.

Mohit Jain — AnandRathi — Analyst

Sir, first towards on the IT services headcount. Can you share that number in terms of headcount breakup for the quarter?

Jagannathan Chakravarthi — Chief Financial Officer

Yeah. The IT services, we have added 140 people — one second. I’ll just tell you that. It is 5,786 total for both the businesses together.

Mohit Jain — AnandRathi — Analyst

Can you repeat the number?

Jagannathan Chakravarthi — Chief Financial Officer

It is — total number is 5,786, sir.

Mohit Jain — AnandRathi — Analyst

Okay, okay. Got it, sir. And second in terms of IT services margins for the quarter, for third quarter. Now I’m assuming there is no wage hike, etc., in this particular quarter. You also got some benefit of — on cross-currency towards the end. So why would we have this decline during the quarter on a sequential basis?

Jagannathan Chakravarthi — Chief Financial Officer

Okay. The major reason for that is we have actually invested some money on the employer and employees’ engagement activities for addressing the long-term issues of attrition and employee engagement, which is reflecting in our attrition anyway for this quarter’s data. That had an impact of about 8.9 bps[Phonetic] on that. And also operational expenses going up now. Because the sales momentum is very high now, the operational expenses are going up for us, which is also resulting in the balance impact for the quarter.

Mohit Jain — AnandRathi — Analyst

So is there a one-off expense that you have done during the quarter? Or should we assume wage hikes from the quarter’s margins…

Jagannathan Chakravarthi — Chief Financial Officer

Not exactly — not exactly wage hikes. This is not a wage hike. This is employee engagement activities. This is like a one-off kind of an activity for the quarter. But some amount of the employment — employee engagement activities will be there in the couple of quarters more for addressing the attrition issues.

Mohit Jain — AnandRathi — Analyst

Sir, what I mean to ask is, because we are entering a wage hike quarter and this quarter’s margins are close to 22%, should I assume a decline from there on? Or you think there is this 40 basis point, 50 basis point one-off which we should adjust before looking at wage hike for 4Q?

Jagannathan Chakravarthi — Chief Financial Officer

For 4Q, the salary hike will have an impact on the margin, but operational efficiencies will cover some portions, and this employment engagement activity may tone down much, much lesser from here. So we expect some benefits because of this toning down as well as the operational efficiencies.

Mohit Jain — AnandRathi — Analyst

Okay. Got it. So that was second. Third was — sir, now when you talk about this 1.5% incremental investment, we were under the — I was under the impression that ’23 also we invested already. Now if we incrementally invest 1.5%, are we revising our growth estimate in some sense? How do you measure the return on sales investment for FY ’24?

Samir Dhir — Chief Executive Officer

Yeah. Mohit, let me take that. So what we announced last time was our intent to spend investments coming into the back half of this year. But the hiring process takes time. So I think we’re just about now that the new investments are kicking in with the hiring of people and talent, etc. So in Q4 quarter, we’ll see some of that impact. But going into full — next year, we’ll see the full-year impact of those incremental costs, some of it. And those investments are already baked into our $500 million in four years journey discussion.

Mohit Jain — AnandRathi — Analyst

Okay. So that will be the new margin level that you guys will be operating at from ’24 onwards? I’m assuming these are all recurring costs as they are hiring related.

Samir Dhir — Chief Executive Officer

I think as scale kicks in, there will be leverage advantage in about two to three quarters, maybe four quarters. But for the first half for sure and maybe second half initially, we’ll see the impact. But beyond that, leverage will kick in as the growth kicks in.

Mohit Jain — AnandRathi — Analyst

Second half of FY ’24?

Samir Dhir — Chief Executive Officer

FY ’24, yes.

Mohit Jain — AnandRathi — Analyst

Okay. And the last one is on healthcare. There was — it appears there is some sequential decline there in the business. Any specific reason for that? And when should we expect a pickup there?

Samir Dhir — Chief Executive Officer

I think healthcare business, it’s early days right now. This is just a seasonal dip. There’s no softness from an overall perspective. We continue to make investments. And we’re just closing out another deal in the healthcare space. So as we go into this quarter, we will probably pick up — pick back up again. This is a seasonal variation now, Mohit.

Mohit Jain — AnandRathi — Analyst

Okay. All right. Thank you very much and all the best.

Samir Dhir — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Yes, sir. I have a couple of questions. What trends you are witnessing on attrition side…

Operator

Sorry to interrupt. Chirag, your voice is fluctuating.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Now it’s audible?

Operator

Yes, yes.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Yeah. So I have a couple of questions. The first one is on attrition. What trend we are witnessing? Second, to achieve such a turnover which we have in mind in next three, four years as a [Indecipherable], what additional headcount are we going to add from next three-, four-year perspective? Also, is the margin lever in place in line with the top-line growth? So, yeah.

Samir Dhir — Chief Executive Officer

So I think let me start, and Jagan can build on this. The first question about attrition, I think we’ve seen a good quarter from an attrition climb down perspective. I think like we reported earlier, Chirag, 21% in Q2 became about 15% in Q3. That’s a good step forward. Clearly, the market is still volatile. I wouldn’t declare victory as yet. I think we have to watch this for next few quarters to make sure there is a good solid trend coming up, but this quarter was good for us.

That’s on one end. The second end, the hiring has become a little easier. Of course, the niche skill and the specialized skills are still hard to come by. But the regular skills are a little bit easier to hire. So that’s — on that perspective, the supply side has eased off a little bit.

To your second question about the headcount projection, much like you have said, it will double the company in four years’ time. I think our headcount will follow very much a linear path in that sense. So I think we’ll pretty much see — from currently close to about 6,000 people, one could expect that we’ll probably double the headcount in about four years’ time as well. So you can almost travel on a linear scale from there.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay. Okay, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Amit Agarwal. [Operator Instructions] The next question is from the line of Amit Agarwal, individual investor. Please go ahead.

Amit Agarwal — Individual Investor — Analyst

Sir, my question is regarding the Platformation product. So what percentage of the sales we achieved from this product? And is this a blockchain product? And what are the margins we are working on this particular product? Thank you.

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Yeah. The — so you are asking that going forward, what the revenue would be. Is that your question, Amit?

Amit Agarwal — Individual Investor — Analyst

Sir, my question is regarding your product Platformation. What percentage of the revenue are we driving from this particular product? And is this blockchain — is this based on blockchain? And what are the margins in this particular product?

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

So — Amit [Speech Overlap].

Samir Dhir — Chief Executive Officer

Yeah. Okay. Amit, let me take that. Sorry, I misunderstood the question. So Platformation is our framework to help clients modernize their platforms, and Platformation really comprises of a series of accelerators that Sonata has built over the years. I earlier in my prepared comments talked about lightning tools. So Raj and his team, as Raj takes on the CTO role, is really strengthening up the lighting tools, which really at the — is almost like a chassis of the Platformation technique. And that’s what we want to take and continuous strengthen and invest in that chassis as we move forward so we can help customers accelerate their journey from a modernization perspective.

We do not really measure the revenue from those tools because those are really an accelerator and a framework for us to deliver superior customer experience for our customers. That’s how we’ve been tracking it out, Amit.

Amit Agarwal — Individual Investor — Analyst

Sir, is it based on blockchain? And what percent — what are the margins in this particular product?

Samir Dhir — Chief Executive Officer

So it’s not really a product, Amit. It is really our framework to help modernize faster. So let me give an example. So if you are an on-prem data platform — a customer has an on-prem data platform, if they want to modernize and move it to cloud, we have a series of accelerators. Using our Platformation technique, we help move the databases from on-prem to cloud. So that’s a series of products that we have.

Now they are not — these products are not on blockchain. These could be on a Java stack. This could be on ETL stack using informatics or some other tools. These are based on smattering of technologies. And a composite of this what we call as lighting tool that we have built as an IP for ourselves.

Amit Agarwal — Individual Investor — Analyst

Okay. Thank you. Thank you. That’s my question. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dhaneet Sawla [Phonetic], individual investor. Please go ahead.

Dhaneet Sawla — Individual Investor — Analyst

Hi, sir. Really impressed with the direction which we are taking now. And I just had just one question. This is with regards to our margins. You said that due to the salary increases, we are going to have a hit on the margins of around 1%, 1.5%. Just wanted to know that by while — can we expect to transfer it into our revenue or into our contracts so that this margin hit is then accounted for?

Samir Dhir — Chief Executive Officer

Yeah, sure. Dhaneet [Phonetic], a good question. Like we said earlier, we are planning to invest over the next, I would say, three to four quarters on this 1%, 1.5%. Our growth, as you can see, the numbers have started picking up. This quarter is a strong quarter. And of course, we’re going to continue the momentum as we move forward.

We think the leverage advantage will kick in, in back half of next fiscal year, which is FY ’24. But first half of fiscal year, we’ll probably use the investment dollars to continue to invest. And then back of the fiscal year, the scale will help us from a leverage perspective, and hence, we can recover the margins. It’s hard to say whether it will be Q3 or Q4, but somewhere around Q3 or Q4 we’ll start to see leverage kick in, and hence the margins will pick back up.

Dhaneet Sawla — Individual Investor — Analyst

Okay. Thank you very much, and all the best for the coming quarters.

Samir Dhir — Chief Executive Officer

Thank you, Dhaneet.

Operator

Thank you. [Operator Instructions] The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Hello. Sir, once again, I have a question on geographic-specific comments, that, on tech project front, what behavior you are witnessing and when you feel that the demand will — demand outlook will clear in front of you guys, if you can throw some light?

Samir Dhir — Chief Executive Officer

Sure. Chirag, a good question. I think the demand environment in general is pretty secular. We continue to see robust pipeline build across all geos and across verticals. Of course, there are some specific client pockets where we are seeing softness. Specifically, in the high-tech area, we have one or two clients that have shown some softness. But that has been adequately covered and compensated, in fact, more than that, by other clients in the same segment and other industries.

But broadly speaking, across geographies, which is the predominant geographies of Sonata, U.S., U.K., Nordic regions and APAC and India and ANZ, we are continuing to see a fairly secular trend of demand across the geographies and across verticals. Of course, we have a lot of work to do in BSFI and healthcare because we launched those verticals recently. Those are early incubating verticals. But as we move forward, we want to continue to build scale in those verticals as well, Chirag.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay. And sir, in our turnover guidance of doubling in next three, four years, does it — it will be inorganic also, right? Or just — or based on organic growth?

Samir Dhir — Chief Executive Officer

That’s right. I think, predominantly, we expect it to be organic driven. Of course, we will have some tuck-ins inorganically to increase our technical capabilities on specific competency areas that we want to accelerate. We’ll do some tuck-ins. But yes, it will be a combination of organic and inorganic, but primarily organic.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay, sir. Thank you so much, and all the best.

Samir Dhir — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. — Mr. Samir Dhir, we have one question from Sameer Dosani from ICICI Prudential. Please go ahead.

Sameer Dosani — ICICI Prudential — Analyst

Yeah. Am I audible?

Operator

Yes.

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Yes.

Sameer Dosani — ICICI Prudential — Analyst

Yeah. So just want to understand. Your opening — Samir, your opening remarks mentioned about increasing the annuity revenue of your business. So how should we measure it? Or how are you measuring internally? And is there some target, if you have some percentage of revenues that — I mean, how do you track it? Now where is it? And where do you — where do you think you will reach in next three to four years? So if you can just talk about that.

Samir Dhir — Chief Executive Officer

Yeah, Sameer, thanks for asking the question. I was thinking where we’ve gone this quarter. So thanks you asked the question. But on a serious note, we are — I already alluded to the large deals that we focused on in the international market. And I think that’s our focus to continue to clock large deals because that’s what will build the scale. That will also — is the really focused effort to drive our investments. The annuity comment was really for the India market, and I’ll let Sujit cover the metrics that he tracks from an annuity perspective.

Sujit Mohanty — Managing Director and Chief Executive Officer, Sonata Information Technology Limited

Hi, Sameer. From an India business perspective, one of the metrics which we track is that, what is the percentage of the annuity business we are doing. And as it stands today, it is around 76%. We tried — we are trying to achieve a percentage of around 80%, that means 80% of the business where we have the contracts in hand and we keep building year-on-year. That — we believe that, that is a very comfortable position from future business prospective.

And that is why we’re continuing to work with our existing customers, continuing to make sure that we get into multiyear contracts rather than just making one-off sales. So these are the few of the parameters we monitor. I hope I have answered your question. Thank you.

Sameer Dosani — ICICI Prudential — Analyst

Yeah, correct. So Samir, just on — continuing on this, just one clarification on the deal end size. So we had four large deals. This is on the top of two large deals that we had last quarter, is it?

Samir Dhir — Chief Executive Officer

That’s right. These are additional deals that we closed in the quarter. So generally speaking, in these forums, Sameer, we talk about deals that we closed here in the quarter.

Sameer Dosani — ICICI Prudential — Analyst

Okay. Okay. Thanks. That’s it from side. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Debashish Mazumdar from B&K Securities. Please go ahead.

Debashish Mazumdar — B&K Securities — Analyst

Good evening to the management team, and congratulations on a good set of numbers in a seasonally weak quarter. So Samir, one question that I have, and this is kind of a little bit of more understanding that is required. If I see your largest customer globally, which is — who have already mentioned that they are having some trouble with their smaller clients. And my sense is that we must very big with the small size bookings of Microsoft, especially with the Dynamics Azure side. So the sense that I’m trying to get is what exactly giving us this kind of traction in our performance, especially in the TMT business and also in a seasonally weak quarter?

And from your commentary, it seems to be that going forward, next two, three quarters also, you have a good amount of visibility to get growth and deals. So some comments on that side will be really helpful.

Samir Dhir — Chief Executive Officer

Sure, Debashish. A fair question. I think on the high-tech side, like I said to you, with few clients we have seen softening. But I think at the same time, we have put — the investment that we have put in, specifically in the Microsoft account, we had increased our sales capacity two quarters back. And I think that has really helped us to diversify into new line of businesses, new programs. So, really ahead of the curve in that sense.

And as the — some of the programs came down, but we were able to build our pipeline in the last two quarters to really catch up and do more than we are probably doing. So we really continue to see good momentum and good growth even in this account, in Microsoft accounts. So I think overall the trajectory is looking up.

And that’s been the strategy for us that we want to be ahead of the game, of the competition. And hence, while the spend of these customers overall are not increasing, but we’re taking market share away from our competition. And that’s a core part of our strategy, to deliver superior experience in the modernization space. And based on the back of our good delivery, we can continue to take the efforts away from competition.

Debashish Mazumdar — B&K Securities — Analyst

Great. And one more question is, if I see even our margins today, which is also considering some amount of pressure that we have seen in the last one, 1.5 years. Despite that, our margins are still higher than some of the similar size and larger size competition, higher means significantly higher. So is it like our platform-based model — the MSA deals that we take, do we kind of automate a lot of things at the back end, which is helping us to get this kind of margin profile in the international business? Or is it like going forward when we try to achieve scale, we will ultimately get back into that 15%, 16%, 18% margin range, where most of my larger peers are operating?

Samir Dhir — Chief Executive Officer

It’s a great question, Debashish. I think there’s not a singular answer to this question, but let me try and give you a sort of a color for this question. So number one, do we have a secret sauce to help clients modernize? The answer is absolutely yes. The lighting tool that I alluded to earlier in the call is really our secret sauce, and that is — couple that with the Platformation technique that Sonata has built over the years is really helping us gain more market share at a higher premium, because this is a market which is — which pay — which is willing to pay a premium to the expert skills and expertise. This is not a commodity play for us and in our customers’ mind.

So if you’re transforming your estate, you’re not really looking at — as a simple commodity outsourcing. You’re really looking in a partner that you can trust, who can help you accelerate your revenue curve. So from that perspective, we don’t think the business model will fundamentally change.

However, having said that, like we just outlined, we will continue to invest in the business as we accelerate the journey. It will be a deliberate attempt, not because of our business model weakness, but our deliberate attempt to diversify the business increasingly to expand into newer geographies. And that’s a bit it will take. And like I alluded to earlier, we’re going to take a 1%, 1.5% margin hit in the coming years. That’s a very deliberate part of the strategy to accelerate faster.

Debashish Mazumdar — B&K Securities — Analyst

Okay. So you are reasonably confident enough that we are not moving into the direction of 17%, 18% even in next three, four years, despite achieving scale of doubling the size that we are talking about?

Samir Dhir — Chief Executive Officer

I think it’s a reasonable assumption to make. It’s hard to predict that far off, but it’s a reasonable assumption to make at this point in time.

Debashish Mazumdar — B&K Securities — Analyst

Great. And one last question, again, on the Cloud and Dynamic side. So are we operating more into the infrastructure management space or more into the app development and product engineering space?

Samir Dhir — Chief Executive Officer

I think these things are not as decoupled right now. Predominantly, if you look at it, we come from a customer journey or what we call as growth platforms in. And if that means we have to do a little bit of infrastructure work, we will pick that up. But we’re primarily a customer experience, growth platform-oriented company, and that’s why we — that’s why I alluded to earlier that we are on the customer experience side, building platform, which accelerates revenue for the customer. That’s our strong suite. Having said that, is that the entire suite? No. But I would say 70%, 80% is in that area.

Debashish Mazumdar — B&K Securities — Analyst

But that business, which is more project dependent and it will always be like that. And that is where maybe my sense is that you are getting some amount of pricing power and better margin also. Is the understanding correct?

Samir Dhir — Chief Executive Officer

That’s probably a reasonable assumption, yes.

Debashish Mazumdar — B&K Securities — Analyst

Okay, okay. Thank you very much for your time, sir.

Operator

Thank you. The next question is from the line of Amit Chandra from HDFC Securities. Please go ahead.

Amit Chandra — HDFC Securities — Analyst

Yeah. Hi, sir. And thanks for the opportunity. Sir, my question is regarding the travel vertical. So we have seen some recovery in the travel vertical. But still, we are much below the pre-COVID levels that we used to operate. So what is happening there? Because most of the other companies have shown strong growth and also the spending is back in terms of [Technical Issues] by most of the travel clients. So what’s happening with our top travel client there? It will be helpful.

Samir Dhir — Chief Executive Officer

Yeah. So on the travel vertical, Amit, the commentary from our clients has been pretty positive. They had a great summer and the bookings that they’ve seen in winter have been extraordinary as well. They are cautiously watching the bookings that are coming up for summer in 2023. But as far as bookings for summer and the winter are concerned, they’ve been pretty robust.

As you know, the investment to IT follows a little bit of a lag cycle, and that’s what we’re witnessing at least in our clients. Is the demand picking up? The answer is absolutely yes. Are we seeing growth? Again, the answer is yes. But it is at a cliff that will offset the pre-COVID level. I think it will take several quarters for us to catch up to that level. But the momentum is in the right direction because the customers are seeing the momentum in the right areas.

Amit Chandra — HDFC Securities — Analyst

Okay, sir. Thank you.

Operator

Thank you. [Operator Instructions] As there are no further questions from the participants, I now hand the conference over to Mr. Samir Dhir for closing comments.

Samir Dhir — Chief Executive Officer

Thank you, Thanvi, once again. Thank you all for joining today. Like I said in the opening remarks, we are really very optimistic about our future. The demand environment is holding up. Of course, we live in an uncertain market and we’ll continue to watch the market. But as we speak today to you, we’re very bullish about the future and we continue to take market share aggressively away from our competition using our differentiated Platformation and Lighting tools framework and really enable the journey in an accelerated manner for our customers and our employees towards success.

So thank you for joining today. I’ll speak to you in a quarter’s time. Thank you all.

Operator

[Operator Closing Remarks]