Sonata Software Ltd (SONATSOFTW) Q4 FY23 Earnings Concall Transcript

Sonata Software Ltd (NSE:SONATSOFTW) Q4 FY23 Earnings Concall dated May. 15, 2023.

Corporate Participants:

Samir Dhir — Managing Director & Chief Executive Officer

Jagannathan Narasimhan — Chief Financial Officer

Sujit Mohanty — Managing Director & Chief Executive Officer, Sonata Information Technology Ltd.

Analysts:

Baidik Sarkar — Unifi Capital — Analyst

Mohit Jain — Anand Rathi — Analyst

Chirag Kacharia — Ashika Institutional Equities — Analyst

Dipesh Mehta — Emkay Global — Analyst

Sameer Dosani — ICICI Prudential AMC — Analyst

Mihir Manohar — Carnelian Asset Management — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Sumit Chawala — DN Trading — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Sonata Software Limited Q4 FY ’23 and Full Year FY ’23 Earnings Update Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Samir Dhir, CEO and Managing Director from Sonata Software Limited. Thank you, and over to you, sir.

Samir Dhir — Managing Director & Chief Executive Officer

Thank you, moderator. My name is Samir, and very good evening to all of you. A very warm welcome to this conference call to discuss our strategy and goals and the financial results for the quarter Q4, which ended in March 31, 2023 and the full year updates. Thank you for joining us today. We appreciate your valuable time and support.

It’s my pleasure to share that the progress that we had been — we have continued to make with respect to our vision and growth for Sonata. The executive team remains committed to judiciously accelerate the growth curve and build scale and as we’ve always talked about build scale in terms of large clients, large deals, market, partnerships and talent. We had a really exciting quarter and delivered yet another quarter of industry-leading growth and I’ll share the numbers little later in the call. But before I do that, let me cover and update on our strategic goals first.

If you recall, we had stated in October 2022, that our international business will be $0.5 billion in four years’ time and will be known as specialist firm in modernization and digital engineering and scale our India business aligned towards gaining market share with end-to-end contracts in data and cloud modernization opportunity. We’ve made tremendous progress towards our strategic growth of M&A, large deals and verticalization. Let me cover M&A first.

We acquired Quant Systems, a Texas-based IT services and software company in an all-cash deal in the quarter, the biggest ever acquisition in Sonata Software history. Quant had delivered $37 million in revenue and mid-30s EBITDA in FY ’22. Quant brings two large clients to Sonata, which will be top five clients to Sonata from day 1, and this aligns to our strategy to invest in BFSI and Healthcare. One of the clients is a BFSI client and the other is a healthcare client.

In the past seven to eight weeks, we have made significant progress in integrating Quant into Sonata. At this point in time, I’m happy to report that from a go-to-market perspective, the two teams are fully integrated. We’re working judiciously to create large deals, mid-sized deals and really expanding our footprint into BFSI and Healthcare, which was the strategic rationale of making the deal in the first place. And we’ll report more on that as we move forward but at this point in time, the go-to-market teams are fully integrated between Quant and Sonata teams.

Other large deals, if you recall, when I came on-board, I had shared with you a sharp focus on large deals and we are very pleased with the progress we have made. Just to recap, we announced two large deals in Q2, four in Q3, and we’re delighted that in the last quarter, we closed three large deals and of them is the largest-ever deal for Sonata. Let me provide you a commentary on the three large deals we secured in the quarter. First thing first, the largest-ever deal of Sonata which was a $160 million contract for 10 years is backed by — this client is backed by one of the largest private-equity firm, has a very strong cash flow, and generating double digit profitability. The client, which is a net new logo for Sonata will make direct into our top five client list of Sonata.

This 10-year strategic modernization deal will entail Sonata taking over all the technology towers, including people transfer, which supports our US localization strategy, and also we will be responsible for end-to-end IT modernization and transformation. This is end-to-end, that’s the keyword to emphasize here. We are building a single platform for our future for the client to modernize and transform their core application suite, creating an omnichannel and connected organization with a customer 360-degree view. We will bring our expertise and skills pertaining to Azure, AWS, Enterprise Data, Automation, Cloud Optimization and CRM as we deliver this program.

Beyond this exciting deal which we have talked to you about earlier, there are two other large deals we closed in the quarter, which also led our large deal pipeline to be — which increased over 12% from the prior quarter. The two other large deals we won, one is a large multi-year deal, we won with a leading network service provider. Sonata signed a multi-year contract to partner on customer strategic business and technology transformation initiative, with the focus to deliver operational efficiencies and excellence, leveraging our modernization capabilities. This is a multi-year contract.

The third deal, which is a managed services deal for Microsoft platform, integrating Microsoft Technologies and another IFC solutions. This is a multi-year large as well, with one of the largest manufacturing — manufacturers based out outside of the US. Customer selected us as a strategic partner to support them on their modernization journey. Our robust solution backed by our credentials with Microsoft product engineering and support, really helped us win this deal.

So, with that our story just to recap of large deals continues to grow strong strength to strength; two deals in Q2, four in Q3 and again, three in Q4, with one of the largest ever deal — with one of the largest deals ever in Sonata’s history. From large deals we move one to provide an update on the verticalization. As we recall we had talked about driving sharper focus into new verticals as well as harvesting the existing verticals. The invest verticals we called out was BFSI and Healthcare, Life Sciences and the harvest vertical was TMT, which is Telecom, Media and Hi-Tech and Retail, Manufacturing.

Let’s talk about the invest verticals first. On the invest vertical side, we continue to build strong sales, delivery and domain capabilities in these verticals. The BFSI vertical is constantly evolving and adapting to new technologies, regulations and customer preferences. Our growth in banking industry in time to come will really be pivoted off these vectors. The banking industry has recently been facing some challenges. But the areas which we’re focused on, which is in the consumer banking space and the regulatory space and data priority space, the demand patterns continues to be robust [Indecipherable].

On the Healthcare side, the industry is expected to grow — continue to grow in the coming years, driven by demographic changes, technological advancements and changing healthcare delivery models. The shift towards value-based care and technological advancements have led to the development of new treatments and medical equipment, which are some of the key factors leading overall positive outlook in the healthcare industry.

On the harvest vertical side, which was the strength of Sonata from a long-time, which is TMT, Retail and Manufacturing, we continue to see strong pipeline build and order book momentum across all the harvest verticals. Having said that, we are seeing some softness in the hi-tech industry, which is close to about 25%, 30% of our overall business. In a few select mid-clients, where growth rates have reduced, we’re still growing, but the growth rates have come down in the hi-tech industry. But we remain overall positive even in the hi-tech sector despite of those few clients that have showed some slowdown.

With that let me move to — provide you an update on the scale. It is my indeed a pleasure to inform that Suresh HP has joined us form Mindtree as the Delivery Head of Sonata, as Chief Delivery Officer of Sonata overall. With his rich experience, Suresh will enable Sonata to continue building an innovative and trusted delivery organization that inspires our clients and team members to deliver high-quality outcomes. This is a strategic hire for us, especially given our focus on large deals and we believe the capabilities and skill sets Suresh brings to the table will really help us accelerate our large deals here from a solution and capability point of view.

Beyond that, we are increasing our investments in generative AI. We’re very excited about the faith in generative AI and we continue to make significant inroads in the generative AI area. And we are happy to report that we won our first contract in the generative AI space in the past quarter. This is a marquee engagement for us to modernize the productivity requirements of a client using generative AI. We will continue to grow our India business with a sharp focus on analytics business. Our endeavor is to move up the value chain and make Sonata preferred partner for everything related to cloud and data and really continue to drive end-to-end contracts with these clients.

We have kicked off our endeavor to build trusted partnerships with leading hyperscalers and other key players who can strengthen our modernization play. Happy to report with Microsoft, we are now a Microsoft cloud solution partner. And have completed 13 more advanced specialization with Microsoft. With AWS, we continue to grow strength to strength and really working with them to drive a higher level of — join with the market jointly with them.

With that, let me move on to the talent. People success remains core to our success as we move forward as we scale the company. We launched Sonata Career Academy, to offer access to vast content and opportunities to Sonata team to learn the latest technologies and continue to remain a value-added provider to our clients. We’re very happy with the progress we’re making on Sonata Career Academy.

On the diversity and inclusiveness, we formed a Global Counsel for D&I in the company and we’re really pleased with the progress we’re making on our DI SP&I [Phonetic] charter as well. From an women empowerment perspective, we were — we’re delighted that we hosted or partnered with the Women’s T20 cricket franchise and really it helped us strengthen our brand as well as our commitment to the D&I initiatives. Based on the above update and progress we have made, whether it is the M&A, which is the largest-ever acquisition, whether it is the large deal, which is the largest-ever deal in Sonata’s history, whether it is the D&I investment that we’re making, we have come up — our teams have come up with this theme called PLAY BIG campaign and this is the PLAY BIG Sonata that you have seen, we are very delighted with the progress overall we are making.

With those broad strategic and goals updates, let me move on to Q4. In Q4, our international services business grew by 8.6% overall. Within that organic grew 4.5% quarter-on-quarter. We’re well pleased with the progress with those numbers. Our yearly numbers growth in the international business was 18.7%. In constant-currency terms, we witnessed 8% quarter-on-quarter and 23.1% full year Y-on-Y growth. Our operating margins were 23.9% normalized after the one-time M&A-related costs, which were INR17.1 crores pre-tax. But with those incorporated, our operating margins were at 20.7%.

The gross contribution in domestic business grew 2.9% sequentially and 28.8% full year Y-on-Y. FY ‘ 23 our PAT grew 20%. The consolidated PAT grew 7.8% normalized and if you back out the M&A-related expenses in the quarter. We had a net headcount growth of over 702 employees within the company and that excludes Quant. We really grow the headcount quite significantly in the course of the quarter and this also includes the 140 freshers that joined the organization in Q4. We continued to make steady progress in reducing our attrition. In the quarter, the attrition came in around 12%.

In summary, we continue to remain optimistic about the long-term growth prospects, the progress that we’re making vis-a-vis large deals, M&A integration as well as driving capabilities in the company. In FY ’24 as we start the new fiscal, we have two tailwinds and one potential headwind. The two tailwinds are the large deal that we announced and the Quant acquisition we announced and then there is a potential headwind on the TNTA [Phonetic] softness in few select clients. All-in, we expect to deliver a strong upcoming quarters and expect to stay bullish about our growth prospects in FY ’24 and we expect to deliver a top 25% quartile performance in the industry. With that, we remain on course for our $500 million goal and deliver a high-growth in FY ’24 and this growth will be higher in FY ’23 in dollar terms.

With that, thank you. And let me turn it over to Jagan for his comments and our financial performance. Jagan?

Jagannathan Narasimhan — Chief Financial Officer

Thanks, Samir. Thanks for your update. Good morning, good afternoon, good evening, all. We had a very exciting quarter and delivered yet another quarter of industry-leading growth. It’s my pleasure to present to you the Q4 ’23 financial performance.

The revenue for the quarter grew by 8.6% quarter-on-quarter and 18.1% year-on-year. In rupee terms, it was 9% quarter-on-quarter and 28.9% year-on-year. In constant-currency terms, we have witnessed 8% quarter-on-quarter growth and 21.2% year-on-year growth. Other metrics, consolidated EPS for Q4 was INR8.10 per share and Q3 was INR8.40. Financial year ’23 was INR32.60 compared to INR27.2 per share last year. At the consol level, ROCE stood at 36.8%. There was a small drop in the ROCE compared to last quarter. This was due to the additional capital employed of 4% during the quarter. 6% increase in the network and 3% drop in consol PAT resulted in the decrease of RONW from 40% to 36.5% in this quarter.

Profitability in Q4, PAT grew quarter-on-quarter 7.8% normalized for one-time M&A-related costs of INR17.1 crores gross pre-tax and the reported PAT declined by 3.3% quarter-on-quarter. For the financial year ’23 year-on-year, PAT grew by 23.5% on a normalized basis and 20% on a reported basis. Q4 console PAT percentage was 5.8% against 5.2%. Normalized basis Q4 PAT stood at 6.8% compared to 5.2% reported last quarter.

Q4 consol EBITDA percentage was 7.9% against 6.9% in Q3. On a normalized basis consol EBITDA stood at 8.8%. The international services EBITDA before forex and OI reported was 20.7% against 23.8% last quarter. However, on normalized basis, we have improved 10 basis points and the EBITDA before forex and OI is actually 23.9% for this quarter. 315 bps quarter-on-quarter drop mainly because of salary increments had a net impact of 97 basis points, one-time M&A costs and related costs is 320 basis points, exchange realization on working days has given us a benefit of 56 basis points and Quant profitably impact was around 46 basis points.

Here, in the exceptional segments, due to M&A was actually in the full quarter amortization impact was about — what we are expecting from the next quarter, just for the update of the another, we will have an amortization impact of around INR9.5 crores for the quarter, then interest on the loan, what we have borrowed is roughly around INR5 crore [Phonetic] and the interest on deferred consideration, this is an accounting entry as per the NDAS and equivalent to IFRS. This amount is about INR8.5 crores and the total is about INR23 crores impact every quarter.

The interest on loan will come down once we start repays — when we start repaying the loan and we are expecting to completely repay the loan in 12 to 15 months’ time and the interest on deferred consideration will sharply drop after the first payment happens in January-February of 2024 and further it will keep coming between the — when the amount is paid fully, this amount will completely go off. However, the net amortization amount may continue for a slightly longer period of time when the — when the intangible assets are amortized. The domestic gross contribution grew 2.9% sequentially from last quarter and full year was 28.8% year-on-year.

Key update, apart from this financials what I have given the utilization moved from 84.2% to 86.4%, led by optimization of the headcount and higher deployment, added 15 new customers compared to 20 customers last quarter, top 20 client concentration sustained at 66%, number of million-dollar customers have increased in Q4; $1 million to $3 million was 43, Q3 was 37 and four increase from Quant addition happened during this quarter. $3 million to $5 million customers are seven, three increased and out of that, three was due to Quant — from Quant, and more than $5 million customers are eight, five in last quarter, two increased from Quant.

We have mentioned above a new industry vertical classification in the previous earning call. PSP vertical has contributed to 31% of the revenue. Q3 was 33%, followed by 26% in retail, CCG and travel and hospitality industries, which was 21% in Q3. Cloud and dynamic competency have contributed 36%, which was 35% in the last quarter and 37% of revenues, respectively. So, headcount — total headcount moved from 5,727 in Q3 to 6,429 in Q4. The net headcount growth of 702 employees within the company, excluding Quant it was 209 additions.

In summary, we continue to remain optimistic about our long-term growth prospect and for the quarter — for the year, the final dividend, we have declared is INR8.75. With this the total dividend comes to INR15.75 for the full year and we are — we continue to be very, very optimistic on the growth. And as Samir mentioned, we are very positive in the direction of achieving the $0.5 billion in the next three years.

Thank you all. Hand over for the questions.

Questions and Answers:

Operator

Thank you very much. Sir, should we start the floor for Q&A?

Jagannathan Narasimhan — Chief Financial Officer

Yes.

Operator

[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, Sujith and Jagan, congrats to you and the team on a very good print. A couple of questions. Samir, basically your conversations today, and notwithstanding the deals that we’ve already won, what is your level of satisfaction around the quality of the large deal pipeline conversations that we’re having and how do you feel about conversions going forward?

And on the same lines, Samir, over the last couple of quarters of our interaction, especially since you’ve come in last year, there’s been a good amount of qualitative discourse on the new areas of growth future. My question is, how is the legacy part of our business doing, right? What’s the outlook on the Microsoft part of our business that has gotten us here so far? So, yeah, your comments on these and then I’ll come back with a follow-up. Thanks.

Samir Dhir — Managing Director & Chief Executive Officer

Thanks for the question, Baidik. I think there are two parts. On the large deals, qualitatively the way to think about it is in two stages. Number one, as you know, we have invested significantly in the modernization and engineering aspect. So, we continue to see a strong demand pattern on the modernization side. Especially, all industries, which are consumer-facing, which is — whether it is retail, whether it is healthcare, we continue to see that momentum come through from modernization perspective. So even in these times, while customers are more calibrated, but the have continued to spend and invest in these consumer-facing modernization initiatives. So, we don’t see any significant slowdown on that front. Of course, there are some decision delays here and there, but by and large, the momentum is pretty robust.

On the cost takeout side, which is the second bucket, I think there are conversations happening, but really it’s on the adoption of emerging areas, whether it is the generative AI area, whether it is the modern age automation story or hyper automation. I think that’s the second bucket that we see. At a high-level, I would say about 70% to 80% of our deals are much more modernization and engineering-oriented and we got 20%, 30% of the deals are perhaps something more cost take outside. So, that’s the way to think about it. And I think we are pretty bullish about this because, as customers continue to spend and refine their front stores, we believe we have an opportunity to leverage that capability and drive that acceleration from a long-term perspective.

On the second part of your question about the Microsoft relationship that Sonata has enjoyed over 30 years. I think that — those continues to grow quite well. We are very happy about the progress we’re making and let me give some color on that bucket. There are two parts. So there is of course the dynamics, which has been the strong suite of Sonata over the year. We are continuing to see good pipeline build, because Microsoft is themselves making good progress on the dynamic sell to sell with relationship.

And the second part is, we were beginning to see adoption of power platforms, which is their low-code no-code version of tools. So, we continue to see momentum and one of the telecom deals — telecom clients, we have been commissioned to create a theory [Phonetic] for them on the power platform so that the low code no code adoption. Early days, we can’t declare a full sector from the low code no code power platform SDX among the market perspective. But what we’re seeing right now is quite tremendous progress, investment is well…

Baidik Sarkar — Unifi Capital — Analyst

Sure. That’s helpful, Samir. In terms of the large $160 million deal that we’ve won, the very basic math suggests that starting Q4, the ramp-up works out about 6% in sequential revenue growth, is that math assumption right or would you caution us on that assumption?

Samir Dhir — Managing Director & Chief Executive Officer

Yeah. So I think, the $160 million 10-year deal, I think it’s pretty linear in nature. I think the first one or two quarters, the ramp-up will begin gradually and then it will fully get ramped-up by later in this year, sometime in second half, so I think we’ll continue to see that come through in the next I would say one to two quarters the full ramp up in case of the deal coming through. But yes, beyond that, it should be pretty linear by and large. Of course, some seasonal effects happen, whether it’s the retailer, so you do contribute some seasonality effects in this deal also, perhaps a slightly more uptick in the Christmas period and seasonal effect. But apart from that, it should be linear.

Baidik Sarkar — Unifi Capital — Analyst

I’m sorry, did you say, we’ll begin to see a ramp-up in Q2? or was it Q1? I’m sorry.

Samir Dhir — Managing Director & Chief Executive Officer

It’s already ramped-up, its already ramping-up now, but the full ramp-up of the deal will happen in Q2 timeframe. It’s already ramping-up right now.

Baidik Sarkar — Unifi Capital — Analyst

Okay. So in terms of Q4, how many days of impact would that have? I’m just trying to see what the variability in Q1 will be.

Samir Dhir — Managing Director & Chief Executive Officer

Q1 was — Q4 was almost negligible, Baidik.

Baidik Sarkar — Unifi Capital — Analyst

I’m sorry, come again.

Samir Dhir — Managing Director & Chief Executive Officer

Q4 was almost negligible. I think we’ll continue to see a big impact in Q1 and the final one in Q2.

Baidik Sarkar — Unifi Capital — Analyst

Got it. And the final question for Jagan. Just to understand, did I hear it right, the non-cash impact starting Q1 will be about INR23 crores a quarter, is that right?

Jagannathan Narasimhan — Chief Financial Officer

Correct. You are right.

Baidik Sarkar — Unifi Capital — Analyst

Okay.

Jagannathan Narasimhan — Chief Financial Officer

That is below this — below the EBITDA due to acquisition and this was like, except for the interest on the loan, the rest is more of an accounting entry, non-cash item.

Baidik Sarkar — Unifi Capital — Analyst

I understand. I missed the third component on that of INR23 crores, so INR9.5 crores on amortization, INR8.5 crores on interest. What was the third component of that?

Jagannathan Narasimhan — Chief Financial Officer

It is interest on loan. Loan is INR5 crores.

Baidik Sarkar — Unifi Capital — Analyst

Okay. Thanks, gentlemen. I wish you all the best.

Jagannathan Narasimhan — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Mohit Jain from Anand Rathi. Please go ahead.

Mohit Jain — Anand Rathi — Analyst

Sir, I missed the initial part, but did you say, there is softness in travel vertical for 1Q? First is, how should we read 1Q outside the large deal ramp-up and Quant acquisition? And second was related to this headcount, was there some reclassification between domestic and international IT because now number looks like 300 plus? Initially, it used to be around 170, 180.

Samir Dhir — Managing Director & Chief Executive Officer

Mohit, let me take the first part, and of course Jagan will take the second part of the question. From the first part, we continue to see good demand pattern across our industry. What I was alluding was on the hi-tech side, Mohit. We are seeing in few clients that have some softness in [Indecipherable]. That’s the headwind I was talking about, but apart from that whether it is retail, manufacturing, healthcare, life sciences, even banking, we continue to see a good strong demand momentum going on for us. It was not travel.

Mohit Jain — Anand Rathi — Analyst

TMT is like almost one-third in that sense, so we should expect some impact there in the first half, is that a fair assumption?

Samir Dhir — Managing Director & Chief Executive Officer

Few clients here, but not overall. The growth rates have come down. It’s not that the growth is coming down. It’s not like we’re degrowing, but the growth rates have come down in the hi-tech sector.

Mohit Jain — Anand Rathi — Analyst

And you do not see challenge in the rest of the verticals like retail, manufacturing?

Samir Dhir — Managing Director & Chief Executive Officer

No, we’re not seeing. We are not seeing any challenges yet now. Jagan, you want to take the second part please. Yeah, Mohit. Can you repeat the second part of the question?

Mohit Jain — Anand Rathi — Analyst

So, I was looking at this headcount split between international IT and domestic. So, it looks like there is some reclassification of headcount between the two segments. Domestic now shows close to 400. But earlier it used to be around 200, 180 kind of level. Some employers have moved from here to there.

Jagannathan Narasimhan — Chief Financial Officer

Yes, originally the services part of it was with international services side of it, we have moved that people who are providing service which is integrated with the license sales, they were in the international business. Now they have completely been aligned to the India business only.

Mohit Jain — Anand Rathi — Analyst

So, when you say services business, you’re referring to the cloud part of it?

Jagannathan Narasimhan — Chief Financial Officer

I’m referring to the entire for the licenses, whatever is required to be done. There are some technical support required for that, that portion.

Mohit Jain — Anand Rathi — Analyst

Okay. So, when they are trying to calculate your say productivity, etc., we should only consider the headcount, which is now disclosed in international IT, right?

Jagannathan Narasimhan — Chief Financial Officer

Correct. Yes. You are right.

Mohit Jain — Anand Rathi — Analyst

Perfect, sir. Thank you and all the best.

Operator

Thank you. The next question is from the line of Chirag Kacharia from Ashika Institutional Equities. Please go ahead.

Chirag Kacharia — Ashika Institutional Equities — Analyst

Yeah, sir couple of questions. To start with the international vertical, first. What challenges do we see for FY ’24 and ’25, vertical wise and geography wise? Second, the acquisition which we have done, I guess, the largest one in the entire Sonata’s history. So, are there any couple more acquisitions we considering in near-future to expand our international services business? Third question, on supply side pressure what catalysts or positive tailwind we are expecting in FY ’24 versus what we have experienced in FY ’22 or in ’23?

Samir Dhir — Managing Director & Chief Executive Officer

Thank you. Let me take the question one-by-one. So, on the overall growth forecast in the pipeline that we’re seeing at this point in time across verticals and geographies, we continue to see a good pipeline. Like I said, the only area, we’ve seen some softness in the hi-tech space for a few customers where there are the seasoning delays and the growth rates have come down to what it used to be. But beyond the hi-tech or the TMT sector of Sonata, whether it is retail, manufacturing, whether it is banking, healthcare, life sciences, and emerging, all across we are not seeing any softness at this point in time. Across geographies, the same story continues, whether it is US, Europe or Far East in Australia and New Zealand and India, the growth momentum is relatively robust across all business. This will be not — you can’t call-out any particular geography which is either underperforming or completely not to our satisfaction. So, we don’t see that pattern as yet on that first question.

On the second part of M&A, we’ve said this before, will we continue to look for assets and properties, which are going to cover our white spaces in the modernization and engineering space and the verticals that we’re going after. At this point in time, we just announced an acquisition, we are really head down integrating that asset, and like I said earlier, we’re fully integrated from a go-to-market perspective Quant already. We want to maximize that integration and really deliver to the promise that we have — we’d see this in front of us after integrating it. But beyond that if there are good possibilities available, we’re absolutely happy to consider and take it on value as long as it meets our strategic objectives and modernization and engineering.

On the third, let me request Jagan on the supply-side revenue to answer the the supply side question to you.

Jagannathan Narasimhan — Chief Financial Officer

Yeah. Hello. You able to hear me? Am I audible?

Chirag Kacharia — Ashika Institutional Equities — Analyst

Yes sir, I can hear you.

Jagannathan Narasimhan — Chief Financial Officer

Yes. The supply side — on the people supply side, you want — your question was more on people supply side, right?

Chirag Kacharia — Ashika Institutional Equities — Analyst

Yes, sir. Yes.

Jagannathan Narasimhan — Chief Financial Officer

Yes, so the market has stabilized a little bit now — more now and compared to what it was last year and we are continuously improving the process and attrition levels have come down dramatically across the industry segment. There are particular segment which is like specialized segment, where still there are some shortages and we are still looking out for hiring people, but which is far far, better than what it was in the last year, substantial improvement that we are seeing in this and that reflects in that region. That reflects in headcount addition and all this year. So, we continue to invest in people and add people and the campus hires has also is a continuous process for us now. Last year, we have honored the complete campus additions what we promised, we have completely taken them on-board.

Chirag Kacharia — Ashika Institutional Equities — Analyst

Sir, I have one follow-up question on domestic business side. The margin profile of this business is relatively low compared to the international. So, what levers are there and also, from three years’ perspective, what’s the plan there for the domestic business?

Sujit Mohanty — Managing Director & Chief Executive Officer, Sonata Information Technology Ltd.

Hi, this is Sujit this side. So, as you said rightly that obviously the margins are not comparable to international business, that’s true. That is — that is the characteristics of the business and that is known. As far as the levers are concerned, see there are two, three things what we do to maintain or increase our margin. One is obviously to make sure that we get involved in the customer implementation process and the adoption process, which gives a little bit of advantage to us in terms of managing and increasing our margins, what we earn from those transactions.

And the second thing what we do is that — there are various skills which comes from the OEMs. What that means the hyperscalers or other OEMs, whose product and technology we sell to the customers and we make sure that all our GTMs have aligned to these new skills and the new rebate programs which are there and that helps us in building our better margin. And the hard thing what we do is that to increase the — to enhance the competency level and to make sure that we are qualified and certified in the areas in which the OEMs are promoting their products. So, these are the three things what we do to make sure that we maintain and increase our margins.

And regarding the future view of the business, I think it’s a growing market in India and as Samir has already explained, we have put lot of effort to a very larger market share in terms of the annuity business. Currently, we are almost having 75% of our business as annuity business and that give us the levers to have a much larger growth because once the base is there, we can focus a little bit more on the new accounts and the new customer patches and that is what we’ll continue to do. Thank you.

Chirag Kacharia — Ashika Institutional Equities — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.

Dipesh Mehta — Emkay Global — Analyst

Yeah, thanks for the opportunity. Couple of questions. First question is about the international business outlook. We aspire to reach INR500 million by ’26-end, which in a way entice 4.5 percentage [Indecipherable]. So, just want to get sense of our overall thought process about M&A versus organic growth aspiration in this 4.5 kind of number. Second question is about vertical wise, you partly alluded about challenges in hi-teching some of the account. Do you expect it to — so what’s your sense about that stickiness continuing, whether you expect it to be temporary or you think some of those things may continue or prolonged? Thank you.

Samir Dhir — Managing Director & Chief Executive Officer

Thank you, Dipesh. So, let me take both the questions. The first one first. Yes, we have talked about $500 million in growth in four years’ time in October 2022, which is still our goal to get there and I think all the indication we have we might get there slightly sooner than before we had outlined. But keeping that aside from an M&A and organic perspective, our philosophy is right now to drive mostly organic, but if inorganic acquisition comes through, we are not going to be shy of that, but our plan is at this point in time to drive this with all the acquisition that we have done to date and really set them out. But if there are some tuck-ins along the way, will take them on. I mean take them in fast with the brake business and move forward. That will be the philosophy that we’ll follow to position that.

The second point about hi-tech, I think the trend we’re seeing is the pipeline continues to be strong even in fintech. We are seeing some decisioning delays in few clients. Our sense is as far as we can see, we should start to see an uptick later half of this current fiscal, late part of — mid part of Q2 to late part of Q2. I think the hi-tech sector should come back to its original growth quarters we are anticipating. So, we think it’s about a couple of quarters of the slowdown in the delays at this point in time, it’s hard to predict, but as I sit here right now, that’s our current best estimate, Dipesh.

Dipesh Mehta — Emkay Global — Analyst

Understood. Thank you.

Operator

Thank you. The next question is from the line of Sameer from ICICI Prudential AMC. Please go ahead.

Sameer Dosani — ICICI Prudential AMC — Analyst

Yeah, thanks for the opportunity. Just one clarification. We have also highlighted that our total revenue on on Sonata level is $900 million. This will reach $1.5 billion in next three to four years. So, if I look at the implied growth for domestic business this is only 10% to 15% growth versus the 30% growth that we are growing — that we’re currently growing. Is there something I’m missing out on for the growth profile for domestic business for next three, four years?

Samir Dhir — Managing Director & Chief Executive Officer

Yes, Sameer. Great question. I think you should continue to look at these two businesses separately. Unfortunately or fortunately, this provides consolidated numbers but keep that consolidated numbers aside. The international business will get to $500 million mark in four years from October 2022 or sooner. And we’re pretty bullish about the fact that, that should happen and we feel very low to limited risk unless of course market conditions dramatically change and also we feel very strongly positive about getting to the point.

And the domestic business, as we’ve always outlined and I think Sujith answered this question earlier as well, we should really look at the gross contribution in absolute numbers perspective. What we focus is to drive GCE contribution, gross contribution from an absolute number perspective. Of course, from a consolidated perspective, take a look at the overall revenue. But those are the two broad metrics that we continue to focus and drive assumptions.

Sameer Dosani — ICICI Prudential AMC — Analyst

And secondly, if can show — I mean — I think you would have answered, but, I’m sorry if I missed it. Any indication around how should be the growth profile in the domestic business from a gross contribution point of view? Any commentary around that? That would help. Thanks.

Samir Dhir — Managing Director & Chief Executive Officer

I would have Sujith take that please. Sujith?

Sujit Mohanty — Managing Director & Chief Executive Officer, Sonata Information Technology Ltd.

Yeah, so If you see for the last few financial years, two financial years, we have maintained a very healthy growth and this year also year-on-year, I think we have around 23% of gross contribution growth and going forward, we believe that we should be maintain this growth momentum.

Have I answered you question?

Sameer Dosani — ICICI Prudential AMC — Analyst

Yeah, it did. And Samir, if you can speak about average size of these deals, you’ve seen nine large deals in last — excluding the one large deal, if I — that you have quantified already, what is the kind of average deal size of these, what is the average size of the deals that is one? And second if I look at the large deal $160 million deal that you have pointed out, is this margin diluted the start because that’s how large deals typically work. So, if you can comment around that? Thank you.

Samir Dhir — Managing Director & Chief Executive Officer

Yeah, Sameer, so let me take the second question first, I’ll come to the first part. So, the large deal that we announced is really marquee client in retail space. They are highly profitable double-digit profitability and have a very strong cash flow. Our margin profile on the deal itself is actually accretive in the 10-year period. It was better than the average margin profile of Sonata. Having said that, in year one, there will be dilution because we are doing transition and investments that are there in the deal. But beyond that in second year onwards it will secure [Phonetic] and as time progresses, we will continue to increase the margin profiles on the deal. So, that’s on the large deal.

From the other deal that we’ve — eight or nine deal that we’ve done in the course of the year Sameer, I think it’s, these are all multi-million contracts and it’s hard to put a number because they start as modernization programs, so they are multi-million and multi-year contracts and they are in multi-millions that’s what I can tell you and where we can share numbers we shared with you. For example, the $160 million we could share where definitive number that client signed up with. But most of these are in that zone of couple of million a year, three, three year deal and then slightly bigger, sometimes three-year at annual contract and three-year deal. So, it’s very hard to put a number, but it’s in that zone of multi-year deal — multi-million year deal.

Sameer Dosani — ICICI Prudential AMC — Analyst

Okay, okay. And if you can comment around the growth rate of the run-rate that Quant is running at. You saw we have the CY ’22 numbers that you’ve disclosed, but if you can comment around the current growth rates in the Quant business, how it’s trending right now?

Samir Dhir — Managing Director & Chief Executive Officer

It’s pretty much in line to what we outlined when we announced the acquisition, three months back Sameer. I think they are in that zone of low-30s growth rate and low-30s EBITDA. I think that momentum will continue. There is a lot of synergy that we are driving on top of it, which will be — on top of it that we would drive collectively with them. So, if you think of Quant on a standalone basis, which is all the hard to differentiate now because fully integrated at this point in time, but we are confident that we’ll deliver low-30s growth on their own as it watch.

Sameer Dosani — ICICI Prudential AMC — Analyst

Okay, okay, and lastly, just to clarify. Our wage hike is behind us right? Q4 was wage hike quarter and that’s behind us.

Samir Dhir — Managing Director & Chief Executive Officer

Jagan, you want to answer that please?

Jagannathan Narasimhan — Chief Financial Officer

Sameer, your question again.

Samir Dhir — Managing Director & Chief Executive Officer

Wage hike? Question on wage hike.

Sameer Dosani — ICICI Prudential AMC — Analyst

Wage hike is already behind us. Right?

Jagannathan Narasimhan — Chief Financial Officer

No, no. There is one part of wage hike is we have done in the quarter four. There is one more part of wage hike, that is for senior management, it’s still there.

Sameer Dosani — ICICI Prudential AMC — Analyst

Okay. All right. Thank you.

Jagannathan Narasimhan — Chief Financial Officer

It will be roughly half of 50%, 60% of the wage hike impact of what we have done in January.

Sameer Dosani — ICICI Prudential AMC — Analyst

Okay, got your point. Thanks for answering my questions. All the best.

Jagannathan Narasimhan — Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead.

Mihir Manohar — Carnelian Asset Management — Analyst

Yeah, hi, thanks for giving the opportunity and congratulations on a good set of numbers. Largely, I mean I wanted to understand the Quant Systems company that we acquired. There were two clients. I mean, one on the healthcare side one on the BSFI side, these two large clients which we are looking at. So, just wanted to understand what is our strategy in mining these accounts specifically. And then what kind of mining are we going to have in these two large accounts. That was my first question.

My second question was on the EBITDA margin. I mean, currently the interactive part of the business we are having 23% to 24% kind of EBITDA margins. And in our PPT, we are mentioning about EBITDA margins looking at early 20s kind of a number when we are looking at $500 million kind of a business. So, just wanted to understand what kind of investments are we going to make for this EBITDA margins to get compromised. I mean how are you looking at the trade-off between growth and margins specifically in that context. And my third question was on the domestic part of the business. I mean, is your domestic part of the business seasonally weak in 4Q, so just wanted to have an understanding. I mean is 4Q a seasonality for domestic part of the business and why is it so? Yeah. So, those are were the questions. Thank you very much.

Samir Dhir — Managing Director & Chief Executive Officer

Thank you, Mihir. Let me try and answer one-by-one. So on the Quant side, there are more logos beyond the two, but the two are really largely logos. Our strategy is fairly simple. If you think of Quant, they are experts in enterprise data and data privacy. What we’re doing is, working with them to create larger deals, which are more end-to-end in nature to really bring Sonata’s capabilities, whether it’s in automation, whether it’s on modernization, whether it is on front-end engineering, we’re really taking the entire suite of Sonata capabilities into these accounts, these two large account and other account of Quant as well and creating deals, mid-size and large deals both and we’re very happy with the progress that we made. We’ve put investments from Sonata side into Quant business to drive some of these deals as well to really integrate the go-to-market, like I talked about earlier.

So, our strategy is fairly simple, take our capabilities into all accounts of Quant and likewise the enterprise data and data privacy capabilities of Quant, take them into Sonata accounts and really drive a full end-to-end integrated business. And like I said, we are very pleased with the progress that we have made in the last six, seven weeks. At this point in time, the go-to-market is fully integrated. On the EBITDA side, I think we’ve talked to — called this earlier as well. We will invest 1.5% to 2% of our EBITDA in terms of our go-to-market, large deals capabilities and general capabilities broadening for Sonata as well. It’s something that we’ve outlined over six months back as well. And hence we believe fairly confident we can still deliver despite those investments, low-20s EBITDA go-forward as well. When we think of us, it will be a low-20s EBITDA company in about three years’ time as we get to the $500 million mark, I’m talking international business alone.

So, which I think is a pretty good trade-off because we are really investing the cash we’re generating and investing back in the business to really drive growth and take market share aggressively. As we know, as you’ve probably seen competition commentary, most of the competition is declaring slowdown in the coming year. But we’re pretty hopeful learned about what is in front of us in the year and that’s really driven by a large deal investment, by M&A investments and another investment we made to really broadens services. Of course, we are cautiously watching the hi-tech space and I alluded to this earlier. The next two quarters, we are seeing some softening in few clients in hi-tech, but beyond that, it’s a pretty solid momentum that we continue to see. That’s the second part of the question.

And the third, on domestic, I’ll start and may be Sujith will build on this. The business in itself has seasonal contracting and billing cycles. It generally come around in Q3 of the fiscal year and Q4 seasonally also is relatively different quarter compared to other, but if you really look at Q4 volume wise, we have done really well in domestic business as well. I think Y-on-Y, our business will be 30%, 31% plus higher. So, if you take the seasonality factor of QCM, the business continues to be pretty robust and we’re pretty bullish about it.

So, with that, let me see Sujith wants to add a few points on that. Sujith?

Sujit Mohanty — Managing Director & Chief Executive Officer, Sonata Information Technology Ltd.

Yeah, just to add to what Samir said, yes, there is some kind of seasonality in the sense that especially on the revenue side, what happened that there can be some quarters, as you are seeing especially in the Q3, there are multiple very large contracts, which are there in that particular quarter and because our annuity business is so high what happened year-on-year, the same large contracts gets built in that particular quarter. And it also depends on our OEM with whom we were working.

A lot of time, what happens, based on their financial year-end, where lot many large deals can get concentrated on a particular quarter. So, that is what you see specifically in the — between Q3 and Q4, what Samir was explaining and in our business, we don’t have too much control on the revenue. So, what basically we try to make sure that we focus on the margin and return on capital employed and because is is little bit difficult to control the size of the contract, which you are getting, what are the business, what we really focus is I think a good contract and good margin.

I hope, I have answered your question.

Mihir Manohar — Carnelian Asset Management — Analyst

Yeah, sure. That’s really helpful. Thank you very much and best of luck for the overall journey.

Operator

Thank you. The next question is from the line of Pallavi Deshpande from Sameeksha Capital. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Just wanted to understand on the acquisition side, are we looking to do more acquisitions and what would be the timeline for the same?

Samir Dhir — Managing Director & Chief Executive Officer

Yes, thank you for your question. I think our strategy is to really look for properties, which help us clear the right spaces in the modernization and engineering space and we’ll continue to do so. But at this point in time like I alluded earlier, we have just done the largest acquisition ever in Sonata. We are head down, making sure that we maximize the opportunity in front of us in the Quant integration and go to market. And that’s really where our focus is. Having said that, if you do intercept a company, which is of interest and helps us sell our white spaces among modernization and engineering perspective or vertical point of view, we’ll be happy to consider it, but that will be more, there is need for need rather we look for an acquisition proactively ourselves. That’s the same strategy I mentioned.

Pallavi Deshpande — Sameeksha Capital — Analyst

And, sir, earlier you mentioned about — yes, that answers that question. I had a second question if I may. On the generative AI side, you mentioned earlier that you — contract size is, just I was wondering if you could share what you’ve done.

Samir Dhir — Managing Director & Chief Executive Officer

Yeah. I know we are very excited about the generative AI space. So, I think there are two ways to look about it. First of all we have implemented several use cased within Sonata on generative AI ourselves working with some of our partners but beyond that, we have had two significant wins in the generative AI space. One, which is more on the driving the productivity in our customer support area for the customer to use generative AI to drive high level of productivity, using the generative AI capability, that’s one contract that we have won. And the second is in the healthcare services, what we call as space GPT, which is really using the — providing the security cover using the generative AI content. So, that the second one that we won in the course of the quarter.

Pallavi Deshpande — Sameeksha Capital — Analyst

All right, sir, thank you so much.

Operator

Thank you. The next question is from the line of Sumit Chawala from DN Trading [Phonetic]. Please go ahead.

Sumit Chawala — DN Trading — Analyst

Hi, I have just one question, it’s on our employee cost. As I heard earlier in the call that only a part of the increment has been processed in this result. I just wanted to know that, when will the other half be seen in the results. I mean, in which quarter and to what tune, does it actually affect our margins or our productivity?

Jagannathan Narasimhan — Chief Financial Officer

Yeah, Samir I’ll take the questions. The increment for the second part of the senior management will be in Q1 of this year and it will be roughly about half of the impact, what we have given for the — what increment in Q4, what it had.

Sumit Chawala — DN Trading — Analyst

Okay. So, apart from that, there are no out-of-the cycle increases in the employee cost, which we are ensuring right now. Right?

Jagannathan Narasimhan — Chief Financial Officer

Yeah, that’s what, I was mentioning, also the people supply-side — side of it has improved dramatically compared to what it was last year. So, we are not giving out of cycle kind of thing at present.

Sumit Chawala — DN Trading — Analyst

Hello?

Jagannathan Narasimhan — Chief Financial Officer

The people supply-side and attrition has come down and people supply-side has improved a lot this year compared to last year. So, there is no expectation of out of cycle increments for anybody now.

Sumit Chawala — DN Trading — Analyst

Okay. Okay. Thank you. That’s great. All the best for the coming quarters. Wonderful set of numbers.

Jagannathan Narasimhan — Chief Financial Officer

Thank you.

Operator

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Samir Dhir for closing comments. Thank you, and over to you sir.

Samir Dhir — Managing Director & Chief Executive Officer

Thank you, operator and thank you all of you for joining the call and for your valuable time. Like I said earlier, we are very excited about the Quanta deal is closed, some very exciting thing happened in the quarter, we closed the largest contract, we closed the largest M&A and we continue to see a good momentum. There are two strong elements behind this, the investment in large deals in M&A and then there is a small headwind of this hi-tech for the couple of quarters that be in front of us. But overall, we continue to be very bullish about our growth momentum both on the domestic side and international side. And we really thank you for your support in the journey. Thank you.

Operator

Thank you.

Jagannathan Narasimhan — Chief Financial Officer

Thank you.

Samir Dhir — Managing Director & Chief Executive Officer

So with that, we can close the call. Thank you.

Operator

[Operator Closing Remarks]