Tech Mahindra Ltd. (NSE:TECHM) Q1 FY23 Earnings Concall dated July. 25, 2022
Corporate Participants:
CP Gurnani — Managing Director and Chief Executive Officer
Rohit Anand — Chief Financial Officer
Manish Vyas — President
Jagdish Mitra — Chief Strategy Officer & Head of Growth
Vivek Agarwal — President – BFSI, HLS and Corporate Development
Analysts:
Ravi Menon — Macquarie — Analyst
Gaurav Rateria — Morgan Stanley — Analyst
Dipesh Mehta — Emkay Global — Analyst
Sandip Agarwal — Edelweiss — Analyst
Sandeep Shah — Equirus Securities — Analyst
Ashwin Mehta — Ambit Capital — Analyst
Unidentified Participant — — Analyst
Vibhor Singhal — PhillipCapital — Analyst
Girish Pai — Nirmal Bang Equities — Analyst
Presentation:
Operator
Ladies and gentlemen, good day and welcome to the Tech Mahindra Limited Q1 FY 2023 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. CP Gurnani, MD and CEO for Tech Mahindra. Thank you and over to you, sir.
CP Gurnani — Managing Director and Chief Executive Officer
Good morning, good evening. Thank you for joining me on the Q1 FY 2023 Analyst Earnings Call. Again, welcome and I do pray for your good health. Overall, as you know, Tech Mahindra is a company driven by purpose and it’s people-centric and performance-driven. On the purpose side, Tech Mahindra continues to be recognized for their focus on ESG and focus on sustainability. We have been rewarded, awarded and more or less continue to set the benchmarks in sustainability.
On the people-centric side, our Chief Peoples Officer is one of the proud recipients of the Golden Peacock for HR excellence. We have also been recognized as the most preferred workplace at the India Today Summit. I’m just briefly covering what has happened during the quarter and we have also improved the gender diversity from 34.1% to 34.4%.
In terms of performance, I would like to reiterate that the big bold steps that we took in developing some of the capabilities 5G, Metaverse, the Makers Lab that we set up at eight different locations, continuing to invest in data and AI labs, continuing to invest in sports tech vertical with platforms like Fan Nxt.Now, new platforms like netOps.ai, I think is all coming together and we are able to deliver a sustainable growth and we are able to create value for our customers and partners.
I know, Rohit will cover the performance result in a greater detail. On the growth side, we are now in constant currency at USD1,632 million, comps has grown 3.9% and enterprise has grown at 3.2% in constant currency. I also have an honor of welcoming two new verticals into billion plus clubs, comps has been there for a very long time, but the new 1 billion club now has BFSI and manufacturing for Tech Mahindra.
The company continues to be driven by new age technologies, digital transformation and more importantly business transformation. Our EBIT margins have been a little bit under pressure, but as a company, we are determined to reverse the trend and what I’ve committed to my Board is, this is the lowest we have gone or we will go and we will be working together with my transformation office and my leadership to look at many operating levers, particularly on utilization, particularly on efficiency and productivity and the pricing lever.
So again, Rohit will cover this, but I just want all of us to recognize that building technology at scale, building two tier cities, delivery centers and preparing for the future. Yes, there has been — the reported EBITDA margins have been lesser than what we had originally probably projected. In terms of our pipelines, I think both the sectors are showing very healthy pipelines. We track our pipeline for existing accounts, new accounts, we look at digital transformation, we look at the business transformation. We also very actively monitor our deal conversions. As I had indicated earlier also that the focus is to deliver between USD700 million to USD1 billion of deal conversions every quarter.
This quarter also we would be sharing with you that, we have booked about USD800 million. So clearly, firing on all cylinders, I know that there are two internal focus areas. Number one is organic growth and number two is to bring back profitability on the track. I’m confident that these two focus area coupled with the growth — industry leading growth, I think you would find us much better aligned and much better prepared.
In terms of the economic challenges, as of date, we see the deal flows to be strong. We do analyze every account, every sector about the potential. So we have a dedicated task force, which is not only looking at geographies, but also looking at the various verticals and what our response would be. So I can only say that as of date, while there may not be a general consensus on when the headwinds — the economic headwinds will start pinching us, but overall, I think we are in good shape for the next few quarters.
So that’s really the opening commentary for all those people who are chess lovers, I can only say that Tech Mahindra is very proud that we have been chosen by the International Chess Federation to be the digital partner for its 44th FIDE Chess Olympics and is a first time it is taking place in India, it starts on 28th in Chennai, those who would like to join us and be on the ringside of the Chess Olympiad, I mean please, you’re welcome. So again, thank you. Thank you for your support and thank you for your confidence. I’m handing it — handing over the call to Rohit to get an update on financials.
Rohit Anand — Chief Financial Officer
Thank you so much. Good evening, everyone. Let me now cover the company financials for Q1 ending June 2022. We ended the first quarter with revenue of USD1,632 million versus USD1,608 million last quarter up 3.5% Q-o-Q in constant currency. Growth was broad-based as CP mentioned with CME growing 3.9%, enterprise growing 3.2%, both in constant currency terms. We had another quarter of strong deal wins with our TCV at USD802 million, revenue in INR terms was INR12,708 crores versus INR12,115 crores in Q4, up 4.9% quarter-over-quarter.
The EBIT for the quarter was at USD177 million in INR terms INR1,403 crores versus USD211 million in Q4. EBIT margin for the quarter was at 11%, which is a reduction of 220 basis point Q-o-Q due to higher salaries, sub-con related cost and some large deal transition cost that we saw. Another reason for reduction was revenue and Visa seasonality that we see and then normalization of G&A and sales cost was another reason of margin reduction, offsetted partially by pricing benefit that we saw.
Moving below EBIT, other income for the quarter was at USD16 million versus USD42 million in Q4. Forex was at USD7 million compared to USD28 million in Q4 2022, tax rate for the quarter was at 22.8%, which is higher compared to 17.5% in Q4. This is because we had higher reversals of tax provision related to SEZ benefit in Q4 and partially also in Q1. Our normalized rate is in the range of 26% to 27%. The net profit margin for the quarter is at 8.9%. Our free cash flow for Q1 FY 2023 was at USD72 million, our DSOs increased by three days to 100 from 97 in Q4 partially impacted by currency because of better revaluation.
As mentioned earlier, we will continue to consistently follow a rule-based hedging policy. As of June 2022, the total hedge book was USD2.28 billion versus USD2.22 billion in Q4 2022. Based on hedge accounting treatment, the net mark-to-market gain as of 30th June was 68 million, out of which 11 million is taken to P&L and 57 million is gone to reserves. We had a cash and cash equivalent of USD1.114 [Phonetic] million, in rupees term INR8,801 crores. Overall, the demand momentum as CP mentioned continues driving growth, while the supply side pressures are impacting profitability, but we’re committed towards improving our profitability with targeted action that should help us tide over the short-term pressure.
With these remarks, I now open the floor to question. Thank you.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss. Please go ahead. Sandeep Agarwal, your line is in talk mode. Please go ahead with your question. Mr. Agrawal, please unmute your line from your side if muted. As there is no response from the current participant, we’ll move onto the next question from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon — Macquarie — Analyst
Thank you for the opportunity. Rohit, I just wanted to check if there is any one-off in the SG& like a bad debt provision or something like that, it seems to be up very sharply quarter-on-quarter?
Rohit Anand — Chief Financial Officer
Yeah, so last quarter we did have some gain, which was one timer and this time, we have had increase in provision because of which the quarter-over-quarter variation is looking large.
Ravi Menon — Macquarie — Analyst
Could you quantify the provisions this quarter, please?
Rohit Anand — Chief Financial Officer
We had provisions range of around USD6 million, yes.
Ravi Menon — Macquarie — Analyst
And if you look at, it will be great if you could share your vertical breakup in a quarter-on-quarter in constant currency growth because of the cross currency movements being sharp this quarter, it’s a bit difficult for us to figure out what’s happened to you in the communications vertical for instance?
Rohit Anand — Chief Financial Officer
Yeah, so from a growth perspective, I can go one by one on a constant currency sequential quarterly, as I mentioned comps was 3.9%, when you look at manufacturing that has grown 5.7%, technology has grown 6.4%, retail has grown 6.8%, HLS and others have grown 2%. And then BFSI has been mostly flat, while on the reported side, it’s impacted most because of FX.
Ravi Menon — Macquarie — Analyst
Thank you. Best of luck.
Operator
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Gaurav Rateria — Morgan Stanley — Analyst
Hi. Thank you for taking my question. So, firstly on the large clients, if you look at the top line performance on quarter-on-quarter basis, its look like a bit of decline, there could be an element of Fx, even if you strip out that, it seems quite weak. So anything going out there especially in the top five client bucket?
Rohit Anand — Chief Financial Officer
Yeah, so mostly, it’s Fx that you see and then there are certain projects that for the quarter stopped and the new projects going to start in the following quarter. So beyond that, there is nothing, but if you look at the trend broader, I think we’ve expanded beyond that outside the top 20, the growth has been substantial. So that’s a good sign and that’s where we’ve had historically certain deal wins, also that are ramping up. So the base and the top customers are also spreading up.
Gaurav Rateria — Morgan Stanley — Analyst
Okay. Secondly, could you just talk about the puts and takes on margins. I guess there would be some impact of wage hikes, which may come in the coming quarters. So what would be some of the headwinds and what would be the tailwinds, what gives you confidence that this is a bottom from the margin and you can go back to the range, you had historically talked about, thank you.
Rohit Anand — Chief Financial Officer
Yeah, sure, sure. So from a Q2 perspective, headwinds predominantly is only one which you mentioned which is going to be the wage hikes, right? From a tailwind perspective, we’ve had certain good outcomes from pricing, I think that we have a good funnel and visibility. So that will continue giving us some tailwind in Q2. We also will have lesser impact due to the visa and mobility business impact that we saw Q4 to Q1, so that will ease out a little bit, so that will give us a favorability.
The other big area which CP also reiterated that we have a lot focus in operational efficiency, there we put plans utilization back up. So if you remember, we’d spoken a couple of quarters back that we are consciously investing in the talent pool, investing in bottom of the pyramid, that utilization trend we have concrete plans to get up by delivery unit, by geography in the current quarter, which will give us some positive tailwind as you look forward.
Another big focus for us, we have almost 8% to 10% gap on our offshoring revenues versus peer set and there also we have a clear by delivery unit and geo action through drive offshoring in the current quarter and as well these factors will continue through the year. So talking about Q2 and then some of this will continue through the year. So those are the big actions that we’re going to drive from a tailwind perspective and this quarter, we did have some large deal transition cost which I mentioned, those won’t be repeated.
So as we see that that will also give us a benefit in Q4.
Gaurav Rateria — Morgan Stanley — Analyst
Thanks a lot for the detailed answer, Rohit. Lastly on the cash flow, the conversion of PAT into free cash flow for last two consecutive quarters has been weaker than your usual trend. So what are the factors that have driven that and how long will it take to come back to the historical trend that you had to — that you used to deliver? Thank you.
Rohit Anand — Chief Financial Officer
Sure. I think this time, weight of the player is also driven by FX, but irrespective, I think operating performance will get better as we look at Q2, Q3. So between the next two quarters, I think we will get to a similar FCF conversion rate that we’ve seen in the past, closer to the range of 90% to 110 %.
Gaurav Rateria — Morgan Stanley — Analyst
Thanks a lot.
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. Two question, first about the — can you help us with the margin work in Q1, I think you indicated some of the factors. If you can breakup us the contribution of those factors. Second question is about the margin trajectory. I think we are suggesting good confidence about margin recovery but considering, let’s say sometime back, we used to indicate 14%, 15% as EBIT margin is a good range considering overall business mix and then future potentially is maybe we can increase it to further over medium to long term. So by when do you expect it to be — we can again back to our optimal range of margin prediction? Thank you.
Rohit Anand — Chief Financial Officer
So specifically for current quarter walk versus last quarter, as I mentioned, we saw approximately 50 bps expansion due to pricing action and we’ve been talking about it for the last previous — and the previous quarter that we’re working at it, so that giving us a positive outcome. We’ve seen salaries, sub-con and large deals, those three combined contribute a headwind of approximately 100 bps in the current quarter versus last quarter. Visa and seasonality and the mobility business jointly contribute approximately 80 bps.
So those were the EBIT factors on the direct side and then there is a percent impact on G&A normalization. We had some good impact in the last quarter which is getting normalized and some of the impact on provision also that we have due to which we are at 1%, 100 bps negative impact versus last quarter on the G&A part. So those are the big drivers that lead to a 13.2% to 11% walk.
Then second part of your question, I think as we look forward, lot of these actions that I articulated are in motion. We have a very detailed micro plan that we’re working on and that gives us the confidence that as we move forward that every quarter sequentially given this as a bottom, we will increase margin anywhere between 100 basis point to 150 basis point. And by the end of the year, I think we’ll be in the range of around 14% EBIT. I think I mentioned earlier 15%, but I know where we are right now, 14% seems like a more 4Q exit run rate rather than 15%.
Operator
Sir, one moment please.
Rohit Anand — Chief Financial Officer
Is there any next question? Can you take the next question?
Operator
Mr. Agarwal, Mr. Sandip Agarwal from Edelweiss, please go ahead.
Sandip Agarwal — Edelweiss — Analyst
Yeah, hi. Sorry I was on mute. Hi, good evening. CP, thanks for the update on the business side and also good execution on revenue part. CP, what are you seeing in the market today? Are you seeing increasing swiftness of the client towards conservatism given the macro situation, macro environment and/or you are seeing the continued spend or the inclination to spend money, what is that you are seeing in the market today versus you were seeing six months earlier? So how has the client mood changed? Are you seeing any kind of change in the client perspective mood or they have really done some action on that like they have put — taken some things longer time or delay, any kind of retrenchment from the aggression by which they were selling earlier. Are you seeing any kind of early signs of that?
Rohit Anand — Chief Financial Officer
Yeah, Sandip. Thanks for the question, this is Rohit. I want Manish and Jagdish to comment about comps and enterprise verticals and then I’d like to also summarize at a corporate level, how are we tracking in terms of what changes are we seeing? So Manish, first probably to you.
Manish Vyas — President
Sure, sure, sure, Rohit. Thank you and Sandip, thank you for that questions. I think in — clearly, there is lot happening in the macro geopolitical economic scenario and hence the question is quite valid. There are clear discussions in the various customer environments about what is exactly in store, so that indeed is happening. Is that resulting in any specific macro level trend change in terms of the spend patterns? We haven’t seen any evidence of that yet.
There are a one-off conversation that happens, but that is very strictly limited to that particular company’s own individual decisions, which I think is nothing to do with the overall macro scenario. At this point, I think like CP rightly mentioned right upfront, the funnel is pretty robust.
The decision cycle continue to remain exactly as they were six to seven months back. The areas where the discussions are happening in the telecom media space continue to be in this space of what is called digital transformation, the holistic digital transformation from network modernization to driving more velocity on underlying digital platforms whether it is cloud or data or customer experience, I guess that continues to happen. We haven’t seen any net net in short before I hand over to Jagdish, I would say at this point, we haven’t seen anything material to come back and report at this point.
Jagdish Mitra — Chief Strategy Officer & Head of Growth
No, I think, Sandip, thanks Manish, that the outlook, I think for us hasn’t changed, it’s very positive from a deal win and the pipeline robustness perspective. I think we all have to recognize like in the last couple of years a trend that has got started in terms of redefining or rather modernizing the core of everyone’s enterprises business, Sandip, what I by mean by enterprise is, the organization’s core platforms and solving that problem that we don’t see any let down. So the pipeline of what we’ve talked about approximately upwards and you’ve heard 700 billion, 800 billion of TCVs, you see a similar trajectory every growth.
I personally drive the large deals across the company and therefore that large deal momentum, I still see to continue. So from a deal win perspectives, I don’t think there is any let down. Industry wise all of them as Manish said are focused on digital transformation. So supply chain issues and we called out four key areas, right, cloud, connectivity, engineering and experience. And all those four key areas we think that even if there is an economic slowdown, the investment on those areas is something that the companies and enterprises will have to do if they have to be relevant. And so therefore that part, we feel very confident about. I hope that answers your question, Sandip?
Sandip Agarwal — Edelweiss — Analyst
Yeah, thanks, thank you and best of luck for the current quarter.
Jagdish Mitra — Chief Strategy Officer & Head of Growth
Okay, thank you.
Operator
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Dipesh Mehta — Emkay Global — Analyst
No, my question has been answered. Thank you.
Operator
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities, please go ahead.
Sandeep Shah — Equirus Securities — Analyst
Yeah, hi, thanks for the opportunity. This question is to Manish Vyas, just looking at the macro hiccups, which are been increasing, what we are reading is on the 5G capex, clients are maybe becoming slightly cautious, they are accelerating where they can find the paid consumers, but where they are not finding the paid consumers, they may become slightly more conservative. So whether this trend can lead to any negative surprise in a telecom growth recovery, which we have seen for almost four to five quarters, do you foresee any downside risk to the growth momentum in the telecom going forward?
Manish Vyas — President
Sandeep, again thank you. See it’s like this, the 5G spend in the markets that we’re spending could not necessarily a function of added consumer revenue. The focus on 5G was always to continue to build the new modern network in terms of replacing what is called the carrier adds, the capacity build. So instead of building the carrier ad on 4G, it was happening on 5G and that trend will continue.
Revenue uptick for the Telcos was always going to be more around enterprises, not as much about the consumer business, I mean that’s a normal cycle that we continue. So that’s not really necessarily a driver in anything changing. As far as the sectoral performance is concerned, I’m assuming you’re referring to our performance versus the industry broad-based performance. I don’t think like I said earlier that whatever is happening at a macro level is giving us any indication of slowdown in the kind of opportunities that we are engaged in, in driving transformation at a process that will operate at a system and at a business design level or customer experience level and for that matter of the network level. We are not seeing any change to the pattern of the kind of funnel that we are building.
Sandeep Shah — Equirus Securities — Analyst
Thanks. Just a follow up to CP’s opening remarks, where he said that we are confident for the growth in the coming few quarters, while some of your large peers are indicating macro may start impacting the second half of the growth. While I’m expecting that Tech Mahindra is alluding that given the second half of this financial year, we may see a healthy growth. So what is driving this confidence as a whole?
CP Gurnani — Managing Director and Chief Executive Officer
Yeah, so Sandeep, I think few things, one is we are continuously monitoring the pipeline and the pipeline is looking pretty strong maybe better than what we’ve seen in the past. Now the questions of deal conversion, so if the trend continues what we’ve seen in the last three, four quarters of the range wherein that continues over the next quarter or so — couple of quarters, I think we should be in that zone of continued demand environment, right, which is what we’re seeing right now.
Of course, it’s a very dynamic world, so hence we are monitoring the situation through constant data, as well as client interaction and continue to put that feedback back into the way we are looking at the next half. So that’s kind of where we are doing it, but I think qualitatively, as Manish, Jagdish mentioned, there is — from a client communication discussion perspective, there is not some significant change as they move into the second half that we’ve seen and that’s why, that’s reflecting in our data and that’s what viewing right now. I’ll also like Vivek to add his view on BFSI that he is seeing or HLS that he is seeing that from a discussion with his client that he can share with the crew.
Vivek Agarwal — President – BFSI, HLS and Corporate Development
Thanks, Rohit. So not to repeat what Manish, Jagdish and Rohit have said, but just reiterate that we haven’t seen any budget reductions. I think what gives us a degree of confidence is the pipeline. I think, we’ve had a continuous win of large deals. So I think, we have a backlog to execute on. I think that thus put us on a reasonably good footing as we look forward for the rest of this year. And lastly, I think not only from a — the big ticket macroeconomic indicators which had everybody confused. I don’t think anybody has an answer, but what we are focused on is more specifically looking at different industries of verticals and the impact they may have and then obviously at the next level, which are our specific clients of any specific impacts, they would have. And what we have is a fairly, a laid out thought process on how we would react if we were to see any early signs.
Sandeep Shah — Equirus Securities — Analyst
Okay. And a last one if I can squeeze just on the margins, Rohit, in terms of your comment, how much dependence are we placing in terms of a pricing as a tailwind, in terms of your commentary of targeting 100 bps to 150 bps Q-on-Q increase in the next three quarters? And just a follow-up on the wage hikes, how should — so, what percentage of employees being covered in the first quarter, is it effective April? And what percentage is pending and how the balance wage hikes are scheduled?
Rohit Anand — Chief Financial Officer
Yeah, so Sandeep on the pricing, maybe I’ll take over pricing first. So we’ve sequentially quarter-over-quarter seen increase in the quantum of price increase we’ve got. This time the impact as I mentioned was 50bps. What we look at next quarter is similar or better outcome of that, but outside of that in the second half, right now, while we’ll continue to drive it, I think the view is it’s mostly first half factor is an upside for us, we’ve not baked in significant upside in the second half, right?
So that’s pretty much on the pricing side. In terms of wage hikes, it’s all from a company perspective, while we do constant intervention through the year because it’s not the same world as it was few years back, there is usually lot of retention and niche skills, interventions will happen through the year, but from an annual cycle perspective that for us will be effective Q2. And broadly the impact there is going to be around 100 bps.
Sandeep Shah — Equirus Securities — Analyst
And after 2Q, all 100% of the — would be covered on a annual wage hike?
Rohit Anand — Chief Financial Officer
Yes, that’s right.
Sandeep Shah — Equirus Securities — Analyst
Okay, thank you. All the best.
Operator
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Ashwin Mehta — Ambit Capital — Analyst
Hi, thanks for the opportunity. So Rohit, just one clarification in terms of what you said the 100 bps to 150 bps improvement starts from 2Q or it’s more in the second half of the year?
Rohit Anand — Chief Financial Officer
Yeah, it starts from 2Q and it continues through 3Q, 4Q. That’s how our actions are stacked. As I mentioned, right, from a Q1 to Q2 perspective, some of the impact that we’ve seen negative will get normalized as we move forward, for example, a, Comviva, the Visa spend that seasonality impact will lower down. Beyond that the large deal one off transition cost that I mentioned that will not get repeated, so that will kind of offset a little bit of the wage pressure that we see and outside of that, the operating actions on utilization increasing from 82%, 83% to the range we’re comfortable with which is 87%, 88% through the year. Some of that benefit will come in Q2. Similarly offshoring, we have specific target by month that we will be driving as we move forward will give us that range in each quarter as we move forward.
Ashwin Mehta — Ambit Capital — Analyst
And Rohit, in terms of subcontracting because that saw a further increase to an excess of 16%. What is the outlook there? Are we looking at that also being a lever as you go through the year?
Rohit Anand — Chief Financial Officer
It is a lever, we are kind of — while we pushing that, but that is also a little bit of a cost that is in terms of stickiness available for us to act easier if we see a demand slowdown in the second half if that scenario comes, right, what you’ve been hearing from others, why we don’t see it, but there is so much of confusion, what people are saying, what the outcomes are reflecting. So when you look at us entering the second half. This is a relatively easier bucket for us to act on right and reduce as we move forward. So as we look at it right now. If it’s a subcon reduction initiative, where we get some benefit through that an optimization, we’re looking at one to one replacement from a headcount perspective more as we move forward for the second half rather than immediate actions.
Ashwin Mehta — Ambit Capital — Analyst
Okay. Thanks a lot and all the best.
Operator
Thank you. The next question is from the line of Viraj from SIMPL. Please go ahead.
Unidentified Participant — — Analyst
Yeah, hi, thanks for the opportunity. Most of my questions have been answered. I just have one question. I don’t know if Mr. Gurnani is there on the call. This is regarding the investment approach in terms of acquisitions and investments, which we have been making for last several years, and in ’22 we made a significant amount of investment. And if I were to look at the impairment part, we took something like INR450 crores — INR460 odd crores of impairment and cumulatively last four years alone, it’s in excess of INR100 — INR1,100 crores, INR1,200 crores. So just trying to understand, how should one really understand the benefits of the acquisitions or the investments we’ve been making because the amount on the impairment is also quite sizable, so just want to understand if you can provide some perspective. Thank you.
Rohit Anand — Chief Financial Officer
So Viraj, maybe I’ll just add a few sentences. And then, Vivek, who heads our corporate business development function will add on. So couple of things, one is from an impairment perspective, we want to look at it at a consolidated level, what is the impact versus standalone, the numbers you’re looking on more in subsidiaries and standalone numbers. The way it happens if we get an acquisition asset, the idea for us and the approach from an M&A perspective is have changed versus what we had four to five years back, where, now we are integrating the companies and the offerings — solutions into our core business. So hence when we look at any acquired company, the way we look at it is more like a measurement unit across legal entities.
So, hence the business that happens through that offering, growth in that stream, which is not reflected in the legal entities and hence at a legal entity level, you might see an impairment but a consolidated level, that’s not the case. Right. So that kind of broadly the way it is and that’s why not to correlate that to the M&A execution strategy. We continuously through regular discussions with folks like you articulate our change in strategy, how they’re performing and we’ll continue to do that as we move forward to show more and more transparency around our numbers on an acquisition performance.
But I’ll want to Vivek to add on some of the points around this.
Vivek Agarwal — President – BFSI, HLS and Corporate Development
Yes, thanks, Rohit. So I think just from a M&A approach both from a transaction perspective and integration and synergy, I think what we’ve said for the last couple of years is that, our acquisitions are meant to be integrated into the core of the business. They have to become a integral part to our service offering of how we go to our clients, so more and more our acquisitions are part of one Tech M rather than looking at them as individual operating businesses which we’ve acquired or invested in. I think, the success in some part is reflected in our large deals with over the last few quarters, I think you’ve seen a significant uptake and sustained momentum in our deal wins numbers over the last few quarters.
And of the things I would attribute that too is our success in integrating a whole host of capabilities we’ve acquired over the last couple of years and hence, we are more relevant to our customers’ needs and we can offer them a wider solution. I think, that’s one point. And I think, in terms of a part of your question around our investment approach, I think, we said this last quarter and I just want to reiterate. I think, the management team recognizes that we’ve had a busy M&A period over the last couple of years. So we will be very selective. Our focus is on integration on driving synergies in the short term or of what we’ve already acquired.
Unidentified Participant — — Analyst
Okay. Just two parts. First is, it’s more of a suggestion that maybe in the investor presentation, if you can kind of share over last two, three years or five years the acquisitions we made. How is that kind of added in terms of increase deal wins or sales generate or cost synergies because probably it’s not coming out clearly to us, as investors, so that’s a suggestion. If one can just put some perspective there in the form of charts or some data points. Second is, if I look at this particular quarter. So the CTC acquisition happened in Q4, and given the kind of scale and the profitability that can be made, we also kind of paid a good valuation for it, but if one were to kind of better understand the organic versus inorganic growth rate, what would that be like for us in Q1? And specifically on the margins, because some of those acquisitions like CTC are very high margin businesses. So if one were to kind of dissect that from the numbers and just look at the organic business profitability, is it right to think that the pressure in terms of profitability even more severe than what we see on the reported numbers? Thank you.
Vivek Agarwal — President – BFSI, HLS and Corporate Development
So, I know there were a bunch of questions I’m trying to — I’ll try and address one by one. And if in case anything is left, please feel free to prompt me. I think in terms of the information suggestion, currently we share that at the Analyst Day event. So we’re doing it once a year but we will discuss internally and see how practical it is to do it more frequently, but as we said last — at the last year’s Analyst Day event, we are committed to giving the transparency once a year on overall performance synergy et cetera of the acquired businesses and their integration status. I think, specifically to your question on CTC, it was nearly the full quarter last year — last quarter, sorry, because we did this middle of January. So I think, it was 11 weeks for the last quarter also. And so it was largely like-for-like, especially when you consider the currency impact, as you all know, the euros, which is what the — is the accounting currency for that acquisition has taken a massive hit against the US dollar. But overall, I think the business remains on plan for it’s early days, we recognize, but it is on track.
I think the only other item, which relates to your question on our margins on CTC too. You may recall that that business had a small set and operations in Belarus. With the advent of the war in the region, some of our customers were uncomfortable continuing to work in Belarus. So over the last few months, we have wound down our operations, our customer operations specifically in the country. We managed to relocate most of our employees to other parts of Europe if they were willing to. It has meant that we’ve incurred some one-time cost on that relocation but it did not impact billing or revenue and we do expect the newer operating model of a more distributed delivery across Europe to be sustainable going forward.
Unidentified Participant — — Analyst
Okay, thank you.
Operator
Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon — Macquarie — Analyst
Hi, thank you for the follow-up. I just wanted to check, I mean if you have seen no change to the demand environment, why have we not really added to our freshers, well that could be an important margin lever until it looks like we really don’t have a fresher bench at all because utilization including and excluding trainees that are 83%.
Rohit Anand — Chief Financial Officer
Yeah, so I think as I’ve mentioned earlier, we’ve hired significant fresher last couple of quarters and our endeavor is to get them build, train, deploy it. I think that’s been the internal focus. As we move forward get more streamline on that model, as we move forward, we’ll continue to add that sequentially over the next few quarters. I think that is on the cards as we move forward.
Ravi Menon — Macquarie — Analyst
Thanks, Rohit.
Operator
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Gaurav Rateria — Morgan Stanley — Analyst
Hey, thank you for taking my follow-up. So two questions. Firstly, the two large telcos that reported numbers in the US, they lowered their margin and/or FCF guidance for the full year. So in this context, have you seen any prioritization of spending happening by them in terms of what projects are they prioritizing over others? And is there any assessment done internally of any particular projects that could potentially be addressed if such prioritization were to take pace?
Rohit Anand — Chief Financial Officer
So as I mentioned, I think in a corporate level, while there are one-off discussions happening, nothing significant from a trend perspective to call out, but I’ll still ask Manish, Jagdish and Vivek who handle different aspects of the business in the US can comment quickly on have they seen anything like that on a particular telco. So maybe Manish.
Manish Vyas — President
I think, Rohit. I think the question is more specific to couple of telcos that have announced results recently and that observation is correct and valid. And like I said, there are some conversations that are happening very specific to a few project prioritization, but incidentally, all of them are around continuing to drive the digital transformation process a little harder and faster. Some work that will probably get shifted from moving work to a cloud to more driving a data intensity or customer experience transformation. So that kind of reprioritization of some of that capital budgets may happen.
And those are part and parcel of also what is — what program is deriving greater value than the others and what may result in mid-term to long-term benefits. I think it is in the realm of that kind of a conversation. Not necessarily a reaction to a certain quarter performance. That — there could be discussions around more a long-term impact is probably something, which I don’t think, I can comment on it today because we haven’t seen any such reaction from anyone at this point.
Gaurav Rateria — Morgan Stanley — Analyst
Thank you for the detailed answer. Second question is for Rohit, amortization expense related to last few acquisitions have impacted margins in F 2023. How should one think about the same going beyond F 2023, would that be a margin lever and if yes, how big? Also any lever on margin improvement from portfolio companies that can help you in the coming quarters? Thank you.
Rohit Anand — Chief Financial Officer
Yeah, so from an amortization perspective year-on-year and FY 2023 to FY 2024, there will be very marginal change, not significant benefit at a company level, but we will continue to see certain other management cost benefits as we move forward, which will help margin. And then maybe I’ll ask Vivek to also add on some of the synergy actions that he is driving that will also benefit, so Vivek, you can add as well.
Vivek Agarwal — President – BFSI, HLS and Corporate Development
So I think. Thanks, Rohit. So from a short-term impact, there are two items related to acquisitions, which go through the P&L, some of the earn-outs which are linked to continued association of the founders, they go through the P&L and the amortization as Rohit said, it’s honestly, fairly complex accounting of some impact is for 12 months to 18 months on the amortization, those will decline in the short term, but some of the amortization is seven years to nine years linked to the acquisition. So we won’t see a very significant change in that line item. And I think, the part around synergy, I think we’ve spoken about it before, but what we’re really doing is very heavily focused on an integrated service offering, how do we take all our capabilities and offerings both organic and those who are acquisitions to our clients, as one Tech M offering and I think that’s yielding good success for us.
Gaurav Rateria — Morgan Stanley — Analyst
Thank you so much.
Operator
Thank you. The next question is from the line of Vibhor Singhal from PhillipCapital. Please go ahead.
Vibhor Singhal — PhillipCapital — Analyst
Yeah, hi. Thanks for taking my question. So Rohit, just one question from my side, our margins — again on margins, but not from a very near term perspective. So, my question was more like, our margins have been quite volatile over the past few years, of course, because of multiple reasons, acquisitions and all, last one, one and a half years we’ve had the benefit of travel cost coming down because of COVID and all that. This time, at this point of time, you are seeing on the supply side pressures. So just wanted to understand, let’s say, two or three or four quarters down line then supposedly as on — all the other companies, everybody has been calling out, that the supply side pressure should stabilize, travel should also recover.
What is the sustainable level of EBIT margins do you think that we can operate at? Keeping everything else constant, I know, it didn’t happen that way, but let’s say if we were to hypothetically assume that, okay, these things have stabilized, what is the kind of margins that we can sustainably report over a two to three year period of time post these things couple off.
CP Gurnani — Managing Director and Chief Executive Officer
Yeah, so I spoke about this year walk which is actions are not operating levers that we’re going to be driving, pricing which is more tactical right now, relevant right now, right. And then there are some structural actions that we’re trying to drive, which are little bit more medium term to long-term. And we have got a specific project plan team if — working on those on a specific basis and we’ve aligned our measurement criteria targets also accordingly, right?
So if you think about it, what I had spoken earlier and which we’re working on is a big part of our margin dilutions also, if you look at our geography mix, right? So when you look at our competitive US, Europe and compare with on the peer set, we are 10% to 15% lower, right, on that component as in margin difference typically in that region versus rest of the world is to the range of 10% differential, right? So there, if we get our mix in line with that comparison, you’re talking about anywhere between a 1%, 1.5% increase over a longer-term cycle, so that’s something that will incrementally start playing out every quarter and every year as we move forward in that zone, because it’s not a shift that you can dramatically do in one year, right?
So that’s something that we will cut in to drive out and similarly as vertical scale up is happening, BFSI is becoming more towards the USD1 billion mark, manufacturing is USD1 billion, comps already a big size and scale for us. Similarly, Hi-Tech is growing. So there you get operating leverage with the size and scale of that vertical, so that’s something structurally that’s going to help us. And then we spoke in the past, we are working also on very tactical areas on pruning the portfolio, which is not core to our strategy and we feel long term doesn’t fit.
So that — those assets and identified portfolios, we are going to be taking divestment actions on which will improve the mix from margin perspective, right? So those are structural long-term actions while we continue to drive tactically the operating levers each quarter. This will help us structurally change the nature of the margin profile. So in terms of year end, I think what we said in the 4Q exit will be closer to the 14% EBIT range. And then as we move forward, we’ll continue to drive this action to continuously expand structurally the margin levers.
Vibhor Singhal — PhillipCapital — Analyst
So is 14% a number that — I mean, again not a guidance per se for FY 2023 or FY 2024 from a long-term perspective, is 14% a EBIT margin number that we would be comfortable in with in terms of sustainably reporting that?
Rohit Anand — Chief Financial Officer
Yeah, I think that’s comfortable with a positive upside to that as we move forward.
Vibhor Singhal — PhillipCapital — Analyst
Got it, great. Thanks a lot for taking my questions and wish you all the best.
Rohit Anand — Chief Financial Officer
Thank you.Thank you. The next question is from the line of Girish Pai from Nirmal Bang Equities. Please go ahead.
Girish Pai — Nirmal Bang Equities — Analyst
Thanks for the opportunity. The first question is to Rohit. I recall you saying that pricing is not going be so much as a lever in the second half of FY 2023. So are you getting any push back from some of the client conversations you are having on pricing which is making you a little bit cautious on the pricing action side? That’s question number one. Second question is to Manish Vyas, where he talked about a reprioritization of certain client’s digital transformation programs. So what exactly are these clients doing? I mean, what are they deciding to drop now and client and shift that money to what kind of work? So those are two questions I had. Thanks.
Rohit Anand — Chief Financial Officer
Yeah, sure. So I think from a pricing perspective, we started getting some benefit from Q4 incrementally in Q1, which we are outlaying in our margin walk. And then similarly in Q2, we have a good pipeline of specific customer accounts that we’re very clear that the discussions are on a progressive state of conclusion, right? So, hence that visibility towards Q2. As we move about Q3, Q4, I think because these discussions have been on for a while and it takes multiple iteration cycles to conclude, that’s why this is more certain.
As we move forward maybe the quantum will reduce and also a lot of discussions that you’re hearing globally in specifically macro does play my aid in terms of as we talk to the clients about second half, but as the scenario unfolds, right, from an opportunity standpoint, if this — the growth environment, everything macro inflation all that settles down, I think it will continue to be an opportunity for us in second half result, but I’m just — I just saying, we are factoring from the case that we are making from a margin perspective towards 2Q, 3Q, 4Q we are not factoring price as a lever in 3Q, 4Q, if it happens, it will be an upside towards our margin profile. So, that’s the way we’re looking at it. I’d like to forward it to Manish for the second part of the question that you have, Girish.
Manish Vyas — President
Thank you, Rohit. Girish, I just want to be very clear that that question — the answer was in response to only one or two customers and the perspective around it not necessarily a macro industry wide brand. So it’s not going to be true for — from region-to-region or from account-to-account. However, there are certain things which clearly at this point are gaining lot more prominence in the conversations in terms of where the spends will happen.
Number one, there is an increased focus on automation both from a network standpoint, as well as at a broad-based operation, to drive — do lot more with lot less, I think, it’s something that clearly is a big focus and that takes a significant investment at this point and we are busy with both on the, what we call as AI ops, as well as AI nos which is the network operations automation, as well as the IT automation. So that’s one.
Two, there is lot of discussions around data synchronization and driving data on cloud and integrating data with cloud. So that’s also gaining lot of prominence. Primary reason being that through that there is a monetization opportunity that the telcos continue this to see in the short term and the medium-term as well. The third, clearly is there is going to be money spent around network modernization and I will leave it at that at this point because it’s a trend that will be evolving over the next three to four months, where we will start seeing lot more spend happening in the fiber space, beside those the investment in 5G. So I guess, those are the — some of the areas where you will see a little bit of activity.
Girish Pai — Nirmal Bang Equities — Analyst
Okay. Thanks a lot.
Operator
Thank you, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Rohit Anand for closing comments.
Rohit Anand — Chief Financial Officer
Yeah, thanks. So like, just like to reiterate and recap from a quarter perspective, demand is looking strong, revenue growth of 3.5% broad based between enterprise and comms. We have three units now USD1 billion run rate. From a deal win perspective, 800 plus million dollar deal wins, which is in the range that we’d articulated. Attrition has reduced quarter-over-quarter sequentially by close to 2% based on various interventions we took structurally over the last few quarters, margins down quarter-over-quarter by 220 bps, but that’s the bottom point for us. We have actions that are planned as we move forward between Q2 to Q4 to get it up sequentially every quarter by 100 bps, 150 bps, so the management team is committed to that. And from a capital allocation perspective, we will continue to spend more time this year on M&A integration, on the acquisitions we’ve done and focus on organic growth versus new acquisitions. So that’s a recap of where we are and thanks everybody for joining the call today. Good evening.
Operator
[Operator Closing Remarks]