Tech Mahindra Limited (TECHM) Q2 FY23 Earnings Concall Transcript

Tech Mahindra Limited (NSE: TECHM) Q2 FY23 Earnings Concall dated Nov. 01, 2022

Corporate Participants:

C P Gurnani — Managing Director and Chief Executive Officer

Anand G. Mahindra — Chairman

Anish Shah — Managing Director and Chief Executive Officer

Manish Vyas — President, Communications, Media and Entertainment Business, and CEO, Network Services

Jagdish Mitra — Chief Strategy Officer and Head Of Growth

Rohit Anand — Chief Financial Officer

Atul Kunwar — President and Chief Technical Officer

Analysts:

Ravi Menon — Macquarie — Analyst

Chira Pacharia — Ashika Institutional Equities. — Analyst

Rishi Jhunjhunwala — IIFL Institutional Equities. — Analyst

Ruchi Burde Mukhija — Elara Capital — Analyst

Vibhor Singhal — Phillip Capital — Analyst

Mukul Garg — Motilal Oswal Financial Services — Analyst

Sandip Agarwal — Edelweiss. — Analyst

Girish Pai — NBI — Analyst

Venkat Samala — DSP Investment Managers — Analyst

Viraj Kacharia — SIMPL — Analyst

Dipesh — Emkay Global. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the Q2 FY ’20 Earnings Conference Call of Tech Mahindra Limited. As a reminder, all participant lines will be in listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need a assistance withing the conference call pease signal operator by pressing press star one, one then zero on your touchtone phone — please note that this conference is being recorded. I now hand the conference over to Mr. C.P. Gurnani, MD and CEO for Tech Nanda.

C P Gurnani — Managing Director and Chief Executive Officer

Thank you, and over to you, sir. Yes. Thank you. Good evening to all. Welcome to our earnings call for Q2 FY 2023. I know the last few years, have been a little challenging. On one end, we had a pandemic. The other end, we had disrupted technology climate change. So all I can say is that we remain focused on our core purpose. We have aligned ourselves to the new world norms, and we continue to drive positive things in the lives of our communities. We will continue to rise on the three pillars of more in cold world being future ready and creating value. Our efforts in sustainability, our efforts in diversity, our efforts in quality and yielded very, very good results. We have been creating value for the stakeholders and the community alike. We have delivered reasonably good financial outcomes, and we do believe we are making a lasting impact. We constantly believe and practice, there is no trade-off between purpose and profit. So thank you again for your support, our strategy on focusing on data, focusing on discipline, focusing on new competencies, new technology development has resulted in profitable growth, 3% quarter-on-quarter in CC terms, revenue now close to EUR164 million CME has grown 3.1% NCC comps. Enterprise has grown 2.8% in CC terms. On a year-on-year basis, CMC has grown a little over 20% on CC terms and enterprise verticals have grown 14.4% on PC.

Our team, Agarwal’s focus on integrating the acquisitions, driving synergy goals continue to give us good returns and good results. Large deals, we have committed that we would be in the range of 700 billion to $1 billion. We think at EUR716 million, despite of some of the last minute’s slowdown in the season making is a good, good result. EBITDA margin also, we gave the salary hike, but we still delivered 15.1%. That’s basically because of a very sharp focus on operating metrics, generated a free cash flow of 253 million, which is, again, one of the better ones. The Board has agreed to a special dividend of INR18 per share. But most of this, I would like to say Rotan cover in detail. On a management perspective, we and the management team are cautious of the slowdown and the coming winter. We have made our own plans ADC, we will be agile. We will adopt, and we will continue to monitor the global situations. So I genuinely believe that the company is in a better shape as we go through some of the rough economic conditions, but more important is that your technology investments in metaverse and I’m sure Manish will share in detail 5G connectivity, customer experience management, some of the investments that we have done on the network corporations are all yielding good results. So between Rohit and Manish, they will share more about numbers and the competencies that we have developed. Over to you Rohit.

Anand G. Mahindra — Chairman

Thanks… Good evening, everyone. Let me now cover the company’s financials for Q2 ended September 2022. We ended our second quarter revenues of $168 million versus USD162 million last quarter, up 2.9% Q-o-Q on a constant currency basis. Growth was broad-based with CME growing at 3.1%, enterprise growing at 2.8%, both in constant currency terms. Our deli continues to look positive with the TCV closure value of USD716 million. Revenue in INR terms was at INR13,129 crores versus INR12,708 crores in Q1, up 3.3% quarter-over-year — the EBIT for the quarter was at USD184 million and was INR1,292 crores versus INR177 million in Q1. The EBIT margin was 11.4%, an improvement of 40 basis points Q-o-Q on a reported basis and an improvement of 70 basis points of constant currency. As we’ve articulated earlier, we’ve executed on improving utilization, which has eased the margin by 60 basis points. We’ve also taken measures on discontinuing certain low-margin business, which has helped the margin by 20 basis points. We’ve got sales, G&A savings of 60 basis point price improvements, which we’ve articulated before, we’re working on with customers has helped us in the quarter by 50 basis points consecutively now for two quarters in a row. And this all, as CG mentioned was impact helped offset the wage hike and inflation, which was around 120 basis points.

And then the currency, which I mentioned for us was let headwind of 30 basis points. That’s the broad margin drivers. Moving on to EBIT to other income for the quarter. It was at $36 million versus $16 million in Q1. Foreign gains were higher compared to the previous quarter from $16 million versus $7 million. The tax rate for the quarter settled at 21.9%, which is lower from last quarter of 22.8%. This is because of certain one-off items we saw in Q2. Normalized tax rate for us is around 25% to 26%, which we’d articulated earlier. The net profit margin for the quarter is at 9.8%, which is a 19 basis point improvement from Q1 and close to 120 basis point improvement on a constant currency. Our free cash flow for Q2 FY ’23 was at $253 million, which is 19% of that as we catch up over the spillover effect that we saw from Q1. Our DSO has increased by two days from 198 and the is a better collection regarding operating follows. As I mentioned earlier, we continue to consistently follow a rule-based hedging policy. As of September 2022, the total hedge book more than $2.4 billion versus $2.3 billion in Q1 ’23. Based on headcounting treatment, net mark-to-market gain for 30th September was $75 million or it $16 million into the P&L and a gain of EUR59 million went to the — we had cash and cash equivalents of $947 million and INR7,703 crores. We are committed to prudent capital allocation and returning back to the shareholders. On that basis, the TechMahindra Board has approved a special dividend of INR18 per share, which compared to last midpoint as a 20% increase from last year. With that, I open it up to Q&A for the rest of the time we have on the call.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Chira Pacharia from Ashika Institutional Equities. Please go ahead.

Chira Pacharia — Ashika Institutional Equities. — Analyst

Questions. The net new deal wins during the quarter, if you can provide the bifurcation for enterprise and communication verticals. Second question, geography wise, which territory you feel that highly impacted due to the slowdown. And also vertical-wise, other than communication segment vertical-specific, any observation you witnessed that the client dealing there is addition in making in terms of extend, which are those areas? That it for me.

Anand G. Mahindra — Chairman

Sure. So from a deal win perspective, we’ve stopped that disclosure or split between communication and enterprise. But I can let you know that communication and Manish will talk more continues to benefit from the 5G tailwind that we have and in the marketplace, our position in that area benefits us from a consulting to an execution standpoint. So that continues to be a tailwind.

From a growth revenue growth perspective, geography growth is quite broad based this time. U.S. has grown 2.5%. Europe when adjusted for currency has grown 3.5%, and the rest of the world adjusted for currency has known 3.4%. So it’s been broad-based from a geo perspective as well. When you look at decision-making, I would say, nothing that is a trend that we see right now from a customer behavior standpoint that is coming out, but given the macroeconomic environment, the impact of the more on Europe intensifying the energy pricing and overall inflation in Europe. I think that’s something that is from a geopolitical standpoint, want to have a bigger impact, we feel but nothing that yet percolated down into our customer behavior. So that’s the current view we have. So as we go forward, pipeline still looks robust. Our deal momentum continues, but we’ll continue to watch the environment cautiously.

Chira Pacharia — Ashika Institutional Equities. — Analyst

Many Indian telecom operator started doing orders for the 5G requirement. So how we place to take benefit of those because our major concentration is is outside India and also a lot of PLI introduced by government to make India telecom equipment manufacturing hub. So how our design vertical is placed to take the advantage of it.

C P Gurnani — Managing Director and Chief Executive Officer

Yes. Manish, would you like to take that question, please?

Manish Vyas — President, Communications, Media and Entertainment Business, and CEO, Network Services

Yes, absolutely. Yes, I think — Chira, thank you for asking that question. The — as far as the telecom network equipment business is concerned, I think we have always said that that’s not a business that we are participating in. We want to continue to stay focused as alluded to earlier, we appreciate all your guidance as well in keeping us focused on our core and core purpose. So software, integration, engineering, both around software, equipment as well as devices and operations, I think other focus areas that we continue to be a dominant player across the world, including in India, as the design happens and as we launch happen, — we will continue to work with the service providers in India in helping them realize the value of the network.

As far as the underlying the physical physicality of building the network and deploying it. That’s — it’s probably the very volume in a game, but it is not something that aligns with our business strategy, balancing our long-term strategy with profitability and of course, our core competence. So I think we are very clear what we will do, and we are positioned very, very well. In fact, we are — we’ve also — one of the promotions that we have won is around supporting one of the Indian service in helping with their enterprise 5G business. So we continue to play that role, and we feel very good about it with all the major service providers in India.

Chira Pacharia — Ashika Institutional Equities. — Analyst

Thank you. All the best.

Operator

Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.

Ravi Menon — Macquarie — Analyst

Welcome [Indecipherable] And how take the vertical at most peers have not really reported.

Operator

If you can speak closer to the device piece, your audio is not clear.

Ravi Menon — Macquarie — Analyst

High tech is a vertical that most of the peers have not reported good growth in, but your growth here is very strong on a sequential basis. Are there any new accounts that we went out through acquisitions like Altis and Infosthat are helping us here?

Anand G. Mahindra — Chairman

Yeah. So as we mentioned, I think, almost three quarters back, this is an area of vertical for us, which is a growth driver. We’ve invested both inorganically and organically in the competencies that are helping us drive growth here. So from either the capabilities that we’ve built in from either cloud competency perspective or areas that you mentioned are helping us drive growth for better customer coverage, making sure we are getting better share of the wallet fatigue customer because we have multiple competencies to have offered.

And then the combination of service offering that we acquired, combining with our old IT competencies together are the miles better deal wins and better penetration in those customer’s. So it’s all jointly working together in that vertical, which is helping us. So we see the momentum continue as we move forward with more and more penetration in our existing customers. So less of, I would say, new customer guided, but more customer penetration that continues to be strong — and Anish, do you want to add something on the cost?

Anish Shah — Managing Director and Chief Executive Officer

Yes. Yes. Thanks, Rohit. So I think one of the things that’s actually helping us, as Rohit said, is both the organic and inorganic, but mainly our strategy with hyperscalers that we see as the one key driver that’s helping us drive growth in a complete 360-degree manner, working with them in creating market opportunities and working to them about creating some of their product development, digital engineering parts and so on and so forth. That’s driving primarily the growth. And we see this as a continued momentum that we want to consider.

Ravi Menon — Macquarie — Analyst

Right. Given that, in that regard good deal wins, it got as well, and utilization is already pretty high at 85%. Now, why have you chosen to allow our software headcount to decline quarter-on-quarter?

Anand G. Mahindra — Chairman

So this was something, we articulated even last quarter that we’ve made certain investments in the business over the last previous two quarters, and we want to use this quarter to improve our operational efficiency and performance. And with utilization, which we peaked at a period of 89%, I think we still 85%, right? So we’ve come based on this investment, we’ve come back from as low as 80% to 83% now to a 85%, and we still have room to go forward. So this has been articulated earlier as well. So as you move forward, based on the demand environment, the pipeline that I stand is looking positive. We’ll continue to drive additions on those skills as well as continue to utilize the internal talent base, which we’re scaling in different digital scales better as we move forward.

Ravi Menon — Macquarie — Analyst

Could we assume that some of this — the one utilized is not really translate into billing? And should we expect some realization improvements to help us?

Anand G. Mahindra — Chairman

Yeah, I would. I mean, from this quarter’s aspect is that it does help us from a revenue growth perspective with increased utilization, margin gets better. As we move forward, we’ll continue to see that happen. So yes, I mean we still have operational room for us to drive both revenue growth as well as margin expansion.

Ravi Menon — Macquarie — Analyst

Great. Thank you. Best of luck.

Operator

Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.

Rishi Jhunjhunwala — IIFL Institutional Equities. — Analyst

Yeah, thank for the opportunity. Two questions here. Firstly, there seems to be a very sharp decline on a sequential basis on our top five clients and when adjusting for cross currency, it seems that there would have been a decline in the quarter, which is otherwise seasonally so. So just wanted to understand any peculiar cases of rundown that you have witnessed or any pricing corrections there?

Anand G. Mahindra — Chairman

Not really, I mean, pricing is on an upward trend, as I mentioned, so not really pricing, but there was a couple of projects, which from an implementation closure perspective came to a close from a time line perspective. So that was but otherwise no trend in any of those customers beyond that.

Rishi Jhunjhunwala — IIFL Institutional Equities. — Analyst

Understood. Second is on the margin side. So even given that results are behind us in 3Q, 4Q, we see some momentum in some of the verticals there. But on the flip side, we have cut down slightly on the hiring. So I just wanted to understand, given the trajectory from a margin perspective, are we still on track to exit at 1% for the year?

Anand G. Mahindra — Chairman

I think our operates, as I mentioned earlier, right, our levers continue to be similar. We still have headroom to go in each of those. So as we said, I’ll repeat all those actions. So pricing continues to be a very strong lever for us. We work it as a program. We are continuously going for opportunities there. So that will continue to drive margins for us in the current quarter as well. you look at utilization, as I mentioned, we still have to get better there as we move forward. We are also looking at a lot of internal efficiencies by combining certain support and middle office functions that gives us some benefit as well on operating performance and leverage. So we’ll be driving that as well.

Offshoring while we did a lot of actions there, but some of the new deals had some on-site component, which doesn’t show in terms of improvement, but we’ll continue to drive that going forward as well. And if you see subcon, we are still at a high level, though we’ve reduced it quarter-over-quarter. But those are the programs that we feel that we have enough news to let a margin expansion standpoint. So that all will continue and will drive it like a program. Also, we are continuously looking at areas to low-margin profile and take a call on either divesting or discontinuing that in this quarter, I mentioned that we look action on a portion of that business, which reflects in the BFSI segment, and that give us a margin uplift, but mellow down the growth, which otherwise at the company level would have been close to 3.4%. So we’ll drive all those actions. I think what we have to also continue to look at is the global economic scenario, how it reflects in the second half? I think that’s something that we’ll watch any questions about as we continue to drive these actions.

Rishi Jhunjhunwala — IIFL Institutional Equities. — Analyst

Understood. And just one thing on impairment charge that we’ve taken in this quarter. On the consol financials, the impact of INR244 million, but on the stand-alone, the impact is more than INR4 billion. So one, which subsidiaries or acquisitions are the related to, and secondly, why is there such a big gap between the two?

C P Gurnani — Managing Director and Chief Executive Officer

Yes, a consolidated level, I would say it’s in the small investment we’ve made 12 to 14 months back, which didn’t get us the right value we anticipated. So we took a proactive call to move out of that. So that’s the impact on the consolidated side, which is a pretty small investment and hence the impact being so low. At a stand-alone level, as we articled before, it’s not really the legal entity view that we should look at because when we’re working across the companies, it’s more across legal entities that the projects are delivered and hence a little bit more from management view. So hence, from a legal entity perspective, that doesn’t really reflect the performance of that segment. But from a main impact perspective, it’s target, which is the entity we we’ve taken the impact.

Rishi Jhunjhunwala — IIFL Institutional Equities. — Analyst

Understood. Thank you so much.

Operator

Thank you. The next question is from the line of Ruchi Burde Mukhija from Elara Capital. Please go ahead.

Ruchi Burde Mukhija — Elara Capital — Analyst

Thank you for the opportunity. Two of my questions are answered. I have two more. So you’ve been talking about portfolio pruning available for margin. Could you talk us about how we are — how is processes progressing? And when do you expect it to conclude? That’s one. And secondly, if you could talk about some indications from clients on furlough, who do we see December quarter in terms of furlough?

C P Gurnani — Managing Director and Chief Executive Officer

Yes. So I think from a — from an estimate perspective we said our actions are targeted around INR100 million, INR120 million annualized revenue impact that we’re kind of looking at, which we identified through March and atomizer discontinued business operation standpoint. We’ve executed on an annualized basis, almost INR60 million of that, which is reflecting in the current quarter. And we are close to executing the breadth in the next two quarters as we move forward. So through an annualized basis, it should be anywhere between INR100 million, INR120 million.

Ruchi Burde Mukhija — Elara Capital — Analyst

On furlough indications.

C P Gurnani — Managing Director and Chief Executive Officer

Yes. So furlough, no different trend from what we saw last time. I think we’re still looking at evaluating as we move forward with our customer base. So maybe marginally higher than what we’ve seen in the past. And also, we have actions to mitigate some of it. So we’re working through that in the current quarter as we move forward. But I won’t say a substantial difference from what we see with us, maybe a little bit on the higher side what we see.

Ruchi Burde Mukhija — Elara Capital — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Vibhor Singhal from Phillip Capital. Please go ahead.

Vibhor Singhal — Phillip Capital — Analyst

Yeah, hi. Good evening panels for taking my question. Just a couple of clarifications. I probably didn’t get this — you mentioned that this portfolio opposing exercise might continue for next two quarters as well?

Anand G. Mahindra — Chairman

Yes, that’s right. That’s right.

Vibhor Singhal — Phillip Capital — Analyst

And by — so basically by the end of the calendar year with this financial year, 4Q this year, we expect this process to end. And, thereafter, the margin benefit that you say will probably start flowing down inside?

Anand G. Mahindra — Chairman

Yeah. I mean from an action perspective for this year, that’s what we’ve identified and we’ll execute. So from that perspective, that’s the target we get for ourselves. And this is an exercise that we will keep on discussing as we move forward into next year. We still have some promotion to do. But for now, that’s a mega focus that we had to execute and we’ll keep you updated on the progress.

Vibhor Singhal — Phillip Capital — Analyst

Okay. So as of now, we are looking at activities that we have decided upon. That should end by 4Q, but we might take up on some price next year also. That’s what you’re saying, right?

Anand G. Mahindra — Chairman

Yes, that’s right.

Vibhor Singhal — Phillip Capital — Analyst

Got it, sir. And just one last question. Our EBIT margin guidance remains that we are looking to target a 40% exit rate import to this year?

Anand G. Mahindra — Chairman

Yeah I mean, we work from our perspective, as I mentioned, the headroom is still there on all the operating levers. We’ll continue to drive that as we move forward towards the second half, the growth environment and how the situation in the ruins out will be an important driver, right? Because already when you look at it, while the reported EBIT is 11.4%, operations more like 1.7%. So capex also plays a role there. So growth, FX, those will have some impact, but we’ll continue to work towards our actions that we’ve defined for ourselves. But given the Q2 execution, we continue to be confident that our actions are working, and we’ll keep on working in that direction going forward as well.

Vibhor Singhal — Phillip Capital — Analyst

Got it, got it. And sir, if you touched upon the European part. If I could just squeeze in one more question, more of objective and basically, we are almost one month into the third quarter as well. I’m sure there are some many parts of Europe that I’ve already maybe started seeing some of winter setting in. So what is the overall basically feedback that you’re getting from our clients, especially in Europe. I mean, how well are we prepared to — I mean, are we concerned about plant shutdown or similar activities, which might lead us to not just us in terms of the entire industry per se might lead to some loss of revenues of pushback or postponement of their IT capex? Any color on that would be really helpful.

Anand G. Mahindra — Chairman

Yeah, sure Vibhor. I think for now, we’re not seeing anything dramatic from a Europe standpoint like there are discussions that we’re following it up more from a macro standpoint. We’re looking at what the energy prices looks like, it’s getting more and more steep and they have obviously more in certain countries versus the other. But from a client standpoint, yet those specific discussions are not panning out more, not so much in Q3. But as we continue to move to Q4, we feel that is the potential that we need to watch out for.

Vibhor Singhal — Phillip Capital — Analyst

Got it. Thank you so much for taking my question and wish you all the best.

Anand G. Mahindra — Chairman

Thank you Vibhor.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Yeah, thank you. Sir, I just wanted to follow-up on the plan to kind of 1 million to 2 million annualized numbers. Is this mainly on account of — on a client-specific exits which you’re planning, or is this also include some actions we are taking it on investment of subsidiaries fronts where we might be existing or we might be kind of trimming back leading to an impact on revenues?

C P Gurnani — Managing Director and Chief Executive Officer

I mean do not specific — I mean different area. So the strategic areas where we feel we’re not getting the right return on investment, which doesn’t have potential for us to scale up. So, it’s a mix of all of that through which we’ve identified those actions. And but we’ve executed as one of that in those buckets as we continue to move in the next two quarters on the similar lines, we’ll drive that. So, it’s non-strategic, no scalable possibility of driving that improvement and the return on investments really, really low right now.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Understood. And also, I think this is something which has been discussed, I think, multiple times earlier also. But, because you disclosed your revenue on IT Services and BPO separately, there seems to be a very wide gulf, which sometimes appear between the two growth, likewise this quarter. Any reason why the BPO growth or BPS growth so strongly, while IT Services kind of trail set or is this something which is, I would say, like a part of the same equation and just gets to report it in that way. How should we see this going forward also given the — again, the wide difference in the employ addition in both these spaces?

C P Gurnani — Managing Director and Chief Executive Officer

So, BPS does have seasonality impacts. If you look at the current quarter, it’s a head count gets wrapped up from a seasonality perspective. So that drives a little bit of those differences on the dynamics, which creates the difference between both the areas. And from an overall perspective, BPS business continues to drive better performance for us if you look at last six to eight quarters. So, our investments that we did in that business, both organically and organically are positioning us to drive every quarter more than 5% quarter-over-quarter growth, so that trend continues. And the current quarter dispenses more seasonality more [Indecipherable].

Mukul Garg — Motilal Oswal Financial Services — Analyst

Sure. Thanks. And one final question on an on — again, sir following-up on margins. Given that you are taking multiple actions to meaningfully improve your profitability over the next two quarters. Any initial thoughts on how should we think about FY ’24 in terms of levers, which you guys have to continue to drive margin improvements from here onwards because, again, there is a quarter impact in that we exit Q4 at 14% or around about and then you will have these it come in, which will again pull back your profitability numbers in ’24 to where I think your numbers will end to plant. So, how should we think about the levers which you guys have to further scale up after taking maybe 150 to 200 basis points over next two quarters.

Anand G. Mahindra — Chairman

Yes. So, I think we’d articulated our actions, which are short-term, which is not being said. I just articulated before that we’re driving, and we’ll continue to drive that over the next two quarters. Those short-term actions will continue, because that’s a regular part of our quarterly operations. But from a structural and long-term perspective, there are two or three things that we’d articulated that we will do, which will not just drive change next year, but all more in terms of next two to three years, right?

So, what is the geography mix? If you look at our mix, we are — we were a 47%, 48% U.S. geography, which are now close to 52%. Obviously, some of it is FX that back that steam the Europe. But even if you take that out, the mix in U.S. is going up and Europe is going up versus rest of world. So that’s one area we articulated around 12 months back that we will push to make our investments in those yields better and hence changed our mix over the next three years, more in line with getting that better towards driving better margin outcome. So that’s one area structurally that we see a difference.

Second, it also articulated that some of the investments we’ve made in large deals in executing and setting the structures, COEs of making large deal execution and winning that as an investment, that will start giving us some benefit or kind of leverage as we move forward. And some of the large deals getting into the mode of 12 to 18-month cycle in post that giving margin benefit next year, should give us return there as well lower year-on-year basis, right? So that’s the second area. And then as I mentioned, streamlining the portfolio or stealing of the low investment buckets will always be a drive that should continue to drive margins for us. So I think structurally, that will continue for us as we move forward. And also, when we look at our competencies, some of the competencies like digital engineering, which give us a better return, we are through various organic and notice investments, developing those investments. And that also should give us a better margin mix as we move forward. So those are some of the areas that we’re investing to drive better outcome more structurally as we move into FY 2024.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Understood. Thanks a lot for answering my question.

Operator

Thank you. The next question is from the line of Sandip Agarwal from Edelweiss. Please go ahead.

Sandip Agarwal — Edelweiss. — Analyst

Yes, thanks for taking my question. I have — so sorry. So, two things. One, on the demand side, while I know that our performance still now doesn’t reflect any kind of weakness or our discussions with customers are doing any bulk of that, but what is your sense, would we get more clarity when they act the next year budget? Or you think there is some other signs, which you would be tracking to gosh demand for the next year? So that is number. Number two, while I agree that you have answered in different was the margin question, but I would like to still use a little bit more on that. So I think that the internal metrics are enough internal operating metrics not enough for getting margin benefit from the expense Permian? Or you think that there are external levers as well like there is a scope for price improvement or something which can further aid our margins? Thank you.

Anand G. Mahindra — Chairman

So, on a demand view of second half, maybe I’ll open it up, respectively, for Tom, so Manish to give a view to you and the patient rate in terms of what we’re seeing. But generally, maybe as a starting point, we continue to look at our pipeline on a very regular basis, how that’s moving across geography, how that’s moving across verticals. Our time line to close is that changing quarter-over-quarter from what we had to now on a significant basis or large many. So we continue to monitor the trade and that side when we look at the internal data trends. We don’t see some of that reflect in what the macro discussions are. But I think as we get into second half of next year, I think a possible kind of recessionary phase seems imminent, more likely in Europe region than in U.S. and maybe U.S. would lack with that impact more towards sometime middle of next year. So I think that will have a reputation impact on us as we think about second half at some point and meters for next year. So we’re keeping all that in mind and our internal actions attributable towards that hospital scenario as well. I think specifically on those segments, maybe I’ll just open it up first to Manish to talk about com how we’re seeing the customer discussions as well as a view around the demand environment for the second half of next year.

Manish Vyas — President, Communications, Media and Entertainment Business, and CEO, Network Services

Thank you, Rohit and thank to Sandeep for this question. On the demand side, you’re absolutely right. I think we will continue to get more and more clarity as the year winds down and people finalize their budgets and assess this calendar of this fiscal as well. With that said, I think our overall funnel and pipeline of all kinds of discussions that we are having across the world continue to remain very robust. So depending on the budgets here, there could be an impact as we go forward with some of the decisions but — and there hence could be some re-amortization of where the money is spent. — contrary to probably where the money was spent in the last two years on the technology side. But it is very, very clear that with all the gains that the enterprises have and the telcos have achieved over the last three years. The focus on tax spend will continue to remain high. There will be no doubt a little bit of repriorization. For example, in the last cycle, they spent a lot of time and continuing to build platforms for customer experience management.

Going forward, we start seeing a lot of activity in more local design, on architecture, creating and converting their network assets into more of a platform play. So some of these stories will play out as the year end and the next year starts. At this point, I think we do have both kinds of discussions that are happening in terms of looking at the current spend. At the same time, which is a cost player savings player at the same time, some discussions around increasing the velocity on a few reprioritized digital projects, whether it is a network, realm or in the underlying digital run. So absolutely, I think the next two, three months of going to be crucial to continue to watch for this space. Jagdish?

Jagdish Mitra — Chief Strategy Officer and Head Of Growth

Thanks, Sandeep for your question. I think is some other commentary we had also on the enterprise side to a spoke about as the matter…

Operator

Mr. Mitra?

Jagdish Mitra — Chief Strategy Officer and Head Of Growth

Yes.

Operator

Sir, sorry to interrupt you. Your audio is bit muffled, sir?

Jagdish Mitra — Chief Strategy Officer and Head Of Growth

Okay. Is this better?

Operator

Yes, sir. Please proceed.

Jagdish Mitra — Chief Strategy Officer and Head Of Growth

Okay. So hey, thanks. Just similar commentary, I think, to what we heard from Rohit and Manish. Primarily, we may see an impact in Europe, more so not that the deal pipeline or the demand is not growing, but probably decision-making on closure on certain things may have an impact in Europe, and so we have to watch it closely. But good part is that the investments we did on PEC and continue to do around the four areas that we feel are critical cloud engineering, connectivity and experience and also our ongoing business around sustainable bit. These are things that we don’t think are going to be cut down and there will be a requirement for these service offerings, irrespective of the speed of decision-making. So that, plus our large deal pipeline continues to look robust. So those are positives and we’ll probably have to keep a watch on how the decision-making time frames as Rohit said, is a key parameter that we keep a watch on.

Sandip Agarwal — Edelweiss. — Analyst

Okay.

Operator

The next question is from the line of Girish Pai from NBI. Please go ahead.

Girish Pai — NBI — Analyst

Yeah. Thank you for the opportunity. I had a few questions on price realization. Rohit, you sounded a bit cautious on pricing in the second half of FY 2022. Today, you seem to be sounding a bit more positive. Has something changed? Secondly, are you having any price like pushback from any section of your clients with the kind of macro that you’re seeing right now and probably a shift away towards cost of optimization savings related kind of work that you will probably see in the future.

Rohit Anand — Chief Financial Officer

Yes. So on pricing, I mean, it’s natural from a view perspective that as we continue to see and been looking at this from a macro perspective for a while now, right? So from that aspect, while we look confident of our internal program approach standpoint, but that impact was always looming ahead that view. But I think as we move forward, at least from a current quarter perspective, we continue to see the pipeline, which we can execute on and see that benefit that we go up over the last two quarters continue. And as things move, change or whatever happens, I think that scenario will now probably play out in Q4 rather than us. So I think from that perspective, it’s slightly better than what I had anticipated. And we have programmatic approach in pricing I think from a customer standpoint, I mean they are, as Manish mentioned, some discussions going on, on various priorities that the customer are happening, and we are a critical part of that solution in either be it on their journey towards a approach standpoint and they’re looking at, i.e. from IT or even from a BPO standpoint. But I wouldn’t say that it is radical quite a number of them happening. It’s right now not a trend that we see while we continue to proactively work with customers.

Girish Pai — NBI — Analyst

The asset question to with CP coming where you said we’ve got about 16 million, and we kind of hinted that we could have bought a lot more but because of the making being slower. So was there any specific geography or any particular verticals that — where this concentration of the deinking being delayed and that is so?

Anand G. Mahindra — Chairman

Not any specific geography or vertical just a couple of deals that from a coal perspective still over to the current month. having order booking and these decisions, that’s why we always talk about a range, these are not that specific that you kind of decide the business all the time, it’s going to happen and pantries not other available. So from that perspective, we’re in the range, and that helps the view from his iota pipeline is strong, and we continue to see momentum that reflects that or — and the trend for now will continue as we move forward as I’m continuously reiterating that this is a dynamic scenario, and we monitor it closely. So that’s an area that as we move into the next couple of months, we’ll keep on updating you as we see any changes happening.

Girish Pai — NBI — Analyst

Lastly, the $700 million to $1 billion of PCB, that guidance, that remains for the next couple of quarters? Or will that change?

Anand G. Mahindra — Chairman

Yes. Right now, I think there’s no reason for us to change that and it states for what we are declining yes.

Girish Pai — NBI — Analyst

Okay. Thank you very much.

Operator

Thank you, The next question is from the line of Venkat Samala from DSP Investment Managers. Please go ahead.

Venkat Samala — DSP Investment Managers — Analyst

Hello. Am I audible?

Operator

Yes, sir.

Venkat Samala — DSP Investment Managers — Analyst

Yes. Yes. Thanks a lot for the opportunity. I know your question has been asked on the margins. But then just a little further poison that. You did mention a lot of levers plus the portfolio pruning expense that you are undertaking by. Given the fact that this quarter, we had a big headwind for us. And given the spoke about, which will play out in as well — should we expect a more sharper pump-up in margins versus 30, 40 bps that we saw this quarter?

Anand G. Mahindra — Chairman

Yes. As I mentioned before, I think our actions still have headroom in that to continue to drive that because to reiterate is how the growth pans out and compared to first half, there’s a little bit more uncertainty furloughs, example we spoke about, which is marginally higher, as I mentioned, and then other dynamics which might change as we enter the support growth, obviously, will have a little bit of impact on how those consulate into the P&L. So from our perspective, I think all we are focusing on is driving those actions and ensuring that what we set up sell and goals, we continue to drive that as we move forward.

Venkat Samala — DSP Investment Managers — Analyst

Understood. Understood. And a related question to that, is the proactive portfolio of roaming we are doing, do you can present a material revenue event on a net basis in H2 given the we are…

Operator

It seems like we love the connection for Mr. Samala. We move to the next question from the line of Viraj Kacharia from SIMPL. Please go ahead.

Viraj Kacharia — SIMPL — Analyst

Yes. Hi. Thanks for opportunity. I just have two questions. First, I didn’t get the explanation on the employment charge and the stand-alone operations. So if you can explain again is whatever charge relating to?

Anand G. Mahindra — Chairman

Yes. So on an impairment basis, as we mentioned before, our strategy is to integrate businesses as we kind of do our — we articulated a few sessions back and maybe six to nine that we did a specific M&A session with Rubik. And we articulated that our strategy is now to integrate all the portfolio companies in the core business, and that integration means in the front office, back office and also the business that we do doesn’t follow a specific legal entity or to measure the performance of a particular business, you got to look at crop entities, which is not really represented to the charge that comes at a specifically the entity under standalone this… So he… Consolidated view gives if there’s any impact to stay. So from that perspective, the stand-alone impact doesn’t really impact or an the performance of that business in the true shape or form.

Viraj Kacharia — SIMPL — Analyst

Okay. Thank you. And second question is, you talked about portfolio piling as a lever for margin improvement. But you just kind of do a little deeper into this, what has given margin erosion in those businesses in the last day, 1.5 year because our business point of your utilization is also not to a level where it a year back, there seems to be a good amount of avenue in terms of making good unit just trying to understand from the business point of what has driven the margin erosion to business that we’re looking to?

Anand G. Mahindra — Chairman

So various factors, the returns on the pricing is probably not up to the point that is nonstrategic and core to our site doesn’t mean from a synergy perspective. So are factors, GEO is another area that we see we don’t have the scale to get the benefit there. So it’s a multiple of those that we try to take actions on. And I think from a client perspective, it’s a 20 basis points improvement on margin while almost 1% impact on the continued business. So as we keep on moving forward, we’ll see similar impacts between 20 to 40 basis points on action later date, and we keep you posted on specific areas around that.

Viraj Kacharia — SIMPL — Analyst

So what I really meant is in terms of verticals or geographies, can you kind of give a more detailed perspective, which verticals are in or which it at margin?

Anand G. Mahindra — Chairman

Yes, it across. And I think as we execute on that in this current quality impact is more on PFS and the geographies with ROW. That’s where you see the impact coming through, but that may execute the others. We will share better as well.

Viraj Kacharia — SIMPL — Analyst

Okay. So of the businesses which you acquired and said last year, 1.5 years, any perspective we can give in terms of how the margin performance been in those businesses? So portfolio pooling is largely in the ROW or others, but it’s not really in any of those acquisitions?

Anand G. Mahindra — Chairman

No, no. Not there. I think that those are — as we mentioned earlier, are integrated to our core offering, helping us continue to close deal wins to the better range that we sell now versus what we saw earlier. So they are fitting in well integrating. We are working at specific integration. As you remember, we mentioned that this year, we are focusing on integrating this business, and these are almost 10 different assets that we acquired. So integrating their front office, back office, aligning cultural integration with them and aligning the back end support finance. So all that takes a significant amount of time or focus there is a — from a return perspective, they are performing very close or better to the business case that we bought them also. So I think for now, those are moving on track. And I know — Vivek, if you want to add something on the portfolio integration protesting.

Atul Kunwar — President and Chief Technical Officer

Yes. So I think just adding on to what Rohit said, really use ultimately for us is measured in large deal wins and the interest of these new capabilities we acquired and how well we’ve integrated them. And then from an operations perspective, the focus is on driving value to the customer and we take more share of the wallet from the customers with new and expanded offerings. And then from an efficacy perspective, it’s about standardization of our systems, processes and any cost savings there. Those are the really distracted unless all the integration activities driven across all the acquisitions as a core business.

Viraj Kacharia — SIMPL — Analyst

Okay. Thank you

Operator

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

Dipesh — Emkay Global. — Analyst

Thanks for the opportunity. Just two questions from my side. On BFSI, BFSI remained soft. So can you provide constant currency quarter-on-quarter growth first about cross verticals, particularly enterprise, sir? Second thing is, why weakness is visible in BFSI. Second question is about low-margin business exit strategy that you highlighted about 100 million to 120 million kind of impact in your basis. It is more skewed towards IT business or BPS business Thanks.

Atul Kunwar — President and Chief Technical Officer

So the — I’ll answer the second part of the question, and that probably will have an answer on the first within. Rohit talked about pruning and rationalization in our portfolio. A lot of what we’ve pruned this quarter is in BFSI. And hence, you see softness in BFSI on a quarter-on-quarter basis, but we believe it positions us better and stronger in the longer normal run. There is no impact, no change from a demand perspective.

And on the quantum of ruling, if we wouldn’t have — if you look at the tea on a continuing business basis, excluding the discontinued business, we would have ended up at about 6% quarter-on-quarter growth in data side. So on an overall basis, the pruning resulted in lower reported growth of about one percentage point on a quarter-on-quarter basis.

Operator

Mr. Dipesh, you have any other questions?

Dipesh — Emkay Global. — Analyst

Just… Can you give a constant currency growth for other vertical…

Atul Kunwar — President and Chief Technical Officer

I think Perry will have a data and she will share the data offline.

Dipesh — Emkay Global. — Analyst

Thank you

Operator

Thank you. Ladies and gentlemen, due to time constraint, we take that as the last question. I now hand the conference over to Mr. Rohit Anand for closing comments. Over to you, sir.

Anand G. Mahindra — Chairman

Thanks, everybody, for joining the call today. And just to recap, our Q2 performance has been a result of driving operating actions. We continue to focus on growth as we go into the second half, while watching the macro environment cautiously, especially as more closely in Europe than anything else. And then just from a shareholder perspective, reiterating our commitment to the capital allocation strategy that we’ve articulated. So in line with that, we’ve given a 20% increase versus last year on the dividend, and we’ll continue to focus on shareholder asset. So thanks to everybody who join us today.

Operator

[Operator Closing Remarks]