Tech Mahindra Limited (TECHM) Q3 FY23 Earnings Concall Transcript

Tech Mahindra Limited (NSE:TECHM) Q3 FY23 Earnings Concall dated Jan. 30, 2023.

Corporate Participants:

C.P. Gurnani — Managing Director & Chief Executive Officer

Rohit Anand — Chief Financial Officer

Manish Vyas — President CME business

Jagdish Mitra — Chief Strategy Officer and Head of Growth

Harshvendra Soin — Chief People Officer

Birendra Sen — Business Head, Business Process Services

Analysts:

Abhishek Bhandari — Nomura — Analyst

Rahul Jain — Dolat Capital — Analyst

Surendra Goyal — Citigroup — Analyst

Ravi Menon — Macquarie — Analyst

Sandeep Shah — Equirus Securities — Analyst

Gaurav Rateria — Morgan Stanley — Analyst

Vibhor Singhal — nuvama equities — Analyst

Nitin Padmanabhan — Investec — Analyst

Manik Taneja — Axis Capital — Analyst

Girish Pai — Nirmal Bang Equities — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and Welcome to the Tech Mahindra Limited Q3 FY ’23 Earnings Conference Call. 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. [Operator Instructions]. I now hand the conference over to Mr. C.P. Gurnani, MD and CEO for Tech Mahindra, thank you and over to you sir.

C.P. Gurnani — Managing Director & Chief Executive Officer

Good evening, everyone. And again, thank you for joining us on the Q3 FY ’23 Earnings call.

We began 2023 with a special milestone that enterprise verticals have reported a billion-dollar quarterly revenue. I want to thank all my Employees, customers, and more importantly the technology leaders in the Company, which have continued to invest on Connected Enterprise and Connected Solutions. I’m grateful that some of our Leaders remain focused on building tools and technologies in the world of cloud, AI and data, in of world of Metaverse and Web 3.0, in the world of newer solutions with 5G and AI and cyber security.

Our team has bond, have continued to deliver record performance, on customer experience management and customer experience management to our service offerings and bps. And bps also continues to deliver record performance.

I’m also proud to thank my technology team, which has now delivered a club-based tech platform. It’s a sector-agnostic platform which will help our clients improve their digital absorption, digital acceleration and more importantly cloud consumption. So — and this we have done it in the partnership with all the hyperscalers, it’s just sector-agnostic and we will create value for our clients, We will partner with hyperscalers.

On the CME side, 5G continues to fuel the growth. 5G in enterprise, which is one of the focus areas we have announced with Mahindra Group a 5G rollout at one of the largest and the most modern factory — an auto factory at Chakan near Pune, so. It is clearly, a Tri Party performance as I call it, client, a telco provider like Airtel and a value integrator like Tech Mahindra. We do believe that, this will unlock a lot more opportunities for us and it will also be good for our clients, because they will improve productivity. They will use intelligent and more importantly AI-driven network solutions. And it will help our clients innovate and it will help our clients client run their operations smoother.

On the quarter three performance INR1,668 million I think it translates into quarter-on-quarter growth of 1.8% for Enterprise and for CME, it translates into 1.9%. I mean clearly in a normal situation you know, quarter three, what is internally known as December quarter, is seen as a softer quarter, I think the Company has delivered good performance.

In general, I can only say that our leader, in our vertical service in our service offerings as BPO, they are one of our largest and the fastest-growing businesses. They probably are one of the best-performing BPO companies if they were a standalone company and they have done remarkable growth in Q3, and overall, also there year-on-year growth is close to 21%.

On the operating margin side, I know there is a lot of work to be done. We are right now at 12%, but it’s a commitment that our focus on EBITDA improvement on margin improvement and us being able to work on the levers, I think our confidence is reasonably high. A large deal team has done overall, a great job. They delivered a deal wins of about INR800 million. We have had good large deal wins in the Americas both in telco doing even the platform for the future versus we have signed a multi-year partnership with digital wellness and a health technology company.

So overall. Digital transformation and business transformation has been the key to the wins that we’ve had this year. You know, I know there are broadly questions regarding the macroeconomic environment. I can only say that the Company has decided, that we are going to become a lot more agile. We will be looking at our operation alignment with 1290 customers now on a monthly basis. Earlier we used to do it on a quarterly basis, but — and the reason is very simple. On one end, when I look at my deal pipeline, when I look at my three main value offerings, we just cost transformation, digital transformation, and business transformation, we are still seeing probably record high deal flows.

At the same time, we have seen a few clients hit the pause button for discretionary spending. We obviously want to remain [Technical Issues] the customers better aligned with our back-office operations and we want to be more responsive to our customers and hence we are going to go into the monthly demand and business plan management.

So again inherent strengths of the demand is strong. Drivers for the demand are strong. And the Impression that we getting it that our investments in Metaverse Web 3.0, Blockchain, 5G, and some of the platforms will be helpful. Cloud continues, and AI-enabled Metaverse continues to be the best service happening right now.

So we do recognize the near-term challenges. But more important is, we are confident that our customer-base is our biggest asset. Our workforces is our biggest assets, and we will create a much more agile organization.

So Rohit over to you with PART-1 With your set of numbers.

Rohit Anand — Chief Financial Officer

Good evening, everyone. Let me now cover the company financials for the quarter ended December 2022. We ended our third-quarter with revenue of [Technical Issues] versus $168 million last quarter up 1.8% quarter-over-quarter. Adjusted for FX the growth comes at 0.2%. Growth was broad-based with CME growing at 1.9, Enterprise, growing at 1.8% over the quarter.

Revenue in INR terms was INR13,735 crores versus INR13,129 crores in Q2, up 4.6% Q-o-Q. The EBIT for the quarter was at $200 billion versus $184 billion in Q2. The EBIT margin was at 12%, an improvement of 60 basis points. We got some tailwind from the currency, which helped — we drove operational rigor as we committed, which is partially offset by certain SG&A increase. Moving now from EBIT to other income for the quarter, we had INR30 million of other income versus INR36 million in Q2. Forex gain was INR15 million compared to INR16 million.

The tax-rate for the quarter was at [Technical Issues]. The PAT for the quarter is at INR157 million and the net profit margin for the quarter was at 9.4%, which is a 40 basis-point drop from Q2 mainly because of the rate of tax at a lower point last quarter versus this quarter. Our free-cash flow for Q3 was at INR31 million, which is 20% of PAT, some of the billings were impacted by furloughs. We had some FX impact of revaluation as well. We also said during last quarter that we had some movement from Q3 to Q2, which this due to with the Q2 cash-flow was very high. That has got normalized as well. So when you look at the Year-till-date, FCF number, it’s closer to INR350 billion, which is approximately 80% of the PAT conversion. For the full-year, we still have a very strong view of FCF conversion to PAT as we move into the fourth-quarter. DSO was similar to the last quarter at 98 days.

As mentioned earlier, we continue to consistently follow a rule-based hedging policy. As of December ’22, the total hedge book is INR2.5 billion, versus INR2.4 billion in Q2 to based on hedge accounting treatment that mark-to-market gain on 31st December was approximately INR7 million. We just take it to the P&L INR6.6 million and the rest went to reserves, which was $0.3 million.

We had a cash-and-cash equivalent of $780 million, which is INR6,449 crores. We are committed to prudent capital allocation and returning back to the shareholders as per our earlier committed outlook.

In summary, I would like to reiterate that we committed towards executing the plan targeted actions of improving profitability even a bit the near-term demand headwinds. With these remarks, let me now open the floor to the questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a first question from the line of Abhishek from Nomura. Please go ahead. Mr. Abhishek?

Abhishek Bhandari — Nomura — Analyst

Can you hello can you hear me?

Operator

Yes, please go ahead.

Abhishek Bhandari — Nomura — Analyst

Thank you. Good evening to the management. I basically have two questions. Rohit, first is on your margins. Look, this quarter we had a good improvement on utilization and the subcon expenses going down. And we had earlier thought about exiting Q4 with 14% EBIT margin. So maybe you could give us some of the additional levers what do you think you have from here on, to improve the margins further?

Rohit Anand — Chief Financial Officer

Yeah. Sure, so as I said earlier, our focus on margin expansion continues from a labor standpoint. Our subcon cost is still high. We have actions lined-up to get that normalized. So that will continue to be an area of focus for us. Again from a compatible entitlement position perspective, we will continue to drive offshoring as an action item also.

So that’s the second lever we will continue to drive. We had also articulated earlier that we are looking at non-strategic assets where the margins are not favorable to us and shutting those businesses or divesting them will help us. So we continue to execute on that plan. So that action will also continue from a structure standpoint. And overall from automation in delivery and how we optimize delivery there is going to be a critical lever as we do more-and-more engagement on fixed-price and as you see are largely volume going up, an important part of that is driving efficiency, but driving more tools and automation. So delivery excellence, I will say is the other bucket that will continue to drive margin expansion.

Then last, but not least is our portfolio company, are the companies that you acquired. I think our synergy with them continues to drive actions, both on the revenue side as well as on costs, so I think as we move forward. That’s another area that we’ll continue to work on to drive margin expansion.

Abhishek Bhandari — Nomura — Analyst

Sure, thank you Rohit for the detailed answer. My second question is on the demand comment both CP and you mentioned that in the near-term demand environment is challenging, while if I look at your order booking for this quarter at least is still holding in the range of around $800 million. So are you seeing any kind of delay in execution or the TCV to ACV transition is elongating base book which — which might be an additional, you know thing to keep in mind while we model our gross numbers?

Rohit Anand — Chief Financial Officer

Yeah. So maybe I’ll answer it on what we’re seeing and maybe CP can add-on as well. So from a demand environment standpoint as CP also mentioned versus the first half of the year, definitely there is slowdown the decision-making is relatively — so people are taking more time to close transactions. Also, while our deal-win number is still good, I think when we look at the current book of business, which is with existing customers, there is a lot of areas where we continue to work with them on smaller assignment and delivery engages with the clients on driving growth there as well. I think those budgets are getting squeezed as well and those incremental small deal sizes are opportunities are reducing as well. So that conversion to revenue is much faster versus typically what you see on a large deal conversion standpoint, right. So I think that’s also playing out as the squeeze from each and every customer, depending on where they are, how they’re how their financial outlook is, how their customers are reacting to the current situation that environment is panning out, everybody is reacting differently and hence the point that CP made that we are being very agile to monitor our action conditional to the customer behavior.

So that’s kind of a few points there. CP, if you want to add something more on the demand environment.

C.P. Gurnani — Managing Director & Chief Executive Officer

No, the best is to hear directly from Manish Vyas, Jagdish Mitra, and CTL if he is on the call. Manish, you want to go first?

Manish Vyas — President CME business

Absolutely CP. So I think. Abhishek, the demand scenario can best be described as thereafter having spent significant amount of money on digitizing both the customer experience as well as the network. I don’t think broadly speaking specifically there is going to be any slowdown in those areas. The modernization of the telco, modernization of the IT stack and as they continue to work on finding out where exactly is the monetization opportunity that will come. In all of this, I think what will happen and what is happening is, there will be a little tightening of the office budgets. To basically find new ways of delivering commitments.

So we are going through that process of change, the other inflection point in many ways and as we do it. What will happen is the demand cycle will slightly change in the sense, we will start seeing lot more off cost phase-out [Phonetic] opportunities yet again which we saw, a few years ago. I think it’s going to start seeing those opportunities over the next, I think difficult to try and plot [Technical Issues] guess one timeline, but maybe about six to seven months from now we start seeing some of these deals [Indecipherable]. Why, I think we have maintained that the digital spend will convert to happen in an agile fashion device in small-bite projects as they have been happening. So that’s really the qualifier behind the PART-2 Qualifier behind how the demand is going to be happening. [Indecipherable] of OpEx lower — or smaller deals as far as digital transformation is concerned, followed by as we are working on some large cost, take out [Indecipherable] in the industry. I hope that answers your question.

Jagdish Mitra — Chief Strategy Officer and Head of Growth

So hi, Jagdish here. So, Abhishek, your study is pretty similar to what Manish talked about in terms of the generic trends that we’ve seen in the industry. But there are obviously going to be some market and industry nuances that we see, I think, for example, we already know that there has been a fairly good quarter-on-quarter deal signing for us from the demand-side. We still see a similar robust growth on the enterprise verticals. There will be good growth expected on some of these verticals, especially retail, manufacturing, and similarly on banking and financial services. Vivek, my colleague can comment on that. We will see some slowdown or rather [Indecipherable] in high-tech, as you know, as they start to reorganize and look at where the spend and the allocation will be, but broadly, we’ve seen and the being quite robust, large deal inflow is quite strong and the decision-making as Manish also mentioned will be spread over a little more time than what we see now.

So that’s highlighting the overall segment playing.

Operator

Mr. Bandari?

Abhishek Bhandari — Nomura — Analyst

Thanks a lot — thanks a lot, gentlemen and have a great 2023.

C.P. Gurnani — Managing Director & Chief Executive Officer

Thank you, Abhishek.

Operator

Thank you. We have a next question from the line of Rahul Jain from Dolat Capital. Please go ahead.

Rahul Jain — Dolat Capital — Analyst

Yeah, hi. Thanks for the opportunity. I mean, Rohit, to your comment on the margin side, I mean, when I look at some of the metrics, right here with the kind of growth that we saw last year and the kind of traction, which we might see given the macro we are in, how some of this, you know our factor that you are seeing us really doable in this environment because utilization is already high for you and then you expect the subcon also to go down.

And some other factor which you are seeing in terms of divesting non-strategic thing or even offshoring, what kind of impact those elements will have on the revenue growth if those are the margin levers?

Rohit Anand — Chief Financial Officer

Yes, so I think. Maybe just take it sequentially from a subcon perspective we articulated this that earlier, from our perspective due to travel restrictions and certain large deal requirements to have a specific skill [Indecipherable] we had higher subcon as a percentage of revenue, right. And clearly articulated, we have a transition plan as we move forward on substituting or replacing that or deliberating as relevant. So we will continue to work on that journey and I think as we go forward we feel we have significant opportunity of that area. They’re not just in the current quarter but even getting into the next year, right. So that will be a short-to-medium-term lever to continue to work on.

When you look at offshoring again, I think while we have taken actions on offshoring to drive more-and-more people who want to do offshore, but somehow the way the reduction of headcount panned out mix from an off-shoring perspective, as a percentage of total headcount hasn’t showed that change. So, our view is an entitlement perspective. We still have significant headroom to go there again from short-to-medium-term.

So just heading back to revenue on divestiture, I would say that we haven’t really called a number, but broadly I think we’ve done some actions last quarter. We have similar or slightly more actions lined-up as we move forward and as we — because you would appreciate the action or some of these are a little bit structural and you have to lineup, lot of aspects, depending on how you are divesting or discontinuing right. So based on that, how they pan out we will continue to share the impact, but one thing is for sure it will be favorable to the margin and that’s a big driver of our actions around that portfolio, right. So those areas will continue to give us levers significantly moving forward not just in Q4, but even going into the next year, so broadly, those are the areas that we will do.

Rahul Jain — Dolat Capital — Analyst

Sure, and just one more question which is related to your active client data, it’s been growing, but the pace of that has reduced significantly. So is this a conscious effort in terms of choosing the next net-new customer more in a different light altogether, given the margin explanation, or these are also related to some demand-side change [Phonetic]?

Rohit Anand — Chief Financial Officer

So we had conscious process and a project, where we were trying to make sure that we rationalized or rightsize RTL accounts where the size of the business is expected — is at a particular threshold of whatever threshold we expect. That we don’t see a pipeline with that customer. So hence, our focus has been to continue to work on, high during that [Indecipherable] so that’s a conscious effort because of which we have not — net, you don’t see the increase, right. While we have added a new customer, we also have taken out a lot that are suboptimal and below the threshold, that doesn’t give us economies or scale for expansion. So those [Indecipherable] out to be more managerial bandwidth diversion actions for us, right. So that’s the reason why you don’t see net significant increase there because of that action [Indecipherable].

Rahul Jain — Dolat Capital — Analyst

And lastly from me, more bookkeeping point-of-view, this spread that we got this quarter. In terms of dollar to CC was quite significant. Is it any specific reason for that is a general big move in the BPO or any other factor that led to this and what we should bank for now based on the current rate?

Rohit Anand — Chief Financial Officer

So, I think it was predominantly if you see even last quarter we had headwinds due to currency, which was significant due to the movement we saw in GPB in Europe predominantly. At this time that has corrected, so these currencies moving back a little bit right, GPB and Euro both. So that is causing the fluctuations that were last at this quarter, both negatively last-time it positively this time. I don’t think so there is an projection, how it will pan-out from an FX perspective but as we move forward and as the rates change we continuously model it going-forward. We will keep you informed how it pan-out as the quarter goes.

Rahul Jain — Dolat Capital — Analyst

Probably take it offline, because the difference still looks very significant compared to some of our peer, but thanks for the clarification and best luck for the [Indecipherable].

Rohit Anand — Chief Financial Officer

Yeah, thank you.

Operator

Thank you. We have a next question from the line of Surendra Goyal from Citigroup. Please go ahead.

Surendra Goyal — Citigroup — Analyst

Yeah, hi, good evening, everyone. So you may have mentioned it earlier, and sorry if you have already done so but CP, Rohit, could you talk about the trends in the top-five clients? The performance Year-over-Year as well as sequentially looks quite weak and what is the outlook there? What should we be expecting in the coming few quarters?

C.P. Gurnani — Managing Director & Chief Executive Officer

Hi, Surendra. Thanks for the question. Yes, I think probably year-on-year perspective, you see a reduction in the contribution by the top claimed [Phonetic] clients. I think we have couple of customers there, they are having their internal restructuring plans and focused projects that they’re working on. We are partner to them on those actions and initiatives. Based on that we see softness in those customer causing that impact. Some of it is obviously on the reported basis, driven due to FX that you see last year rates versus now, it’s unfavorable. So on a reported basis, you will see a couple of points, you should know that.

But the second point is what I said earlier, there are certain actions that they’re working on and be very closely [Technical Issues] that is causing us decline when we look at it. Going forward I think we are estimating that bottom by Q4, probably as you move forward in terms of impact. And from there, we’ll have to work closely with them to see how CP mentioned, they very agile resource management focus to see if are able to support that hasn’t changed their plans on the other direction.

Surendra Goyal — Citigroup — Analyst

Well, sure, thanks, Rohit. And what is the CC or constant-currency performance in the enterprise business sequentially this quarter?

Rohit Anand — Chief Financial Officer

Yeah, we have stopped disclosing that but broadly PART-3 Broadly, it’s not much different overall EBIT basis Enterprise has a little lesser FX impacted comp, but not much different.

Surendra Goyal — Citigroup — Analyst

Okay, and our last question is, are you seeing any meaningful changing deal durations in the PCV that you are [Indecipherable]?

Rohit Anand — Chief Financial Officer

Yes, yes, we are seeing decision-making to be slightly longer than what we were seeing in the past, while the pipeline is still robust and lot of them are towards mature state of closures, we see still from that point of final finding it’s a little bit of a longer process because people really just want to be sure, but what are they committing to is it fitting into a problem scenario analysis for them. So we’re working very closely with them. We have even been modeling that for them, right. So I think there is an impact there in terms of CP also articulated the decision-making is becoming slightly slower. And as we move forward it’s important that we continue to be staying close to the customers, so that they are thinking we are making sure that we close to their thought process, as well as their planning, as they look for the future.

Surendra Goyal — Citigroup — Analyst

My question was slightly different. Are we seeing less smaller deals and more relatively larger deals? So that was the context [Phonetic] which I was trying to differ [Phonetic].

Rohit Anand — Chief Financial Officer

The average deal size — hasn’t changed for us. It’s similar number, maybe in the last four quarters, we saw one or two probably large deals. But beyond that, I think, and I look at the current quarter mix also we have a similar one large deal which is more than the average, which is similar to what we saw in the past.

Not really a significant change in the average deal size for this time versus last few quarters.

Surendra Goyal — Citigroup — Analyst

Got it, Rohit great, very helpful, thank you so much.

Rohit Anand — Chief Financial Officer

Thanks Surendra.

Operator

Thank you. We have a next question from the line of Ravi Menon from Macquarie. Please go ahead.

Ravi Menon — Macquarie — Analyst

Hi, thank you. First of all, I want to understand the headcount reduction in the software side. We are now running at utilization. I think that’s even higher than pre-COVID levels. I mean, considering that attrition still is kind of above pre-COVID and probably likely to remain slightly elevated, wondering how much headroom we have in utilization.

Rohit Anand — Chief Financial Officer

Yes, so. I think our pre-COVID level, probably don’t have the numbers, but I remember we’ve operated at the utilization level of 88%. But I think so that’s maybe still headroom there, and generally I think the view from a headcount perspective is more closer to as you — as you move forward. I think it’s very as we said, the macro environment is relatively volatile. So we just want to make sure that we are [Indecipherable] and figure out that maybe while we’re actually been closer to linking ourselves to the macroenvironment, the linearity of correlation between headcount and growth is also diluting a little bit, so from — may be just to kind of clarify, we feel that there is not a direct correlation that you can apply on reduction to revenue, while there might be certain leakages that correlation is not 100% right.

As we look forward, I think while we don’t give view on headcount hiring, all we can say is that, that’s going to be very closely aligned and monitored with the demand environment that sees — that we see and given where we are while the pipeline is strong overall demand seems pushed to a longer decision cycle, right. And what I earlier articulated, also the committed business where we’re working on the basis of the customers, there is lot of smaller request on change orders that keep on coming. So that is becoming more and more squeezed which why it doesn’t show the large deal win, but squeezes the revenue profile.

Ravi Menon — Macquarie — Analyst

This quarter, it looks like the growth has primarily come from the rest of the world. The core markets Americas and Europe seems quite weak. Europe still sounds like addition, but almost all the revenue added 30 million [Phonetic] or so comes from the rest of the world excluding Australia, to consider the AUD contribution there. I mean that seems slightly negative.

So any comments about what drove such strong performance in India, this contract that you guys are mentioning about, this manufacturing plant being having introduced 5G led IoT work in India?

Rohit Anand — Chief Financial Officer

So, yeah. I mean, this quarter rest of the world has grown. But we have consciously said that we are very selective in India, which — with what deals do we big data choose. So, I think from an India perspective, it’s a very margin-focused strategy. From the other regions within ROW [Phonetic] that are typically doing well is I will call out Middle-East specifically. I think that we see some good momentum there and significantly good digital deals that we have working with the customer in that region and that’s driving the growth. And that region, we feel from an outlook perspective continues to be positive, right.

And as you look at the global macroeconomics also next year, you see — you will see much more pressure in U.S., U.K., generally Europe, Germany, all the developed countries. When we look at GDP growth in the all the ROW, Rest Of the World countries including Africa, Asianic sector, the pressure on GDP growth [Technical Issues]. So as we move forward, I think it’s going to be very important from a margin management perspective that as we grow in the growth-oriented regions where there is still demand, we pick and choose the right project to drive the right profitability outcome that we’ve articulated to you there.

Ravi Menon — Macquarie — Analyst

Sure, but that seems to be at odds to the commentary from one of your larger peers who seem to suggest that U.S. and U.K. demand is still strong, they are looking at those geographies, really driving growth even in this calendar year.

Rohit Anand — Chief Financial Officer

Yeah, as I mentioned, you look at the pipeline, the pipeline deals which are still coming from predominantly you have said, Europe, but as I had mentioned, there are certain client-specific top accounts, restructuring that has been happening due to which we see pressure in those geographies. I think that’s also contributing for us versus maybe general view that you’ve got. So maybe that’s a factor from a depreciation standpoint.

Ravi Menon — Macquarie — Analyst

Thanks so much, best of luck.

Operator

Thank you. We have our next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yeah, thanks — thanks for the opportunity. Rohit so my question is when I look into the segmental IT services margin, for the last three quaters of FY ’23, while we remain stagnated at 14.5% to 15%, despite IT services utilization has gone up, subcontracting cost has come down, so is it fair to link this stable margin despite operational parameters are improving with the restructuring happening in the top-five clients? And if yes, what is the nature of this restructuring, which is impacting the margin as a whole?

Rohit Anand — Chief Financial Officer

Sandeep may be offline IT, we can look at the last three quarters of IT, there is some play between FX that is played out, maybe last quarter it was an impact from FX but operationally, it was higher. Similarly, the opposite way, so we can go through that with you separately, but generally, yes. From an impact perspective as we look at the growth, right, one big areas if you look at the last two quarters, growth overall, the IT segment versus the previous two quarters, there is a slowing out there, right. So that definitely that impact from a margin actions perspective. While we have right-sized the organization over the last two-three quarters and improved utilization, I think because of the sudden change in the growth environment that does created impact, right. In terms of impact, of some of the key customers and what they’re doing, I think it’s more an internal kind of restructuring on how they are looking at their priorities and how they trying to re-club that in a particular fashion, so we are ensuring that we are closely working and consulting with them jointly in that process. Beyond that, I think since the customer-specific information it is very difficult for me to divulge anything more.

Sandeep Shah — Equirus Securities — Analyst

But there is no realization pressure, right? It’s unfair to say that.

Rohit Anand — Chief Financial Officer

Not really. I don’t see the realization pressure.

Sandeep Shah — Equirus Securities — Analyst

Okay and just last question in downs of the business. The re-realignment or restructuring, where you are cutting some of the low-margin business. Last time you called out the annualized run-rate is 100 million to 120 million [Phonetic] of which half has been concluded in 2Q. So what is the status in 3Q? And is it fair to say the margin benefit of these rationalization of low-margin business may start coming from 4Q or FY ’24 or it has already started flowing into numbers in 2Q?

Rohit Anand — Chief Financial Officer

So the one which is that is already PART-4 Already started flowing free [Phonetic] from Q2 onwards. We’ve had limited in fact, in Q3, there are few discussions which are in progress and as we move forward in Q4, it will continue, it’s not a end that we will have end the action as we end the year. I think the point is we will continue to work on the fine-tuning of the pruning list going into the next year as well as, as we do that, depending on the nature of the transaction, the margin impact, will flow-through immediately or with a lag. So as we conclude those will communicate it appropriately to you.

Sandeep Shah — Equirus Securities — Analyst

Thanks and all the best.

Rohit Anand — Chief Financial Officer

Thanks. Sandeep

Operator

Thank you. We have a next question 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 first question is the correlation between the deal wins and revenue growth. If you look at the last year, we were kind of ended the year with a very strong growth in a deal which we translated into almost double-digit revenue growth in constant-currency terms. If you look at now, trailing 12 month deal win number, it is kind of stagnated at a particular rate of $3.3 billion. So how should one think about the deal win stagnating versus revenue growth outlook over the coming 12 months? I know that you may not be able to give any guidance in quantitative terms. But just trying to understand the correlation and conversion better, thank you.

Rohit Anand — Chief Financial Officer

Yeah, so. I think. Yeah, I won’t talk about the guidance, but maybe I articulated earlier as well, while the deal wins is still in the range that we anticipated it to be, which is $700 million to $1 billion we do see pressures on decision-making. So that’s one area to think about.

Second, as I mentioned, beyond the deal wins that we report all that new deal wins with new and existing customers, which helps us over and above $500 million, right. So when you look at outside of that in the quarter in the next quarter, there’s lot of activity that happens with the customer or the existing projects where you’re able to drive more revenue, right through maybe an add-on or bolt-on project right and that is what I was trying to tell you that the budgets have become pretty tight, with most of the customers and those opportunities are shrinking ahead the contribution that we typically used to get from both initiatives are diluting which is reflecting in the revenue profile as well, including the demand environment. So while the deal would look robust, there is a contribution dilution from these areas that as you move forward that pressure will continue kind of into at least the next couple of quarters as we see the demand environment peak the way it is right.

Gaurav Rateria — Morgan Stanley — Analyst

Got it. My second question is around margins. If you would be able to provide any margin walk of this nine-months versus last year nine months what would be those two or three key factors that really dragged down the margins? In this context, if you see our attrition rates have actually come down below pre-COVID levels on an LTM basis for last two quarters, so what could be the possible tailwind from lower attrition on margins one can think about over the next 12 months? Thank you.

Rohit Anand — Chief Financial Officer

Sure. So broadly from a margin perspective, the biggest impact for us is, of course, people costs and the supply-side pressure, we saw it from last four quarters, that has had a significant impact on the overall wage bill, right. So-so that is the biggest diluter on, on that basis. And then also, there were certain other EBIT line items, which we articulated, based on the acquisitions we did, the amortization impact goes into the D&A line-item. So that also dilutes margin by broadly at 80 basis-point, or a percent. So that and wage bill in my mind are the two biggest areas in terms of margin impact that we saw. And from a go-forward perspective, as we mentioned a couple of quarters back most of the impact of that had happened pricing increases was happening with a lag, we have said that, including other operating actions we will continue to drive that [Indecipherable] as you go quarter-over quarter sequentially.

In terms of attrition, it does — attrition is also going in parallel, while we’ve done a lot of internal actions that maybe I’ll ask to Harsh to comment on it, but just beyond action, which helped us a couple of quarters for now in the recent few months the market is also easing out a little bit, right. I mean you will see the spread across. So from that perspective, the impact it’s got to be favorable or the wage bill increase but relatively versus what we saw last year that impact is kind of easing out so. Harsh can add-on the [Technical Issues] for you to get a better [Technical Issues].

Harshvendra Soin — Chief People Officer

Thanks, Rohit and as Rohit said that we’ve been diligently working on reducing attrition, and it’s — it’s fairly under control, but you know, if you look at-the-market, while it is, we see it easing up a little bit, but the niche skills are still a bit of a challenge and therefore we have to keep our efforts on and make sure that this doesn’t shoot up.

The other thing that we have to do to really make it translate into real savings is going to be to make sure that we increase our juniorization [Phonetic]. We look at internal rotation, as you will see this quarter internal fulfillment was much better than any of the past quarters. But we’ll have to keep those efforts up. So the battle is not really one. I would say the journey is still ahead of us and we will concentrate on keeping this as is.

Gaurav Rateria — Morgan Stanley — Analyst

Thank you.

Operator

Thank you. We have our next question from line of Vibhor Singhal from Nuvama Equities. Please go ahead.

Vibhor Singhal — nuvama equities — Analyst

Yes. Hi. Good evening. Thanks for taking my question. Rohit, just two set of questions. One is just wanted to pick you in a bit more on the BPO business. We have had very strong growth in the BPO business this period, this quarter, almost $20 million of the incremental, $30 million that we did in this quarter case from that business. So, any color on that, that what drove this growth? Is it just kind of a sustainable? Was it a large contract, which may be just started in this quarter, which led to the ramp-up and we might see the more non-organized growth rate post that? And just a question into that, is how do you tie up that very strong growth to a significant reduction in the headcount in BPO business, almost 4,800 reduction. So, how does that tie up for the overall BPO growth?

Rohit Anand — Chief Financial Officer

Yes. So, from a growth in revenue perspective, this is typically a seasonal quarter for us where we see ramp-up happening. And this time, it was significantly stronger than typically, we will see the trend on. So, I think I will ask Birendra to comment on that because the team has done a ton of good work in maximizing that opportunity. In terms of trend, yes, the seasonal — you need to look at the headcount movements and the impact there was a little bit of lag marginally at some point. So, we would have ramped up headcount in the previous quarter, which has now reduced in the current quarter, which is reflecting in your revenue growth. And as the seasonality goes away, that headcount is reduced, right. So, that’s kind of the way to think about it. From an overall growth perspective, the BPS growth levers and actions are lined up very strongly for — as we move into the next year now. And I think the team sees a favorable opportunity set for this set of segment for us to continue to drive positively and be very accretive to the overall portfolio. Biren, maybe you want to add a couple of more lines on your growth journey?

Birendra Sen — Business Head, Business Process Services

Thanks Rohit and hi everyone. I think on Q3, specifically, Rohit has covered it all, but if you just step back and look at what we are executing, our objective has been to lead the CX segment through AI and database automation and transformation and challenge the back office businesses through, again, tech and new delivery model. So, while there is overall softness in the environment, we will continue to execute well, and we should — reasonably confident of coming ahead of industry growth. Thank you.

Vibhor Singhal — nuvama equities — Analyst

Sure, that’s really great to get. Just my second question, Rohit, just a further clarification, you mentioned about the portfolio of pruning exercise that we had not taken just a couple of quarters back. So, could you just maybe quantify to some extent as to where we are in terms of that exercise in terms of our targeted — I mean you had mentioned the impact would likely be around $100 million. So, I mean are we through that exercise? And also in terms of margins, how much of margin approval have you already seen? And what is the kind of timeline that you are looking at maybe for the entire exercise to maybe end or substantially, if not completely? PART-5

Rohit Anand — Chief Financial Officer

Yes. So, I think we had indicated that range, out of which I think last quarter, we articulated we executed annualized run rate of almost half of it, which gave a bump of possibly around 20 basis points in margin. As we look at the next set of actions, I think I probably won’t quantify the margin impact, but it will be — continue to be accretive from a margin standpoint and not just Q4, that action for us is going to continue as we move forward into next year as well because while we execute this, there is a continuous pipeline that we will evaluate even for next year for now.

Vibhor Singhal — nuvama equities — Analyst

Right. But any timeline as to, let’s say, first half, second half that we expect this exercise to be over? I know, as you mentioned, it might be a continuous process. But the large part of the exercise when that would be over next year?

Rohit Anand — Chief Financial Officer

So, there are a lot of external factors, dependencies around this, not just internal decision making. So hence, I think we want to make sure that we find specifically in the case of finding the right part. We find the right partner from a strategy fit perspective of that business where they are able to drive value, given our priority and our value from our focus perspective for the year. We just want to make sure that we hand it to the right set of partner. And if we are discontinuing, then there is a different sector of action, right, which we have to drive in terms of managing the size of the book, delivery commitments to the client, liquidating that as per the company timeline. So, I think from a timeline perspective, depending on how we go and which way we go, it might — it will vary because of that.

Vibhor Singhal — nuvama equities — Analyst

Got it. Okay. Great. Thank you. Thanks for taking the question and I wish you all the best.

Rohit Anand — Chief Financial Officer

Thank you.

Operator

Thank you. We have our next question from the line of Nitin Padmanabhan from Investec. Please go ahead.

Nitin Padmanabhan — Investec — Analyst

Yes. Hi. Good evening. Thanks for the opportunity. Rohit, just if you could help me understand this better. So, you are suggesting that there is a continued weakness in the demand environment and the top five customers. But are you suggesting that — so this quarter, we had furloughs. So, one would assume that the furloughs come back, the board of furloughs has happened, should come back and should sort of hit revenue next quarter. Do you believe that there is going to be weakness despite that, or how should we think about this primarily?

Rohit Anand — Chief Financial Officer

Yes, sure. So, I think two or three points that maybe I will ask Manish also talk about it. So, I think — in certain markets, we have seen the furloughs in fact continue not just December, but have gone through January also. So, some of the customers have extended it. So, it had been in fact, maybe we might see it in the same proportion as we saw last quarter. So, the impact had been and that’s one. Second is, I think from a top customer impact perspective, we are seeing that evolved. And we — our expectation is that will kind of be effective and reached a particular steady state by the end of the next quarter, right. So, I think those are the two drivers that are happening.

And overall, I think from a high-tech tech market standpoint, it’s all over the news, you would have also read it. I think there is a lot of focus on cost. There is a lot of actions that the companies are driving on the rightsizing their operations. And hence, at some point based on the customer profile mix, etcetera, that will continue to impact us, right. So, I think those are the broad headwinds that we see from a growth standpoint.

As we move forward, of course, the new deals, all that adds on to help mitigate it. But on an average, right now, headwind seems kind of a little bit more in the current scenario, which is still very volatile. And with some changes, it changes very fast. So, our point on being very close to the market is the reference that C.P. was bringing on. Maybe comp side, Manish can give you also some flavor.

Manish Vyas — President CME business

So, absolutely, Rohit. Thank you. Look, I mean I think growth and demand, I hope we are discussing in context in reference of the timeline. So, broadly speaking, the trends in the HD [Phonetic], and the telecom particularly is that there is already intense activity, large deals content. I mean this is one sector where in one of the previous questions that was asked to Rohit in terms of the deal sizes. We do expect that some of the larger deals will come back into discussions, and they are indeed already coming back. But that could be a mid-term to long-term, two to three quarters from now kind of discussions in terms of decisions, the discussions are going to happen now.

Vendor consolidation is going to be a big growth trend for us in the tempo sector, particularly with the solid active price we have and the presence we have in most of the milder accounts as Tier 1 vendor with a smaller size telco-related positioning with that across major provider. So, that puts us in a pretty good spot to take advantage of the vendor console plus cost takeout. And as we continue to drive and the new budget start getting rolled out in different parts of the world for continuing the digital transformation because they are reassessing it as we have did. So, yes, I think the overall — directionally, I think these are things which always have held our relative solutions in cold. And there is no reason to feel any different about it now.

In the very, very short-term, I think some of the decisions that the budget cuts will reduce, I think we will indeed be there. We just don’t know how long will they last, it could probably be as shortly that will be another quarter. But we do believe that overall, the agile size transformation, vendor consolidation and the large deal, I think is going to be pretty positive in the long run for us.

Nitin Padmanabhan — Investec — Analyst

Fair enough. That’s quite helpful Manish and Rohit. Thank you so much. all the best.

Operator

Thank you. We have a next question from the line of Manik Taneja from Axis Capital. Please go ahead.

Manik Taneja — Axis Capital — Analyst

Hi. Thank you for the opportunity. And I know you have already pleased a lot of questions around the margin outlook and the margin levers. But just wanted to understand, Rohit, a couple of things. While you are saying that we will see further improvement in terms of subcontracting expenses, but this is an expense item, which for us actually has historically been higher than peers. So, is there a significant change in terms of our operating model that we are thinking about when we suggest that there is more room to reduce subcontracting expenses? And the second question was around the onsite/offshore mix or more around the utilization metrics. So, when we have operated, 88% to 89% utilization rate, our onsite/offshore mix was much higher. And now you are talking about a much higher offshore mix. So, do you think we have more room to essentially improve utilization despite a higher offshore mix of business?

Rohit Anand — Chief Financial Officer

Yes. So, maybe sub-con first. I think on the sub-con, as I mentioned, we have gone head bear on each and every that we do, why we do it, what’s the reason, do we have the skill internally and hence we are going for it, is it a customer-specific requirement. So, we have gone into great level of detail there through which we have made time-based action depending on dependencies on a project, customer deal, etcetera, through which we have articulated that we will start these actions starting a couple of quarters back, and you can see these back of that in the theater. We will continue to drive that. There could be some new deals that will again come with that consideration, which will get really bump up that requirement.

But from an action focus and DNA perspective, of the company, we are changing that quite rapidly in terms of actions that drive us to get this metric as close as possible to entitlement that we feel be inductive. So, I think as for sub-con, you had tons of utilization and onshore/offshore. I mean if you look at our offshore/onshore ratio, I think we are — our gap of around significant headroom versus the competitive peer set. We discount some of it, because of the onsite acquisitions we have had in differences.

But still outside of that, we feel there is a quite bit of headroom for us to work on. Again, we have created a workstream where we PART-6 We are going individual-by-individual, project-by-project on who wants the aim of process. We moved from onsite to offshore and how we will drive there project execution without change, right, because the reason I square into it pre-detailed. It is pretty well go-on and hence our view on driving these metrics is positive. Moving to utilization, again, we are also driving to drive that to the next level from a utilization perspective that is considerably increase in utilization percentage to finals the link and collection to the customer close looping the entire from order to cash. So, I think the governance we are going to drive that so that we get each and every person to increase that utilization reflect in the margin expansion will the regret going forward. You would have focus on calls specifically the demand stretch environment. The focus of cost delivery measure is going to be even more scrutinized. So, I think with that the constant level in dialing this is high is that the overall demand environment being reflected as positive, negative also drives some of the profitability outcome. So, I think we will mange through all of that as we look into next few quarters.

Manik Taneja — Axis Capital — Analyst

Thank you for the detailed response Rohit. So, like through the course of this year, you had this target of getting or exiting FY ’22 with 14% EBIT margins. Is there a similar target or the timeline that you want to set for us to see the margins going back to that 14%, 15% level?

Rohit Anand — Chief Financial Officer

Yes. I mean we are working on this very strongly internally, this quarter steel set up to drive our medium to long-term expectations. We have a strong working group between operating team, transformation and finance teams that drive us. We do have an aspiration. But from a guidance perspective, not just giving any guidance or aspiration, all I can say is that we do have levers have articulated the levers and our lever is going to be in general to move in the right direction of expanding margins over the short, medium and long-term of how we drive our future strategy.

Manik Taneja — Axis Capital — Analyst

Sure. Thank you, all the best for future.

Operator

Thank you. We will take our last question from the line of Girish Pai from Nirmal Bang Equities. Please go ahead.

Girish Pai — Nirmal Bang Equities — Analyst

Yes. Thanks for the opportunity. CP in your media interviews at DevOps, you were sounding a bit more positive. Incrementally has the demand environment changed for the better over the last three months, or has it remained the same or a turn for us? That’s question number one. Second, the discussion on smaller deals seems to be like a little contradictory. Did I hear that smaller deals are pure in number conclusively now compared to, say, six months back?

Rohit Anand — Chief Financial Officer

So, Girish, sorry, closed at 7:30, the scheduled time and to rush for a customer meeting. On DevOps comment, maybe you can send the note and we will just come back to you, okay.

Girish Pai — Nirmal Bang Equities — Analyst

No, generally, if Manish or Jagdish can speak on, how has that moved on a three monthly basis? Has it improved, worsened, or being the same?

Rohit Anand — Chief Financial Officer

Manish, Jagdish, do you want to take that?

Manish Vyas — President CME business

Yes. I think — absolutely any inconsistency I — if you really play back about 10 minutes ago, what I said is the overall broad commentary in terms of — of course, we don’t — I mean I don’t think and again, like Rohit said, you may want to check with CP in the commentary he made in DevOps was keeping in mind two months, three months, a quarter in mind, obviously was a more strategic broad-based commentary, so is now. That, overall, the industry believe in continuing to transform to software I think is — it’s not a new term trade. I think the train is moving much faster and we will continue to see momentum in driving more and more digital transformation across the enterprises in all business processes. And we are very upbeat about it. So, I think from a long-term standpoint, that is great. From a budgetary standpoint, there will be a little reallocation that is happening. And that I think is segmental. It cannot be broad-based in every single industry. My commentary was more keeping in mind some of the Tier 1 service providers versus what will continue to happen. Even there, the belief is that both the 5G-related modernization, both on the network and the stack as well as the core takeout so that they could have more cash available to try and pump into the transformation initiatives. That also will be a very secular trend going forward. So, I don’t believe there is any inconsistency there. It could just be in light of very specific timelines that we are talking about in the short-term. But otherwise, I think if things remain as promising as they were in terms of driving and helping both business process as well as the stack continue to bottom — almost all the enterprises.

Girish Pai — Nirmal Bang Equities — Analyst

Sir, thanks sir.

Jagdish Mitra — Chief Strategy Officer and Head of Growth

So Girish, this Jagdish. Girish, if you look at the enterprise side of the business, again, similar commentary that we have spoken the very beginning. It will — it is starting to, obviously, as we have said, the demand is growing. And as Rohit said, the decision-making is a little more delayed and discussed, which means that some of these will start to play out.

But the demand for technology to drive the transformational changes that we have invested in as a company, and we called it out, whether it is connectivity related with 5G across CME and enterprise or whether it is cloud and experience on engineering or even sustainability, these areas have started to definitely create traction in the market. And I don’t think there is any inconsistency in the commentary that we have given. What we see therefore is, as we said, some verticals especially on the enterprise side will drive a much better growth with furloughs not getting impacted for Q4, etcetera.

But in certain cases, I mean in high-tech, etcetera, we still — we will see what the news is. So, that’s going to have an impact on the growth going forward. So, that’s how we see it. But overall demand from the client base on areas of growth, especially driven towards automation and cost efficiency goals seem to be quite robust.

Operator

Thank you. I would now like to hand the conference over to Mr. Rohit Anand for closing comments. Over to you, sir.

Rohit Anand — Chief Financial Officer

Thank you. Thanks to everybody for joining us for the quarterly results. Again, I will recap constant currency growth of 0.2%, reported 1.8% broad-based between comps and enterprise. Deal wins of $795 million, again, in the range we had articulated. Margin expansion as we had said, quarterly, sequentially continues.

And with that, I think we will continue to make sure we drive the value creation points that we had articulated for our shareholders and investors. So, thanks for joining. I wish you have a good evening ahead. Thank you.

Operator

[Operator Closing Remarks]