Zensar Technologies Ltd (ZENSARTECH) Q3 FY23 Earnings Concall Transcript

Zensar Technologies Ltd (NSE:ZENSARTECH) Q3 FY23 Earnings Concall dated Jan. 24, 2023.

Corporate Participants:

Manish Tandon — Managing Director – Designate

Sachin Zute — Senior Vice President and Chief Financial Officer

Vivek Ranjan — Senior Vice President and Chief Human Resources Officer

Analysts:

Amit Chandra — HDFC Securities — Analyst

Mukul Garg — Motilal Oswal Financial Services — Analyst

Mihir Manohar — Carnelian Asset Management — Analyst

Sandeep Shah — Equirus Securities — Analyst

Nitin Padmanabhan — Investec — Analyst

Nikhil Chaudhary — Nuvama Wealth Management — Analyst

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

Rajat Srivastava — Incred AMC — Analyst

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Ganesh Shetty — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Zensar Technologies Q3 FY ’23 Earnings Conference Call, hosted by HDFC Securities. [Operator Instructions] And there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Chandra from HDFC Securities. Thank you, and over to you sir.

Amit Chandra — HDFC Securities — Analyst

Yeah, thank you, Michelle. So good morning, everyone. On behalf of HDFC Securities, I welcome you all to the Zensar quarter three FY ’23 earnings call. We have with us today Mr. Manish Tandon, CEO and MD of Zensar Technologies; Mr. Sachin Zute, CFO; and few other members from the senior management team.

Before I hand over the call to Manish, I would like to highlight that the Safe Harbor statement is on the second slide of the analyst presentation and is assumed to be read and understood.

With this, I hand over the call to Manish. Thank you, and over to you Manish.

Manish Tandon — Managing Director – Designate

Thank you, Amit. Hello, good morning, good afternoon and good evening, everyone. I hope I’m audible to everyone. Thank you for taking the time to join us today to discuss Zensar’s financial results for the third quarter of FY ’23. As you all know, it has been just over one month since I joined Zensar. I’ve always had a healthy admiration for Zensar, its people and its expertise. I’m proud to be leading a team of 10,500-plus talented and committed Zensarians around the globe. It is indeed an honor and privilege to be asked to lead some of the companies in the iconic RPG Group.

As an organization, we are positioned very well with strong investments in our service lines, our vertical bets and our leadership. I am prioritizing my time to meet with our teams, our top accounts to understand how we can create a stronger and resilient organization to serve our clients. I’m working closely with the Board, the senior leadership team and everyone at Zensar to prepare ourselves for sustainable growth by delivering high quality services and pushing the boundaries and creating value for all our stakeholders.

With me on this call are few other Zensarians. Sachin Zute, CFO; Mr. Vivek Ranjan, CHRO; Mr. Samir Gosavi, Global Head of Consumer Services; Mr. Nachiketa Mitra, Global Head of Banking, Financial Services and Insurance; and Mr. Ankush Akar, our Global Finance, Controller.

The third quarter FY ’23 is seasonally a soft quarter, as we all know for the industry. We registered a revenue of USD145.9 million with a sequential decline of 5.9%. On a constant-currency basis, that decline is 5.3%. This represents a year-over-year growth of 3.6%. As we’ve called out in the last earnings call, the softness was due to deceleration in the demand environment where we have seen a segment of our clients, particularly in the HTM and CS vertical, bettering or optimizing their discretionary spend and scaling back their budgets.

Let me walk you through the performance of our geographies and verticals for the quarter. All growth numbers that I provide are in constant-currency. Banking, Financial Services and Insurance reported sequential Q-o-Q decline of 1.3%, but a year-over-year growth of 19.8% in constant-currency. In current quarter, BFS grew for us. However, insurance vertical saw a decline due to delay in decision-making at some of our customers and right shifting of milestones that impacted us at one of our large customers and we expect this to stabilize going-forward.

Hi-Tech and Manufacturing, including emerging registered sequential Q-o-Q decline of 9.3% and year-over-year decline of 2.5% in constant-currency. This is due to higher than usual impact of furloughs and planned reduction in pass-through revenue. Consumer Services registered a sequential Q-o-Q decline of 2.3% and year-over-year decline of 6.8% in constant-currency. HTM and CS verticals continue to see softness due to the macro demand uncertainty coupled with reduction of discretionary spend at the customer site.

As far as geographies are concerned, the US regions posted sequential Q-o-Q decline of 8% and year-over-year decline of 2.1%. The Europe region registered sequential Q-o-Q growth of 2.2% and year-over-year growth of 18.7% in constant-currency. Our strong relationships with our key clients helped us deliver growth in this region despite the uncertainty. We are witnessing some softness on demand, particularly around digital spends in this region, as clients are delaying their decision-making in the near-term. The South Africa region saw a slightly muted performance with the year-over-year growth of 15% and nearly flat Q-o-Q growth. Our growth momentum in banking and consumer segment here was offset by sustained softness in our insurance vertical. We expect steady performance on back of new project ramp-ups at some of our key clients in this region.

Our gross margin stood at 27.4% in Q3 FY ’23, representing a sequential Q-o-Q increase of 200 basis points, while our EBITDA stood at 11.3%, a sequential Q-o-Q increase of 270 basis points. This growth in margins despite decline in our top line was due to our focused efforts towards identified levers, which we shared earlier. The order book for Q3 FY ’23 stood at USD130.5 million. I think that should read Q4 FY ’23 stood at USD130.5 million supported by healthy renewals and multiple wins across verticals. We have scaled to clients to the USD10 million-plus bracket, bringing the total number of clients in this category to 15. This is a very positive sign.

I am pleased to share that for the third quarter, our last 12-month accretion declined to 22.8%, a sequential improvement of 350 basis points on account of various measures we have taken over the last few months coupled with the easing supply side issues. Our big bets in service lines continues to reward us positively. Our focused service lines, advanced engineering services, data engineering and analytics and platforms are scaling up well, making up to 35% of our total revenues from 32% a couple of quarters ago. Our integrated solutions leveraging multi-service lines like experience and engineering approach was gaining good traction with our clients.

Finally, to stay true to our ESG mission and vision, we have been continually advancing our sustainability efforts. Towards environment connect, our global level green energy component for our [Indecipherable] increased 11.6% as compared to 7% last year. In FY ’23, we are also water positive with the amount of water conserved exceeding almost twice the quantity of water consumed in Zensar corporate premises. In terms of CSR, we supported 79,024 compared to 59,231 people from FY 20 to FY ’22, indicating exponential growth in communities reach and development. All initiatives were supported by enthusiastic volunteers and the initiate from Zensar.

In closing, I believe as a company, we are on the right path in terms of strategy. Execution of strategy is going to be a priority. We are seeing some green shoots in service line penetration across our client groups. The macroeconomic uncertainty continues. However, the tech spending outlook in the long-term remains robust. Laser-sharp focus on strategy execution to deliver sustainable profitable growth, while keeping our customers at front and center will remain our goal. I look forward to interacting with you all going forward.

With that, I will now invite Sachin Zute, our Chief Financial Officer, to provide an update on critical financial data, after which we will open the floor to questions.

Sachin Zute — Senior Vice President and Chief Financial Officer

Thank you, Manish. Good day, everyone. Welcome to to this call. From the recent to Manish talking about the business, I will take you through some of the key financial metrics. In constant-currency terms the revenue decline for the quarter is 5.3% sequentially and growth of 3.6% year-on-year. In US dollar terms, the reported revenue is USD145.9 million for the third quarter of FY ’23, reflecting decline of 5.9% sequentially and 0.9% year-on-year. The US dollar realization during the quarter has been INR82.1 per dollar against INR79.6 in previous quarter.

Our gross margin for the quarter stood at 27.4%, 200 basis points higher than previous quarter and EBITDA stood at 11.3%, 270 basis points higher than previous quarter. Increase in EBITDA was primarily driven by positive impact of guarantee, ongoing operational efficiencies, including optimization of employee cost, improved spread mix, better realization and benefit from reversal of provision for doubtful debt. This was partially offset by volume and utilization, improving overall EBITDA by 270 basis points.

Our disciplined program for margin improvement through majors such as increasing freshers deployment, improving commercial, optimizing operational matrixes and rationalizing cost have helped us in improving margins in Q3 in spite of it being a furlough quarter. We see weakness in certain business verticals due to macroeconomic factors as described by Manish. At the same time, we continue to create room for investments in newer areas of growth. For the quarter-ended December 31, 2022, DSO including unbilled stood at 80 days, in line with the previous quarters. For the quarter, cash and cash equivalents, including investments in mutual funds and NCD stood at $179.4 million, $17.3 million increase from last quarter. The effective tax rate for the quarter is 26.1%.

With that, I come to end of my presentation and open the house for questions.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions] We have the first question from the line of Mukul Garg from Motilal Oswal Financial Services. Please go ahead.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Thank you. Manish, first of all, welcome and wishing you all the best for your innings at Zensar. I know it is still fairly early days for you, but just wanted to get your sense since you are taking over the company at relatively tougher environment for the business and revenues. Can you share your initial thoughts on what will be your top areas of priority during the initial period and the steps which are required to rejuvenate the growth from the current environment, which is there?

Manish Tandon — Managing Director – Designate

Yeah. I think, see first of all I think Mukul, thank you for the warm welcome and asking this question. So, as you rightly pointed out, this is early days for me. I am just one month effectively into this job. I see a lot of positives with — in Zensar in terms of the investments that we have made in service line, in terms of the leadership that we have, in terms of the attitude of people and the quality of people. So, I believe — strongly believe that all ingredients are in play. And my first strategy would be to instead of tweaking the strategy to focus on strategy execution because I think all the ingredients or the main ingredients are already present and that will give us some immediate results, while the longer-term strategy is being worked out.

Overall, I am very bullish with the direction of the company. And I also feel that this is a tough environment as you rightly pointed out. So, a lot of effort will be going more on the margin side to improve margins, because that is an easier to win in my opinion in this environment rather than trying to just buy more business. I hope I’ve answered your question, Mukul.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Right. So, just to take this step forward, what’s your — what was your view in terms of the respective priorities between growth and profitability? Will profitability as I think you just highlighted remain a relative priority in the near-term?

Manish Tandon — Managing Director – Designate

Yes, as I pointed out, Mukul I think profitability is all internal, right. Mostly, we have to take certain internal steps, manage our costs better, while the demand environment remains tougher. So as I said, we’ll get better results if we focus at least this quarter on getting the bottom line up rather than going indiscriminately after say unprofitable business.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Great, thanks. And just one question for Sachin. Sachin, I think the margin improvement this quarter was quite impressive. How should we see the impact which probably came in this quarter due to the seasonal factors like absence of pass-through. I think you also mentioned the impact from reversal of provisions. If you can just help quantify that? And how should we see the trajectory of improvement over next three to four quarters? Do you have enough levers to continuously move towards the mid-teen number, which you have highlighted or will there be a near-term pause after the sharp improvement in profitability?

Sachin Zute — Senior Vice President and Chief Financial Officer

Thanks, Mukul. Mukul obviously, we saw 270 basis points improvement this quarter as far as EBITDA is concerned. It was also helped by currency, but majorly seen through the six levers which we have spoken with you on a couple of quarters back and there is a significant work which has happened within the organization and that is the reflection of that into this quarter’s margin. Be it improving the service and mix, be it improving the commercial with the customers, be it optimization of premediated support cost and also improvisation in our talent acquisition cost. All these things have contributed to this 270 basis points increase which we have seen in this quarter.

What I can say is that we think that quite a few of them are sustainable. And as I said that we have created trajectory towards great — towards mid-teen margins over next three to four quarters and I think as long as — as long as the macroeconomic factors do not deteriorate significantly, I think our rate towards that will continue.

Mukul Garg — Motilal Oswal Financial Services — Analyst

Sure. Thanks. Thanks for answering my question, I’ll get back into the queue.

Operator

Thank you. We have the next question from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead.

Mihir Manohar — Carnelian Asset Management — Analyst

Yeah. Hi, thanks for giving the opportunity. First of all, congratulations Manish for joining in for the role and wish you a lot of wishes for your new role. I mean I wanted to understand, I mean we understand that these are early days, but still given your experience, which has been there at Infosys and even turnaround at CSS Corp. So, just wanted to understand do think that there are any service business which are required at Zensar? Just wanted to understand around that. Are there any efficiencies around that and also on the pyramid structure, which is there, do you think more rationalization is required at the pyramid level? And also wanted to fundamentally understand, I mean, in the situations where there have been more macroeconomic concerns, typically Zensar historically, has seen more contraction in margins. So, what is your thought over that and how do you see this structurally? So, yeah, those were the questions.

Manish Tandon — Managing Director – Designate

Mihir, thank you for the warm welcome. If you don’t mind, can you repeat a bit slowly the question. The line was not very clear. So, the first question was around can you clarify that question, please.

Mihir Manohar — Carnelian Asset Management — Analyst

Yeah, sure, sure. Manish, largely wanted to understand, I mean given your experience at Infosys and CSS Corp, do you think that there are any service offerings which are yet to be filled up? Any gaps which are yet to be filled up at Zensar? So, that was on the service offering side. And secondly, on the pyramid side, do you think more rationalization is required on the pyramid? And question in concurrence to that was with respect to the fact that whenever there have been more macroeconomic concerns, Zensar has seen more correction in the margin. So, what is your thought on that and how do you see that improving on a structural basis?

Manish Tandon — Managing Director – Designate

Okay. So, first question on service lines, I don’t think we need anymore service clients. I think we have pretty complete set of offerings which enables us to target I would say most of the technology spend on services that most of our clients have. On pyramid rationalization, I mean things always can be improved and they will continue to improve both the pyramid and the utilization. The third part was on margins. You said that in a recessionary environment, margins usually fall. And we are trying to improve margins. Was that your question or something else?

Mihir Manohar — Carnelian Asset Management — Analyst

Yeah. Yes, I think that was the question.

Manish Tandon — Managing Director – Designate

Yeah, see I believe that — I strongly believe that margins are a function of internal efficiencies more than external markets per se. And as Sachin said, we see opportunities for improving internal efficiencies even in a recessionary environment. So, we believe that shareholders can benefit much more by us working on improving margins in this environment, while simultaneously trying to grow our portfolio. What I’m trying to say is we will not be indiscriminately buying revenues.

Mihir Manohar — Carnelian Asset Management — Analyst

Sure. Sure. Yeah, that’s it from my side. Thanks.

Operator

Thank you. [Operator Instructions] Thank you. We have the next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Thanks for the opportunity. And Manish, welcome and congratulations for the new role. The first question is, for any mid-cap to flourish in this industry, which is competitively mature, needs to have some USP standing and niche positioning in front of the clients. So, what according to you Zensar differentiates versus most of the peers? And do you believe does that require some investment before you can expect some sustainable growth turnaround going forward? So, which may lead to some amount of compromise on margins, but there could be a sustainable profitable growth over medium to longer-term?

Manish Tandon — Managing Director – Designate

No I don’t think. See, we have made a — we have made — Sandeep, we had made a lot of investments in service lines and that is one of the reasons for the margins coming down over the last couple of quarters. And I don’t think — and please understand, this is my fifth week in the company. So, based on what I have seen I don’t think that we made more investments, but we definitely first need more return on investments, like we have already made. And that will drive immediate benefits for the company, for shareholders and for our clients. Rather than investing more money, I would first like to see the returns on the investments that we have already made.

Regarding right to win, your first question on differentiation and right to win, I think there are good pockets of excellence that I have seen that can be converted into the right to win for Zensar. But it is a bit early for me to put a stake in the ground and say that these are the four, five things that I will — we will try to do to differentiate and have a right to win in the market.

Sandeep Shah — Equirus Securities — Analyst

Okay, okay. And just a follow-up, in your initial remarks, you said you want to make Zensar a more resilient organization and the investor perception is Zensar is more executes on a project-based revenue, which leads to volatility in growth at a regular interval. So, how do you plan and strategize to change this model to more annuity sticky kind of a business and will it lead to a longer-term turnaround or you believe no those things can turnaround at a shorter to medium-term itself?

Manish Tandon — Managing Director – Designate

So, Sandeep, my belief after being in this industry for 30 years that it is relationships that are project based or annuity based, it is not projects that are annuity based or this thing. So, the basic premise is that if you invest in client relationships. If you build that deeper relationship and relevance to your clients, then most of the business that you are going to get from them is going to be repeat business, which can be called relatively sticky overall. So, yes annuity revenues are a priority, but the path to those annuity revenues is through building deeper client relationships and that is what Zensar is going to focus on.

Sandeep Shah — Equirus Securities — Analyst

Okay, thanks. I will come in the follow-up. All the best.

Operator

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

Amit Chandra — HDFC Securities — Analyst

Yeah, hi. Thanks for the opportunity. And welcome Manish to Zensar. And my first question is on the vertical focus, so, if I see, apart from the banking and the insurance vertical or other verticals are seeing the pressure in terms of delays in decision-making and in terms of drop in revenues. So, when we can expect more stable, more broad-based performance? And also, in terms of the pressure that we’re seeing from the top client in Hi-Tech. So, are the — is the pain behind or we can see some more impact from the drop in revenue from the top client?

Manish Tandon — Managing Director – Designate

Thanks for the welcome, Amit. And good talking to you again. I think as to when we will see — when we will see turnaround in HT and CS, personally, I feel that from a portfolio perspective, the worst is behind that. But from a macro headwind perspective, your guess is as good as mine. So, there are — essentially, there are two factors, right. What are we seeing in our portfolio and what are we seeing in macro terms. So as I said, macro, we’ll see how the situation plays out. In terms of our portfolio, I think personally that the worst is behind us. So, I am hoping that we will perform as per the market or slightly better going forward in these two verticals than what we have been doing in the past.

Amit Chandra — HDFC Securities — Analyst

And sir, as you mentioned that the focus — initial focus will be on improvement in margin. So, the initial margin targets that were set in terms of mid-teens margins by the bid of the next financial year. So, is the target as of now or we are comfortable with the levels we are at the current levels? Can we see more investment post that in terms of investing more into growth areas or the strategy laid out by the previous CEO, we are — as of now, we are as of now sticking to that in terms of the focus on the LGOs?

Manish Tandon — Managing Director – Designate

So, if looked at, Amit, if you look at the strategy being followed, it was — the strategy was primarily on capability building. Right? So, the service line, etc., was around building set of capabilities that are relevant in today’s market. The time having built those capabilities, now the time has come to taken to the market in a more effective and efficient fashion. Right? That’s effectively saying that it’s, some strategic perspective, I don’t think any radical surgery is required. Physiotherapy might be required and is required, but I don’t think any radical surgery is required as of — where I stand today or week into the organization. I think the interest of the shareholders will be better served if the first derived return on the investments that we have made instead of going after making more investments.

Amit Chandra — HDFC Securities — Analyst

Okay, sir. Thank you.

Manish Tandon — Managing Director – Designate

And to your question on are we happy with — the target remains in mid-teens as Sachin said, and the aim is to achieve it as soon as possible, but to achieve it on a sustainable basis.

Amit Chandra — HDFC Securities — Analyst

Okay, sir, thanks and all the best for the future.

Manish Tandon — Managing Director – Designate

Thank you.

Operator

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

Nitin Padmanabhan — Investec — Analyst

Hi, good morning. Welcome, Manish and congratulations on the role. First, just wanted your thoughts on two aspects. So one is, I think we have very large customers in every vertical. And typically, we struggle for growth when they are under pressure. Your thoughts on how you plan to sort of broad-base that sort of element on a going-forward basis? And the second, your comment on margins, is it a situation wherein I think the finance teams are sort of finding it, sort of difficult to sort of pitch for a particular deal because of our cost structures at this point in time? Or — and once to sort of improve margins you become more competitive when your ability to compete improves? Is that how you’re thinking or is it some other way?

And so those are the two questions and then I had one for Sachin as well, as to what is the provision for doubtful debts reversal this quarter? Is it is large quantum or either a small number? Yeah. Thank you.

Manish Tandon — Managing Director – Designate

So, I mean I think the first question was budgets shrinking and see, Nitin, what has happened is that we by adding service lines to our armory, we have actually increased our addressable spend. If you get what I mean. That previously with the service lines that we had, if we were addressing 30% the technology budget for call provision, then with the addition of these service lines, I believe that we have nearly doubled that. So, while there is a down drop, obviously because of budget cuts in our areas but there are other areas that we are now able to address and I’m relatively positive about that factor.

Second, Nitin, you asked about margins. I think since there is any deal in the last four, five weeks that has come to my attention, which the team has felt that our margins are not competitive on the margins, because of the margins. So, I don’t think that, that is a correct interpretation our focus on margins. What — see focus on margins means I don’t want in example is pass-through revenue, okay. If I just want to increase the revenues, then you know, I want focus on trying to reduce the pass-through revenues. As you see between Q2 and Q3, the pass-through revenues have decreased from 6.9 to 3.8 or something to that affect. That revenue is actually not margin impetus, right? So, it is more to do with those things and efficiencies rather than loss of competitiveness.

Nitin Padmanabhan — Investec — Analyst

Absolutely. That’s very helpful, Manish. Thank you so much for that.

Manish Tandon — Managing Director – Designate

Thank you.

Sachin Zute — Senior Vice President and Chief Financial Officer

Nitin, Sachin here. As far as your question on the PDD is concerned, we had made the provision last quarter according to the policy of the company and we could collect that during the quarter. So, we have reversed that and the impact of that has been 0.5% baked into the margin debt.

Nitin Padmanabhan — Investec — Analyst

Sure, fair enough. Thank you so much. All the best.

Sachin Zute — Senior Vice President and Chief Financial Officer

Thank you, Nitin.

Operator

Thank you. We have the next question from the line of Nikhil Chaudhary from Nuvama Wealth Management. Please go ahead.

Nikhil Chaudhary — Nuvama Wealth Management — Analyst

Hello, thank you for opportunity. I want to understand from [Technical Issues], particularly now during last 10 months, last 12 months, if you see it grew by 10% Y-o-Y. While your commentary is negative in terms of growth in coming periods. So, just want to understand would will be able to grow in a similar times what we are seeing in deal wins? Or do you think there is going to be higher furloughs or delay in implementation, which will impact growth in coming periods? Thank you.

Manish Tandon — Managing Director – Designate

Sachin, can you take that because it pertains to last 12 months or whatever? Can you please answer that?

Sachin Zute — Senior Vice President and Chief Financial Officer

So obviously, last quarter we had impact of furloughs on the revenue. Part of those furloughs will be — we are expecting that will be reversed during Q4 and we will see appropriate impact of that on the growth.

Nikhil Chaudhary — Nuvama Wealth Management — Analyst

But what about — so we would be trading in the similar trajectory what we have seen with deal wins because the implementation I believe will happen in coming quarter? That’s the right way to understand in terms of growth perspective?

Sachin Zute — Senior Vice President and Chief Financial Officer

Actually, I didn’t get your question correctly. I don’t know, the voice is…

Nikhil Chaudhary — Nuvama Wealth Management — Analyst

Is it better now Sachin?

Sachin Zute — Senior Vice President and Chief Financial Officer

Yeah, can you repeat it please?

Nikhil Chaudhary — Nuvama Wealth Management — Analyst

So, Sachin with our large deal win growth, if you see in last 12 months grew by 10% Y-o-Y. So, want to understand, would the revenue growth will be in similar trajectory given the implementation with that or will go through in the coming quarters?

Sachin Zute — Senior Vice President and Chief Financial Officer

See normally, we don’t give guidance, as you know. So, from that perspective I won’t be able to comment on that as aspect that how the revenue will come back over next 12 quarters. What I can tell you is that in Q3 we had impact of furloughs and this year they were above normal furloughs. So, given that we will see partial rollback of those furloughs during [Technical Issues] and to that extent we will see the impact on revenues.

Nikhil Chaudhary — Nuvama Wealth Management — Analyst

Thank you so much. Just one additional question. Your Hi-Tech vertical, we have seen quite a bit of churn in — basically, in last couple of years. Contribution has declined by about 900 basis point. So, how should we look in this vertical vis-a-vis with overall company growth? That’s it from my side. Thank you for taking my question.

Sachin Zute — Senior Vice President and Chief Financial Officer

So, as we said, Hi-Tech has been facing — Hi-Tech manufacturing is efficient vertical for us, has been facing headwind from the macroeconomic factors. The vertical is very much stabilizing for us going forward. So, we think that the investments which we have made in the service lines will help us across vertical growth to stabilize as Manish mentioned earlier.

Manish Tandon — Managing Director – Designate

Thank you.

Operator

Thank you. [Operator Instructions] Thank you. We have the next question from the line of Dipesh Mehta from Emkay Global. Please go ahead.

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

Yeah. Thanks for the opportunity. Just couple of questions. First, Manish, just want to get your perspective both how to accelerate revenue growth over medium-term. I understand some macro challenges which you highlighted for short-term, but your thoughts about how you want to accelerate revenue growth trajectory for Zensar, if you can help us understand about the large deal participation, portfolio adjustment, hunting and farming engine? Whichever way you can try to give some sense about what’s the thought process?

And second question is related to the first one, considering all the steps required to accelerate revenue growth, by when do you expect Zensar to effectively participate for growth opportunities from growth trajectory perspective compared to some of its peer? Thanks.

Manish Tandon — Managing Director – Designate

Yes. So, I think again this is a fairly simple industry. And as I mentioned before, the way to growth is improving both your hunting and farming capabilities. Today, I see lot of opportunities in the way we are farming our portfolio of accounts. And to do that effectively, you have to build a good — a, you have to increase your — deepen your client relationships, which comes to increased client relevance. And I think that with the service line expansion that we have done, we should be in a position to increase our client relevance and with a focused effort to deepen our client relationships. That will be the growth trajectory, besides creating some — creating a few differentiable thing that we can go to market with.

As far as getting back to growth track is concerned, I don’t know this is perhaps the only quarter where it has declined. Right? Sachin, I think over the last seven or eight quarters, the revenue.

Sachin Zute — Senior Vice President and Chief Financial Officer

Yes, Manish. In constant-currency terms, yes.

Manish Tandon — Managing Director – Designate

Yeah, so it is not that we will let go any growth opportunity. Even as we speak we are talking about two or three very interesting deals, which are in the offer. So, we will continue to push for growth. It is not that — you can’t run a business by just focusing on either the top line or bottom line. You have to deliver both. So, we will continue to focus on growth also, but the the results of that will come in slightly later. The results of margin should come up earlier. That is the point that I was trying to make.

Dipesh Mehta — Emkay Global Financial Services Ltd. — Analyst

Understand. My question was slightly medium-term. Last five years, if you look your organic revenue growth was largely flat from ’18-‘ 19 onwards to till now. Even this year, so 550 to 600 is ballpark range where we operate at. So, I was looking from that perspective. Thanks.

Manish Tandon — Managing Director – Designate

Yes. I mean, what can I say. I think it’s my job to put in value proposition and differentiation in front of the clients where we can get sustainable growth as an organization and that’s what we will do over the next few quarters.

Operator

Thank you. Thank you. We have the next question from the line of Rajat from Incred AMC. Please go ahead.

Rajat Srivastava — Incred AMC — Analyst

Yeah. Hi, Manish, good morning. So Manish, I’m very new to this company. So, my question is going to be more qualitative. Firstly, could you just talk a little bit on actually when you joined, there was a press release mentioning that you led a turnaround at CSS Corp. Could you talk a little about what was the turnaround? What does the company about? Was it Zensar-sized company? Could you talk a little about that?

Manish Tandon — Managing Director – Designate

No, I think CSS was about one-third the size of Zensar and it’s a privately-held company. So, I don’t know how much I’ll be able to share with you about what the turnaround was etc., but the publicly available information says that the investors appreciate the turnaround and we’ve got even though the company was sold in the middle of COVID, we got a very good multiple and the investors got very good returns. I think that’s about what I can disclose given that CSS — this is now called Movate, it is a privately-held company.

Rajat Srivastava — Incred AMC — Analyst

Sure. And secondly, on the supply side, so we are hearing a lot of tech layoffs happening across the globe. So, are we at Zensar seeing any significant supply side pressure easing out?

Manish Tandon — Managing Director – Designate

Yes, the supply side pressure is easing out. Talent is more available today than what it was say six, nine months — six to nine months back. So yes, we are seeing the pressure easing out.

Rajat Srivastava — Incred AMC — Analyst

Sure. And also on service line additions, I think at Infosys, you spent considerable amount of time looking at the healthcare vertical which seems to be missing at Zensar. Will that be your new service addition which you will be looking to add at Zensar? That’s my last question.

Manish Tandon — Managing Director – Designate

Too early for me to comment on it just now. I think I’m looking at all possible opportunities in front of us. We are evaluating everything which includes which verticals we want to be. And just wait for the strategy session, which hopefully, we should be doing next quarter sometime.

Rajat Srivastava — Incred AMC — Analyst

Sure. Thanks, Manish.

Operator

Thank you. We have the next question from the line of Sandeep Shah from Equirus Securities. Please go ahead. Mr. Shah, kindly proceed with your question. I have unmuted your line.

Sandeep Shah — Equirus Securities — Analyst

Yeah. Thanks for the opportunity. Manish, as you said, the margin turnaround will come first, followed by the growth turnaround. So, in pursuit of that, do you believe some more rationalization is required in the business before you plan to do the growth turnaround as a whole or you believe most of the portfolio is earning margins, which you are satisfied at?

Manish Tandon — Managing Director – Designate

So, are you talking about rationalizing clients or something like that or…

Sandeep Shah — Equirus Securities — Analyst

Rationalizing maybe even low margin portfolio or some of the tail accounts as a whole, which may have some impact on the growth in the near-term?

Manish Tandon — Managing Director – Designate

Look, my belief is that the pricing is determined by the market and margins is determined by reducing. I don’t think, I mean opening a new account, new logo is very intensive long-drawn process. So, we’re not really looking at rationalizing accounts as a main margin lever. We are looking at more of internal efficiencies at margin levels. And obviously, there are tail accounts and so on which are not giving us the right result. So, we will not focus too much on that. So, we will make sure that we are putting only appropriate resources, which are commensurate with the returns those relationships are getting back.

Sandeep Shah — Equirus Securities — Analyst

Yeah. Thanks. Thanks for this. Second, Sachin, can you refresh in terms of the target to achieve a 15% EBITDA margin and the timeline to achieve the same? And second in the deal wins of $130 million, what is the proportion of new business within the same?

Sachin Zute — Senior Vice President and Chief Financial Officer

Thanks for that. We are currently working on creating a trajectory to reach somewhere around mid-teen in next three to four quarters and it’s based on a very systematic program which we have implemented, which I called out as part of my answer earlier. And we are hoping that we should be able to reach it around mid of next year, but if the economic condition significantly deteriorate, we may have to relook at that. But as we stand today, we are making a good progress toward that.

As far as our order book is concerned, historically we’ve been around 45% to 50% — 45% and 55% mix of new — net new and existing new deals. This time the reflection of economic outlook actually shows that almost 35% of my order book is net-new and balance is existing new — existing renewals basically.

Sandeep Shah — Equirus Securities — Analyst

Okay, thank you.

Operator

Thank you. We have the next question from the line of Manish Mehta from 3P Investment. Please go ahead. Manish has left the queue. We move on to the next participant. The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Hello. First of all, happy New Year and congratulations for…

Operator

I’m sorry to interrupt Mr Kacharia. I would request you to please kindly use your handset to ask a question.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Am I audible now?

Operator

Yes. Please proceed.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Yeah. So first of all, Happy New Year to everyone and congratulation for taking the charge. So, I have a broad question, in terms of demand outlook and also vertical-specific comment that which are the areas where you feel more concerns are there and it will take longer time than execution to back to normalcy? So, that’s the two question I have. Hello?

Operator

Sir, could you hear the question?

Manish Tandon — Managing Director – Designate

Sorry, I was on mute. I couldn’t hear. I couldn’t understand the first part of the question. If you could repeat that.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Can you share vertical-specific outlook and the first question was that. And second, which are the areas where you feel more concerns are there and will take longer than expected time to back to normalcy?

Manish Tandon — Managing Director – Designate

So, I think I mentioned it in the commentary that we are seeing lot of headwinds, macro headwinds in H-Tech and Manufacturing and in CS, while Banking and Financial Services remains strong for us and Insurance also we are seeing some amount of headwinds. From geography perspective, we are doing well both in South Africa and in UK. As far as which verticals, I personally feel that Consumer Services and Retail is much tougher vertical to focus on in a recessionary environment, especially when actually happens. Hi-Tech, I expect that to see improve execution it will be more easier to get it back on track.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay, thank you, sir.

Manish Tandon — Managing Director – Designate

Thank you. We have the next follow-up question from the line of Amit Chandra from HDFC Securities. Please go ahead.

Amit Chandra — HDFC Securities — Analyst

Yeah. Hi, thanks. So, I have one follow-up on the margins. So, the margin expansion that we have seen, as you mentioned that it also the impact of this lower pass-through. So, can you please quantify sir, what is the exact impact from the lower pass-through that we have seen on margins? And I think this is like one-off for this quarter, so. How the trajectory will look from the next quarter onwards? Are we expecting a dip and then expansion of? Is it going to be on a linear trajectory?

Sachin Zute — Senior Vice President and Chief Financial Officer

Amit, thanks for the question.

Manish Tandon — Managing Director – Designate

Sachin, can you take that question?

Sachin Zute — Senior Vice President and Chief Financial Officer

Yeah, Manish. So, pass-through, dips in the pass-through had 0.4% impact on the margin amidst — in Q3, but given the very structured cost optimization program, which we are running, I think the current levels of margins are sustainable for us in the near-term as we create trajectory for further margin improvement over next two to four quarters.

Amit Chandra — HDFC Securities — Analyst

Okay, sir. Thank you.

Operator

Thank you. We have the next question from the line of Ganesh Shetty, an Individual Investor. Please go ahead.

Ganesh Shetty — Individual Investor — Analyst

Congratulations for [Technical Issues] number, especially margin improvement. That was very much expected. We did by investor community. So, my first question is regarding whether we are going for any inorganic acquisition, considering the lower cash balance of INR100 crore [Phonetic].

Manish Tandon — Managing Director – Designate

Thank you, Mr. Ganesh. You are asking about our M&A strategy as I understand?

Ganesh Shetty — Individual Investor — Analyst

Yeah. Yes, sir, yes sir.

Manish Tandon — Managing Director – Designate

Yeah. So, I mean, we have been recently acquisitive in the past also and we continue to — we have a structured M&A program and we continue to look at opportunities to add shareholder value through inorganic means and we current we have reasonable cash on the balance sheet to be able to do good sized inorganic acquisitions if we need we need to do it.

Ganesh Shetty — Individual Investor — Analyst

Sir, my second question is regarding this attrition level for last three months and going forward, how do you see attrition picture? Can you please throw some light on that, sir?

Manish Tandon — Managing Director – Designate

I think we have domestically reduced attrition. I am in fact very pleased that between previous quarter to this quarter, is a 350 basis point reduction in LTM attrition. And I think that LTM attrition based on what I had seen of other result is one of the best in class. Vivek Ranjan is our CHRO and maybe Vivek, you want to provide some more color.

Vivek Ranjan — Senior Vice President and Chief Human Resources Officer

Yeah, thanks a lot Manish, and Ganesh, wish you a very Happy New Year. Yes, Manish you said it right, the kind of investment which we have made in our people regarding career progression, learning, compensation and recognition and building connect. We see that we are getting significant return of that. And while macroenvironment states that attrition has gone down everywhere, but we are proud of the fact that ours is one of the best. Thank you, Manish. Thank you, Ganesh for the question.

Ganesh Shetty — Individual Investor — Analyst

Yeah. Thank you very much, sir and last thing we hope is, Group is known for creating happiness among people. I think if you are in Zensar and I believe Board will definitely increase happiness for all our investors. Thank you very much. And all the best.

Manish Tandon — Managing Director – Designate

Absolutely, sir. Thank you.

Operator

[Operator Closing Remarks]

Manish Tandon — Managing Director – Designate

Thank you, everyone for giving me a warm welcome and asking some very pertinent questions. Thank you.

Operator

Thank you, sir.