FY26 closed 3.9% / 17.2% EBIT vs raised mid-year 4-4.5%.

CVK, the way you described your utilization mismatch, it seemed like more of a timing issue for a deal, at least in part. So, then are you expecting these margins to probably exit this year closer to back to our original range?

Yes, I think we are very clear. We are not setting, structurally, the margin bar lower. I think it will continue to be 19%-20%. In the next 3 quarters, obviously for all the reasons that we explained, there is going to be certain headwinds. So, this year, we will be between 17% and 18%.

And it looks like Hi-Tech, you saw really good growth sequentially, even one of your peers reported they have also seen decent growth there. And this is a segment that I think the whole cost cutting started back in 2023, right? So, should we think of this as a good sign of a cyclical recovery in this sector? Or is it still too early to call it that?

Yes, as I called out, we are looking at a strong demand in Financial Services and Tech and Services verticals. And this quarter, of course, the growth in Tech vertical also, it is very broad based, but definitely the 6% kind of sequential growth is driven by one large deal where we had on-boarded the entire team in March, exactly on 6th of March. And of course, this is a very cutting-edge solution on contact center transformation using Conversational AI and this will require this talent base to be deployed, and we had some good success in the 1st quarter, but the ramp up has been gradual. We think it will ramp up fully in the 2nd quarter and in the 3rd quarter, we should be fully optimally performing on this team. Outside that, structurally, the tech vertical continues to give us a lot of confidence, so FS and Tech, definitely strong, we see some concerns in other verticals like Auto in Manufacturing, Retail, CPG and Life Sciences, there is pressure, but rest of the verticals looks okay to me.

Shiv, one follow-up. You were saying that there is no gain in the margins from forex, so I thought there was a sharp depreciation of the Rupee against both the Euro and Pound. So, why have we not seen any uplift from that?

So, this quarter, we did have some gain in Euro, but that was offset by some loss in the INR depreciating versus previous quarter. The cost base we have is INR in India, so that is why they both kind of offset each other. And usually any appreciation in Euro or Pound translates to very little in terms of margin improvement for us because our costs are quite significantly there onshore as well.

The first question on margin front, if we look at the full year guidance downgrade by around 100 basis points, how much of that downgrade can be attributable to one-off factors, be it client bankruptcy impact plus restructuring impact, how much can be attributable to the utilization mismatch issue and how much can be attributable to pulling forward of AI investments?

Sudheer, I will just give the walk. In Q1, the margin is 80 basis points lower versus the last year. So, the full year impact of this dip is 20 basis points; higher sales and S&M investment, we expect, is going to have an impact of 13 basis points; utilization, which is one of the factors we had impacting Q1, is going to have some follow on impact in the subsequent quarters and we expect that to have an impact of 10-20 basis points; and the restructuring cost, which also CVK talked about, would have an impact of 30-40 basis points in the subsequent quarter. Putting together all, it is around 100 basis point impact year-on-year.

And to Ravi's question earlier, I think CVK mentioned that probably the exit margin would be closer to our aspirational range of 19%-20%, that looks like a steep pass over the next 3 quarters. So, any thoughts on how we would be reaching there?

Just look at it like a full year margin because quarter-on-quarter margin has a lot of cyclicality for us, like Q3 will peak and Q4 will dip. The comment I made was that on a normalized basis, we would be closer to our desired range. And there are multiple levers, like even the utilization, as Shiv mentioned. We obviously had a big gap in this quarter. It would significantly moderate in Q2 and in Q3 we should be in line with the expected margins. A lot of these restructuring costs would be mostly in Q2 and a little bit in Q3. That is the color that we can provide and the rest of it is in a normal cyclical seasonality in our business.

And just one last question as AI adoption involves more into an Agentic AI level, there is a talk about a potentially big data center refresh as the current data centers are not equipped with a capacity to handle AI workloads. What is your view on this? And given our strong presence in IMS, what are we doing to potentially leverage on this thing?

Yes, we have launched the cognitive infrastructure proposition, and we are already seeing some early wins in this. We had one marquee win in the last quarter, which we will probably announce during this quarter more formally. And we think it is a big opportunity, but obviously, we don't want to play in the assets kind of game. We are totally focused on services and so we worked with a lot of partners to deliver, GPU as a service and things like that. We also see a lot of traction at the Edge infrastructure, Edge AI, we see good traction and we see that as well as a big tailwind. But I think the pickup is going to be gradual. Even a lot of customers who are deploying Edge AI, they are starting with one factory, one big location and then based on success and all the proof points they will expand to other locations. So, it will be a gradual ramp up and I definitely see that as a big strength and capability of ours, which will really come to our big help in this particular space.

My first question is pertaining to this restructuring charge. CVK, what is driving this restructuring? Is it to do with the fact that the evolution of services is changing in terms of how contracts are restructured, location agnostic services are happening and hence some restructuring on the onsite conditions, just trying to understand is it pertaining to the pay services business?

I think it is a combination of both. I think the first aspect is some of the acquisitions that we did in the past. Of course, we have done the integration, but we were not really clinical about facilities and other cost rationalization. So, that is one and Automotive has seen a ramp down and we are not looking at a very quick recovery here. And even if the recovery is happening, the skills required are really more offshore based capabilities, so we see some restructuring is required there. So, these two are things which we were waiting to see if things will pick up and we don't believe it is picking up and even if it is picking up, it is not going to be in the right location. So, we are going to take some firm decisions on this. The second aspect is what you talked about. Of course, we have had a good amount of people released due to the productivity improvements. Now, not all of them are readily redeployable because the requirements for some of the entry level or lower end skills are being addressed through Automation and other elements. So, the training and the redeployment time is longer. Some of them will get redeployed, but some of them, it may not be possible. So, some amount of change in the industry is also kind of causing this. But as we adjust to this, a lot of proactive trainings are happening. So, as we adjust to this, we see this moderate because we are also looking at people who could get potentially released, who should be upskilled and things like that much more proactively now. Given that we have seen a good cycle of optimization led releases. So, I think in the future, this should get adjusted in the normal course of business.

Second question on the talent strategy, we did talk about accelerating the intake of freshers last quarter and we kind of saw that happening this quarter. What we kind of hear is that because of the productivity gain, a lot of the junior level jobs are getting automated, but at the same time, we are seeing an increased intake of the fresher. So, how do we reconcile what is really happening and eventually how do you think the overall pyramid will shape up over the next 3-5 years, keeping in mind the reputable solutions that you are building in, the platforms that you are building?

Yes, sure, CVK. So, we are calibrating our approach. This is something that we have been talking about for a couple of quarters now. One calibration that we are doing is we are focusing more on specialization. So, our fresher intake is no longer, just based on numbers, it is based on skills and specialization, so that is one level of calibration that we have done in terms of how we are approaching the fresher hiring program itself. We have also reindexed our composition plans as well for our freshers while the regular cadre in the India context the base compensation is Rs. 4.25 lakhs. The specialist or the elite category that we do now is in the range of 3x higher than the base composition that we do on the services side. On the software side, it's upwards of 4x of the base composition that we do. So, there is extreme level of specialization that we are focused on, and we are attracting talent by also revising our compensation plan. So, there's significant amount of work that has happened over the last 6-8 months to overhaul and recalibrate our entry level talent plans and that is showing some early signs of the program working well and that's what we look to accelerate.

Last question, if I may squeeze in what are the factors that you take you to the upper end of the guide? Is it more dependent on macro? Is it dependent on your deal wins getting back to the aspiration level of 2.5 million plus per quarter?

We have seen some macros play out differently in different verticals. So, we are just assuming that same will continue. We are not expecting some recovery in Manufacturing and Life Sciences and Retail & CPG, but at the same time we expect FS and Tech and Services to continue the discretionary spend. So, we are looking at whatever we are seeing now will continue during rest of the year. On Bookings, some of the vendor consolidation deals that we have signed, though they are not in TCV, we really expect a very-very quick ramp-up. Especially in Financial Services, to support some of the growth which we have lost due to the deals moving from Q1 to Q2. These are the assumptions and at this point, we feel very comfortable with our revenue guidance.

My first question was more of a clarification. So, you called out lower utilization as one of the drivers for the lower margin in the quarter by about 80 bps. If I look at your headcount, sequentially it has come down in line with your services revenue and on a YoY basis, the decline is actually lower than revenue growth being actually higher. So, where is this lower utilization coming from? Is it the subcontracting which has hinged up and that's where you were building capacity?

A large part of it was the ramp-up that we did in March. I think I called it out a couple of times. That was one element which is causing this, and the second element is really the people who are getting released from productivity benefits and inability to redeploy them. And the third element was the decline that we have had in automotive for maybe now 3 quarters. That has also released some capacity, and we are continuing to see non-linearity in our business- like revenue growth and people count growth. We saw that significantly play out in FY25 and even in Q1, the year-on-year revenue growth versus year-on-year people count that there is a decoupling. So, you will see that and, but you can still have underutilized people within the existing people universe that we have.

My second question was a couple of weeks back you announced your collaboration with OpenAI. So, how do you plan to use that to create a differentiation in your offerings?

Thank you, CVK. The OpenAI partnership is expected to give 3 benefits. One, we went through a qualification process that OpenAI had to qualify. It will help us work closely with OpenAI to serve OpenAI's customers and do their forward engineering and get OpenAI adoption into customers. That is the first benefit. The second benefit is our own internal adoption of OpenAI as an enterprise. It will unlock productivity benefits within the organization. And third, we expect to take some of our IFRS (Industry-Focused Repeatable Solutions) which we talked about and enable them with OpenAI's models and their technology so that we can co-sell in the market. So, those are the three benefits that we have from the partnership. It's early days but that's our expectation.

Just want to quickly check, starting with demand, could you elaborate a bit of reason for the slightly softer than expected signings? I know you said it will complete by July but any particular reason for that and also the delay in the large deal ramp-up you're seeing, is that client-specific or is that something in the demand environment you're seeing?

So, demand from a signing perspective, of course, two signings which we really expected towards the end of June, that got delayed to sometime this month. It's purely procedural delays and technically we just could not get it done before the year end. I don't see anything else. They are very much intact, and we've already ramped up quite a bit for some of these opportunities. So, that's on the signings. And what is not included is one large vendor consolidation win in FS, which will give us very strong revenue growth through this year and even next year. But we could not consider it because as per our definition of booking, time and material-based constructs do not go into our booking. They only go into booking after we ramp up and we are able to bill. So, that's on the signings. With the large deal ramp-up, we had on-boarded a lot of talent in conversational AI and contact center transformation based on a partnership with a big technology firm. We did that in March. And of course, all of them were working on various clients. Now, as a part of the transition, some of the work got a little bit delayed. So, we did get good growth from this ramp up and that's what is showing up in the tech services vertical growth this quarter. But still about a third of the team is not fully utilized. So, they will get into utilization during this year. And these are really high cost and highly specialized talent. So, I think that's the reason for that. It's not really a demand environment or client specific. It's just the timing based on on-boarding of people and changing the client contracts and things like that into our books. And this cuts across multiple verticals because it's a horizontal capability that we ramped up based on an exclusive partnership. Now we need to make sure they're being fully utilized. And we are continuing to see a strong pipeline for contact center transformation led by AI. And this really plays very well into that, Ankur.

Thank you. No, the demand was good. I think on the margin side, my question was, were you getting any demands for pricing or cost takeout out of turn?

Not out of turn. When renewals are there, definitely customers have expectations and competitive pressures as well. So, we obviously have to react appropriately to that. We haven't seen anything out of turn, but obviously a lot of customers are asking us, and we are also proactively talking to a lot of clients about what can be done. And the reason we are doing that is, I mean, when the renewal comes, we should be much more prepared. And we should have enough proof points and conviction about what we can really drive. So, I don't see anything out of turn, but we are definitely proactively working with clients to see what is the art of the possible.

So, if I can ask a quick follow up, when you go proactively to a client, I think you said 35 clients have AI Force already. Would that be unexpected, for example, pricing, productivity pass off if it can do it then?

I think we are being very transparent. We are telling the clients, if you allow us to use AI Force and use all the recipes that we've created, we will showcase to you the optimization that is possible. And then to scale it up within your environment, it needs a lot of sponsorship within your organization. And we are very happy to proactively do this. And it will mean some reduction in revenue for us. And we are okay with that. And the whole hypothesis is when we are doing that, there is going to be an increase in wallet share in the existing client. And Ankur, if you look at the number of renewals that we have done in this quarter - 9 renewals, in 8 of them, the total revenue from the client is higher than the existing run rate that we had. So, we have been able to get a little more wallet share, which more than offsets some of the productivity benefits that we have given. And that is a trend that we are seeing.

Right. But do you see, the kind of cannibalization that we saw initially when the cloud business started, and the IMS business was impacted, a similar thing might well be possible in the other businesses that we do this time because of productivity benefits by GenAI?

I think in IT operations, whether it is infrastructure or application operations, if you have leveraged machine learning and classic AI quite well in bringing automation, the incremental benefit from Generative AI is only marginal. It's only in a software development lifecycle- 25% to 30% benefit is realistic. And in a lot of business process operations, we think it can be 40% to 50%. So, this can happen fast, because we are seeing contact centers where a very large number of people get reduced by 75% even by implementing Agentic, Conversational AI and things like that. So, I think in these two areas, it will definitely create deflation. But the only positive aspect is there is so much of legacy applications and legacy landscape. So, modernization gets accelerated in a lot of these cases. So, that is also causing some kind of demand uplift to offset this deflation.