A bookkeeping question - possible to call out the impacts of furlough this quarter?
It's best we don't call out the exact impact because then we risk the assumption that if the furlough was 'X', then it'll be added back to the line as is but that's not how the reality works. We'll have to just manage it. We'll have to just make sure that we are able to maximize whatever opportunity we have in Q4.
On the application modernization, if the market opens up, could we be one of the biggest beneficiaries because of the skewness towards application as a portfolio?
The market is really very, very big. I don't know whether we'll be one of the biggest beneficiaries, but we'll definitely be one of the leading contenders to take a lot of that work. We are also very focussed on stitching together the ecosystem that we require to win in that space. That is not something that you can just do by yourself. You will need an ecosystem of tech providers, cloud providers, infra transformation partners and so on. Context and complexity will require us to build that ecosystem. Stay tuned, we will make some further announcements as we go forward on how we are building that ecosystem to tap into the modernization opportunity itself.
Through the course of FY26 you continue to see steady performance in financial services, you did have the headwind of the Logistics in one of the major customers through the year. How should we be thinking about growth construct across industry segments? Does the BFSI momentum hold steady or intensify further? In the past you have provided colour around H2 being better than H1 or FY26 being better than FY25.
We will give you more colour on FY27 as it compares to '26. We were clear that '26 is likely to be better than '25 despite the headwinds that we were seeing. And that should give you confidence in the fact that you can see how the rest of the business has performed. That's a good template to kind of at least assume will continue to happen in FY27 as well. Too early to tell you what FY27 colour will look like, but you can see over the last two, three quarters of performance that we've truly turned our aspiration into some real numbers. We continue to focus on conversion of all that sits in the pipeline that we can convert, and hopefully if we can do that in the first half of FY27, then obviously that sets us up really well for the full year as well, just like we did in the first half of FY26. The template that we have working for the last three quarters is the one that will continue to lean on for the next five, six quarters as well.
Regarding this reprioritization of spend that you mentioned earlier, if you could highlight two, three factors which you think we have, which put us on the right side of the spectrum on this on a more sustainable basis, beyond the current one year. With this positioning and deal win, is it safer to assume that our growth rate from the next 12-month perspective could be meaningfully better than what we have logged in Q3?
I'll give you the first answer. Second one, a little bit more nuanced. We'll talk more about it in the April call when we have a clearer visibility on FY27. The model that is working, the framework of growth, the puts and takes and despite the puts and takes, our direct business is trending to double digit in Q3, potentially giving you a sense of what the template of growth is likely to be for the future. On reprioritization - if you think about any enterprise now, three years and change after the launch of one of the most successful consumer AI products called ChatGPT, significant work has happened at every enterprise. They're generally in a mode where this is beginning to become real inside of an enterprise. This has a top-down focus, and the easiest way to adopt this at scale is to effectively use it to drive efficiency. If you put that in context of our industry, squeeze the run, feed the change, is the model that has not failed since the digital era. We are starting to see something very similar play out in the entire ITSM value chain, in the IT Ops value chain. Structurally for us, because we are taking an AI-first approach, we are using AI Ops to lead in, we are actually opening that opportunity set for us because we didn't claim that earlier because we weren't really very efficient in the lowest per ticket or per unit cost pricing model. For us, we definitely think it is not a one or two or a three-quarter phenomenon. It is something that we are structurally trying to capture using NeoIP as our platform.
In the deals that we execute with a combination of humans plus agents, do you believe margins can be higher? And longer term, do you think competition eats that away or is it sustained? Considering the strong deal wins and ramp-ups, plus recovery from furloughs, do you think Q4 could be the strongest sequential quarter for the year? Also, why is the debt sort of consistently increasing?
On margins with humans plus agents - the short answer is it definitely provides us some operating leverage as we start infusing agentic approach into the deal. Because what we're really doing is eliminating a bunch of human effort and crashing down not just the effort, but also the timeline, complexity and the accuracy rates are helping with that. So far whatever leverage we are getting, we are investing it back in the buildup of the platform. On Q4 being the strongest sequential growth quarter - directionally it seems like the answer is yes, because if you remember the guidance we did last quarter was greater than 2x and if we trend towards that, simple math will indicate for this to be the strongest growth quarter for financial year '26. On debt - while borrowing has gone up, the gross cash balance has also gone up. The reason we do borrowing is more in terms of mismatch in cash flow between the geographies. We had a couple of payouts from an acquisition purchase consideration, which was deferred, came through in this quarter, and we used temporary financing, short-term borrowing to do that rather than send money from India, given the arbitrage of interest rates vis-a-vis the borrowing cost. It's not a trend per se.
How did this quarter pan out versus what you would have thought at the start of the quarter? Any surprises? With respect to the top 10 client bucket, is there any particular subsegment or client situation where one should expect any sort of volatility in coming quarters? And the increase in headcount on the BPO front - should one expect any near-term tailwind because of that?
On did Q3 pan out as expected - if that's related to whether seasonality was in line with expectations, the answer is yes. Other than that, every quarter there are some surprises but from a seasonality perspective, it panned out pretty much the way we thought it was going to pan out. Following up on two very strong TCV quarters, we had another above-average TCV quarter compared to our historical averages. On the client subsegments - we are not seeing any significant or even apparent reasons to call out a subsegment that may be in stress or a segment or a client that may be in stress. There are no known headwinds at this point in time, which is why you're seeing all the categories of top 10 and next 20, both on a QoQ and a YoY basis, actually delivering good growth across all geographies as well. On BPO headcount - we are starting to see some life of activity, especially with the interest rate environment. We also talked about a deal that came out of an existing customer, where we are actually setting up a mortgage origination unit linked very much to an agentic AI approach. Think of that as a first lighthouse client for an agentic AI-based origination platform that we are launching. There's definitely upside risk if those tailwinds appear.
Any signs of change or improvement you are seeing in the discretionary spending side with the short-cycle projects and all?
Discretionary spend, as we knew it, is unlikely to come back in the same shape and form. The way we are seeing spends today is - first and foremost, three weeks into the new year, it is very apparent that spends are going to be stable to slightly up this year. I don't think any clients is in a mode that they will see a reduction in total spends. What is also clear is, there is going to be a reprioritization of spends because they have to free up money in investing in the AI fabric, whether it is stack, whether it is migration to the stack, deploying new agents, software spends etc. So, I think there is new spend available, there is money being spent on buildup of the new stack. If you're aligned to that, to capturing that spend, you will see net new spends available to you as a provider. The discretionary spend question is a little bit more nuanced at this stage, given just the early phase of deployment of the AI stack and fabric and extreme focus on driving efficiency using AI.
On BFSI, your deal ramp-ups that you are expecting over H2, is there any pull-forward impact into the December quarter or it is panning out as expected earlier, so there will be some push-up, buoyancy in terms of BFSI deal ramp-ups in Q4 as well?
It's very difficult to kind of look at every quarter and have a straight line. For example, last quarter some of you had a question around the fact that BFSI did not grow sequentially but remember it was growing so strongly for the past few quarters. The direction of travel is very clear. We are very confident based on the pipelines that this will definitely be one of the leading growth verticals for us both across Banking and Insurance. As such there was no pull forward or anything to call out. We are just executing the order book and busy in converting the existing pipeline into deals. So we'll just continue to focus on that. Based on the question I answered earlier around Q4, you can see from there that we are expecting a pretty stable outlook in terms of the direction.
Over the past three, four quarters, our BFSI vertical has stood very tall despite some hiccups in other verticals. In the vertical as such, over the past two to three quarters, have you seen any change in the industry dynamics in terms of demand picking up, any green shoots in terms of more discretionary spend coming back? Any specific call out on regulatory spends maybe going up in either Banking or Insurance vertical which could help us sustain this growth momentum?
We were probably the first ones to callout growth in BFS. Almost six or seven quarters ago, we called for a bottoming in that business once we saw the macro environment getting stable. In the last four or five quarters, we've seen some strong growth coming out of BFS and now Insurance in the last couple of quarters. Two things have happened there - one is, in general, the banks and financial institutions have been in a pretty strong earnings environment in the US, especially. Even in Europe as well, because the NIMs were so high that they were actually sitting on record spreads. Second, the regulatory environment and the deal-making environment has been pretty strong in the last 12 months and is expected to be strong this year as well, whether it is M&A activity, IPO activity. Third, banks in general are early adopters of all new tech trends. Insurance is a little bit different in nuance depending on what segment - Life & Annuities is very interestingly poised because there is going to be a tremendous amount of effort on integrating the distribution with the wealth distribution. P&C has had a little bit more of a trouble because of the high claim ratios. European insurance business has done well as well, purely based on the power of a proposition.
Our deal wins have been very strong over the last four quarters, almost double of the preceding four quarters. But the gap between the YoY growth rate on deal wins and revenue growth seems to be quite too high. Are some of the deals we won over the past couple of quarters yet to ramp up and start executing? Could we possibly see an acceleration of growth when those deals start coming in?
Part of the reason we started publishing the correlation is because we think the correlation is going to continue to improve given that we are not seeing any client-specific issues that we did see in the early part of 2025. So, that's probably the biggest delta between TCV because this is net new TCV growth, not all of it will translate into company growth, because company growth is the net revenue that you see growth based on all your ramp-ups and of course, ramp-downs. By simple math, you eliminate the impact of one vertical on the overall growth, our actual revenue growth is well past mid-teens already. We just had to be patient. We have just continued to focus on driving deal wins, so we can grow around that particular issue. That issue is now behind us. We called for bottoming last quarter. It has bottomed. So we definitely expect the deal wins to continue to accelerate the growth.
Are the deal wins we had won progressing as per your expectations, or do you think they could ramp up further in the coming quarters?
I think there's more room to go. They are converting, but these are transformation deals, if you sign a $100 Mn deal and it's five-year deal, you may not see the exact $5 Mn in the first quarter of the deal itself. It might take you two or three quarters to get to that run rate. But that's just the nature of the business. I'm not telling anything you don't already know.
While the debt has increased significantly in the last four quarters, the cash is almost the same number. The cash stands at INR3,600 crores, which was pretty much INR3,500 crores last year. So we haven't added much cash, but we've increased the debt a lot. Could you explain what am I missing here?
We had given a dividend of close to $130 Mn. So you need to factor that from your cash analysis. When you compare last year to this year, you will see that the dividend has got paid in July end. We paid more dividend also than the year before. We also increased our dividend. And there is also acquisition payouts that has happened. So, one needs to look at it from an operating cash flow. But if you do M&A and there are certain payouts on contingent considerations of past M&As that are getting paid now, those need to be factored because those will obviously reduce your cash. So there are two elements you need to look at outside of the norm. One is the incremental dividend, two is all kinds of M&A related payouts that have happened over the past one year, and if you normalize for it, then that will explain. And some of these are contract acquisitions, not just the typical M&A.
What would be the penetration of the client in terms of modernizing the application with GenAI or LLM or the agentic AI? Do you believe clients are becoming more confident to touch the legacy, which they were not earlier in terms of modernization, now in the AI world?
Order of magnitude difference in the level of confidence and the appetite; for three reasons. One - if you were to do a similar modernization program in 2018-19, the typical execution period used to be between five and seven years to retire any decent-sized monolith application. The biggest complexity there used to be relearning or reverse engineering that application from a logic standpoint. The second big impediment was that if you're going to deliver this application back in five years, seven years, the risk is too high. It's like a black box modernization program. And of course it's expensive. So, complexity, time and cost were all three big impediments. With the approaches that are now being proposed, clients have undertaken significant amount of early adoption work, tested it, validated it, set it up inside of the production environment, done minimum viable programs to see if that works. In general, the appetite for doing these deals is probably up an order of magnitude. We are seeing it up 4x in our own pipeline in the last one year. And that's definitely opening up a lot of conversations for some really large programs.
If demand picks up, especially in BFSI, even application is 75% of our revenue, we could be one of the biggest beneficiaries. Is it fair to assume that we can have a broad-based growth because there is no portfolio-specific issues even outside furlough? On hedging, looking at your EBIT margin ex of hedging, we are already approaching closer to 16%. Can you guide us what to model in terms of the hedging?
On broad-based growth - if you look at the current quarter, it was pretty broad-based across verticals, segments and geographies. We have some more work through in a couple other verticals. As we fix that, we are very much focused on driving a broad-based company-wide growth. Pipeline is the lead indicator of that, and we are quite pleased with the progress we've made in the last three or four quarters on that front. On hedging - we have a reasonably consistent hedging policy, which we hedge about 80% for the next four quarters, and a lower percentage for the four quarters after that. So I don't think you will see a lot of change in terms of the benefit flowing into the P&L for rupee depreciation at least for the next couple of quarters, and then you will start seeing that play out positively after that. We are sticking to our hedging policy. Over a medium-term, this flow in, but you will not see too much of it flow in, in the next couple of quarters for sure.
Just wanted to understand the investments in your AI platforms. What exactly are you doing? Is it OpEx or is it CapEx? Is it capitalized? Between March 2025 and 31st December 2025, there's been some incremental growth in the intangibles part, and there is a significant growth in other assets. Can you explain these things?
It's fair to assume that the AI strategy is centering on intelligently orchestrating through our own platform, multiple third-party systems, integrating LLMs, proprietary solutions, and third-party assets. So, while there is a build component to what we are doing, a large part of the build component will actually run through our OpEx. But in some cases when we do have to integrate some third-party assets or we need to buy some third-party platforms to integrate in, some of that will definitely get capitalized. Aravind: that is the reason why we had this as an intangible under development as of September 30, and then when we launched the platforms on end of October, we placed it and that's getting charged off to P&L over a period of time. You would have also seen a little bit of a bump in the CapEx line item on the cash flow which also pertains to this, with some to go, but a large portion of that CapEx has also kind of got paid out. On the other assets, there are multiple elements - largely around the large deals that we have made upfront investments and also in the nature of contract assets, where as we shift to more fixed price projects, unbilled in fixed price projects come under contract assets till customer delivery. Not much movement on that line item in Q3 vis-a-vis Q2. This is frankly a lot of bump up that happened in Q1 and a bit in Q2 on the back of some of the large deals that we won.
On earnout provisions - over the last 12 months to 24 months, have there been any write-back of provisions that you would have made earlier?
No, from an earnout standpoint. Not in the last six quarters for sure.
The Trump administration is saying that they're going to buy back or asking the GSEs to buy out $200 billion of mortgage-backed securities. Are you seeing any difference that it would make to the mortgage business of ours?
That's in a way, an alternate mechanism to bring down interest rates and provide more liquidity into the funding markets. If that happens, the volumes will pick up. If the volume picks up, we will benefit, and other than that, I don't see how it will directly have any correlation to our business. But if the net impact is increase in volumes, increase in home-buying activity and lower interest rates, then definitely we'll benefit.
From a purely client spend perspective, do you think that the current trend could be that the spend might go up because you are moving into a different way of doing things, but on a net basis from a two, three, four year perspective, the absolute spend itself could shrink because of the level of implementation of AI and then it will all be about market share gain rather than gaining from the spend expansion?
I don't see a scenario where clients will spend less on tech. I think if anything their spend on tech versus spend on people will be in favor of spend on tech. Then it is up to us to decide how to play in that ecosystem.