Coforge (NSE:COFORGE) Q1 2027 Earnings Call

1:05 Good day, ladies and gentlemen, and welcome to the Coforge Limited Q1 FY 'twenty seven Earnings Conference Call. All participants' lines will be in the listen only mode. We will open the floor for questions post the management's opening comments. Please note that this conference is being recorded. Joining us today from the Coforge leadership team are Ms. Sudhir Singh, CEO Mr. John Spait, President and Executive Director Mr. Saurabh Goyal, CFO and Mr. Himanshu Sarga, AVP, Investor Relations. Before we begin, please note that some of the statements made in today's discussion relating to the future should be construed as forward looking statements and may involve risks and uncertainties. Please refer to the disclaimer to this effect in the company's Q1 FY twenty twenty seven earnings press release.

1:56 I now hand the call to Mr. Sudhir Singh. Over to you, sir. Thank you, Ima, and a very good morning and evening, ladies and gentlemen. Thank you for joining us today. Please allow me to start today's call with a quick reflection and a recap. This, ladies and gentlemen, is the tenth year that the current management team at Coforge has been at the helm. Nine years back, what was a $400,000,000 revenue organization when we took over is poised to close the current year having grown almost seven times in just ten years. As you listen to our quarter one commentary and the very robust growth and margin expansion we see ahead of us in this year, we hope you will recognize that the execution intensity and the commitment that has got us here over the last nine years is not just undimmed, but it is actually getting stronger.

3:00 Over the last nine years, we have delivered a revenue CAGR of 21.9%. Over the same last nine years, we have delivered an EBIT CAGR of 24.6%. And over the same last nine years, we have delivered a PAT CAGR of 24.1%. That is an exceptional record of sustained profitable growth. And yet that is the past. It is the future which is far brighter, and it is the future which in the short term looks set to mark Coforge out as the firm which truly brought the promise of enterprise AI to life.

3:48 Our pipeline of large deals in q two and beyond has never been stronger than it is today. In q two itself, the quarter we are in, one month has elapsed, we believe that we are likely to sign large deals in numbers that will be very close to what we signed in the full year just three years span. You will recall in quarter one, we had indicated that we were set for a flat quarter because we were culling elements of our India government and data center business to ensure that we deliver on our promise to expand reported FY twenty seven EBIT to 15 and a half percent on a consolidated basis and reported FY twenty seven EBITDA to around 20.5% for the year.

4:41 We are pleased to report that not only have we exceeded the full year EBIT margin guided target in quarter one itself, but that we have also grown 1.1 cc sequentially. Excluding the impact of the businesses that we curled in quarter one, we have grown almost 5.2% cc in sequential terms in quarter one. Our growth in quarter two and beyond is likely to be very robust, and our margins, having reached this threshold already, will sustain at a minimum and likely expand further. In quarter one, 86% of our business came from AI led engineering, data, and cloud services.

5:31 Equally importantly, in q one, the Encora acquisition was consummated using the proven Coforge integration playbook, which is uniquely our own. We immediately and fully integrated both organizations on day one itself, on the April 24 itself. As part of our playbook, we parted ways with leaders running the acquired firm again on day one itself, so we had immediate and complete effective control. Today, on the July 28 in India, all aspects of Encora operations for the last three months are being overseen by COFORGE leaders who led the Encora due diligence effort.

6:23 We are ahead of the cost synergy plans we had shared as part of the acquisition case, and this is reflected in the fact that our consolidated reported EBIT margin in quarter one is already at 16%, while our consolidated EBIT plan for FY twenty seven that we had shared with you was 15.5%. At this time, we believe... Let me rephrase that to at this time, we know that Encora will create exceptional business value and synergy in line with what Signity, what SLK Global, and what Insistent did. Excluding onetime exceptional costs, EPS for the quarter was rupees 13.30 compared to rupees 13.80 in the previous quarter.

7:14 This performance is particularly noteworthy given the 25% increase in our equity base following the Encora acquisition and the incremental interest costs associated with the acquisition financing. As we've guided earlier, we remain on track to be EPS accretive in FY twenty seven following this acquisition. So with that, ladies and gentlemen, and before I get into the detailed commentary, let me talk a little bit about how we are moving enterprises from AI adoption to what we call enterprise autonomy. Let me also reflect on the next wave of AI driven opportunities for our industry. We believe that the AI driven disruption will create select yet outsized winners.

8:03 The new AI driven world demands that our industry pivot itself from operating on a scale of people to a scale of intelligence. The AI the AI conversation has changed. A year ago, enterprises were asking how do we deploy AI. Today, they are asking how do we operationalize it? How do we go on it? How do we scale it? How do we turn it into measurable business outcomes? This shift, which is creating the next wave of opportunity for our industry, is what we at Coforge call the shift towards enterprise autonomy. We believe this next phase of AI will not be won through access to models. Every enterprise will have models. Every enterprise will have cloud or clouds.

8:51 Every enterprise will have agents. The differentiator will be Applied AI. AI grounded in the business con... Context. AI grounded in process, AI grounded in policy and risk. It will come from operationalizing intelligence across the enterprise. It will come in the form of AI that works inside real complex enterprise environments. That is where value is moving, and that is where we are focused. This is why we built COFORGE Neuron. Neuron is our AI operationalization platform. Its purpose is simple, to help enterprises move from AI pilots to AI operations.

9:40 It brings together enterprise knowledge, decisions, workflows, governance, agents, and execution so AI can operate at enterprise scale. Neuron, ladies and gentlemen, is not another model. It is not another copilot. It is not another agent marketplace. It is the operating layer that helps enterprises move from experimentation to production. We are backing this vision with meaningful investment. Today, Coforge has more than 11,000 data and AI practitioners, eight AI platforms, 22 AI assets, and over a 100 reusable AI agents and accelerators.

10:29 During fiscal year twenty six, we invested appro... Approximately $58,000,000 in AI innovation. Furthermore, approximately 30% of active agents, engagements, I beg your pardon, already leverage AI within delivery workflows. These are not future ambitions. These are capabilities we are deploying today. In terms of evolution of the delivery model, technology alone, we believe, is not enough. The delivery model must evolve as well, and that is why we have combined Neutron with forward deployed engineers with mod squads, which are hybrid agent human pods, and with the reusable AI assets. The traditional model was built around effort.

11:15 The emerging model is built around outcomes. In this overall context, what makes Coforge different is straightforward. We are not competing on model ownership. We are not trying to be an AI infrastructure company. Our advantage is applying AI inside complex industries where domain knowledge, execution discipline, governance, and measurable outcomes matter most. We know the industries. We understand the workflows, and we understand what it takes to move AI from ambition to a word you you hear me use often, execution. We believe the next wave of enterprise value creation will not come from deploying more AI tools.

12:03 It will come from operationalizing intelligence across the enterprise, embedding AI into decisions, workflows, and operating models, and helping organizations move from AI adoption to the term I started off this conversation with enterprise autonomy. That is a journey Coforge is enabling through NewRog. Let me move on now to revenue commentary. Consolidated revenue for the quarter stood at US dollar 592,200,000. Indian rupee terms, revenue stood at 55,277 million Indian rupees. I want you to recognize that these figures include only two months of contribution from Encora, revenue starting the May 1 and not the April 24.

12:56 Revenue excluding Encora grew 1.2% sequentially in CC terms. And if, as I had noted earlier, if we take out the impact of the government and the data center businesses that we've called in the quarter, the rest of our business grew 5.2% CC sequentially in quarter one. Our consolidated revenue on a year on year basis in dollar terms has grown 33.3%. Our consolidated revenue, again, on a quarter on quarter basis dollar terms has grown 21.1%. On an organic constant currency basis, banking financial services grew 2.9% sequentially and now contributes 24.7% of consolidated revenues.

13:47 Insurance grew 4.6% sequentially and contributes 13.6. Travel, transportation, hospitality grew 1.7% and contributes 21.3% overall. And health care high-tech grew a very rapid 11.6% sequentially and contributes 17.3% to our revenues. Government outside India contributes 6% and others, now at 17.1 of revenue, declined 8% following the planned portfolio exits that we had shared with you. From a geographic perspective, organic growth was led by Europe and The Americas, which grew 8.43.5% sequentially in CC terms.

14:37 Rest of the world segment contracted 22%, reflecting the impact of the portfolio exits across India government and the data center business. AI led engineering, data, and cloud, which is the strategic core of the combined organization, together contributed 86% of consolidated revenue during the quarter, ahead of the 80% share that we had indicated when we announced the Encora transaction. AI and engineering remained our largest revenue contributor at 50%, followed by data services at 21% and cloud at 15%. The addition of Encora has further broadened our client portfolio. In terms of client mix, Coforge now has one client with revenue greater than a $100,000,000, three clients with revenue between 50 to $100,000,000, 14 clients with revenue between $20,000,000 and $50,000,000 and 29 clients with revenues between $10,000,000 and $20,000,000 top five clients contributed 18% of Q1 revenue and the contribution from our top 10 clients stood at 26.1%.

15:50 Order in day, during the quarter, we signed four large deals. As I noted in my earlier commentary, in quarter two, we expect to sign more deals than we possibly ever have in terms of numbers in our history. Total order intake during the quarter stood at US691 million dollars Our next twelve month executable order book expanded to an all time high of US2.23 billion dollars compared with US1.55 billion dollars a year ago. That's an increase of 44.2% year on year, and that in turn provides strong visibility in line with my commentary for the year ahead. People, moving to our people metrics, total headcount at the end of quarter one stood at 46,228, reflecting a net addition of ten thousand four and fifty one employees during the quarter.

16:44 This includes 9,256 colleagues from Encora who became part of Coforge following the acquisition. On an organic basis, our workforce increased by a net eleven ninety five employees sequentially. Utilization remained healthy at 82.5%, and we are holding it there because we see significant growth ahead. While in the last twelve month, attrition declined further to 10.4% remaining amongst the lowest across the industry. With that, ladies and gentlemen, I now hand the call over to my colleague, mister John Spate. Thank you, Sudhir. I will now highlight the quarter's delivery and capability milestones. Across our client base, AI native operating models are moving from ambition to production with AI led conversations converting into large multiyear engagements.

17:39 For a leading global financial institution, we are building its AI platform and agent ecosystem across the SDLC landscape with the potential to deliver more than 50% productivity gains across their business units. For a leading Latin American bank, AI enabled mod squads now span engineering, testing, modernization, and business analysis, targeting a 30 to 50% increase in delivery throughput. For a leading fintech, we've modernized its AI vibe coding developer portal using reverse and forward engineering agents on GitHub Copilot and Claude Opus, contributing to a new modernization engagement. For a leading wealth management firm, an AI led framework accelerated API transformation by over three months.

18:29 For a leading wealth and asset management platform, our AI native advisor experience desktop powered by over 20 specialized AI agents is delivering 30% plus advisor productivity gains. For a leading investment services institution, we are supporting an AI led operating model transformation with 40% of portfolios transitioned in one year and delivery cycle times reduced by 80%. For a global travel technology leader, the ModSquad model delivered 30 productivity gains and a 22% reduction in manual effort. Also, please note that our cargo platform, COSYS Plus, went live for one of India's largest aviation hubs, extending its footprint to 20 airports globally.

19:17 For a leading Australian medical indemnity insurer, we progressed a large scale core platform transformation serving approximately 40,000 health care professionals. For a large specialty insurance provider, CodeInsight AI was leveraged as part of a modernization program to migrate to Azure, reducing technical debt by 92%, delivering 99.93% field level accuracy and 65% productivity improvements. Meanwhile, in life science... Sciences, for a leading biopharmaceutical company, an agentic audit platform identified 4,000,000 in saving opportunities at 95% accuracy. In manufacturing, COFORGE's CodeInsight AI platform modernized global automotive manufacturers' legacy landscape, reducing documentation effort by 70%, modernization cycles by 50%, and operating costs by 35%.

20:18 For a leading European client, we secured a five year 230,000,000 plus AI led transformation program using low code and no code platforms. AI powered automation and AI infused SDLC to reduce their manual effort and improve productivity at scale. These successes were complemented by recognition as both a leader and star performer in the Everest Group Duck Creek Services Peak Matrix 2026 and a leader in the ISG provider Lens Duck Creek Services ecosystem assessment, reaffirming our position as a preferred transformation partner for insurers globally. With that, I will hand over to our CFO, Saurabh Goyal. Thank you, John. Q1 marks a strong start to FY '27, with the combined organization delivering results ahead of the operational and profitability objectives articulated in the beginning of the financial year.

21:14 I will lead with key highlights of the quarter. Revenue, up 49% Y on Y. EBIT, 101% reflecting year on year margin expansion of 1,400 and... 414 bps. PPT profit before tax up 92% Y on Y, an expansion of two eighty four bps year on year, and PAT up 110% Y on Y, again reflecting two seventy one bps improvement in the margin. Q1 FY twenty seven reported revenue stood at $592,200,000 including $100,700,000 that came from Encora for two months. Consolidated EBIT margin came in at 16%. Organic EBIT margin was 16.7%.

22:02 Within its first quarter, as a part of Coforge, Incora delivered EBITDA margin of 20.3% and EBIT margin of 19.1%, reflecting a rapid expansion of the integration playbook and realization of SG and A and operational synergies. Coforge's reported G and A for q four was 6.7, whereas Encora was at 10%, and we had mentioned that in our, call in December when we, announced the acquisition. The combined org is now at 6.6% for q one FY twenty seven from a G and A standpoint. This represents a reduction of 40% in Encora G and A. This is further going to improve in q two as a result of full quarter impact of actions taken in the current quarter.

22:49 The hedge losses incurred during the current quarter amounted to $1.01 $0 Additionally, we have a M2M loss of $1.01 $4 M on account of outstanding hedges, which will be realized over next two quarters. From fourth quarter onwards, we anticipate a positive impact of dollar 10,000,000 in our earnings as the hedge losses will be eliminated because of no open book beyond q three from our perspective. Exceptional expenses and acquisition related expenses were recognized to the extent of $6,500,000 in the current quarter and $5,400,000 were in Q4. We had guided for acquisition and integrated relation expenses of 15,000,000 at the time of acquisition and we're going to remain well within that budget.

23:38 We expect marginal integration cost in q two and then nothing from q three onwards. From Encora integration standpoint, the integration of Encora has progressed significantly ahead of plan. All 45 legal entities were migrated onto s four HANA effective May 1, creating a unified operating and reporting environment from day one. Revenue recognition policies, planning systems, and performance management processes have been aligned across organization. Based on the progress achieved to date, we remain confident of not only delivering but surpassing the 15.5% consolidated EBIT margin guidance shared in last earnings call for FY twenty seven. Moving to cash flows, the combined organization generated a free cash flow of $52,900,000 in quarter one, representing a FCF to PAT conversion of 95.3% compared to negative 56.5 in Q1 same time last year.

24:38 This significant year on year improvement reflects the strength of underlying operating model and disciplined working capital management. We remain confident of meeting the free cash flow to pat guidance of 100100% for FY twenty seven. Moving on to balance sheet. As part of Encora transaction, the company recorded approximately $480,000,000 of customer relationship intangibles, which will be amortized over twelve years, resulting in charge of dollar 40,000,000 per year within depreciation and amortization line. The accounting for acquisition has been done on fair value of shares on the date of closing, which was $12.20 per share as against $18.15 on the... At the time of signing. This has resulted in lower goodwill in the balance sheet by $600,000,000.

25:27 On term loan, you would all recall that for Encora acquisition, we had taken a term loan of $515,000,000. As of June 30, the term loan was fully drawn, and it is reflected in the balance sheet. The loan has a three year tenure and carries post tax interest cost of 2.99% per annum. The schedule of payments is including the principal and interest will be paying almost $59,000,000 in financial year '27, $209,000,000 in financial year '28, and $258,000,000 in FY '29, and finally, the last branch of $75,000,000 in Q1 of FY thirty. With this, I will hand over the call back to Sunil.

26:15 Thank you, Sarab. And summing up and sharing outlooks... Sharing outlook for the rest of the year is what follows. Fiscal year twenty seven is shaping up to be an exceptional growth year for Coforge despite the significant AI driven flux. Not only do we expect to set the benchmark on revenue growth, but we also expect to emerge as one of the highest margin mid caps across our industry in this year itself. The exceptional AI led engineering, data, and cloud services capability core, which contributes to 86% of our revenues now, is what is helping us realize simultaneous and exceptional growth across both the revenue and margin expansion access.

27:04 All of this is driven by an execution intensity that is uniquely our own. With eight AI platforms, 22 AI assets, more than a 100 reusable AI agents and accelerators, 58,000,000 US dollars invested in AI innovation behind us. We shall continue to center ourselves strongly on using AI to drive enterprise autonomy. As we had shared last time, for Coforge, the demand tailwind in the current environment is structural and pure. We recognize that AI generated code is cheap to build, but we also realize that it is expensive to maintain, to secure, and to govern. We realize that AgentTech AI will create a massive managed services net, managing which will create a recurring high margin revenue streams but only for firms that can seize it.

28:03 Every AI advancement accelerates our growth. We are positioned for the near term legacy modernization search. We are positioned for the medium term agentic deployment wave. And finally, we are positioned for the long term expansion of the global technology market. The outlook for fiscal year 'twenty seven that we had shared last quarter remains unchanged. We are confident of achieving an EBITDA margin of 20.5% to 21% on a consolidated basis. EBIT margins are expected to be in the range of 16.5% to 17% on a standalone basis and 15.5% or maybe higher on a consolidated basis, for the firm.

28:53 Free cash flow to PAT for this year will be more than 100%. That, ladies and gentlemen, was the end of the prepared remarks. We look forward to your questions, to your comments, and to addressing them. Thank you. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may click on the raise hand icon from the participant tab on your screen. We will wait for a moment while the question queue assembles. We take the first question from Solab Goveela of Morgan Stanley. Please go ahead. Yeah. Hi. Am I audible? Yes, sir. Yeah. Thanks for taking my question, and congrats So my first question is on the fresh order intake number. So just wanted to better understand how much is the fresh order intake number driven by Anpura and how much is the core business within that.

30:00 Plus, you know, last quarter we spoke about UK deal that we're into. So just wanted to understand whether that's now part of this fresh order intake or that still continues to be outside? So, Ravi, your second question was not clear. Can you report the second question? The first question was what's the mix between organic and and CORA led? What was the second question? So last quarter, we had called out that, we have certain framework agreements in UK, which was not part of the deal inflow number in the last quarter. So I'm just trying to understand whether this quarter those agreements are included or they still continue to be outside of the deal. So so the $691,000,000, Sullab, does not include the order intake from the Encora portfolio. That's only the organic piece that has come from what used to be standalone Coforge.

30:55 That's answer one. As far as the framework agreement and the likely further incremental work that we are likely to get, they are still not included in the order intake. That will continue to come and sit on top of the order intake that we've already announced. That's that's great to hear. And and just second part second part of the question was on the, you know, large deal with expectations that you have in. Just wanted to understand whether those will support growth rates in 2Q itself, or it will be more of a Oh, Surab, we think q two is gonna be a robust growth quarter, and for everything that we needed for that quarter to come through is already in place.

31:43 We've already closed some of these large deals in the first month of the quarter. It's almost the first month of the quarter. Four weeks are in. But most of these will really start impacting quarter three onwards. Despite that, quarter two should should be very robust. As I said, if you exclude even in q one, the impact of the India government culling and the data center walk away that we've done, even in q one, we grew 5.2% cc sequentially. Understood. Understood. That is very clear. And then just one question for Saurabh. Saurabh, just wanted to check on the net working capital on cash flow this time around. The absolute number as well as the number as a percentage of sales shown some sort of an increase. So just wanted to understand whether that's just because of consolidation of Encora or there's something more to that?

32:40 So the absolute increase is because of consolidation of Encora, but the number of days have actually come down. Understood, sir. Thank you for taking my question. Thank you. We'll take our next question from Abhishek Pathak from Motilal Oswal. Please go ahead. Yeah. Hi. Am I audible? Yes. Yeah. Hi, team. Congrats on a good quarter. So I had a couple of questions. Firstly, on the COFORGE neuron network or kind of our FDA sort of mod squads. How are we monetizing this right now? Are they used as accelerators to kind of just win deals or as stand alone offerings? Are already generating traction. And in the future, is there any way to quantify the revenues that are coming from, let's say, platforms versus, you know, not legacy per se, but versus managed services operations that, you know, we may have earlier?

33:34 That's the first question. The second question was on our T and M versus fixed price sort of revenue mix. You know, the the T and M piece seems to have kind of in stock a little bit over the past few quarters. So how should we kind of reconcile this with, you know, the the outcome based contracts that that seem to be now the flavor, and they will continue to kind of, you know, I'm assuming, you know, dominate the deal conversations ahead. And lastly, kind of a hypothetical questionnaire on EBITDA, Sudhir and Saurabh. Right? I mean, we are already at 16% EBIT. What what happens if we sacrifice, let's say, a 100 bps of, you know, margins from here? How much growth does it kind of buy us? Or I just want to understand at such a robust sort of margin sort of, you know, level, is it possible to sacrifice a bit of that to to kind of, you know, chase even more growth? Or or are we... Or or or is the expansion in margins more organic and we should continue to expect that going forward as well? Thank you.

34:36 Let me take those questions in order, Abhishek. As far as Neuron is concerned, and Neuron in some ways is the operating system. It's not a platform. Neuron is further led by the eight AI platforms that we have and the 22 AI assets that we talked about. As I had referenced, 30% of the active projects, delivery projects, real projects, are being driven through our AI assets or are infused with the AI assets. We can't call out a number which is AI only or AI standalone. The number that we have shared is that 86% of the revenue of the form in quarter one has come from AI led engineering, cloud, or data services. And for us, that in some shape or form is an umbrella surrogate for AI led revenues.

35:23 As far as T and M versus fixed price and outcome based contracts are concerned, 6% to 7% of our global revenues on a run rate basis today are coming from outcome based contracts, and that's that's how I would put it. And as far as the trade off between EBIT at 16 and growth is concerned, we believe very strongly that solution led selling, does not warrant price discounting to accelerate growth. As I suspect you heard us say two or three times during our collective commentary across the three of us, we feel very assured that we will set the benchmark for revenue growth for the industry for the third year running. And at the same time, we are equally keen to be the highest, if not one of the highest, the aspiration will be to be the highest margin mid cap as well. We think both of those are possible. We think exceptional growth will still come despite staying at a 16% odd EBIT level that we've already achieved.

36:28 Incidentally, I just want you to know that that 16% EBIT is a COFORGE number. Stand alone COFORGE for the quarter came in at 16.7 EBIT. Clear, Sudeep. Thank you so much, and all the best. Thank you. Our next question is from Vibhor Singhal of Novama Equities. Please go ahead. Yeah. Hi. Thanks for taking my question, and congrats, Coforge team, on a very solid performance yet again. So we have a couple of questions from my side. You mentioned about how enterprises today are Everybody has multiple, basically, agents, multiple LLMs, but what we basically are building them for is the application layer where you can. So there are a lot of, basically basically, information that is kind of flowing at at a very rapid pace these days. Enterprises are also talking about building SLMs rather than SLMs...

37:28 Well, the large language models. There are also... I think there are cost... Angle of token cost optimization, which is also coming in. So keeping that altogether in in one bucket, how do you see the overall... This enterprise application adoption in the AI space leading for us? Is it very similar to, let's say, the 2018 scenario when we basically kind of hit that path in which we started moving enterprises onto the cloud platforms and the digital adoption? And if that is the case, how do you basically differentiate at this point of time? How does an enterprise differentiate or client differentiate at this point of time between which companies to choose and what are the kind of offerings that they're looking at? I know it's kind of a subjective question, but if you could just help us understand, clear the noise from the information that we need to do at this point of time.

38:16 Yeah. I think it's a... You're right. It's subjective, but I think a very relevant question. Given the given the rate of change and the speed of change that's going on, I think... And most enterprises are not tying themselves to a specific model. They're not tying themselves to, let's say, a hyperscaler or a set of clouds because access to models through clouds through clouds that are out there, can change. Acts, and model providers themselves are now in the field as we know and offering their services on their own proprietary cloud. So we're at a stage right now where from a Coforge perspective, we have come up with with service offerings on a very quick basis when it comes to token ops to manage token economics.

39:06 Again, a field that seems to see change almost every week. We are at a stage where as Coforge, we have been working with our partners like Zscaler to come up with service offerings that have already got monetized around partnering on the Guardian AI platform and come up with managed services based constructs around MITAS related security vulnerability assessment. So the smart enterprises, at this point in time, the one key learning that we see all of them having taken is that they're not tying their wagon to any particular start, to any particular LLM model provider, or to just one or two cloud providers.

39:51 We are seeing enterprises increasingly focused on what they're calling enterprise sovereign AI or enterprise open intelligence and increasingly trying to diverse their data processing, and moving it in house with the associated security and governance issues that are going on. Got it. Got it. Got it. Just one quick follow-up, and then I have just a couple of questions for Saurabh. Is the aversion to Chinese LLM models still there in the markets, especially in the western markets, or do you see them opening up to those models also at this point of time even if it has... Even if at the preliminary stage? Sorry. That question was for you.

40:42 No. The question to you, Sudip. I mean, the adoption of Sorry. Would you mind repeating it before? Yeah. Sure. So sorry. Yeah. So the question was that... I mean, just, again, a very bird's eye view if I can get. Is there still an aversion to the Chinese LLM models in the Western enterprises, or do you see that picking up gradually over the past some time? We're not working, as COFOR. At this point in time, we are not working with, with enterprise clients in North America who are, leveraging China based models actively within their, and that's just us before. So they... I'd add to that as well. Just very quickly, I I I can recur the same comment across UK and and Europe.

41:30 I've yet to have a client that's engaged us on using these Chinese models. Right. Great, John. Thanks for That that obviously may change with the introduction of the latest LLMs and the issues over token... Tokens, but we've yet to see it. Like Got Got it. That's really helpful. Just a couple of quick questions for Saurabh. Saurabh, the $230,000,000 deal that we announced last week, is that the part of the deal even this quarter? Or that come into No. Was a q two deal, so it's not Perfect. That's really great to hear. So that means our q two deal, as Sudhir also mentioned in the opening remarks, should also be quite strong. Secondly, if I if I see the presentation, as you also mentioned in your, basically, opening remarks, that because we closed the transaction in April and the book value of the Encore acquisition comes at around $1,200,000,000, so that has led to a lower goodwill.

42:26 Yes. Is that also led to a slightly lower intangibles and slightly lower amortization? Or can... We've kept kind of kept the amortization same as we were looking at before, and it's only the goodwill that has probably come down? It is only the goodwill that has reduced by $600,000,000. The intangibles, the amortization impact was roughly 4,000,000 per annum, and we have kept it at the same level. Got it. Got it. Yeah. So the intangible on account of customer relationship is close to 30% of the valuation. Sure. And just a last bit from my side. Typically, we had seen q one had always been a seasonally weak quarter for us in terms of cash flows. Our free cash flow used to be negative in that, but this quarter is a very strong cash flow. So can we expect this trend to continue and the weakness seasonality of Q1 to go away now and probably have a stronger Q1 every time? Vibhor, we had taken this feedback from all the investors and had structurally made that change of improving the free cash flow quarter on quarter.

43:24 It was not just quarter one, it was H1 which used to be almost near zero for us for many, many years. It has taken us two to three years to come to a point where we stand today, and we feel very confident that we'll only build on to this in years to come. Got it. Got it, sir. Great. Thank you so much for taking my questions and wish you all the best. Thank you. Thank you. Our next question is from Ravi Menon of Axis Capital. Please go ahead. Hi. Thanks for the opportunity, and congrats on a good quarter. So G and A people cost has increased a bit faster in revenue. That's surprising, especially given how focused you were on taking out combined G and A costs. Are there any one time costs here? The G and A has actually come down as a percentage of revenue. It's just the two companies coming together, the absolute number has gone up.

44:16 If you look at Coforge standalone G and A last quarter was 6.7. And I had mentioned in my December call when we announced the acquisition that Encora G and A was at 10%. The combined G and A in the current quarter stands at 6.6%. So which means that there is a 40% cost out that has already been done on the Encora G and A, and this will further come down as a percentage of revenue. So the increase is because Encora company got consolidated in the current quarter. Thanks, sir. I was just looking at, you know, the overall g and a people count that seem to have gone up slightly. And overall, yeah, g and a people cost as well, that's gone up. But, yeah, thanks for that. And the interest rate on this three year loan at 4.6% yield, this is just 30 bps higher than the three year U. Treasury yield, right? Is this better than you expected? And are there any specific loan terms here such as you have to keep a certain amount of cash in escrow or anything like that, that restricts our do do we have some cash that's restricted as part of this? There is there is no cash that is restricted.

45:18 The reason why it is only 30 bps higher from the, SOFR, which is a three year SOFR standing today, We've signed this deal at a fixed rate of next three years. The the price... The the interest rates were expected to move in all directions. We didn't want to bet on that, and that's why we signed a signed a three year fixed term loan and that's where it's standard 4.6%. The post tax impact is actually costing the P and L is 2.99 because this loan is sitting in India. We get 35% tax benefit on that. So the P and L will see an impact of only 2.99%. There is... There are no such fancy terms which will restrict any any any action that company might have to take in future.

46:05 Thanks. And one last thing, you know, you said that this loan is in India. Does this mean that since you have a natural hedge, you will reduce your Forex hedges now? And I've already said that we're not hedging more. We have a natural hedge and we'll fund it through that. Okay. Perfect. Thanks so much. Thank you. Our next question is from Jyoti Singh from Haitong Securities. Please go ahead. Jyoti, please go ahead with your question. There seems to be no response from this connection. We will move to our next question. That's from Dipesh Mehta of MK Global. Please go ahead.

46:54 Hello. Yes. Yeah. So couple of question. Thanks for the opportunity. First on the if I look rest of the world segment margin. Now it is not showing benefit from some of the divestment which we did. We exited flow... Margin business in India. So if you can help us understand how to reconcile these two thing. Second question is about the cloud revenue growth. Now cloud service line, I think that revenue is doing some kind of moderation for last couple of quarters. Can you help us understand how to understand that part? And last thing is about the goodwill. Now the presentation number, what we reported in rupee terms in goodwill versus the notes to account, what we give, those two numbers are different in goodwill. Can you help us understand and reconcile this thing? Thank you.

47:46 Okay. So I'll I'll take the, margin on the rest of the world. So one, there is, there is reduction in the, in the India government business, and there is also reduction in the data center business which was sitting in rest of the world. So which was coming at a much higher margin. So that's why you see that the overall margin over there has remained flat. And plus the current quarter also includes the consolidation that has happened from Encora coming in. So that's why the overall numbers are looking flattish, but you will see now the rest of the world's margins will start expanding from here on. So that is on rest of the world. Second question... What was your second question, Dipesh? The second was cloud revenue. So Hello? And if it's moderating.

48:34 Dipesh, cloud revenue, cloud cloud engineering fall... Can fall either way. Right? It can either fall on AI led engineering or on the cloud side. If you look at all three data, cloud and AI led engineering, that number has gone up significantly. You'll see that AI led engineering has popped up by 5%, and cloud percentage contribution has gone up... Down by about 2.7, 2.8%. Some of it is a classification issue and where cloud engineering revenue falls. So just want to understand, Sudhir, more about what we put in into that line item because I understand we have very strong overall growth. But from nomenclature perspective what sits in that. And if let's say it is more like structural because the way classification happened that segment reported line might have some implication of the reporting.

49:25 I'm sorry. I didn't get the implication of the reporting piece. What implication are you talking about? No. So the the way we classify revenue, the segment which the let's say kind of project work which we are getting and seeing significant traction might not be classified into cloud reported service line item. So whether those kind of definition is having implication about reported service line revenue. See, this is quarter one of merging in CORA, and CORA has mainly engineering and not cloud revenues. Right? And you know that because in CORA when we presented also, we said that's largely AI led engineering revenues. Therefore, when the two firms merge, naturally, there would have been a small bump on the engineering piece on a percentage contribution basis.

50:15 The second piece is what I said earlier. The way we classify revenue is the same, is the same way that we, look at our own service lines. Cloud services revenue is cloud and AI infra related revenues. And engineering revenue is whatever engineering revenue is. As I said at the outset again in response to this question, engineering revenues as a percentage were likely to go up because in CORA had negligible cloud related revenues, almost all the revenue was in January, and that's why you're looking at the change that's happened. And last on goodwill, if you can help us reconcile the number. So, Dipesh, the goodwill...

51:02 The result sheet has the notes and the notes has the correct goodwill, and that is what has been recognized in the balance sheet. And and just for the record, cloud for us sequentially has grown 4% q o q. Right? And Quora may have influenced the percentage contribution, but the business continues to do extremely well. Okay. And just on the... For Saurabh, let's say in your presentation, goodwill number is 142651, and in BSC, it is 120890. So one should take 120890 as a number. One second. So whatever is there in the BST filing... Yeah. So 120890 is the goodwill. Correct. That's right.

51:49 Okay. Thank you. Our next question is from Sandeep Shah of Ecoris Securities. Please go ahead. Yeah, thanks. Thanks for the opportunity. Sudhir, some of your large peers are feeling that though the AI adoption is increasing which is leading to deal renewals and a higher demand of AI led productivity gains versus that there is no accelerated spend on the discretionary side which is AI led which includes modernisation, cloud, cyber security and data engineering. While our commentary shows otherwise that there has been a deal wins which is increasing quarter after quarter.

52:37 So our trends are slightly different versus peers. What differentiated delivery model and the go to market model which we follow which is yielding better results versus industry? Sandeep, our results have been far superior to the industry for the last nine years. I don't think the current quarter or the last one year is an outlier. Right? And some of our larger peers, I can't comment on them. But our performance has not been in tandem. It's been materially superior for nine years running. That's almost a decade. You heard us talk at different points in time around our domain depth. The fact that we choose to work in very select verticals, you contrast data, cloud, and AI led engineering being 86% of our revenue versus some of the larger peers in the industry. You are looking at a materially different firm from a capability, from an execution intensity, from a domain orientation, and from, I suspect, and I posit, hunger around the go to market cadence, than some of our peers. That's why it's not a...

53:48 It's not just our commentary that is different. Our performance is different, and the difference comes from all the four aspects that I just spoke about. Yeah. Yeah. John, do you want to add to that? Just a few points there. Mentioned on domain. I think, especially in this world context, which is your functional, focus and specialization. And it's not just understanding specialty insurance or wealth and asset management. It's also the institutional knowledge that we have of our customers, which adds to that context. And that has come about because of the long tenure we have with our customers. So that's the first thing. And then second thing was... Which was just to reiterate what Sudhir said. Execution, execution, execution. I've said it many times, but that intensity really does differentiate us.

54:40 Yeah. Yeah. Sudhir, I also acknowledge the strong execution, not just now has been happening under your leadership year after year. Just the follow-up in terms of the $158,000,000 deal which we have announced in the month of April, is it largely ramped up in the first quarter or will also have the ramp up in the coming quarter? And last week, $230,000,000 deal which we have announced, I presume that is also 100% new and will start ramping up immediately rather than ramp up happening later. And when will the wage hikes will happen for us in this year? And, Sudhir, in one of the replies to the earlier question, you mentioned that the 5% organic growth Q on Q CC terms may even continue in the second quarter.

55:36 Am I hearing correctly or some error from my side? John, why don't you take the first two questions? I'll take the next two around which I can Q o Q. Certainly. Regarding the the the initial deal announced, yes, the, ramp up has been completed. We did the transition from the incumbent in a record time in less than four months, and we're now in in north of 300 plus FTEs focused on that account across 15 to 20 teams. And, yes, the the full full recognition of revenue is tracking going forward. On the second deal that we announced, the $230,000,000 plus deal, that the ramp up has already initiated on that, and that is expected to add an additional 20 to 30 teams.

56:33 And I'll also note that that second deal is a complete digital modernization program spanning multi years. Thank you, John. As far as the next two questions are concerned, as far as wage hikes are concerned, for a very select group, and I mean a highly select group, wage hikes did go into effect in quarter one. But for the broader organization, we anticipate no wage hikes at least till the first of January of next year, and that too is uncertain. So we may not have hikes in the current fiscal. And if we do at a broad level, it's not gonna be before quarter four. The second question around 5% organic Q o Q, no, we have not provided any hard Q o Q revenue guidance.

57:23 All we've said is, we expect the quarters starting quarter two to reflect robust growth going forward. Thanks. Thanks for the reply. Congratulations and all the best. Thank you, Sandeep. Thank you. Our next question is from Prateek Maheshwari of HSBC. Please go ahead. Hi. Thank you for the opportunity. Sudhir, had a question on the... I just wanted to... I was looking for the recap on the strategy on Ankora, basically, how you guys are planning to grow the grow the revenue now that you guys now are kind of managing it, and it's indicated this in the first quarter. So I was looking at the top five and top 10 client revenues. Right? And that hasn't changed despite the integration. So most of the revenue from Encora is coming below top 10 clients. Right? So I wanted to just check on the strategy whether you guys think there's an opportunity here, big opportunity here to kind of take these clients which got added in the 20 to 50,000,000 bucket to larger buckets.

58:27 Or is it the opportunity from the engine services which got added, right, which you can take it to your clients and other clients? Right? Just wanted to recap that. Yeah. Pradeep, I I think by q three, which is just a quarter away, we see some very large opportunities in the... What used to be the Encora client portfolios. Today, one of our top 10 clients of the merged entity is a client that has come in from the Encora portfolio, and that's a firm. That's a cloud... That's a relationship that we expect to scale up almost immediately and very rapidly. And we do think if things go well, there is a path to making it a $50,000,000 plus account over the next twelve to eighteen months. There are two other accounts in account list 11 to 20 of COFORGE that have come in from the Encora portfolio.

59:18 Again, accounts, one of which, if I remember right, is an account from the travel portfolio, which we think we can scale up very actively. So from our vantage, the, the case that we had made when we acquired Encora had a few axes. One, we said, the AI led engineering capability and the combined engineering data cloud core will be, on a composite basis, a great differentiator. There's a tick mark against it. The second thing we had said was the acquisition will give us a new vertical high-tech. You looked at our height and will also nearly double our health care business. You looked at the sequential growth that the high-tech and the health care business has shown. That again is a tick mark against what we had. And third, of course, something that we've always talked about, taking clients and amping them up. As I said, one of those clients is already a top 10 client with significant legs to run up higher, and then there are two eleven to 20, which again will go up higher. That's that's how we see things.

1:00:22 And as I've said, as Saurabh said, and as John will tell you, we feel really, really good about where things are. We effectively operationally run-in CORA for three months. We don't do an integration and then passively look at it. For three months, we have been in the weeds. We believe that asset has already started making an impact. The point that Saurabh made earlier was the synergies, the cost synergies have been exceptional, 40%. You look at our consolidated EBIT, that's 16%. Everything points, and I said this, it's not a belief. I think we know now that this is gonna be this is gonna be a defining acquisition and a very successful one for us.

1:01:12 Right. Thank you so much for the elaborate answer. So, Sudhee, could you also... Now that you've done the culling in the rest of the world business. Right? So from here on out, do you think all all the verticals are gonna grow as strongly as as probably Europe did this quarter? Just wanted to get a vertical wise outlook and viewers outlook here as well. Yeah. Prateek, I won't give you I won't give you an elaborate answer to this, but, let me just make this, concise and and crisp. Every one of the industry verticals, banking, insurance, travel, health care, and high-tech, of course, are on steroids. UK public sector under joint. John is on steroids. The GEOs, all of them are primed for exceptional growth.

1:01:58 We wouldn't have, John, sort of, and I wouldn't have given the almost... The very buoyant commentary we have if we thought that we had a few engines that were firing. Right now, every engine is firing. In the real world, when you have every engine firing, at times, a few engines fall off. But given the fact that every engine is firing, we feel very good that irrespective of what happens, this is gonna be yet another industry leading growth year for us. Yeah. Thank you so much, Sudip. Thank you. Thanks a lot. Thank you. Our next question is from Aditi Patil from ICICI Securities. Please go ahead. Yeah. Thank you for the opportunity. I have two questions. First one, our India government business run rate was $50,000,000 last year. And out of that, we had a 15,000,000 ramp down in q one. So rest of the 35,000,000, ramp down, is it expected, like, uniformly over next three quarters?

1:02:56 Aditi, it's part of the base now. So so there's no no incremental impact that will come in the... From a growth standpoint. It's part of the base. The reduction is already... Yeah. Okay. And so, dear, you mentioned on the... Like, our share of outcome based contracts is around six to 7% of revenue. So can you share examples of how pricing is done in these contracts? I'm sorry. Examples of what? Can you repeat that, please? How how pricing is done on... In outcome based contracts? Yeah. So there... There's a there's a clutch of models that we use. There are, at an extreme, there are there are models where we take over a legacy modernization on a on a significant risk basis where only part of the revenue that should come to us for the effort is assigned to us. But the profits post program success legacy mod using our four jets and our neuron operating system are super normal.

1:03:59 The the second model that we use is a subscription model that we use for the COFORGE mod squads, which are our, our hybrid agent human pods. So these are monthly, these are monthly subscription based models, and we allow clients to flex across FTE choose... Choosing the FTEs, choosing the agents from the 100 plus, the 130 odd agents that we have. And the third the third one that we look at again are different flavors of outcome based, but some of them are tied to technology options and others are tied to business also. Okay. Got it. Thank you for answering my questions. Thank you. Thank you. Our next question is from Deviesh Mehta of Invesco India. Please go ahead.

1:04:47 So thanks for taking my question. I think within the order intake, you did call out that this does not include the acquired entities order intake. I just wanted to get a hang of what what would be the broad order order intake trend within the acquired entity? Just trying to understand how how how that is, ramping up. That's my first question. Dinesh, I won't have that number, but as sort of it pointed out, since we've taken only two months of, revenue off Encora starting the May 1, the revenue was, if I remember right, a $100,200,000. At this point in time, all I can tell you is the order intake was robust. And, as I had indicated with some of the large accounts that they have, the pipeline also is robust. Next next time when we give you the...

1:05:34 When we share with all of you the full quarter performance, we'll make it a point to make sure that we are ready with an answer around the in quarter portfolio order intake in case we can still deviate. Okay. Fair. This is this is helpful. And, just to add here, so how long in in your reading will it take for, the acquired entity broadly to reach, the order intake and intensity of what Coforge has? Oh, we promised this. Yeah. We said we... No. No. Not four quarters, two quarters. That's not how we operate. We will... We've said this. It'll be the performance. On margins, anyway, the organizations are indistinguishable given the very aggressive cost out we've done. Saurabh talked about a 40% g and a cost culling.

1:06:22 On margins, the the organizations are now indistinguishable. Quarter three onwards, revenue growth, they will be indistinguishable, recognizing that the COFORGE threshold that we've, that we've already established is that at a minimum, it will be very robust growth. So it's not long term. It's not medium term. It's the immediate. It's the here and now. Okay. Fair. Fair. This is helpful. And on the demand side, you have been calling out, that, you are seeing, at least for your own, at at least for Coforge, you are seeing a good, good demand backdrop. So within the industry, any... Has anything changed beyond our own execution? Or, how how would you look at deflation trends, that... Are they the same and discretionary reviving?

1:07:09 How would you put it for the industry in in that sense? I think the industry has deflationary trends linked to efficiency, but the industry also has has significant tailwinds around legacy modernization, around creating AI ready data foundations, around creating cloud infrastructure ready for the AI that is scalable, that will allow for compute at scale, that will allow for model hosting, that will allow for MLOps. The industry also has significant tailwinds on account of everything that's happening on the security side. Of course... And that's that's the here and now. This is this is not something that will happen. So, yes, efficiency related deflation is is a reality, but the opportunities around legacy mod, data identity foundations, cloud scalability, MLOps, model hosting, security are real here now.

1:08:00 In the medium term, there are more. Right? We've talked about it. Custom agentic solutions, creating agent harnesses, managing that agentic ecosystem that is going to get formed, helping with model development and deployment. It's it's it's really... And and John talked about it when he said it's execution, execution, execution. If we put our heads down and we focus on the opportunities, the opportunities are many, but they need a very hard pivot. And once done, one can realize that. So fair. So would you put it this way that, right now, the deflation is higher, but probably by next year, the opportunities will be relatively higher to the deflation for the industry? Would you be It's possibly not the best people to answer that because for us, deflation is not higher.

1:08:45 For us, the tailwinds are very strong. For us, the growth right now is very strong. As I said, had we not culled the business that we said we are culling, we would have grown 5.2% cc quarter on quarter. So there is a deflationary element, but, I don't think we need to wait for the future for the winds to turn around. The winds are real, and there are tailwinds as well. Thanks. Thanks a lot, Suzy. Thank you. Thank you. That was the last question for today. I now hand the call back to missus Sudhir Singh for closing comments. Thank you, Imba, and thank you, ladies. Gentlemen, we find these calls extremely instructive. We find always your questions very insightful, and we look forward very, very keenly to have these interactions. We enjoy them. We cherish them. We look forward to them. Thank you for making time for us. We hope to see you again next quarter. Thank you. Good day. Thank you. Thank you, members of the management.

1:09:38 On behalf of Coforge Limited, that concludes today's call. Thank you for joining us, and you may now click on the leave icon to exit the meeting. Thank you for your participation. Goodbye.