Tech Mahindra Ltd. ADR (OTC:TCHQY) Q1 2023 Earnings Conference Call July 25, 2022 9:00 AM ET
Company Participants
Chander Prakash Gurnani – Managing Director and CEO
Rohit Anand – SVP Finance
Manish Vyas – President, Communications, Media and Entertainment Business and CEO, Network Services
Jagdish Mitra – Chief Strategy Officer and Head Of Growth
Vivek Satish Agarwal – Global Head, Enterprise Verticals Solutions & Portfolio Companies
Conference Call Participants
Ravi Menon – Macquarie
Gaurav Rateria – Morgan Stanley
Dipesh Mehta – Emkay Global
Sandip Agarwal – Edelweiss
Sandeep Shah – Equirus Securities
Ashwin Mehta – Ambit Capital
Vibhor Singhal – Phillip Capital
Girish Pai – Nirmal Bang Equities
Operator
Ladies and gentlemen, good day, and welcome to the Tech Mahindra Limited Q1 FY ’23 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note, that this conference is being recorded.
I now hand the conference over to Mr. C.P. Gurnani, MD and CEO for Tech Mahindra. Thank you. And over to you, sir.
Chander Prakash Gurnani
Good morning, good evening. Thank you for joining me on the Q1 FY ’23 Analyst Earnings Call. Again, welcome, and I do pray for your good health.
Overall, as you know, Tech Mahindra is a company driven by purpose and its people-centric and performance driven. On the purpose side, Tech Mahindra continues to be recognized for their focus on ESG and focus on sustainability. We have been rewarded, awarded, and more or less continue to set the benchmarks and sustainability.
On the people-centric side, our Chief Peoples Officer is one of the proud recipients of the Golden Peacock for HR Excellence. We have also been recognized as the most preferred workplace at the India Today, Summit. I’m just briefly covering what has happened during the quarter, and we have also improved the gender diversity from 34.1% to 34.4%.
In terms of performance, I would like to reiterate that the big bold steps that we took in developing some of the capabilities, 5G, Metaverse, the Makers Lab that we set up at eight different locations, you know, continuing to invest in data and AI Labs, continuing to invest in sports tech vertical with platforms like Fan, NXT.NOW – Fan, NXT.NOW, new platforms like netOps.ai, I think, is all coming together, and we are able to deliver sustainable growth and we are able to create value for our customers and partners. I know Rohit will cover the performance results in a greater detail.
On the growth side, we are now in constant currency at $1632 million, comps has grown 3.9%, and enterprise has grown at 3.2% in constant currency. I also have an honor of welcoming two new verticals into billion-plus clubs, I mean, comps [ph] has been there for a very long time. But the new $1 billion club now has BFSI and manufacturing for Tech Mahindra.
The company continues to be driven by new age technologies, digital transformation and more importantly, business transformation. Our EBIT margins have been a little bit under pressure. But as a company, we are determined to reverse the trend and what I have committed to my board is this is the lowest we have won or we will go. And we will be working together with my transformation office and my leadership to look at many operating levers, particularly on utilization, particularly on efficiency and productivity and the pricing levels. So again, Rohit will cover this, but I just want all of us to recognize that building technology at scale building two tier cities, delivery centers and preparing for the future yes, there has been – the reported EBITDA margins have been lesser than what we had originally probably projected.
In terms of pipelines, I think both the sectors are showing a very healthy pipelines. We track our pipeline for existing accounts, new accounts. We look at digital transformation. We look at the business transformation. We also very actively monitor our deal conversions, as I indicated earlier, also that the focus is to deliver between $700 million to $1 billion of deal conversions every quarter. This quarter also, we would be sharing with you that we have booked about $800 million.
So clearly, firing on all cylinders. I know that there are two internal focus areas, number one is organic growth. And number two is to bring back profitability on the track. I’m confident that these two focus areas, coupled with the growth, industry-leading growth, I think you would find us much better aligned and much better prepared.
In terms of the economic challenges, as of date, we see the deal flows [ph] to be strong. We do analyze every account, every sector about the potential so we have a dedicated task force, which is not only looking at geographies, but also looking at the various verticals and what our response would be. So I can only say that as of the, while there may not be a general consensus on when the headwinds, the economic headwinds will start pinching us. But overall, I think we are in good shape for the next few quarters.
So that’s really the opening commentary for all those people who are chess lovers [ph] flowers, I can only say that Tech Mahindra is very proud that we have been chosen by the International Chess Federation to be the digital partner for its 44 FIDE chess Olympics, and is the first time it is taking place in India. It starts on 28th in Chennai, those who would like to join us. And on the ringside of the chess, Chess Olympiad, I mean, you’re welcome. So again, thank you – thank you for your support, and thank you for your confidence. I am handing over the call to Rohit to get an update on financials.
Rohit Anand
Thank you, C.P. Good evening, everyone. Let me now cover the company’s financials for Q1 ending June 2022. We ended the first quarter with revenue of $16.02 million [ph] versus $16.08 million last quarter, up 3.5% Q-o-Q in constant currency.
Growth was broad-based as C.P. mentioned, with CME growing 3.9%, enterprise growing 3.2%, both in constant currency terms. We had another quarter of strong deal win with our TCB at $802 million. The revenue in INR terms was INR12,708 crores versus INR2,115 crores in Q4, up 4.9% quarter-over-quarter.
The EBIT for the quarter was million at USD177 million, in INR terms INR1,403 crores versus USD 211 million in Q4. EBIT margin for the quarter was at 11%, which is a reduction of 220 basis points Q-o-Q due to higher salaries, sub correlated costs and some large deal transition costs that we saw, another reason for reduction was revenue and visa seasonality that we see. And then normalization of GNN [ph] and sales cost was another reason of margin reduction, offset partially by pricing benefit that we saw.
Moving below EBIT, other income for the quarter was at $16 million versus $42 million in Q4. ForEx was at $7 million compared to $28 million in Q4 2022. The tax rate for the quarter was at 21.8%, which is higher compared to 17.5% in Q4. This is because we had higher reversal of tax provision related to SEC benefit in Q4 and partially also in Q1. Our normalized rate is in the range of 26% to 27%.
The net profit margin for the quarter is at 8.9%. Our free cash flow for Q1 FY ’23 was at $72 million. Our DSO increased by 3 days to 100 [ph] to 97 [ph] in Q4 partially impacted by currency because of debtor revaluation.
As mentioned earlier, we will continue to consistently follow an rule based hedging policy. As of June 22, the total hedge book was INR 2.28 billion versus $2.2 billion in Q4 ’22. Based on hedge accounting treatment, the net mark-to-market gain as of 30th June was $68 million, out of which $11 million is taken to P&L and $57 million is gone to reserves.
We had a cash and cash equivalent of $1.114 [indiscernible] 8,801 crore Overall, the demand momentum as C.P. mentioned continues driving growth, while the supply side pressures are impacting profitability. But we’ve committed towards improving our profitability with targeted actions that should help us tide over the short-term pressure.
With these remarks, I now open the floor to questions. Thank you.
Question-and-Answer Session
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Sandip Agarwal from Edelweiss. Please go ahead. Sandip Agarwal, your line is talk mode. Please go ahead with your question. Mr. Agarwal, please unmute your line from your side, if muted. As there is no response from the current participants, we’ll move on to the next question from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon
Hi. Thank you for the opportunity. Just wanted to check if there is any one-off in SG&A, like a bad debt portion [ph] or something like that? It seems to have very sharply quarter-on-quarter?
Rohit Anand
Yeah. So last quarter we did have some gain, which was one-time. And this time, we’ve had increase in provisions because of which the quarter-over-quarter variation is looking large.
Ravi Menon
Could you quantify the provisions this quarter?
Rohit Anand
Yeah. The provisions range of around $6 million, yeah.
Ravi Menon
And when you look at – and it will be great if you could share your vertical break-up in a quarter-on-quarter in constant currency growth because of the cross-currency movements being sharp this quarter, it’s a bit difficult for us to figure out what’s happened to the communications vertical probably [ph] to?
Rohit Anand
Yeah. So from a growth perspective, I think I can go one by one, on a constant currency sequential quarterly, as I mentioned comps was 3.9%. When you look at manufacturing, that has grown 5.7%, technology has grown 6.4%, retail has grown 6.8%, HLS and others have grown 2%. And then BFSI to be mostly flat, while on the reported side, it’s impacted most because of FX.
Ravi Menon
Thank you. Best of luck.
Operator
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Gaurav Rateria
Hi, thank you for taking my question. So firstly, on the large clients, if you look at the top line performance on a quarter-on-quarter basis, it looked like a bit of decline. There could be an element of FX. If you really could strip out that it seems quite weak. So anything going out there, especially in the top pipeline bucket?
Rohit Anand
Yeah. So mostly its FX that you see and then there are certain projects that for the quarter, you know, stop in the new project is going to start in the following quarter. So beyond that, there’s nothing. But if you look at the trend broader, I think we’ve expanded beyond that outside the top 20, the growth has been substantial. So that’s a good sign, and that’s where we’ve had historically certain deal wins, also that are ramping up. So the base in the top customer is also spreading out.
Gaurav Rateria
Okay. And could you just talk about the puts and takes on margins. I guess there would be some impact of wage hikes, which may come in the coming quarters. So what could be some of the headwinds and what would be the tailwinds? What gives you confidence that this is bottom [ph] for the margin and it will go back to the range what you had historically talked about? Thank you.
Rohit Anand
Yeah, sure, sure. So from a Q2 perspective, headwinds predominantly is only one which you mentioned, which is going to be the wage hike, right? From a tailwind perspective, we’ve had certain good outcomes from strong pricing. I think that we have a good funnel and visibility, so that will continue in regards to some tailwind in Q2. We also will have lesser impact due to the visa and mobility business impact that we saw Q4 to Q1. So that will ease out a little bit, so that will give us the favorability.
The other big area, which C.P. also reiterated that we have a lot of focus on operational efficiency. There, we put plans together utilization back up. So if you remember, we’ve spoken a couple of quarters back we’re cautiously investing in the talent pool, investing in bottoms of the pyramid [ph] That the utilization trend we have concrete plans to get up by delivery unit, by geography. In the current quarter, that will give us some positive tailwind as you we look forward.
Another big focus for us, we have almost 8% to 10% gap on our offshoring revenues versus peer set [ph] And there also, we have a clear by, you know, delivery unit and geo actions to drive offshoring in the current quarter. And as well, these factors will continue through the year. So on top of what you do, and then some of this will continue through the year.
So those are the big actions that we’re going to drive from a tailwind perspective. And this quarter, we did have some large deal transition costs, which I mentioned, those won’t be repeated. So as we see that, that will also give us a benefit in deal.
Gaurav Rateria
Thanks a lot for the detail answer. Lastly, on the cash flow, the conversion of FCF [ph] to free cash flow for the last two consecutive quarters has been weaker than your usual trend. So what are the factors that have driven that? And how long will it take to come back to the historical trend that you had – that you use to deliver? Thank you.
Rohit Anand
Sure. I think this time a bit of the play was also driven by FX. But irrespective, I think operating performance will get better as we look at Q2, Q3. So within the next two quarters, I think we will get to a similar FCF conversion that we’ve seen in the past, closer to the range of 90% to 110%.
Gaurav Rateria
Thanks a lot.
Operator
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Dipesh Mehta
Yeah, thanks for the opportunity. Two questions. First about the – can you help us with the margin work in Q1? I think you indicated some of the factors, if you can break up of us the contribution of those factors.
Second question is about the margin projection. I think we are suggesting good confidence about margin recovery. But considering let’s say, sometime that we are used to indicate 14%, 15% of EBIT margin is a good range, considering overall business mix and then future potentially is maybe we can increase it to further over medium to long term. So by when do you expect it to be – we can again get to our optimal range of margin projection? Thank you.
Rohit Anand
So specifically, for current quarter walk versus last quarter, as I mentioned, we saw approximately 50 bits, expansion due to pricing actions, and we’ve been talking about it for the last, you know, previous in the previous quarter that we’re working at it. So that’s giving us the positive outcomes.
We’ve seen salary sub-con and large deals, those three combined contributor headwind of approximately 100 bps in the current quarter versus last quarter. Visa seasonality and the mobility business jointly contribute approximately 80 bps. So those were the three big factors on the direct side and then there is a percent impact on G&A normalization, we had some good impact from the last quarter, which is getting normalized and some of the impacts on provision and also that we have due to which we are at 1% under this negative impact versus last quarter on the G&A part. So those are the big drivers that lead to a 13.2% to 11%.
Then, second part of your question, I think as we look forward, a lot of these actions that are articulated are in motion. We have a very detailed micro plan that we’re working on. And that gives us the confidence as we move forward that every quarter sequentially given this as bottom, we will increase margin anywhere between 100 to 150 basis points. And by the end of the year, I think we will be in the range of around 14% EBIT. I think I mentioned earlier, 15, but I know where we are right now, 14 seems like a more 4Q exit run rate rather than 15.
Operator
Sir, one more, please.
Chander Prakash Gurnani
Is there any next question? Can you take the next question?
Operator
Mr. Agarwal? Mr. Sandip Agarwal from Edelweiss.
Sandip Agarwal
Yes, hi. Yeah, hi. Sorry, I was on mute. Hi, good evening. C.P., thanks for the update on the business side and also good execution on revenue part. C.P., what are you seeing in the market today? Are you seeing increasing seriousness of the clients towards conservatism given the macro situation macro environment? And or you are seeing the continued spend or the inclination to spend money? What is your seeing in the market today versus you were seeing six months earlier.
So how has the client mood change? Are you seeing any kind of change in the client perspective mood? Or they have really done some action on that, like they’re put – taken something longer time or delay. Any kind of retrenchment from the aggression by which they were spending earlier. Are you seeing any kind of early signs of that?
Rohit Anand
Yeah, Sandip. Thanks for the question. This is Rohit. I want Manish and Jagdish to comment about comps and enterprise verticals. And then I’d like to also summarize at a corporate level, how are we tracking in terms of what changes are we seeing. So Manish, first off with you.
Manish Vyas
Sure, sure, Rohit. Thank you. And Sandip, thank you for the questions. I think clearly, there is a lot happening in the macro geopolitical economic scenario. And hence, the question is quite valid. There are clear discussions in the various customer environments about what is exactly in-store. So that indeed is happening. So that resulting in any specific macro level trend change in terms of the spend patterns? We haven’t seen any evidence of that yet.
There are a one-off conversation that happens, but that is very strictly limited to that particular company’s own individual decisions, which I think is nothing to do with the overall macro scenario. At this point, I think like C.P. very clear, mentioned right up front, the funnel is pretty robust. The decision cycles continue to remain exactly as they were six to seven months back. The areas where the discussions are happening in the telecom media space continue to be in this phase of what is called digital transformation, the holistic digital transformation from network modernization to driving more velocity on underlying digital platforms, whether it is cloud or data or customer experience. I guess that continues to happen. We haven’t seen any net-net, in short, before I hand over to Jagdish, I would say at this point, we haven’t seen anything material to come back and report at this.
Jagdish Mitra
No, I think, Sandip, thanks. Thanks, Manish. The outlook, I think, for us hasn’t changed. It’s very positive from a deal win and the pipeline robustness perspective. I think you all have to recognize like in the last couple of years, a trend that has got started in terms of redefining or rather modernizing the core of everyone’s enterprises business, what I mean by enterprise is, the organization’s core platforms and solving that problem that we don’t see any let down.
So the pipeline of what we have talked about approximately upwards of worth $700 million, $800 billion of PCVs, we see a similar trajectory every growth. I personally drive the large deals across the company and therefore, that largely momentum, I still see to continue.
So from a deal win perspective, I don’t think there is any let down. Industry-wise, all of them, as Manish said, are focused on digital transformation. So supply chain issues, and we called out four key areas, right? Cloud, connectivity, engineering and experience. And all those four key areas, we think that even if there is an economic slowdown, the investment on those areas is something that the companies and enterprises will have to do if they have to be relevant. And so therefore, that part we feel very confident about. I hope that answers your question, Sandip.
Sandip Agarwal
Yeah, thanks. Thank you. And best of luck for the current quarter.
Jagdish Mitra
Thank you.
Operator
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Dipesh Mehta
My question has been answered. Thank you.
Operator
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Sandeep Shah
Yeah, hi. Thanks for the opportunity. This question is to Manish Vyas. Just looking at the macro hiccups [ph] which are been increasing what we – what we are reading is on the 5G CapEx, clients are maybe becoming slightly cautious. They are accelerating where they can find the pain consumers. But there, they are not finding the pain consumer, the may become slightly more conservative.
So whether this trend can lead to any negative surprise in a telecom growth recovery, which we have seen for almost four to five quarters. Do you foresee any downside risk to the growth momentum telecom going forward?
Manish Vyas
Sandeep, again, thank you. It seems like this, the 5G spend in the markets that where spending would not necessarily a function of added consumer revenue. The focus on 5G was always to continue to build the new modern network in terms of replacing what is called the carrier ads, the capacity bill. So instead of building the carrier add on 4G, it was happening on 5G and that trend will continue.
The revenue uptick for the telcos was always going to be more around enterprises, not as much about the consumer business. I mean that’s a normal cycle that will continue. So that’s not really necessarily a driver, in anything changing.
As far as the sectoral performance is concerned, I’m assuming you are referring to our performance versus the industry broad-based performance. I don’t think, like I said earlier, that whatever is happening at a macro level is giving us any indication of a slowdown in the kind of opportunities that we are engaged in, in driving transformation at a process at an operate at a system and at a business design level or customer experience level and for that matter of the network level. We are not seeing any change to the – the pattern of the kind of funnel that we are building.
Sandeep Shah
Thanks. Just a follow-up, in CPs opening remarks, there he said that we are confident for the growth in the coming few quarters, while some of your large peers are indicating macro may start impacting the second half of the growth. While I’m expecting that Tech Mahindra is leading that even in the second half of this fall, we may see a healthy growth. So what is driving this confidence as a whole?
Rohit Anand
Yeah. So Sandeep, I think few things. One is we are continuously monitoring the pipeline and the pipeline looking pretty strong, maybe better than what we’ve seen in the past. Now the questions of deal conversion. So if the trend continues, what we’ve seen in the last three, four quarters of the range we are in, that continues over the next quarter or so, couple of quarter, I think we should be in that zone of continued demand environment, right, which is what we see right now.
Of course, it’s a very dynamic world. So hence we are monitoring the situation through constant data, as well as brand interaction and continue to put that feedback back into the way we’re looking at the next half. So that’s kind of where we’re doing it.
But I think qualitatively, as Manish, Jagdish mentioned, there from a client communication discussion perspective, there’s not some significant change as they move into the second half that we’ve seen and that’s why that’s reflecting in our data, and that’s the view we right now have.
I’ll also like Vivek to add his view on BFSI that he’s seeing or HLS that he is seeing that you know, from a discussion with his client that he can share with us.
Vivek Satish Agarwal
Yeah. Thanks, Rohit. So not to repeat what Manish, Jagdish and Rohit have said, but just to reiterate that, we haven’t seen any budget reductions. I think what gives us a degree of confidence in the pipeline, I think we’ve had a continuous win of large deals. So I think we have a backlog to execute on. I think that does put us on a reasonably good footing as we look forward for the rest of this year.
And lastly, I think not only from a – the big ticket, macroeconomic indicators, which has everybody confused. I don’t think anybody has an answer. But what we are focused on is more specifically looking at different industries, some verticals and the impact they may have and then obviously, at the next level, which are specific clients of any specific impacts they would have. And what we have is a fairly – a laid out thought process on how we would react if we – were to see any early signs.
Sandeep Shah
Thank you, okay. And last one, if I can squeeze just on the margins. Rohit, in terms of your comment, how much dependence are we placing in terms of pricing as a theme and in terms of your commentary of targeting 100 to 150 bps Q-on-Q increase in the next three quarters?
And just a follow-up on the deal types. How should – so what percentage of employees being covered in the first quarter? Is it effective April? And what percentage is spending and how the balance results are scheduled?
Rohit Anand
Yes. So Sandeep from the pricing, maybe let’ take about pricing for us. So we’ve – sequentially quarter-over-quarter seen increase in the quantum of price increase we’ve got. The standing factor, as I mentioned, was 50 bps. What we look at next quarter is similar or better outcome thee. But outside of that in the second half right now, while we’ll continue to drive it. I think the view is you know, it mean mostly first half factor is an upside for us, based on significant upside in the second half, right. So that’s pretty much on the pricing side.
In terms of wage hikes, it’s all from a company perspective. I’ll be too [indiscernible] through the year because it’s not the same world as it was a few years back. There’s usually a lot of potential and the skills interventions happen to be here. But from an annual cycle perspective, that for us will be effective Q2. And broadly the impact there’s going to be around 150 bps [ph]
Sandeep Shah
And after 2Q, all 100% of the – would be covered on an annual basis?
Rohit Anand
Yes. That’s right.
Sandeep Shah
Okay. Thank you.
Operator
Thank you. The next question is from the line of Ashwin Mehta from Ambit Capital. Please go ahead.
Ashwin Mehta
Hi, thanks for the opportunity. So maybe just one clarification in terms of what you said, the 100 to 150 bps improvement starts from 2Q or it’s more in the second half of the year?
Rohit Anand
Yeah, it start from 2Q, and it continues through 3Q, 4Q. That’s how our action is after tax. As I mentioned, right, from a Q1 to Q2 perspective, some of the impact that we’ve seen negative will get normalized as we move forward, for example, the Comviva and the Visa spend and seasonality impact will lower down. Beyond that, the large deal one-off transition costs that I mentioned, that will not get repeated.
So that will kind of offset a little bit of the wage pressure that we see. And outside of that, the operating actions on utilization increasing from 80% to 830% to the range we’re comfortable with which 87%, 88% through the year, some of that benefit will come in Q2. Similarly, offshoring, we have specific targets by months that we will be driving, as we move forward, it will give us that range in each quarter as move forward.
Ashwin Mehta
And Rohit, in terms of subcontracting because that saw a further increase to in excess of 16%. What is the outlook there? Are we looking at that also being a lever as you go through the year?
Rohit Anand
It is. It is the lever. We are kind of you know, while we’re pushing that, but that is also a little bit of a cost, that is in terms of stickiness available for us to act easier if we see a demand slowdown in the second half, that scenario compared what you’ve been hearing from others why we don’t see it, but there is so much of confusion what people are saying, what the outcomes are reflecting.
So when you look at us entering the second half, this is a relatively easier bucket for us to act on, right, and reduce as we move forward. So as we look at it right now, it gives us – it’s a, you know, subcon reduction initiative, where we get some benefit to that and optimization, we’re looking at one to one replacement from a headcount perspective more as we move forward for the second half, rather than immediate actions.
Ashwin Mehta
Okay. Thanks a lot and all the best.
Operator
Thank you. The next question is from the line of Viraj [ph] from SIMPL. Please go ahead.
Unidentified Analyst
Yeah, hi. Thanks for the opportunity. Most of my questions have been answered. I just have one question. I don’t know if Mr. Gurnani is still on the call. This is regarding the investment approach in terms of acquisitions and investments, which we have been making for the last several years. And in ’22, we made a significant amount of investments.
And if I were to look at the impairment part, we took something like INR 450 crores, INR 460-odd crores of impairment. And cumulatively in last 4 years alone, it’s in excess of INR 11,00, INR 1200 crores. So just trying to understand how should one really understand you know, on benefits of the acquisitions or the investments we’ve been making because the amount on the impairment is also quite sizable. So just want to understand if you can provide some perspective. Thank you.
Rohit Anand
Yes. So Viraj, maybe I’d just add a few sentences and then you know, Vivek, who heads our Corporate Business Development Function will add on. So a couple of things. One is from an impairment perspective, we’ve got to look at it at a consolidated level, what is the impact versus standalone, the numbers you’re looking at more in subsidiaries in stand-alone numbers.
The way it happens is if we get an acquisition asset, the idea for us and the approach from an M&A perspective is changed versus what we had 4 to 5 years back, where now we are integrating the companies and the offerings solution into our core business. So hence when we look at any acquired company, the way we look at it is more like a measurement unit across legal entities. So hence, the business that happens through that offering, growth in that stream, which is not reflected in the legal entity to hence, at a legal entity level, you might see an impairment but a consolidated level, that’s not the case, right?
So that’s kind of broadly the way it is, and that’s why not to correlate that to the M&A execution strategy. We continuously to regular discussions with the folks like you articulate our change in strategy, how they’re performing, and we’ll continue to do that as we move forward to show more and more transparency around our numbers on acquisition performance. But I want Vivek to add on some of the points around this.
Vivek Satish Agarwal
Yeah. Thanks, Rohit. So I think just from an M&A approach, both from a transaction perspective and integration and synergy, I think what we’ve said for the last couple of years is that our acquisitions are meant to be integrated into the core of the business. They have to become an integral part to our service offering of how we go to our clients. So more and more, our acquisitions are part of one back end, rather than looking at them as individual operating businesses, which we’ve acquired or invested in.
I think this success in some part is reflected in our large deal wins. Over the last few quarters, I think you’ve seen a significant uptake and sustained momentum in our deal wins numbers over the last few quarters. And one of the things I would attribute back to is our success in integrating a whole host of capabilities we’ve acquired over the last couple of years. And hence, we are more relevant to our customers needs, and we can offer them a wider solution. I think that’s one point.
And I think in terms of a part of your question around our investment approach, I think we said this last quarter, and I just want to reiterate. I think the management team recognizes that we’ve had a busy M&A period over the last couple of years. So we will be very selective. Our focus is on integration and driving synergies in the short term out of what we’ve already acquired.
Unidentified Analyst
Okay. Just two parts. First is, you know, it’s more of a suggestion that, maybe in the investor presentation, if you can kind of share over the last 2, 3 years or 5 years, the acquisitions we made how does that kind of added under the terms of increased deal wins or sales and data cost synergy because probably it’s not coming out clearly to us as investors. So that’s our suggestion if one can just put some perspective there in the form of charts or some data points.
Second is, if I look at this particular quarter, so the CTC acquisition happened in Q4? And given the kind of scale and the profitability that company made, we also kind of paid a good valuation for it. But one way to kind of better understand the organic versus inorganic growth rate, what would that be like for us in Q1.
And specifically on the margins because some of those acquisitions like CTC are very high margin businesses. So if one way to kind of dissect that on the numbers and just look at the organic business profitability. Is it right to think that the pressure in terms of profitability is even more severe than what we see on the reported numbers? Thank you.
Rohit Anand
So I know there are a bunch of questions. I’ll try and address one by one. And if anything is left, please feel free to prompt me. I think in terms of the information suggestion, currently, we share that at the Analyst Day event. So we’re doing it once a year. But we will discover it internally and see how practical it is to do it more frequently.
But as we said at the last year’s Analyst Day event, we committed to giving the transparency once a year on overall performance, synergies, et cetera of the acquired businesses and their integration status.
I think specifically to your question on CTC, it was nearly the full quarter last year – last quarter, sorry, because we did this middle of January. So I think it was 11 weeks for the last quarter also. And so it was largely like-for-like, especially when you consider the currency impact. As we all know, the euros which is what the accounting currency of for that acquisition has taken a massive hit against the US dollar. But overall, I think the business remains on plan for – it’s early days, we recognize, but it is on track.
I think the only other item which relates to your question about margins on CT Co [ph]. You may recall that, that business had a small setup in operations in Belarus. With the advent of the war in the region, some of our customers who are uncomfortable in continuing to work in Belarus. So over the last few months, we have wound down our operations, our customer operations specifically in the country.
We managed to relocate most of our employees to other parts of Europe, if they were willing to. It has meant that we’ve incurred some onetime costs on the relocation. But it did not impact building our revenue and we do expect the newer operating model of a more distributed delivery across Europe to be sustainable going forward.
Unidentified Analyst
Thank you.
Operator
Thank you. The next question is from the line of Ravi Menon from Macquarie. Please go ahead.
Ravi Menon
Thank you for the follow up. Can you just comment, I mean, if you’ve seen no change to the demand environment. Why have we not really added to freshers? Well, that could be an important margin lever until it looks like we really don’t have a fresh event at all because the utilization including and excluding trainees at 8%?
Rohit Anand
Yeah. So I think as I’ve mentioned earlier, we have hired significant freshers last couple of quarters and our endeavor is to get them build, train, deployed. I think that’s been the internal focus. As we move forward, we get more streamlined on that model, as we move forward, we’ll continue to add that sequentially over the next two quarters. I think that is on the cards as we move forward.
Ravi Menon
Okay.
Operator
Thank you. The next question is from the line of Gaurav Rateria from Morgan Stanley. Please go ahead.
Gaurav Rateria
Hey. Thank you for taking my follow up. So two questions. Firstly, the two large telcos that reported numbers in the U.S., they lowered their margin and FCM guidance for the full year. So in this context, have you seen any prioritization of spending happening by them in terms of what projects are they prioritizing over others??
And is there any assessment done internally of any particular projects that could potentially be at risk if such prioritization were to take place?
Rohit Anand
So as I mentioned, I think, at a corporate level, while there are one-off discussions happening, nothing significant from a trend perspective to call out. But I still ask Manish, Jagdish and Vivek who handle different aspects of business in the US and comment quickly on have they seen anything like that on a particular telco. So maybe…
Manish Vyas
I think Rohit – I think the question is more specific to a couple of telcos that have announced results and the observation is correct and valid. And like I said, there are some conversations that are happening very specific to a few project prioritization. But incidentally, all of them are around continuing to drive the digital transformation process a little bit harder and faster.
Some work that will probably get shifted from moving work to a cloud to more driving a data intensity on customer experience transformation. So that kind of the reprioritization of some of that capital budgets may happen. And those are part and parcel of also what is – what program is driving greater value than the others and what may result in mid term to long-term permits.
I think it is in the realm of that kind of a conversation, not necessarily a reaction to a certain quarter performance. That there could be discussions around more a long-term impact, is probably something which I don’t think I can comment on it today because we haven’t seen any such reaction from anyone at this point.
Gaurav Rateria
Thank you for the detailed answers. Second question is for Rohit, amortization expense related to last few acquisitions have impacted margins in the ’23. How should one think about the same going beyond F ’23 will that be a margin lever and yes, how big. Also any lever or margin improvement from portfolio companies that can help you in the coming quarters? Thank you.
Rohit Anand
Yeah. So from an amortization perspective, year-on-year in FY ’23 to ’24, there’ll be very marginal change not significant benefit at the company level. But we will continue to see certain other management costs benefits as we move forward, which will have margin. And then, maybe I’ll ask Vivek to also add on some of busy actions that he is driving that will also benefit. So Vivek, you can add as well.
Vivek Satish Agarwal
So I think – thanks, Rohit. So from a short-term impact, there are two items related to acquisitions, which go through the P&L. Some of the earn-outs which are linked to continued association of the founders, they go through the P&L and the amortization, as Rohit said, it’s honestly fairly complex accounting of some impact is for 12 to 18 months on the amortization, those will decline in the short term, but some of the amortization is 7 to 9 years linked to the acquisition. So we won’t see a very significant change in that line item.
And I think the part around synergy, I think we’ve spoken about it before, but what we’re really doing is very heavily focused on an integrated service offering, how do we take all our capabilities and offerings, both organic and those who are acquisitions to our clients has one taken [ph] offering. And I think that’s yielding good success for us.
Gaurav Rateria
Thank you so much.
Operator
Thank you. The next question is from the line of Vibhor Singhal from Phillip Capital. Please go ahead.
Vibhor Singhal
Yeah, hi. Thanks for taking my question. So Rohit, just one question from my side. Our margins – and again on margins, but not from a very near-term perspective. So my question was more like are margins have been quite volatile over the past few years. Of course, there’s been multiple reason acquisitions and all. Last 1, 1.5 years, we had the benefit of travel cost coming down because of COVID and all. At this time, at this point of time, we are seeing on the supply side pressures.
So just wanted to understand, let’s say, two or three or four quarters down the line, when supposedly on the other companies and everybody’s been calling out that the supply side pressure should stabilize, travel should also recover. What is the sustainable level of EBIT margins do you think that we can operate at, keeping everything else constant, I know, it won’t happen that way. But let’s say, if we were to hypothetically assume that, okay, these things have stabilized. What is the kind of margins that we can sustainably report over a two to three year period of time, post these things settle off?
Rohit Anand
Yeah. So I spoke about this year walk, which is actions are not upgrading levers that we could be driving pricing, which is more tactical right now, relevant right now, right? And then there’s some structural actions that we’re trying to drive, right, which are a little bit more medium term to long term. And we have got a specific project plan team, working on those on a specific basis, and we’ve aligned our measurement criteria targets also accordingly, right?
So if you think about it, what I’ve spoken earlier and which we’re working on it, a big part of our margin dilutions, also if you look at our geography mix, right?. So when you look at our competitor, US, Europe compared with some of the peer set [ph] we are 10% to 15% lower, right, on that component and the margin difference typically in that region versus rest of the world is to the range of 10% differential, right?
So there, if we get our mix in line with that competitor, you’re talking about anywhere between 1%, 1%, 1.5% increase over longer-term cycle. So that that’s something that is incrementally start playing out every quarter, and every year as we move forward in that zone, because it’s not a shift that you can dramatically do in one year. So that’s something that we we’ll continue to try out. And similarly as vertical scale-up that’s happening, we emphasize becoming more towards a $1 billion mark, manufacturing is $1 billion, ops already a big cycle for us, similarly, High tech going. So there, you get operating leverage with the size and scale of that vertical. So that’s something structurally that’s going to help us.
And then we spoke in the past, we are working also on very tactical area on pruning the portfolio, which is not core to our strategy, and we feel long term doesn’t fit, so that – those assets and identified portfolios, we’re going to be taking a divestment actions on, which will improve the mix from a margin perspective, right?
So those are structural long-term actions, while we continue to drive practically the operating levers each quarter. This will help us you know, structurally change the nature of the margin profile. So in terms of year-end, I think what we said in the 4Q as exit it will be closer to the 14% EBIT range. And then as we move forward, we’ll continue to drive this action to continuously expand structurally the margin lever.
Vibhor Singhal
So is 14% a number that I mean, again, not the guidance for per se for FY ’23 or ’24. But from a long-term perspective, is 14% a EBIT margin number that we would be comfortable in with it in terms of sustainability reporting that?
Rohit Anand
Yeah. I think that’s comfortable with a positive upside to that as we move forward.
Vibhor Singhal
Got it. Thanks a lot for follow up, taking my questions and wish you all the best.
Rohit Anand
Thank you.
Operator
Thank you. The next question is from the line of Girish Pai from Nirmal Bang Equities. Please go ahead.
Girish Pai
Thanks for the opportunity. The first question is for Rohit. I recall you saying that pricing is not going to be so much of a lever in the second half of FY ’23. So are you getting any pushback from some of the client conversations you’re having on prices, which is making you a little bit cautious on the pricing actual side? That’s question number one.
Second question is to Manish Vyas where we talked about the reprioritization of certain client digital transformation programs. So what exactly are these clients doing, I mean, what are they deciding to drop now and try and shift that money to what kind of work. So those are two questions I have? Thanks.
Rohit Anand
Yeah, sure. So I think from a pricing perspective, we started getting some benefit from Q4 incrementally in Q1, which we’re outlying in the margin work. And then similarly, in Q2, we have a good pipeline of specific customer accounts that I’d be very clear that the discussions are on a progressive stage of conclusion, right? So hence that visibility towards Q2.
As we move about Q3, Q4, I think because these discussions have been on for a while, and it takes multiple iteration cycles to conclude. That’s why I’m more certain. As we move forward, maybe the quantum will reduce and also a lot of discussions that you are having globally, you know, in specifically macro does play a naïve [ph] in terms of – as we talk to the client about second half.
But as the scenario unfolds, right, from an opportunity standpoint, if the growth environment, everything macro, inflation all that settles down, I think it will continue to be an opportunity for us in the second half. But I’m just saying we are factoring from the case that we making from a margin perspective towards 2Q, 3Q, 4Q, we’re not factoring price as a lever in 3Q, 4Q, if it happens, it will be an upside towards our margin profile.
So that’s the way we’re looking at it. I’d like to forward it to Manish for the second part of the question that you have Girish.
Manish Vyas
Thank you. Thank you, Rohit. Girish. I just want to be very clear that the answer was in response to only one or two customers and the perspective around it, not necessarily a macro industry-wide trend. So it’s not going to be true for – from region to region or from account to account.
However, there are certain things which clearly at this point are gaining a lot more prominence in the conversations in terms of where the spends will happen. Number one, there is an increased focus on automation, both from a network standpoint, as well as at a broad-based operation, to drive – do a lot more with a lot less, I think it’s something that clearly is a big focus. And that takes a significant investment at this point, and we are busy with both on the – what we call as AIOps, as well as AInOps [ph], which is the network operations automation, as well as the IT automation. So that’s one.
So there is a lot of discussions around data synchronization and driving data on cloud and integrating data with cloud. So that’s also giving a lot of prominence, primary reason being that through that, there is a monetization opportunity that the telcos continue to see in the short term and the medium term as well.
The third clearly is there is going to be money spent around network modernization, and I will leave it at that at this point because it’s trend that will be evolving over the next three to four months, where we will start seeing a lot more spend happening in the fiber space besides, of course, the investments in 5G. So I guess those are some of the areas where you will see a little bit of activity.
Girish Pai
Thanks a lot.
Operator
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Rohit Anand for closing comments.
Rohit Anand
Yeah, thanks. So I’d just like to reiterate and recap from a quarter perspective, demand is looking strong, revenue growth of 3.5% broad-based between enterprise and comps. We have three units now $1 billion run rate. From a deal win perspective, $800-plus million deal win, which is in the range that we’ve articulated. Attrition has reduced quarter-over-quarter sequentially by close to 2%. Based on various interventions, we took structurally over the last few quarters. Margins down quarter-on-quarter by 20 bps, but that’s a bottom point for us. We have actions that are planned as we move forward between Q2 to Q4 to get it up sequentially every quarter by 100, 150 bps. So the management team is committed to that. And from a capital allocation perspective, we’ll continue to spend more time this year on M&A integration on the acquisitions we’ve done and focus on organic growth versus new acquisitions. So that’s a recap of where we are. And thanks, everybody, for joining the call today. Good evening.
Operator
Thank you. Ladies and gentlemen, on behalf of Tech Mahindra Limited, that concludes this conference call. Thank you for joining us. And you may now disconnect your lines.
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