MphasiS (NSE:MPHASIS) Q2 2027 Earnings Call

0:01 Good morning, ladies and gentlemen, and thanks for joining the Mphasi Q2 FY twenty twenty seven earnings conference call. I'm Neera, your moderator for the day. We have with us today, mister CEO of MphasiS, mister CFO, and mister head of investor relations. As a reminder, there's a webcast link in the call invite mail that the MphasiS management team will be referring to today. The same presentation is also available on the MphasiS website, www.emphasis.com, in the investor section under financial and filing, as well as on both BSE and NSE websites.

0:51 Request you to have the presentation handy. As a reminder, all participant lines will be in the listen only mode, and there will be an option for to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star and 0 on your touch tone phone. Please note that this conference is being recorded. Before we begin, I would like to state that some of the statements made in today's discussion may be forward looking in nature and may involve risk and uncertainties. A detailed statement in this regard is available in the q two results release that was sent out to all of you earlier.

1:37 I now hand over the floor to mister Nitin to begin with the proceeding of this call. Thank you, and over to you, Nitin. Thank you, Nirup, and thank you all for joining us today. Q two delivered what we said it would, our strongest sequential growth in three years, broad based across verticals and segments. Our pipeline is at a record, and today, we are raising our growth guidance for the year. I will take you through the numbers, but first, the thesis behind them. At our analyst meet in May, we said that the value in enterprise AI is moving from adoption to economic outcomes. AI is not only changing how services are delivered, it is changing what enterprises buy. Agent AI asks what systems can do. Enterprise agency asks what an enterprise can now do better.

2:28 We built MphasiSphere to close what we call the agency gap, the distance between having AI and having AI make the world decisions that move revenue margin and risk. Five months on, we see three things. First, the buyer has changed. Business and operations leaders now fund AI alongside the CIO, and their questions are about revenue leakage, planning latency, slow execution, and not just technology cost. That is where MphasiS modernize and MphasiS optimize meet them and their outcome linked commercial constructs follow. Second, we are working as a closed loop, understand, decide, act, measure, and improve with humans governing the exceptions rather than signing off routine work. Every governed decision feeds back into the models, so enterprise context compounds.

3:17 Third, the moat is not the models. Frontier models will continue to improve and commoditize. Our enduring differentiation lies in understanding enterprise context, also decision intelligence, orchestration, and governance, and the organizational capability to continuously learn, deploy, and scale these capabilities across the client enterprises. Independent research points the same way. ISG's September report, the AI value gap, found that AI is widely used when outcomes lag, that nearly half of AI budgets now sit outside IT, and that model cost is only about a third of total investment. We welcome the collaboration, but we did not need it to set our course. It is a course we have been on since May, and it's now visible in our results.

4:05 What I want to spend time on today is not only what we believe, but how we've organized to deliver it to deliver it. Last quarter, we set MphasiS Tria was off to a stronger start than anticipated. In q two, the early traction began to scale. Shear is now a proof point in large deal evaluations because it demonstrates the one measurable outcomes, not just capability. And it's taking us into the operating core of the enterprise, the run of the business, not just the technology estate. In BFS, it's opening business process budgets in lending origination, payment exception processing, and client onboarding as examples. Beyond BFS, it is driving conversations on AI and operations transformation at large insurers, on demand intelligence for technology clients, and so on.

4:52 These budgets sit with business and operations leaders, and this has significantly increased our total addressable market. You would want to know how big our pipeline with Shriya is. We are not breaking that out today, so let me describe its shape. Shia led opportunities are a growing part of our pipeline, and they are different in kind, larger and multiyear deals, combining optimization and transformation with ongoing operations, sponsored by business leaders, and increasingly starting with a proof of value on the client's own processes. As each post deployment lands, it leaves reusable assets and foundations for expansion within that client. That brings me to what matters most execution. We organized our talent to turn this pipeline into scale delivery. Value streams. We have packaged the recurring business problems in banking, insurance, and health care, for example, into defined offers, but each with a clear buyer, outcome measures, and reusable assets.

5:47 Opportunities start from a vertically packaged offering. Power deployed on engineering solutions teams sit in one team alongside delivery embedded within the client working through four steps, bring the problem, compose the capabilities, prove it with evidence, and scale. Our dedicated product and platform team institutionalized learnings through a continuous feedback loop, turning every deployment into reusable capabilities that accelerate the next. We're investing in people to run this, certifying our client facing technology leaders on the value stream playbooks and expanding deployment capacity through our FTEs. Together, these give us a repeatable path for... From first conversion to scaled outcome, and that is why we are confident in the trajectory.

6:33 Since the launch of mphasiship.ai three years ago, our pipeline has now grown three x to its original size, and ALR deals have grown from 12% of the pipeline to 71%. Net new TCV for q two was $466,000,000, and the net new TCV above 400,000,000 for six consecutive quarters, we've established a higher baseline for deal closures. That baseline supported the growth we delivered in q two and underpins the confidence in the trajectory for the rest of FY twenty seven. Pipeline conversion... Pipeline composition is broad based across verticals and deal sizes. Total pipeline reached a new high, growing 4.4 sequentially and 23% year over year. We continue to see a high share of proactively originated opportunities, shaped by a point of view of clients' businesses and our ability to identify and define opportunities before they become formal.

7:22 Growth was broad based with the BFS pipeline up 4.1% and non BFS pipeline up 4.8% sequentially. Opportunities below 20,000,000 grew 35% Y o Y and 9% sequentially, reflecting the increase in shorter cycle deal activity we called out last quarter, which continues to play out. On a year on year basis, modernization and ZAP now aligned to our Tria product lines recorded the strongest growth in the pipeline. Agile IT ops and NextOps are also significant contributors to the overall pipeline, reflecting the deals in process modernization and business outcome budget we described earlier. As I mentioned earlier, net new TCV for the quarter was $466,000,000 with trailing twelve month TCV at 1,800,000,000 US.

8:09 66% of our TCV wins in q two were AI led, up from 63% last quarter. We closed five large deals in q two. One of them nicely illustrates the shift in how the outcome deals are being structured. A large broker dealer selected MphasiS to scale its adviser administration business across front and middle office services. It's a large deal with a recurring revenue share model and significant expansion potential across the client's adviser network. Deal wins continue to convert to revenue at a consistent pace. As we said last quarter, the trend of short cycle deals is holding with TCV for deals below 20,000,000, up 26% on a trailing twelve month basis. Meanwhile, the backlog we've built over prior quarters and the steady TCV wins provide ongoing support to in quarter and near term revenue conversion as well.

8:56 Moving to our segment performance. In the direct business, we grew 3.5% sequentially and 11.3% year over year in constant currency terms. From a geographic perspective, Americas continued to be our primary growth engine. It grew 3.1% sequentially and 12.4% Y o Y indirect, driven by ramp ups in large deal wins and contribution from new logos. Rest of the world delivered a strong growth of 16.4 sequentially and 23.5% year over year in constant currency terms. This was led by our growing participation in the GCC ecosystem with our global clients. EMEA declined 3.3% sequentially and 9% Y o Y. As we have explained before, we classify geographies by the original contract. This quarter's EMEA numbers reflect revenue from a globally structured engagement that was allocated across regions.

9:43 The underlying health of the business there remains intact. From a service line perspective, enterprise applications remains our core growth engine and contributed to 75.6 of our revenue. Direct revenue grew 3.7% sequentially in apps and 14.4% Y o Y in constant currency terms, driven predominantly by AL and modernization deals. BPO sustained its momentum, growing 6.6% sequentially and 18.7% Y o Y in direct on new deal wins and AL and propositions. Crea led process modernization has become a defining theme in business reimagination since launch, driving pipeline and wins across apps and BPO. ITO declined 4.9% sequentially and 21.3% Y o Y. This mainly reflects transformation projects moving into a steady phase.

10:30 These were integrated build plus run programs, and as the build components finish, the work moves into the run phase. This impact is also reflected in the others vertical. Moving to performance by vertical. PFS Direct grew 4.5% sequentially and 15% Y o Y in constant currency terms with an eight quarter CQGR of 3.8%. Growth continues to come from wallet share gains in existing accounts and new deal wins, reflecting our domain depth and the right to win in financial services. Insurance returned to sequential growth of 1.8% and grew 14.7% Y o Y indirect, supported by Trailer optimization programs across underwriting teams and risk operations. Based on last last quarter's recovery and new new deal ramp ups, TMT grew 10.9% sequentially and 14.5 Y o Y indirect.

11:22 On a trailing twelve month basis, BFS, insurance, and TMT, the verticals we identified as growth drivers have all delivered, showing that our strategic focus is translating into results. Indirect, BFS, insurance, and TMT delivered 15%, 28%, and 12% growth, respectively, on a trailing twelve month basis. Logistics and transportation declined 12% sequentially on a smaller base. It continues to feel some impact from ongoing geopolitical uncertainty. It is now a smaller unit for us as small changes in revenue produce larger percentage swings. While the other segment declined 6.4% sequentially and grew 1.8% Y o Y, health care within that segment delivered healthy growth. On the back of recent deal wins, including a large deal win this quarter, we expect health care to emerge as a growth driver.

12:10 Moving on to client metrics. They show growth across the portfolio. On a trailing twelve month basis, our top five clients grew 15.1% year over year, and our top 10 grew 13% year over year. Our 11 to 20 clients grew faster at 22.7% year over year. That reflects the investment we made to widen our account coverage from the top 10 to the next 20. Sequentially, top five grew 4.1%, and clients ranked six to 10 grew 4.9%. This growth has been driven largely by strong in account execution, winning new deals and ramping them up. Our client buckets are aligned the same way. We added two clients in the 50,000,000 plus bracket sequentially, three in the 20,000,000 plus bracket y o y, and five in the 5,000,000 plus bracket y o y. We do them on a sequential basis as well. As new accounts scale, they keep feeding the upper tiers of the pyramid.

13:03 Moving to our financial metrics performance. Q2 EBIT margin remained flat. EPS increased 14.6% sequentially to INR 29.4. Operating cash flow generation was 34,000,000 after normalizing a $39,500,000 of remittances initiated on September 30 and received in October. DSO for the quarter was one hundred and five days after normalizing for the delayed remittances I just mentioned on the on the previous slide. This is more of a quarterly aberration and is expected to get to double digit levels in q In summary, in July, we said Q2 will deliver our best sequential CC growth in three years and that it will be broad based and did. Direct revenue grew 3.5% sequentially and 11.3% Y o Y. BFS grew 4.5% sequentially and 15% Y o Y, and TMP grew 10.9% sequentially.

13:52 The Americas and rest of the world delivered strong sequential growth. Applications in BPO were driven by AI led modernization and new deal wins. Our pipelines grew 15.1% Y o Y, and 11 to 20 grew 22.7% with additions across client bands both sequentially and year on year. Pipeline is on a record, up 23% Y o Y, with 71% of the pipeline being AI led, and it spans verticals, insizes, and archetypes. TCV wins were $466,000,000 for the quarter, 66% AI led, including $5 deals, taking trailing twelve months TCV to $1,800,000,000, and we delivered stable margins within our stated range. That performance and the visibility behind it is why we are raising our outlook. Let me now turn to how we see the rest of the year.

14:39 The first half has set a strong foundation for FY twenty seven, and we expect the second half to carry this momentum forward. All things give us that confidence, a record and broad based pipeline, six consecutive quarters of net new TCV above $400,000,000 with the backlog converting to revenue, steady execution from signing to revenue and an organization built to scale the work we are winning. On that basis, we are raising the FY twenty seven guidance. We now expect revenue growth in the low double digits range for the full year. Last quarter, our guidance was high single digit to low double digits. We are doing so despite an uncertain macro environment because it rests on results already delivered and on visibility we can see in the pipeline and the backlog. On profitability, we continue to expect stable margins within the target stated band of 14.75% to 15.75%, while we invest in capabilities that drive the next phase of growth.

15:30 Continue to target 80% conversion of net income property cash flow in FY '27, also normalizing in FY '28. With that, I'll open the call for questions. Operator, over to you. Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch tone telephone. If you wish to remove yourself from the question two, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question.

16:20 First question is from the line of from Morgan Stanley. Please go ahead. Sir, may I may I I request you to unmute your line and proceed with your question, please? Hi. Can you hear me? Yes. Yes. Now we can. Go ahead. Yeah. Hi. Congrats on good revenue performance. I have three questions. My first question is on your confidence for upgrading the guidance in the current macro. And the reason I'm asking is because your deal wins have been in that particular range.

17:07 So within the same deal win range, why upgrade of guidance are giving more confidence on the second half? So is that conversion ratio improving versus the past? Is that giving you more confidence? My second question is on pipeline. Historically, we have seen, Nitin, that pipeline has been a lead indicator for your deal win numbers to inch up. You started building on pipeline and deal win numbers eventually started to inch up with a lag. Now given that the pipeline is building up now, is it fair to say that some of that will start reflecting in step up in the deal with numbers over a period of next two or three quarters? And the last question is that where are we in the investment cycle on the building these IPs and the, you know, archetype of these archetype that we had talked about on trial and other things. At some point in time, will that investment phase become, you know, plateau out, and will that lead to margin accretion for the company as well? Thank you.

18:01 Thanks,. I think the upgrade, you know, question linked to DCB, let me take it into different ways. As I mentioned in my script, the confidence is really coming from what we have in the backlog combined with the pipeline and the and the deal propensity. And, of course, we've added some healthy, you know, revenue in quarter in in q two that gives us a a starting base from a run rate perspective. That is also reflected in the head count addition, especially when you see the client metrics of top five, top 10, and next 10. I think all of those metrics are green. So there's there's a fair amount of of of that run rate confidence that's coming in. The question around linking it to TCV, while the TCV has stayed in the 400 range, I mean, this is still a little bit higher than what we've had in the last three or four quarters.

18:50 I think, as I mentioned in the in the commentary itself, it's not just the TCV that matters. The shape and nature of the TCV matters as well when it comes to short term growth and revenue performance. As I mentioned, I think the... If you look at just the trailing twelve month, there's a 26% increase in small deal TCV. Even if you look at the pipeline, you know, we've seen a disproportionate increase in in the less than 20,000,000 TCV at... In the pipeline at 35%, and the overall pipeline is up about 23%. So what's happening is a a fair amount of of work and priority from clients is focused on three areas right now.

19:35 First is all AI engineering work. Almost every large enterprise is very rapidly focused on building the AI foundations, the AI harness, the AI infrastructure layer that will effectively enable them to adopt AI at scale, and that's leading to a fair amount of work in aligning and and and helping them design, build, deploy, and scale these harnesses and and foundations. Tria plays a role there as well because in many cases, there's an opportunity for us to help them expand their thinking on what the foundation should look like. So that's the first bucket of work. There's a, again, you know, collaborated by head competition and and growth in applications and growth in top accounts. Not a phenomena that's happening across client segments, but definitely the more the more mature, the larger clients are are are spending a fair amount of time, effort, and money, and these are typically the short cycle deals. So I'll give you an example. A 10,000,000 six month deal has the same propensity as a 100,000,000 five year deal when it comes to revenue growth.

20:35 Second thing that is that is that is in focus is a fair amount of unlist... Kinda linked to the first one is the whole investment that is going into into hardening the cyber estate. Also, AI engineering led because it isn't just about adopting a new AI AI tool or AI platform. It's also about hardening the way that they deal with everything from detection to remediation and everything in between from identity and access management, nonhuman identity, you know, the the mythos, post mythos world. So there's a fair amount of engineering work that's going in there as well, and we have a very strong, you know, positioning with that, including the work we've done in the in the post quantum cryptography side over the last few years that's starting to get monetized here as well. And the third thing that is driving the pipeline and the deal wins is what we used to call savings and transformation, and I think Trio has really strengthened that thesis where the the client's not just looking to save money, they're also looking to see how they can transform the way they run the business, both operations and IT.

21:33 So there are very many themes of that, vendor consolidation is the theme of that. Right? But the outcome that the client is looking for is savings and transformation combined together. So that's kind of what's going on in the... On the client side, and that's what's driving the the the pipeline and the TCV wins, but the the shape of those TCV wins is what's driving the confidence in in revenue, and and you've seen their performance play out in the last 0.5. Pipeline's definitely a lead indicator, as you mentioned, going to your second question. You know, of course, at some point, we see large deal conversion ramp up. So are we expecting TCV ramp up in the next, you know, two to four quarters? The short answer is yes because we have to obviously keep the conversion rate high or high... As high it is or or higher. And, hence, that will reflect into, you know, into some of those deals converting.

22:18 But a lot of deals, by definition, are lumpy. You know, you can't really put a finger on, say, this deal will close on this date. But as we continue to execute the pipeline, I think we expect that the TCV number will stay healthier or inch up as well. On the investment cycle for Tria and the IP buildup, I think it's too early to say that at what point will you mature because the pace of change and the propensity of change is very, very fast. While we are not really focusing on on trying to compete on the tool stack, but we also have to make sure that everything we're doing from a Tria perspective across the layers doesn't really get commoditized. So we'll continue to invest at least for the for the near future. As we see ramp ups happening on adoption of Tria, we called out some some, you know, this... In the shape of of what's going on. You can definitely expect them...

23:07 I think the impact of enabling Tria led delivery will definitely have a tailwind to margins more than just the investment we're making in Tria. So I'm... We are more focused on driving gross margin higher through adoption of Triad versus driving margin higher by by choking investment in Triad. Alright. Thank you. All the best. I'll call back in queue. Thank you. Thank you very much. Next question is from the line of Sandeep Shah from Equator Securities. Please go ahead. Three times. Sandeep, sorry to interrupt you. You are not audible. Can you please repeat your answer... Your question once again from the beginning?

23:59 Yeah. Am I audible now? Hello? Yes. You're audible. Hello? Go ahead. Go ahead. Yes. Go ahead. Yeah. Yeah. Yeah. Congrats on a good set of offers despite difficult macro times. The first question you partly answered about fresh on the three r. So just wanted to understand, can you give some color in terms of the revenue coming through PR outcome based business model? I think a little bit premature, Sandeep, to give you that metric. As we mentioned back in May that we will use FY '27 as a foundational year to drive the right set of metrics.

24:46 I, you know, I... That's the reason I expanded on where we are seeing the uptick and and where we are seeing the impact. So, definitely, the clear opportunities are not just in the pipeline. They're also in the deal wins. We have our first set of deployments going live as we speak. Remember, we we launched the platform in May. We have already got possible deployments going live, so so we will definitely have a really good, not just learnings, but more importantly, validation... Set of validated, you know, deployments that that we can then scale. So little bit premature to give you a percentage of revenue or pipeline or TCV, but we'll evolve those metrics over the next two quarters and and definitely create a list that we can share with you. Okay. And just some bookkeeping question on the cash generation in this quarter. So, Arvind, if I look at to achieve the guidance of 80% OCF two part, the second half ask rate is very high, upwards of 100,110%.

25:49 Even if I adjust the $39,500,000 collection, which got delayed from September to October. So what will drive this? So, know, Sandeep, if you look at it, there has been a little bit of a a... You know, our DSOs even on a normalized basis have gone up by about ten days, right, if you if you look at it between q one and q two. So in many ways, that is pointing, and we are trying to get that back. Right? So as we move and get some of that back on trajectory, right, that is the basis for the incremental cash flow for the coming quarters. Okay.

26:37 And, Aravind, if I look at last year's payment for purchase consideration of acquired contracts has been $4.32 CR, while in this year first half, it has been at $1.43 CR. And your statement to normalize the OCF two path in FY twenty eight, this could be a bigger contributor where this kind of a payment for contract acquisition consideration may come down materially next year versus this year? So if you look at that, actually, goes below OCF. If you are looking at the Sorry. I see a phone. So so that really is... Yeah. So you are right that...

27:23 But having said that, right, you you know that you have announced one on Red Oak, which we expect to... You know, the closing conditions are expected to be concluded in November. So that's a $28,000,000 kind of commitment. Right? So to to some extent, you know, all of the deals on... In the table are are visible to you. Right? So so I don't think I don't think it'll go up for sure, but, you know, there'll be a little bit... You know, it'll it'll it'll be lower, but how much lower will be dependent on, you know, how many deals we do. But right now, at least, I think it's fair to assume that it will be lower in f I twenty eight than in f I twenty seven.

28:11 Got it. And the last question in terms of margin... Yeah. Yeah. This last question in terms of margin, the first half margin is at the lower end of the comfort range. How do we see the second half of the margin in terms of full year guidance? So I think, you know, our guidance range, you know, beginning of the year, like, last year also has been, you know, 14.75 to 15.75. I'm not really going to break down further within the range as to where we will be of h one and h two. Right? You are right that we are from 14.8, and we've talked about some of the investments that have really sit down. Right? So if you look at it, we made an acquisition for Priya with TAP, and and that has certain amortization cost that has come in this year.

29:11 We've we've seen a stronger growth momentum, especially in short cycle deals where there's a significant shift towards on-site, you know, particularly with these AI programs where the where the where the initial portion of the business starts on-site. We've seen a big shift in on-site mix. So some of those have put, you know, stretch on margins. And, frankly, we will have to make those investments for growth. Right? So so that is where we are. We we remain committed to the guidance range, and and I will leave it at that. Sandeep, I think just to put it in perspective Okay. I think Okay. We have just been... One of them me that question around what gives us the confidence to drive growth and upgrade the guidance.

29:59 I think we are enough. We are we are sitting at the intersection of some of these really interesting, you know, large enterprise programs. And if we have to capture that market share, I think we are making sure that we have the ability to optimize and and monetize every opportunity that we see on the table. And if that means that, you know, we are we are not at the ideal midpoint of the margin range, I think we we have more control on on normalizing that than leaving revenue on the table. So that's kind of the mindset while we continue to invest in building IP and and investing in in both coverage, sales, and and and platform. So I think all in all, we'll continue to prioritize growth. Margins are something we can absolutely fix because that's more of an... Of a optimization exercise that can happen internally, but growth is really what is client dependent, and that's where our focus is.

30:49 Yeah. Thanks. Got it. Fair enough. All the best. Thank you. Thanks. Thanks, Sandeep. Next question is from the line of from. Please go ahead. Yeah. Hi. Thanks for taking my question, and congrats on a solid performance yet again, mister MP. So just a couple of questions from my side, mainly on the AI sanction. Questions, mainly on that part and then one on the portfolio. If you look at the commentary by various players, I think there are two very different kind of commentary that we're hitting. One is, of course, a lot of clients are focusing on consolidation. A lot of vendors are focusing on consolidation deals. But there are also being pockets in which vendors have mentioned that the new AI deals are kind of smaller in size and being valued.

31:39 And they basically are kind of a... Get a foot in the door of the... Send out deals to the client. And then once the deal gets sold, the client renews the deal and gets to give you more work. But that basically impacts the overall TCV number in terms of the deal sizes. So are we also seeing that if these are with our deals and... I mean, if if that's the case, which kind of deals are we focusing on? Which do you think is going to drive the market going forward? And the second question, again, on the AI part is, we've seen the token cost come down almost 52% in the past six months. So in your conversations with that client, is that kind of helping vendors like us as in it frees up the money that the client was kind of spending, as you mentioned, outside the IT budget. So it frees up that budget, and does that help us in any way? If not today, then tomorrow.

32:26 Just your view on these two things. Sure. Both are great questions. I think the way to think about AI led deals is in two buckets. One, addressed when I answered to Gaurav as well earlier that we are seeing an uptick in short cycle short burst deals because there's a lot of AI engineering activity that's going on, whether it's around data mod, whether it's around building the harness or cyber. That's one category of AIR deals where you have the propensity to capture in your budget, immediate, you know, spend patterns because those are highly highly prioritized, you know, time sensitive programs. The other way to capture AIR deals is essentially through a combination of what I call savings and transformation, which is AI infused with operations. And those deals are not necessarily small deals.

33:14 When the consolidation is one instantiation of those kind of deals. Not every deal that we have is that is the AI led Mhmm. You know, combination of ops is a is a... Is an RFP or vendor consolidation deal because there is new TAM we are opening up there as well. But there are deals here, you know, in our pipeline that are vendor consolidation deals where the theme of AI led transformation driving savings is very much alive as well. So those are not necessarily small deals. The propensity and the ability to win those deals depends on three or four things. The ability to to drive that kind of transformation with AI, number one. Number two, meeting the financial objectives of the client has set out. And number three, of course, there is an element of deal structuring and and making sure that that it works for both parties. And, of course, those kind of deals are highly competitive because everyone, especially the large players, are very happy to use their balance sheet to drive some of those dealings, you know, restructuring cycles.

34:09 We have to obviously be very, very cautious in in how far we go. But as... When it comes to capability, when it comes to AI transformation with operations and IT, I think we are very much in the mix and we'll continue to drive pipeline and closures. On the second question around token cost, I think we predicted the token costs will continue to to go down. I think they will go down even more. That absolutely releases some pressure from the from the enterprises on where their AI investment is going, but that's a that's a different category than tapping into a new segment that our industry wasn't playing in earlier. You know, the traditional BPO business had a very defined boundary around it. With this kind of an approach where we are doing... Reimagining the business, we are able to penetrate things that were not traditionally seen as BPO able.

35:00 So that's... Think those are the two different buckets that we are seeing, but absolutely, your answer is right. You know, releasing a pressure on token costs, adopting these programs at scale, building some real smart intelligence and scientific way of managing what workload goes to which language model to to to optimize token costs. All of those things will will become part of the harnesses I talked about, and that's the phase we are in right now. Got it. Got it. Thank you so much for that, sir. Just one last question on the logistic vertical. So listen, how to look at this vertical hereafter? I mean, the vertical continues to decline even after the top line issue that we had seen last year. It's now less than 4% of our revenue.

35:46 Historically, what we have seen earlier with DXC and later with the mortgage business that once those business started declining, they never recovered, and then they became too small to become relevant in the largest scheme of things. Is that the way to look at logistics vertical also that today, this is a 2% of revenue? Maybe a few quarters on the line, it becomes 2% to 3%, and then we stop looking at it altogether in terms of any revival in this segment. I would not compare the logistics trajectory to what happened with the with the other two units that you mentioned. I mean, mortgage business is still very much part of our overall value proposition in DFS. It is cyclical in nature. I don't think it's about structurally us disinvesting it from that business or moving away from from saying that we will take this offering. I think the the way to think about the logistics business is that we've seen some headwinds over the last five five or six quarters.

36:37 We've done a fair amount of effort, and we continue to do a fair amount of effort in rebuilding that that... The foundation for that vertical. The nature of customers is still very much enterprise and top tier. We have some best brands in the in the business in in that vertical already that we are working with across airlines, transportation, and logistics. I think we have to do whatever it takes for us to continue to find pathway around expansion of wallet share. There are already clients where we are top two, top three providers. They're not quite at the scale where we think the potential is. So we may have a a $20,000,000 a year customer in that vertical that we think can go to $5,060.80, or a 100,000,000 as well. So I think we are very much committed to that vertical. It's an execution and and maturity phase that we are trying to drive out of that that business. So I would not compare them to us getting disinterested and and and and it falling by the wayside. If anything, we are actually making even more... Even bigger investments in some of these accounts because our account portion that has worked very well across other verticals is working here as well.

37:42 Got it. Got it. Great. Thank you so much for taking my questions, and wish you all the best. Thank you. Next question is from the line of the from MK Global. Please go ahead. Yeah. Thanks for the opportunity. Couple of questions. First about how many clients, let's say, might have adopted in such a PR? You said revenue difficult, but can you give some sense about, let's say, how the client is paying out? And among our top 20, top 40, how many clients where we have already come enrolled in adoption from? Second question is about the furlough. How do you expect furlough to play out in this year?

38:28 Maybe if you can give a relative comparison or absolute, whichever you can give some sense on. Third question is about the cybersecurity Can you give some sense about size and scale of our cybersecurity practice and how it is growing in terms of revenue trajectory perspective? And last is about the short term And your deal, we are seeing significant improvement compared to earlier trajectory. How to interpret that from revenue conversion perspective? Earlier, we used to give some correlation between revenue and TCV. Considering we are seeing some shift in terms of the nature of deal, how one should expect revenue trajectory compared to TCV reported? If you can give some growth around that metric. Thanks.

39:16 I think on the first question, depends around how many clients have adopted, Trea. I think it's too early for us to give you an exact number because as I said, we are in phase where we have live deployments that are that are undergoing as we speak. But all I will tell you is that it is not just one client. It's a it's a it's a multiple number of customers, and they're across verticals. As we scale those from, you know, initial deployments to, you multiple different lines of businesses or or replicate what we've built at foundation to additional, know, businesses within the client, we'll have a better idea of what the size potential and, you know, and and revenue shape will look like for Trio platform. So I think be a little bit more patient. I don't think we can... We are ready yet to share any metrics or numbers.

40:05 One, it's too premature. And two, I think there is there is work to be done in in making sure that that we are well established to to drive that on a sustainable basis. I'll let, you know, Aravind answer the question on furlough and short term deals and the correlation that you asked me. But on the cyber practice, while it's not a very big... We are not a very big cyber operations shop, but we definitely have a fair amount of work that we do in areas like our engine and access management as well as, you know, we have a cyber fusion center that we launched in in in our ODC two or three years ago that has become the foundation for us to do a lot of work there. But the real interesting work that we are doing in cyber really happens to be around the AI enablement of the entire cyber cyber ops and and vulnerability operation side.

40:54 And, of course, I I mentioned the post quantum cryptography capability that we build that is now sitting right in the middle of that as well. So it sits in our apps business more than anything. Because in the end, all the work we are really doing is around application remediation and and I'm... It's a it's a fast growing business. I don't think we will break it out. We are not breaking out anything by service line outside of apps. We've been on IT. As we reset some metrics for for FY '28, we may think about, you know, giving some additional color on it. But at this point, absolutely a fast growing, you know, business driven primarily in the apps bucket. Arun, you want me to answer on furlough and Depends on furlough, right now, nothing to call. I mean, historically, we've seen about 2% kind of impact at an organization level of furlough. Right? That's that's really been what we've seen.

41:47 Right now, as we stand, we have no reason to believe it's going to be different this year. Right? So there is nothing to comment. Obviously, a lot of work happens on furlough mitigation and finalization in December. And, you know, fingers crossed, we will have to see how that plays out. As far as correlation of deal cycle is concerned, see, I think when when there is a shift in terms of intensity on a TCV basis between long tenor and short tenor, you can do more growth with lesser absolute TCV. Right? So in a way, it kind of takes correlation out of that because you would find that, you know, maybe last year, we had much larger TCV in q one, q two compared to this year, but our growth trajectory are actually better this year than last year.

42:45 And that's because, you know, the the TCV to ACV conversion changes, and that's really not factored in the correlation between TCV and revenue growth, which is why, you know, that metric kind of becomes a little off key when when there is such such a sharp shift in the nature of TCV one. So I think you've seen an acceleration on revenue growth. Nathan talked about confidence for h two, which resulted in us upping the guidance. And that has happened without necessarily a big uplift in TCV, but consistent TCV growth of, you know, 400 plus. So that's really what has happened, Dinesh.

43:36 Thank you. Dinesh, do you have any follow-up question? No. Thank you. Thank you very much. Next question is from from HSBC Securities. Please go ahead. Hi. Thank you for the opportunity. I I have a follow-up question on the operating margins. So so I just wanted to understand, but at least for the deals that were, savings like transformation. So you guys had, my... So, basically, I think that you guys have been ahead on these deals. Right? And my understanding was that these deals would have lower margins initially than than your average and improve as you apply in delivery and later turn the work more of IP or platform lead. Right? So so I just wanted to understand if do we see that we are at a point in many of such...

44:37 Or or... Ongoing deals, which can soon grow into module expansion. Yeah. So, Prateek, I think the thesis you are mentioning is the right thesis. That's the right way to think about it. The only caveat I will make to that is that this is a... This... There's likely to be a steady stream of views of that nature. So while we normalize and and apply transformation and and automation to our deal that we would have signed in q one or q, you know, q four, there is a pipeline of such deals that will continue to to to run through. And we would... Which will mean that we have continued... You know, we we need the ability to continue to apply that to the next set of deals. But as we, you know, as we accumulate a bunch of these get... You know, deals and and the and the platform, you know, gets deployed and and matures in steady state, that's absolutely when the target... The the margin tailwind will will start showing up. Just to give you an...

45:36 You know, to give you another subs... You know, data point that substantiates it, if there is a trio led or a platform led savings or transformation deal, the sole margin shape is actually likely to be different than the traditional sole margin that we've seen in the in the previous year. So that's kind of the way to think about it. But will it show up immediately in q three or q four? It's hard to tell because we are still building pipeline and and and deals and and deploying the platform. Thanks, Matin. Matin, just one one more question around the TCV. So so just comparing your TCV explanation and also the the guidance increase on the revenue. Right? So so when the... I think while the new deal wins are very similar to what was the average for the last four quarters.

46:22 Right? Is it is it the short cycle deal which will probably improve the revenue conversion and and so, like, overall, the deal industry better than even the average? I think it's a it's a combination. Right? It's not just the short cycle deals that are converting better. It's even the... I think the PCB sold even in a larger deals while, you know, there was a period of time where conversion took time, especially at the at the end of, you know, middle of FY twenty six or, know, late twenty six. But at this point, the conversion seems to be, you know, pretty robust and nothing else to call out for in saying that there is a delay. Of course, decision cycles are not easy, especially for long term deals. Given the fair amount of complexity our clients are dealing with when it comes to making those decisions in in the uncertainty of...

47:09 You know? I mean, there's a fair amount of AI noise, and and the speed of change also scares the customer from committing. But that aside, I don't think there's anything else to call out from a conversion to, know, slow slow down. So if anything, you know, that steady conversion rate has really helped us deliver the numbers that we deliver. Right. And, Arvind, this this... As as we start taking some... Become more in the overall deal wins, I understand that in the larger deals, probably it it had some of the large investments on the cash side. Right? So as that makes changes, do you think that drives more confidently cash conversion later on? You're right. Right? That's a fair point. Right? As as you you will not have any kind of concern. Having said that, I don't think in this year, we've had any deals which has necessitated a big cash investment from our side. We've done 900,000,000 plus of net new TCV in h one. I I don't think any of those deals really had a material kind of cash flow investment.

48:19 I think we did that in a meaningful way in f y twenty six, and some of that impact is playing out in f y twenty seven. But, you know, which is why even from a commentary standpoint, we expect f I twenty eight to go back to historic levels. A combination of both, you know, pickup in the short cycle deals as well as the other large deals like I didn't mention where we didn't really have to make this kind of investment. Okay. Thank you so much. Those are my questions. I'll be back in the queue. Thank you. Next question is from Aditi Patil from ICICI Securities. Please go ahead. Thank you for the opportunity.

49:08 My first question is on the... You mentioned about the large deal with the large broker, which also has a recurring revenue sharing model. So how big... Or how large could be that revenue sharing component in the mature phase? And what could be the margin profile of this revenue sharing component? Will it be similar to the IT margin profile? And how... And do you see more such outcome based revenue sharing in your pipeline? Second question is on the top line. We have seen a strong sequential and growth in our top line. What has driven this growth, and do you expect the run rate to the top line to sustain?

49:53 And my last question is on the PMP vertical. For the last two quarters, we are seeing a a good growth in this vertical. Can you share the client sub segments we are serving within this vertical? Like, which kind of clients and what type of work we are doing is driving growth for us. Because several industry peers have flagged lower spend from tech lines as they prioritize AI capital and how durable is this grow, like, for the. Okay. Thanks, Aditi. I think on the deal where... The outcome based deal where we talked about the revenue share, I don't think it is appropriate for me to share the details given competitive intensity.

50:41 I think there is a certain, you know, effort that has gone into constructing a deal of that nature. A lot of our peers have talked about outcome based deals, but, you know, they are really recasting output based deals or outcome based deals. So let the model mature. As we have more, you know, examples to share at some point, we will talk a little bit more about it, but it's a percentage of revenue share. In a way, this is an alignment to the growth initiative of the broker dealer. This is not on the cost side. And the reason for that is that this defense that capacity constraint in servicing the broker dealer network, especially middle and back office without having a strong, you know, tech platform capability was what was constraining their growth.

51:34 And hence, they they have aligned incentives on both sides, and we work hard at making sure that we have the ability to to give them the scale, the speed, and the and and the efficiency that they need in onboarding and servicing these these new advisers on their network. So... And it's an interesting deal. It's definitely one of the five large deals that we've announced in the quarter. It is, you know, on the larger side. It's... So we've made some estimates on where we think we can we can end up with that, you know, over over the next five years or so. It definitely has the ability... You know, has the potential to be bigger than what we estimated it to be, but right now, it's too early for us to call. We need to, you know, operationalize it. We should... We already operationalize it. We need to kind of stabilize it and and get to a rhythm and see if we can follow the growth pattern. As they grow, we grow.

52:21 On top line, I think it's not fair to to answer the client specific outlook. We are very happy that we've grown top five, top 10, and and and next 10 clients very well, next 20, in fact. Wherever... As I mentioned earlier, wherever we see opportunity, we have the the ability to... And the trust with those clients to be able to monetize those opportunities short term and long term. Given that many of our top clients are sophisticated large buyers, I think the... I'm very proud of the fact that the teams continue to become a very large provider and partner to those clients, and and, hence, you know, we've seen that kind of execution show up consistently in the last, you know, few quarters in that segment. TMT is an interesting one. You know, we have we have three or four subsegments in that.

53:08 There is... There's device makers. Given our heritage of ownership, we have a very strong footprint in in r and d as well as as as driving product engineering work there. We do a fair amount of work on the embedded software side. Second sub sub segment is is high-tech. You know, think of all the big tech names. That's a client segment. It's... It was small. It's starting to grow. Lot of potential to grow. Our positioning there isn't that of of a skilled provider with with rate cards. We are trying to make sure that wherever we go in, we have the ability to differentiate and and and find our own, you know, capability and and and specialization. The third subsegment there is is telecom.

53:55 We've done... We've seen rapid expansion in that segment with with some clients breaking into our our top 10 client category, driven again by the fact that they see us as a refreshing transformation led software engineering partner versus, you know, many of the incumbents that they've been dealing with and the usual names that that used to service that sector. And I think the the fourth segment there is is still small, but we'll continue to find ways to expand our our book of business with the ISVs. So I would say in that order, device makers, telecom, high-tech companies, and ISVs are the four sub subsegments in TMT. Given the track record, not just over the last two quarters, but over the last three years in that segment, I think there is a significant opportunity for us to continue to make that bigger. It's already a second biggest vertical after banking, close to insurance size, but very happy with the with the performance of that unit.

54:50 Okay. Got it. Thank you for answering my question. Thank you. Next question is from the line of Kumar Rakesh from BNP Paribas Mutual Fund. Please go ahead. Hi. Thank you for taking my question. My question was around the free cash flow during the quarter. So usually, the visibility on free cash flow in a contractual business is much higher than that would be on revenue, especially when we are talking about it in terms of a percentage of that. So the last two quarters, this increased level of uncertainty around and the volatility around free cash flow is a little difficult to understand. We started the year with talking about 80% OCF to PAT conversion. Last quarter, we spoke about that. For the rest of the year, it would be improving.

55:37 And within a quarter, it turned into negative. So what exactly is driving this increased level of uncertainty? Is there any fundamental change in the way we are doing business by going into outcome based model pricing and the commitment? I'm just trying to figure out that cash flow for the contractual business in a service industry should not be this volatile. It could be understandable for an industrial company, but not for the services company. I understand. I understand, Rajesh. I don't think there is any structural shift, and I don't think it is linked to any outcome based deals. I think we talked about normalized cash flow that payments built from thirtieth to first. Cash in transit is no longer, you know, allowed as as OCF in terms of, you know, the way we we we we do this. So that... If you normalize for that, I think the cash flow is actually, you know, in in in the range we expected it to be.

56:28 In terms of... You know, the only reason I stepped in is I don't think you should you should link that to any structural change or any contractual decision. Yes. There is a... There is an execution rigor that we continue to continue to to drive. And as Arvind said, it was disappointing to us as well that we spilled over. On the rest of the year, Armin, you can just reiterate what you mentioned earlier. So I I... I'll just make a point. Right? You know, those... In a contractual business, forecasting revenues are always easier than forecasting cash flows. If you look at across the industry, you know, quarterly fluctuations in cash flows by a margin are much more frequent than on revenue. Right? So hypothesis wise, you know, because our days change, changes cash flow significantly.

57:15 It it... Revenue, for example, doesn't have the same volatility that cash flow has, but cash flow normalizes over a period of time. And that really is what is happening here. Right? So what we've said is that, you know, we've made certain investments from a deal standpoint in last year, which is kind of playing out in f y twenty seven also. And that is why, you know, we've seen a little bit of, you know, reduction in our cash flow conversion from historic levels. And our commentary is such that, you know, I think for FY '28, we will go back to our historic levels of cash flow generation. So so I I don't think volatility is uncommon in cash flow even in IT services, But I think from a long... From a year basis, you will not see that kind of volatility.

58:11 And, frankly, this quarter was very, very, very extreme situation. I'm not seeing very often of almost 39,000,000 initiated on thirtieth. You know, some some challenges is coming with value date of thirtieth, but hitting our back up on our first. You know, that's that's actually a pretty anomaly, you know, event. Right? So let's... It won't happen very often or open at all. Got that. But even for the full year, it looks like there would be a sharp decoupling between what your top line growth would be and what your OCF or FCS growth would be. So I'm just trying to understand that going forward as well. While we are accelerating our growth and which has been quite remarkable in the last four quarters, We are starting to see on the margin in the last few quarters that has come down to the lower end of our guidance range, and that is understandable. All the companies are making investment, and you should be doing that at this point. But the impact on cash flow and not having full visibility on where it stands for the full year. So it just makes me a little worried is that how we are looking at at converting all the growth that we are generating into cash.

59:23 Yeah. I I mean, think I think I'll just leave it at the same time. Yeah. Yeah. I I give you a good good road map and pass out. Let's just continue to to follow that that path, you know, over the next two quarters in FY '28. So I think as we as we normalize it to to normal levels in '28, none of this will be a a concern because we are not worried about it. That's it. Thanks, Rakesh. Thank you. Thank you very much. Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to Mr. Nitin Rakesh for closing comments. Thank you, Nirav. Let me close with what I said last quarter. We are not in the business of chasing AI trend cycles. We are building the capability that makes AI adoption at scale real for large enterprises.

1:00:15 We are in business modernization and business imagination are now clearly emerging as teams that drive pipeline and wins, unlocking budgets beyond the technology function and widening the set of problems we can solve for clients. We organized our people and our offer... Offerings to deliver that at scale, and today's guidance reflects our confidence in it. Thank you all for joining the call today. Just add up, and Diwali, wishing you, your teams, and your families a joyful Diwali and steady growth in the year ahead. We are grateful for your trust and continued association and look forward to growing together in the years ahead. Thank you very much. On behalf of MphasiS Limited, that concludes this conference. If you have any further questions, please reach out to the MphasiS Investor Relations at [email protected].

1:01:05 Thank you for joining us, and you may now disconnect your lines. Thank you.