Ladies and gentlemen, good day, and welcome to the Coforge Limited Q2 FY 2026 Earnings Conference Call. Please note all participants' lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the management's opening remarks. Please note that this conference is being recorded. We have with us today from the management team: Mr. Sudhir Singh, CEO; Mr. John Speight, Chief Customer Success Officer; Mr. Saurabh Goel, CFO; and Mr. Manish Hemrajani, Head of Investor Relations. I now hand over the conference to Mr. Manish Hemrajani. Thank you, and over to you, sir. Thank you, Inba. Good afternoon, and thank you for joining us to discuss Coforge's results for the second quarter of FY 2026, which ended on September 30, 2025. Before we begin, please note that today's discussion may include forward-looking statements, which involve risks and uncertainties. Actual results may differ materially, and Coforge assumes no obligation to update these statements. With that, I'll hand the call over to Sudhir. Thank you, Manish. Ladies, gentlemen, thank you for joining us today as we share our Q2 fiscal year 2026 performance and the outlook for fiscal year 2026 and beyond. Q2 has been an exceptional quarter for the firm. The firm recorded 5.9% sequential constant currency growth and registered an EBIT of 14% for the quarter. The business is on an even keel, and key operating metrics: number of large deals signed, free cash flow, order intake, next 12 months signed order book, DSO days, in addition to other metrics like revenue growth, EBITDA, and EBIT margin progression, continue to reflect the robust health of the business. Our sustained, robust, and accelerating growth story, exemplified by Q2 results, is now well into its ninth year. Our growth continues to be driven by an execution intensity that is uniquely our own. Execution, we have always believed, is the ability to not just create strategies and share plans, but to actually deliver upon them. Nowhere has the core DNA of execution and getting things done got more clearly reflected than in our ability to transform our core business with AI and to emerge as a partner, dare I say, trusted partner for our clients that has helped move them beyond simple AI pilot projects to true integrated enterprise adoption. We are fundamentally changing the delivery of our technology and BPO services by embedding AI early on, leveraging our proprietary Coforge IP. Our platforms, including Code Insight AI for enhanced software reverse engineering, BlueSwan for integrated automation and orchestration, and ForgeX for rapid transformation, are infusing generative AI and intelligent automation into the very fabric of our delivery models. To fully grasp the complexity our clients face on the tech operations front today, please recognize that AI engineering is very much like software engineering. The challenges are familiar, but the tools are new. The reliance on traditional SQL databases must now be augmented by vector databases and embeddings. Simple API calls are evolving into complex MCP calls to manage the contextual flow of information across models. This is a landscape characterized by technological confusion and nascent protocols. For the next 18- 24 months, the market will be flooded with competing standards and tools. In this immature ecosystem, our clients need assistance across two different axes. One, they need assistance to help drive a deep understanding of their industry problems and processes. They need assistance with driving a deep understanding of how AI works and critically how it does not work. The ability to combine deep industry knowledge with honest technical counsel is what allows us to deliver solutions that are not just theoretically innovative, but ones that actually get executed and drive genuine, profitable outcomes. I shall leave you with two examples of actual work done for clients in the AI realm, and after that, segue into our quarterly results. Example one: we are leveraging Code Insight AI, our own code intelligence platform, to harness the power of advanced LLMs and reasoning models with layered knowledge to decipher massive, undocumented legacy code bases at a leading travel industry client. This process involves more than just static analysis. The platform, Code Insight AI, is designed to reverse engineer the original intent and complex flow of the code, automatically generating high-quality documentation that explicitly maps out system behaviors and extracts critical business rules. By creating this comprehensive, structured understanding of the client's core platforms, Code Insight AI fundamentally enables and de-risks the vital modernization effort. Example two is an example of using SLM to do forward engineering. For a mid-sized U.S. bank seeking to modernize its fragmented IT landscape using AI and a low-code platform, we have developed a custom small language model to accelerate low-code application development on the OutSystems platform itself. With those two quick examples, I shall now segue into the quarterly performance and start with revenue analysis. I'm pleased to report that the firm registered a sequential revenue growth of 5.9% in constant currency terms. In Indian rupee and U.S. dollar terms, the sequential growth was 8.1% and 4.5% respectively. The growth during the quarter was led by the travel vertical, which grew 6.4% sequentially in dollar terms. Other verticals, which include healthcare, retail, high-tech, and manufacturing, grew 5.9%. The insurance vertical grew 1.8%, and the BFS vertical grew by 4% sequentially. The government outside India vertical grew 0.4% quarter on quarter in dollar terms. Our top five clients and our top 10 clients grew 6.2% and 9.8% quarter-on- quarter respectively. They contributed 21% and 30.8% respectively to our overall Q2 revenue. Moving on to order intake, Q2 was yet another strong quarter, both from an order intake and a large deals closure perspective. During the quarter, we signed five large deals. The velocity and median size of large deals signed by Coforge has been increasing over the years, and I shall reflect more on this in my concluding remarks. The total order intake during Q2 was $514 million. The executable order book, which reflects the total value of locked orders over the next 12 months, stands at a record $1.63 billion. This number, some of you might recall, was $1.3 billion a year back and is currently 26.7% higher than at the same time last year. Moving on to the people front. Our total headcount at the end of Q2 stood at 34,896. We saw a net people addition of 709 during the quarter. Utilization during the quarter stood at 82.3%. Last 12-month attrition for the quarter fell further and is now at 11.4%. We remain, as always, one of the lowest attrition firms across the industry. I shall now hand over the call to John Speight, Chief Customer Success Officer of Coforge, for providing insights into our operations and capability creation. Over to you, John. Thank you, Sudhir. I will now highlight the quarter's delivery and capability milestones. Coforge is advancing with an AI-driven service portfolio. Our strategy captures the surge in enterprise investment in AI infrastructure and data modernization, fueling sustained, high-quality growth. We design solutions that address clients' most complex, mission-critical challenges. AI is embedded from the outset, delivering clear, measurable returns. EvolveOps.AI anchors our Mission Zero initiative. Clients experience zero-touch operations, zero disruption for enterprise systems, and zero friction for end users. Over 25 clients have completed a full year without a single P1 incident. This highly automated delivery model expands margins and increases contract value. Our proprietary Quasar AI platform now offers multi-framework agentic support, secure RAG as a service for trusted data, and smart LLM routing for optimal performance and cost efficiency. Client success stories this quarter show the impact of our approach. A major U.S. airline and a European insurtech selected Coforge to implement strategic domain data measures, migrating to cloud platforms like Snowflake and Databricks. These programs established Coforge as the partner of choice for foundational AI infrastructure and recurring data engineering revenue. A leading broker-dealer fintech chose Coforge to design and build its agentic AI platform, automating complex financial advisory workflows. Another U.S. airline selected us to build its enterprise agentic AI framework on AWS AgentCore, enabling scalable, autonomous business process execution. For one of the world's largest fintechs, we established a new quality engineering hub, leveraging our BlueSwan AI accelerators to embed intelligence throughout the testing lifecycle and accelerate time to market. AI runs through our delivery lifecycle, driving internal efficiency and strong contract execution. Our agentic production support offering for data clients now resolves L1 and L1.5 issues in nightly ETL cycles, delivering immediate cost savings and optimizing margins on managed service contracts. Our AI-driven service portfolio aligns with the future of enterprise technology spend. Strategic AI programs across engineering, cloud, data, and quality engineering are fueling durable revenue growth, stronger margins, and enhanced shareholder value. With that, I will now hand over to our CFO, Saurabh Goel. Thank you, John. If you recall, we made some changes to our disclosures last quarter, where we presented a detailed breakdown of our financial statements as part of a fact sheet. This quarter, the fact sheet has been updated to reflect reported profit and loss metrics. All adjustments to P&L have been taken off. As previously stated by Sudhir, for the second quarter, revenue reached $462.1 million. This figure represents a sequential growth of 4.5% in dollar terms, 8.1% in INR terms, and 5.9% in constant currency terms. The hedge loss reported for the quarter amounted to INR 307 million as compared to INR 158 million in the previous quarter, reflecting the adverse impact of 78 bps in the reported EBIT. ESOP cost for the quarter further reduced to 1.4% of revenue for the quarter, reflecting 20 bps upside on EBIT. The EBIT margin for Q2 was 14%, an increase of 251 bps quarter on quarter and 240 bps year on year. In the first quarter, a one-time bonus provision for employees amounting to $5.5 million and $0.5 million for acquisition-related expenses was recorded. PBT sequentially went up 410 bps, which was on account of foreign exchange gains in the current quarter and an exceptional legal expense of $3 million in the first quarter related to cybersecurity breach with the client. The PAT for Q2 stood at 9.4% of revenue, an improvement of 82 bps compared to previous quarter, and 275 bps year-on- year. Earnings per share for the quarter was INR 11.2 per share. For the first half of FY 2026, EPS was at INR 20.7 per share, reflecting an increase of 101% over previous year's first half. Capital expenditure for the quarter stood at $4 million. Free cash flow increased to $37.0 million, reflecting FCF to PAT ratio of 86%. In addition, the company was able to reduce its credit line, which led to a reduction of interest expenses. Billed DSO stood at 63 days, unbilled at 26, and contract assets at 15, reflecting a total working capital cycle of 104 days. With that, I hand over the call back to Sudhir. Thank you, Saurabh. I shall sum this up as follows. The 5.9% sequential constant currency growth in Q2, our next 12 months signed order book, which is 26.7% higher year on year, a sales execution engine that signed 14 large deals last year and has already closed 10 large deals in the first half of this year, a potential pathway to 14% EBIT margin in fiscal year 2026. One of the lowest employee attrition rates across the industry are all, ladies and gentlemen, pointers to what we believe will be an exceptional fiscal 2026. We remain committed, strongly committed to turning in the ninth consecutive year of robust growth despite the uncertain macros swirling around our industry. Our growth philosophy, as always, continues to focus on driving very robust organic growth. We overlay that organic growth with a near-perfect record of executing turnarounds of all assets that we have acquired over the last nine years. Moving forward, we shall continue to focus on robust organic growth and continue acquisitions as well. With that, ladies and gentlemen, I conclude my prepared remarks, and I look forward to hearing your comments. All three of us look forward to addressing your questions. Thank you. Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and- answer session. Anyone who wishes to ask a question may click on the raise hand icon from the participant tab on your screen. We request participants to please restrict to two questions and then return to the queue for more questions. To rejoin the queue, you may click the raise hand icon again. We will wait for a few moments until the question queue assembles. We take the first question from Abhishek Pathak of Motilal Oswal. Please go ahead. Yeah, hi. Am I audible? Yes, sir. Yeah, hi. Hi, team. Morning. Congrats on a great quarter. I think it's great to see a great print across revenue, margins, and cash flow generation. Sudhir, my question is, from a two to three-year perspective, how are you thinking about optimizing for all these three metrics going forward, right? Because, A, growth remains paramount. In an uncertain macro where demand still remains kind of sporadic, do we expect pressure on margins for both us and the industry, number two? Number three, on cash flow as well, when we are growing so fast, what is the steady state for these metrics for us going forward from here? Given a choice, how do you optimize across these three? That's the first question. The second question is, a very interesting sort of data point around revenue per employee that you've shared. It seems to be going up. To be honest, that looks like how the industry should move forward. Interested to know your views on how you're doing it so early, ahead of the curve, and what will ensure this going forward as well. Thank you. Thank you for the comments and the questions, Abhishek. Let me take them in order. Revenue, our intent, as always, and as exemplified by our results over the last nine years, continues to be that over the next two to three years and beyond, we will continue to turn in sustained and robust growth. That's the clear intent. It has not changed. On margins, if we do hit the 14% reported EBIT margin plan for the year, we will, at a minimum, irrespective of the changes in the macros, commit ourselves to delivering on that as the minimum threshold going forward in the years to come. As far as free cash flow is concerned, and as Saurabh had noted in his commentary, there were comments that we received on that last quarter. We believe on a sustained basis, you should expect free cash flow to PAT at around 70% - 80% going forward. We are very strongly focused on the free cash flow metric as well. As far as the second question around revenue per employee is concerned, you're right. Revenue per employee, we called out the revenue per employee for our tech services business. It is nudging $70,000 per employee. It's a metric that we have consciously called out to illustrate the impact of the AI-led platforms that John has been talking about over the last six quarters and the value that they create for our clients and in turn for us. We've always talked about how high-quality growth, and the best exemplar of that high-quality growth we believe is the RPE metric that you've seen. Thank you. Thank you, team, and all the best. Thank you. Our next question is from Vibhor Singhal of Nuvama Equities. Please go ahead. Yeah, hi. Thanks for taking my question, and congrats, team, on a rock-solid performance once again. Sudhir, one question for you and another one for Saurabh, which I'll take later on. Sudhir, on the overall demand front, we've seen multiple macro headwinds play out in this quarter, from the hike in H1B visa fees to a very uncertain macro. Of course, I mean, evidently, it doesn't impact our numbers and the deal wins at our level. What is your take on how these could actually, if at all, impact the industry going forward? A related question is that in our growth trajectory, if we see, I think the first two quarters' growth, of course, has been led by the travel vertical because of the large deal that we had closed out. Going forward, next, let's say, two to four quarters, which verticals or which segments of the business do you think will take precedence in driving the growth? Thanks, Vibhor. Demand front, we talked about it over the last few quarters as well. We continue to believe that demand, especially with the advent of AI, has mutated, but the addressable demand continues to grow at a solid clip. When we look at our three core verticals, banking, insurance, and travel, and when we look at the trends that we see observed within them, we see positive trends. Banking, there are several factors that are aligning to create favorable conditions, all the way from lower interest rates to the shifts in the regulatory practices. We are seeing financial institutions embrace real-time everything in the areas of payments or global remittances or security settlements. Of course, there are the efforts in terms of moving to T + 0 as well. Banking demand outlook in general appears solid from our vantage point. Insurance, as we observe it, the global insurance industry is entering an above-trend growth phase. PNC insurance, every metric we're tracking is growing at about almost 4.5% per year. The growth is increasingly coming from our vantage by more complex risks, higher claims, rate increases, insurers focusing on specialized products like cyber, etc. Even L&E, we see growth of about 5% per year, driven by higher interest rates and more interest in saving products. That's a quick summary, Vibhor, in terms of demand outlook. We continue to believe that the demand outlook is improving on the margins. It's not a vertical takeoff, but it is improving on the margins. As far as your second question is concerned, and then I'm sure you have a question for Saurabh, as far as the verticals are concerned, we expect travel to continue to clip along at a solid pace. We believe insurance, in light of the commentary that I just shared, and banking will both do well. The two newer verticals that we've alluded to over the last two years are doing very well for us. One is healthcare, where we think that by the end of this year, we will have a book of business of almost $100 million. We may not touch that number, but we'll be within nudging distance. The second is public sector outside India, which is a book of business that has already crossed $150 million. We think that in the coming quarters, we should start nudging the $200 million run rate on that vertical as well. Those were the answers that I had for you, Vibhor. Great, great. Thank you so much for those answers. Sudhir, very clear visibility of growth trajectory that you've provided. Saurabh, if I can just trouble you for a couple of questions. In this quarter, if I understand correctly, we've actually moved all the items like discounting income of long-term contracts and mortgage income and all, all that from our EBITDA calculations to other income. Now there'll be no disparity between the India's EBIT and the PAT reported EBIT going forward as well. Absolutely right, Vibhor. We've moved that to other income, and the detailed breakdown is available in the analyst fact sheet in the other income section, where you will see that the discounting income and the mortgage income and all of that are being reflected there. Quarter one has been recasted to reflect that number. Going forward, we'll focus on reported EBIT. That's the number we will hold. FCF to PAT is what we will hold. Revenue anyways, we've been holding. Got it, got it. This reported EBIT margin is what we are targeting that will touch 14% in FY 2026. Yes. Got it, got it. Really helpful. I think this clarifies a lot of concerns which people had regarding the mismatch in the EBITDA numbers. Really good, great to hear that. Secondly, just a couple of bookkeeping questions. What is the basically timeline and the update on the CGT acquisition? When do you think this process can be completed? Secondly, just as Sudhir just mentioned that we now have a very large order book in the healthcare segment as well. We have this vertical which we report as others, which consists of healthcare, retail, manufacturing, and all. Do you think there would be a time maybe in the next few quarters when we'll start separating them out and basically give out the matrices of those individual verticals separately once they attain that size, that critical size? Sure, Vibhor. Question number one, the NCLT approval has been received, and the task is to convene a creditors' and a shareholders' meeting. The date is yet to come out, but as soon as the date is out, within 35- 40 days, it's a time-bound thing. It's not that it goes on forever. The meeting has to be convened. After that, it will go back to NCLT for the second motion filing, and then the merger will be completed. We expect that to be getting completed by either December or January timeframe. Whenever the merger is completed, the minority interest, as I mentioned earlier, will be taken off effective April 1, 2025, because the effective date of the merger is April 1, 2025. So, retrospectively. Absolutely, absolutely right. That is one. Second, on the healthcare or others component, which has become larger, you would recall we used to have a public sector government outside India used to be the segment which used to be part of others, which we have taken out. We at least wait for the business to get at least a critical mass of $100 million. Once that is done, we then start reporting that. Hopefully, we should see a vertical being carved out in the next financial year, quarter one of FY 2027. Great, great. Thank you so much. Thanks, Saurabh and Sudhir, for taking my questions, and wish you all the best. Sure. Thank you. Our next question is from Ankur Rudra of JP Morgan. Please go ahead. Hi, thank you for taking my call, and thanks. Good to see the margins and cash moving up. Can you hear me now? Yeah. Hi. Good evening. Thank you for taking the question. I'm good to see the margins and cash moving up smartly this quarter. First question is on growth. 1H has been exceptionally strong, clearly held by the travel contract. I recall you had highlighted before that second half could also be stronger. Given how the macro has evolved since then, how has your outlook evolved for the second half and generally? Both John and I will chip in on this. What we discussed last quarter was that second half will be a growth half for us over H1 because our H1 numbers have been extremely strong. We continue to maintain that the full fiscal will be a robust growth fiscal for us. H2 will also be a robust growth half for us. John, do you want to add to that? Yeah. One thing to note is traditionally our H2, certainly Q4, is our strongest quarter, one of our strongest quarters. I'd also say looking at the growth in our pipeline and opportunities really bodes well. Appreciate it. I think I noticed that the hiring was positive in contrast to other people not hiring at all, but still was a bit light on 2%. I'm sure that's not much for us to read from an outlook perspective. No, that's right because I think in the hiring we continue to focus on not only just the addition of people, but focus on utilization as well. That is why you will see that the SG&A cost has got to reduce because we have kind of moved people who were part of unbilled organization from a delivery perspective or overheads. They've been moved to billing. That is why you saw that the SG&A has gone down or the G&A part of the overheads have gone down. Hence, the gross margin has gone up. Plus, we're moving into a seasonally weak quarter, which has a lot of holidays and furloughs coming in. Hence, the hiring observation. Appreciate it. On the margin side, you've delivered 14% margins, I think ahead of what most of us expected. Now, several of your larger peers are actually battling margin issues, and we hear of pricing pressures thanks to AI-related productivity pass-through. In that background, does it make sense for you to expand margins further from here or reinvest back either into the business or to keep your margins and your price points more competitive? Ankur, once we hit 14% EBIT, if we manage to hit it this year, we will plan to, at a minimum, clip along at 14% EBIT. Our primary aim will be to make sure that we prioritize growth over any further EBIT improvement. At the moment, the idea is to get to 14%, keep 14% for the year. Beyond that, you don't intend to, at the moment, expand margins meaningfully. I mean, if it expands, it expands, but the first imperative will be to prioritize growth and to keep investing in the business and be a very high-growth firm. 14% will be the minimum that we will plan to deliver. We will not commit to more than that at this point in time. At least 14% gives us comfort that we're running a business wherein you have enough scope for investments so that the growth keeps coming in. I think that number, once achieved for a year, we'll just hold that number. Focus will be to reinvest anything that is over and above that for growth because, as Sudhir mentioned, that will be the prime imperative. Appreciate the call. Thank you so much. Thanks, Ankur. Thank you. Our next question is from Dipesh Mehta of Emkay Global. Please go ahead. Yeah, thanks for the opportunity. A couple of questions. First, about the five large deals, if you can provide some contour on those deals, and particularly if you can touch upon how those deals are changing in terms of size, shape, and complexity, how Coforge is evolving, if you can provide some colors around it, maybe for H1 also helps. Second question is about the DSO. If I look, DSO is steadily inching up. I'm including all the contract assets. It is almost eight days up. How one should look at this overall working capital cycle evolving for Coforge? You think now we should stabilize or there would be further kind of uptake possible? Last question is about the healthcare. You say others are doing well, and you attributed part of it to healthcare. If you can provide some sense about our focus area and what is working well for us in healthcare and what kind of investment you plan to ensure this growth momentum sustaining in that area. Thank you. One small question, if I can add, any expectation about furloughs? Thank you. Sure. Four questions in all. I shall take the large deals questions. Saurabh shall address DSO. John and I will look at healthcare together. John has just closed a highly complex healthcare program in this week itself. Finally, furlough is an easy yes, easy, easy question. We'll just take that in advance. We do expect furloughs as we see them every year. We expect them to be at the same scale as we've seen over the past few years, which has been significant. With that, the five large deals, three of the large deals came from North America. Out of those three large deals, two came in interestingly from the insurance vertical in North America, and one came in from an airline, a new airline for us. That was an NN deal. In insurance, out of the two large deals, one was an NN deal, a new client. Interestingly, out of the three large deals in North America, two were new clients opened with a large contract. The other two deals came in from the Asia-Pacific region. Each of these deals, what we found very interesting is the one of the three deals in North America was around legacy modernization of the mainframe. The new airline where we started a new relationship with a large deal, this was fundamentally focused around digital transformation across all data services and IT services. The third deal from North America in insurance centered around optimizing operations by implementing AI-infused modern AMS and QE using our own platforms. That's a quick flavor around the five large deals. Saurabh, would you like to address the DSO question? Yeah, thank you, Sudhir. The reason for increase in DSO is one, the year-on-year growth is 31%. Last two quarters have been 8% and almost 8% in repeat terms. Now, when we arrive at DSO, we are looking at last 12 months' revenue, which is inflating the DSO numbers because the currency has moved up significantly. That's one. The focus is to make sure that FCF to PAT is being maintained because once that is within control, the rest of everything gets under control. The focus will be to maintain FCF to PAT of 80-odd%, 75%- 80-odd%. Once we maintain that for a year-on-year basis, that will take care of any concern that we'll have on the DSO. This DSO is more of a metric which is getting impacted because of currency and our 30% growth that we have year-on-year. If you calculate DSO versus current quarter run rate, the numbers will fall significantly. Thank you, John. Thank you, Sudhir. There are a few areas on healthcare that are driving our growth. One of the areas is there's a huge focus on now how AI can actually be used to automate and improve patient care. What we're seeing is a very large drive in improving the end-to-end platforms, the plumbing, the data, the data collection, so that they can create insights and provide that additional comfort to customers, to patients. That's a big area for us there. The other areas we're seeing a lot of focus on the payer and the life science space. Again, it's how AI and data can be used to drive insights and semantics around patient care, drug processing, and so on. Dipesh, those were the answers to your four questions. Thank you for the questions. Thank you. Thank you. We take a next question from Kawaljeet Saluja of Kotak Securities. Please go ahead. Hey, hi. Thanks a lot, and congratulations on a good all-round performance, team. My questions are all data-related, so it's all for Saurabh. Saurabh, the first question that I have is I'm trying to reconcile the big gap between constant currency revenue growth and dollar revenue growth this quarter. Your constant currency is 6%, dollar is 4.5%. I don't, I mean, you know, that's like a chunky 150 basis points gap between the two numbers, which seems a little bit at odds with what I've seen for the rest of the players in the industry. Just trying to understand the mechanics and the calculations behind it here. are two parts to it, Kawaljeet. One, hedge losses in the top line. The hedge losses in the top line have almost doubled, which is all reported in INR. From INR 15 crore last quarter, we're sitting at INR 30 crore this quarter. That is one line item which impacts our reported revenue number in either currency. The tailwind would have been otherwise much, much higher in terms of repeat terms if the hedge losses were not there in the top line. That is. Yeah, that would be 50 basis points, consumably. That is one. Second is the exposure to pound and euro is very significant in our case. Over there, there was a headwind rather than a tailwind, because of which between dollar and pound, there was a significant tailwind, because of which the dollar revenue went down. The third thing is because of the India business growing this quarter. These are three reasons because of which the dollar number is lower as compared to number, and then rupee number is higher. Okay. The second question, thanks for that, Saurabh. The second question that I had is around the headcount addition versus the revenue. I mean, see, your utilization rates have not changed quarter on quarter. Your headcount addition is fairly moderate, actually, and your revenue growth is 6%. I'm just trying to understand the gap in the headcount addition versus the strong revenue growth with an unchanged utilization. Is there a big bump up in the subcontracting cost, or is non-linearity really at play over here? I think two parts. One, you look at revenue per headcount has gone up in the current quarter from $67,000 per annum to $69,000. There is non-linearity which is getting played out. Number two, the headcount addition that you're looking at between two quarters is a point-in-time view. When we were ramping up last quarter, the headcount was added towards the end of the last quarter. There was no full quarter revenue that had come for those people. That is why you're seeing that the headcount increase is only 2%, wherein the FT increase at the same utilization is much larger than that. That's the second point to it. Subcon is not playing an impact here because it's already included in the overall headcount. It's not because of the subcon that the headcount has reduced or has not grown that significantly. That's the reason. Right. The final question is on the hedging philosophy. Normally, what I see with companies is that when they have an annual cycle, they want to lock in their currency rates at the beginning of the year. They run a rolling 12-month hedge, and they also run balance sheet hedges. When I look at your hedging, I just get a little bit, what I would say, I'm unable to draw a pattern behind the hedging because it's more than doubled on a year-over-year basis for USD. On a sequential basis as well, it's gone up, and the hedge duration seems to be of a far shorter duration. What's the underlying mechanics and the philosophy behind the hedging gap? One thing, Cigniti was added. Cigniti, until now, they were not hedging as a legal entity. They were never used to hedge. Hedges for Cigniti have been taken. As far as our hedging policy is concerned, it is very straightforward. We hedge on a rolling four-quarter basis, which is 90% of the net exposure for the immediate quarter, followed by 80%, 70%, 60%. The bump up that you see in hedging is because a large business is getting added, Cigniti and the other acquired businesses that we have taken over. The policy remains the same, which is 90%, 80%, 70%, 60%. That is why you see that a lot is short-term just because of new entity getting added in the overall hedging policy. Fantastic. Yeah, thanks a lot for all the clarifications, Saurabh, and congrats, team. Thank you. We take a next question from Prateek Maheshwari of HSBC Securities. Please go ahead. Mr. Prateek Maheshwari, could you please unmute your microphone and ask your question? Hi, guys. Thank you for the opportunity. Very impressed with the all-around performance, especially with the margin improvement and the improvement in the FCF generation quarter on quarter basis. Thank you for the comments on FCF generation. I just wanted to understand how you guys said about how you guys planned for the first half, second half of this year, and then how do you plan for the FCF generation to improve in the next year as well. The other question I had was on your growth. I think probably you also discussed a $5 billion plan five years out. I just wanted to understand how do you guys see that with your present verticals and if you would need to add any verticals for that kind of growth? Thank you for the questions, Prateek. John and I will take them together. We haven't given any timeline for hitting $5 billion. All we maintained and we continue to maintain is that we will deliver sustained, robust, and profitable growth. The intent, of course, is to grow at the fastest possible clip. John, do you want to add anything to that? I think the only thing I'd add is, and you alluded to it on your commentary earlier on, which is the placement of Coforge, with its execution mentality along with its engineering prowess and how we see this aligned with AI, will really drive our business, the value we deliver to our customers exponentially over the coming years. Prateek, that's how we would answer the questions. Is there anything else we can answer for you? No, thank you so much, Sudhir. Thank you, Prateek. Thank you. Our next question is from Sumeet Jain, from CLSA. Please go ahead. Yeah, hi. Thanks for the opportunity. Question for you, Sudhir. You said that you are seeing demand improving on the margins. Can you just highlight, is it for Coforge or for the overall industry? That's one. Secondly, do you believe AI is actually a headwind or a tailwind for the IT services industry? One question for Saurabh in terms of ETR. We can see the tax rate is pretty volatile quarter to quarter. What are you expecting for the full year this year and probably next year as well? Saurabh, would you like to lead? Yeah. Sumeet, ETR on a sustained basis is roughly 23.5% or 23.5%- 24% is what a sustained ETR is what we would maintain. Last quarter, there were certain transactions, advantage goal-related certain things that happened because of which when we carved that out, there were certain tax benefits we got because of that. That's why the ETR was at 17%. On an ongoing basis, without any one-off benefit coming in, we would believe that 23.5%, 24% is a number one should bake in the model. Coming back to your earlier question around the demand, as I shared, demand is from our vantage clearly increasing on the margins. We play in the same sandbox that the other players do. We believe that for folks who have the right set of offerings, demand should be increasing on the margins for them as well. We believe that AI is a clear tailwind for firms that understand the domain and also have an appreciation for how to apply the relevant AI-specific technology. There can be no better example of this than the fact that the velocity of our large deals, despite the macros, continues to increase very, very appreciably. As I had noted earlier, at the end of the first two quarters, the first half of this year, we've already locked in 10 large deals. If you were to contrast that, we had a number of only 14 for all of last year. That's how I would represent the response to both questions. John, would you like to add to that? I would like to corroborate with what Sudhir said about being a tailwind. I think people have underestimated the complexity of implementing AI across the enterprise. Yes, you can do a POC here and there, but to actually get real value out of it needs deep, deep engineering prowess across the whole infrastructure from cloud data, and then obviously the tooling of actually using that data into your LLMs, your SLMs, and so on to actually derive insights and value. For us, I think it's a great situation to be in. Sumeet, those were the answers. Do you have anything else for us? Yeah, just one more extension of this. I mean, you have already reported a very strong revenue per employee metric improvement at around $70,000 per annum in this quarter. I'm sure there are different kinds of projects where the AI penetration is slightly higher in certain projects while lower in others. Do you see this revenue per employee moving at a significant pace over the next two to three years, which is an important metric to track to judge the advancement of an IT services company on the AI front? Early days in our view, Sumit. Early days, but we think given the success of the Code Insight AI platform around legacy modernization, reverse engineering that we've built, and the demand that's coming our way, given the clear draw for the EvolveOps.AI platform in the cloud, in the infra management space that we've been looking at, and given the very clear success of the BlueSwan QE AI platform that was something that we acquired with the Cigniti Technologies acquisition, we think RPE should continue trending upwards. As I said at the outset, still early days. I think the jury is out in it. We'll have possibly something more definite for you over the next two or three quarters. Got it. Maybe one last question, if I can squeeze in. If I see the Cigniti numbers, which were reported separately this quarter, even they had a good sequential growth. Can you maybe briefly highlight how long you see that cross-selling, upselling opportunity in the Cigniti being still applicable for you? Is the growth ambitions in healthcare retail vertical primarily on the back of that in the next one year? As we reflect back as a team, Sumeet, we think that one of the best things and one of the best decisions that we ever made as a team over the last nine years was the Cigniti acquisition. You will recall that we got a lot of flack for that acquisition going into that acquisition. As we look back, as we look at the current pipeline, the largest deal that we are pursuing today as we speak is a deal with a client that came into our client portfolio from Cigniti. Two out of the top three clients of Cigniti that we acquired over the last five quarters, we've already signed large deals within that portfolio. Not only did we get an outstanding set of leaders, I do want to point this out. This is an acquisition that isn't just about getting the clients in. Today, if you look at our Chief Marketing Officer, he's come in from Cigniti. Today, if you look at our data automation leader, he came in from Cigniti. Today, if you look at the QE practice head of the firm, he came in from Cigniti. It's been a fantastic integration acquisition from our vantage, and that business, along with the cross-sell that you alluded to, is likely to keep on getting stronger. Got it. That's very helpful and all the best, team. Thank you. Thank you. Our next question is from Sandeep Shah of Equirus Securities. Please go ahead. Yeah, thanks. Thanks for the opportunity. Congratulations on a strong execution this quarter on many fronts. Just wanted to understand a few things about margin. When you plan to give a wage hike, or this time it may not be there because we have distributed some bonuses in the first quarter? We already announced a wage hike effective 1st of October, Sandeep, for the entire organization. How does that will impact the margin in the coming quarter? Sandeep, we're not giving quarter-on-quarter margin guidance, but historically, we have had anywhere a drop of 100- 150 basis points on the wage hike. There are other levers wherein ESOP costs will go down, depreciation and amortization as a percentage of revenue will go down. There will be levers to offset partially the impact of wage hike. That is how we're looking at a quarter three phasing out. Okay. Most of the other questions I've answered, just some bookkeeping questions. Saurabh, when I look into the disclosure of interest expense, which is beside the lease discounting, if I look at the average interest expense divided by the average debt, it comes to 25%, 27%. If I apply the same on interest income as percentage to the cash and bank balance, it comes less than 3%. Can you make us understand how this has been calculated while the interest expense looks very high? No, Sandeep, that's the wrong calculation. I mean, you don't look at the year-end or a quarter-end period-end loan amount and arrive at the interest cost basis that there is a consumption of our working capital utilization that happens through the quarter. It's a point-in-time view. It is not the average utilization of the working capital because it's not a long-term debt that we have in the balance sheet. It is a working capital. It goes up through the quarter, and as we start collecting on money, the working capital limit goes down. That is why the interest calculation cannot be done just looking at the balance sheet because it's a point-in-time view. Okay. Saurabh, just to get more understanding, what is this nature of discounting income on long-term customer contracts and income from mortgage business? You might have explained in the earlier calls, but just quickly, if you can make us understand. Discounting income is basically a long-term contract wherein you're recognizing part of the revenue now. You're supposed to bill, say, $100 to a customer one year down the line, or you're going to collect $100 from a customer one year down the line. Today, when you recognize revenue, you recognize $90, and balance $10 accretion happens in other income. Okay. $100 will go and sit as your unbilled revenue. Your unbilled revenue will show $100. Your unbilled on the balance sheet side. Revenue will be $90. $10 will be other income. Okay. Okay. Just an explanation on income from mortgage business. Same thing, same transaction. Okay. It's for the long-term contract? Yes. Okay, thanks and all the best. Thanks. Thank you. We take a next question from Sulabh Govila of Morgan Stanley. Please go ahead. Hi. Am I audible? Yeah, yeah, Saurabh. Yeah, thanks for taking my question and congrats on a good quarter. I just had one question related to the deal wins and the executable order book. In the last two, three quarters, while we've had a run rate of $500 million odd on the deal wins front, excluding the large deal from Sabre that we won, the increase in the executable order book this quarter has been quite sharp relative to past few quarters. I'm just trying to understand what has led to that. Is it more of a quarterly phenomenon, or would you say that you've seen tenure of deals going down this particular quarter? No, Sulabh, one, it is a function of the deals that are getting signed outside of the large deals also. Plus, the deals which have been signed in the previous quarter, when they start ramping up, the next 12-month revenues have started picking up. It is a function of the deals which were signed in the previous quarter and the current quarter and the ramp-up getting stabilized, because of which you're seeing the pickup in the total 12-month executable order book. It's not just the impact of the deals signed in the current quarter. Okay, so there's no change in the tenure of the deal wins? There's no change in the tenure of the deal. It's not that we've started moving to shorter-term deals or anything of that sort. It's just that deals which were signed in the previous quarter and sit toward the fag end of the previous quarter, they started ramping up in the current quarter, but not fully ramped up. When you sit in the current quarter, without any increase in order intake, the 12-month revenue has gone up. Understood. Thanks for taking my question. Yeah, thanks. Thank you. We take a next question from Ashwin Mehta of Ambit Capital. Please go ahead. Yeah, thanks for the opportunity. Just one question. Any sense on the contribution from Sabre this quarter? Are we at steady state here, or a further ramp-up is expected in 3Q? Did we take over any people in this deal in this quarter, or most of it was done in 1Q itself? Ashwin, we're at steady state. We don't expect any further ramp-up from Sabre, and the rebadging exercise is completely over. Okay, thanks, Sudhir. Just one more question in terms of margins. Given that we'd have a margin impact of wages in the next quarter, which you'll try to counter through the other measures, what we seem to be then indicating is that there'll be a pretty smart improvement in margins in the fourth quarter for us to be at the 14% levels. Would that be the right understanding? That's the intent. That's what we are attempting to do, Ashwin. Sure. Thanks, Sudhir, and all the best. Thank you. Our next question is from Ravi Menon of Macquarie. Please go ahead. Hi, thanks for the opportunity. Congrats on a pretty good quarter. Good to see this broad-based growth and really good to see EPS growth as well. EMEA seems a little soft, especially the order intake. Also, volunteer sense on that. The rest of the world seems really good. I want to know which geographies or which countries specifically within the rest of the world portfolio are doing well or which verticals are doing well. Sure. John's going to answer the question around EMEA and the demand outlook for EMEA that we see. I can tell you that from our vantage, Australia, New Zealand, Asia-Pacific, Middle East have not just done well. They continue to trend in a very positive direction, and we feel extremely bullish about those geos and the teams that we have put together. John, your view on EMEA? What we're seeing in EMEA is over the last couple of quarters, there's sort of been delays and slowdowns in new opportunities and sign-off of deals. We're seeing that actually recovering, and we are expecting significant upside over the next two quarters as deals come to be closed. They're having to be closed. We see a positive uptick both across insurance. We see a lot of pent-up demand and also public sector with decisions from the government actually starting to flow through. Great. Thanks for that. Saurabh, just a question about the unbilled revenue increase. Should we link this to the Sabre deal? Is this why you seem to be confident that free cash flow to PAT will be in a good 70%- 80% range over the longer term? When should we start seeing this come down? DSO unbilled that you see right now, Ravi, is not increasing just because of Sabre. There are any development contracts that you sign up and any large contracts that you sign up, there is upfront effort that goes in. There is a requisite billing milestone, which when achieved, the billing happens. It's also a timing difference wherein when you receive approval from the customer and when you bill it. I think the way we are looking at the overall metric when it comes to cash or the balance sheet is that focus on FCF to PAT and deliver anywhere around 75%- 80% and keep having a double-digit growth. I think that's the focus. The investments will keep going into customers as long as we continue to grow. If we are maintaining FCF to PAT, that keeps giving us comfort. Thanks. I've seen a nearly $17 million increase in the long-term unbilled revenue quarter on quarter. I was just wondering, in absolute terms now, we have added nearly $53 million to the long-term unbilled revenue year -on- year. When would that start reducing? Should we think about it as a deal anniversary for Sabre or something like that? No, see, again, it is not just Sabre. There are multiple contracts. The long-term unbilled has always been there. It was there the previous quarter, the quarter before that as well. It is not just because of Sabre there is increase in liability as well. This number, as long as the overall number, as I said again, the overall number FCF to PAT is maintained between 75%- 80%, we'll be comfortable because if that happens, something or the other is being taken care of. We would want to make sure that FCF to PAT is getting converted at 75%- 80%. That's about it. Thanks so much. One last thing, just a clarification. I saw that John’s actually been added to the board. John, congrats on that. I saw that Gautam seems to have resigned. Is he no longer on the board? No, we shared that earlier as well. There was an intimation sent to the stock exchange. Gautam is no longer with us. We had shared that immediately after the last board meeting. Okay. Thanks so much, Sudhir. Best of luck. Thank you. We take that as the last question for today. I now hand over the floor back to the management team for closing comments. Thank you, Indra. Ladies and gentlemen, thank you very, very much for your time and for your interest. We've said this over the last nine years. We really value these conversations, interactions, and we take away very rich learnings from them. We look forward to staying in touch, and we look forward to speaking with you again at the end of the next quarter. Thank you. Have a great day. Thank you, members of the management. Ladies and gentlemen, on behalf of Coforge Limited, that concludes today's conference. Thank you for joining us. You may now click on the leave icon to exit the meeting. Thank you for your participation.