Birlasoft Limited (BSOFT) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the Birlasoft Limited Q1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Abhinandan Singh, Head, Investor Relations, Birlasoft. Thank you, and over to you, sir.

Thanks, and welcome, everyone, to our Q1 FY '26 earnings call. You would already has received our results or seen it on our website. Before we get started let quickly introduce to you the members of our team who are present on this call along with me here. We have our CEO, Mr. Angan Guha with us. Along with him, we also have our CFO, Ms. Kamini Shah. And as well as -- and along with her, we also have our CFO designate Mr. Chandra Shekhar Rajan or Chandru as we call him. We will begin the call today with opening remarks from both Angan and Kamini as usual. And after that, we'll open the floor up for your questions and responses to those. Before I hand over the floor to Angan, a quick reminder that anything that we say on this call on the company's outlook for the future could be a forward-looking statement involving significant uncertainty, and therefore, that must be heard or read in conjunction with the disclaimer that appears in our investor update, which you would have received and is also uploaded on our website as well as filed with the stock exchanges. With that, let me hand over the floor now to Mr. Angan Guha, our CEO and MD. Over to you, Angan.

Thank you, Abhi. So good evening and good morning to everyone wherever you are, and thank you for joining us today as we share some perspectives of our performance during the first quarter of the financial year FY '26. As you already know from our announcement a couple of weeks ago, Kamani, who has been serving as our company's CFO since April 2023, has decided to move on for personal reasons. I would like to take this opportunity to thank her for her contribution over the past 2-odd years in driving the efficiencies and ensuring strong cash flow generation. So thank you, Kamani. I'm also pleased to welcome Chandru, who will take over as our CFO effective tomorrow, which is the 8th of August back to Birlasoft. As many of you may recall, he served as the company's CFO earlier during the period of 2020 to 2023. Chandru is a highly accomplished and seasoned finance leader and is also very familiar with our business. We are therefore pleased that we were able to find in him the best possible person to step in and take on the role of the company's next CFO. Now with that backdrop, let me delve into our Q1 performance. You may recall in our last earnings call, I had mentioned that we were witnessing some ramp downs as well as some insourcing amongst a few of our customers, which was likely to affect our growth performance in Q1. That was mainly on account of the prevailing macroeconomic environment where customers are still focused on cost optimization, cutting back on discretionary spending and are maintaining a hold and wait approach with regard to large transformational programs. Consequently, the revenue for Q1 has been sequentially lower by 1% in dollar terms and has come in at $150.7 million. However, 3 out of our 4 verticals have actually shown growth. BFSI, Life Sciences and Services and Energy Utilities have delivered sequential growth in dollar terms during the quarter. However, our manufacturing vertical, which is our largest vertical has registered a very soft performance due to project completion, ramp downs as well as insourcing, which has more than offset our growth that has been contributed by the other verticals. On the margin front, we entered Q1 with a base effect headwind because in Q4, we had significant amount of margin tailwind due to some one-offs that were absent in Q1. In that backdrop, I believe we have managed to minimize the margin contraction sequentially and delivered an EBITDA margin of 12.4% for the quarter. Kamini will share more on margins and net earnings in her remarks. Coming to deal wins. More than half of the TCV secured in Q1 comprises of new deals that we have won during the quarter. The quantum of TCV deal wins in Q1 is at about roughly $141 million However, this is lower than what we had delivered in Q4 because as you know, the second half of the financial year, which is the third and the fourth quarter are very renewals heavy. So traditionally, the Q3 and Q4 deal wins are higher. In addition to that, there was one deal that got right shifted to Q2, which is why you saw a little bit of softness in signing deals in Q1, but we are hoping that we will cover it up in this quarter, which is the quarter end concern in Q2. But I would also like to point out that we have secured some marquee deal wins that demonstrate our enhanced tech capabilities, particularly in emerging areas such as GenAI -- for instance, we partnered with a leading player in the U.S. energy sector to deliver cutting-edge Agent AI use cases within the supply chain, accelerating intelligent automation and operational resilience. Similarly, we won another engagement with a global technology leader for a landmark enterprise-wide quality engineering transformation program wherein we will be integrating Agentic AI-driven automation. These engagements will add to our growing base of existing customers where we are already deploying advanced AI-powered capabilities, including Agentic AI. Now looking ahead, as I've observed earlier in my comments, the demand environment continues to be difficult. This has resulted not only in prolonged period of time during which customers have been reluctant to take up long-term transformational projects, but also in delayed decision-making and cut in their discretionary spending. As a result, while our pipeline remains strong, conversion to deals have been relatively tepid. While we expect sequential growth in Q2, we do anticipate that the challenging market -- the market conditions will reflect in our performance through the course of the current year. At this point, I will ask Kamini, our Chief Financial Officer, to share her perspectives on the quarter under review. Kamini, over to you.

Thank you, Angan. Good day, everyone. Thank you for joining us. It's a pleasure to talk to you again. Let me take you through some of the financial highlights for the first quarter of FY '26. Our revenue performance for Q1 reflects the challenging demand conditions that we are operating under. On our last call, we had indicated that we are seeing some project closures and ramp down. And on account of that, our revenue for the quarter declined 1% quarter-on-quarter in dollar terms to $150.7 million. As Angan has observed in his remarks, 3 out of our 4 verticals have registered sequential growth during Q1 in dollar terms sustained its growth trajectory during the quarter under review, growing 1.9% quarter-on-quarter. BFSI has grown marginally and Life Sciences and services verticals have returned to growth during Q1, recording a 1.4% growth quarter-on-quarter. The manufacturing vertical, however, witnessed a 4% quarter-on- degrowth, which is for the reason that Angan had mentioned. If you really look at our service, our ERP business saw a sequential decline reflecting its correlation with the manufacturing vertical. The infra business, which is a much smaller piece of our overall business also witnessed a degrowth due to completion of a project. The digital and data business, however, has registered a growth of 2.6% quarter-on-quarter. This is on the back of new engagements and incremental revenue from existing accounts. You would recollect that in the last call, we had mentioned that our Q4 '25 margin performance has a one-time benefit pertaining to currency benefit, leave encashment and variable pay for you senior executive amounting to about 200 bps. We had also indicated that we were confident of offsetting half of the margin headwind coming into Q1 through operational efficiency. We have been able to minimize sequential margin contraction in Q1 despite a subdued top line and delivered an EBITDA margin of 12.4% in Q1. The effective tax rate, which for us has historically been in the 25% to 26% range saw a rise during Q1 to 35.9% on account of a provision made for higher tax. We have been engaging with tax experts and are our terms of engagement with key customers to more accurately align with our operating model. With this, we expect to limit the impact of the incremental tax to the current financial year. Thereafter, we expect the ETR to come back to our historical levels. Adjusted for the incremental provision for tax, PAT for the quarter would have been at $14.4 million and basic EPS at $4.39 per share. We have begun the new financial year with a robust balance sheet. Our cash and cash equivalent at the end of Q1 stood at $266.6 million. This is up by about 15% year-on-year and 2.8% quarter-on-quarter. Our DSO was at 58 days, while it is higher than what we normally reported in the earlier quarter. This has been primarily due to delayed collections that have come in earlier July. Had these collections come within the timeframe of June our Q1 DSO would have been at 53 days. We remain committed to staying focused on sustained robust cash flow generation. While we are still navigating through the challenging demand environment, I believe our ongoing efforts to drive operational efficiencies, generate healthy cash flows and invest prudently in the business positions us well to benefit from a recovery in demand as and when that happens. Thank you very much. Back to you, Abhi.

Thank you Kamini. Thank you, Angan. Moderator can you please open the floor for questions.

[Operator Instructions] We have our first question from the line of Girish Pai from BOB Capital Markets.

Angan, you mentioned that 2Q is going to be a growth quarter on a Q-o-Q basis. Will that continue into 3Q and 4Q?

So Girish, thank you for your interest, and thank you for asking me that question. So look, we are working towards a sequential growth in Q2, and our focus currently is Q2, and we are working with our teams and with our clients to see how we can deliver sequential growth in Q2. Now it will all depend upon how my order book stacks up for Q2. As I'm sure you've seen, and I mentioned in the call, our Q1, we delivered about $141 million worth of orders. One order slipped into Q2, which is now getting signed. So hopefully, Q2, we'll have a larger order book. right? Now if we really deliver a larger order book, then barring the furloughs, I think operationally, we can show some growth, but that will all depend upon how the Q2 order book looks like. It's hard for me to say whether Q3 will really be a growth today because of the uncertainty that we are facing. But our job is going to be to focus on order book and deliver higher order book, which will make sure that the revenue growth comes in subsequent quarters.

And in the previous calls, you've been saying that you would want to lower the exposure to discretionary business from what I think was 70% to about a 50-50 mix. Where are we on the journey? And is the new business coming at lower margins compared to the discretionary business that you've been getting?

Yes. So Girish, our -- so here is how I'm seeing it play out, right? And as you know, our quarter 1 and quarter 2 are quarters which generally is a little lower in terms of order book because that's how our seasonality works, right? Q3 and Q4, the renewals are very heavy. We are not anticipating at this point in time. And again, I stress at this point in time that our renewals will be at a lower margin. Our renewals will be at our current margin at a minimum. And in certain cases, we may get a little bit of extra margin even in our renewals business. However, what will happen though is in our new deals, and I also talked about 2 or 3 big deals that we are working on in the range of about $30 million to $50 million. Those deals will definitely come at a lower margin. So for us as a management team, it will be important to first of all, win those deals, secure those deals and deliver and also work on our overall cost theme so that we can sustain the margins at the current levels, Girish.

Just 2 more questions on salary hikes, when will they happen and the quantum and the impact from a basis point perspective, which particular quarter will it hit you?

So we have not taken a decision on salary hike just yet. I mean we just started the first year. I mean as you would recollect, even last year, we gave the salary hike only in Q3, 3Q of our financial year. So it's just been about a quarter. So we have not taken a decision on that yet, Girish.

Yes. And just to add to that, Girish, our senior leadership salary hikes were done at the beginning of this year around January, that is quarter 4 of last year. So at this point of time, we will review the situation and take a decision on whether we would do it.

And lastly, I had a question on the industry, and there's a lot of talk about H1B visa process change that may happen from a lottery to something else. Should it change from a lottery process? From an industry standpoint, would that be an additional margin pressure that the industry is going to see?

Yes. So Girish, we'll have to wait and watch in terms of how it shapes up, right? Currently, we don't have a comment on that because we'll have to see the new regulation, the way it comes out and only then we can assess the situation. But currently, for us, the way our business is shaping up, we have enough H1B resources ready to travel if needed. And we are also localizing our workforce by hiring locally. So I think we are covered at this stage unless the visa situation changes dramatically, which we can't comment on at this stage, Girish.

We have our next question from the line of [ Priyank Cheya ] from Valen Capital.

I'm sure in these challenging times there are a lot of things that, outside the macro, somethings that Birlasoft as a team and the management team would implement so that we emerge out much more stronger. So I want you to highlight your learnings that you have had in this last 1, 12 months or 4 quarters which have been more challenging. And any corrective action plans that you have undertaken from those learnings.

So Priyank, again, thank you for the question, and thank you for your interest in our company. So look, one of the biggest learnings for me and my management team in the last 1 year has been the fact that our order book has not been very strong, as you all know, right? So there is an enormous focus on our building the pipeline and driving those order books. I think if you remember in FY '24, we delivered about $850 million worth of orders, which came down to almost $750 million last year, right? So one of the big learnings is unless we have an order book, obviously, the revenue growth becomes a challenge. So one, the entire team is focused on driving order book. So that is one. Second is we also realize that we need to be more domain orientated. And as a result, our new hiring that we are doing is building on more domain-oriented hiring rather than generalist hiring. So that's #2. #3, and we talked in our commentary, how do we drive a lot of delivery through our Agentic AI platforms, and we have some marquee platforms, which are really truly amazing platforms, if you will. How do we use those platforms to deliver to our customers and win new deals, and we are focusing on that as well. We have also undertaken a company-wide transformation on all parameters, whether it is customers, how do we serve customers better, what are the capabilities we built and finally, on the cost side. And in a situation where there is so much uncertainty, we will obviously work a lot more on the cost. And again, I want to make it very clear. It's not that we will fire our employees or anything. That's not the idea. But the right roles need to be done in the right geographies, which is what we will focus on, #1. And #2, we will continue to invest in the areas that we see growth, right? So as you have seen, our digital and data business has shown a lot of growth. We want to continue to invest in that kind of business. But we need to kind of move the workforce in the right geographies where they actually need to be. So while we are looking at the cost side significantly, but keeping the long term in mind, we also want to invest in the right places. So I guess broadly, Priyank, these are the big learnings. But if you ask me, our biggest job right now is to get the order book fixed. And if we can get the order book fixed, then the revenues will follow.

Very clear. And should we see this implementation getting populated into order book as you mentioned or from the first large deal that you're already working on it with [indiscernible] so from Q2 onwards the clear mandate would be to first check the order book and its accretion and then would be -- so the delivery follow.

That is exactly right, Priyank. I mean, I hoping that we deliver more order bookings in Q2 than what we did Q1 for sure. And then Q3, Q4 obviously the renewals come in and then we can swing 1 out of the 2 large deals. And clearly, year-over-year will be good in order book. And I'm hoping if we can deliver strong order book for the year, then next years we can come into a larger growth.

Okay. So, just to summarize this, this year the more book -- we can order book then the revenue recognition. So for this full year, should we consider that we would be ending somewhere around with single digit growth and then follow on for FY '27, we should start accelerating to double digit growth.

Yes, I don't know whether the growth will be single digit or whatever it's hard for me to now say because we faced enormous headwind in Q4, as you know, Priyank, right? Our degrowth was much steeper than what we had anticipated. So I can't really comment for the year. Now my entire focus is quarter-on-quarter. So what we can say is, we are working at least for a sequential growth in Q2, that will be our focus. And apart from that, our only focus is to drive better order book. Now mathematically, it will tell you that if we can deliver upwards of $850 million of order, then definitely next year we can show much more growth. I don't know whether it will be double digit or whatever the time will tell, but this all keeping in mind, Priyank, that the uncertainties at some point in time settles down because we don't know what we don't know.

Very clear. And now this last question and I'll come back in the queue. After the delivery of whatever strategic action that you've undertaken, you also mentioned in your opening comment that we start this year with a robust balance sheet. At the same time when you're exhibiting internals, do we need to look into the external to acquire a better capability and diversify and better -- much more sustainable organization for the coming years?

So, Priyank, we have done a lot in building a solid organization per se. As you know, we have 0 debt. We are generating positive cash flows. And from that perspective, I think we are world-class. We need growth in the company, right? Now an acquisition currently, at least to my mind, is going to be a distraction. We will not look at an acquisition today. We need at least 3 or 4 quarters of sustained quarterly growth performance and then look at something. But we always are in the market looking at assets at any point in time. And if something really shows up which adds good value to us, then we are open to looking at it. But right now, the management actions are very clear. We need to focus on building pipeline, delivering order book and at least start delivering sequential revenue growth even before we think about an inorganic acquisition.

No problem, sir. Just on that, it's a request from the minority shareholder to focus better on capital allocation for this year maybe, I'm not talking for a permanent change but in this year we can think for a better dividend payout or a buybacks so that our return on equity and the return ratios become much more attractive. And as we start FY '27 again the capital allocations as per whatever the decided policy can go on.

We have next question from the line of Dipesh Mehta from Emkay Global.

First about the outlook. I think last time you indicated about quarter 2 to be growth quarter. And then I think for the full year, you made 2 observation. First about our aspiration to deliver at least positive growth in FY '26 and secondly, the EBITDA margin roughly around 13% for the year. If you can provide your broad observation on some of these 2 things, whether we continue to aspire to reach positive growth and 13% EBITDA for the year? Second question is about -- you indicated about dry shifting of some deals. Can you help us understand whether those deals are already closed or we are yet to see that closure happening. And whether it would be large size in terms of the relatively chunky deal compared to our usual size of the deal? If you can answer this question, then I have a couple of follow-ups.

Yes. Thank you, Dipesh. So Dipesh, first of all, on the Q2, I'll concentrate on Q2 first. Q2, our endeavor will be to deliver some positive growth. I can't comment on the quantum because the situation is very fluid. But all I can tell you, the management team is working on delivering some amount of sequential revenue growth in Q2. Now Q3, we will -- like I said earlier to Girish also that if I deliver a strong order book in Q2, then maybe Q3, we can continue our growth momentum. For the year, it is hard for me to say whether we will be positive, quite frankly, Dipesh, because we are starting from a much lower base. If you remember last year, our base was at $160-odd million. Now you know where our base is. So mathematically, it will tell you that delivering positive growth may or may not be possible. [indiscernible] is quite difficult at this stage. But I will not comment for the year, and we don't give a guidance. We would like to take 1 quarter at a time. That's point #1. Point #2, on a deal construct. Look, we have won 2 reasonably large deals. One deal is getting signed in the month of August. So we have reasonable momentum on the deal flow. The 2 big deals that you are referring to, like I had said even in the last call, those are Q3, Q4 decisions. We are working on it. Hopefully, we will be able to close 1 out of the 2. And if that happens, then at least we will be able to deliver a robust order book for the year, if not revenue. Dipesh, our entire focus this year because of the fact that we are starting from a huge headwind position is to really focus on quarter-on-quarter growth and delivering the order book rather than looking at year-on-year because year-on-year, obviously, will look very, very muted.

Okay. And on the margin side, if also you can comment?

Yes. So Dipesh, look, I mean, our first quarter, as you have seen that our margins were at 12.4%, right? Last year for the entire year, we delivered 13% margin. Our endeavor is that we use to keep the margins at that level. Now I don't know whether we will be exactly 13% or 12.8%, 12.6% or 13.1%, I don't know. But it will be in that range. Our endeavor will be to keep the margins in that range.

Understand. Now I have a couple of follow-up. First about to manufacturing, if you can provide some sense how one should understand manufacturing growth playing out. There are some headwinds. So if you can give broad sense if you can slice and dice into some subsegment, how you are seeing demand trend there and whether this thing is likely to be prolonged or you expect to see any rebound into the second half? And second, similar question for ERP segment. So, ERP if you can give something. A couple of quarters back, I think you were hopeful about recovery in ERP. Now again, ERP is seeing challenges for last 3 quarters. So if you can give some sense there. And one question for Kamini. ETR increase, I think you provided some statement, but I missed it. If you can help us understand what led to this increase in effective tax rate?

Yes. So Dipesh, I will talk about the manufacturing and the ERP situation and then I will hand it over to Kamini for her comments on the ETR. So look, manufacturing is a manifestation of what we are seeing in the market. Now, while we work with some really marquee names in manufacturing, the reality is we also work with a lot of midsized manufacturing companies in the U.S. as well as in Europe. Now with everything that is happening on the tariff side, there is also a little bit of uncertainty, uncertainty in terms of decision-making and prolonged decision-making. And as you also know, our manufacturing business actually sits in 2 areas. One is the pure manufacturing. And second is in the health care space also, we work a lot with med devices customers, which is also manufacturing. Now if you look at it, I'm of the opinion that our med devices business is now turning around. That will continue to show positive momentum. Our discrete manufacturing is going to be -- continue to be under pressure, which is why that has an effect on our ERP business because the ERP and manufacturing business go hand in hand. It is hard for me to comment with the way the world is moving and way the tariff situation is playing out in terms of when this business will move around only because it is a wait and watch policy in terms of our customers' decision-making process. So we will watch this space and as the quarters go by, I will give you an update when the clarity comes in. But our endeavor on the ground is also to kind of turn the manufacturing business around and see if we can deliver growth in the coming quarters. On the ETR, I'll hand it over to Kamini.

So Dipesh, like I had mentioned, if you look at our typical effective ETR, we've always been in the range of 25% to 26%. But this quarter, we've had to take it to about 36% because of the provision that we have made. What I called out was that we are engaging today with our tax experts, and we have started transitioning our terms of engagement with key customers. So our current assessment is that this impact is going to be for this financial year. And then going forward, we expect the ETR to come back to our historical level. So that's where we are current out look at this point in time, and we are working through this engaging with the experts.

Broadly, I'm not very clear what led to this increase because you said certain clients you are in conversation and all those things and this 35% plus kind of number is likely to be there for next 3 quarters at least. So if you can provide some sense what led to increase.

So I think it's also a factor of some of our engagements, Dipesh, that we are looking at, which is why I said we are engaging with our tax experts at this point of time. And what we really need is to work with our customers to realign the contract terms. So which is the reason why I'm saying that, I mean, I know this is much higher than what we've had historically, but we do expect to get this back. And I think our focus right now is to make sure that we take all the necessary steps to get back to this level.

We have our next question from the line of Sandeep Shah from Equirus Securities.

Angan, in terms of whatever you explained till now, it looks like even after 2.5 years of effort in terms of turning around the ship and the blush of growth profile, it still looks like our restructuring and turnaround efforts are undergoing. So what is not executing as per your plan? Is it more to do with the capability gap? Is it more to do with the execution aggression? Or do you believe it's more to do with the macro headwind still impacting us?

Yes. So Sandeep, look, I mean, if I were to make an honest assessment in terms of what is going wrong with us, there are 2 big things that is going wrong with us. And look, macro is where it is. I mean that is not in our control, so I will not talk about it. It is our top 24 customers our top 40 customers, which essentially gives us 93% of our business. If you look at their performance over the last 4 quarters, they have not matched up to the kind of growth that we had seen probably 6 quarters back, right? So they have slowed down. Now one can argue whether this is because their spending has been going down, which clearly it is. It is also because some of these work is becoming insourced as far they are concerned, some projects have got over and which has impacted us in the last 6 quarters tremendously. So clearly, our focus needs to go back into mining these accounts, so winning more in those accounts to get back the business on track. That's #1. #2, from a capability perspective, again, if you look at our digital and data business, they have done reasonably well. Our infrastructure business has grown significantly if you were to compare it over 3, 4 quarters. Our one big issue that we are facing is ERP and ERP is very coupled with our manufacturing business. So if I were to now look forward 4 quarters, what will be our plan? Like I was telling Dipesh earlier, Sandeep, my plan will be very simple. Go back to the basics on mining the 24 and 16 accounts, that's important. So the 40 accounts we have to mine. We have to start adding more and more newer logos in that in the bucket of 40, that is number second. And #3, how can we work with our partners like SAP, Oracle, et cetera, and invest in more leadership to turn around our ERP business. If we can do these 3 things, at least in the medium term, we can get back the company into a growth mode. Now external economic factors, like I said, is not in our control. So hard for me to comment how that will move. But at least internally, these are the 3 things that we have thought of in terms of investments, in terms of push, focus to get the overall company back on growth. Because remember, ERP still contributes with all the headwinds that we have faced over the last 3, 4 years, it still contributes to $200 million out of the $620 million, $630 million that we have. So that's the big business.

Angan, sorry to stretch on this. In the review process, we should be having some amount of lead indicators about these things happening in the next 1 quarter, 2 quarter or 3 quarters. So why the execution is more on the reactive approach rather than a proactive approach because this -- because the way you are explaining it looks like second half could also be a difficult period for us in terms of growth.

Yes. So Sandeep, look it's not reactive. We know exactly what is happening, right? And again, there are a lot of specifics, I can't discuss specific customer issues, but we know exactly which vertical, which account, which markets are really not doing well. And we have a plan to fix that. The only reason I'm not giving a forward-looking guidance, one, is because we don't give a guidance. And second is because the uncertainty is so much, I am not being able to pinpoint something. But what I can tell you, Sandeep, is this, the entire management team is focused on those 2 things that I spoke about. One is creating pipeline, delivering the order book. And I will tell you if we deliver the order book, the revenue will follow. And we have a plan in multiple levels. We have a plan for our top 24 clients, the next 16 clients, what we call the attack accounts, which are 16 clients that we want to have in our portfolio. And there is a proper plan account by account, people by people, service line by service line, which aligns to our long-term growth strategy. Now it will be all about execution. And execution from your perspective will be higher order book. And if we can deliver higher order book, then the revenue will follow.

I think in the last earnings call you called out, you added 2 large engagements each above $25 million, $40 million in Q3, Q4 plus we are expecting another 2 crores which alternate from 1Q to 2Q. And besides that, you also spoke about a couple of other large deals which are in the pipeline which needed to be closed in the second half. So am I understanding this correctly?

Yes, absolutely correct, Sandeep. One deal as you know we closed in Q4 already. One another deal we closed in Q1. The deal that got shifted into Q2 will also close. Had it not closed then our order book would have come in at about $160 million, $165 million but that will close in Q2. And the 2 large deals that you are talking about are in offering but those, like I had said in the earlier earnings call are a little bit long shot and the closure deal is also more like Q3, Q4. We will absolutely work on them and we will see how we can convert. But more importantly, we're also to build a pipeline. We've to get more deals on the table which the team is also working on.

And just last few things. In terms of EBIT margin target which you have said last time, you have not changed the impact, this year would be flattish plus or minus in a small range. And then from FY '27, there should be uptick in the margin. Is it the right way of understating?

Yes, Sandeep, because you're coming -- at the end of the day, if the revenue is muted -- see from the cost side, of course, we have done a lot on the cost side, and we will continue to do a lot, right, on our overhead side and the cost side. But at the same time, we will invest in the right areas. So our going in position right now is that EBITDA margins will be in the current range, give or take a few, which we spoke about. But as the revenue growth comes back the margins will automatically improve because the operating leverage will come into play.

And last thing. I just wanted to understand the higher tax rate which we expect in FY '27 will have cash flow impact or we are doing just prudent provisioning of the gain in anticipation of a higher impact outflow in the [indiscernible].

So Sandeep, it is a combination of both at this point of time because why I said that, there would be some cash outflow that would happen on account of [ tax ] but like we are engaging with our tax experts to see as to how we can work around the tax so it could be a combination of both.

Our next question is from the line of Ravi Menon from Macquarie.

I just wanted to ask about which side is this tech -- customers, which vertical is that classified. And so are the 3 of your key deal wins are from that segment. Is that in manufacturing or is that in the services side?

It is on the services side, Ravi.

And life sciences I notice that we haven't really seen any wins. Could you talk a bit about that? What is the outlook then? Is that even apart from medical devices, is that still soft?

Yes. So Ravi, look, predominantly almost 20% of our business is medical devices. While we have not seen any win in Q2, there are a couple of deals that we are working even on the life sciences space that we hope to close between Q2 and Q3. We are working on them. I personally feel that the med devices industry per se, though it went through a little bit of challenge, it will turn around but again we don't know how the tariff situation will play out for them. We'll have to wait and watch. But at least the momentum is picking up in that area. While we did not win a deal we have been selected by a very large med devices conglomerate as one of their preferred vendors and we hope that some of the deals should be coming out of that over the next 2 to 3 to 4 quarters. So if you ask me, Ravi, I am feeling a little bit more positive on the med devices space. On the larger life sciences area, we obviously don't work with any providers and we don't have the capability to work with any providers but we have started working with some of the players and as we sign up some new clients on that area I will come back to you with an update, Ravi.

And we saw a couple of wins in insurance. So looks like that's also picking up. How about the banking segment?