Firstsource Solutions Limited (FSL) Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q4 and Full Year FY '20 Earnings Conference Call of Firstsource Solutions Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ankur Maheshwari, Head Investor Relations. Thank you, and over to you, sir.

Thanks, Margaret. Welcome, everyone, and thank you for joining us for the quarter and full year ended March 31, 2020, earnings call for Firstsource. Hoping that you and everyone around you are keeping well in these times. To take us through the results and to answer your queries, we have with us today Mr. Vipul Khanna, MD and CEO; and Mr. Dinesh Jain, CFO. We will be starting this call with a brief presentation, providing an overview of the company's performance, followed by a Q&A session. Do note that the results, the fact sheet and the presentation have been e-mailed to you, and you can view this on the website, www.firstsource.com. Before we begin the call, please note that some of the matters we will discuss on this call, including our business outlook, are forward looking and, as such, are subject to known and unknown risks. These uncertainties and risks are included, but not limited to what we have mentioned in our prospectus filed with SEBI and subsequent annual reports that are available on our website. With that said, I now turn the call over to Mr. Vipul Khanna to begin the proceedings.

Thanks, Ankur. Good morning, everyone. And again, like Ankur, I wish everybody is keeping good health, good spirits and hopefully, minimal cabin fever coming into whatever -- wherever in the world you are, week 8, week 10 or week 12 of the lockdown. So today, let me start by taking you through the impact of COVID-19 on our business and what measures we've taken to combat the situation, give you a sense of how Q4 was and highlights for the full year 2020 and then give you a quick sense of the outlook before we open up for the Q&A. Now given the situation, I have slightly longer remarks today, so please bear with me. So clearly, right, everybody is kind of, I'm sure, fatigued with the sort of COVID situation. We know what's happened. We, as a business, swung into action sort of second, third week of March as the situation unfolded. We set up a war room to quickly organize and respond to the situation around the world. Very proud to see how our leadership team, facilities, HR, IT, procurement and a number of other functions work tirelessly 24/7 to make sure we had client approvals, mobilization of equipment, connectivity, et cetera, et cetera, so that we could enable work from home in as many locations as we could. And clearly, very proud of the 21,000 Firstsourcers who kind of navigated the change and kind of seamlessly went into delivering what they needed to do for their clients. So obviously, our first focus was getting the work at home of go live wherever we needed to. Clearly, some of our centers in U.K. and U.S. continued to operate in -- at reduced capacity and then a lot of capacity has shifted to work from home. Initially, we had some supply-side challenges, but we are able to meet the demand in a fairly short period of time. And I'm pleased to note that we are addressing today almost 95% of the recalibrated demand from our clients. Once that was done, we set up 8 work streams to fine-tune our work-at-home operations and rearchitect the distributed operating model. Each one of my leadership team execs is leading one of these 8 tracks, and we have nearly 100 of our top leaders participating in this. Quick sense of what these tracks are. First track is, obviously, staying exceptionally close to clients and their industries for their short-term needs and emerging trends, getting a sense of what they are feeling, what the clients are seeing, what are they sensing, what their needs are, so that we are responsive and as much as possible ahead of the game relative to the industry trends. The second track was effectively managing remote operations. Clearly, we do it at some scale or pre-COVID, we did it at a small level, but not at this scale. And it has taken some doing. But we are in a good shape now where productivity, quality, information security is sort of as much calibrated to as it was in a normal operating environment. The third track was about employee engagement and well-being, especially in this environment. They are grappling with multiple variables as well and yet continuing. So it takes a different level of engagement and taking care of oneself and the team to make sure things work. Fourth track was scaling up the -- our capabilities for remote hiring and remote training. Again, we have been doing that in the past, but this is about scaling at that level, using technology effectively and making sure our methodologies were robust enough to make sure even without meeting anyone, we are able to bring in people, train them and put them onto production on client-critical processes. Fifth track was up-skilling for digital, given how rapidly the environment has changed. Sixth track was about, given the macro condition in most of the geographies we operate, we are very focused on how do we step up on our impact sourcing of talent. Seventh track is about how do we sell effectively in a remote environment, right? Our sales folks, our product guys, our solution folks, how do they become as effective, if not more, in being able to do it through video when they don't have some of the traditional avenues available. And obviously, the last track is about cost actions to keep our business healthy, calibrated to sort of revenue trends, while also protecting our core growth investments. So these tracks are how we're kind of managing through beside our BAU business, and I'm pleased that the progress we made and the energy it has created in the organization to operate in this environment. With that, let me give you a sense of the impact of COVID-19 on Q4 results. Our Q4 '20 performance was impacted by approximately $6 million in revenue. There was a reasonable part of this, which was supply-side impact, as well as some client demand where in some of the geographies, client had to initiate action, right, as their economic environment changed -- as their physical environment changed, they cut down on some of the activities, and we saw some of the demand-side impact. Primarily 2 BUs impacted customer management. A couple of our clients prioritized service only to specific customer segments and took a risk call not to pursue work at home. So that impacted CM revenues. And then Healthcare, we saw a downtick from sort of February onwards in the state payments to hospitals. And keep in mind, we work on an outcome basis. When the hospitals get paid is when we get paid for the work we done for eligibility services, et cetera. So that was February onwards. And then second half of March onward, as COVID treatment became priority, the normal procedure, the elective procedures that you'll see in hospitals, that volume plummeted, right? And again, that kind of ripple impact came to some of our -- to a couple of our services. So those are the 2 businesses impacted amounting to about $6 million of revenue impact. As we go into Q1, we don't anticipate any supply-side restrictions in our business now. I think we are pretty much covered on that. However, we do see demand-side impact as a lot of our B2C clients as their economic environment has been impacted. As they slowly start to kind of open up and be scaled, we'll see some resurrection of the volumes kind of come to us. But I'll give you a little bit more details on Q1 towards the end of it. Healthcare and Collections, also seeing some impact in Q1. But we expect that demand to kind of bounce back pretty quickly. The one thing to point out is that the inherent advantages of our portfolio mix has helped, right? We have no exposure to the first-order industries which are impacted today: travel, hospitality, retail, et cetera. Also, our delivery footprint with heavy onshore presence gives us greater optionality relative to how hard the lockdown in India and Philippines has been. That's kind of the state of affairs from the operating standpoint. We also see some pockets of opportunities emerging with the interest rate environment even lower than what it was sort of in quarter ended December. There are macro tailwinds in our mortgage business. And we've had to scramble additional capacity. In one instance, we repurposed nearly 300 people in India almost overnight to meet additional demand. And obviously, we had to look for redeployment of resources as well given the shortfall in demand in CM, as I mentioned earlier. The second opportunity we are seeing is that as our clients face some of the supply-side constraints in their own operations or rather face maybe with other partners, we're seeing some short-term demand come through given the supply/demand imbalances in their capacity, especially in Customer Management and Payer. We hired 180 work-from-home associates for 1 Payer client in 4 weeks given how they needed additional capacity for one of their businesses. And thirdly, Digital work demand is accelerating, and we've had very good conversations progressing for M FOCUS, which is our Healthcare product, digital collections, the digital intake product for Payer and then intelligent automation. And I'll give you a little bit more sense as we go along. So with that context, let me brief you on our performance for this quarter and the year ended March 2020. If you're following along with the slides, this is the first slide, which Ankur sent along yesterday. So our revenue for the fourth quarter was INR 10.8 billion. This was a quarter-on-quarter growth of 2.6% and 0.6% on constant currency basis. This also translated to year-on-year reported growth of 11.7% and constant currency growth of 8.2%. Our operating margin came in at about INR 1,168 million, which is about 10.8%. This was a contraction of 40 basis points from the last quarter. And then our profit after-tax came in at INR 916 million, which translates to 8.5% PAT. Q-on-Q, PAT was flat. And EPS came in at INR 1.31 versus INR 1.29 per share in Q3 FY '20. Now the revenue and margins are slightly lower than what we had planned for. We had given you a carefully calibrated forecast in February when we had talked about the Q3 results. Since I've joined in sort of August, I've been very conscious of the forecast we gave. And I think we were progressing really well when the quarter started. However, the last half of March put paid to those efforts, and we saw that impact in our revenue and our operating margins. If I give you a quick sense of the full year '20, our revenues came in at nearly INR 41 billion or INR 4,100 crores, which is year-on-year growth of 7.1% and a constant currency growth of 6.6%. Operating margins came in at 10.8%, and PAT came in at 8.3% at INR 339.7 crores. Full year earnings per share came in at INR 4.89. Now just to draw your attention, we had said -- we had guided to a full year growth of 7.5% to 8% in the third quarter, and we had said our operating margins will be in the 11% to 11.2% range for the full year. Again, this contraction is due to sort of the revenue and the resultant cost impact from COVID. And if I could take a minute to draw a perspective for the full year, as I have been saying in the past couple of quarters, when we started the year, we had a reasonably large portfolio, rebalancing of our Sky estate, given they had taken some call of rationalizing their portfolio and taking some of the operations back. We had initially in the 1.5 quarters attrition and hiring challenges, and then we had delays due to the Brexit-related demand. So in that backdrop and how we started, I'm pleased that sort of where we landed up at a 6.6% constant currency growth and stability in our margins, notwithstanding sort of the COVID impact towards the end of the year. If I take you to the next slide, which is titled Other Highlights. Our headcount came in at 21,200, of which 11,450 are in India. The remaining 9,750 are outside. So that translates to a net addition of 721 in the last quarter. Attrition continued to improve. Our retention continued to improve. It came in at 42% compared to 46% annualized in quarter 3 onshore. And for offshore, it dropped by 2 percentage points to 34%. And this is sort of when we had a full quarter. Obviously, quarter 1 with the situation, it will only strengthen from this point onwards. A quick comment on the foreign exchange hedges. We had outstanding foreign exchange hedges of USD 40.6 million and GBP 75 million. And if we give you a quick sense of the next 12 months, we have about 48% coverage at USD at INR 76.25 and 100% coverage for GBP at INR 102 levels and 32% coverage for GBP at PHP 67.7. If I could give you a quick comment on our liquidity position. As of March 31, we had cash in hand of INR 191 crores and net working capital debt of INR 643 crores. We are very comfortable with our liquidity position, and we do not expect any challenges going ahead. And we have sufficient working capital lines to draw upon should the need arise. And just as a quick reminder, you're aware, we paid an interim dividend of INR 2.50 per share in March on top of the August '19 dividend for the previous year. So that payout was about INR 210 crores at the start of March. Let me now dive to a revenue snapshot by segment. So we had a good start to the quarter -- strong start to the quarter with seasonal surge in volume for Collections and a new line of business time for our largest customer, Sky. And our overall trajectory was on track to meet the quarter results. However, there was a follow-up due to the pandemic. So if I -- if you look at the Q4 numbers, CM is at 38.5%. This benefited from the growth in Sky pre-COVID and a couple of other smaller brands in our CM customer base. Collections grew quarter-on-quarter. However, the growth could have been better, but because the tax season and the funds, et cetera, were delayed in the U.S. from April to July, some of that growth petered out. And the seasonality that we normally expect, it was a little bit subdued. Healthcare, as I mentioned, saw some decline due to state response to our hospital clients starting February. And then, remember, it's a completely outcome-based client contracts there. And we also started to see the drop in elective procedures as hospitals thrust for COVID patients. So we had some volume downtrend in providers and then lagged impact on Payer as well, as in less hospital procedures, less claims for a hospital -- for our payer clients and then in some cases, less volumes for us. But despite that, we had 2 good new logo wins in our provider business or our Healthcare business. Mortgage continued to perform strongly. There is some seasonality in Q1, especially in Q1 -- as in calendar year Q1 because origination business works at a little bit of a lag. So the holiday season flatness reflects in start of Q1 in the U.S. So we had some of that. But overall, we continued strong sort of forays into the market, strong execution. Revenues came in flat, but given the seasonality on a run rate basis, they are slightly higher. And we had 3 good logo wins in Mortgage as well. Overall, if I look at the segments, all our segments in this quarter grew over quarter 3, except for Healthcare. Now let me give you a little bit progress on our digital strategies. We had some marquee milestones there, and we'll see impact for those in the forthcoming quarters. We launched our platform-based service for post-closing market for mortgage originations with a leading lender. Post-closing is a sharply defined segment in the origination value chain. And in our assessment, the market was looking for an integrated solution. Our Collections client, which is one of the world's preeminent card issuers, signed on an additional contract with us for our digital collections offering, and we are very excited about this win. In Healthcare, we significantly revamped our digital intake offering for health plans, and we're seeing very good early traction in our pipeline in that marketplace. And for intelligent automation services, we're starting to see our pipeline build up since Sundara joined in February as Chief Digital Officer. We're starting to see some pipeline building in our BFS Healthcare space. And lastly, as a testimonial to our digital focus internally, at the India Employee Engagement Summit 2020, we were recognized with the top award for Best Use of Technology in HR. That's kind of a little bit of commentary on revenue by segment. If I was to give a quick comment on revenue by industry verticals. Healthcare was down 1% quarter-on-quarter as we discussed some of the reasons. However, we believe that this growth will start to revert strongly in Q2. The other comment I wanted to make is Healthcare is a strength for us. It's a changing, maturing -- changing market -- sorry, not maturing, but changing market, a lot of focus there. So in line with sort of our belief in that marketplace, Venkat, who was running both payer and provider business, will now focus exclusively on providers. And Venkatgiri Vandali has joined us recently to focus on the Healthcare or planned business. So we want to make sure we have dedicated leadership for those 2 businesses. BFSI contribution was flat quarter-on-quarter. So while the segment has grown, its contribution was lower in the overall volume. And media and telecom was higher because of some of the -- slightly higher because of the pre-COVID ramp that we talked about. Let me quickly jump to revenue by geography. These are mostly -- if you look at our revenue by geography, mostly flat. U.S. at 63.2%, Europe or U.K. at 35.3%. And by delivery, we kind of continued with sort of our strong gains we had made in the first 3 quarters as well. So 75% onshore, 25% onshore (sic) [ offshore ] compared to 19% and 82% in Q4 of 2019. Client concentration, we had stability, as I mentioned, with Sky early on with new ramps in place. However, in the coming quarter, we do see a significant decline in the volume from our largest clients given the reduced economic activity and how they have given as the forecast. Again, it's a dynamic situation. As U.K. begins to open up, we'll see how the scale-up and the rescale plans kind of come through. But as a testimony to a long and tenured partnership with them, we have very good sort of conversations with them for some of the cost-sharing for the stranded costs, and we're making pretty good progress on that. Our overall top 5 contribution was flat quarter-on-quarter. If I was to give you a quick summary of the year, it kind of reflects the same what I said for Q4. We had solid growth in our Mortgage and Collections businesses, making BFSI as one of our fastest-growing vertical, contributing to about 41% -- 40% of the revenue. Healthcare Providers grew decently. However, our reboot on Payer has just about started, and we hope to make sort of reasonable gains this year and continue to build momentum going into the next year for the Payer business. CM, our biggest BU was challenged due to Sky portfolio rebalancing early in the year and some of the execution challenges. However, as I said, it's heartening to see that we've now seen broad growth to end at a 6.6% growth overall. Pretty much what I mentioned in terms of the delivery mix and the geo mix, those comments for Q4 are reflective of our full year numbers as far as those aspects are concerned as well. Next, conscious of time, maybe I can take you through the slide, which is titled as Business Outlook. Now even we've entered FY '21 with the uncertainty that we have and a number of scenarios are possible both on demand side and maybe some supply side impact if the condition worsens. So given the uncertainty, we have decided to suspend forecast for the future and suspend our annual guidance. I will give you a quick sense of how this quarter looks like. And as the year progresses, we'll keep coming back to you once we have a better sense of how the full year could look like. So for Q1 '21, at this point in time, sitting where we sit, we expect revenues could be lower by about 7% to 10% in constant currency terms quarter-on-quarter. And we could see operating margin contraction between 150 to 200 basis points. Having said that, given the inherent advantage of our industry portfolio mix, I expect the business momentum to remain strong, while we'll have short-term volatility, but I'm confident of the demand bouncing back in most of our businesses as well as the investments we are making for the new verticals. Collections. We are seeing some near-term volatility. Some of our clients have suspended activities or -- in some of the states for the next -- for this quarter and next quarter. So there is some softness there. However, it's a countercyclical business. You've seen the significant uptick in credit loss provisions, which most of the U.S. financial services sector has made. We're having good conversations with our existing clients to ramp up capacity as they start to work through as the economy opens, as they start to work through with their end customers in getting their financing in order. So I'm hopeful of how Collections demand will kind of pick up. Our digital collections offering is seeing very strong traction, especially in this environment, as clients race to add capacity and be true to sort of the environment. So Collections, we see short-term volatility, but it should sort of rebound back pretty strongly, starting almost end of this quarter. Healthcare, we see demand recovery. Some of the volumes, which were deferred by either hospitals or patients not going there, we expect that most of that demand will not be lost. It will come back. It's only kind of postponed. We are seeing some short-term pricing pressure as a lot of our hospitals face revenue -- massive revenue sort of drop in the short term. So in the spirit of partnership for some of our key clients, we have participated in giving them short-term relief. In return, we're having good strategic conversation to upgrade into our M FOCUS, which is a digital product, as well as having more strategic conversations. We are seeing opportunities to push upstream in new services like digital streaming at patient registration, while we continue to run hard in our traditional eligibility services and hospital self-pay collections. And we see a fair amount of consolidation opportunities for smaller players in that segment as well. On Payer, as I mentioned, we brought in a new team. Right now, Giri has joined. He's added Head of Sales, Head of Solutioning. Right now, in the short term, we are focused on revamping our traditional strength areas, which is digital intake and contact center and sort of getting traction with top clients, top 10 health plans in the U.S. market. And we see a good pipeline build up there, while simultaneously we are working for our strategy on the health plan middle office market. Mortgage will continue to benefit from the refinancing boom, which is driven by sort of record low-interest rates. We believe this will continue for at least the next 2 quarters and then who knows after that. But given the credit quality concerns, we have seen several new opportunities with existing and new clients open up for forbearance and default support. I talked about the platform-based offering for post-closing in origination that we've sold to our first anchor client. And as a mark of traction in this marketplace, we've added 3 new sales execs in the last few months. Customer Management. As I mentioned, we'll see big impact in Q1, largely driven by the demand environment and also digital deflection in the Customer Management business. On the flip side, we're seeing some short-term opportunities in financial services, and we do expect some opportunities to come for consolidation, vendor consolidation and carve-outs as the cost pressure on the clients increase. Sales pipeline is pretty solid. Large deals might -- are seeing some delays in decision-making and go live, but we're happy with sort of the wins we had in Q4 and how April has also shaped up. If I look at sort of this year, kind of there is a duality of our objectives. We are geared up for running a lean marathon for FY '21, which is to make sure that our costs and our capacity is flexed with the demand. We have taken some resolute cost actions. We have minimized discretionary spend, no travel, et cetera. We've frozen on increments and promotions for the next few quarters, at least, and we'll take a call as we go along. And there are a number of other cost actions to make sure that our costs stay in line with sort of the demand volatility. Majority of our operations, I believe, can now easily switch between office and work from home. And we are putting -- I talked about those 8 tracks. We see continued digitization of the entire value chain from selling, executing and delivering, transforming to our clients, right, in the entire value chain. We are getting better and better at operating in a distributed model across that value chain. So that's kind of making sure we are lean and agile to respond to the circumstances. On the other hand, we continue to bulk up and add muscle for the growth spurts in the right areas where we need to. So digital services are beginning to shape well. Our next-generation contact service -- our next-generation customer experience service is getting ready. Ashish Bisaria joined us, I think, in March, to lead the customer experience practice, and he's hard at work to make sure that we continue to modernize the toolkit and make it relevant for today's digital environment. I talked about Giri joining for Payer. And the next -- the other key executive who joined us is Anshul Verma. He joined us on 1st of May to lead us foray into the comms, media and tech vertical, specifically the focus on the bond digital players. In all, in calendar year '20, in the last sort of 4.5 months, we've added 18 new sales/account management sort of execs, including a few replacements, given the continued push we want to make into our existing areas as well as the new growth areas. So looking at sort of our portfolio, looking at how we have responded, given kind of the stability we have in today's environment and we're managing sort of the demand volatility as well as continuing to play often in the new areas, I believe we'll come in pretty strong at the other end of the pandemic. So with that, let me conclude my long monologue and then open it up to your questions and comments.

[Operator Instructions] The first question is from the line of Manik Taneja from Emkay Global.

Vipul, I just wanted to understand from you, over the last 1 year, we've seen significant increase in terms of our offshore delivery of business and that's largely helped by some of the work around Customer Management and Mortgage servicing and origination business. Do you see that trend continuing through the foreseeable future and leading our margin profile more through a medium-term perspective?

Yes. Manik, so yes, Mortgage continues sort of its growth and it's showing good open on mix. CM as well. Although I would say that given the new environment and given some of the short-term opportunities, let's say, forbearance for now in Mortgage, there is more demand for onshore service given the sensitivity of those operations. Similarly, for some of the short-term BFS demand that we're seeing in U.K., where clients are looking for surge capacity, our existing clients, right, to make up for shortfalls in other areas, at this time, they're looking more for onshore demand. So secular trend is more offshore, although for the next couple of quarters, some of the wins we will see will be maybe more onshore heavy. How it plays out at the end of sort of FY '21, we're keeping a close watch, but secular trend should continue towards the more offshore heavy.

Okay. And if I could ask a couple of bookkeeping questions as well. What would be the share of the Payer and Provider business within our Healthcare business now? And similarly, on the Mortgage side also, I guess we had a higher share of origination business. Can you give us a split between origination and servicing there?

Sure. So between our Provider and Payer at this point in time, it will be more closer to 60-40 or sort of in the ballpark, right, give or take a couple of percentages in the Provider and Payer, right? So Payer -- Provider is bigger. And on the Mortgage side, we obviously saw strong growth in our origination portfolio this year, but we were very conscious of building up the servicing side as well. And that will get a further boost now with the more demand coming for forbearance and default support. So it'll improve. My sense is that as of March, that ratio was again more in the 60-40 ratio. Ankur, does that -- am I recollecting correctly on that? Ankur?

Yes, yes. That's the right ballpark number.

Sure, sure. And if I can prod you a little bit further, so you've done some investments in terms of beating up your leadership organization. So are we completely done with that exercise now?

So at the leadership level from a market capability, we are done. We have some more -- a couple of positions, which we have closed, right? We're waiting for executives to join to beef up -- to further strengthen our global delivery. And obviously, as leaders have joined, they will now add in a few, like Anshul has just joined, he's kind of just about building his team to make our go-to-market strategy for the tech sector. So we'll have some level of sales and account management additions to continue.

Sure. Sure. And you talked about this opportunity around vendor consolidation and potential carve-outs. If you could help us understand, are there some vertical-specific or geographical -- geographic-specific clients here?

Well, thematically, right, if you saw post the financial crisis as well, when our clients across industries had revenue shocks and they had to move on costs, one of the levers for them was vendor consolidation, more rationalized but more strategic outsourcing and also kind of looking a hard look at what they did in-house versus outsource. I think the environment is the same, the economic environment, the drivers are the same, if not, even more exacerbated. And our sense is that a number of our prospects as clients are starting to think along those lines. Again, early days. As the quarters go by, we'll give an update. But I think that's a very kind of proven playbook for clients across industries to meet continued sort of cost pressures.

[Operator Instructions] The next question is from the line of Mohit Jain from Anand Rathi.

Vipul, one thing, why our visibility on BPO revenue is so low in 1Q? It is more looking like an IT expenditure kind of a revenue versus a BPO, which was thought to be more stable because you guys are part of OpEx and your sectors are not those sectors, which are highly troubled in the current environment?

Yes. Mohit, look, I think as I mentioned, we -- in our Healthcare business, we work on outcome basis, right? And the hospital segment in the U.S. has seen a big revenue shock in the first half of this quarter and so it kind of permeates on to us. Similarly, if you look at the -- our Customer Management business, especially for our B2C volume, it's very driven by what is the level of market activity which our clients are doing, either in terms of marketing, selling, right, new products shipped out and stuff like that, which creates sort of the volumes that we service. With that activity kind of slowing down, obviously, it impacts the volume that they need us to service as well, right? So those are some of the impacts on volumes that we've seen. Hopefully, they are temporary. As economic activity picks up, definitely, for Healthcare, we are confident; for Collections, we are confident, as volume activity picks up or states allow some of the activities to pursue in the U.S., we'll see some of the demand volumes come back. But I think given BPO deals with live volume, a lot of it is protected, but sort of that volume volatility that we've seen, right, that 80-20 rule or whatever you kind of apply to it, we've seen that impact come through in this massively subdued economic environment for some of our clients.

And this guidance includes a decline in the top line in the first quarter itself, is it?

So I mentioned to you that we expect revenues will decline by about 7% to 10% quarter-on-quarter constant currency basis.

Yes. So what I'm asking is this includes top line decline that you're anticipating for the year. The dip will happen in 1Q and then stabilize? Or that dip will come later on during the year?

Sorry. So yes, the dip that I mentioned, 7% to 10% is for the first quarter only, right? At this point, we're not even kind of giving any guidance for rest of the quarters. But I do believe that this will be sort of the worst quarter. It should start to improve from this point onwards.

Okay. And lastly, on receivables. Receivables were quite high for the end of the year. So ad discounts or whatever was included in your opening remarks in terms of trade discounts, et cetera, they were part of it? Or should we expect receivabilities to further deteriorate in -- or in the first half or during the year?

Yes. Dinesh, can you answer that? But Mohit, I just want to make sure the previous question I got it right, you were asking about Sky as well, right? That is the kind of...

So what I mentioned in the previous question was Sky decline is built into your outlook? Or that will happen during the year gradually?

No, it's built into that outlook. Absolutely. Sorry, I missed that question.

On the monetizing on the debtor side, due to the last 7, 8 days, where the most of the client level the offices were closed, so we have a large collectibility. But most of these overdues has been collected within the first 2 weeks of April. So we are at normal DSOs now back to. So there's no risk on. As far as the discount and all, which you are talking about, those are -- most of the discount will come in the current quarter. Those are very small amounts. I don't think any significant value which can really go to the debtors and the issues on that, very small.

The next question is from the line of Madhu Babu from Centrum Broking.

So second half, can we expect a recovery or whether the pricing pressure will lead to that follow-on effect even for the second half? And the second question is on the CapEx. I think we have done around INR 100 crore of CapEx this year and last year also around INR 100 crore. So what is the steady-state run rate in CapEx? Because I mean whether it will come down substantially or where the incremental investments are there?

Yes, Madhu. Dinesh, you want to take the CapEx question?

Yes. So CapEx, I think you always know the tax refresh is important. And as and when I think customers growing into the respective geography, need to set up a center. And that's the always being a range you've seen from last 3, 4 years. So I think I expect that the same range will remain between $10 million to $15 million with the CapEx we do. I don't think any significant up or down will take place. But I see that still remain that level. Maybe a few millions here and there, but otherwise, would be normal, $10 million to $12 million -- $10 million to $15 million.

Yes. And Madhu, on your pricing pressure question, I just want to make sure I -- what I mentioned is that we're seeing pricing pressure in just one part of our business, which is the Healthcare Provider business, right, very limited to that extent only. In Collections, in Mortgage, in CM, we aren't seeing any pricing pressure. And I do not expect any of that to kind of continue in H2. Whatever we had to do, we have baked into the forecast that we have set for Q1 that I mentioned earlier on. It's very localized to 1 business, and we do not expect that to continue in even second quarter onwards.

Okay. Sir, just to follow on, on the CapEx. So because when the growth is going to come down next year, so whether that will be a substantial reduction? And there is intangible software in last year, so INR 35 crore, that is any licenses we are purchasing for that BPO business in the CapEx?

No, no, no. I think, yes, intangible licenses will always there and Microsoft licenses will be there part of, which is normally you have to buy. And as far as the degrowth, which we're talking, is only the short-term play for the first quarter, which really does not change the overall for a year. So I don't think that need to be factored that you have a degrowth coming, so you probably don't need a CapEx. I don't think that's the situation. It is only for a quarter we are talking. You don't see...

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Sir, first thing is on your dividend payout policy. So last year, we had 2 rounds of dividend, maybe one was because of the taxation changes, which came in from this year. So what is going to be our dividend payout policy going forward?

Right. So clearly, the interim dividend that we paid out was driven by some sort of macro opportunities. Obviously, we have just started the year. It's a very uncertain year. At this point in time, very early to say what that would mean. Right now, the focus is to make sure we keep our costs aligned and continue our focus on growth investments, right? We're seeing opportunities out there across our businesses. We have a good healthy mix, right, Mortgage, Collections, Healthcare, CM, and the new thing we started with Digital and CMT. We do want to prioritize enough investment for that and build that. So there is no specific policy. We'll see how the year plays out. And then as we come to the next quarter, we can talk a little bit more color on sort of what that outlook on dividend will be.

Understood. And you mentioned 2 impacts: one was $30 million impact in Q4 on revenues and then a 7% to 10% constant currency decline expected in Q1. Can you also give us some color on the impact that will come on the operating margin level? Because against this $30 million, what was the impact on the margin which were looking lower than the guidance number? And on the 7% to 10% constant currency decline, we may have a lot of maybe 2%, 3% of travel cost, I don't know. So there are many cost reductions also that you were also talking about. So net-net, if 7% to 10% decline happens in Q1, then what is the absolute impact on the EBIT number for Q1 because there is a scope to save cost in terms of variety of measures?

Sure. Can I clarify that the Q4 revenue impact due to the COVID-19 pandemic was $6 million only, right? Not $30 million. And then it had a marginal impact on our margins. We were hoping to come in closer to sort of 11%, 11.1%. It kind of came in at about 10.8%. So about 30 to 40 basis point full year impact in FY '20 because of the COVID. As we go forward, I talked about the fact that for this quarter, Q1 of '21, we expect revenue will be lower between 7% to 10%. And baking in sort of the short term -- some of the cost measures we've taken already in place, including very heavy focus on redeploying capacity where we have excess capacity, making sure -- I talked about sort of deploying capacity from CM to Mortgage. With that baked in for this quarter, we see an all-in impact of anywhere from 150 to 100 basis points. Absolute should be sort of $2 million to $3 million from a margin standpoint in this quarter.

Understood. And is there any change in...

Does that answer your question?

Yes, that answers. So $2 million to $3 million sort of an absolute EBIT impact on Q1. And finally, alluding to a previous question also, we are doing around INR 100 crore CapEx on tangible assets every year. So any -- I mean, are we seeing any shift in that because, A, every company is now talking about work from home being one of the major drivers, so we won't -- we may not need so many seats. And B, maybe you will get better deals in terms of commercial real estate, renting -- rentals also. So are we seeing any good opportunities in terms of saving that because that's almost 1/4 of our cash flows from operations, which we generate in a year?

Yes. Let me start and then Dinesh can add in a little bit more. So yes, absolutely, today, a big chunk of our capacity is operating remotely or work from home. We slowly started to open our Bangalore and Mumbai offices. All our new bids are now going with a work-from-home option, including all the investments and methodology and technology for running remote or distributed operations. So as a way forward, it's an embedded part. Clearly, how clients see that on a long-term basis is something to play out. Give you an example of the health plan, new health plan deal that we signed in March. So now they said, hire these people for me on a work-from-home basis, but I do want the optionality that towards the end of the year or next year, I may want to bring them [indiscernible]. So at this point in time, it's early days to see how it will play long term. But I think we are prepared, we are all geared up for very seamless operation between work from home and office. How that plays out in CapEx at this point in time, we are keeping our demand forecast fluid. And based on that, the CapEx will follow. I don't know, Dinesh, if you had any more color to add in terms of this year's CapEx versus last year?

No, I think that -- I think the work from home also -- I think we need to be sure that the tech investment will continue. You still need to provide that thin client, PCs to the people. Only the infrastructure base can be lower. But again, there are clients, which are clearly coming with that aspect of being [Foreign Language] this is a work from home for as of today, but later, I need a facility to run with. So as of today, we're not seeing that the customers are fully coming and saying, this is the business purely for work from home. They still want the option to be at the end of the period. Now what that period? Whether it's 6 months down line, 9 months down the line? But all -- these all will happen when we see the reality of it. So this is the estimation as of today. We believe that this continues to be. We don't see that it's going to be materially changed. And again, on a price point, yes, there may be some places, the deal may be slightly different. But again, it's, as of today, the more guess work. I don't think as of today, anybody is coming and saying, I have a facility, you take it at half the price. The answer is no. I don't think anything which is happening in the market as of today. It may happen in future. I think -- and if we have a demand, too, probably, we'll utilize those one. But as of today, I don't see that. And as I said, it all depends on when the CapEx will start. We always thought this period we will have no CapEx. But there is a CapEx, which is taking place for people to work from home. We have a demand and which we need to fulfill.

Understood, sir. And just 1 final question is, you said Q1 directionally is looking to be like probably the worst quarter in the coming year and then things should improve. So do you imply that this Q1 degrowth of 7% to 10% Q-o-Q would be the worst and then Q2 onwards, degrowth will continue, but will be at a reduced number? Or do you imply that Q2 onwards, you will see growth coming in, so we will be back on the growth trajectory from Q2, Q-o-Q?

I mean, we obviously have refrained from giving full year guidance given the number of sort of variables open at this point in time. It's hard to kind of go more than that. But as I mentioned, if you look at chunk of our portfolio, right, Mortgage, Collections, Healthcare, Mortgage is obviously in a growth trajectory right through. Collections, growth didn't come through as we expected due to seasonality, some softness in Q1 because of pended actions by some of our clients. They do not pursue Collections at this point in time, resume. But we expect that volume to start to come back given the credit-quality deterioration. And similarly, Healthcare, it should start to pick up. So I wouldn't venture at this stage to say, is it less degrowth or growth. But I'm just laying out sort of the scenarios as we've seen, but I feel generally good about Q2 as opposed to sort of the known impact in Q1 in our CM and Healthcare business.