LTM Limited (LTM) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to the LTM Limited Q2 FY 2027 Earnings Call. [Operator Instructions] Please note that this call is being recorded. I now hand the call over to Mr. Vikas Jadhav, Head of Investor Relations at LTM. Over to you, sir.

Thanks, Inba. Good day, everyone, and welcome to LTM's Q2 FY '27 Earnings Conference Call. Today on the call, we have with us Mr. Venu Lambu, Chief Executive Officer and Managing Director; and Mr. Vipul Chandra, Chief Financial Officer and Whole Time Director. We'll begin by providing a brief order of the company's Q2 FY '27 performance, after which we'll open the floor for Q&A. Please note, during the call, we could make forward-looking statements. These statements consider the environment as we see today and carry risks and uncertainties that could cause our actual results to differ materially from those expressed in today's call. We do not undertake to update any forward-looking statements. I'll now turn the call over to Mr. Venu for his opening remarks.

Thank you, Vikas. Hello, everyone, and thank you for joining us. We closed Q2 FY '27 with broad-based growth across our business, reflecting disciplined execution of our strategy. This quarter, we made significant progress towards becoming an AI-centric organization. We deepened our AI capabilities, reimagined our partner ecosystem, invested in future-ready talent and accelerated EIL revenue through the continued expansion of our BlueVerse ecosystem. We are excited to see that client spend is shifting towards AI deployment cycle, which includes imagination of business process, scaling contextual implementation ensuring sovereignty and optimizing economics. This plays to our strength of deep domain technology expertise and the ability to deliver consistently in complex enterprise informed. We see this in a growing number and scale of our engagements across enterprise AI, business AI, industrial AI and marketing and creative AIs. Our progress is reflected in 3 areas: the deals we are winning, the reimagination of our capabilities and talent and the evolution of our Blueverse equal system. I will take you through each of these today. Let me now share the financial performance for the quarter. We reported revenues of USD 1.24 billion, delivering 1.1% growth on a sequential basis and 5.1% growth on a year-over-year basis in constant currency terms. EBIT margins came in at 15.6%, a 10 basis point sequential improvement. Our order inflow stood at USD 1.3 billion, the order inflow reflects AI-centric deals that are short tenured, have a faster revenue realization and are incremental in nature. Our overall pipeline, including large deals remain help. AI revenue for the quarter has reached 13.4% of our overall revenue, a growth of 40% year-over-year, including enterprise AI, cumulative AR revenue grew 47% year-over-year. Let me now turn to some of the notable deal wins this quarter. We were selected by the leading global banking and financial services institution as the strategic technology partner from consolidating and delivering technology services across wealth and personal banking. We were selected by a leading North American specialty construction company to consolidate and build an AI-led operating model designed to deliver resilient outcome driven infrastructure managed service. We were selected by a U.S. based insurance company as a strategic partner to consolidate global IT services and AI across its managed services. We expanded our relationship with a large U.S. property and casualty insurer as a strategic land engineering partner to improve operational efficiency, agile delivery and strengthen quality assurance. We were selected by one of the world's leading CPG players to support their market shares and brand managers at those multiple businesses in transforming the concept to creative process and improving speed to market. We were selected by a leading global music entertainment company to implement an AI-enabled financial planning and capital approval platform to replace their manual pressure driven cost. Let me now share updates on our industry set. Three of the 4 industry segments grew by over 7% year-over-year in quarter 2. All numbers referenced, next represents growth in constant currency terms. Financial Services continues to its strong momentum and delivered a robust 3.1% sequential growth on a year-over basis, it has retired to growth reporting 0.4% expansion. Tech & Services delivered a healthy year-over-year growth of 7%. Sequentially, revenue was lower by 4% reflecting a seasonal quarter specific move. Consumer segment grew by 0.3% sequentially and by 8.6% on a year-over-year basis. Production segment reported a sequential growth of 3.7%, contributed by both manufacturing and Energy & Utility segments. On a year-over-year basis, it grew by 7.4%. On a sequential basis, Americas grew by 1.5%, Europe grew by 1% and the rest of the world declined by 1.4% due to the revenue impact in our Middle East business. All of our client categories from USD 5 million plus to USD 100 million plus expanded year-over-year. I'm pleased to share that during the quarter, we added a financial services client to our USD 100 million plus client category with a further growth potential in the account. At the end of Q2 FY '27, total head count stood at INR 88,835, reflecting a net addition of 949 employees sequentially. Total fresher additions for the quarter were 1,743. Our AI 1000 program to develop power deployed engineers is on track with nearly 1,000 employees in mental led persona-based journeys and 2,000-plus certifications across Cloude, Gemini, Copilot and Azure AI. We have completed a Global Sales Enablement program during the quarter to train our sales teams on our AI capabilities. So we are best placed to help our clients leading agentic agent enterprise era. We continue to see consistent external validation of our capabilities by industry analysts and partners. This quarter, we received several recognition. I will call out a few of them. We won a Gold Steve award for blowers as best AI-powered product or a service at the International Business Awards 2026. Blueworks was also recognized for excellence in AI software and digital platforms in the Times of India AI Awards. We were recognized at the ISG Paragon Award North America 2026 in the excellence category for our Work with Fenia and in the transformation category for our work with Carrier. We were named leader in 3 quadrants of the ISG provider Lens Microsoft AI and cloud ecosystem 2026 report for the U.S. We were named among Ad Aids top 25 global agencies for our interactive practice. We won the 2026 India Gold Mic, most innovative knowledge enterprise award for our knowledge management maturity and practices. We were recognized as a winner for leading practices in AI adoption and the people first HR Excellence Award 2026. We won several brand on Al Group HCM Excellence Award 2026 across learning and capability and sales excellence, including best use of CRM solution, best model of a growth-focused organization and the best use of collaborative. Please refer to our fact sheet for a complete list of recognition. We continue to strengthen our Blueverse ecosystem to address every layer of enterprise transformation. AI foundry services, data modernization, AI led engineering, demand-specific SLM, agentic products and governance. We are building capabilities that help clients move from experimentation to scale deployment. Let me talk about some of the newest capabilities we have added this quarter. We recently launched Blueverse One token a workload routing in a governance layer that automatically can pass AI request to the right model at the right cost. We launched Blueworks RightLogic, our cybersecurity assessment and risk assurance framework designed to help enterprise identify, assess and remediate cyber exposure as accelerated AI adoption. We produce Bluverse Sovereign also dominant app in to help our platform that's picked into lasting lines -- sorry, lasting advantage. We created 3 new domain specific small language models and were granted 6 AI patents. We're refining our strategy to help our clients to build and scale GCCs with a new business unit, we will bring together a seamless operating model, governing entity, physical infrastructure, future ready talent and agentic process transformed with Rovers. We continue to deepen our partner ecosystem. Let me share some of the key highlights. Through our partnership with Anthropic, we have now fully embedded Cloude and cloud code into our Blue Bird AI delivery Fabric. This partnership will also help us to accelerate cloud adoption, expand our pool of FDEs and establish our Cloud Center of Excellence. We partnered with Gleen to connect enterprise knowledge layer Rovers. This gives clients a governed path from an enterprise search to autonomous agent. We've partnered with Cognition to bring in software engineering agent Devil to bluenitelogic. We collaborated with IBM and RedHat with a project Lightwell to help enterprises discover vulnerabilities and validate fixes its scale. We collaborated with Chaingar, the trusted source for open source to strengthen software supply chain security through Bluesverse Right Logic. We opened a new global delivery and AI Competency Center in Kolkata and expanded our Blueverse Studio footprint to Hyderabad. I would now like to share a few proof points across 4 types of AI work that we are delivering. In enterprise AI, for global media and entertainment company, we developed an integrated agency recovery platform to modernize fragmented BI. The platform achieved 100% presentation was taking plus value scenarios. For a leading Europe tech company deployed on specialized TI across the SDLC as part of the large-scale payment modernization program, reducing the delivery cycle time by 50% and cumulative development effort by 38%. In business AI, for a leading investment management comp. We are building intelligent retirement solutions that our customers through assisted agents and autonomous handling across initial selected plans that will be extended further. The solution is driving cost transformation, a unified experience and a faster response. For a global petrochemical leader, we deployed in the power HR agent to unify fragmented HR services and provide intelligent self-service policy guidelines and workforce life cycle support. This has the potential to reduce HR tickets by 40% through agent-led self service. In marketing AI, for a global food service business we enable power content generation. to deliver more personalized product experiences and improve digital grade. This generated 50% product indicates enabled 10x faster camping login. For a leading home improvement retailer, redesigned experience or buy online, deliver from store orders to validate safe customer mediums. This reduced the checkout inspections interactions and improved time deference. In industrial AI, we're a leading global automotive manufacturer, we deployed an AI-powered productive engine solution to detect laser printing failures before there, reducing unplanned downtime and operation and increasing production -- for a global environmental services and water management companies, we deployed agent-based digital mix, robotics, quarterized water operation sales more than 400 site. This reduced rate effort by 50% and able to yesterday. With this, I would now like to hand it over to Vipul for an update on financials.

Thank you, Venu. Good morning, everyone, and thank you for joining the call. Let me now walk you through the financial highlights for the second quarter starting with our revenue performance. Our quarter 2 revenue stood at USD 1.235 billion, reflecting a growth of 1.1% quarter-on-quarter to 5.1% year on year. corresponding dollar [Technical Difficulty] 3% quarter-on-quarter and 4.7% year-on-year. Revenue in INR [Technical Difficulty].

Sorry to interrupt. Vipul sir, we are not able to you that clearly. If you can just move the mic a little closer to you .

Is this better? .

Yes, sir.

Revenue in INR stood at 11,808 crores, representing a growth of 1.7% quarter-on-quarter and 13.6% year-on-year. Our EBIT margin expanded by 10 basis points sequentially to 15.6%. The PAT margin came in at 11.7%, down from 12.7% last quarter as we had a onetime gain on the recognition of the value of our investment invoicing AI in Q1. The effective tax rate remained unchanged at 25.8% compared with Q1 FY '27. Basic EPS was INR 47.2 for the quarter as compared to INR 49.5 in Q1 FY '27. Our total DSO for Q2 improved by 1 day, closing at 84 days compared to 85 days last quarter. The operating cash flow to PAT ratio is at 39%, down from 79% in Q1. This is mainly due to certain advanced payments and funding towards a onetime gratuity provision on account of labor laws impact. Free cash flow to PAT ratio stood at 24% compared to 63% in Q1. The reason for this decline is similar to the above. Cash and investment balances stood at USD 1.6 billion or INR 15,300 crores compared to INR 15,021 crores in Q1 FY '27. Return on capital employed for the quarter was 28.5% versus 29.8% last quarter. As of September 30, 2026, our cash flow hedges stood at USD 4.49 billion hedges on the balance sheet were USD 334 million. Utilization, excluding trainees, remained flat at 86.4% for the quarter. The head count at the end of Q2 was 88,835 and fresher additions stood at 1743. For the quarter, our trailing 12-month attrition remained stable at 13.3%. The Board of Directors has approved an interim dividend of INR 25 per equity share, an increase of 13.6% from the corresponding quarter of the previous year. Regarding our previously announced plan to acquire certain Randstad digital businesses in Europe and Australia, the approval process is on track, and we expect to receive all the approvals in Q3, as previously communicated. . During the quarter, we achieved ESG Leadership status, receiving a score of 76 from NSE Sustainability Ratings and Analytics Limited. The company was also rated in the leadership category by SES ESG Research Private Limited with an ESG score of 77.3%, placing it among the top performing Indian companies by market capitalization. I now hand it back to Venu for the business outlook.

Sorry for that. just adjust the mic. Thank you, Vipul. As we indicated at the beginning of the year, we expect our growth trajectory to continue to strengthen as the year progresses. We delivered a 5.4% year-over-year growth in H1 FY '27 and continue to expect stronger sequential growth. As AI adoption accelerate, we are seeing a growing demand across the AI stack, reinforcing our conviction that AI will become foundational intelligence layer for modern enterprises and our primary driver of growth. The continued confidence our client plays in us, our disciplined execution and the speed of our AI work makes us well positioned to accelerate the growth momentum. Thank you, and the floor is open for Q&A now.

[Operator Instructions] We'll take the first question from Ravi Menon of Axis Capital.

Congrats on strong growth in BFSI. Whether you talked about how the high-tech segment has seen a seasonal decline. And wonder of the quantum of that will be the same every year, and this is due to anniversary of last deal renewal or something like that, that impacts year-over-year.

Yes, it does because our top account in the tech sector financial year start from July onwards. So those are the times when you always have the renewal cycle that begins. So it's not something new for us. We always have managed that and absorb that over the year. I think this time, there is also an additional element when you look at the tech numbers. That is the -- our business in Saudi which is classified under the tech because it's through a JV that we do with the tech company there. And hence, it's classified as another track. So you also see the tech decline has got 2 elements. One is the renewal cycle impact, which is seasonal and known one. And the second is the Saudi business impact that is factored in that segment.

Great. I'm saying looks like you're still adding people pretty strongly, right? So can we think about us in the model is still linear largely. I mean, and over time, as we pay royalty revenues from different IP that you create that changes, but that will be a very gradual change.

Yes. Firstly, it will be a gradual change. But if you look at it, the head count addition and the revenue will not be leaner anyway. We have demonstrated that over the last few quarters, right? So a whole of last year as well, when we delivered, we did not increase the head count and some was this year in the Q1. And we will look at this number. So the -- actually, this is a very positive thing for us that we are adding people because there is the demand outlook that we have. That will still establish a good nonlinear equation that AI will provide as an opportunity. But it will be gradual, as we go along. So it's not going to be 1 switch button. But what is more pleasing is that we're adding people because we have the outlook of the demand.

And one follow-up there. Although you talked about good outlook, the deal wins are a little lower this quarter. So can you think about how the new deals are mostly a time and material and therefore, you don't really see that in the TCV number?

Yes. Great question. Look, I think the deal TCV has -- we've sort of gone through a very strategic approach on how we looked at the transformation pivot because one of the things that I'm very clear is that if you have to pivot this into an AI centric organization, we also need to look at the KPIs a bit differently, right? So if you have to get more AI-led deals because that is what will help us to build capability. Those are the deals that will help us to add value to our customers in the AI era. Then those deals happen to be the shorter duration deals, but it has a great opportunity, faster revenue acceleration because you don't have a long transition period that you associate with the traditional ITO deals. So I think this quarter, we saw a majority of those deals were AI-led deals because I did share with you quite a few wins we had and the kind of work that we are doing in. So for me, it is a good leading indicator in terms of how our sales team, especially now that we train them, we did a boot camp in across the world. And that boot camp is producing the results in terms of generating more AI deals. Having said that, there will always be 1 or 2 quarters where you'll still have those traditional large deals, which will come at the back of vendor consolidation or switching over from one vendor to the other, right? Those kind of deals will still be there. And in those scenarios, the deal value for that particular quarter will increase. But this was a very conscious effort that we are going because you have to change the way we look at it. We need deals which are genuinely have the AI nature into it. The leverage is all the investments we have done in our bluebird ecosystem. And finally, it should be an opportunity to accelerate revenue -- and that's been one of the questions where most of them in terms of TC will engage to revenue, and that's what we're working on.

We'll take the next question from Vibhor Singhal of Nuvama Equities.

Yes, -- so just to basically continue the last discussion that was happening on the deal win front. So as you mentioned, that we're now moving towards maybe an environment in which there are a lot of short duration deals, which does not get captured in the TCV number adequately. So 2 parts on that. One is, do you think this is kind of a temporary phase that because gen AI at this point of time is in the initial stages of -- and gradually as the technology matures, the deal sizes will also become bigger. And hence, you could see the number then becoming more relevant. And secondly, for this interim period or, let's say, for a longer period of time. If the TCV number now becomes less relevant than it was before, is the management considering for the benefit of investors and analysts providing us with some other number, let's say, like ACV, which will be an annual contract value, which would be able to cover those short-term duration deals. A couple of our competitors do provide us with that data. Because at the end of the day, what we as an analyst investor community need is some sort of visibility to be able to project the revenues going forward, how do we look at the company from a 2-, 3-year point of view. So any consideration on that?

Yes, sure. No, great point, Vibhor. Firstly, if I look at the deals that's happening? And is it temporary? Or will it come? Will it get converted to the big deal? I think it sort of depends on how the clients decide their adoption strategy. I'll probably take 2 examples to explain that, right? So one -- when you start doing an agent transformation or AI led transformation into the HR organization of an enterprise, you get certain deal size, right? So -- and that will involve about 6 months to 8 months kind of work, to transform the HR organization of an enterprise. But that doesn't stop there. All customers are moving towards making their enterprises self-autonomous centric organization. So you will move on to the other process, there is supply chain or finance processes or manufacturing processes and so on. So hence, at least in the short and medium term, the AI deals will be of that nature, right? So it will be short tenure deals, but faster iterate to deals, do that and you keep getting more and more deals, and we're seeing that. And the start-up time to realize revenue also is much quicker because unlike the traditional services, where you do a 6-month, 8-month transition and then you start delivering steady-state modeling AI you actually go with a prototype with all the assets that we have built with all the capabilities we have built, you essentially build a prototype and then convert into services in a product way and then start realizing the revenue. So that's where the revenue acceleration aspect sort of comes about. And the third is that, look, we'll have to wait for a couple of more quarters. We were to sort of come to a split up between what we can share with regard to the ACV and traditional TCV deals, which I don't think is going to be difficult. We can share that with you. But I wanted to wait for a couple of more quarters at least for 1 quarter and before we start sharing with you, even in this deal's value. The order book number that we shared, the significant part is AC, right? It's a very majority part is ACV deals, but allow us 1 more quarter so that we can be very definitive on that. We are excited about where this is going on. There are still large deals out there, which essentially is switching over the market share from other vendors and taking that those deals, whether it's in the AI led software engineering or in the agenticoperations or large-scale technology modernization programs. Those large deals are still there out there, and we are still going after those large deals as well. But specific to AI, this is how I look at the status.

It think that was really helpful whenever the management is comparing sharing that number. extension of this question, if I may just ask. So look, I think TCV or AUV at the end of the day, I think all that -- most of us want, and I'm sure what the Board and the management is looking for is a better revenue growth. So I'm sure these deals, short-term duration will probably lead to a higher revenue growth. But what is the outlook that we are looking on that? I mean, last year, when we were in Q4, we were hoping to touch a double-digit Y-o-Y growth rate, which we missed by a whisker and we were quite there. But in the last 2 quarters, we kind of differed a lot away from that number with a number of around 5% to 6% Y-on-Y growth rate only on the overall portfolio. Now I understand this quarter might have been impacted by the Middle East war and all, but overall, do you see as the company, I mean, moving towards a close to a high single-digit or a double-digit kind of a number maybe towards the end of this year, maybe FY '28, what is the outlook that -- I mean when do we reach there? And what is the outlook that you see on the growth part there?

Yes. So as you rightly pointed out, Vibhor that Q2, if that Saudi impact would not have been there, I think we had the gap of about 0.7% or 0.6% approximately, the growth opportunity that got missed out because of the impact that we had in the Saudi business, right? So otherwise, we would have been somewhere at 1.7% 1.8% quarter-on-quarter growth, but it is what it is. The good news is that we have a lot of demand elsewhere, right, outside of the Saudi because what's the situation in Saudi is beyond our control. So -- there's little we can do at this stage on that, but there is a lot of demand outside there. So I'm very optimistic about continued growth momentum in the second half of the year. When we started in the Q1, I made a promise that every quarter will be better than the previous quarter. So I will hold on to that and say that Q3 and Q4 will be better quarters than the first quarter for sure, number one. And number two, FY '28, absolutely, that's the aim. And we expect the Randstad acquisition approvals to be done, closure to be done by the end of Q3. And then we will have 3 to 4 months' time for us to realign the newer markets that we are inheriting in Australia and Europe and something second, the fact that BFS is back to growth. right? So it has delivered to sequential growth, and it is back to year-on-year growth. So it is only 1 way to go up, which is going up. Tech has delivered a fantastic year-on-year growth. All other verticals, if you see, has delivered a 7% and 7% plus year-on-year growth. It is 1 such event in 1 particular region, even though that is contributes a very small percentage of overall revenue, but in absolute revenue, it went down materially this quarter, the Saudi revenue, right? So hence, it is, otherwise, 3 out of 4 verticals we have are actually growing about 7%. So I'm really confident about the next 2 quarters and also with the new capabilities, we'll inherit in the Q4. We should be very well positioned for FY '28.

Our next question is from Dipesh Mehta from Emkay Global.

A couple of questions. First about the progress on -- if I look at ROW, growth is not there slightly weakness, which indicate the progress on CBD deal seems to be slower. So can you give some sense how 1 should expect that deal to ramp up? . Second question is about the overall growth outlook. You partly indicated about weakness in Saudi as some implication. But earlier, we were very confident to at least deliver FY '26 kind of growth in current year. Are we on track to, let's say, despite some challenges we face, are we on track to deliver [ 27 ] at least closer to [ 26 ] kind of number? If yes, in a way you are indicating some kind of significant acceleration in next 2 quarters. So these are the 2 questions. Then I have a question on High-tech. Maybe if you can answer this, then I can...

Yes, sure. Firstly, on the rest of the world, I think, as I said, it's the Saudi business, which was material for us this quarter. I would not have called that out. because in an absolute revenue impact that happens in that geography at the moment, it's a difficult thing over there for -- especially with some of our customers. So that's why you see revenue rest of the world factors that part with -- and with regard to the CBDT. CBDT did contribute the revenue for the Q2, right? And I think last time when I spoke to you all, I mentioned about the hardware pricing and the delivery time being impacted, it is getting better from the time that I spoke at the end of Q1, it's definitely getting better. So you should see a gradual ramp-up that is going to be linked to the hardware delivery that will happen in CBDT. So we are pretty much on track on that part of the revenue. It is just that it is dependent on hardware availability, but it is -- it has definitely progressed. It has definitely improved from where we were in Q1 when I spoke about these topics. And sorry, the second is -- I think the other question that you were asking me about the FY '27. Look, as I said, H2 will be better than H1. That's number one. Number 2 is that FY '27 overall year growth coming to the FY '26. That's our endeavor. We'll try -- we're working towards coming as close as we can coming to the growth, right? And there's a lot of good demand out there. We have built fantastic capabilities. We have seen as an AI-centric company now already by our customers and with the industry analysts. So I'm fairly optimistic on our journey. But in summary, I can say H2 will be better than H1.

Understood. And just on high tech, you indicated that a part of the weaknesses because of seasonality in the business and some impact from Saudi related business. How should we want to expect, let's say, because now your top customer also renewal played out? . Can you give some update about how you expect, let's say, next fiscal for that account to play out? And overall high-tech growth to play out? And second question about, I think, cash conversion. We indicated some of the reasons. Can you quantify what would be the impact of the great duty and other factor which you indicated on case conversion this quarter?

Yes. The second -- sorry, I missed the second part of the question, but let me answer the first one, and you could repeat the second one again, Dipesh, if you don't mind. So on the first one, look, I think the tech services vertical, as I mentioned, there is a part of the Saudi business because we routed through a JV partner, which is a tech company. So hence, it's classified under that. But with regard to the -- if I just keep that aside, which will be static anyway, when we go to the Q3 onwards, we're seeing a pretty good demand out there in tech and we'll be back to normal. This was expected a seasonal renewal impact. We'll be back to the normal growth trajectory in the tech vertical. And we're getting -- we've got some good deals out there, which will start realizing revenue as we go into the Q3 and beyond. And yes, outlook for the next year is also good on the tech side. I mean we are dealing with customers who are growing massively, right? So they need a lot of our help to support their big growth agenda. None of the tech customers are showing any signs of slowness of growth. They're all growing phenomenally well. So we are really pleased to be partnering with all of them, and we are diversifying into many areas, and we'll continue to grow in tech vertical. I just look at tech as a more of a seasonal renewal quarter plus the Middle East impact.

Understand. On cash conversion, I think -- can you quantify, let's say, we indicated 2 factors certain spent and funding towards great pertains to new labor code. Can you quantify the impact? And from next quarter, it normalize? Or how would you look at it.

Sure. So in terms of the exceptional outflows that I mentioned about, I think all of us -- all of you would remember the gratuity-related provisions that we had taken in Q3 of last year. Now once we have taken the provision, the same amount also has to be funded for meeting the liability. So I think in this quarter, we have done a substantial chunk of that funding. There is a deadline for that funding to also get completed, which is by October. So, there may be a small impact coming from that remaining funding in the next quarter, but largely, it should return back towards normalcy. The other outflows, which happened is on the final dividend that we paid out in Q1. The TDS on that did not get paid out in the same quarter, and that came out in the second quarter. That was another one-off difference between the previous quarter to this quarter. And we also had advanced tax outflows, both in India and U.S. happening in this quarter. So overall, I think it was a confluence of 2, 3 things coming together, and that is what led to the reduction in the OCF to PAT ratio.

And you expect it to normalize into quarter 3, right? .

It will normalize through quarter 3, except that, to some extent, the gratuty funding may still be happening. So it may not come back to the previous levels, which we were going at -- but we did get the advantage of these in the previous quarters when our post-pack were higher as well. .

We'll take the next question from Sandeep Shah of Ikura Securities.

The question is on margins. So if we look at first half being [ 15.5 ], last year being [ 15.4 ] and second half will be heavy in terms of revenue mix where growth could be led more through pass-through revenue, which happens traditionally plus EDT be gradual ramp-up. So -- and fourth quarter, we'll have a margin headwind with M&A of Randstad. So in this scenario, any update in terms of what is the target margin, EBIT margin on exit and the full year we are looking and even for FY '28.

Sure, Sandeep. I think we had mentioned earlier that we are working towards maintaining our margin for this year at similar levels to previous year. And I think we are still working towards that if you see sequentially in Q1 and Q2, we have expanded our margins. We are done with our wage hikes as well. So after absorbing all that, we have come in at 15.5% and 15.6%, respectively, in these 2 quarters. Also, in terms of the growth in the next 2 quarters, I don't think we are expecting growth only to come from the CBDT ramp-up or the pass-through revenues. Our regular services business, demand is also looking robust, as Venu has already mentioned. And the initiatives on cost control side are also continuing. So we do expect the organic margins to continue to hold on and improve further from here. And the impact on account of Randstad acquisition is going to be more in terms of the amortization impact, which anyway, given the value, et cetera, is not going to be that significant. So all in all, I think I would conclude by saying that we are still working towards maintaining our margin at similar levels to last year.

And sir, that commitment is on a consol basis, not on organic, right?

I'm sorry?

Yes. What you said the margin being flat in this year versus last year. This is including M&A and at consol level, not at organic level?

Yes, that's a target that we have worked towards and we sorry -- yes. That's the target we are working towards Sandeep.

We take our next question from Rishi Jhunjhunwala from IIFL Capital. .

A couple of questions. Firstly, your top client in BFSI has made certain comments in their recent earnings wherein they have talked about tech vendor spends being down 3% year-on-year as a result of AI adoption and otherwise in-sourcing. And also that there is still a very long way to go on that contraction as well as in-sourcing that is happening? Can you give some color in terms of how it has behaved for us in the past? And do you think -- how do you think it could potentially play out for us in the near to medium term? .