Hi, morning. Thank you for doing the call. Just a question starting on the outlook on the Financial Services and maybe specifically to your GSE accounts. What's been the mix of performance there, and how does the outlook for the rest of the year change? If you can give us an update there, that would really help. Thank you.

Two things. One, we already called out the negative. We said we don't expect further negatives, and that's been true. Second thing we said that one of them is undertaking a large consolidation deal. That hasn't progressed as fast as we thought it will, but what we know now, or recently, is that actually they have suddenly pushed the pedal on that. I don't want to predict when it will close, but they certainly indicated a desire to push the pedal very hard on that. The other one was anyway in good shape. We had won a consolidation deal. The ramp-ups are happening as we had planned.

My question was the outlook for the year. You were expecting an equally good year this year as last year. I understand the cyclicality here. Could you update us what's the current status of that, and how long will it take to cycle back to a double-digit growth rate from here on?

It's hard to predict where macro will go. If there's already one trade deal that got announced that’s one set, I think if there is more that happen in the next 2 weeks, which is the deadline that the administration has set, I think we will see uncertainty lifting quite a bit. It could be pretty quick.

So, it's based on the macro where you can think you can get back to double-digit growth depending on a quarter or so then? Is that what we should expect?

It's hard to predict macros. I think what we are focused on is to make sure that with each customer, we are gaining market share. We are doing better than our competition in those accounts. We are winning new logos that are material, both for near-term revenues, but also a mix of logos that may be small to begin with but have very high potential to become mega accounts for us long term. These are the things that we are focused on. What it means is if the macros improve, we will improve faster than everybody does.

Understood. Last clarification on the EBIT or the EBITDA margin line. If I do exclude the writeback that came from your Softcrylic payout, the EBITDA or the EBIT, whichever you want to take, seems to have been a bit relatively soft, even if I make the adjustments on the impairment costs and the severance cost you've highlighted. Could you maybe elaborate in terms of the underlying margins outside of the write back? How that's trended? The underlying margin, like we said, is stronger. If you look at the cost, the biggest line item of cost is the provision in our caution; for a client who's acting in bad faith, we are in a legal process. That's the biggest element. The second biggest element is restructuring cost, which I think will have a ROI very rapidly. There'll be some near term, but more in the next few quarters, quite a bit of improvement in operational performance coming as a consequence of that. Through early in the IPO process, we kept talking about difference between adjusted and reported. We finally said we're going to have one number, which is reported number. Our promise is to pull that. We will get that up to over 7-8%, the reported number. That's what we are at. The one-timers are one-timers, and one of them is from an abundant caution. The other one will help us improve profitability in the near to medium term. We think not only is our current operational performance better than the reported numbers, the nature of one-timers we've taken also set us up for improved profitability in the future

I'll just add one thing to it. When we call out a one-timer, what we mean by one-timer is this is a truly one- off event in the current quarter. These are not events which will have a cascading effect or associated with this charges coming back in the next few quarters, which we will continue to call out one-timers. Those are not the ones. Like Keech called out, ERP expense is one-timer in nature because we are making those investments, but we are not calling it out as a one-timer and adjusting our profits and representing it. This is truly one-off events in the current quarter. That on a net basis had a 15 bps of headwind.

No, I understand. I was just saying that if you are removing the one-timer, you should also potentially remove the write back in the other income.

We removed that. When we give that 15 bps of headwind, it is net of all of it.

You have to look at our operational metrics. Offshore mix is improved, utilization has improved, attrition is down. These are all the drivers of operational performance, and they're all solidly positive.

I appreciate it. As long as you're giving guidance it will improve from next quarter, these will not repeat. I think that's good enough. Thank you.

Thank you. Our next question comes from Prateek Maheshwari from HSBC Securities.

Hi, guys. Thank you. Good morning. I have a couple of questions. First on your outlook. You said it's a little weaker than what you expected last quarter and some of the deals that you guys thought would start, some of the mega deals that could start or could come to you have been delayed. Just wanted to understand that earlier you guys thought that probably this would be a good growth quarter. The third quarter would be a very strong growth quarter, and even in fourth quarter, you will still grow despite the seasonal weakness. How do you think now things will pan out with the changed guidance on outlook? In some ways, it's a bit of a sliding scale. The sliding scale start depends on when some of these deals decide. But having said that, just basis what we already have, I think Q3 will still grow—grow reasonably well. I'll even say maybe QoQ CC better than what we grew in Q2. That is without assuming that some large stuff can happen. Even if they do, I think there's going to be quite a lag between a decision and revenue. I don't see any large deals having an impact on Q3. Q3 will still grow nicely, will go better than Q2, but lower than what we had earlier thought. We told it will be an outstanding growth quarter, it will be a growth quarter. Q4, I think still there is some dependence on what actually happens, still depends on some of the pipeline. Bear in mind, while I said the deals are work in progress, they have all progressed. They have all moved, and we are still very much in the heart. To the extent, some of these were designed, and I already said in response to a prior question that one of the clients really has now suddenly woken up and said they want to push the pedal and accelerate decision-making. If some of those happen, then Q4 should be quite nice.

Keech, would you say that the exit would still be strong for you for CY '26?

That's what we're working very hard towards.

One more question. Thanks for the clarification earlier on the margins. A lot of things are one-timer, and will go off. Just wanted to understand two comments you made. One is your ERP cost tapering and will not go out. Just wanted to understand whether the 70 bps of ERP cost, do you think this will completely go out in the second half, or do you think it'll be tapering is what you meant? Just on the restructuring cost, what kind of benefit do you look at from that, if that can be quantified.

From an ERP cost perspective, as you can imagine that a company of our size and scale, a transformational program like this do take time. On the ERP, we are doing it on a phased basis. There are a lot of modules. Some modules which we went live in Q1, there are other modules which have gone live on 1st of July. And will continue to go live on a module-by-module basis. That's the reason that the ERP cost will keep on tapering down. Hopefully by the end of this year, we would have gone live by almost all the modules. That's our target. When we give the guidance with respect to 17.1%-17.4% at the beginning of the year, at that point of time, we had said our assumption was that ERP cost will go away from H2. We are still holding to that 17.1%-17.4% despite the fact that the ERP cost is not going away completely in H2. This is driven by the fact that our operational metrics are all heading upwards and in the right direction. So that gives us the confidence. On the restructuring cost, we can't quantify the exact number in terms of how much will come in Q3 and Q4 because we have agreed on a program which has been with the workers' council. That needs to be now on an individual by individual basis, executed with the team. I think the full benefit of that will start accruing from Q4 end or beginning of Q1 from next year’s perspective. But I'll tell you this, that the payback period for this is less than a year.

Lastly, a broader question. Just wanted to understand the acquisition of SMC Squared. Just wanted to understand, Keech, what would be the puts and takes that you would have thought about during this acquisition, in terms of build versus buy? How would you have thought about it?

I laid out the four strategic rationale, but I'll add an important nuance. We did ref calls with customers. What I'm seeing came out consistent. They said, "Listen, we’ve tried BOT models with traditional outsourcing companies," and they named some of our large competitors. They said, "With them, we never felt like it's a model that works for us. We always felt like there is a tension that is going to be there at the point of transferring. That it won't be easy, one. Two, even before the transfer in the 3-year or 4-year operate phase, we felt like the team is not ours. We felt like the team is the outsourcing company's team." Thus, the client felt like, "Hey, this is a different business model. It is not an outsourcing plus converted to a BOT where I will transfer at the end of 3 years. It is fundamentally different mindset to be able to set up a GCC which is truly mine." As a consequence, what we know as data points is that when a customer is thinking of setting up GCC, their invite list does not automatically include outsourcing companies. Their invite list automatically includes companies like ANSR and SMC. Those customers are seen as a different service and a different capability. Clearly, in terms of downsides, there's always like, if there is a transfer, there is a down in revenue. But I think what SMC has demonstrated is that through those cycles, they've still grown. They've ramped down for some customers, but their new customers are solid enough that the net is still a growth on a yearly basis. There could be quarterly ups and downs, but on a yearly basis, they've still shown solid growth.

Thanks, Keech. Thank you for patiently answering my questions.

Thank you. Our question now comes from Manik Taneja with Axis Capital.

Thank you once again. Keech, if I recall correctly, last time when you shared an outlook, your outlook for the second half was driven by some of the deal wins that were already in the bag. While I do understand we've seen some delayed decision-making on both consolidation as well as smaller deals, are you also seeing slower ramp up from the deals that you've won in the past? That's question number one. The second question is that typically in some of these consolidation deals, we tend to see upfront investments, some margin giveaways. Do you think at some point in time this becomes a headwind in the foreseeable future as and when we close that? The third question was for Vikash in terms of both the hiring and the wage hike outlook for the year. Those would be my questions. The first one, the two bigger consolidation deals we won, I think they're largely going both as per plan. It's true that part of confidence or lot of confidence came from the fact that some were in bag, but certainly there is expectation of more wins, especially when you have such a solid pipeline. I think smaller, mid-size deals are still happening, and there will be continued growth as a consequence. But the bigger deals have got delayed. The expectation, what we'd said of accelerated growth in Q3 and bucking the trend in Q4 was a basis, assuming… We don't have to win all of them. One, maybe two. That's the first part. The second part, will some of these deals require some sacrifice in margins? If that is what it takes, we will happily do so. We're not quite at that point yet, but if that's what it comes to, we'll happily do so. Vikash, third question is for you.

In terms of the headcount hire, as I said that the underlying business continues to be strong and there is a volume increase which will continue to happen. That is going to be reflective in terms of our net headcount increase. We expect to continue to add. In terms of the merit increases, we are working through the details and evaluating. We'll make an announcement with respect to that as soon as we have gone through the details and made a decision on it.

I'll say two things. One, on headcount, our gross headcount addition in IT. We had said we'll hire between 1,500 - 1,800 people. We're actually well in that range, actually in the upper end or higher than the upper end of that range in Q2. Gross hires were, I don't remember the exact number, but they were in the upper end of that range. On merit increase, we will give a merit increase effective July 1st. We just can't tell you the number before our employees know it. We have kept that promise every year. We will continue to do so. It will be moderated from what it is in prior cycles, but we will give the increase in Q3.

Thank you. All the best for the future.

Thank you, our next question will come from Anmol Garg with DAM Capital.

Hi. Thanks for the opportunity. A couple of questions from my side. Firstly, in the SMC acquisition that we have and the BOT type of contracts that we are doing or we are planning to do in this category, are these contracts margin dilutive for us or these are margin accretive? Secondly, would we be using our balance sheet to set up GCCs for these clients?

The quick answer to both of them is no, at least thus far. On the second part, if there is a scale opportunity that requires us to use a balance sheet moderately, we will be open to do so. But that's not been the case so far.

Associated with this client, there won't be any provision. In addition to that, on a quarterly basis, we continue to evaluate the creditworthiness of all the outstandings that we have in the books and make a generic provision or a specific provision which is required, which is BAU, so nothing out of the ordinary, but specific to this client that has no further outstanding in the books to be provided. Just to repeat, as I said, this is a provision and not a write-off. We are continuing to have discussions with that client and taking all the legal measures which might be there to recover this amount.

Understood. Just one last question on more of a broader basis. If you look at the weakness right now in our company and the general industry, would you say that GCCs are gaining share and the productivity ask from clients leading to vendor consolidation deals, is that the key reason? Or the key reason still remains associated to the macros being where they are?

I think it's macros. For us, specifically, GCCs represent a growth opportunity because whatever reduction in growth from GCC is in some ways in the books for the industry. But there is spend there, and we're not capturing any of it. I think what SMC will give us an opportunity is to capture it. Say, estimated 1,000 new GCCs to set up in the next 4–5 years. Prior to the acquisition, we don't participate in that or participate in a very spotty way. I think what this gives us is the ability to participate in a very strong way. Like I said, the normal port of call for companies that want to set up a GCC is not an outsourcing company. It is firms they see a specialist in setting up GCCs.

Sure. Understood. So, should we take it that this is more of a cyclical trend and the growth for us should return back?

That is what we believe.

Sure. Thank you so much, Keech, for answering the questions.

Thank you. Our next question comes from Rishi Jhunjhunwala from IIFL.

Hi. Thanks for the opportunity. A couple of questions, and to some extent, it may sound repetitive. But firstly, on the SMC acquisition, just wanted to understand the thought process behind that. While financially, it makes total sense, it's EPS accretive from day one. But when we look at it, do you consider it as a capability acquisition? If yes, why? Or is it just getting entry into some of the customers? I thought I addressed it, but I'll do it again. But to that, I want to add one point to the prior question on cyclical versus structure. I think the biggest proof that it is macro is if you look at our numbers by vertical. M&C is minus 11.5%. That's all macro. That I think is the biggest proof point that our weakness is macro- relative. Back to SMC. Some of what I'm going to say will sound repetitive. We think setting up of GCCs is different from an outsourcer agreeing to do a BOT model. That's the most fundamental reason why we think this is a capability. Now, I think a lot of people assume that all it takes is to agree to a BOT model with a client, and that will put you in the lane for setting up their GCCs. What we discovered through engaging with SMC and researching the market is, that is not true. Customers want firms who they see as specialists in setting it up. They will not present firms that don't present a conflict through the process in how they hire people, what salaries they pay them, how they brand the site, resistance, potentially at the end of it for transferring. Now that, they see as coming naturally to outsourcing firms. They see coming naturally to firms that do BOT. That is why we think it is a material new capability. ANSR is a good example. Actually, the person that is there in every one of our GCC deals with SMC is actually ANSR. It's not other outsourcing firms.

Fair enough. Secondly, some of this tempering down in outlook, how much of this is attributable to some of the ramp up in consolidation deals that we were supposed to see in 3Q and 4Q versus the rest of the business where the underlying macro has actually weakened versus where we were 3 months ago?

I think the latter is a smaller impact in that some of the mid-size deals are also slightly slower on decision making. Let me give you an example. If you look at our Others line item, you will see actually it's dropped. Licenses have dropped quite a bit, QoQ. Why? Because people have simply postponed capital expenses. There is some of that. But I think the bigger impact is the larger deals. Before the larger deals decision, it is also macros. People want more clarity on their own business outlook before they make long term decisions on changing partnerships. Both are linked to macro.

Got it. Thank you. All the best, Keech.

Thank you, ladies and gentlemen. I will now hand the conference over to management for closing comments. Over to you.

Thank you all for returning again early in the morning. I look forward to speaking to you all again as a group next quarter and meeting some of you during the course of work. Thank you.

This concludes our conference call. Thank you all for joining us and now you may now disconnect the line.