"Datamatics Global Services Limited

Q1 FY'24 Earnings Conference Call"

August 10, 2023

MANAGEMENT: MR. RAHUL KANODIA - VICE CHAIRMAN AND CHIEF

EXECUTIVE OFFICER - DATAMATICS GLOBAL

SERVICES LIMITED

MR. SANDEEP MANTRI - EXECUTIVE VICE PRESIDENT

AND CHIEF FINANCIAL OFFICER - DATAMATICS

GLOBAL SERVICES LIMITED

MR. MITUL MEHTA - EXECUTIVE VICE PRESIDENT

AND CHIEF MARKETING OFFICER - DATAMATICS

GLOBAL SERVICES LIMITED

MODERATOR: MR. PRATIK JAGTAP - E&Y INVESTOR RELATIONS

Page 1 of 11

Datamatics Global Services Limited

August 10, 2023

Moderator:

Ladies and gentlemen good day and welcome to Datamatics Global Services Limited Q1 FY'24

Earnings Conference Call. As a reminder all participant lines will be in the listen-only mode and

there will be an opportunity for you to ask questions after the presentation concludes. Should

you need assistance during the conference call, please signal an operator by pressing '*' then '0'

on your touchtone phone. Please note that this conference is being recorded. I now hand the

conference over to Mr. Pratik Jagtap from E&Y IR. Thank you and over to you Pratik.

Pratik Jagtap:

Thank you Carol. Good evening to all participants in the call today. Welcome to the Q1 FY'24

Earnings Call of Datamatics Global Services Limited. The "Results and Presentation" have been

already mailed to you and it is also available on the website of the Datamatics. In case anyone

has not received a copy of press release and presentation, please do write to us and we will be

happy to send you all.

To take us through the results today and to answer your questions, we have with us top

management of the company, represented by Rahul Kanodia - Vice Chairman and CEO,

Sandeep Mantri - EVP and Chief Financial Officer and Mitul Mehta - EVP and Chief Marketing

Officer. Rahul will start the call with brief overview of the quarter on business which will be

then followed by Sandeep talking on financials. We will then open the floor for question-and-

answer session.

I would like to remind you that anything that said on this call which gives any outlook for the

future of which can be construed as forward-looking statement must be viewed in conjunction

with the risks and uncertainties that we face. These risks and uncertainties are included but not

limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual

reports which you can find on our website.

With that said, I now hand over the call to Rahul sir. Over to you, sir.

Rahul Kanodia:

Thank you Pratik and a very warm welcome and thank you everyone for joining our Quarter 1

FY'24 earnings call. I will briefly discuss some of the quarterly performance highlights while

Sandeep will provide an update on the financials.

I'm happy with the overall performance of the business. We have started the year on a strong

note with respect to both revenue and profitability. Our revenue stood at INR 391.1 crore which

is a growth of 19.6% on a YoY basis. Our EBIT stood at INR 58.6 crore compared to INR 39.3

crore in the same period last year. This translates to a growth of 49.2% in our EBIT which is a

very healthy growth. Although our revenues declined by 6.1% and margins by 3.1% on a

sequential quarter basis, this is not a concern because Quarter 4 always tends to be a strong

quarter for us due to the cyclicality of some of our projects and Quarter 1 the salary hikes kick

in.

In Q1 of FY'24 we added 14 customers, most of them are in the US and European markets. On

a Y-o-Y, our active pipeline has increased by 58% and 35% on a Q-o-Q basis. Additionally, we

are also working on a few AFC opportunities which we believe we are in a good position to win.

Page 2 of 11

Datamatics Global Services Limited

August 10, 2023

Our strategy of focusing on hyperscalers is progressing well. We have deepened our relationship with Microsoft, Salesforce and AWS and assigned a new relationship with Crowdbotics, a Company focused on low-code and no-code development. These have started generating good opportunities for us.

Artificial intelligence is transforming how we live and conduct our business. We have been investing in our AI capabilities, and Generative AI has only redoubled those efforts. We are constantly incorporating AI into our Technologies, Operations and Experiences business and as well as the product business. We are investing in establishing a robust AI center of excellence. The CoE aims to enable enterprises to build and implement their professional enterprise-wide AI roadmap. The CoE has built multiple AI accelerators in automation, software coding, customer experience and employee experience to speed up AI implementation. We're also incorporating artificial intelligence in our operations across all three lines of business. In Digital Technologies, the team is implementing AI enabled copilot development to improve productivity across all stages of software development lifecycle. We have also enhanced our product TruBot and TruCap with generative AI. This will deliver enhanced benefits of automation and productivity too for our customers.

In Digital Operations, Datamatics has implemented AI in the enterprise document management domain. Today, Datamatics is processing 15 million annual report pages for global credit reading agencies and analysis firms using AI powered document processing. We see the opportunities increase productivity across Digital Operations business. In the Digital Experience sales area, the team has built an AI enabled customer service chatbot for L1 and L2 support, delivering a high level of omnichannel customer experience. These initiatives reinforce a commitment to the customers to go deep in digital in this transformation journey.

In conclusion, all the three segments are on a strong path and will continue to perform in the coming quarters. Due to the macroeconomic factors, we see some slowness in decision making on the customer side and we had factored it in when we had given a guidance of about 14% to 15% growth for this current financial year. Given the strong pipeline that we have, we are confident that as the year progresses, we will maintain our growth momentum and the margins would be stable. With that, I will now hand over our call to our CFO, Sandeep Mantri. Sandeep, over to you.

Sandeep Mantri:Thank you, Rahul. Welcome everyone and thank you for joining us in Q1 FY'24 earning call. Our Quarter 1 FY'24 revenue, as explained by Rahul, stood at INR 391.1 crore, which is a growth of 19.6% on a Y-o-Y basis and a decline by 6.1% on a sequential basis. Our consolidated EBITDA for this quarter was at INR 67.8 crore, which is up 41.8% on a Y-o-Y basis. Our EBITDA margin for the quarter is at 17.3% as compared to 14.6% in the last year same quarter. On a sequential basis however, there was a slight decline from 20.2% to 17.3%. Please note that full year EBITDA for FY'23 was 16.6% and in Q1 FY'24 we are at 17.3%. So, we are in line with our expectation. Our consolidated EBIT for the quarter was at INR 58.6 crore, which is up 49.2% on a Y-o-Y basis. EBIT margin was at 15% as compared to 12% in the last year same

Page 3 of 11

Datamatics Global Services Limited

August 10, 2023

quarter. On a sequential basis, EBIT margin dropped from 18.1% to 15% primarily due to salary

increments and investment in products and development.

Our other income on a consolidated basis stood at INR 9.1 crore, which is primarily grown

because of exchange gain loss. Our quarterly PAT after NCI was at INR 55.1 crore, which is a

decline of 7.8% on a sequential basis and a growth of 26.9% on a Y-o-Y basis. Our tax rate for

this quarter was in line with our expectation at 18.7%. If we talk about EPS, our EPS for the

quarter was at INR 9.34 per share, which is higher than last year's same period which was at INR

7.36 per share.

Talking about segment wise revenue performance:

Our Digital Operations revenue was at INR 167 crore, which is a growth of 13.2% on a Y-o-Y

basis. Digital Operations EBIT margin was at 20.1% and its contribution total revenue was 43%.

Digital Experience revenue was at INR 66.2 crore, a growth of 43% on Y-o-Y basis, EBIT

margin was at 23% and contribution to total revenue was 17%. Digital Technologies revenue

was at INR 157.9 crore, a growth of 18.6% on a Y-o-Y basis. Digital Technologies EBIT margin

was at 6.2%. Last year in the same period if you remember, we were at negative 4.3%. So, we

have a marked improvement in the performance of Digital Technologies business. The

contribution of Technologies business to total revenue was 40%. We continue to maintain a

healthy balance sheet. As of June 30th, 2023, our total cash and investments stood at INR 555

crore compared to INR 498 crore in the last quarter. So, we have measured almost like INR 57

crore in our cash and investment. Our DSO was at 60 days as of June '23 as compared to 67

days in the last quarter, which is March '23.

In terms of geographical footprint:

US remains our largest geography with 55% contribution coming from US followed by India at

24%. The rest of the world including UK and Europe was at 21%. In terms of industry footprint,

BFSI continued to remain the largest segment for us, which include 25% of our revenue followed

by education, publishing, & technology, and consulting both segments stood at 20%. Then

manufacturing, infra and logistics was at 12%. Nonprofit or non-government organization was

at 10%. Retail contributed 9% of our business and other segments are 4% of our total revenue.

If we talk about client concentration; it is very healthy, with top 5-10 and 20 clients contributing

to 25%, 38% and 52% respectively. So, these are the financial updates. With this I will now pass

on the call to operator to open the floor for questions. Thank you for your patience and continued

interest in Datamatics. Thank you very much.

Moderator:

Thank you very much. Ladies and gentlemen. We will now begin the question answer session.

The first question is from the line of MK Reddy from MR Investments.

Page 4 of 11

Datamatics Global Services Limited

August 10, 2023

MK Reddy:

My first question is regarding this product business. When I look at the global companies, they

spend R&D around 15% to 20% and sales and marketing up to 40%. But we are conservative in

spending of product development business as we guided in the previous call, its INR 40 to 50

crore. Just want to understand whether we are spending less when compared to global peers or

is there any cost advantage we are getting because we are based in India? That's my first

question.

Rahul Kanodia:

No, we are not spending less. It was very important to get a core set of initial clients and that's

what we were doing. We have enhanced our product substantially. Now we've incorporated

Generative AI into the product as well. This year we're very confident that we will have a good

run because we've signed up some very marquee logos. If you may recollect our previous IR

calls, we did say that additional revenues that flow in will be invested in sales and marketing.

So, we will increase the sales and marketing spend as the revenues grow and sort of be more in

line with the other competitors in the industry.

MK Reddy:

How much of our projects are fixed price and how many of our contracts are time and material

contracts that's my question?

Sandeep Mantri:

We don't keep that data. Right now we have not started keeping that data for investor call for

obvious reason. So, we will continue with the same position. We will not disclose this data of

time and material and fixed price. But we will see later on.

Rahul Kanodia:

I don't have an exact number to give you but I imagine it's a decent balance between the two but

I don't have the number handy.

MK Reddy:

My last question is regarding this, many of the global peers are moving from product business,

moving from license based to SaaS based models. For example, if I look at Temenos, 100% of

their offerings are now SaaS based. So, they are not selling any more license-based licenses. Just

want to know what is our contribution in product business which is 40% of our revenue? How

much is regarding this license and how much we are receiving from this subscription-based

revenue?

Rahul Kanodia:

So, our product business is not 40% of our revenue. That's not correct. We by and large don't

disclose the specific revenue stream from products. Having said that, we do not do licenses. All

our things are on what it is called subscription basis. So, it's an annual subscription. And today

all our products are on SaaS model. So, they are hosted and customers use it as a hosted service.

So, the entire platform is SaaS and it is annual subscription, not a one-time license.

MK Reddy:

In our product business, regardless of our typical deal sizes and sales cycles, what is the

implementation cycles? How much time it takes from product being licensed till the product to

go-live?

Page 5 of 11

Attachments

Disclaimer

Datamatics Global Services Limited published this content on 17 August 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 17 August 2023 09:41:09 UTC.