Datamatics Global Services : Transcript – Q4FY23 Earnings Call - 2 May 2023

"Datamatics Global Services Limited

Q4 FY '23 Earnings Conference Call"

May 02, 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

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	Datamatics Global Services Limited
	May 02, 2023
Moderator:	Ladies and gentlemen, good day and welcome to Datamatics Global Services Limited Q4 FY'23
	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 touch-tone phone. Please note that this conference is being recorded. I now hand the
	conference over to Mr. Pratik Jagtap from E&Y Investor Relations. Thank you, and over to you,
	sir.
Pratik Jagtap:	Thank you, Aman. Good afternoon to all participants in the call today. Welcome to the Q4 and
	Full Year FY'23 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 this 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 the 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 a 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's said on this call, which gives any outlook for the
	future, or 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 Q4
	FY'23 Earnings Call. We are glad to have you on the call today. I'm extremely pleased with the
	overall performance of the business during the year. This was the first quarter in which we
	surpassed the INR 400 crore revenue mark. This revenue growth was broad-based, driven by all
	three segments of Digital Operations, Digital Experiences, and Digital Technologies. Despite
	the global economic situation, we managed to maintain a healthy margin throughout the year.
	We had a strong EBITDA growth of 25.5%, with an EBITDA margin of 16.6% for FY'23.
	I will briefly touch upon each of our segments and their performance. The Digital Technologies,
	our EBIT margins saw considerable improvement from 2.2% to 9.1% in quarter 4 of FY'23,
	primarily due to renegotiated prices and tighter cost controls. Going forward, we are actively
	focusing on hyperscalers and deepening our client relationship as our growth strategy. Our deal
	pipeline for the next year remains strong. In Digital Operations, we witnessed strong growth on
	the top line, and our EBIT margins improved from 19.5% to 23% on a sequential basis.
	Traditionally, our Q4 tends to be better than Q3 due to the cyclicality of some of our projects,
	which requires us to ramp up headcount in Q3 and execute in Q4.

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Datamatics Global Services Limited

May 02, 2023

In Digital Experiences, though our top line saw a slight decline in Q4, EBIT margins continue to be strong at 28.2%. We have a healthy pipeline, and our business will grow on the back of new customer acquisition. Going forward, we anticipate that these operations will continue to generate strong margins in the same range as this year. We are seeing supply side challenges easing off, which would help us in optimizing our costs for the next financial year. In Q4 FY'23, we signed a total contract of about $20 million and added about 21 new customers. In line with the account growth, our capabilities and strengths demonstrated to our existing clients have resulted in several deal wins, which remain strong for the quarter. I'm happy to share that we have recommended a total dividend of 100%, which is INR 5 per share.

On a concluding note, I'd like to add that while there is some amount of slowdown across the globe due to macroeconomic factors, we do not see a material impact on the deal wins or existing client spend. We expect to see a sustained growth momentum for FY'23- FY'24, given a decent pipeline of opportunities. This makes us optimistic about our overall demand and confident of maintaining an overall revenue growth of 14% to 15% in FY'24.

With that, I will now hand over the call to our CFO, Sandeep Mantri. Sandeep, over to you.

Sandeep Mantri:Thank you, Rahul. Welcome, everyone, and thank you for joining us in Q4 and Full Year Earnings Call. Let me start with the financial performance for Q4 FY'23, and then I will take you through the FY'23 numbers. Our Q4 FY'23 revenue stood at INR 416.3 crore, which is up by 11.7% on a sequential basis and 32.9% on a Y-o-Y basis. As Rahul highlighted, this was a milestone quarter for us as we exceeded the revenue mark of INR 400 crore for the first time ever in a single quarter and was ably supported by all the three segments. Our consolidated bid for the quarter was at INR 84.1 crore, which is up by 42.7% on a sequential basis and 63.5% on a Y-o-Y basis.

Our cost optimization strategy, coupled with other initiatives, helped us maintain a double-digit healthy EBITDA margin of 20.2%. Our consolidated EBIT for the quarter was INR 75.3 crore, reflecting tremendous growth of 50% on a sequential basis and 78% on a Y-o-Y basis. EBIT margin for the quarter was at 18.1%. Our other income on a consolidated basis stood at INR 5.3 crore, which is a decline of 50% sequentially and 56% on a Y-o-Y basis. The primary reason for the decline is the exchange gains, which were not there in this quarter.

Our quarterly PAT after NCI was at INR 59.7 crore, which is a growth of 30.2% on a sequential basis and 30.9% on a Y-o-Y basis. Our tax rate for this quarter was at 27%, compared to 25.3% in the last quarter, which is Q3 FY'23. Our EPS for this quarter is at INR 10.13 per share, which is higher than the last year's end period, which was at INR 7.73 per share. When we see segment- wise revenue performance, Digital Operations revenue was at INR 187.3 crore, which is a growth of 22.6% on a sequential basis and 31.6% on Y-o-Y basis. Digital Operations EBIT margin was at 23%. Its contribution to total revenue was 45%.

Our Digital Experience revenue was at INR 59.5 crore, which is a slight decline of 2.7% on a sequential basis, and there was a growth of 48.8% on a Y-o-Y basis. Its EBIT margin was at 28.2%, and its contribution to total revenue is 14%. Our Digital Technologies revenue was at INR 169.5 crore, which is a growth of 6.8% on a sequential basis and 29.4% on a Y-o-Y basis.

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Datamatics Global Services Limited

May 02, 2023

EBIT margin is 2.9.1%. Although the margins were negative in the first two quarters of FY'23, this segment has performed very well, and we will see continuous improvement in the margin trajectory of the Digital Technologies segment. Its contribution to total revenue was 41%.

Now, coming to annual numbers, FY'23 financials, our full year revenue was at INR 1,459.2 crore, which is a growth of 21.5%. Our EBITDA was at INR 242.6 crore, which is again up by 25.5% as compared to last year. EBITDA margin stood at 16.6% on an annual basis, and we aspire to maintain a similar kind of margin next year as well. Our EBIT was INR 207.6 crore, which is a growth of 29.8 on a Y-o-Y basis, and EBIT margin stood at 14.2%. Our other income for the year was at INR 38.7 crore, which is a growth of 47% on a Y-o-Y basis, primarily due to exchange gains, exchange incentive, and better investment income.

Our PBT before the exceptional item was INR 243.4 crore, which is a growth of 32.7%. Our PAT after NCI was at INR 189 crore, which is a growth of 20% on a Y-o-Y basis. The tax rate for the year was at 23.9%, which is slightly higher than our earlier expectation of 23%. Our EPS for the full year was at INR 32.05 per share as compared to INR 26.71 per share in the last year. Our EBIT margin was at 21.8%, which is a growth of 20% on a Y-o-Y basis. If you see our segment-wise revenue mix for FY'23, Digital Operations revenue was at INR 630.7 crore, which is up by 21.9%, and EBIT margin for the digital operation was at 22.2% on an annual basis.

Our Digital Experience revenue was at INR 219.3 crore, which is up by 38.8%, and margin was at 26.4%. Our Digital Technologies revenue was at INR 609.1 crore, up by 15.9%, and EBIT margin for the full year was at 1.6%. We continue to maintain a healthy balance sheet. As on March 31st, 2023, our total cash and investment net of debt, we are a zero-debt company, stood at INR 498.2 crore. Our DSO was at 67 days for the full year as compared to 74 days as on March 31st, 2022.

In terms of geographical footprint, US remains our largest geography with 54% of our business coming from here, followed by India at 27%, rest of the world including UK and Europe at 19%. In terms of industry footprint, BFSI continues to remain the largest segment of the company, which include 24% of our revenue, followed by education and publishing, which is 22%, then technology and consulting at 19%, non-profit or non-government organization at 12%, manufacturing, infra and logistics at 12%, retail at 8% of our business, and other segments at 3% of our total revenue.

Our client concentration remains very healthy, with the top 5, 10 and 20 clients contributing to 24%, 37% and 52% respectively. The board has recommended a total dividend of INR 5, which includes INR 3.75 as final dividend and INR 1.25 as a special dividend per share for the year ended March 31st, 2023.

With this, I will now pass on the call to the operator to open the floor for questions. Thank you for your patience and continued interest in Datamatics. Thank you. Operator, please.

Moderator:Thank you very much. The first question is from the line of fellow Pallavi Deshpande from Sameeksha Capital. Please go ahead.

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Datamatics Global Services Limited

May 02, 2023

Pallavi Deshpande: Congratulations on a very good quarter. Just wanted to understand on the Digital Technologies side, how it's driving the turnaround and what would be the strategy going ahead? Like, you mentioned about the margins also being sustained. Did we see some new client additions?

Rahul Kanodia:Yes, so we are looking at new client addition quite significantly. Our margins improved because of better negotiation, as I mentioned, and also tighter cost control. Going forward, we will be focusing on hyperscalers, like Microsoft Power Apps, AI, Cloud, Analytics, all of those areas. We're beginning to get some very good traction on that, plus deepening our client relationship. So, these will be the main drivers for growth. Our focus on the US continues, and that's also getting us some very good traction.

In terms of margin stability, I think the margins will be stable. We may have a dip this quarter because of the increments. Every company goes through the increment cycle around April. So, in this first quarter, we'll have a dip, but it'll normalize through the course of the year. So, I think we should have a fairly healthy margin going forward.

Pallavi Deshpande: We saw a lot of volatility in the quarters in FY'23 for this division, I think because of the large client drop-off also. The stability we'll see is with respect to 4Q margins. Are we restricting to that what is the normalized?

Rahul Kanodia:No, the stability will be there. So, the client that shrunk has now stabilized. In fact, it's marginally grown. So, I don't see an issue on that front. Plus, we have got a very healthy pipeline with good margins coming in. As I said, we negotiated prices, so we should be okay. Having said that, of course, we see in the market a little bit of an issue with the BFSI segment, particularly in the US.

We think there'll be a little bit of softness in the BFSI, but our pipeline is healthy, and our pipeline is good. So, I'm not concerned from a Datamatics point of view, but yes, at the industry level, you may see a little bit of a slowdown, particularly in BFSI. But as far as Datamatics is concerned, I don't see that impacting us majorly.

Pallavi Deshpande: I just wanted to understand, in the RPA space, UiPath reported numbers, which showed that the burn rate is coming down for them. The losses were down. So, does that indicate to you, , more sanity in the marketplace in the RPA space in particular?

Rahul Kanodia:Yes, you're right. So, there is some sanity coming in. Valuations have become more realistic than they used to be. I think these companies have stopped burning the way they were. They wereunnecessarily burning. We are getting fairly good traction. Our deal sizes are increasing. The customer acquisition rate has gone up. So, I think we are well positioned.

As far as the UiPath is concerned, some of our, we are also getting some customers moving out of the UiPath and switching over to our TruBot product. But overall, we are getting some very good traction in that space. And the annual coverage for our products has been extremely good. The customer feedback also has been very, very healthy.

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