"Zensar Technologies Limited
Q1 FY '24 Earnings Conference Call"
July 20, 2023
MANAGEMENT: MR. MANISH TANDON - CHIEF EXECUTIVE OFFICER
AND MANAGING DIRECTOR - ZENSAR TECHNOLOGIES
MR. SACHIN ZUTE - CHIEF FINANCIAL OFFICER -
MR. VIJAYASIMHA ALILUGHATTA - CHIEF
OPERATING OFFICER - ZENSAR TECHNOLOGIES
MR. VIVEK RANJAN - CHIEF HUMAN RESOURCES
OFFICER - ZENSAR TECHNOLOGIES
MODERATOR: MR. DEVANG BHATT - IDBI CAPITAL MARKETS AND SERVICES LIMITED
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Zensar Technologies Limited
July 20, 2023
Ladies and gentlemen, good day, and welcome to the Zensar Technologies Limited Q1 FY '24
Conference Call. As a reminder, all participant lines will be in the listen-only mode. There will
be an opportunity for you to ask questions after the presentation concludes. Should you need
assistance during this conference call, please signal an operator by pressing star and then zero
on your touchtone phone. Please note that this conference is being recorded. I now hand the
conference over to Mr. Devang Bhatt. Thank you, and over to you, sir.
Thank you, Dorwin. Good evening, everyone. On behalf of IDBI Capital, I welcome you all to
Zensar's Q1 FY '24 Earnings Call. We have with us Mr. Manish Tandon, CEO and Managing
Director of Zensar Technologies; Mr. Sachin Zute, Chief Financial Officer; and a few other
members of the senior management team. Before I hand over the call to Manish, I would like to
highlight that the safe harbour statement of the second slide of the earnings presentation is
assumed to be read and understood. Thank you, and over to you, sir.
Thank you, Devang. Hello, good morning, good afternoon and good evening, everyone. Thank
you for taking the time to join us today to discuss Zensar's financial results for the first quarter
of FY '24. With me on this call are my colleagues, Vijayasimha, who's the Chief Operating
Officer; Sachin Zute, who is the CFO; and Vivek Ranjan, who is the CHRO.
With that, I will turn to the summary of quarterly results. For the first quarter of FY '24, we
registered a service revenue of 149.2 million, representing a sequential quarter-on-quarter
growth of 2.4% in constant currency. Our overall revenue stood at 149.3 million, representing a
sequential Q-o-Q growth of 1.3% in both reported and constant currency terms.
In line with our stated strategy, we continue to be focused on pass-through revenues. Let me
walk you through the performance of our geographies and verticals for the quarter. All growth
numbers are in constant currency and correspond to services revenues only. The U.S. region
posted sequential Q-o-Q services revenue growth of 1.3% and a Y-o-Y decline of 0.2%. The
Europe region registered sequential Q-o-Q services revenue growth of 6.0% and Y-o-Y growth
of 3.4% in constant currency. We continue to have good traction in the region from both long-
standing and new clients. The South Africa region saw good growth momentum with sequential
Q-o-Q services revenue growth of 3.4% and Y-o-Y growth of 19.6%.
Our sustained focus through our data experience at engineering and cloud mix capability has led
to a steady growth on the back of new project ramp-ups at some of our key clients in the region.
Coming to the verticals. Banking, Financial Services and Insurance reported sequential Q-o-Q
services revenue growth of 4% and a Y-o-Y growth of 13.2% in constant currency. We are
witnessing consistent growth in this vertical over the last few quarters, aided by new deal wins
at some of our key clients.
Hi-tech, including emerging registered sequential Q-o-Q services revenue decline of 2.6% and
Y-o-Y decline of 4% in constant currency. Manufacturing vertical registered sequential Q-o-Q
services revenue decline of 0.5% and year-over-year growth of 8.2% in constant currency.
Consumer Services registered sequential Q-o-Q services revenue growth of 11.5% and Y-o-Y
decline of 7% in constant currency. In the Hi-tech manufacturing and Consumer Services
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Zensar Technologies Limited
July 20, 2023
vertical, we continue to see softness in the overall demand environment as clients continue to defer or optimize their capital spend and scale back their budgets. This has resulted in reprioritization of spends at client side with discretionary projects, witnessing a reduction in scope or getting deferred. For the first quarter FY '24, our gross margin stood at 33.6%, representing a sequential Q-o-Q increase of 170 basis points.
Our EBITDA stood at 18.7%, a sequential Q-o-Q increase of 420 basis points. The order book of Q1 FY '24 stood at 154.2 million, supported by healthy renewals and multiple wins across verticals. As per our usual wage hike cycle effective first July, we gave our wage hikes across the organization. I am pleased to share that for the first quarter, our last 12-month attrition declined to 15.9% a sequential improvement of 390 basis points. In quarter, attrition continues to see a downtrend on account of easing supply side issues and our employee-centric policies. As one of our core principles, we continue to drive client centricity across the organization. Our annual customer engagement score for FY '23 has seen a 13.6% improvement to 66.5 in FY '23. And this is something that we are most proud of.
With that, I will now invite Sachin Zute, our Chief Financial Officer, to provide an update on critical financial data. Sachin?
Sachin Zute:Thank you, Manish. Good day, everyone and thank you all for joining this call. In addition to Manish talking about the business, I will take you through some of the key financial metrics for the quarter ending June '23. The revenue for the first quarter of FY '24 stood at 149.3 million in the U.S. dollar terms, reflecting growth of 1.3% sequentially in reported terms as well as in constant currency terms.
Services revenue for the quarter grew by 2.3% sequentially in reported terms and 2.4% in constant currency terms. EBITDA for the quarter stood at 18.7%, an increase of 420 basis points from previous quarter. This includes onetime benefit of 100 basis points, primarily on account of research and development credits received during the quarter.
Improvement of EBITDA for the quarter was primarily driven by utilization improvement from 81.4% to 82.5%, which is 1.1% increase quarter-on-quarter basis. Ongoing operational efficiencies program has helped the cost of delivery during the quarter. Resizing of sales and support functions also helped us to improve the EBITDA for the quarter.
As communicated in last two quarters, we continue to focus on improving efficiencies in sales and support functions, current improvement in sales and marketing costs will be reinvested in the business through capability building and strengthening sales organization further. LTM attrition levels have shown continuous improvement over quarters and stood at 15.9% for Q1 FY '24, lowest amongst recent quarters.
DSO for the quarter continues to remain healthy at 74 days. For the quarter ended, cash and cash equivalents, including investments, stood at USD 233.8 million, USD 32.3 million increase from last quarter and USD 70.2 million increase year-on-year. The effective tax rate for the quarter is 25.7%, an improvement of 50 basis points quarter-on-quarter. The total amount of outstanding
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July 20, 2023
hedges as on June 30, 2023, were equivalent to USD 246.7 million against USD173.7 million in Q4 FY '23.
On ESG front, we continue to make progress in line with our published ESG vision and mission. As of Q1 FY '24, our global green energy component is 17.9% of total energy consumed and our carbon emission from Scope 1 and Scope 2, saw significant reduction of 49.3% compared to our base year of FY '19. We continue our journey on water positivity with water regeneration exceeding water consumption at our Pune campus.
A weeklong celebration of World Earth Day marked on April 22, with various contests for employees and World Environment Day on fifth June, with plastic clean-up drives across our India location and local shoreline clean-up activity at Milpitas in California. With that, I now invite Vijayasimha, our Chief Operating Officer, to provide updates on business operations. Thank you.
Vijayasimha Alilughatta: Thank you, Manish, and Sachin. Greetings, everyone. Manish has provided insights about our business and Sachin just shared details about the key financial metrics. I will provide inputs about our operational efficacy and performance of our service lines. As part of sharpening our operational excellence, we continue to focus on pyramid optimization, managing utilization in an optimal range, calibrated usage of subcontractors as well as managing our on-site mix.
Disciplined execution on these initiatives enabled us to reduce our overall cost of delivery. Enhanced fulfilment trigger enabled us to minimize the impact of volatile demands that we see due to the macroeconomic situation. This rigor enabled us to increase the billed headcount and also improve our utilization, as mentioned by Sachin, by 110 basis points.
Service lines, we continue to partner with our clients to help them deliver high-value services to their customers by leveraging the innovative offerings from our service lines. This quarter, we saw good growth in most of our service lines. On a quarter-on-quarter basis, in reported terms, our data, engineering and analytics service line registered an impressive growth of about 12.6%. Advanced Engineering Services grew by 5.5%, Foundation Services grew by 6.7%, and Experience Services grew by 2.5%. Application Services and Enterprise applications registered a decline of 4%.
Our key service lines, advanced engineering services, data engineering and analytics and experience services continue to scale up well, making up close to 33.8% of our total revenues. We are witnessing notable movement in our digital engineering capabilities, our generative AI engineering services offering termed AI engineering body is now listed on the Azure marketplace. In our data engineering and analytics practice, our experience-led approach to cloud data, engineering has resonated extremely well with our clients. We continue to focus on improving our offerings further around generative AI for data engineering, improving customer experience through AI, supply chain analytics and so on and so forth. With that, I now hand it back to Manish.
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Zensar Technologies Limited
July 20, 2023
Thank you, Vijay, and thank you, Sachin. In conclusion, ladies and gentlemen, our disciplined
program on improving margins along the identified levers has given us meaningful results over
the last 3 quarters. While the near-term demand environment continues to be challenging,
resulting in delayed decision-making and slowdown expense.
We are certain that the long-term secular growth in IT industry will not diminish. Further, over
the last 2 years, we have increased our addressable market through our service line investments.
We are working on gaining mind share with our clients through these service lines and our
conversations continue to remain positive. Our experience to engineering to engagement
proposition is echoing well with our clients. Net new and alliance function is shaping up well,
investing for sustainable long-term growth remains our top priority. With that, we can open the
lines for any questions.
Thank you very much. The first question is from the line of Nitin Padmanabhan from Investec.
Please go ahead.
Congrats on the great numbers. A couple of questions. So first is, Manish, could you give us a
sense on how the outcome on cross-sell initiatives, any interesting things that you have seen so
far and how it's looking like? The second is your thoughts on -- so far, the results that have come
out in terms of the rest of the industry, I think they have been calling out weakness on a going-
forward basis and so on so forth.
Do you think that sort of raises the risk of sort of any revenue declines in the near term? Or do
you think from a portfolio perspective based on the rigor we should still be in positive territory
relatively. If you could give some colour on the consumer vertical as well and Hi-tech. And
finally, what do you think could be the wage hike impact? How should we think about that
Sachin? And if you could also give a sense on the net new wins during the quarter. So those are
Nitin, thanks, thanks for the positive commentary on the results. I think your first question was
around cross-selling. So cross-selling has been positive for us. We are seeing a good amount of
green shoots there. One of the ways that we measure cross-selling is how deeply we are
penetrating certain accounts, and we continue to see very positive momentum on that. And our
storyline around experience to engineering to engagement is showing results.
We are cross-selling a lot of our services into these accounts. Downsides on revenues, I don't
think that I can comment more than what my larger peers have commented, the market remains
tough. But we continue to execute well, and we are hoping that the execution would lead to
consistent results as we move forward. Consumer and Hi-tech, they remain weak spots for us,
they are still work in process. I don't think some of the weakness will go away. And every day,
different sorts of technology companies are declaring some amount of slowdown or furloughs
or letting go of people.
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ZenSar Technologies Limited published this content on 26 July 2023 and is solely responsible for the information contained therein. Distributed by, unedited and unaltered, on 26 July 2023 11:21:08 UTC.