Zensar Technologies : Results For -FY 2022-2023 Q4

"Zensar Technologies Limited

Q4 FY '23 Earnings Conference Call"

May 12, 2023

MANAGEMENT: MR. MANISH TANDON - CHIEF EXECUTIVE OFFICER

AND MANAGING DIRECTOR - ZENSAR TECHNOLOGIES

LIMITED

MR. SACHIN ZUTE - CHIEF FINANCIAL OFFICER -

ZENSAR TECHNOLOGIES LIMITED

MR. VIVEK RANJAN - CHIEF HUMAN RESOURCES

OFFICER- ZENSAR TECHNOLOGIES LIMITED

MR. VIJAYASIMHA ALILUGHATTA --CHIEF

OPERATING OFFICER - ZENSAR TECHNOLOGIES

LIMITED

MODERATOR: MR. MANIK TANEJA - AXIS CAPITAL

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	Zensar Technologies Limited
	May 12, 2023
Moderator:	Ladies and gentlemen, good day, and welcome to the Q4 '23 Earnings Conference Call of Zensar
	Technologies Limited hosted by Axis Capital. 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 star then zero on your touchtone phone. Please note that this conference is being
	recorded.
	I now hand the conference over to Mr. Manik Taneja from Axis Capital. Thank you, and over to
	you.
Manik Taneja:	Thank you, Yashashvi. Good morning, everyone. On behalf of Axis Capital, I welcome you all
	to Zensar's Q4 FY '23 earnings call. We have with us today; Mr. Manish Tandon, CEO and
	Managing Director of Zensar Technologies; Mr. Sachin Zute, CFO; 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 harbor statement of the second slide of the analyst presentation and is assumed to
	be read and understood.
	With this, I'll hand over the call to Manish. Thanks, and over to you, Manish.
Manish Tandon:	Thank you, Manik. Hello, good morning, good afternoon and good evening, everyone, and thank
	you for taking the time to join us today to discuss Zensar's financial results for the fourth quarter
	of FY '23. As Manik mentioned, we have Sachin, our CFO on the call. And I would also like to
	welcome Vivek Ranjan, our CHRO, and a very warm welcome to Vijayasimha, for whom this
	is the first call, who joined as a COO a couple of months back.
	In the 4 months since starting this role, I've had the pleasure of meeting many fascinating people,
	including Zensar associates, industry thought leaders and clients who passionately believe in
	their products and services. With each interaction over these months, I have been reminded why
	I was excited to take on this work. At Zensar, we create experiences that put people first. We do
	more than sell and deliver to our clients. We build relationships with them. And through these
	relationships, we are always learning more about our clients' drive and desire to serve their
	customers with greater speed, agility, and purpose.
	To increase our addressable market, we are looking from the inside out, identifying our key
	strengths and capitalizing on a substantial service line investments. With the goal of optimizing
	execution, we also made a few key changes to our organization structure over the last quarter.
	Vertical business heads have been given the additional responsibility of driving a service line
	each helping to create a more collaborative sales environment. The capabilities of Indigo Slate
	and Foolproof have been consolidated under the umbrella of Integrated Studios.
	We also have added a new Chief Business Officer position to lead the Integrated Studios and
	champion our experience-led offerings, which are very unique by the way. A separate function
	of net new growth and alliances has been established to focus on strengthening our alliance and
	hyperscaler partnerships led business. Our sales incentive plan also has been revamped with
	emphasis on the right incentivization to encourage cross-sell, multiservice line deals with
	healthier margin profile.
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Zensar Technologies Limited

May 12, 2023

With that, I will turn to the summary of quarterly and FY results.

For the fourth quarter of FY '23, we registered a service revenue of $145.8 million, representing a sequential Q-o-Q growth of 2% in constant currency. This translates to an overall revenue of $147.5 million, representing a sequential Q-o-Q growth of 0.4% and quarterly Y-o-Y decline of 0.3% in constant currency. For the full FY '23, we registered revenues of $604.2 million, representing a year-over-year growth of 10.3% in constant currency.

Let me walk you through the performance of our geographies and verticals for the quarter. All numbers stated here are in constant currency. Banking, Financial Services and Insurance reported sequential Q-o-Q growth of 2.4% and Y-o-Y,year-over-year growth of 16.1% in constant currency. Last quarter, our Insurance vertical saw a decline due to right shifting of milestones at a key client, which we recognized in the current quarter. Hitech and manufacturing, including emerging registered sequential Q-o-Q growth of 4.2% and a year-over-year decline of 4.1% in constant currency, supported by furlough reversal and growth in revenues at some of our key manufacturing clients.

Consumer Services registered sequential quarter-on-quarter decline of 12.7% and a year-over- year decline of 17.2% in constant currency, primarily due to decline in revenues at one of our key clients in the Europe portfolio. We expect to recover this revenue in the next quarter. At a macro level, we are still seeing headwinds in this vertical in pockets as the retail clients have tightened budgets for capital projects in response to continued high inflation and economic uncertainty.

Coming to regions. The U.S. region posted a sequential quarter-on-quarter growth of 1.4% and

1. year-over-yeardecline of 3.8%. The Europe region registered sequential quarter-on-quarter decline of 5.7% and year-over-year growth of 1.1% in constant currency. However, for the full FY '23, this region grew by a phenomenal 20% in constant currency terms. The decline in revenue this quarter was due to the right shifting of revenue recognition at a key client.

While there is continued softness in the new business environment, we saw healthy growth at several of our existing clients, and we expect the overall growth in this region to be back in Q1 FY '24.

The South Africa region saw growth momentum with sequential quarter-on-quarter growth of 4.3% and a year-over-year growth of 20.7%. Growth for full year FY '23 is 18.3% in constant currency. In addition to our existing AMS positioning, the region saw sustained positive traction for our experience-led engineering and cloud-native capabilities, which has led ramp-up at some of our key clients.

Our gross margin stood at 31.9% in Q4 FY '23, representing a sequential quarter-over-quarter increase of 460 basis points. Our EBITDA stood at 14.5%, a sequential quarter-on-quarter increase of 320 basis points. The order book for Q4 FY '23 stood at $174.9 million, supported by healthy renewables and multiple wins across verticals.

I am pleased to share that for the fourth quarter, our last 12-month attrition declined to 19.8%, a sequential improvement of 300 basis points. Attrition continues to moderate due to our strong

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Zensar Technologies Limited

May 12, 2023

	employee-centric policy, coupled with easing supply side issues. Our employee happiness index
	and integral RPG employee satisfaction metric has reached a score of 84%, an improvement of
	200 basis points over the last year. Likewise, we have seen a 20% increase in annual average
	training hours per employee rising from 61.8 hours last year to 74.2 hours in FY '23.
	Our service lines continue to scale up and deliver targeted high-value solutions. Our integrated
	solutions approach, which leverages cross-sell capabilities like experience and engineering is
	gaining a strong foothold with our clients. Our focused service lines, including advanced
	engineering services, data engineering and analytics and enterprise SaaS are growing quickly
	and now constitute 34.4% of our services revenue.
	On the ESG front, I am thrilled to share that the global level green energy component for our
	premises has increased to 17.6% compared to 7% versus last year. With this, we increased our
	green energy contribution by almost 150% in 1 year.
Moderator:	I'm sorry to interrupt, sir. This is the Moderator: here. The voice is a little muffled. So can you
	stay away from the speaker a little from the microphone.
Manish Tandon:	Okay. So as we were saying, as I was saying, with this, we increased our green energy
	contribution by almost 150% in 1 year. We are also water positive, water regeneration exceeding
	order consumed by 120% on our Pune campus. Importantly, in FY '22/'23, we touched more
	than 200,000 lives through fever clinics and other education and communication drives in CSR.
	The current demand environment continues to be challenging, driven by global uncertainty. This
	will delay client decision-making and impact tech spend in the near- to medium-term.
	As a result, we are seeing some slowdown in pockets, particularly in Hitech and Manufacturing
	and in Consumer Services verticals. However, as our clients navigate the uncertainties, they are
	looking to digital transformation to move forward with velocity. As a steadfast partner, we
	continue to provide design, data and engineering offerings to help meet and redefine the
	challenges that matter most to the clients we serve.
	In conclusion, I want to reiterate that we are on the right path in terms of strategy. We continue
	to keep a laser sharp focus on execution to deliver added value for all our stakeholders while
	keeping our clients at the front and center. With that, I will now invite Sachin, our Chief
	Financial Officer, to provide an update on critical financial data, after which we will open the
	floor for questions.
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 year and for the quarter ending March '23. For the financial year '23, the reported revenue in
	U.S. dollar terms stood at $604.2 million, reflecting growth of 6.1% year-on-year. In constant
	currency, the growth for the year was 10.3%. The reported revenue for fourth quarter of FY '23
	is $147.5 million in U.S. dollar terms, reflecting growth of 1.1% sequentially. In constant
	currency terms, revenue growth for the quarter is 0.4% sequentially. Services revenue for the
	quarter grew by 2.7% sequentially in reported terms and 2% in constant currency terms.

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Zensar Technologies Limited

May 12, 2023

	We exited Q4 FY '23 at an EBITDA of 14.5%, an increase of 320 basis points from previous
	quarters. Improvement in EBITDA for the quarter was primarily driven by positive impact of
	currency, improved trade mix, ongoing operational efficiencies, including optimization of
	subcontractor costs, improved productivity and better utilization on account of furlough
	reversals.
	It was partially offset by increasing SG&A cost, increase in SG&A cost was primarily due to
	reversal of one-time benefit, which we had last quarter. There was a reduction in depreciation
	expenses. The primary reason is optimization in portfolio of lease assets and intangibles as part
	of our cost optimization initiatives affected the number. Going ahead, we see some variation,
	but expect the same to be in the range bound for the rest of the year.
	As we have emphasized earlier, our continuous rigor for margin improvement through measures
	such as increasing fresher deployment, improving commercials, optimizing operational metrics
	and rationalizing cost has helped in improving the company margin. LTM attrition for Q4 stood
	at 19.8%, which is lowest among the recent quarters has helped us manage the cost better.
	We have had one of the best DSOs in recent quarters as collections were healthy for the
	company. For the quarter ended March 31, 2023, DSO stood at 74 days as against 80 days in
	previous quarters. Year-on-year basis, DSO improved by 16 days. For the quarter, cash and cash
	equivalents including investments stood at $201.5 million, $22.1 million increase from last
	quarter and $45.8 million increase year-on-year. The effective tax rate for the quarter was 26.2%.
	The Board of Directors has recommended a final dividend of INR3.5 per share for FY '23,
	subject to approval from shareholders. With this, the total dividend pay-out, including interim
	dividend for FY '23 will be 250% of the face value.
	With that, I come to the end of my presentation and open the house for questions.
Moderator:	We have a first question from the line of Nitin Padmanabhan from Investec.
Nitin Padmanabhan:	I think the quarter has been sort of exemplary from an execution standpoint. Now, Manish, just
	wanted your thoughts from a demand perspective because while margins have done extremely
	well, the demand commentary is soft in the context of the environment, which is understandable.
	But we have seen Hitech grow this quarter. So I just wanted your thoughts on what you're exactly
	seeing within each of those verticals? Do you worry about sequential declines from a demand
	perspective? Or how should we think about each of those elements for each of the verticals?
Manish Tandon:	So I think, Nitin, first of all, thank you for the kind words. I agree that we have executed well as
	a team this quarter, and hopefully, this trend will continue. As far as demand is concerned, my
	larger peers has already spoken that the demand environment is soft and so on and so forth.
	But I can say that what we have done in the last 1, 1.5, 2 years is to increase the addressable
	market for our services. So even though the market, as it existed for us might have reduced, the
	overall addressable market has increased for us. And that is the way I am looking at things and
	my team is looking at things. We had a very, very good quarter, order booking of close to $175
	million, which bodes well for at least the next quarter.

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