Zensar Technologies : Earnings Call Transcript Q4 FY24

Zensar Technologies Limited

April 25, 2024

Moderator:

Ladies and gentlemen, good day, and welcome to the Zensar Technologies Limited Q4 FY '24

Earnings Conference Call, hosted by Axis Capital Limited.

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 "*"and then "0" on

your touch-tone phone. Please note that this conference is being recorded.

I now hand the conference over to Mr. Manik Taneja from Axis Capital Limited. Thank you,

and over to you, sir.

Manik Taneja:

Thank you, Manoja. Good evening, everyone. On behalf of Axis Capital, I welcome you all to

Zensar Technologies Q4 FY '24 Earnings Call.

We have with us Mr. Manish Tandon - CEO and Managing Director; 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 harbor statement

of the second slide of the Earnings Presentation is assumed to be read and understood.

Over to you, Manish.

Manish Tandon:

Thank you, Manik. 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 4th Quarter

of FY '24.

Along with Sachin and me, we have Vijayasimha - our Chief Operating Officer on the call;

and also, Vivek Ranjan - our CHRO.

FY '24 has been a good year for us, with strong all-around performance around profitability,

order booking, attrition and, most importantly, client satisfaction. We have made good strides

towards our goal of building a world-class firm, focused on client-centricity, employee

happiness, leveraging our Experience to Engineering to Engagement proposition.

As we have stated earlier, strategy execution was our focus for FY '24. Our investment in

Service lines and verticals helped us with accelerated GTM, strengthened our partnerships and

built sales rigor. A sharp focus on delivery excellence ensured that we delivered on our

profitability goals. In Q4 of FY '24, we registered revenue of $148.1 million, a sequential Q-o-

Q growth of 2.4% in reported currency and 2.0% in constant currency. For the full year, the

company reported services revenue of $591.3 million, yearly growth of 1.0% in reported

currency and 1.3% in constant currency. In this quarter, the PAT grew by 430 basis points on a

year-on-year basis. LTM attrition further improved to 10.9% from 12.0% last quarter.

We are continuing to make good progress on our talent transformation journey. In FY '24, we

intensified our focus on proactive multiskilling through various learning interventions like

Service Line academies, which enable multiskilling in specific technology areas; Domain

academy, which enhanced the industry vertical business understanding; Role-specific

programs, which enrich capabilities in program management, solution architecture, et cetera.

These interventions enabled us to achieve a learning coverage of 98.6% in FY '24. In FY '24,

the average learning hours per person was twice that of the corresponding number in FY '23.

More than 50% of our colleagues are continuously expanding their AI competencies by

leveraging the various programs from our AI academy.

With that, I now hand it back to Manish.

Manish Tandon:

Thank you, Sachin and Vijay.

While the macroeconomic scenario continues to be uncertain, we are working closely with our

clients and partnering with them to proactively identify and solve their industry-specific

transformation challenges.

Zensar Technologies Limited

April 25, 2024

Our service line investments continue to increase the addressable spend. Strong leadership

backed by 10,000 committed Zensarians helped us deliver our FY '24 results. We are confident

that we will continue to remain a trusted partner, focused on client centricity and execution

excellence.

With that, we can open the line for any questions.

Moderator:

We will now begin the question-and-answer session. The first question is from the line of Nitin

Padmanabhan from Investec.

Nitin Padmanabhan:

Congratulations on a very all-rounded quarter. I have a few questions. The first is, if you

contrast where we are today from the total order bookings and, let's say, definitive client

situations, how would you sort of contrast it versus maybe even 6 months ago? Do you think

we're in a better place and there is more sustainability on growth? So, that was the first one.

Also, if you could layer on top of that, how are you looking at Hitech as a segment overall? Do

you think that from a declines perspective, that's behind us? Because this quarter obviously

benefited from furlough recoveries. Do you think that's sort of behind us? And is there more

clarity there?

And finally, I think on the depreciation front, some color on the drop there. I think I missed the

opening commentary on that.

Manish Tandon:

Thanks, Nitin. Thank you for the kind words. I will take the first question, which was around

sustainability and 6 months versus today. Well, as you can see, our order bookings have

increased quite a lot. And this incidentally is also a quarter where furloughs, at least in the

initial parts, have continued. So, from a Zensar perspective, I am feeling much more confident

than before that as long as we maintain our execution excellence, we will continue to try and

drive both the top and bottom line.

Second question was on Hitech. I think you would have seen that Hitech, for the first time in

last few quarters, has actually sequentially increased by *0.7%. And as you know, the

carryover of furloughs that happened is primarily in Hitech.

We are hoping that the worst is behind us, but some of our clients themselves are in quite a bit

of bother from a financial perspective themselves. And the overall Hitech industry is not doing

too well. So, we are just hoping that the worst is behind us. Your third question was on

depreciation, which I think Sachin can answer.

Sachin Zute:

Thanks, Manish. Nitin, as you know, at the start of the year, we have clearly called out one of

the lever of cost optimization for us, looking at our lease premises across the globe. So, what

we have done, we have resized multiple facilities which we have across India and across U.S.

So, given that those lease premises are no more with us, the impact of that can be seen in

depreciation.

Zensar Technologies Limited

April 25, 2024

Apart from that, specifically for Q4, we have a lease termination benefit recorded in

depreciation this quarter. But at the same time, we expect that the normalized depreciation

going forward could continue to be in the range of $3.2 million to $3.5 million per quarter.

Nitin Padmanabhan:

Sure. And just one thing which I missed is from of the deal wins that we have announced, the

tenures are still sub 12 months? And do we have a large deal win within this number? It's a

very solid number.

Sachin Zute:

So, obviously, the tenure continues to be around the similar range what we have been

historically talking about. We don't foresee any significant change, as far as tenure is

concerned. And I think deal size continues to be in the comfort zone, where we have been

operating.

Nitin Padmanabhan:

Sure, perfect. That's very helpful. And Sachin, you will be missed. Thank you for all the

guidance right through, and all the very best.

Sachin Zute:

Thanks, Nitin.

Moderator:

The next question is from the line of Sandeep Shah from Equirus Capital. Please go ahead.

Sandeep Shah:

Congrats on a good execution, both on revenue and margin. Manish, just wanted to understand,

with a robust order book for the full year, is it fair to assume our growth lag, which was there

in FY 2024, may start declining or we may approach industry growth rates in FY '25 onwards?

And then your vision to start leading the industry growth rate from FY '26, how confident are

you in terms of those aspirations?

And Sachin, just wanted to understand, in the reported EBIT margin apart from the onetime

lease benefit, if you can quantify, is there any other one-offs? And what is our margin

guidance, going forward? Because we are, quarter after quarter, doing better than our margin

aspiration.

Manish Tandon:

Yeah, Sandeep, thank you. Thanks to you for the kind words. I think the question was around

how we are doing. I mean, ultimately, it's a question of probability and confidence level, right?

Nobody can say with certainty as to what will happen. But I can say that I am feeling more

confident. And as an organization, we are feeling much more confident than what we were,

say, a couple of quarters back. And all these are indicators that we track. I mean our customer

satisfaction going up, our order book booking going up. For the first time, we are seeing

sequential growth in all the verticals that we have. So, it does increase confidence, obviously.

And the probability, at least in my mind, is higher that we will come very close to what we

have set out to achieve.

Sachin Zute:

As far as margins are concerned, whatever has been the bridge, has already been called out.

From a FY '25 perspective, what we believe is, given the performance which we had in FY '24,

we are fairly confident that we should be in the range of 15% to 16% for FY '25.

Zensar Technologies Limited

April 25, 2024

Sandeep Shah:

Can you quantify the lease onetime benefits in this quarter, which has been accounted in the

depreciation and amortization?

Sachin Zute:

Yes. So, as I said that in case of depreciation, there was a lease termination benefit, which we

got in this particular quarter. And that is what has reduced the depreciation. The normalized

depreciation, we believe, could be in the range of $3.2 million to $3.5 million going forward.

Sandeep Shah:

Just last, Manish, sir. Just wanted to understand, you were earlier alluding that creation of a

large deal effort on a consistent basis is a work in progress. So, any status update in terms of

creation of a separate team that looks after large deal across verticals, across services?

Manish Tandon:

See, again, somehow people think that just creating a large deal team will win us the deals.

That doesn't happen. We have a very comprehensive strategy in place. As it so happens, it was

discussed in the Board today. And we are going about it in a very methodical fashion, knowing

exactly how we want to do it, what we want to do. And we actually have some pipeline on the

large deals also.

Sandeep Shah:

Okay. Fair enough. Sachin, all the best. And we will miss you.

Sachin Zute:

Thanks, Sandeep.

Moderator:

Thank you very much. The next question is from the line of Manik Taneja from Axis Capital.

Please go ahead.

Manik Taneja:

Manish, just wanted to pick your thoughts around the fact that while we've seen some amount

of stability on the Hitech side in the current quarter. If you could talk about the steps that you

are taking in terms of diversifying this business, given the fact that this vertical has a

significant concentration on one single customer?

And also talk about what you are seeing on the financial services side. While I do understand

on the financial services side, our business is largely U.K. and South Africa. But given what

we've heard from some of your competition, would be great to get your perspective on what

you're seeing with some of your U.S. banking customer base as well as the vertical as a whole.

Manish Tandon:

All right. So, diversifying the Hitech customer base, at this financial year, we have opened

about 34 new logos. And I would say that close to 25% of these will be in the TMT sector, and

that's another change that we have done in terms of our thinking, that we are now looking at it

not just as Hitech, but like the rest of the industry, we are looking at it as the telecom, media

and technology sector.

So, that also has brought in a change of perspective and a new energy in the team. So, those are

the changes that we are doing. Secondly, as you said that BFSI, our thing is primarily in U.K.

and South Africa. Actually, that's not correct. So, a lot of stuff is happening in the U.S. for us.

In fact, US BFSI is growing faster. At least in this quarter, it has grown faster than U.K. and

Zensar Technologies Limited

April 25, 2024

South Africa overall. The large customers in banking, et cetera, remain very subdued, but the

mid-market plus insurance, et cetera, we are seeing a reasonable amount of traction, and we

think we will continue to see growth in that vertical.

Manik Taneja:

Just to probe you further on this aspect. So, what we've seen over the course of the recent

years, some of the Tier-2 vendors eventually have positioned themselves as a challenger

vendor and winning market share against the large incumbents. If you could help us

understand our strength in this space, which would essentially help us or which continue to

drive success for us in the U.S. banking portfolio in the recent years. And how should we be

thinking about this on a go-forward basis?

Manish Tandon:

No, I think, see, again, the champion challenger and bringing yourself as a challenger is just

one of the models. Ultimately, it is about how you are differentiating yourself in front of your

clients. And one of the things that I can say with confidence that our entire new paradigm of

Experience to Engineering to Engagement is seeing a lot of traction in the BFSI sector also.

So, I mean, there are various things we are trying, and champion challenger is just one of them.

You do not get growth by just putting all your eggs in one basket. So, we are trying a lot of

things, and we are getting a lot of success also.

Manik Taneja:

Sure. And just a clarification question on the Hitech side. You spoke about some of the new

logos that you opened in the space. When should we be seeing these translate into revenue

accretion in the vertical and these becoming material from a client metric standpoint?

Manish Tandon:

Well, we have made a start. At least this quarter, we are seeing a sequential growth in the TMT

vertical. I can't remember a quarter in the last 4, 5 quarters when we saw that. So, we are

already making a dent. And as these newer logos shape up, we are very hopeful that this sector

will grow for us.

Manik Taneja:

And the last one before I get back into the queue. You expressed some confidence about

compared to what you saw 2 quarters back. Should we probably be seeing that as a qualitative

indicator of us being hopeful about a positive sequential growth through a better part of FY

'25?

Manish Tandon:

See, again, I talked about probabilities. I can also give you another example. We are a train

going from station A to station B. If we are not picking up speed at the right instance, then we

will not be on time, right? We have picked up speed. We are seeing green shoots in what we

are doing. So, we feel more comfortable today as compared to what we were 2 quarters back.

A lot of things that we are trying are working, which is always a positive sign. At this stage, I

would just say that we are feeling more confident than what we were 2 quarters back.

Moderator:

The next question is from the line of Sohil from S.V. Rozani. Please go ahead.

Sohil:

My question is can you give some guidelines on FY'25 margins and overall outlook for the

company assets?

Zensar Technologies Limited

April 25, 2024

Manish Tandon:

As you know, we don't give any forward guidance, unfortunately. So, we will not be able to

help you with that. But of course, we have a great Investor Relations team. You can talk to

them, and they can see whatever we can provide in a consolidated fashion some publicly

available information.

Moderator:

Next question is from the line of Ganesh Shetty, an individual Investor. Please go ahead.

Ganesh Shetty:

Congratulations, sir, for all round growth. Just want to have one question regarding our newly

formed healthcare sector. So, what are the growth strategies for the same sector? And there is

also a lot of opportunity in the government sector for this healthcare sector. So, can you please

tell us whether we are adding any plan for that? And my second question is around generative

AI, which is the products we have recently showcased at different events. And how is the

client that is looking at it and how we can commercialize these products? These are my 2

questions.

Manish Tandon:

Right. So, the first question was Healthcare and Life Sciences, as you know, it's a sector very

close to my heart. This quarter, we have grown *3.2% sequentially. It is one of the first full

quarter where we have had a leader in this space. As far as strategies are concerned, again, we

don't want to be everything to everyone. We have defined clearly the sub-industries where we

want to play. We have clearly identified parts of the value chain where we have to play. And

we are looking at acquisition targets also based on that. So, we are making some very good

progress in terms of having a strategy and trying to execute against it.

Your second question was on Generative AI, okay. Generative AI, I think I have said this

before. It's a technology that is still in a very nascent stage. People are still experimenting. And

the problem with the technology is that just because you have a proof of concept doesn't mean

that it will scale, right? And you make money only if your proof of concept can scale. So, there

are lots of actions happening on Generative AI on proof of concepts. We internally are using

Generative AI in innovative fashion to see how we can accelerate and improve our

productivity. But there are still questions around the legal use of this, especially as it pertains

to service providers like us in terms of IT and so on. So, like our clients, we are also being very

cautious in not putting all our eggs in one basket.

Moderator:

The next question is from the line of Akshada Deo from Vivog Commercial Ltd. Please go

ahead.

Akshada Deo:

Sir, my question is regarding the other income. I understand that you expect lease liability or

explain lease liabilities that got reduced for depreciation, but the other income is what I wanted

to know a bit more detail on.

Sachin Zute:

So, as you know, as a company, our cash and cash equivalent balance has been going up. And

the current environment, as far as yield is concerned, also has been positive. So, the other

income, we had almost close to 8.0% yield on our investable surplus that is what is getting

reflected over there. Additionally, we have also resized and terminated a few of our leased