Zensar Technologies Ltd Q3 FY24 Earnings Conference Call Insights

Key highlights from Zensar Technologies Ltd (ZENSARTECH) Q3 FY24 Earnings Concall

• Financial Performance
  • Revenue declined 3.2% sequentially in constant currency to $144.7 million.
  • Services revenue grew 1.8% year-over-year in reported terms to $144.5 million.
  • Banking and financial services grew 12.6% and manufacturing grew 5.5% year-over-year.
  • Hi-tech and healthcare declined 9.6% and 14.3% respectively year-over-year.
  • Cash balances increased to $248.3 million, addition of $21.3 million in the quarter.
  • DSO stood at 75 days, four days lower than previous quarter.
  • Order book remains healthy at $167.5 million with consistent new logo additions.
• Profitability
  • Gross margins dropped 70 bps quarter-over-quarter to 31.1% due to furloughs and lower utilization.
  • SG&A increased 70 bps due to reversal of lower management bonus payout benefit.
  • EBITDA margins at 11.2%, up 20 bps adjusted quarter-over-quarter.
  • YTD adjusted EBITDA margins at 17.3%, above guided mid-teens range.
  • Deal pipeline remains stable to better than last year.
• Outlook
  • Revenue declined 3.2% sequentially due to seasonal softness and deeper furloughs.
  • Expect growth in non-HiTech businesses with easing of furlough impact.
  • Added service lines showing traction; riding newer tech trends for growth.
  • Bullish on growth prospects barring HiTech stress.
  • Guided EBITDA margin band at 14-16% going forward.
  • Current margins not sustainable in long term.
  • Working to ensure growth investments don’t pressure margins.
  • Demand environment continues to remain challenging.
  • Expect situation to remain similar over next 2 quarters.
• Margin Performance
  • Gross margins dropped due to furloughs, utilization and forex impact.
  • EBITDA margins resilient; YTD at 17.3% above mid-teens guidance.
  • Leverage areas like utilization, operational excellence for margins ahead.
• BFSI and Other Verticals
  • BFSI grew 12.6% year-over-year; strong momentum seen.
  • Manufacturing and consumer services grew 5.5%.
  • Also seeing tailwinds in UK, Europe and South Africa.
• Expansion in Non-top Accounts
  • Incremental revenues driven by client mining efforts.
  • Moving several clients from sub-$5 million to $5-10 million plus brackets.
  • Helped open 9 new logos including Fortune 500 companies.
• Strategic Focus Areas
  • Addressed farming, hunting, large deals and capabilities.
  • Seeing early benefits like highest ever EN deal wins.
  • More room for further improvements in future.
• M&A Strategy
  • Evaluating acquisition targets almost every week.
  • Looking for strategic fit and right valuation.
  • Conserving cash given fiduciary duty.
• Healthcare Vertical Focus
  • Recently established it as a separate vertical.
  • Was contributing 9-10% of revenues even without focus.
  • Will invest significantly for growth given industry trends.
• Repositioning Strategy
  • Focus on Experience, Engineering and Engagement.
  • Seeing early traction; will help drive top quartile growth.
  • Resonating strongly with existing client base.
• Generative AI Traction
  • Seeing traction, but largely in proof of concepts stage.
  • Have worked on about 100 PoCs across verticals and clients.
  • Revenue contribution small currently.