Categories Concall Highlights, Earnings, Technology

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.

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