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.