3i Infotech Limited (3IINFOLTD) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to 3i Infotech Limited Quarter 1 Fiscal Year ' 27 Earnings Call. Before we begin, a few quick announcements for the attendees. Everything said on this call, which reflects outlook for the future or which could be constructed as a forward-looking statement may involve risks and uncertainties. Such statements or comments are not guarantees of future performance, and actual results may differ from those statements. [Operator Instructions] Please note that conference is being recorded. To take us through the results today and to answer your questions, we have Mr. Raj Ahuja, Group CEO, supported by the top management team of 3i Infotech Limited. Mr. Ahuja will start the call with the business update. After that, we will open the floor for question-and-answer session. With that said, I will now hand over the call to Mr. Ahuja. Over to you.

Thanks, Silcha, and a very warm welcome and good afternoon, everyone, and thank you for joining us today. In our previous earnings call, we had shared that FY '26 was a year of strengthening our organization, building center of excellence-led operating model and creating a stronger foundation for long-term growth. As we entered FY '27, our focus shifted from building capabilities to translating these investments into measurable business outcomes. I'm pleased to say that the first quarter reflects encouraging progress with improving execution, healthy business momentum and continued operational discipline. Let me begin with our financial performance. We reported operating revenue of INR 177.9 crores in FY '27 quarter 1, representing 4.3% year-on-year growth and 1.3% sequential growth. Gross margin improved to 14.4% from 12.6% last quarter and 11.2% year before. This reflects continued operational improvement and disciplined execution across the businesses. EBITDA stood at INR 11.5 crores and PAT at INR 6.5 crores during the quarter. It is important to note that the corresponding quarter of last year included a onetime other income of INR 18.5 crores before tax and INR 13.5 crores after tax pertaining to [ ACS ] credit from our U.S. operations, which resulted into a higher base for comparison. Excluding this one-off impact, our operating performance improved significantly, supported by stronger execution and healthy underlying business fundamentals. Beyond the reported financial performance, the quarter demonstrated encouraging business momentum. We secured order booking with a total contract value of INR 240.9 crores and an annual contract value of INR 195.6 crores, along with more than 25 new client wins across our key markets. These numbers include approximately INR 80 crores of renewals of existing contracts and balance as fresh new projects. These wins further diversified our customer portfolio, strengthened our order pipeline and improved revenue visibility for the coming quarters. The strategic investments made over the past 1 year are increasing translating into stronger execution across our businesses. During the quarter, we continued to strengthen our organization. We enhanced our leadership team across key business and functional lines, further embedding our operating model. We also expanded our center of excellence, technology partnerships and AI-enabled capabilities. These initiatives are improving collaboration across delivery, solutioning and go-to-market teams, strengthening execution and enhancing customer delivery. We also maintained a healthy talent environment with voluntary attrition improving to 8.5% from 11.7% in the same quarter previous year, reflecting the stability of our workforce and the effectiveness of our people initiatives. This progress was achieved despite the absence of any significant foreign exchange tailwinds, underscoring the strength of our underlying business fundamentals and positioning us well to deliver sustainable long-term growth. Moving now to our business segment performance. I'm pleased to share that each of our business lines continue to make steady progress during the quarter, supported by the stronger execution and continued investment in our capability building. Application, Automation and Analytics remained our largest business segment during the quarter, contributing to 73.5% of total revenue, supported by sustained demand for application modernization, digital transformation, data and analytics and AI-led solutions. Building on the COE-led operating model introduced in FY '26, we continue to strengthen our capabilities through AI-enabled engineering, intelligent automation and reusable solution accelerators. These investments are enhancing delivery excellence, improving execution and positioning us to capture emerging opportunities across application modernization, analytics and ERP transformation. Second business infrastructure business contributed 18.7% of total revenue and continued to demonstrate steady execution across cloud, cybersecurity, hybrid infrastructure and managed services. We further strengthened our cloud and cybersecurity, AI operations and digital workplace capabilities, positioning the business to capitalize on growing demand for hybrid cloud, data center modernization and AI-driven infrastructure operations across our key markets. The third business, Business Process Services, BPS, contributed 7.8% of total revenue and continued to progress on its strategic transformation agenda. While the operating environment remains challenging, the initiatives implemented over the past year are beginning to show encouraging early signs of progress. We continue to strengthen the business through dedicated delivery and sales teams, digital operations, workflow automation and expansion beyond the domestic BFSI sector into the U.S., Middle East and other industry verticals, laying the foundation for sustainable long-term growth. Geographically, our diversified global footprint continued to demonstrate resilience. India revenue increased to INR 66.6 crores from INR 63.5 crores in the previous quarter, reflecting 4.9% sequential growth driven by expansion across key customer accounts. The U.S., our largest market, reported revenue of INR 91.2 crores compared with INR 98.3 crores in quarter 4 FY '26, reflecting a temporary 7.2% sequential moderation due to normal project timing and seasonality. Asia Pacific remained stable at INR 4.3 crores, while the Middle East delivered exceptional momentum with revenue increasing to INR 15.9 crores from INR 9.7 crores last quarter, representing 64% sequential growth, driven by the new business wins. This balanced geographic mix continues to provide resilience while reducing concentration risk and creating multiple growth opportunities across our priority markets. Our geographic strategy remains focused on deepening our presence in core market by selectively expanding into high-growth regions. North America continues to be our largest market, while we are steadily strengthening our presence across the Middle East. During the quarter, we also established local leadership teams in Canada and East Africa, where sales pipeline development and customer engagement activities are gaining encouraging momentum, laying the foundation for future growth. Operational resilience and cybersecurity remains key priorities for the company. During the quarter, we responded swiftly to a cybersecurity incident through our established incident response framework, ensuring timely containment, recovery and full regulatory compliance. There was no material impact on business continuity or customer delivery, and we had since further strengthened our cybersecurity framework through additional security enhancements to reinforce the resilience of our technology environment and our commitment to maintaining the trust of our customers and stakeholders. As we continue to strengthen our execution capabilities, our operating model is increasingly enabling closer collaboration across delivery solutioning and go-to-market teams, resulting in greater agility, consistency and customer responsiveness. Artificial intelligence continues to evolve as an enterprise-wide capability across the organization embedded well within our services, platforms and internal operations to improve productivity, automation and customer outcomes. During the quarter, we further strengthened our capabilities in generative AI, agentic AI, machine learning, intelligent automation, data engineering and AI-led quality engineering. Today, these capabilities are supported by more than 150 data and advanced analytics professionals and over 350 certified automation and quality engineering specialists serving 100-plus customers globally. These capabilities are being applied across a range of enterprise use cases, including demand forecasting, intelligent document processing, fraud analytics, AI-powered knowledge assistance and AI-enabled software engineering, helping customers accelerate digital transformation while improving operational efficiencies. Alongside these capabilities, we also continue to strengthen our technology ecosystem through deeper collaboration with strategic partners, including SAP, hyperscalers and other leading technology providers. We also continue to expand our [ NuRe ] of platforms and IP-led solutions, including [ NuRe Flagship Plus, NuRe Campus, NuRe NCRC and NuRe Intelligence], enabling customers to accelerate cloud adoption, governance, compliance, quality engineering and AI-driven business transformation. Together, these capabilities, platforms and partnerships are enhancing our ability to address larger and more complex enterprise transformation opportunity across our portfolio. Before I conclude, let me briefly share how we see the remainder of FY '27. Our strategic priorities remain formally anchored around the six pillars that define our growth agenda: people, process, productivity, platform, partnering and profitability. Together, these pillars continue to serve as an operating framework for our strategy and execution. We'll continue investing in our people by strengthening leadership, developing future-ready talent and fostering a high-performance culture. Through processes and productivity, we remain focused on enhancing governance, improving execution, driving operational efficiencies and delivering a superior customer experience. On the platform, we will continue to strengthen our differentiated solutions and intellectual property to address our customers' evolving technology requirements while partnering will remain a key growth enabler as we deepen our relationships with strategic technology partners to expand market opportunities, enhance solution capabilities and deliver greater value to our customers. Underpinning all these priorities is profitability, where we remain committed to disciplined capital allocation, prudent cost management and sustainable margin improvement as we continue to scale the business. The encouraging progress achieved during quarter 1 reinforces our confidence that the strategic foundation built over the past 2 years is translating into measurable business outcomes. Supported by a healthy order pipeline, a diversified business portfolio, expanding market presence and improving execution capabilities, we believe 3i Infotech is well positioned to capture emerging opportunities, accelerate sustainable, profitable growth and create long-term value as we advance our Vision 2030 aspirations. Before I close, I would like to thank our shareholders, customers, partners and employees for their continued trust and support. I would also like to acknowledge our long-standing investors whose confidence in 3i Infotech has been invaluable throughout our transformation journey. We remain committed to delivering sustainable long-term value for our stakeholders. Thank you once again for joining us today. With that, I will hand over the call back to the moderator to begin the Q&A session.

[Operator Instructions] Our first question comes from the line of [indiscernible] Sanjay.

We are seeing the margins have improved and revenue has stabilized. Recently, there are like multiple announcements about orders win and you also mentioned about [ TCV ] of [ IV ] of around INR 200 crores. So are we saying that now from Q2 onwards, the revenue will start improving. But so far in last 5, 6 quarters, the revenue was just between INR 170 crores and INR 180 crores for last 4, 5 quarters. So how is going to be happening? And how the business scenario now the tractions are going well? Are we seeing I mean the implements are going on or something on hold. Just wanted to understand how things will progress in the remainder of the year.

Okay. Thanks, Sanjay, first of all, for joining this call. And to answer your question on the revenue, I think the revenue has already started showing up improvements. If you have seen the last 4 quarters starting from quarter 4 of last year until quarter 3 of FY '26, we were in the range of around 170 to 175. And the last 2 quarters, we have now been 175 to 180 range. It's not a major improvement, I agree. But at least the needle has moved from 170 levels to 180 levels now. There are a lot of initiatives, which -- some of which I've already mentioned as a part of my address. All the questions are like equally kicking in as of now, the three businesses what we have, all the 3 businesses, we have been demonstrating a better outcome this quarter and the previous quarter. Similarly, all the three geographies -- four geographies in which we are operating, all the 4 geographies have shown signs of improvement. And what we, as of now, don't declare the sales funnel, the sales funnel has become quite healthy with the new leadership team in place now. And the implementation of these projects, whatever the order booking has happened, some of them are the renewal cases, and those will continue to be serviced the way it was being serviced. I mentioned in my around INR 80 crores of this INR 240 crores is renewal cases. So this INR 80 crores, the performance will continue to be there without any stoppage or blockages. The balance projects will start kicking in from the quarter 2 onwards depending upon when and how the full implementation starts happening. I think you'll start seeing more and more traction from the next quarter. We've already seen some traction in the last 2 quarters. It will keep increasing quarter-on-quarter after that as and when we go ahead and continue to implement more and more projects. While this INR 240 crores of the ACV, we continue to see that how do we implement it and grow our businesses. In parallel to that, our sales engine, which I just mentioned, the funnel is also becoming healthier and stronger in all the four geographies. In addition to that, our -- the whole COE-led program, what we have started, where we are building up capabilities across the newest technologies, which includes like cloud, cybersecurity, ERP, artificial intelligence across our product lines and our other new platforms. A mix of all that will start giving us more and more the sales funnel opportunities powered by our sales leaders, which are there in U.S., Middle East and India now. I think we are well poised for a growth story in the coming quarters to go.

My next question is about what is the latest update on the case filed with iMudra. And just last week, there was announcement that this Capital Group, I think, acquired 5% stake in 3i Infotech. So is that any way related to iMudra? Or is it happening with iMudra and 3i Infotech?

Yes. So the case is under investigation as of now. We have filed a formal complaint to the EOW, which we had declared it earlier as a part of our communications. There has been the normal process of the government machinery is being followed. The state has been done from our side. State pending has been done by the other party side. And internally, the discussions are happening on how do we take it forward. With respect to the Capital Next, yes, this is the same iMudra Group. So if you've seen the Capital Next and its people working or acting in concert, they are Mr. [ Srinivasan ] and his family members. And Capital Next also, we have been informed that it's also part of his family group. So yes, iMudra has indirectly acquired through its people acting in concert around 5% plus share. We are watching the situation as of now. There has not been any formal discussions with the team of iMudra, and these two activities are happening in parallel, and we continue to watch and we'll continue to update as and when there is more information on this topic. But rest assured that we continue to follow through this case as of now. And there is not -- there will not be any mixing of the shareholding with the case what we had, like, gone ahead with. So those are two separate events and though it is happening with the same group of people.

And my last question about this annual increment for the company and for the employees. Is it already done in Q1 or it will be happening in future quarters?

Our annual increment cycle is October, October to September. And last 3, 4 years, we have been doing it in October. And this year also, we are planning to do in October only.

[Operator Instructions] the next question comes from the line of [indiscernible] Saket.

Just sir, in continuation to your reply to the earlier participant, Firstly, sir, it seems and correct me that this is a better operation generating profit quarter because I think so the other income Q-on-Q also and year-on-year is also down significantly. So first of all, that understanding is correct that the ForEx component has come down significantly and whatever profit we have posted that has a higher operating contribution for this quarter?

Yes. So Saket, do you want to finish your questions and then I answer?

No, sir, we can keep on discussing.

No issues. So thanks, Saket, for joining. Yes, your understanding is right. Because there is not -- there has not been much movement on the ForEx rates this quarter. So our contribution to profitability from the ForEx is limited to only INR 4-plus crores, INR 4-plus crores. And so yes, ForEx has not contributed much to the bottom line as compared to the previous quarters when quarter 1 of FY '26 had onetime income of the U.S. [ CCST ] fund of almost INR 18.5 crores. And last quarter also, we had ForEx revaluation of around INR 15 crores contributing to some of the profitabilities. So yes. So this year -- this quarter, we don't have any of those -- neither the ForEx event nor any other onetime income events hitting us in this quarter.

Okay. Now sir, I just put forward the question for your understanding. You mentioned about the commencing of the transformative journey for the company, and we have done some strategic investments that are making our organization future ready. So if you could just allude to us in terms of revenue profile, how the revenue run rate is going to improve over a period of time with the strategic and transformative steps taken by the company executives. And also, sir, what is the current closing order book, if you could just quantify it to us as on date or as on 30th June and the term of the execution or the average term of orders that we have. I think it's a multiyear contract that we will be executing. So on these two aspects, if you could just apprise us.

Saket, first of all, we don't give future guidance in terms of the revenue numbers. So I'll not be able to put a scale or a range or a number to the future businesses revenues. And I have already mentioned that the kind of order book we have this year, we have got around INR 240 crores of new order booking. Cumulatively, we stand at around INR 400 crores of order booking across our businesses and geographies, which is very normal for us because most of our contracts, especially in the staff augmentation in the AAA side or in the infrastructure side, they are renewable on an annual basis. So we keep renewing it. And then there's a history that most of our customer renews it, and we have customers around 5 years, 7 years, 10 years working with us. So there is almost like 90% plus like probability that the contracts will keep getting renewed as we move forward. That assures us that at least for the next 12 months, we have sufficient revenues, including the opportunities to renew the existing contracts, the orders in hand as well as the sales funnel, what we are having. With that, we are very comfortable in the current year revenues. With all the new initiatives what we have taken, whether it's a COE-led delivery models or whether it's expansion into Canada and East Africa or whether it is working beyond [ BFSI ] and government vertical, getting into retail, health care and e-commerce space. And also in terms of the partnerships, we already started the partnership with SAP in U.S. We are working with Oracle for our partnerships in Middle East and India. We are working with Microsoft. We are working with so many other top most OEMs as of now across geographies and businesses. We are quite positive about the trajectory at this point of time. And though people obviously have a little bit of a doubt on how we are going to achieve our Vision 2030. But I'm quite positive that we are in the right direction, and we'll be able to get into that Vision 2030 and the details will be visible to you in the next 2, 3 quarters.

Sir, can you reiterate that 2030 revenue or what the size of the company you are trying? What is the 2030 number, to the company?

Yes. We have INR 2,030 crores by 2030.

INR 2,030 crores top line?

Yes, that's right. INR 2,030 crores, but then we just line it in 2030.

Variance, yes. Sir, hopefully, it happens. For the other expenses part, if you could just explain to us the nature because that ranges between INR 25 crores on a top line of INR 176 crores and even it is down to INR 13 crores on a similar top line. So if you could just explain the nature and what should we model in our expectation in terms of the other expenses line item? What is the nature of this?

So other expenses include all the admin and other related expenses, which include cost of our offices, maintenance, administrative costs, travel of employees and other things like your audit and getting fees. And so everything else other than the employee and the third-party products, which is the subcontracting, everything else is part of the other expenses.

What should we factor in? What explains this INR 25 crore to INR 13 crore dip in a quarter basis? And even for a year-on-year basis, the number is down from INR 18 crores to INR 13 crores?

Yes. Like we have been explaining in the previous calls also, there have been a lot of focus on cutting down the wasteful expenditure, cutting down offices and the impact of that has started coming into our books in the last 2, 3 quarters. We had closed down offices. We had merged some few offices. We had restricted all the expenses like whether it's a consultant hires or whether it's advisers, whether it is travel expenses. So everything was cut down drastically, and that has started reflecting into like the profitability now. Last quarter, this amount was high because we have taken one or two big items, which we had also disclosed that we had an old service demand of almost like INR 5.5 crores to INR 6 crores, which was provided in quarter 4. We also had done some of the book training because of the annual book closing of our other accounts, including some of the receivables and creditors, which also gave us another roughly INR 3 crores of hit. So those were the exceptional items last quarter, which obviously has not been there in this quarter.

So run rate should be this INR 14 crores, INR 15 crores only for a quarter basis for a conservative or on the higher side also?

Yes. You're absolutely right. We will be hitting this range only now unless like our scale goes up to the INR 2,030 crores, which our vision is, then obviously, the scale will change. But with the current range of revenue and plus maybe another 25%, 30% of revenue will continue to be at this range.

Okay. And last point, I think with the investment, sir, which we have done in -- which you were explaining to the earlier participant. Can you just reiterate what exactly are we in the NuRe FutureTech, the subsidiary? And what are the rationales of the investment in terms of this redeemable preference shares or what is the nature of this transaction, sir?

I think you're talking about case, right?