Canarys Automations Limited (CANARYS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Canarys Automations Limited H2 and FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Akhilesh Gandhi from Stellar Investor Relations. Thank you, and over to you, Mr. Gandhi.

Thank you, Anushka, and good afternoon, everyone. I'm Akhilesh Gandhi, and at Stellar Investor Relations, we manage Investor Relations for Canarys Automation. I'd like to welcome you all to the Canarys Automations' H2 and FY '26 Earnings Conference Call. Today, we will be sharing key operating and financial highlights for the year ended on March 31, 2026. We are pleased to have with us the management of Canarys Automation, mainly Mr. Raman Subba Rao, who is the Chairman and the Managing Director of the company. And with him, we also have Mr. Sheshadri Srinivas, he's the CEO and Executive Director. Before we begin, I would like to mention that some of the statements made during this call may be forward-looking in nature. These are based on the company's current beliefs, assumptions and expectations. They are not guarantees of the future performance and involve uncertain risks and uncertainties. The company does not undertake any obligation to update these forward-looking statements to reflect any future events or developments. The financial results and investor presentation have already been uploaded on the stock exchanges. With that, I now invite Mr. Sheshadri to share his opening remarks on the company's performance for the half year and the full year ended on March 31, 2026. Thank you, and over to you, sir.

Thank you, Akhilesh. Good afternoon, everyone, and a very warm welcome to all our shareholders, investors, analysts and members of the investment community. Thank you for joining us today and for your continued trust and support. Start with FY '26 has been, without a question, the most defining year in Canarys' 30-plus year journey. During the year, we delivered our highest ever financial performance starting to historic revenue milestone, [ supporting ] INR 100 crores on a stand-alone basis and reaching close to INR 200 crores on a consolidated basis for the first time in the company's history. But what makes FY '26 truly special is not just the scale of these numbers, it is the nature of the [ pivot ] behind them. In 3 decades of building this company, we have never repositioned Canarys as decisively as we have this year. We have moved from being adopted engineering services partner to become an AI-native engineering and solution resilience platform, a shift that, frankly, would not have been possible even a few years ago. This is a new chapter for Canarys, and I could not be more excited about what lies ahead. Let me talk about the single biggest driver of this pivot. Our proprietary CAR framework, which stands for Canarys Automation Resilience. We see artificial intelligence not as another technology trend, but as a fundamental shift in how software is engineered, deployed and managed. Recognizing this early, we made a conscious ties to embed AI into the very core upper technology strategy, and the CAR framework is how we have brought that vision to life. The CAR framework embed across the complete engineering life cycle through 4 pillars, CAR-D, which stands for design; CAR-E, that is for engineering; CAR-T, which is for testing; and CAR-S, which is for support. Rather than a rip-and-replace approach, CARs notifies what our customers have already built, making their existing investment self-healing, disciplined and long-lived. Together, these 4 pillars create a continuous cycle of [ leveling ], automation and improvement, enabling faster development, higher engineering productivity, improved software quality and quicker issue resolution. The economics here are compelling. Our assessment shows that agentic AI delivered through the CAR framework has the potential to improve engineering productivity by up to 5x, increase revenue per employee by more than 40%, improve gross margin potential by up to 12 percentage points and accelerate project delivery by nearly 30%. These are not incremental gains, they are structural advantages that make Canarys a fundamentally more scalable and profitable business. And this is not theoretical, leading global enterprises, including a Fortune 100 technology company and a leading North American bank, are already deploying CAR power solutions with us today, validating the strategy in the real world. Building on this AI first foundation, we are also scaling our portfolio of proprietary AI-powered products which we see as a genuine second growth engine alongside our core technology solutions business. Auryis, our flagship platform for the pharmaceutical and life science industry, is emerging as one of the most exciting parts of this journey. It is an AI-powered regulatory compliance and safety intelligence platform that manages regulated processes such as CFR Part 11, deviations, change control, compliance and pharmacovigilance for global life science with customers, [ serving ] complex unstructured compliance data into clear audit-ready insights. Auryis is a large and growing regulatory technology market, and we believe it has the potential to become a -- Canarys' most significant long-term value creators as we deepen adoption with existing customers and expand into new markets. Along the Scholaris, ClubAce is bringing agency automation and intelligent insights to club hospitality and membership management. And Scholaris is the transforming how the universities manage the doctoral and research life cycle, both addressing large underpenetrated market with strong recurring revenue potential. All 3 platforms have built a AI native from the ground up and design for scalable subscription-based multi-tenant delivery, giving us the depth and path to annuity revenue and proprietary IP alongside our services business. None of this pivot is possible without deliberate investment into our people, talent. Talend and capability development is one of our core growth catalysts going forward, and we are investing meaningfully in future-ready talent, continuous learning and AI upskilling across the organization. Every one of our engineering practices, from digital develops to digital assurance, to intelligence and analytics, is being retrained and reequipped to work AI-first so that our 430-plus professionals are not just using AI tools, but are fluent in designing, deploying and governing agentic AI solutions for our customers. This investment in capability building is what will sustain our competitive edge long after the initial pivot is complete. Equally important, especially at a moment of transformation like this, is our culture. Any company can adopt new technology, [indiscernible] can carry their people through a genuine reinvention of how they work. At Canarys, our people-first culture is what makes that possible. We have an end energetic and increasingly experienced team, and we are proud that attrition has steadily [indiscernible] our recent years, reflecting the trust and stability our people feel even as the business itself transforms around them. We continue to invest in the moments that build the culture from Canarys [indiscernible] and Canarys [indiscernible] for celebrations because a team that feels a genuine sense of belonging is a team that will carry any transformation forward with confidence. FY '26 also broad welcome external recognition of the work our teams are doing. We were named GitHub's 2025 Growth Services and Channel Partner of the Year, recognized on stage at GitHub [indiscernible] in San Francisco. Building on our passion as the #1 rank GitHub partner in APAC. Our water resource management team has honored with this award for up and flood early warning system work, and we continue to be recognized as a leader in DevOps solution and most innovative DevOps company, alongside long-standing partner recognitions from Microsoft, JFrog, GitLab, SAP and Snyk. These awards are a welcome external validation of something we already believed internally, that the depth and quality of this team are genuinely best-in-class. Let me now take you through our financial highlights for FY '26. Our stand-alone business delivered its highest ever performance, crossing the INR 100 crore revenue milestone for the first time. Total income stood at INR 101.7 crores, up 16% year-on-year. EBITDA grew 25% to INR 17.5 crores, with margin improving to 17% from 16% in FY '25. Profit before tax and exceptional items grew 29% to INR 16.7 crores and margin, 16%, reflecting genuinely strong operating performance. Profit after tax stood at 10 crores. Growth here was affected by a onetime exceptional item relating to the implementation of labor code provision. And excluding that item, our underlying profitability tells an even stronger story. On a consolidated basis, FY '26 was another milestone year as we reached close to the INR 200 crore revenue mark. Total income stood at INR 199.7 crores, up 121% year-on-year, led by strong momentum in our Technology Solutions business. EBITDA stood at INR 24.5 crores and profit after tax stood at INR 14.8 crores. International revenue now contributes approximately 48% of the total, reflecting a genuinely global business with operations across India, the U.S.A. and Singapore, serving customers in 10-plus countries, while consolidated margins moderated during the year. This was a conscious outcome of our strategy, investments in talent, technology and integration of Fortira, investments we believe will drive stronger operating leverage as they mature. Our order book stands at approximately INR 441 crores, giving us healthy revenue visibility for the years ahead. Technology Solution contributes INR 206 crores, nearly doubling from INR 105 crores in FY '25. Fortira had INR 207 crores and water resource management contributes INR 28 crores. The acquisition of Fortira Inc. in April 2025 has been a strong strategic move, strengthening our North America presence with 20-plus enterprise customers and materially expanding our capabilities across AI, cloud, cybersecurity and digital engineering. This year, we created history and revenue, crossing both INR 100 crores stand-alone and close to INR 200 crore consolidated milestone for the first time. We are now bringing the same intent to our margin story. Over the next 12 to 24 months, we expect EBITDA margin, PAT margin and our other key growth parameters to improve meaningfully, driven by 3 concrete levers. First, as agency carry adoption scales across our delivery model through the CAR framework, we expect to realize much of the up to 12% point gross margin potential we have already identified, converting engineering productivity gains directly into the bottom line. Second, as Auryis, ClubAce and Scholaris scale, our revenue mix shift progressively towards higher-margin subscription-based product revenue, alongside stronger cross-sell and valid share growth across our existing customer base. And third, the integration costs and talent investments that moderated margins in FY '26, including the Fortira integration are largely onetime in nature. So we expect operating leverage to build as these investments mature into scale. Put simply, we are deliberately promoting our business model through AI and our product portfolio toward a structurally high margin, more profitable and faster growing company, and we expect the numbers to show it over the next 2 years. I would like to take a moment to thank the people who made this year possible. To our employees, thanking you for embracing this pivot with such energy and commitment. You are the reason Canarys can move this fast. To our customers, thank you for your continued trust and for partnering with us on your AI journey. To our shareholders and Board of Directors, thank you for your confidence and support as we invest in this chapter of growth. And to our partners and vendors, including Microsoft, GitHub, SAP, JFrog, and the wider ecosystem that supports us. Thank you for standing alongside Canarys as we build something genuinely differentiated together. With that, I would now be happy to open the floor for questions.

[Operator Instructions] We take the first question from the line of [ Rishah ] from [ Sapphire ] Capital.

Am I audible, sir.

Yes.

Hello?

Yes, you are audible.

Yes, yes. A couple of questions. So for this quarter, sir, you alluded in the presentation, we've seen some pressure on the EBITDA margins because of the integration cost and the talent onboarding. But going ahead, you expect that to scale up. So if you could just elaborate a bit more on how the ramp-up be? What sort of margin will we target for this year and for the next year? And also on the Fortira side, because I think the company is significantly below what our company level margins are. So how do you -- how long do you think it will take for us to bring Fortira back to a company level margins, around [ 17% to 18% ]? Or what would be the growth drivers there?

[ Rishah ], I think as I mentioned earlier, as well so -- we are changing our business model with the introduction of agentic AI and the CAR framework and the product portfolio. So this would definitely change the margins going forward. The correction will definitely take about 12 to 18 months. And Fortira has already seen good traction with this. We are also reaching out to the existing customers of Fortira, etching our CAR framework and the products and the solutions, what we have. So with that, we're also reworking Fortira's business line and the business model. So if you take at least 12 to 18 months for us to really build the traction and change the margin.

Any sort of numbers that we're targeting for this year? The EBITDA margins?

We are working towards that. We have not really benchmarked or given any guidelines so far, [indiscernible]. Definitely, if you look at year-on-year, we are improving. So this year also, we see there's a positive growth on both top line and the EBITDA margins.

Okay. Okay. And sir, because we have a very good order book currently, how do we see growth for this year, for the next year? And how much of that will be done by Fortira versus our core business?

So if you notice, I think we have 200 crores-plus order book both the Technology Solutions and with Fortira. So we think our, again, the next 3 to 4 years order book that we are working towards building additional order book as well, so that we can close maximum, best possible for this year and also achieve the best results with good margins. Also water resource business, we are picking up good projects now. So that will also add up to the margin book.

And what -- how is the current pipeline, sir, for the order book? And what are the key geographies that we're targeting? What will be the export share for this year?

The total order book stands at around INR 440 crores. And as I mentioned, around 48% of our business is coming from export. So the target is to cross 50% plus on the export business and have a similar business in the India region.

Okay. And what are the pipelines or the orders that were bidded for? How do we see the inflow for this year?

Pipeline is pretty strong. We are working on multiple project opportunities. And as we are adding new orders into the book. So as on date, it stands INR 440 crores, but I think -- usually, we can add another INR 70 crores to INR 100 crores order book. So that's the side of opportunity if we are looking for that.

We take the next question from the line of [ Amit Mehendale ] from [ RoboCapital ].

Sir, my first question is, again, on the revenue CAGR. So this INR 400 crore order book, this is executable in what period? Is it like 18 months, 24 months?

This is like 3 years. And some projects are even available for the fourth year, but most of these projects for 3 years.

Sorry, can you repeat that? The audio quality was not...

No. Most of the project offer 3 years, the order book, and very few countable once even extended to the fourth year. But majority of the projects are spread across 3 years.

Right, sir. And how much of the current revenue is the recurring revenue? Like what percentage of current revenue in the tag is recurring like ARR?

One sec. Around INR 330 crores are on the recurring revenue.

Okay. And for revenue, what do you expect growth to be for next 2 years, revenue growth? Is it fair to say that we'll do about 18%, 20% or more than that, 20%?

It should be. We are targeting a little higher as well. But at a bare minimum, yes, 20% is quite achievable, but we are targeting for highest growth.

We take the next question from the line of [ Niraj ] from [ Pranash ] Group.

So with regards to your recurring order of INR 367.4 crores, this is the recurring from the client, that means after 3 years, then they just renew it. Just a clarification on that?

That's right. I think...

But what is the annual run rate of this recurring order? Like how much annually you can build to the client? Is it evenly built across the 3-year period?

Okay. Let me explain. I think a fair question. So these are -- some projects are annually renewed and some projects are renewed every 2 years and some projects at every 3 years. Every year renewal, what we do is generally 100% of the project value will be consumed and also built. So 2 years project, generally what happens, we put a SOW, what we call our statement of work, for the period of 2 years, but we see that the consumption changes as the customer business progresses. And sometimes, we consume more in the first year, so they give additional SOWs in the second year and the third year. It all depends on the customer business pivot as well. But in most of the cases, we try to consume 100% of the available work orders. And in some of the cases, Q4, they also end up giving the temporary additional funds for the any new initiatives. And most of the new customers that we acquire also run into multiyear contracts that is repeatable, what card us from the new customer base.

Got it. Another question is your order book increased from INR 105 crores to INR 440 crores. Out of that, Fortira is about INR 207 crores. So even if I remove it, -- then also your order book grew quite meaningfully. But we haven't seen that much of new order announcement from new guys. So is there not a practice to issue any large order that has been received by the company to the SEBI or to the exchanges, sir?

The large orders are getting announced in the exchange. But we are also thinking, should we do a kind of monthly announcement even if it is the small wins so that we can consolidate and put a reasonable details so that every month, there is a visibility available. But I think the large orders are getting announced in the exchange now.

Okay. Because even excluding the acquisition, which is an organic growth, inorganic growth, so then also your order book meaningfully grew by 2.3x compared to the previous year.

Correct. You're right. So that's because of...

Your announcement does not show that. That's the issue out there. One strong suggestion would be please issue a quarterly results. You are already listed for now, I think, 18 to 24 months, so you will have the period to transit to the main board. There, you need to have the quarterly results to be disclosed out there. Effective this quarterly result disclosure of financial statement.

Thanks for that suggestion and recommendation. We are deliberating internally towards this, and we are getting prepared to do that. Definitely, we want to give more visibility, more details to all shareholders and the investors. So we are working towards that. And definitely, this input is taken positively, and we will work towards this.

Another question is since you're now close to 50% of your exports are in -- from overseas. And with Indian currency devaluating, aren't -- when you are seeing a 20% growth, are you talking of a 20% growth in the constant currency or in INR terms for the revenue -- for the current financial year?

Right now, it is in INR. But yes, we are also working towards...

[ 15% ] has been already been devaluated in INR. If you see from the last year's weighted average cost to this year's weighted average cost that you will be realizing, last year would be about INR 83 crores, INR 84, I guess, weighted average realization in INR. This year is already INR 96 crores, INR 97 crores. Would be higher as the year progresses. So I think you should have a much higher target in INR terms?

Yes. As I said, 20% is much doable, but we are targeting for a higher growth. So we are working towards reaching that higher value. But yes, 20% is the minimum that I mentioned, right.

I have joined a bit late. I missed -- the first participant asked that you might see a margin pressure in the first quarter. Is there -- what's the reason for that? Because all the acquisition and everything is done for. Why you see a margin pressure in the first quarter?

Margin pressure?

Is the PAT margin or EBITDA margin going to go down or I think it will increase because last year, you had the integration cost synergy benefits should start...

No, it will increase, as I said. I think...

Not go down?

Yes, yes. Not go down.

We proceed with the next question from the line of [ Varun Shivram ] from Choice.

Am I audible?

Yes, yes.

So my first question will be on the AI piece. So now Canarys has like positioned itself as an AI company, right? And just wanted to ask how much percentage of our revenue in FY '26 came from these AI-led engagements? Any key projects you would like to highlight on this front as well?

Yes. Good question. In FY '26, we did not bifurcate our books to record the AI revenue. But yes, we did execute some of the good projects. From this year, we started even bifurcating the AI revenue. So going forward, you would see that bifurcation coming as part of the results, like what is that AI business. And how much -- or how many projects we are executing, the metrics will be announced. But if you ask what kind of projects that we did, as I mentioned in my speech as well. So we did good implementation for the large Fortune 100 technology company as well as one of the bank in North America. Also, we have used quite a lot of -- as part of our Microsoft and GitHub partnership. So we have done a good amount of enablement on the Copilot. Copilot is again, an AI engine of GitHub and Microsoft, and we have done enormous amount of work on the Copilot. In fact, we are the favorites of Microsoft and GitHub when it comes to the Copilot implementation and enablement. When I say enablement, we did around 200,000 developer community enablement accords India, one of the highest enablement in the entire globe. When I say enablement, we do an end-to-end Copilot implementation and train all the developer community, do a lot of POCs and ensure they are capable enough to use the Copilot the way business looks at. So we did quite a lot of good work in FY '25 on AI, but we did not actually bifurcate the booking, which...

Continuing on this question, especially you mentioned Copilot, sir, the thing is that these AI companies like OpenAI, Claude have seen, that they are expecting to grow at 100% in the coming years. I think that some of this growth will be translated into our growth as well, right? So what kind of -- should we look at for our AI business? What will -- be going forward? And will the overall growth of AI be much faster than the traditional as what we're...

Definitely, the growth is faster. And also the margins are better because the amount of work done will be faster. Productivity gain is seen using the AI engines. A lot of customers are also asking quick turnaround because they all feel that AI is the [ norm ], and we cannot avoid that. So if you look at the business shift, I would say, any enterprise or any companies of our size, at least 30% to 35% should come from AI to start with, and it will keep increasing and it will change the model.