Datamatics Global Services Limited (DATAMATICS.BO) Q1 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Datamatics Global Services Limited Q1 FY '26 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Patrik Jagtap from EY Investor Relations. Thank you, and over to you, sir.

Thank you, [ Bhavya ]. Good afternoon to all the participants in the call today. Welcome to Q1 FY '26 Earnings Call of Datamatics Global Services Limited. The results and presentation have been already mailed to you, and it is also available on the website of Datamatics. In case anyone has not received a copy of press release or presentation, please do write to us, and we will be happy to send you all. To take us through the results today and to answer your questions, we have with us the top management of the company represented by Rahul Kanodia, Vice Chairman and CEO; Ankush Akar, SVP and Chief Financial Officer; Mitul Mehta, EVP and Chief Marketing Officer. Rahul will start the call with a brief overview of the quarter on business, which will be then followed by Ankush, who will take us through the financials. Then we will open the floor for Q&A session. I would like to remind you that anything that is said on this call, which gives any outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual reports, which you can find on our website. With that said, I now hand over the call to Rahul sir. Over to you Rahul sir.

Thank you, Pratik. A very warm welcome, and thank you all for joining our quarter 1 FY '26 earnings call. I will begin with the key highlights from our quarterly performance, after which Ankush will walk you through the financial update. After that, we will open the floor for Q&A session. We delivered a healthy performance in quarter 1 FY '26, reporting a revenue of INR 467 crores and 18.7% year-on-year growth, though reflecting a 6% sequential decline as quarter 4 traditionally tends to benefit from our tax processing business, and we see a spike in quarter 4 normally. Our EBITDA stood at INR 75.9 crores, a healthy margin of 16.2% on revenue, driven by continued focus on operational efficiencies and cost optimization initiatives. We remain focused on sustaining this momentum throughout the rest of the financial year '26. These efforts have led to a notable margin improvement in Digital Technologies, while Digital Operations margins remain stable. I would like to take a few moments to share the key updates of our business segments, starting with Digital Technologies. I am pleased to report that our ongoing cost of optimization efforts have led to an improvement in margins across Digital Technology segment, there is a direct result of disciplined execution on operational efficiencies. On the innovation front, we've made significant strides with AI-driven solutions. We successfully built AI agents tailored for key verticals, including insurance, banking and logistics, showcasing the depth and versatility of our capabilities. We are also proud to be partnering with a leading bank in UAE, where we are playing a pivotal role in helping them define their AI strategy and established an AI center of excellence. This is a long-term strategic engagement that underscores our thought leadership with the AI space. A major Japanese consumer electronic company has selected our Intelligent Automation suite, including TruCap, TruBot and TruBI to drive process automation. This win validates the strength and the relevance of our intelligent automation offerings on the global stage. Moving to our Digital Operations business. We recently launched the latest version of FINATO in Order to Cash applications, which now include our enhanced version of cash, credit and collection features. Notably, this upgrade introduces an AI-powered collection agent, which provides out-of-the-box functionality to proactively follow up with customers on pending payments, driving faster collections and improved cash flows. Our deal pipeline continues to look healthy, giving us visibility into the future growth. On the Digital Experience business, we observed a revenue and margin decline in digital experiences, primarily due to 1 of our top 10 customers transitioning partially, some of its operations into their captive units. We expect another customer to transition their -- to their captive unit to their GCC in quarter 4 of this year. However, we have signed long-term contracts with the large American optical retail chain to evaluate their omnichannel customer experience and with an American Pharma enterprise for the customer outreach initiatives across these customers, we are implementing digital AI agents to augment human agents for delivering enhanced productivity and customer experience. Additionally, we are working on GCC offering as a growth driver for the organization. We have a good pipeline of AI-based projects across all our lines of businesses, some of the pilots we have done are now converting into full fledged commercial projects. As far as tariffs are concerned, we see no direct impact on us. However, many customers are still trading slowly due to the tariff situation. I'm proud to share that we recently celebrated a remarkable milestone, the 50th anniversary of Datamatics. Over the past 5 decades, we have not only witnessed but also played a role in the evolution of India's IT and BPO industries. What started as a bold vision of our Chairman and Founder, Dr. Kanodia, has now grown into a resilient and innovative enterprise thriving through every wave of technological change. As we look ahead, I am truly excited about the future. We stand at the forefront of a new technological revolution, and Datamatics is strongly positioned to seize the opportunities it brings. A heartfelt thank you to our customers, employees and investors for being an integral part of this journey. With that, I will now hand over the call to our CFO, Mr. Ankush Akar. Over to you, Ankush.

Thank you, Rahul. Welcome, everyone, and thank you for joining us in Q1 FY '26 earnings call. Let me take you through the financial performance for the Q1 FY '26. Our Q1 FY '26 revenue stood at INR 467.6 crores, reflecting a growth of 18.7% on a year-on-year basis and a decline by 6% on a quarter-on-quarter basis. Typically, the fourth quarter is a seasonally strong quarter with higher volumes, which is followed by a sequential decline in first quarter. Our cost optimization efforts and enhanced operational efficiency helped us improve our EBITDA to INR 75.9 crores, a growth of 1.9% on a quarter-on-quarter basis. On a Y-o-Y basis, we grew by 47.7%, which includes numbers from TNQ Tech. This reflects our commitment to improve performance despite macro environment challenges and softness in revenue. Our EBITDA margin for the quarter stood at 16.2%, reflecting an expansion of 319 basis points on a year-on-year basis and 125 basis points on a quarter-on-quarter basis. Our EBIT for the quarter stood at INR 56.4 crores, which is up by 3.5% on quarter-on-quarter basis and 32.5% on a year-on-year basis. Our EBIT margin was at 12.1%, reflecting an expansion of 126 basis points on a year-on-year basis. Our PAT after noncontrolling interest was at INR 50.4 crores, up by 12.3% on a quarter-on-quarter basis. Our PAT margin stood at 10.5%. EPS for the quarter stood at INR 8.52 per share, reflecting a growth of 12.2% on a quarter-on-quarter basis and 15.7% on a year-on-year basis. In terms of segment, Digital Technologies contribution to total revenue was at 31%, Digital Operations contribution at 55% and Digital Experiences contribution at 14%. Our Digital Operations revenue for the quarter was INR 255.6 crores and EBIT margin was at 16.4%. Digital Technologies revenue for the quarter was INR 144.4 crores and EBIT margin was 6.9%. Digital Experiences revenue for the quarter was INR 67.6 crores and EBIT margin was 6.8%. We continue to maintain a healthy balance sheet as of June 30, 2025, our net cash and investments net of debt stood at INR 457.3 crores. Our billed DSO was at 56 days as of June 2025 as compared to 57 days as of March 2025. In terms of geographical footprint, U.S. remains our largest geography, with 55% of our business coming from here, followed by U.K. and Europe at 21% and India, 16% and ROW at 8%. Our client concentration remains very healthy with top 5, 10 and 20 clients contributing to 25%, 38% and 52%, respectively. With this, I will now pass on the call to the operator to open the floor for questions. Thank you for your patience and continued interest in Datamatics.

[Operator Instructions] The first question is from the line of [indiscernible] from TIA.

Congrats for excellent set of numbers. My question is about your IP strategy for the AI, like how does your AI stack like TruAI, TruCap, TruBot,, how it actually differentiates from the global players like UiPath or even Indian players like Newgen software?

So in some ways, we compete with them. So in some ways, it's similar. I think we do think that we have had an edge in terms of our partnerships with the OEMs like Microsoft and Google, where we were able to implement a lot of the AI technologies into these platforms, and that does give a differentiator. Having said that, competition is not going to be slow. They will catch up very soon. So yes, we compete with them. We are in a similar space, but the fundamental difference is because Datamatics come from a services background. We understand how to make sure that these products go live with the customer, whereas the others are purely product companies. So once they sell a license, then beyond that, the success of that license really lies in the hands of the customer, whether it's in the Datamatics case, we are able to ensure that it goes live and gives the customer an ROI. And that's why it gives us an edge.

Okay. You also mentioned in your presentation that small language models and co-pilot integrations with Microsoft and Google. So is it used internally or for commercially?

These are commercially done, small language models are built specifically for each customer, so it is very customer specific. Co-pilots also, we -- we are using it internally, plus we are implementing it for our customers as well. And many customers have bought the licenses, but they struggle to get an ROI from it or struggle to really implement it, and that's where we make sure that they succeed.

Okay. So what is your go-to model for monetizing this AI, sir? How are you pricing them?

So the price is -- so it's not a product that has a standard price. A lot of this is customized depending on the need of the customer and depending on the integration it needs to be done with the customers' enterprise systems. So I mean, there's no straight answer to how do we price it. But today, AI is a little bit of a premium price, so that we do see that premium coming in.

So my last question, sir. Is clients are able -- is clients are asking for AI-based intelligent automation versus the traditional automation and RTA?

Yes. Yes, that you'll see a significant move in that direction.

Yes. So also, what happens is when there are certain use cases, which traditional automation and AI solutions -- automation solutions cannot address. So that's when the AI is brought in. So they both have very, very clear use cases. It's not that the traditional RTA is out of the window. It definitely has it set of use cases, but -- and intelligent automation with AI-driven RPA and IDP has reaches a little further down in terms of solutions and automation.

So are you going beyond this document processing with respect to AI?

Yes. So document process is 1 component, but the moment you put Robot RPA and when you put [indiscernible] it's a very different game...

It helps you do more complex tasks. You can automate much more complex task. You can go live much faster because your training periods are less. So there are definitely value propositions around AI in a larger automation suite, which is what comprises of IDP, RPA, agents and BI.

[Operator Instructions] The next question is from the line of Grishma Shah from Envision Capital.

Keen to know how we've done organically. I understand the integration of TNQ Tech in our business. So year-on-year, the growth looks fantastic. But if you could highlight how is the organic business done? How is Dextara done, that should be helpful.

Sure. So on a sequential quarter basis, we have degrown 6% as we have shown in our numbers. On a year-on-year growth, I think we've had a mid-single-digits kind of growth. So it has been sort of muted. Going forward, we see a similar trend because there's a lot of slowness in the decision-making that we see on the clients. As far as Dextara and TNQ concerned, the integration is going smooth. I think they are both in a very stable situation. So we are in a good place with both these organizations.

So given that now Dextara has integrated and finished 1 year, I suppose now, how has Dextara grown on a year-on-year basis for this quarter?

So this quarter is flat, but what's happening now is that we see a lot more traction from our existing customer base, and we've been able to take -- so the cross-sell strategy seems to be delivering and we've been able to take the Dextara expertise to a lot of our current and new opportunities. So that integrated offering we see much more happening now. So it's taken about a year, but we've started seeing that already. Last quarter, if you remember, we are talking about 5 customers where we were cross-selling today in 1 quarter gone to 8. So there are 3 additional customers. Hopefully, this should pick up a little more as you go forward. So the other traditional sales team in Datamatics has now come up to speed with understanding their offerings.

Okay. And TNQ, how has it grown year-on-year? I understand it was not part of Datamatics a year ago, but just to understand how the business has grown?

Yes, TNQ has shown a good growth quarter-on-quarter. Their profits are also very, very stable. So in fact, that acquisition has turned out to be very good for Datamatics. And I think it's being -- right now, we are in the process of integrating it. So that will take a little more effort, but it's going very smooth. And it's...

So quarter 1 last year to quarter 1 this year, TNQ has grown...

Two percent...

Two percent growth...

For last year -- you were -- talking about quarter 1 of last year to quarter 1 of this year.

Yes. Yes.

Yes. We've had a 2% growth, but our sales cycle is about 9 months roughly. So you can't expect anything to change in 1 or 2 quarters.

And on the margin side, if one looks at various segments, margins on the Digital Experience side has taken a significant dip. Is it just because of the customer migration that you spoke about?

That is correct. There's a customer migration and also what's happened is when the customer migrates for -- to their captive, we might still have a headcount that remains with us for a while because you can't -- we are not rebadging. We're not moving the people. So the people stay back the customer moves, and it takes a quarter to sort of streamline that piece. But on that front, we are on the verge of signing some very good deals. So I think we will bounce back quite quickly.

And on the Digital Technology side, year-on-year, we see improvement, as highlighted by you because of operational efficiency. So do we see margins improving significantly as we close the year in this segment?

I think we will see another 100 basis points improvement at least, probably. So overall at a company level, we will see between 50 to 100 basis points. It will vary. Digital Technologies will be a little better. Digital Experience will bounce back a little bit, so it will be a combination of all these things. Digital Operations and the whole digital content would be very stable.

Okay. Okay. And overall, for the year, the organic business would grow like low single digits and TNQ, what's the outlook?

Sorry to interrupt -- there's a bit of echo from Grishma mam's line.

Yes.

So, but I'm on the speaker...

Yes. So I'm looking at the mid-single digit kind of growth across the board.

Okay. But TNQ business is supposed to deliver much better growth. You didn't...

If you see the TNQ details when we had acquired them, one of our strategies was to plug in our sales team into their operations and get that growing faster. It's only been 2 quarters. The sales teams have connected, they are talking to each other, they're working together. So we should see an improvement, but the sales cycle is about 9 months to 12 months in our business. So yes, you can -- you will not see an uptick in 1 or 2 quarters.

[Operator Instructions] The next question is from the line of Garvita Jain from Seven Islands PMS.

My question is that we have new additional customers and new orders. So could you please clarify these orders are out of U.S.A. Or worldwide?

They are across the board, U.S.A., Europe, India and Middle East. So I don't have that breakup handy. But across the board, we are having a new logo acquisition.

Mostly U.S.A...

There's a little more [indiscernible] on Europe and the U.S.A., so therefore, there's more over there compared to India and Middle East.

So majority is from U.S.A., right?

Yes. U.S.A. would be #1, Europe is also there, but yes, U.S.A. will dominate.

Okay. Okay. Any numbers you can give me what percentage?

I don't have those numbers handy right now.

[Operator Instructions] The next question is from the line of Dhanashree Jadhav from Choice Institutional Equities.

Sir, you spoke about growth to be mid-single digit for all the 3 segments. So if you can throw some more light, like, are we seeing the turnaround led growth in Digital Technologies because margins have expanded quite strong there, plus Digital Operations growth will be led by TNQ. So just want to have a long-term view on how our growth will look like. FY '26 will be strong led by inorganic, but going forward for FY '27 also, if you can throw some more points.

Yes. This year, we are looking at the mid-single digits, as I mentioned. There will be -- some of these will grow a little stronger. Digital Experience, as you saw, had a little downswing and it will bounce back, but net-net at the end of the year will be a little under pressure. Having said that, because the decision-making has been slower because of all the tariff wars and uncertainties that we have, I'm not looking at an aggressive performance this year beyond the 5%, 6% that we talked about. Next 3 years, if we're looking at that outlook, I think on the back of AI, I am looking at a very good outlook. Our pipeline is quite decent on that. A lot of our [ POCs ] the pilot projects are now converting into commercial projects, and we should see a significant uptick in an AI-led kind of operation, both in DO, DE as well as DT across the board. So I am very bullish about the next 3 years, but this year will be a little softer. A lot of our new customer acquisition is also based on some AI solutions that we've been able to showcase.

Okay. And regarding the margins, we have said around if I'm not wrong, we have said expansion of 50 to 100 basis points, right, for this year?

Yes.

Okay. And predominantly will be led by Digital Operations, if I'm not wrong?

Digital Operations, for sure. Some of it also coming from Digital Technologies.

Okay. Yes. And I mean the turnaround and whatever new progress we are seeing on the AI front, AI-led offerings. So can I infer that going forward FY '27, '28 also, there would be a steady improvement in the margin profile that we are seeing currently?

So that we will see -- that you're talking about the next year and year after. So we'll have to see how the things pans out. It is beginning to show good productivity gains and therefore, better margins. It also depends on how we are investing in it right now, as we talked about that we invest about INR 40 crores to INR 50 crores, depending on the impact. But I think we take that call towards the later part of this year.

So this INR 40 crores to INR 50 crores investment we have already done in FY '25, right?

So our annual investment is in that range. Earlier, we were investing in the IP development on robotics and IDP and things like that. And now we've sort of pivoted a little bit of that into AI. So there -- we've reduced the investment in those IPs that we had traditionally and putting the investment into AI. Generative AI to be more particular.

[Operator Instructions] The next question is from the line of [indiscernible] from TIA.

Sir, what is your hiring trends and utilization level, sir?

So that's not a straightforward question. Utilization goes typically when you're looking at bodies in the tech space. In the BPO space, Digital Operations and Digital Experiences, you don't go by utilization. It's really the volume that a person does. If you see our attrition, our attrition is down, the industry overall is soft. So we do expect the attrition to remain under control quite a bit. In terms of headcount increase, it will be proportionate to our revenue because on the AI -- IP side and the AI side, we are still converting the pilots into commercial projects. So that's still going on. So you're not seeing the differential between the -- but however, for example, on the Digital Experience side, increasingly, we are now deploying AI agents versus human agents. And AI agents are augmenting our human agents. So you see, to some extent, a disproportionate revenue increase compared to headcount increase. But right now, it's not clear because some of these still have to have an adoption by the client. And right now, they are still kind of early stage of adoption.

And what is your revenue outlook for FY '26?

So as I said, we are looking at a mid-single-digit kind of growth in this financial year, organic. Then, of course, you can bolt on the inorganic which is the TNQ piece.

[Operator Instructions] The next question is from the line of Sumukh from Korman Capital.

Sir, my question was, you have a company called InfoBeans, which basically they have a partnership with Microsoft, and they implement AI tools to their clients...

Your line is really unclear. The audio is coming muffled.

Yes, sir. So my question was like how is your company different from InfoBeans because from what I know, even they do -- they have a partnership with Microsoft, and they do the implementation to their clients. So if you could throw some light on how you guys are different, that would be great.

So I don't know, InfoBeans. I really can't comment on what they are doing and what we are doing. But companies like Microsoft and Google have tens of hundreds of partners globally. So I don't think the partnership -- the question is what kind of solution are we building along with these OEMs. And that's what's important. How do we jointly go to market and customize unique solutions for the customer base. I know that we are working both on the technical side with the technical R&D team, which is a very good engagement that we have, and we are able to jointly go to market and build unique solutions for customers. Now as far as InfoBeans concerned, I really don't know what they are doing. So I would refrain from any comment on that.

[Operator Instructions] Ladies and gentlemen, this was the last question. I now hand the conference over to the management for the closing comments. Thank you and -- sorry to interrupt, sir. There are more questions. The next question is from the line of Bimal Parekh from Sunidhi.

As you mentioned that this year, you're expecting a mid-single-digit kind of growth. And the first quarter, we've shown around 17% or 16% growth. So does that mean that the next few quarters, are we looking at negative growth or...

No, no. Let me clarify on this. We are talking about organic growth at mid-single digits, then you bolt on the acquisition that we made with TNQ. So therefore, you're looking at -- we've showed a year-on-year growth of 18% that should continue -- that trajectory will continue. However, in Q4, it will be slightly different because last year, Q4, we had the TNQ numbers reflecting in our numbers. So this year, Q4 will not show that. So I'm differentiating between organic and inorganic. So I think you will see it in the teens.

The next question is from the line of Yogesh Bathia from Sequent Investments.

Sir. So there are a lot of AI initiatives that we are taking across the DT, DO and DE. So I want to know, is there any sort of metrics that we are tracking, in which we can say that this growth is because of the AI initiatives and otherwise, it's the conventional growth...

That's difficult because today, we are infusing AI into every opportunity that we have because that is going to be the norm very, very soon. So across these 3 operations there is -- and some of the newer wins are on the back of the AI solution that we've been able to showcase. I think the days of the traditional services are numbered, and we are not going to see that. So it's very difficult to pull out whether you -- and you get very few, these are purely AI deals. They are all integrated with the DT, DO and DE. So pure AI, you won't find and then everything has AI in it. So it is very difficult to pull out a number saying this is specifically due to AI. But we can see that because we were able to showcase some uniqueness and productivity improvement to the customer, we were winning those deals.

[Operator Instructions] The next question is from the line of Bimal Parekh from Sunidhi.

Sorry, again, sir, just wanted to understand that you mentioned that this growth trajectory of around 18% will continue, right, for the year?

Yes. So if you're looking at the year-on-year -- in Q4, it will dip a little bit because Q4 numbers have the TNQ numbers. So -- but yes, you're looking at certainly mid-teens.

Mid-teens for the year?

Yes. Yes.

Okay. And in terms of the EBITDA, we will continue as higher EBITDA, what we've shown or...

Yes. No. On the EBITDA, we see an improvement. Actually, we see a 50 to 100 basis points improvement during the course of the year.

[Operator Instructions] Ladies and gentlemen, this was the last question. I now hand the conference over to the management for the closing comments. Thank you, and over to you, sir.

Thank you, everybody, for participating in our earnings call. I really appreciate the time and attention that you've given to Datamatics, and thank you for your word of confidence in the company and our performance. I look forward to once again meeting all of you in the next quarterly earnings call. Thank you again.

Thank you. On behalf of Datamatics Global Services Limited, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.