Datamatics Global Services Limited (DATAMATICS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Datamatics Global Services Limited Q4 FY '21 Earnings Conference Call. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Asha Gupta from Christensen IR. Thank you, and over to you, ma'am.

Thank you, Lizan. Good evening to all participants in the call. Welcome to the Q4 and Full Year FY '21 Earnings Call of Datamatics Global Services Limited. The results and investor presentation have been already mailed to you, and it is also available on our website, www.datamatics.com. In case anyone has not received a copy of press release and presentation, please do write to us. We will be happy to send it to you. To take us through the results today and to answer your questions, we have with us the top management of the company represented by Mr. Rahul Kanodia, Vice Chairman and CEO; Mr. Sandeep Mantri, Chief Financial Officer; Mr. Mitul Mehta, Senior VP, Head, Marketing and Communications. Mr. Rahul will start the call with this overview of the quarter and year gone back, which will be followed by financials given by Mr. Sandeep. We will then open the floor for Q&A session. As usual, I would like to remind you that anything that is said in this call which gives any outlook for the future or which can be construed as forward-looking statements must be viewed in conjunction with 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 it on our website. With that said, I now hand over the call to Mr. Rahul. Over to you, sir.

Hello. Thanks, Asha. Welcome, and thank you, everyone, for joining our quarter 4 and full year FY '21 earnings call. Hope all of you are keeping safe in the second wave of the pandemic. We deeply appreciate all of you taking time out and joining us for this conversation today. I will now share some business performance highlights, and Sandeep will update you on the financials. Post that, we will get into Q&A. On a full year basis, we closed our revenue at INR 1,149 crores versus INR 1,203 crores in the last year, resulting in a degrowth of 4.5%. However, we divested Cignex in the last quarter of the year. If we remove Cignex, then our revenue for financial year '21 was INR 1,022 crores compared to INR 1,007 crores in FY '20. This would result in a marginal increase of 1.5% year-on-year. Our adjusted quarterly return rate is now approximately -- revenue rate, sorry, is approximately INR 250 crores with a spike in the fourth quarter due to the tax return processing business that we do. Our Q4 revenue on a quarter-on-quarter basis is INR 283 crores compared to INR 303 crores, giving a decrease of 6.5%. However, without Cignex, we have grown 8.1% on a quarter-on-quarter basis, and our BPM revenues grew 13.6%, while the IT revenue grew 1.1%. I'm happy to note that the business is recovering to normalcy across all service lines, and we expect a good growth this year. A shift in business operations due to the pandemic and due to work from home is expected to favor the IT industry in the near term. The pandemic has compelled CIOs to revisit the planned strategies and increase investments in newer emerging technologies such as intelligent automation, artificial intelligence and machine learning, robotic process automation, analytics and cloud. These, in turn, have created significant opportunities for companies like us. We continue to see specific opportunities in the process automation and dynamic content management areas. Our Cignex divestment has been successfully completed. Until 31st March, we have received partial consideration. And in this quarter, we have already received the remaining consideration as per the agreement. The key highlights for the quarter was a double-digit EBITDA margin at 14.8%, which is an improvement of 568 basis points sequentially driven by our cost optimization efforts. On a full year performance, I would say that FY '21 was the year of testament of our resilient business model's strong relationships with customers and commitment demonstrated by Datamaticians. Despite headwinds created by the pandemic, we performed well, and our EBITDA witnessed a growth of 15%. We exited the year with a strong cash and cash equivalent balance of INR 254.5 crores with no debt. On the business front, our IT services, which constitutes 51% of our revenue, witnessed a drop of 17% year-on-year in FY '21. This decline was due to 3 main reasons. First, the Cignex divestment, which contributed to 10% in drop in revenue and as we could not account for this revenue in Q4 because we had divested it. Second, as we communicated earlier, we lost 1 of our top 10 customers in Q1 FY '20, which contributed to almost 5.1% of our total IT revenue. I'm talking -- only talking about IT, so this is IT revenue. The margin impact was about 3.2% from last year of our IT EBITDA. Third, due to COVID, some of our key customers cut their budgets and reduced their outsourcing. This impacted -- this has an impact of 2.9% on our IT revenue, and the margin impact of this was 1.7% on last year's EBITDA. The reduction in these projects has an impact of 8% on our IT revenue and 4.9% on the IT margin, causing our IT margins to shrink from 11.1% to -- in FY '19-'20 to 6.2% in FY 2021. However, we were able to claw back 0.7% through operating efficiencies and closed the year at 6.9% EBITDA for our IT segment. Additionally, as far as our products are concerned, and more specifically, TruBot and TruCap+, we have spent approximately INR 20 crores on product development and enhancement. All of the spend is expensed out in our IT business, and we do not capitalize it. The margin impact of this product investment is about 3.8%. So if you add this back to our operating EBITDA in the IT business, it would be about 10.7%. TruBot and TruCap+ are getting good response from prospective customers for an integrated offering in IDP, that is Intelligent Document Processing, and RPA. We are augmenting our sales teams in the U.S. dedicated for selling these products and expect to invest approximately $5 million to $6 million, which is approximately INR 40 crores, in sales and marketing this year. Our products are featured in leading analyst reports. Some of the recent ones include Forrester 2021 RPA Wave, which recognized TruBot as a strong performer. And Everest Group's 2021 IDP PEAK Matrix had recognized TruCap+ as a Star Performer and a Major Contender. Another update is our joint venture, Cybercom Datamatics. The operations have closed effective January '21. The JV will not have any significant impact as it was a material component of our operations. Our BPM services, which constitutes 49% of our revenue, witnessed a growth of 13.2% year-on-year. The growth was primarily driven by penetration in existing customers. Our BPM margin were at 18.1% compared to 9.1% last year. The significant improvement in margin was primarily due to cost optimization, moving work to low-cost locations in India and saving in infrastructure and travel due to COVID. And we expect that this margin will be sustainable. With regards to our quarterly growth trends, without Cignex we grew 8.6% in quarter 3 over quarter 2 and 8.1% in quarter 4 over quarter 3. In the current quarter of this new financial year, at FY '22, we expect a growth of approximately 10% over Q1 of FY '21. We see a strong demand environment and our pipeline continues to remain healthy. This gives me the confidence to state that we have turned the corner and will have a healthy performance in the financial year. However, in Q1, we will have a little lower margin because the salary increments will be declared. And although on a year-on-year basis, we expect the margins to remain at the same level. As far as dividends are concerned, for the financial year, the Board will take up the matter in the next Board meeting. From a time line perspective, dividend distribution requires our shareholders' approval, hence, it does not impact the distribution time lines as it will be only after the AGM. Our top priority at this point of time is the safety and support of our colleagues and their families. And as good corporate citizens, we support our community as best we can. To this end, we have been working with local authorities and municipal corporations in Mumbai, Nashik and [indiscernible] and helping them in fighting this pandemic. We are also supporting some hospitals in Delhi with oxygen tanks and providing food for people who have been going hungry due to the current crisis at hand. I would take this opportunity to thank our customers and shareholders for their continued support and trust. I also thank Datamaticians for their dedication and commitment shown during this difficult year. We remain confident of sustaining the growth momentum in the coming years. With that, I will now hand over the call to our CFO, Sandeep Mantri. Sandeep, over to you.

Thank you, Rahul. Am I audible?

Yes.

So good evening, everyone, on the call today, and thank you for joining us in our Q4 and full year FY '21 earning call. I hope that all of you and your families are keeping safe and healthy during these challenging times. Let me start with the key financials for FY 2021. And I'll then -- I will run you through fourth quarter ended on March 31, 2021. So our revenue for the quarter was -- for the year was at INR 1,149 crores, which is a decline of 4.5% on a Y-o-Y basis. As mentioned by Rahul, the degrowth is due to non-inclusion of Cignex revenue in the current quarter and as a result of Cignex divestment and impact of COVID pandemic in the initial quarter. Revenue without Cignex in FY '21 was INR 1,022 crores as compared to INR 1,007 crores in FY '20. This is an increase of about 1.5% compared to last year. In FY '21, our consolidated EBITDA stood at INR 142.2 crores, which is demonstrating a growth of 15.1% on a yearly basis. And consolidated EBITDA margin was at 12.4% as compared to 10.31% -- 10.3% in FY '20. If we remove this Cignex divestment from the results, then our EBITDA margin will be INR 122.7 crores instead of INR 142.2 crores or 12% in FY '21 as compared to INR 99 crores or 9.8% in FY '20. And if we add the spend which Rahul talked about of product development, which is the investment we are making in our RPA and other products, then our adjusted EBITDA margin for FY '20 would be 14.3% as compared to 11.7% in last year. Talking about our BPM EBITDA margin, it is now 18.1% as compared to 9.1% in FY '20. Our IT EBITDA margin, however, remains under pressure at 6.9% as compared to 11.1% last year. But Rahul has explained why the IT margins are low because we include the product costs in our IT segment. So the overall margin growth was largely driven by cost optimization efforts taken by the company during the year and cost saving primarily due to COVID. So with respect to our other income, our other income is at INR 10.7 crore in FY '21 as against INR 20.5 crores. The drop was primarily due to [ a change in books ] last year because last year, the hedge rate -- realized rate and hedge rate were quite -- there was quite a gap in both the rates, and it is why there was higher exchange gains. This year, more or less helping, so the exchange gains are not there comparative to last year. Then the share of net profit in our associates declined from INR 1.2 crore to INR 0.4 crore in FY '21, which is basically the share in our Cybercom joint venture and the JV is closed now. So that is why the share of profit has a decline in [ expenses ]. The tax rate for our -- for FY '21 was at 23.2% as against 29.8% in FY '20. And this is in line with our expected tax rate of 25% -- which is below our expected tax rate of 25%. When we talk about tax before noncontrolling interest, it was at INR 84 crores, which shows a growth of 36.1% Y-o-Y. And tax margin was 7.3%. Paid after the minority of noncontrolling interest was at INR 79.8 crores, which also has grown by 25.1% on a yearly basis. Our diluted EPS stood at INR 13.53 in FY '21 as compared to INR 10.8 (sic) [ INR 10.81 ] in FY '20, which also shows a growth of 25.1%. Coming to balance sheet. Our balance sheet continue to remain at a very healthy position, and we have improved most of the parameters in the balance sheet. Today, we are a debt-free company. As of March 31, 2021, our free net cash and liquid investments stood at INR 254.5 crores as compared to INR 123.9 crores last year, so it is almost double. Our DSO is at 65 days as of March '21 as compared to 83 days in last year. Our current ratio also is healthy at 4.2x compared to 2.4x in March 2020. Our cash flow from operation was at INR 101.8 crores as compared to INR 83.5 crores in FY '20, so it has improved significantly. And this growth was primarily led by consistent focus on liquidity and tighter cash management at our end. Our return on capital employed improved from 11.4% in FY '20 to 13.5% in FY '21. So you can see it all -- you can see significant improvement in all balance sheet parameters. We continue to remain cautious on current second wave of pandemic, but we are confident of combating challenges and maintaining growth momentum. Now I come to fourth quarter performance, which is our quarter ending with -- on March 31, 2021. Our net revenue for this quarter was at INR 283.3 crores, which is down by 6.5% on a quarter-on-quarter basis. The revenue reduction during this quarter is because of non-inclusion of Cignex revenue due to its divestment in this quarter. If we exclude Cignex revenue, then quarter 4 FY '21 revenue witnessed a growth of 8.1% on a quarterly basis and 8.5% on a Y-o-Y basis. The growth was mainly driven by our BPM business. The ratio of IT and BPM in this quarter was at 42% and 58%. IT services revenue for the quarter were at INR 118.7 crores, which sees a drop of 25% compared to last quarter and a drop of 33.4% from the same quarter last year. The degrowth in IT services revenue was primarily due to this non-inclusion of Cignex revenue. If we compare without Cignex revenue, then on a quarter-on-quarter basis, we have registered a marginal growth of 1.1%. However, on a year-on-year basis, we degrew by 7.9%. On BPM revenue, our BPM revenue for this quarter was INR 164.6 crores, which shows a growth of 13.6% sequentially and 24.5% over the same quarter last year. The key highlight of this quarter is that our EBITDA margin for Q4 was 14.8% as compared to 12% -- 12.8% in last quarter and 9.1% in previous year same quarter. So compared to both the quarters, we have continued to improve our EBITDA margin, and these EBITDA margins are in line with whatever we have said earlier. And actually, in fact, we have improved in EBITDA margin despite the pandemic challenges, and we were able to maintain the solid EBITDA margin due to cost optimization and savings primarily due to COVID. Coming to quarterly profit before tax, it was INR 34.6 crores as compared to INR 32.1 crores in the last quarter and INR 25.8 crores in Q4 FY '20, the last year quarter. So it improved substantially when we compare to last quarter and same quarter last year. The effective tax rate for the quarter was 17% as compared to 24.4% in Q3 FY '21. This brings our annual tax rate down to 23.2%, which is better than our expectation of 25% approximately. When we talk about PAT, P-A-T, after noncontrolling interest for the quarter, it was at INR 28.7 crores, which shows a growth of 29.3% on a quarterly basis and almost 150% growth on a Y-o-Y basis. Diluted EPS for the quarter was at INR 4.86 per share, which is higher than quarter 3 FY '21 and quarter 4 FY '20, where we were at INR 3.76 and INR 1.96, respectively. So INR 4.86 per share in this quarter. In terms of our geographical footprint, without considering Cignex because that will be the baseline for next year, the U.S. comprised 56% of our business; India, 23%; U.K., 10%; Continental Europe, 5%; and the rest of the world is 5%. When we talk about sector or industry footprint, our largest sector remains BFSI, which is 28% of our revenue. Second largest is education and publishing, which is 26%. Third one is tech and consulting, which is 15%. E-retail is 6%, and then manufacturing is 5%. And rest of the sectors are 20%. When we talk about client concentration, our top 5 clients are contributing about 25%; top 10, 36%; and top 20 contributing 49%. Just to summarize, we have divested Cignex and therefore our revenue and profit number for the year, for FY '21-'22 will not include Cignex numbers, so baseline will change accordingly. So FY '21, 2021, our revenue without Cignex remains at INR 1,022 crores, EBITDA remains at INR 122.7 crores, PBT is INR 90 crores, and PAT at INR 71.6 crores. So these will be the baseline for next -- comparison in the coming quarters. With this brief financial summary, I will now pass the call to operator to open the floor for a Q&A session. And thank you very much for your patience, and I appreciate your continued interest in Datamatics. Thank you very much. Operator?

[Operator Instructions] The first question is from the line of Vaibhav Badjatya from HNI Investment.

So I wanted to understand more about the product business. So you have said that you've invested nearly INR 40 crores -- I think, no, sorry, INR 20 crores in product development last year. So can you let us know what was the number in last 3 years, not just FY '21, but what was it in FY '19, '20 and '21 separately? And will there be further investment on product development then into the future? And secondly, you've also mentioned that you will be investing around INR 40 crores for sales right for these products. So will this be likely early in the current year, which will be FY '22? Or it will be like regular, and we will be increasing it going forward?

So the first question is the investments over the last 3 years. This year was about INR 20 crores. The last year was about INR 17 crores approximately. And the year before that was about INR 14 crores or INR 15 crores. So that gives you an idea of we've steadily increased it at a slow pace. In terms of the investments, this year, the INR 40 crores is the budgeted expense for this year only. This figure will evolve depending on how the markets evolve, depending on how the pandemic unfolds and things like that. But we do expect commensurate revenues coming in as well. So it will be set up with revenues that will come in. But we will calibrate it as we go through the year. But this year is still a little uncertain in terms of the global pandemic.

Okay. And what would be -- so what would be the revenue model here? I mean will it be like perpetual licenses or it will be recurring license revenue that we'll get every year in percentage? What was the business modeling?

So it will be, one, recurring licenses, which is annual subscription type. And second, revenue stream from the product will be implementing the product into the customer space. So these will be the main 2 revenues as far as this product is concerned.

Okay, okay, okay. And you expect it to be breakeven in FY '22? Or there will be losses from this additional investment initially for 2, 3 years?

We expect the investments to be higher than the returns in the next 2, 3 years.

Okay. Got it, got it. That's it from my side.

[Operator Instructions] The next question is from the line of [ Ravi Kumar ], an investor.

Basically, my question is like even in this pandemic period, most of the IT companies has shown a significant growth, so just want to know how Datamatics is different from other companies, I mean what we are lacking or it is different. And in fact, even from 2004, from the date gone to IPO, I did not see much performance related to -- compared to other peers.

So in terms of the performance for this year, I mentioned in my address, [ Raviji ], that there were primarily 3 reasons why our IT did not grow. One was the divestment of Cignex, which contributed to 10% of our revenue. The second one was that right in the first quarter of last financial year, we lost 1 of the top 10 customers, and that contributed to about 5% of our revenue and approximately 3.2% of the IT EBITDA. And the third reason was, during COVID, a few key customers shrunk their budgets and reduced their outsourcing spend. And that impacted the revenue by about 2.9% and the margin by about 1.7%. So these were collectively the reasons why our IT was not -- didn't grow as well as the rest of the industry. It is an unusual year. Normally, you don't have this situation, but that's what it is.

Actually, my question is I have been following with this company since 10 years. So like something is lacking because when it compared to the opportunity in the IT market space and the peer companies that I know the -- how strong Datamatics management is. I know technocrats are there on the seat. And still like if we benchmark, I'm not seeing that kind of performance. So this is not just to point out or criticize, I just wanted to understand from my knowledge. Going forward, there is a lot of opportunity. A lot of opportunities is there in the IT market space and why Datamatics is lacking and how this can be bridged.

Sure. So Raviji, going forward, we are very optimistic about the future opportunities that lie for us. In terms of the historical analysis, we can obviously have a separate meeting. I don't have all the data in this call, but I can show you the trend that we've had since 2004 and what has been the performance or lack of it. And then we could perhaps have a more detailed discussion around that.

[Operator Instructions] The next question is from the line of Keshav Garg from CCIPL.

Sir, many congratulations for good performance, good cash flow and a reduction in working capital. Sir, so basically, I wanted to understand that in the fourth quarter, the margins that we have done around 15%, you think these margins and this EBITDA that we did in Q4 is sustainable going forward?

Yes. Yes, I do think it is sustainable. It might have an impact in Q1 of this year because of the increments, but then that will settle down. And I think that is sustainable.

So we need to see annual margins also. Annual margins are sustainable. But Q4, since we have higher revenue on account of tax processing business, so it always remains at high EBITDA margin. But on an annual basis, if you see, our margins are at 12.4%. We believe that we'd have sustainable margin now.

Okay, sir. Great. And sir, I also wanted to understand that every year, there is some impairment of goodwill, last year of INR 36 crores; year before that, INR 16 crore. And also there is a continuous purchase of fixed assets last year of INR 16 crores; before that, INR 21 crore; and before that also, it was INR 25 crores. So for basically -- okay, impairment, we understand that you made some acquisitions which didn't turn out what you expected, and that's what led to it. Sir, but if on a continuous basis this keeps on happening, then I mean people get the wrong impression that, okay, something is going wrong over you.

No, I don't think -- if you remember in last call also, we have discussed about this goodwill. And we have tried to rationalize everything now. And I don't think such goodwill impairment [indiscernible] because we have planned everything now. And I don't think anything is pending as far as goodwill is concerned.

Goodwill right now is very small. So I think about INR 75 crores or INR 79 crores.

INR 72 crores, INR 73 crores.

Yes. Okay.

Yes. And on investment in CapEx, which is basically computer servers, I think this will continue because we are an IT company, and we always refresh our tech capabilities with including of our [indiscernible] servers, these are our main core or heart of the business. So we have to expand and refresh every year. So this INR 15 crores to INR 20 crores worth of CapEx should remain every year.

Okay, okay. And sir, also...

And this is part of our business model. So...

Sure. But generally, IT companies rent this kind of equipment.

Rentals will be far more costlier because we -- in pandemic times, we also rented because we wanted to immediately enable work from home. Those were all in all almost like in 1 year, I can recover the cost if I buy a computer compared to rental.

Sir, and also trying to understand the last speaker, his question that there's something wrong with Datamatics as compared to the rest of the sector. So I think I can add some value to that question that so if you see our dividend payout ratio from FY '10 onwards, where it was 33%; next year, 21%, then 17%, 16%, 15%, 14%, 10%, 7%, 7% and then 0%. So if you see all the IT companies, although you said that in the first quarter, you will take up this issue, but I just wanted to convey this message that if you see the whole IT sector, it is known for good corporate governance and payout to shareholders forms part of corporate governance only. So I think this is the only place where we are lacking, otherwise, we are [ considered ] a superior business from the plain vanilla IT companies, which are only in service, whereas we are investing such heavily on the product side also. So if anything, our company should be getting a premium. So I think if the company gives INR 50 crore dividend payout, then our market cap will go up by INR 500 crores. So it is just something to ponder over.

We will discuss in the next Board meeting, and we will come back on this dividend because last time also we discussed the same issue. And we said that we will definitely deliberate and discuss this issue. And we will definitely come back [ and give you some answers ].

The next question is from the line of Vaibhav Badjatya from HNI Investment.

So continuing on the products business, can you help us understand what problems these products solve? So what would be the value to the customer? Actually, what activities these products cater to and what problem could this solve? And how can we as an outsider track the progress on the success of the product? So are you going to give any order book or order wins on the product, like most of the other companies do? Or is there an industry publication or something that we can track as to how these products are doing?

Yes. So we can share some industry publications and the reports that cover Datamatics with you. So if you write to us separately, we can share those with you. We have been in the investment mode in this area. And therefore -- and right now, we've been expensing out all these expenses. So therefore, it's not highlighted separately. We don't track it separately. To address your question on what problems it solves, basically, if you sort of at a very philosophical level, when the agricultural industry was dominant and then agriculture got automated through mechanization tractors and things like that, people moved to manufacturing. And over a period of time, manufacturing got automated with robotics, and then people moved to services and offices. Today, we are automating the work people do in offices. So when people are capturing information from documents, people are typing information on the computer, people are searching the website or something or you're accessing a database for some information, all of that is manually done. And these products automate that area of capturing information, inputting information into the computer, automatically searching, and then it uses artificial intelligence to understand the context of the transaction. And based on that, it takes micro decisions. So that's really what it does is automating your back office and front office in the office environment and services companies. There is huge demand for this because many services companies want to automate more and more so that they can give better and faster services to their customers. And what's important is until now, it was very transaction-based automating transactions, but the difference comes when you bring in artificial intelligence because it understands the context of the transaction and, therefore, functions differently. It -- and that is what sets us apart. So when you do entire complex process, for example, you might do insurance claim processing, you're doing a death claim processing. So when you do a death claim processing, it has to capture the information from the customer who is making the claim. It has to validate that data against his policy to see whether it's valid, it's not valid, whether it has expired, to see whether he has paid premium, then to compute the amount that could be disbursed to him and then to adjudicate the claim. So all of that can be automated using these platforms and technologies that we have. I'm going to give you one example of that.

Okay. Got it. Any specific industry these products will be useful to?

Yes, very heavy in banking, insurance, manufacturing, logistics, these are dominant ones. But telecom is also a very opportune industry for this. Actually, you can do all automation of your invoice processing, your back office, your CFO's back office can be automated, things like that. Sorry, Sandeep, you were saying something.

Yes. So I was saying even in transport businesses, we have very good test cases in this business.

Yes. You have [indiscernible]. Sorry, I'll give you another interesting example. There's a bank that wanted to do KYC. They give loans to people. And loans, you fill out a form, the bank checks the form. But they want to check out on the website, whether this person has got any track record of default or been a defrauder or forger. So we can -- we have technology that goes on the website, searches the web, understands whether this person was involved in a fraud or not in the past and gives that summary to the bank automatically. Now what happens is that if that person was, let's say, a CEO of a company and that company was involved in a fraud, that does not mean that he was involved in the fraud or that the company was in the fraud. Now the software has the ability to differentiate between the company and the individual and, therefore, pulls out information and provides that to the bank in a KYC format. Now when you do that manually, you might take a few days to search multiple websites and read multiple articles. This one can run through multiple websites and articles in a matter of few minutes and give you a summary report.

Okay, okay, okay. All right.

So it can be used for ESG. Now ESG is becoming very popular. Companies are putting a lot of pressure on the right social governance models. And also, you can analyze the report and pull that information. So these are examples, but there are many, many such examples.

Okay, okay, okay. Got it. Just one request. I think I made it earlier also. Sometime, I think, in September con call, if I'm not wrong. So if you can either give out a press release whenever you won a reasonable-sized order so that we can at least understand that the product is moving in the right direction or on a quarterly basis in the segments, you can separate products as a different segment and basically show the revenue and profitability on that front so that we can understand that how this business is moving.

Yes. Sure, Vaibhav. But last time, if you remember, we discussed this. And since this is not a reportable segment as of today, this is very minor business, immaterial business in our overall Datamatics revenue. So we discussed and we communicated that we will start giving the metrics for this business once it becomes material to the operations. Once it becomes a little bit sizable, then we will start giving all the metrics. However, we are giving some basic metrics when it comes to the product.

But I think your point, let's say, you're investing heavily in this area and you would like to track it. So we'll make a note of that, and we'll see how to highlight some of these aspects.

Fair enough. That's it from my side.

[Operator Instructions] The next question is from the line of [ Riya Sharma ], an investor.

My question is, can you elaborate more on channel partners and like what percentage of revenue coming from them?

Yes. Right now, the percentage of revenue is small. Our focus is really to activate the channel partners. So we had onboarded approximately 150 channel partners. But our focus is now to get them active. Not all of them are very active. So we have about 10 or 12 that are active, and we need to activate more. So we are going through that process right now. The channel partners do give you access to some very good business opportunities where you do not have reach in different countries. So the agenda is to have somewhere between 20 to 40 very active and potent channel partners. So we are right now going through the weeding and sifting the partners that we have.

The next question is from the line of Keshav Garg from CCIPL.

Sir, I wanted to understand the progress in our metro fare collection software business. Sir, I think in some past con call, you mentioned that it's around -- the potential is around INR 100 crores. So have we reached anywhere near that, sir?

So this year, because of COVID, a lot of the metro projects have been delayed or gone slow. A lot of the tenders that were coming have been held back. So we are doing, as you may know, Mumbai Line 2A, 2B and Line 7. We had already done that now. In the next approximately 1.5 months to 2 months, we will be submitting bids for Kolkata Metro, Mumbai Line 4 as well as NCR. So each of these projects is upwards of INR 100 crores. So this year, we expect that the tenders will start again because for the last 1 year, they've been held back because of COVID. So we are still very bullish that -- and we are the strongest Indian player, local player. There's no other company out of India that is as strong as us, so that does give us an advantage. So I think that market should be better this year. The 3 bids are going out in the next 1, 1.5 months.

Okay, sir. Great. And sir, basically, I wanted to understand this metro collection side of the business. So is it like it's a onetime income to us that we sell our software and we get the money, it is like that? Or is it like that we basically collect the fare for the government, and it's a reoccurring kind of income? Which of the 2?

No. So basically, we implement software for them, and we hand it over to them. Collection of revenue from fare collection system is not Datamatics -- I mean, our job. It is basically the metro facility's job.

These projects typically last for approximately 3 to 4 years, each project. So therefore, the revenue is spread over 3 to 4 years. To your point about that gets into operations, if we get into operations of collecting the fare every time and doing the transactions, and we don't do the operations of the metro. We are just doing the technology part of it.

Okay. Sir, but this INR 100 crore per bid that you are talking about, it will come -- if we succeed that is, it will come over 3 years and not in one go.

That is correct.

Over 3 years, yes. Yes.

Okay. Okay. Sir, and also, sir, our provision for bad debts and doubtful advances, the last year was INR 7 crores; before that, INR 4.5 crores; before that, INR 10 crores. Sir, so basically, why every year, we are getting such kind of a hit?

Some of these bad debt, actually, what happened was about 7 years ago, we started doing some government projects in India. And government projects have all kinds of problems. So this -- we've now stopped doing government projects. Some of these are lingering, and these are mostly public sector type of projects where we have bad debts. That's largely -- that's a large part of it. There is some part of it where you have some problem with some customer where there's some disagreement on what you've delivered in the quality or not. And that is -- I mean every company will have some small component of bad debt for deliveries-related issues. But the large part in our case is government projects, and now we have stopped working with those government projects other than metros.

So -- and also, sir, our receivables that have fallen drastically this year, FY '21, so do you think that this level is sustainable, 58 days outstanding debtor days?

This is not 58 days, this is 65 days, because when we compute DSO, it is based on continuing revenue, which is basically without recognizing segment revenue. So the DSO is 65 days, not 58 days, just for your information. And whether the 65 days is sustainable or not, I think our DSO will remain between 65 to 72 days, I mean [indiscernible].

Okay, okay. So it might increase from this level?

It will be more or less, I would say, between 60 to 72 days, [indiscernible] 1 or 2 days here or there, basically, yes.

Sir, and for this financial year, you gave us an idea about what to expect on the margin front, sir. So as far as the top line is concerned, any idea that you can give us at what rate since in fourth quarter now we have come back to our pre-COVID level of business, in fact, higher than that after the divestment of our subsidiary. So going forward, any idea on the revenue growth?

So as Rahul said in his speech also, in Q1, we expect about 10% to 11% growth compared to last year Q1 because Q4 is not comparable because of onetime revenue accounting in Q4. So about 10% we should expect, 10% to 11% growth.

And for the rest of the year?

For the rest of the year, we will -- maybe we'll come back in the next quarter call. At least we have tried to [ give to you ] for this quarter.

The next question is from the line of [ Ashish Shah ] from Sharekhan.

I wanted to understand more about your segmental margin. Like what I see is your BPO business margin has improved substantially on year-on-year basis. Now that is basically most due to the cost savings due to the COVID. And in IT services, your margins declined due to loss of clients as well as investments. Now when the things will normalize, how [ big ] margin would be going forward? Second, on IT services margin, when your investments will get over and you will get your margins at peak COVID level?

So the IT margins, so right now, I don't see them sliding any further. We need to claw back those customers that were lost. And that typically takes a sales cycle of 6 to 9 months, so therefore, I don't see IT margins bouncing back substantially. It will improve, of course, this year, but I don't see them bouncing back to the levels that you would expect because it takes time to get new customers. And also because we are investing in the product development and that the investment might actually increase a little bit, therefore, that margin will be tight. If we extract that investment out of the IT budget, then you will see a little healthier margin because then you, so to speak, look at the margin minus the investments that have been made in the product.

Okay. So on follow-up on the IT business, when these investments will take over? Like how long you are going to invest on these products? Last 3 years, your investments have...

So this is -- some of these are -- will be continuing. But at the same time, the revenue will start walking in. Right now, it is only spend and not revenue, to some extent. So once the revenue starts flowing into the company, then the margin will automatically improve in the sector as well.

When are you going to get the returns?

Yes. So in terms of investments, it may not necessarily reduce substantially, but the revenues will flow in, and therefore, that will give you a better -- a healthier financial position.

I got your point. When we can expect the substantial revenue growth in that?

This year, I think we -- because we've invested -- we are investing heavily on sales and marketing this year, we've already got a part of the team onboarded in the U.S. So I think this year, we will start seeing the needle moving.

So second half of this FY '22?

I expect these results -- seeing some results.

Okay. On the BPM side, when the things normalize, the margin will come down?

No, we -- on the BPM side, we expect that the margins will be sustained at the current levels.

Even though things open up...

But on quarter-on-quarter, you can see some fluctuation because of the nature of revenue. Otherwise, on a long-run basis, these margins of 16% to 18% are sustainable.

Okay. That's great. On the IT services growth, like every IT services company in India are experiencing strong growth, client additions, deal -- they are getting deals. So are we lacking any capability that we are not have so much confidence of adding any clients? Or can you give some quantitative things that we are also making progress on deals and other things?

Actually, if you see on a higher basis, but if you see Q3 over Q2, we grew 8%. And Q4 over Q3 also, we grew 8%. A large part was because, I mentioned earlier in my address, because of the divestment of Cignex, because of the loss of 1 customer we had is right at the beginning of Q1 of last year. And some customers who have squeezed their budget because of COVID, those customers are bouncing back. So I think it's just a matter of now being more aggressive with sales. However, having said that, we would rather focus our energy more on the product side more than services because some of the services are increasingly becoming commodities. So we are going through a little bit of a transformation in the company in terms of the profile and the portfolio of revenue that you might have.

The next question is from the line of [ Kartik Reddy ] an investor.

I'd just like to follow-up, like a ballpark figure on the big value...

Sir, your voice is breaking up.

Yes. Sorry, can you hear me now? [indiscernible] going forward, any [indiscernible]

Sir, your audio is not clear at all. [Operator Instructions]

Can you hear me now?

Yes.

Yes, I just [ want ] to know, going forward, I mean the IT companies give you a color on what their deal pipeline is, what they've achieved during the previous quarter and what they've achieved [indiscernible] not just in the first quarter -- I mean finishing the first quarter. [ I'd like to know what their ] deal pipeline is and how the outlook is.

So Rahul, he is talking about deal pipeline.

So we normally don't discuss that. I mean we can include it perhaps. I don't have the data at the tip of my fingers right now. We will think through and see whether we need to. Maybe in the next call or something like that, we could highlight some elements of the deal pipeline. So that gives you a visibility of what the future looks like. So I take your point. I don't have the data at the tip of my fingers right now to talk about the current deals that are going on or the size and the numbers because in this industry, it's not -- unlike, for example, like the fare collection, where there are 2 or 3 or 4 large deals, here you have hundreds of smaller deals that keep happening. So maybe next call, we can bring up some of those elements and highlight -- give you some headlines around the deal pipeline.

If I may add here something, Rahul. This is Mitul.

Yes, Mitul.

So normally, deal pipeline keeps changing every week, almost every day depending on progression in multiple leads. So just giving a deal pipeline number may not mean anything. And I'm not really seeing IT services companies giving a deal pipeline out to -- during the investor calls.

But Mitul, maybe we'll discuss and see whether what kind of headline...

I think what he means is, basically, if we can give some significant deals which are in pipe, so something like this without naming maybe some instances. So we will discuss and debate, and then we'll come back in next call maybe.

The next question is from the line of Sanjeev Hota from Sharekhan.

Am I audible clearly?

Yes.

Yes, yes.

I have a few questions. Firstly, on how much money you have spent, let's say, over the last 5 years in this product business.

A similar question was asked earlier, and I did give some indication over the last 3 years. So this year, we spent INR 20 crores. Last year was approximately INR 17 crores. And the year before that was about INR 14 crores to INR 15 crores. I don't have the data that's before 3 years, but roughly, those have been the spends in the product.

INR 15 crores, INR 16 crores, INR 17 crores would be last 5 years?

Approximately.

Yes. So -- but you're saying that by second half, we'll see some part of our investment that we have made over the last 4, 5 years is going to see in the revenue. So I'll ask if over the next 2, 3 years, you must have an internal aspiration that -- the road map that you aspire to achieve, let's say, in terms of mix because you talked about the transformation we are currently taking. So what's the aspiration to touch the mix in revenue or margins, let's say, over the next 2, 3 years?

So that would be a statement -- that will be a very forward-looking statement because when you talk about aspirations, and all of us have aspirations to become a $1 billion company. So I would shy away from giving you specifics right now. But yes, we are very bullish because this market is extremely hot, and then there is a good demand. And we've got a very good product. Some of our competitors have looked at it, and they've also said that we've got a very good product, better than what they have. So that gives us a lot of confidence in pursuing this. We have high aspirations, but I don't -- I would shy away from giving numbers because that's a speculative number.

So why I'm asking this question is that our -- when we do impairment in our books, and we keep on investing in products, we have seen many small and mid-cap IT companies which had went on a [ wrong ] path and the [ battle ] has been [ destroyed ] for the investor. So you can give us something concrete that, okay, we have done this investment, and we can do -- this is the road map that we have in the mind, so that the investor will get some confidence that we are going in the right direction.

Sure, sure, sure. Yes, we can see how to communicate that. With the appropriate Board approvals, we can maybe see how we can communicate something. And maybe once -- if the Board approves, we can even consider putting it in the investor deck that goes out every quarter.

And what you're going to do with the cash that we are currently having in the books? Because ROE is going to go down if we are not putting it in the right area.

Correct. So we do plan to invest in this whole product area. And that will require a significant investment. But as I said earlier, the investments will evolve based on how the market reacts. So we will be very nimble in terms of tweaking our strategy and interpreting. But yes, a lot of it will be used in investing in these products. What the good news is that if you look at industry data, and maybe, Mitul, you can chime in over here, the market is large and the market is growing rapidly. Mitul, you can maybe throw some light on that in terms of the Gartner reports of the average support that we have?

Yes. So the entire intellectual automation market license will be about $2 billion, and services would be another $5 billion to $7 billion. And growing at -- pre-COVID levels, it was growing at about [ 60% ] per annum. And now it has subdued a little to about 30%, 35% in last year, 2020. So -- but still it's one of those fastest-growing enterprise software category in the world at this point in time, which is RPA. IDP is -- which is another category where we play with TruCap+. So that is another market which is expected to grow very fast, again, on back of RPA. However, those numbers -- there are no official numbers released by any analysts from what the growth numbers in terms of [ years ] which has fairly been high in the 20s and 30s in -- per annum.

The benefit, although we have -- just for your information, is that, as a company, we operate in this space. So it's not a product that we're building in a totally different area. It is plugged into our operations anyway. So we have a very good pulse of the market and what the customers need. And we are doing services in this space anyway. So you are right, when companies invest in products, typically start-ups do that. They try to build something new, and then it doesn't work, and then they have to have a write-off. Fortunately for us, because we do already operate in this space, we have a fairly good pulse and confident that it will be a successful venture.

Thank you. Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.

So once again, I would like to thank everyone for being on this call. And I hope that all of you keep yourself safe and remain safe as this pandemic is [ wreaking havoc ] but I am confident that the government of India is doing its best and getting it under control. Thank you for being on the call and supporting Datamatics, and we look forward to talking to you in the next investor call. Thank you again.

Thank you.

Thank you, everybody. Thank you.

Ladies and gentlemen, on behalf of Datamatics Global Services Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines. Thank you.