Datamatics Global Services Limited ($DATAMATICS)

Ladies and gentlemen, -- good day, and welcome to Datamatics Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this contract is being recorded. I now hand the conference over to Mr. Pratik Jagtap from E&Y.

Thank you. And over to you, sir. Thank you, Nitesh. Good day to all the participants in the call today, and welcome to Q4 FY '26 earnings call of Datamatics Global Services Limited. The results and presentation have already been mailed to you, and they are also available on the website of at -- 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 Akart, EVP and Chief Financial Officer. Mitul Mehta, EVP and Chief Marketing Officer. Al 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 the B and subsequent annual reports, which you can find on our website. With that said, I now hand over the call to Rahul. Over to you, sir.

Thanks, Pratik. Good evening, everyone. Welcome to the Datamatics Q4 and FY '26 earnings call. I will begin by sharing a summary of our annual performance and the strategic progress. Following my remarks, Ankush will present the detailed financial update, and then we will open the floor for Q&A. . FY '26 was a productive year for Datamatics. We delivered revenue growth while improving operational efficiency and advancing our position across our target markets. For the full year, FY '26, our revenue grew 15.3% year-on-year to INR 1,987.2 crores. We achieved a significant milestone in profitability, delivering an EBITDA margin of 18.7%, the highest in Datamatics history. The total EBITDA was INR 371.6 crores, representing a 62.1% year-on-year growth. This margin expansion was driven by operational efficiencies, disciplined cost management and the realization of synergies from recent acquisitions. Our core strategy centers on delivering digital transformation, automation and AI-led modernization initiatives. We are concentrating our focus on securing large deals with our primary vertical markets manufacturing, logistics and publishing. To support this objective, we reorganized our sales team over the last year to prioritize engagements with existing customers. This structural alignment is functioning as planned, enabling us to expand relationships and dive deeper and drive deeper penetration within our current accounts. Reviewing our operational segments, digital operations, Revenue posted healthy growth, led specifically by our digital content business. Margins improved due to process efficiencies and platform-driven automation. We expect this segment to lead our AI transformation efforts. Digital Technologies, revenue decreased slightly due to scheduled project completions, but we successfully maintained double-digit margins. The pipeline remains steady, and we anticipate revenue improvement in this segment for the current year. Digital experiences, the revenue and margins contracted as selected customers shifted work to captive centers, a factor we noted in the previous quarters. However, we have signed new contracts that will ramp up in FY '27, which will drive stabilization and improvement. The integration of Decata and TNQ Tech is proceeding to plan. Kentek delivered a solid annual performance through our Dextera capabilities, we recently secured a sales force CRM transformation program with a leading U.S.-based logistics enterprise. Integrating AI into our operations and clients deliverables is a primary operational focus. Recently, we launched True AI, our enterprise suite for agentive automation designed for complex business processes. The initial solutions, to AI underwriting enables insurers to assess financial and risk and medical risks with increased speed, consistency and accuracy. We have already acquired our first few customers for this platform. Additionally, we are seeing increased customer adoption for Finato, our Agentic platform for finance transformation and our Kaisers of accelerators for legacy modernization as organizations look to accelerate time to value. Demand for digital transformation remains consistent in our focus sectors. Moving forward, our priorities are strengthening our AI capabilities and product suite, expanding our presence in key international markets deepening customer relationships and model share, improving execution excellence across all delivery centers. Based on our operational performance and cash generation, the Board of Directors has recommended a final dividend of INR 5 per share, representing 100% of the face value for the financial year ended March 2026. I thank our customers for their trust, our employees for their execution and our shareholders for your ongoing support. We remain focused on our stated strategy and operational targets. I will now hand over the call to Ankush for our financial update.

Thank you, Rahul. Welcome, everyone, and thank you for joining us for our quarter 4 FY '26 earnings call. We have delivered a strong performance in our fourth quarter and for the full fiscal year 2026. Starting with our fourth quarter performance, our quarter 4 revenue stood at INR 519.3 crores, reflecting a growth of 4.4% year-on-year. Our ongoing cost optimization efforts and operational efficiencies helped us improve our EBITDA to INR 110.6 crores, a growth of 48.4% year-on-year. Our EBITDA margin for the quarter stood at 21.3%, reflecting an expansion of 631 basis points year-on-year. Our EBIT for the quarter stood at INR 88 crores, a growth of 61.3% year-on-year. Our EBIT margin for the quarter was 16.9%, reflecting an expansion of 597 basis points year-on-year. Before moving to the profit after tax, I want to highlight that our profit after tax was adversely impacted due to onetime exceptional charge towards fair value changes of contingent consideration payable towards acquisition of subsidiaries and impact arising from the changes in labor courts. Our PAT after noncontrolling interest was INR 44.2 crores, down by 1.5% year-on-year our PAT margin stood at 8.3%. Excluding the onetime exceptional impact, our adjusted PAT after noncontrolling interest would have been INR 72.9 crore, representing a margin of approximately 13.6%. In terms of segment, digital operations revenue for the quarter stood at INR 29.5 crores which is up by 12.4% year-on-year. Digital operations EBIT margin was at 23.2% for the quarter. Digital Technologies revenue for the quarter stood at INR 159.4 crores, which is up by 0.3% year-on-year. Digital Technologies EBIT margin was at 10% for the quarter. Digital experiences revenue stood at INR 60.4 crores, which is down by 15.8% on a year-on-year basis. Digital experiences EBIT margin was at 4.4% for the quarter. Moving to the full year FY '26 performance. Our revenue for the year stood at INR 1,872 crores, reflecting a growth of 15.3% year-on-year. Our EBITDA stood at INR 371.6 crores, a growth of 62.1% year-on-year. Our EBITDA margin for the year was 18.7%, reflecting an expansion of 540 basis points year-on-year. Our EBIT for the year stood at INR 287.6 crores, which is up by 58.7% year-on-year. Our EBIT margin was 14.5%, reflecting an expansion of 396 basis points year-on-year. Our profit after tax after noncontrolling interest stood at INR 194.2 crores, down by 5.3% year-on-year. Our PAT margin was 9.5%. As discussed earlier, our PAT was adversely impacted due to onetime exceptional charge during the year. Excluding the onetime exceptional impact, our adjusted PAT after noncontrolling interest for the year would have been INR 253 crore, representing a margin of approximately 12.4%. In terms of segments, digital operations revenue for the year stood at INR 1,101.4 crores which is up by 40.2% year-on-year. Digital operations EBIT margin was at 18.7% for the year. Digital Technologies revenue for the year stood at INR 626.5 crores, which is down by 4.5% year-on-year. Digital Technologies EBIT margin was 9.7% for the year. Digital experiences revenue stood at INR 259.2 crores, which is down by 8% year-on-year. Digital experiences EBIT margin was 7.9% for the year. In terms of geographical footprint, U.S. remains our largest geography with 54% of our business coming from here followed by U.K. and Europe at 22%, India at 16% and ROW at 8%. In terms of industry footprint, Education and Publishing was the largest segment for us, contributing 26% of the revenue. followed by technology and consulting contributing 22%. BFSI contributing 19%. Manufacturing and logistics contributing 12%, not for profit and government contributing 9% and retail contributing 9% and rest are 3% of the revenues. Our client concentration remains healthy with top 5, 10 and 20 clients contributing to 26%, 39% and 52%, respectively. Our billed DSO was at 63 days as of March 20. We continue to maintain a healthy balance sheet as of 31st of March 2026, our net cash and investment, net of debt stood at INR 639.2 crores. Overall, we are pleased with our quarterly and yearly financial performance and remain confident in our strategy to drive sustainable growth. 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] We have first question from the line of Vishal Shah from Albania Services.

Congratulations for the great numbers. There are a couple of questions. First one, what are you expecting for your upcoming 2 to 3-year plan, your growth expectation would be? And at what percentage are you looking for year-on-year growth .

So the growth we are looking at is high single digits for next year because we just launched some of our Agentic platforms. We've got some very good traction initially, but we still need to see the value of the performance. But we are by and large, looking at high single digits in the next year. SP1 So can you tell me about the quantity in numbers like percentage, what -- of course, like high debt, what could be like 8% to 9%?

Yes, 80% would be approximately correct. .

Sir, the other question is like you have INR 650 crores of odd numbers in cash. So are you going to divest invested in other mutual funds or other investments? Or are you planning for merger and acquisitions with other companies?

We keep talking about acquisitions. We are in dialogue with several companies, but we are cautious because you don't acquire the company and then get stuck. So traditionally, we have used our surplus cash for growth and M&A. So that would be the primary agenda with this current cash balance. Having said that, we do have -- yes. sorry, go ahead. .

No, no, no. Okay. Sir, there was a loss in your 16 crores of loss in net that you have set in exceptional items. So what is the problem of making profit .

No, there is no loss in exceptional item. We had labor code adjustment, and that is about INR 24 crores. So I don't know where I 26 is coming from, but INR 24 crores of adjustment that because the labor code has changed. . And it is across the whole industry. So many companies have had that, particularly labor iteration. SP1 Sorry, I missed it. It's negative net worth INR 26 crores of net worth was in negative. So this has been 1 of the subsidiary company where we have the negative net worth. We continue to see now profitable growth in that particular subsidiary as well, and we are confident in terms of we will be able to recoup it and then improve the overall performance. Yes, probably recover in the next 2 years or so. .

We have next question from the line of Bhavya Chera from Seven Island PMS or

Yes. SP1 Yes. So your EBITDA margins are some of the have been quite high this time. So will they be sustainable considering our product business is contributing more and more to the top line? And what is the expectation for next year? Will the margins improve or stay the same. .

So margins will move -- so we are at about 18.7%. So our EBITDA margin is about 18.7%. We are looking at another -- roughly 50 to 100 basis points next year. So by and large, it will remain steady. I don't see that moving substantially higher. .

Okay. My other question is, can you elaborate more on these products, Penato?And is there any new plant additions in this can extend more about this product?

Yes. So we've now made Financo into an agency platform. So we had to reengineer the platform quite a bit. and we're getting some very good traction with some large opportunities on agentic finance transformations on Finato. Yes.

So Parago is a finance transformation platform, which automates the entire finance, which is several companies, specifically in the manufacturing and logistics space. This platform is a generation platform, which is currently in production. . We are now upgrading and adding agent AI into it, which is what will a capabilities in it. So that is what is the innovation for the next developments which we are doing on that platform. It falls items more of a bank -- it's a backbone of our entire finance transformation.

Okay. Okay. My other question is, can you give me EBITDA of A&Q and Luminate.

I don't have it handy right now, but we can share that with you offline. .

Okay. Okay. That's it. The next question from the line of Aditi from well India. .

My question was relating to EBITDA. Like do you think the 50 to 100 basis points that you conserve because right now also like your costs have been cut from 2, 4 quarters, it has been nearing to INR 400 crores. So even if we take that number, you can still do a margin of 12% 21. So is that not possible?

It depends on how much we invest in our AI going forward because we have to invest in the agent are platforms that we are building and some of that will influence this EBITDA percentage. And as you know, that we are expensing out all our investments, we do not capitalize any of it. .

The next question is from the line of George Jon from Equity Inteligente.

hope I'm notable. So my question is on the newly launched True AI insurance on the piping solution. I believe you've already added clients in this. So could you please talk in detail about this tool and its monetization? Like is it primarily a onetime implementation that offering? Or is it going to be like a platform with recurring revenues?

It will be a platform with recurring revenues. It's not a onetime implementation. So there's an ongoing license fee and then there are some services that will be ongoing as well. Underwriting, as you probably know, is the core of insurance, and it's a very complex process because they have to analyze financial statements, medical statements and assess the risk of each individual before you do any underwriting for his health insurance. So that's why it is. Our next step is to expand that to claims on processing using Hence, Michele, if you want to just add in a little bit. .

Yes. So as Rahul mentioned, it is underwriting is the heart of the insurance business and extremely manual and complicated process. So with underwriting, we are automating that whole process. to a high degree, which makes 2 things. One it improves productivity, it improves accuracy and it improves the pie. So this -- so we've -- since we've launched about a quarter back roughly you're seeing some really good traction. It's a platform, and therefore, it is not a onetime implementation. It is something, but we are anyway -- we're moving towards more outcome-based and base pricing. So it follows an outcome and a transaction-based pricing approach. .

So we've got very good traction. We are talking to several companies that we've already signed up 3 or 4. So I'm very positive. This market is about $30 billion market globally. And I think we've got an early start. So our key element will be now how do we capture market share. Right now, we're targeting the health care health insurance market, we will then take it to P&C and life.

Life and -- no, sorry. So it is for life. And then we will take it into the June and changes, P&C Health -- so that is where we are the opportunity.

So these clients are they domestic or foreign in nature .

We've got a few domestic and a few overseas .

While we are sticking to overseas guide, but right now we are more over.

U.S. and India right now. .

Okay. And could you just walk us through some of your recent case studies because I know you've been going into AI projects. And I think you delivered some 70 projects already. And it would be helpful to understand the nature of these engagements, the kind of problems that they have addressed the industries and client segments and the kind of outcomes that you've achieved yes. So if you could explain.

I'll just give you a very high level, otherwise we go to detail.

Yes.

Yes. So we were just the logistics industry, the banking insurance retail. So these are the industries we've largely addressed. Some of them may have been generative AI, some of them have been agented -- so we've had a combination of both. The productivity gains have been anywhere from 30% to 60% for customers that brought their PC or the total cost of operation is down substantially, improve the accuracy and also improve the quality, the accuracy, the turnaround time and the cost, all of them were impacted. We've got very good traction on that. But now we are trying to focus very specifically on certain verticals. So we want to focus on insurance and logistics as 2 major ones. And therefore, we want to expand the the scope or the coverage of those platforms. So we try to concentrate on 2 or 3 and expand it. The other 1 that we are doing very active work with is Finato, which is an agency finance transformation solution. And there also, we've shown into some very large organizations and got a very encouraging response from them. On that front, the earlier version of Henato is installed and we've got a customer base. The new version, which is agency we've shown it, but we have not yet signed up any customer. I hope that in the next 1 quarter, we should have a few sign-ups. On the , we can give you details on computer vision kind of AI-driven case studies, agent I kind of case studies. There are different types. But maybe offline, we can share that with you.

[Operator Instructions] The next question from the line of Jay Ahuja, and India Investor. Please go ahead.

Hello.

Now orderable but still tracking, but we can hear you. .

Great number, sir, that you have highlighted how you're going to invest in AI and all I just wanted to know about the CapEx, are you going to increase the capital expenditure on interannual assets or on plant and equipment anything? .

We will have some capital expenditure in some of our real estate needs a little bit of an investment to this upgrade. But beyond that, no major capital expense. So we may have some of it. From a building -- because the buildings we have are a little old, and we may need to do some upgrades there. .

And sir, could you just tell me about the current order book? .

I don't have that number handy. But regardless remains quite robust and strong. So I think we are okay for next year. .

And of idea about the numbers, it would be really helpful.

I don't have that handy at marinades. But maybe for the next call, I'll keep that number ready. .

Okay, sir. And sir, 1 more question. Like it's worth 3 years that we are working with the hyperscalers and are you expecting any bigger will come from that?

Yes. So we are working closely with both Microsoft, Google and Salesforce. On the sales force front, we are -- we've got some large deals in the pipeline and we are hoping that they will materialize very soon. A few deals have already closed, which is very good and a few larger ones are still in the pipeline. If you -- the company we acquired called et their average deal size range between $50,000 to $70,000, our average deal sizes are now ranging between $0.5 million to $1 million. So we've got a significant uptick. As far as Google is concerned, we have engaged with Google on all our agent icare platforms. So our true AI and Finato, are all using the Google technology the underwriting technology is all Google and also the into TBB is another 1 where we are using that for legacy modernization. That again, uses a combination actually of Google, Microsoft and Cloud. So it's a mixture of multiple things working together. So all these hyperscalers, I think, are timing out quite well. And more from a technology perspective, but given the technology, I think we will get a good traction because they have the heft in the market to pull business.

That's really good, sir. So 1 more question. I've seen a component in other noncurrent financial assets, there was an unbilled revenue -- so could you just light up something like when are these revenues going to come back?

So it's a part of the regular cycle. So as part of the services we provide the services, while the billing may happen and feature at specifically for the fixed price engagements based on the milestone achievements, while the revenue is recognized on a percentage completion basis, the invoicing happens in the future dates. So we don't see any issues in terms of from a collectibility perspective on the unbilled that we are having. So there's no exposure per se.

But sir, from past 3 years, it's increasing only? So 1 of the reasons what you see is in terms of the -- our AFC business, which is the government business that we have, we have the terms which are agreed. There is an annuity component which is there, which is basically the billing will be done in the future dates. And that is the reason you see a slightly higher amount because of that reason. And as and when we are completing it, some portion we collected and some portion is deferred to the future collection while the work is delivered. And that is the reason you see a slightly increasing trend right now. It will taper down in last -- in next 1 year time frame, it will start to taper down then. We will start invoicing it.

The next question is from the line of Jade, an Individual Investor.

Congratulations on a -- just had a question regarding the acquisition. So we are supposed to finish it up by July. So as the valuation changed significantly the balance payment and what would be that figure if you can give it out?

Yes. The valuation has increased. So their performance has been very good. And the balance payments that we had to do. We had a variable component, which would go up or down basis business performance. And because the performance was good, we've had to -- we are buying out at a little higher value than what we had originally planned. So the total -- if you see the total exceptional items, our total exceptional items comes to about INR 65 crores, out of which INR 24 crores is for the labor code and about INR 41 crores is for the payouts. Not all 41 is excess, but some of it is a cut meaning you meaning more than what we are playing just because the business performance has been better.

We have done the fair valuation of the contingent consideration, which was payable and that's the impact which has been ripe in the books .

So I really what would have happened is in a very traditional model this would have been an investment in the old accounting rules. The new accounting rules requires us to write it in the P&L. So these comes are the exceptional items in the P&L. .

So as I understand, this INR 40 crores approximately is for the contingent like the balance a acquisition.

Correct.

Okay. So will there be an impact in the next quarter as well? Or it's all now back?

We are not expecting anything material in that. All right. So as I understand, this year close to TM acquisition, and there is -- now we like 100% men. .

That is correct. So the transaction is that we paid out in July. But because the payout is for the financial year ending 26 March 26, that's already behind us. And therefore, there is no more part the payout cash flow will happen in July. .

The next question is from the line of Jay Ajania Investor.

I was having 1 question about the Digital Technologies & Experiences segment. We have been facing for a decline in revenue and EBITDA margin for the past 2 quarters. So could you just enlighten anything about it?

So the digital technologies has been really scheduled project completions. That's been the major driver in digital technologies. However, we've maintained the margin in digital technologies, even though we had a degrowth in top line. . As far as digital experiences is concerned, we mentioned even earlier 2 quarters of quarterly calls that we were expecting some customers to move to their captive units, so that materialize. And that's why you see a dip and that's also impacted the margin. However, we've signed a few large deals in the last quarter of the year, and those will start ramping up now. I think this year will be a better year because we'll have the ramp-up of the deals that we've signed. And the scale down has already happened.

Also, sir, in the digital operations segment, we have consolidated the results of -- so is that why the EBITDA margins have been improved because of the T&T business we are getting -- because their EBITDA margins are about 24% to 25%, if I'm not wrong.

It has improved for both reasons, partly the TM and Parkour own operational efficiency and automation that we've done. So both have increased. .

Okay. So can you just give a guidance about the organic and growth from acquisitions for the next 3 to 4 years, that would be very helpful.

So the next 1 year is around the high single digits that we talked about earlier in the call, about 8-ish percent. Going 2 years, 3 years down the in, we don't know yet. Having said that, we are in dialogue with some companies from an acquisition point of view, but none of them have matured to the stage where it needs any announcement. So yes, we have a strong cash reserve and we will use that for growth in M&A. .

So would it be fine to assume that we grow organically 4% and the other 4% to 5% comes from acquisitions, would that be fine?

No, I'm talking about organic growth at about high single digits, around 8-ish percent. And then on top of that would be the M&A. .

[Operator Instructions] As there is no further questions from the participants. I now hand the conference over to management for closing comments.

Yes. Thank you very much for participating on this call. We've had a good year, and I'm very hopeful and bullish about a year going forward. So I look forward to speaking to all of you again next quarter. Thank you once again. .

Ladies and gentlemen, on behalf of Datamatics that concludes this conference -- thank you for joining us, and you can now disconnect lines. Thank you.