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

Ladies and gentlemen, good day, and welcome to the Datamatics Global Services Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Jagtap from EY Investor Relations. Thank you, and over to you, sir.

Thank you, Anuskha. Good evening to all the participants in the call today, and welcome to Q1 FY '27 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 Datamatics. In case anyone has not received a copy of press release and 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, EVP and CFO; Mitul Mehta, EVP and CMO. Rahul will start the call with 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, sir.

Thank you, Pratik. Good day, everyone, and thank you for joining the Datamatics Quarter 1 FY '25 (sic) [ '27 ] Earnings Call. I will begin by sharing some key highlights from our quarterly performance, following which Ankush will take you through the financial update in greater detail. We will then open the floor for a Q&A session. We have started the financial year '27 on a positive note, demonstrating the resilience of our business model and the trust our customers have placed in us. Our revenue for quarter 1 FY '27 grew at 9.9% on a year-on-year basis to INR 513.9 crores. EBITDA for the quarter stood at INR 101.1 crores, representing a 31.1% year-on-year increase, while our EBITDA margins improved by 343 basis points to 19.7%. This financial performance is a direct reflection of our continued focus on innovation, discipline, cost management and operational excellence. We are seeing strong market validation of our AI first strategy. Customers are increasingly choosing Datamatics for our ability to combine AI innovation with execution excellence, enabling us to win larger, higher-value engagements across both existing and new customers. The majority of our new deals we have won this year have been on the back of our AI capabilities and some recent examples include the SBI Life Insurance project, which selected Datamatics through AI underwriting to redefine underwriting operations using agentic AI-powered automation. An American pet and wellness and veterinary care provider expanded its engagement with Datamatics to deploy an AI-powered voice agent delivering natural conversation, faster response time and enhanced customer satisfaction. A leading American consumer product company selected Datamatics KaiBRE and KaiSDLC as an agentic AI-powered solution to extract and transform complex legacy business logic, accelerating application modernization, while enhancing scalability, reliability and performance. These wins underscore the growing confidence customers place in our AI capability and our ability to translate AI innovation into measurable business benefits. I am pleased to announce that the integration of TNQ Tech into Lumina Datamatics is now complete. The combined organization has strengthened our capabilities and continues to show healthy growth. We have firmly reinforced our position as a global leader and rank amongst the top 3 digital content outsourcing companies in the world. Looking ahead, we are focused on building upon the strong start of the year by accelerating the adoption of AI and advanced technologies across our solutions. We remain well positioned to help our customers stay ahead of the curve, while driving sustainable long-term growth for our stakeholders. With that, I would now like to hand over the call to Ankush Akar for the financial update.

Thank you, Rahul. Welcome, everyone, and thank you for joining us for our Q1 FY '27 earnings call. Let me take you through the financial performance for Q1 FY '27. Our Q1 FY '27 revenue stood at INR 513.9 crore, reflecting a growth of 9.9% year-on-year. Our EBITDA stood at INR 101.1 crore, a growth of 33.1% year-on-year. Our EBITDA margin for the quarter stood at 19.7%, reflecting an expansion of 343 basis points year-on-year. Our EBIT stood at INR 78.4 crore, a growth of 39% year-on-year. Our EBIT margin for the quarter was 15.3%, reflecting an expansion of 319 basis points year-on-year. Our PAT after noncontrolling interest was INR 72.3 crore, up by 43.5% year-on-year. Our PAT margin stood at 13.6% for the quarter. I'm pleased to share that we have recently rolled out our annual salary increment effective April 2026 and impact has been accounted during the quarter. In terms of segment, Digital Operations revenue for the quarter stood at INR 296.8 crore, which is up by 16.1% year-on-year. Digital Operations EBIT margin was at 19.3% for the quarter. Digital Technologies revenue for the quarter stood at INR 153.1 crore, which is up by 6.1% year-on-year. Digital Technologies EBIT margin was at 8.9% for the quarter. Digital Experiences revenue stood at INR 64 crore, which is down by 5.3% year-on-year. Digital Experiences EBIT margin was 11.7% for the quarter. Our billed DSO was at 60 days as of June 2026. We continue to maintain a healthy balance sheet as of 30th of June 2026. Our net cash and investments net of debt stood at INR 710.2 crore. In terms of industry footprint, Education and Publishing was the largest segment for us, contributing 29% of the revenue, followed by technology and consulting contributing 20%, BFSI contributing 19%, manufacturing and logistics contributing 11%, retail contributing 9%, not-for-profit and government contributing 8% and the rest are 4% of the revenues. Our client concentration remains very healthy with top 5, 10 and 20 clients contributing 30%, 41% and 54%, respectively. Overall, we are pleased with our quarterly 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 take the first question from the line of [ Yajat Shah ], an individual investor.

So, the expense approximately INR 40 crores to INR 50 crores a year as AI R&D investment. So, what would be the guidance there for this year? Are we expanding more or less this year as well?

We will keep it at approximately the same level because right now, there's a lot happening in that space, and we need to keep abreast with what's happening with latest technology, plus we are investing in the platform that we are building. So, we will sustain it at the same levels for this year.

All right, sir. Sir, one more thing I wanted to ask, we have reported INR 710 crore approx cash balances. This is before the INR 200 crore TNQ Tech payout?

That is correct. That payout was in this quarter. The numbers you're looking at INR 710 crores pertains to the last quarter end.

So, at current run rate, we would have INR 500 crores and approx INR 200 crores from the remaining 3 quarters. So, we would again have maybe INR 700 crores. So is there a plan for a buyback? Or will that be used for a better allocation like from acquisition?

We are in dialogue with some companies from an M&A point of view. And no conversation has matured to the level that we need to sort of report it, but we are in dialogue with some companies.

All right, sir. And last question, sir, would we report segment-wise data for AI as a service sooner or later since we are ramping up there?

A lot of the projects have, will have an integral AI component. And therefore, it might be difficult to call out just AI in itself. There are some projects that are purely AI, but many other projects have a combination of AI and the legacy work. So, it may be difficult to fully pull out only AI because everything will be automated on the back of AI. So, let's see how the projects unfold right now, but I don't think we'll end up doing a pure AI reporting because pretty much across the board, we will be implementing AI.

[Operator Instructions] We take the next question from the line of George John from Equity Intelligence.

It's good to see the pickup in revenues and margins of your digital operations segment. But over the past few periods, the Digital Technology segment has kind of had a muted growth alongside some margin pressure. So, is there some sort of seasonality in Q1 or and the fact that we have added some clients in the past few quarters, what are your aspirations for growth and margin, especially in the segment going forward?

So, we are seeing a good traction we are getting on the Kai underwriting solution and the KaiSDLC and KaiBRE solutions. These are for enterprise modernization. And we have kicked off some projects in that space already. So, the customer response has been very encouraging because these are for legacy modernization and using these tools, which are all AI-powered or largely driven by AI actually, the risk factor comes down, the time line comes down. So, a project that will take 3 years can probably done 6 months now. So, because of that, we see a lot of interest from customers looking at legacy modernization. So, reverse engineers legacy systems, extracts business tools and then forward engineers that to the target environment. So, I'm quite bullish on the Digital Technologies. Also, the underwriting solutions that we built is also getting some very, very good response. We are in dialogue with all the top insurance companies in India and of course, some of the good ones in the U.S. and Europe as well. And once again, I'm very confident that, that will give us a good revenue stream.

So, the underwriting product is going to be clubbed within digital technologies, is it?

Yes. So, what's happening actually is that we are getting a combination of both. So, operations and technologies are coming together because the operations understand business processes and technology understands technology. And it's only when they work together that you are able to deliver the maximum value to the customers. So, we are seeing more and more situations where they need to work as an integrated solution. And then it becomes a little difficult to separate them out as independent units or independent streams. So, yes, right now, a lot of our investments that we are making, we talk about it has been going into the digital technology space. So, we will recognize revenue there as well.

So, have you started booking revenue for this particular product? Or are we yet to see it?

No, we started. We started booking. We've got the first customer. We'll have a few more very soon.

[Operator Instructions] We take the next question from the line of [ Nishita Shanklesha ] from Sapphire Capital.

Yes. Is it better now? Yes. So, I just wanted to understand we had a very good growth in Q1 FY '27 Y-o-Y. So, is this growth trajectory going to continue? What sort of growth can we see for the whole year FY '27?

So, we have projected a high single-digit growth in our guidance. We are maintaining that. There is still a degree of softness in the market because of the war and the uncertainties. Fortunately, the conversions on AI has been higher. If you look at the -- this current financial year, about 60% of the deals we won have been AI led or largely AI driven. So, we see a good conversion ratio there, but we do see still some degree of softness in the market. Yes.

Right. So, like in Q1, we did around 43% growth Y-o-Y and you're giving a single-digit growth guidance for the whole year seems a little [Technical Difficulty] because of some seasonality where H1 is more dominating than H2. Is that the case?

So, what we are highlighting is the revenue growth to be -- which is Y-o-Y growth of 9.9%, which you see right now, INR 513.9 crores is what we did. The 43% growth is for the PAT, which is there. We will continue to maintain the healthy EBITDA margins, and we will sustain that.

And my second question is that our TNQ Tech integration is fully completed, what sort of revenue did TNQ Tech complemented in Q1?

So, TNQ Tech, anyway it has been integrated fully in our business. And what you see in terms of the Digital Operations revenue, it is already integrated into that, and that's the kind of improvement and growth that we have seen across all DO segment.

TNQ Tech is growing healthy, but I think going forward, what we need to look at is our digital content space, which is part of Digital Operations and an integrated offering. But I think the growth rate was -- if I had to hazard a guess and I don't have the exact numbers with me, somewhere in the range of about 12% to 14%. It's been a very good acquisition for us.

[Operator Instructions]

Hello? Pratik? Hello? Can you hear us?