Ksolves India Limited (KSOLVES) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Q1 FY '27 Earnings Call of Ksolves India Limited. We sincerely thank you all for joining us today. During this call, the management will as the company's operational and financial performance for the first quarter of FY '27, followed by an update on key business development, strategic priorities and the outlook ahead. This will be followed by an interactive question-and-answer session. Before we begin, I would like to remind everyone that the certain statements made during this call may be forward-looking in -- these statements are based on the management's current expectations and assumptions and are subject to various risks and uncertainties. Actual results may differ, and we advise participants do not play undue reliance on these statements. Please also note that this call is being recorded for compliance purposes. Representing management today, we have with us Mr. Ratan Srivastava, Founder, Chairman and Managing Director; Mr. Umang Soni, Chief Financial Officer; Mr. Manish Gurnani, Chief Technical Officer; Mr. Darpan Audichya, Head of Business Transformation and Consulting. I now invite the management team to deliver their opening remarks. Thank you, and over to you.

Thank you. Thanks. Welcome, and thank you, everyone, for joining our Q1 FY '21 earnings call. Before I begin, I would like to acknowledge a significant milestone in Ksolves journey. We recently completed 6 years as a listed company, having made our debut on the NSE on July 6, 2020. Over these 6 years, we have built a scalable technology services platform, expanded our global customer base, delivered consistent profitable growth and strengthen our position as a trusted technology partner for enterprises worldwide. We began FY '27 with geopolitical tensions and macro uncertainty that have made clients more cautious with technology budgets globally. And that caution has been visible across the industry. Clients are tightening budgets, delaying decisions and rethinking their technology road maps while continuing to experiment with newer AI tools and delivery models that can deliver measurable business outcomes. Against that backdrop, our consolidated revenue for the quarter ended June 30, 2026 stood at INR 41.4 crore, it is up 10% year-on-year and sequentially rated by 3.7%. The sequential moderation during the quarter was primarily driven by reduced technology spending and the ramp down of selected engagements by certain large clients. As the calibrated their technology investment in response to the prevailing macroeconomic environment and cost optimization priorities. As some of these engagement ramp down occurred towards the end of the quarter. We expect the full impact to be reflected over the next 2, 3 quarters, resulting in some near-term revenue softness. In response, we have intensified our sales and pipeline building afford to offset this impact. Also, we are seeing mixed signals in the market with several customers who we are previously cautious on AI adoption now moving forward with new initiatives and awarding new business. At the same time, we are pursuing to rent cost management initiatives to protect the bottom line, even in a period of softer sales with EBITDA for the quarter at INR 12.56 crores, it is up 26.2% year-on-year and broadly flat sequentially. EBITDA margin expanded by 389 basis points year-on-year despite the softer revenue environment. PAT for the quarter was INR 9.2 crores, up 43.3% year-on-year to down 5% sequentially in line with the revenue movement. PAT margin improved to 22.2% from 71% in quarter 1 FY '26. EPS rose from INR 2.71 per share to INR 3.88 per share. It is up 43% year-on-year. In view of these volatile market conditions and that cautious customer spending environment, we are seeing globally, it would not be prudent for us to reframe -- reform the revenue guidance for the current financial year at this stage. That said, we remain optimistic, we are watching market conditions closely, and we continue to pursue new customers and new market to build our pipeline for the year ahead and with multiple recent wins across our technology offerings. We have strengthened our global sales leadership by appointing Eric Paul as a VP, Head of Global Sales, [indiscernible] as the Head of Sales North America. Both leaders bring deep regional networks and enterprise relationships that will accelerate Ksolves sales pipeline across North America and its key AIML big data, sales force and Oodo service lines. We continue to target EBITDA margin as guided earlier in 25% to 30% range for the full year. And quarter-on-quarter basis. AI-enabled delivery continues to improve execution efficiency and enhance team productivity. Enabling us to scale more efficiently while maintaining a disciplined approach to hiring. We expect EBITDA margin to move towards the upper end of our target range as revenue scale and demand improves with further potential for improvement in EBITDA margin through better operating. The near-term environment requires patience and focused execution and we are approaching it with exactly that mindset. Our long-term positioning, client relationship, margin architecture, AI capability and balance sheet is all remain intact. FY '27 will be a year of resort navigation, and our priority is to emerge with a broader client base and a stronger deal pipeline and more diversified revenue profile than we entered the year with. Conclusion is that we will keep working on increasing pipeline, getting more and more business. We will focus more and more on AI and we will take more and more AI initiatives for coming 2, 3 quarters or for this year, as I said, margins we would be able to maintain between 25% to 30%. And next 2, 3 quarters, you will see -- you may see softer revenue but if it improves, then margins can go on upper side. Thank you, everyone. And thank you. I will now hand over to Umang to take you through the financials in detail. Umang, over to you.

Thank you, Ratan, and good day, everyone, and a very warm welcome I hope everyone would have got a chance to look at the earnings presentation and the press release by now. So I will now take you through the detailed financial performance for Q1 FY '27. Starting with the revenue performance. Our revenue for the quarter stood at INR 41.4 crores with 10% Y-o-Y growth. And on a sequential basis, revenue moderated by 3.7%. We got a much broader outlook recently from Ratan. So now coming on to profitability, despite the moderated revenue environment, we have maintained a strong operating discipline EBITDA for the quarter stood at INR 12.56 crores, growing 26.2% year-on-year and remaining broadly flat on a sequential basis. Our EBITDA margin stood at 30.3% compared to 29.3% in previous quarter and 26.4% in Q1 FY '26. On a year-on-year basis, EBITDA margin expanded by 389 basis points, supported by the revenue growth and the focused cost optimization initiatives. This improvement was partially offset by the compensation investments in AI capabilities and other strategic initiatives taken. On a sequential basis, by revenue decline, but the impact was largely offset through operating efficiencies and trimming of discretionary spends. The sequential margin remained broadly stable, demonstrating our ability to protect profitability in our soft revenue quarters. Moving on to profit after tax. PAT for the quarter stood at INR 9.21 crores, registering a 43.3% year-on-year growth. PAT margin improved significantly from 22.2% compared to 17.1% in the previous quarter -- 17.1% in the same quarter previous year. And on a sequential basis, PAT declined by 5%, in line with the movement in revenue and operating environment. Coming on to a business mix perspective, our core IT services business remained the key growth driver, contributing 98.3% of our revenue during the quarter. Our geographical diversification remains healthy with 82% of our revenue coming from overseas markets. North America continues to remain our largest versus market contributing 63% of revenue. followed by India at 18%; Europe at 6%; Australia, 3%; and rest of the world at 10%. From a balance sheet perspective, the company remains debt-free with cash and bank balance of INR 17 crores as on 30 June 2026. We maintained a strong cash conversion and prudent working capital management, which provides us flexibility to invest in growth initiatives while maintaining shareholder returns. During the quarter, the Board has declared an interim dividend of INR 4 per share for FY '27, reflecting our confidence in the cash generation capability and long-term sustainability of the business model. Overall, Q1 FY '27 reflects our ability to deliver profitable growth despite a challenging demand environment. Our focus remains on disciplined acquisition execution, improving operating leverage, strengthening client relationship and maintaining financial flexibility. With this, I will now hand over the floor to operator to open the Q&A session. Thank you.

Thank you to the management team for sharing their insights and the retail business update. [Operator Instructions] Let's begin. We'll take the first question from [ Mr. Parth Soda. ]

My first question is regarding the Top 10 clients still contribute more than half of the revenue. Is the current slowdown concentrated among a few large customers or spread across the client base?

So for you this quarter? Yes, Umang continue.

For this quarter, certain large engagements were ramped down and the impact of which, as stated by Ratan, the impact of which would largely be seen more in Q2 and Q3.

Umang 1 second. Out of 10, if you will say, then most of them are stable. They're increasing -- they are planning to increase their business. They are planning to use the AI, but out of 10, 2 have 2 customers have reduced suddenly their business, and they were with us for the last 3 years. They have started with a very small amount of the work. But for now they, we are large. Okay. And suddenly, they said that they want to stop the work, okay? Because of the AI and all. And next year, they may think if everything goes well. So this is not something that they have reduced because we were working for them on the T&M project, okay? So they have not just reduced our work. They have reduced their head count also largely. But 1 second -- 1 thing I would like to add I am in touch with these 2 customers. And they are saying that next year, things will improve, okay? So if -- if everything goes well, then they will ramp up the product and work again.

We'll move on to the next question from [ Mr. Apoorv. ]

So my question is, the 2 clients which we have mentioned right now. So is it that those clients want to try the in-house and they are that's why they are reducing their employee count and also us?

No, no, no. This is not the reason. Actually, in fact, we are working for them heavily -- we were working for them heavily with AI okay right, thing what happened with the geopolitical and means with the other internal reasons. They have decided to reduce the head count worldwide. Okay. So that is impacted to us. So AI, definitely, I would say that is not the reason. Their business decision post this, okay? They had -- with 1 customer, management got changed. Okay. So new management has taken this decision. And with another customer, they said that they have some other losses. So manage those losses, they want to reduce the headcount. So AI, definitely, it is not something that they want to use AI. So that's why no. We have already engineers. If that is the reason they will hire engineers from us. Okay.

And sir, do we see any other challenges? As you mentioned that our next few quarters can be a little dull. So -- so you were referring only about these 2 clients? Or you see overall demand scenario weak or some -- there are some challenges if you can share that?

Okay. Sure, definitely. So what happened, see, [ Apoorv, ] since this year, we have completed 6 years listing? And 24 on calls, I have attended almost okay. And every time I was very excited to tell everyone that we have 5 large customers, 10 large customers who are contributing 40%, 50% in the revenue. But there is a downside also. Okay. If 1 or 2 large customers, suddenly, they decide to ramp down -- shut down the business. It will affect your stable business, okay? My other customers, my other things are going very well. Okay. Even with -- if you will see the numbers, even with this number -- drop down in the number -- so even the downsize of this number, okay, we have added a few more customers. We have added a few more revenue in this quarter, okay? But why we have said a software may be soft, okay, because we are moving 1 step now. forward and 2 steps we are already back. Okay. So cover that 1 is step. It will take time okay. And if things get changed Okay. Then maybe we will cover very fast that gap, okay? I can see the pipeline. I have the pipeline, okay? But I would like to be conservative. I don't want to give any false -- false hope. Okay. That's why I'm saying that for next 2, 3 quarters, maybe it will be softer -- but it is not something that we are not getting new business. We are continuously getting new business. My team is continuously busy attending new calls okay? And good thing is that now quality of the customer, okay, is improved means planning okay? But because of these 2 losses, now we are in that situation, and we are talking this problem. Otherwise, things were definitely different this quarter and for next quarter also.

Okay. So like do you see the current year to be same as the FY'26?

In terms of revenue?

Yes.

In terms of revenue, maybe. But if -- as I said, that is if things go well go well, it may change. Okay. It may change. But yes, you are correct at some stage, you are correct. But margin will definitely improve. It will not it will be always between 25% to 30%. And it may go on upper side if we will get some more business a part of this.

Got it. So what I understood from your last statement was that even we have lost a few customers -- 2 customers and -- but the margins would not be impacted.

Margin will not be impacted. The reason is that we are not hiring. Honestly speaking, largely, we are very -- we are hiring only on the requirement business. And second thing, we are heavily using AI, we are able to increase the output by using AI. And this is the fact that in future, we will -- we may be triple or whatever the output with less number of the new resources. Right now, things are -- we can say that developers efficiencies getting increased day by day with the help of AI.

So like have you -- like I remember from the last couple of quarters of con call that we are implementing and bringing up the efficiency through AI with some with some work in 1 to life, right? So if -- have we measured something of -- is there something where we can see the improvement in the efficiency.

See, I can give you the answer, but I have my friend and CTO in this call. I will pass this question to Manish. Manish, can you explain that -- can you give the answer of this question.

Sure. So first, how are we leveraging , right? We are using AI in both nontech functions across all the organizations, all the Ksolves are, you can say, almost I certified. -- including nontech right? We have been working on this initiative since almost more than a year, I would say no. We started with -- even before cloud was there, right, we were using cursor and other copilot -- then there's -- today, there is Claude, which is reading it right. This has been our, you can say, strategy for quite some time. And that has now started giving us these results. The developer efficiency, I would say, is almost 25%. So what I would say is what -- what 4 people are doing earlier, right? Now that is being done by almost 2 people, in a very, I would say, at a very high at a high level, okay? For some senior developers, it is triple. So 1 person is being able to do more than 2 people's work. Because being a senior person, he knows AI to be used in the right way. We are using AI for co-development. We are using AI for writing your test cases, automating your entire test suites. Then we are using AI for DevOps, where your entire infrastructure is being scanned via AI is telling us to use these other rails. These are the things that need to fix it or sort of a security scanning using AI. And then we are also using AI for a lot of, let's say, like I said, non tech like we are bidding for RFPs, we are bidding for some projects we are building of rate. So that is also being sort of, you can say, saving time when we are using AI for that, okay, then some areas where we have seen AI help us really lots. So for certain, I would say, low label functions, AI was -- it's like you're just replacing a human with that AI but for certain niche areas, let's say, if I'm talking about big data, right? Just replacing a person with AI will not work because you need to have knowledge, you need to have that technology understanding of that the -- it's a complex technology, right? So over there, we have our senior engineers who are now certified on to Claude use AI to do things that they were taking, let's say, maybe a week to do that right now, they are doing that within a single day. So that's how the efficiency has been brought into us.

Sir, we have a few questions in the Q&A tab. The first question is you mentioned an international bank deploying the Ksolves AI hosted platform across its operations. How big is this deal in revenue terms? And is it a onetime project or recurring platform income?

Okay. So we have started with a very -- with a small amount of the work, okay? But when we have delivered the project, they were very happy and then they have opened multiple RFPs, okay. And until now, I cannot disclose the number, but we have 1 few RFPs and few RFPs are in line. We don't know what will happen. But we have received the feedback directly from the management that they are very happy -- regarding the AI project, again, Manish will let you know that how big it is without disclosing the number, but how big it is, it can be a -- Manish can let you know -- Manish over to you.

Okay. All right. So this is -- think of it like it's like 1 of the most leading banks in that region, right? For them, AI has been -- they actually want to be the forefront for bringing transformation into the banking industry in their region. And they are actually at the almost from what we have seen in that region, nobody else compares to them in technology, the way they are advancing. They are looking at using AI in across almost all of their entire banking functions, starting from, let's say, a customer wants to understand how to open an account, what are the products which are available, right? Then if you want to, let's say, what is my -- let's say, I've taken a loan, right? What is my payment schedule? What if I want to reset that no, right? What if I'm applying for a loan, whether I'm eligible for that or not, right? This was all being done manually. It is still being done manually quite a large area of it, right? These are some of the uses I'm getting, right? They are more than 50 use cases like this. They are looking to completely bring in AI across all of these. And we are the principle, you can say, vendor for this. We are helping them build this entire solution deploy the entire solution. And the idea is that this will help the bank to position themselves, like I said, right, as the forefront for that entire region. No other bank in that region is even right now near to them. And that project is where we are -- this is still in discussion, but -- the goal is that this will be almost what I see is around almost a year-long project.

Year and long and important thing is that -- this is, I can say, excellent milestone for Ksolves that if we will deliver this project, we will be first preference for sales -- we will be 1 of the good preference for the sales force if they will have any bank for AI implementation. The sales force is directly involved in this. So this is 1 of our opportunity in AI. We have other also, but you asked a question about this one. So we have explicitly explained you.

Thank you, sir. Now we'll move on to the next question. Your product business is still a small part of revenue. What is the strategy to increase the contribution from products over the next 2, 3 years? And which of your own product, do you believe has the biggest growth potential?

Okay. So in last con call, I have explicitly mentioned that now we are focusing only on services, okay? And in future, we will be completely service-based company. We will not divert our focus. And you can see the result now that margins are improved. And in future, while we are confident that margins will improve. Even revenue is softer. So revenue may be soft, okay? Because we know that where we have made the expenses, okay, last year. And I was -- I'm continuously saying in last few con calls that this year, these expenses you will not see, and you will see the margin improvement even numbers are not changing. Revenue is, you can say, Q-on-Q or whatever is not moving up. The still margins will be good. That is the reason. Second thing, that is the reason we are saying that if we will increase the revenue Q-on-Q, okay, then margins will go on upper side. Okay. So now the conclusion is that of this answer, that we are completely now a service-based company, and we will -- we are focusing completely on services, acquiring new businesses, maintaining -- continuing the new old business at the same time.

Okay. Thank you, sir. The next question is North America contributes more than 60% of revenue. Are we planning to diversify into Europe or the Middle East or India?

For Middle East, I'm not confident in the last quarter, I have not seen any new business from the Middle East and for the next few quarters. I can again see -- I can again say that I'm not confident we will get new businesses from the Middle East. But yes, businesses which we have right now from the Middle East they are continuing, okay? The few businesses have yearly contract, they have renewed the contract, okay? So old businesses are with us, but new businesses somehow -- you know the situation. Okay. Now coming to your question, we have expanded -- we are trying to expand our business in Europe as well as in Australia. Okay. So Europe, Australia and U.S. will be our major focus for acquiring the new business.

Okay, sir. The next is have you done any layoff or -- it is related to the employee count because we have got some efficiency because of AI?