Saksoft Limited (SAKSOFT) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Saksoft Q4 FY '25 Earnings Conference Call hosted by Monarch Networth Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Vinay Menon from Monarch Networth Capital Limited. Thank you, and over to you, sir.

Thank you, Ria. Good afternoon, everyone. On behalf of Monarch Networth Capital, it's my pleasure to host the senior management of Saksoft. We have with us Avantika Krishna, Chief Sales Officer of the company; and Mr. Niraj Kumar Ganeriwala, CFO and COO of the company. Mr. Aditya Krishna will not be able to join due to some personal emergency. Now I will hand over the call to Ms. Avantika for her opening remarks. Thank you.

Thank you, Vinay. Hello, and good afternoon, everyone. Welcome to our earnings call to discuss the performance of the fourth quarter and financial year 2025. Let me start off by briefing you on the key business highlights of the fourth quarter and full year ended 2024-'25, after which my colleague, Niraj, COO and CFO, will brief you on the financials. As you all might be aware, the IT sector has been facing several headwinds globally. Despite these, I'm pleased to say that we managed to report a good performance during the period under review. During financial year '25, we made significant strides by making strategic investments in building AI frameworks and accelerators that help our clients accelerate innovation, enhance engineering productivity and confidently scale their AI initiatives. Our AI accelerators, including SakPilot, Quality 360, SolidHub and [Sakcelerate], these accelerators enable transformation for our customers by providing strong foundation for automation, agility and intelligent operations across the software product engineering life cycle. Parallelly, we accelerated our go-to-market initiatives by onboarding high-caliber sales talent and expanding our client partner network. These efforts have been aimed at deepening customer relationships, improving market coverage and driving sustainable growth. We're beginning to see early traction from these initiatives. A notable highlight of the year was the addition of a new client in the banking and financial services vertical, contributing an annual contract value of approximately USD 0.5 million. This win not only validates our focused approach to high-growth verticals, but also demonstrates the growing relevance of our digital solutions. On the financial front, the Board has recommended a final dividend of INR 0.40 per share, 40% of face value of INR 1, bringing the total dividend for financial year '25 to INR 0.80 per share, 80% of face value, in line with our commitment to delivering shareholder value. Now I would request my colleague, Niraj, to give you the financial highlights for the quarter under review.

Thank you, Avantika, and thank you, everyone, for taking the time and joining our earnings call today to discuss the results of the fourth quarter of the financial year 2025 under review. For the fourth quarter of the financial year 2025, revenues were reported at approximately INR 240 crores, reflecting a robust year-on-year growth of 23.1 percentage. The operating EBITDA for the quarter stood at INR 36 crores, which is 9.3% increase year-on-year, with the EBITDA margins at 15.17 percentage. The net profit for the quarter was around INR 30 crores, which grew 29.4% year-on-year and 11.1% quarter-on-quarter, with the profit after tax margins being at 12.52 percentage. For the full financial year 2025, the revenues were reported at INR 883 crores. This represents a growth of around 15.9% year-on-year. The operating EBITDA for the year stood at INR 146 crores, which grew by 7% year-on-year and the EBITDA margins for the year were at 16.56 percentage. The net profit was at around INR 109 crores, which grew year-on-year by 13.1 percentage with the PAT margins being at 12.32% percentage. Now coming to revenue split by geography for the current year. The Americas contributed to 42% of our total revenues, whereas Europe contributed 23%, and the remaining 35% came from Asia Pacific and other regions. The onsite revenue continues to be at 45% and offshore at 55% of our total revenues. The revenue split across verticals for the financial year 2025 are as follows. BFS contributed to about 30% of our revenues; Emerging Verticals around 46%; Logistics, 13%; and Commerce contributed to about 11%. Coming to some of our customer metrics. Saksoft has around 15 customers of USD 1 million plus revenues. The total employee count at the end of the quarter stood at 2,618, out of which 2,373 were technical, with the utilization level of the employees, excluding trainees being at 85% for the financial year 2025. That concludes the updates on the quarter, and we can now open the floor for the Q&A session.

[Operator Instructions] First question is from the line of Vinay Menon from Monarch Networth Capital Limited.

Congratulations on a very good set of numbers. So just one thing, sir. We have now mentioned this emerging vertical in this quarter. So -- and you changed the segmental data a bit. So can you give me some clarity because it's not mentioned this as a vertical in the earlier quarters. So what has changed as such?

Vinay. So nothing has really changed with regards to the segments. The focus is still the same. We've just renamed them. And so emerging verticals originally was Hi-tech, Media and Telecommunications or Hi-tech Media Utilities, HMU.

Okay. Okay. Great. That is helpful. And in terms of growth guidance, any guidance for '26? Because we are seeing some relief from tariff issues. And also any kind of guidance you can give for '26?

So Vinay, it's very difficult to give a guidance. But obviously, we have targets, and the objective for the current year for the management team is at least to do a growth which we have done in the previous year and might be try and do better. But at a high level, we are looking at a range of INR 1,000 crores to INR 1,100 crores for the financial year '26.

Okay. That really helps, sir. And in terms of verticals, what verticals will be like leading this? Like what could be the main drivers on vertical side?

In terms of verticals, I think one of the focus areas, whilst Avantika did mention that the Emerging Verticals is more of a rebranding for Hi-tech, Media and Utilities. I think that is a vertical where we will see a lot of traction, growth and progress. That is also primarily because of the recent investments which we have done. If you note the acquisitions which we have done on the Salesforce and on the ServiceNow area, which is around intelligent products, we do believe that a lot of work in these areas will be on the new age vertical. And that's a vertical where we might see some significant growth in the coming year. Duly supported by BFS, but I think BFS and emerging verticals should see a better growth.

[Operator Instructions] Next question is from the line of [ Vikas Shrivastav ] from RBC Financial.

What I'm hearing on the call, first question, is this, that you are still growing in the range of 16%. A couple of years back, we had made a mission statement of $500 million by 31st March 2030, if I remember, which would require us to compound at about 26%, 27%, 20% somewhere in that range percent CAGR per year to get there. You've done about $100 million this year, the last financial year. So what are we looking at? Have we -- is that vision, is that target, is that goal still in sight? Or is it something which we are not reaffirming now? And even with your current target of INR 1,000 crores to INR 1,100 crores which you are talking about, are we still looking at 10% to 15% growth per year, which is nowhere close to what our vision statement was, if I may call it a target or a vision statement. And the other thing was that your -- that was the first question. Second question was that your stock option, which you have allotted to your employees for the last 2 years. Most of it would still be probably a little under water. How do you find stock options and retention of senior management as an instrument of compensation, paying out when -- at least optically right now, the stock options are not accretive to employee compensation for the last 2 years?

So Vikas, I'll try and answer the first question and then I'll hand it over to Niraj to answer your second. The first question on your vision statement of $500 million by 2030. We are -- as a company, we are confident that we are still going to make that vision that we promised. Yes, we have -- as you know, that there are headwinds in the U.S., and that's why the guidance that Niraj has given is basis that, as we don't know what will happen in the U.S., Trump keeps changing his mind every day, so we're all uncertain. But I think the last 1 year, we have really focused on our positioning. And so we have invested a lot of time in our AI accelerators, like I mentioned. But we've also invested a lot on the platform side. And that is what we're seeing over the next 2 years will definitely build our pipeline. So we are -- yes, we are being a bit conservative on the guidance, but that's due to the headwinds that we're seeing. And -- but I think from a confidence level, we're seeing pipeline build. And as of now, no negative impact.

Coming to your second part of the question, Vikas on the ESOP options, you've rightly pointed out that most of them would be under the water. But I think that's the nature of these -- this compensation criteria. The management team and the senior people are very, very committed. And other than a couple of them, the key management team and a number of them have been with the company for 10-plus years. So they have seen cycles. And I think it's only a temporary cycle. The team is committed and all of us are working towards that goal of USD 500 million. And everyone knows that as we move forward and we are inching closer to those targets, these options will give the return which they expect. So it is definitely not a deterrent. In fact, any new senior hire we look at, they are, in fact, more keen to get options because this is still considered one of the most rewarding mechanisms.

Okay. So if I may just repeat what you said, I'm sure that answered that we are still, in the next 5 financial years, at an average of a CAGR of anywhere between 25% to 30%, is not off the -- it is not off the table, it's still distinct, clear possibility or a goal which the management is aimed at. That is one takeaway from me. The second question was, what are we talking about in terms of EBITDA margins, et cetera? We've been investing in sales and platforms for a while now. We were -- if I remember right, and I could be wrong at the time said that you should be looking at about 18% in this competitive market. So are we still staying that? Is there pressure on margins? Has the market become more competitive? Or do we need to pass on more? Those were the 2 questions which I had.

So the first one, yes, just to affirm what Avantika had said, and your statement, that, yes, we are still looking at the USD 500 million. The CAGR still is expected at 25%, 30%. CAGR being CAGR, so one year could be lower, other year could be higher. But as a team, we are all still focusing on that number. It's not a moving target. And we are constantly looking at how we can achieve the USD 500 million. On the second point, EBITDA, yes, 18%. In fact, in the current year itself, you would have seen it's slightly come down. We are closer to the 16.5 percentage. Whilst we are growing and reinvesting, there will be a short-term drop. That's mainly because of hiring of the salespeople, investment in the accelerators, investment in the center of excellence, capabilities which we are building up. But those are maybe a year or 1.5 years phenomenon. And once they start kicking in results, it should go back to the 17% to 18%. But rightly said, for the current year, we were at around 16% plus. And for the coming year, we could be only on a similar range, if not higher.

Okay. If I may follow up with a few more questions.

Sure. Sure.

I did see in the Investors, shareholder, there is a 2% shareholding by FPI. Is this something new in this corner? Has it been carried forward, from the 2% FPI shareholding, has it been carried forward from previous years?

They have been there. So the FPIs have been in and out, and their shareholding has been continuous. It may not be the same. It may be the -- some of them would have come, some of them would have gone. But the shareholding of FDI, FII has been around this percentage or slightly higher in the last 24, 36 months.

Got it. Got it. And in terms of -- our sales team, we're doing a lot of hiring in the last 2 years. In terms of any attrition, have we lost people? And that was one question. And another question was on, are we in this -- we've been -- done a lot of small acquisitions. Are we now talking about more acquisitions in the pipeline in the near future? Or are we talking about organic growth? Is emphasis more on organic growth now to meet our targets of turnover?

So on the sales side, we are constantly investing in the sales team and, more importantly, sales team on the ground in the U.S. But we are turning around quite quickly. So if the performance is not good from these resources, we take decisions fast and we replace. So our churn rate is good, and we will act fast when we need to.

In terms of acquisition, Vikas, whilst we have done a good set of acquisitions, have acquired a lot of capability, and the focus will be on the organic. But historically, we have seen that the growth has come both from organic and inorganic. And if there is something which we come across as a good asset, we will be happy to acquire. But currently, the focus is more on the organic side, especially with the intelligent platforms, the Salesforce, the ServiceNow capabilities, which we have acquired. I think that's going to be one of the push factors in the current year for us.

That's good to hear. So one last question. In terms of all our acquisitions, have they completely been integrated into Saksoft, everything is done and dusted as far as integration is concerned, and whatever benefits from these acquisitions should be now accruing now towards a consolidated Saksoft?

Of course, so we have a very clear plan for integration, Vikas and it's a 30, 60, 90-day plan. And by the 90th day, the deals are integrated, the sales team, delivery teams, support team. So I think whatever we have acquired is fully integrated. In fact, the good thing is some of the growth which has come in this quarter is also as a result of the capability which these acquisitions have brought in, taking them to the existing set of customers. So it's been a good integration, which we feel, and it's going in the right direction.

Sorry to interrupt. Can we request...

So therefore, what you're saying is that the synergies are -- yes, let me just finish. The synergies of -- should show in full now going forward, not only the integration, but the synergies you were looking for.

Absolutely. Absolutely, Vikas.

[Operator Instructions] Next question is from the line of [ Rohit ] from ithoughtpms.

Sir, and ma'am just this question which was just asked previously, this -- your ambition to be $500 million. So just wanted to sort of -- I'm sorry, new to the company, so...

We are sorry to interrupt, sir. We cannot hear you clearly.

Hello? Can you hear me now?

Not clearly, sir.

Is it any better now?

Please go ahead.

Yes. So my question was on your aspiration to be $0.5 billion sales company, top line company by FY '30. So sir, given this is -- and ma'am, this is a very crowded space in terms of IT services. So what gives you that edge? What is a niche that we are sort of focusing on? I'm sorry, I'm new to your company so if maybe this question is very basic. But just wanted to get your perspective on what are the white spaces or what are the gaps or areas that you're going after where you're seeing that there's opportunity to scale up from $100 million to $500 million?

Sure, Rohit. So as you are new to the company, I'll give you a little bit of history. We have traditionally been focusing on domain-specific technology solutions. And the domains that we focused on were a small handset of them, like one was the banking and financial; the second is Hi-tech, Media and Utilities; the third is Logistics; and the fourth is Commerce. And the last, I would say, 5 to 6 years, we were focusing on these four mainly and really building our solutions that are catered to these industries and specific. Very recently, maybe the end of last year, we engaged a small consultancy firm and felt it was a need to transform in this very evolving industry that we're in. And AI being the front of everything, we felt it was important to also transform. Otherwise, we won't be relevant tomorrow. So last year, we spent a lot of time, like I mentioned, we've spent a lot of time and investment in AI frameworks and also AI platforms. And we've now focused our capabilities on intelligent products and intelligent platforms. So what we mean by intelligent products is helping customers in their entire product engineering life cycle or software development life cycle right from building new products to enhancing existing products, or even sustaining these products and how can we leverage AI in all these 3 initiatives? And the second area is intelligent platforms where we've chosen 5 platforms that we want to invest in. And the acquisitions last year added those -- 2 of those 5. And these 5 are including Salesforce, ServiceNow, Databricks, Snowflake, and HCL and Commerce. And we're just sort of helping customers modernize, implement, customize, help them sort of optimize in these platforms. And so these are the areas that would kind of create a niche for ourselves in a crowded market. Yes, you're right. It is crowded. And so we see ourselves also competing with the larger players, Tier 1, Tier 2 players. But I think because of our size, we're known to be flexible. Our turnaround time is quick, and our customers like us for a quick turnaround time and our agility. So that's how we're creating a differentiation in the market.

Right. And if I got that answer correctly to the previous participant, you mentioned that the bulk of this incremental growth that you are seeing, that you will probably do, will be organic? Is that the right understanding?

Yes. So it will be a mix of organic and inorganic, but obviously, organic has to be in the forefront.

Right. Right. And so today if I see the verticals that you mentioned in terms of your revenue mix, so in this quest of this next 4, 5 years, do you see this mix changing? Or do you think this mix will broadly be the same and you have a lot of opportunities to go deeper into your existing clients or existing verticals?

I feel that we have a lot of room to grow in these 4 verticals. So I don't see us adding on at this point in time. I think Hi-tech is definitely a new area for us. We started working on it and focusing on it only last year. So the market is huge there. And that's why I don't feel -- we don't feel that there's a need right now to add on verticals.

Next question is from the line of Amit Jain from Monarch Networth Capital Limited.

Congratulations on a good set of numbers. So actually, again, continuing with the previous participant question regarding the strategy, the differentiators. So I just want to get more clarity on, when we say intelligent products, so does it mean that are we collaborating with these products, like those companies who are manufacturing the products like Micro. So when we say intelligent products, which are our clients in this case?

So when we say intelligent products, it is independent software vendors that we're referring to that will be our customers. And these ISVs, we rename -- we call them is selling products to the market. So for example, a large ISV would be Salesforce or ServiceNow. Those would be enterprise ISVs. So intelligent products are to ISVs in the space. Did I answer your question? Because the line was a little unclear. So I'm just wondering if I answered the question right.

So I just want to ask that whoever clients in this case, when we mention about intelligent products, so Avantika, once more, that recently one of the peer company has highlighted a major loss. One of their vendor in this case because of the AI has become a big disruptor, and the contract value has drastically come down. So are we seeing that threat? Because as I said, again, there are a lot of disruptors which are happening. So how are we preparing ourselves? Because that can hit us as well. So how are we preparing for that?

Yes, definitely, AI is a disruptor in the market. But we don't see that situation where it's impacting us. We feel it as more of an opportunity, because we can actually go into a new customer where they have another vendor working for them. And we can disrupt that space by offering them lower cost, or in terms of improved efficiencies over time. So we would -- we're taking it as an opportunity right now.

And in terms of hiring, so it's just -- if you can just highlight whether are we going to -- okay, you have highlighted that, yes, we are hiring good salespeople, but on the engineering side, engineer side, are we moving up the scale, maybe going for some hiring PhDs, some -- going to premier institutes, engineering institutes, to get that domain expertise to move up in the value chain?

So Amit, we are hiring across the value chain. And what is working well for us, especially on the engineering side and the AI side, is a lot of work we are doing is building these frameworks in-house. And we have a regular mechanism of training and upskilling our resources. So whilst we might need handpicked senior guys who might be required, but at the end of the day, it's more training, learning and development and upskilling our resources, which will ultimately benefit us.

Understood. Niraj, just lastly on the margin side, I can understand, I appreciate that there's, yes -- and we don't mind if the operating margins have come down a bit. But is this a new normal going forward. Do we, in our modeling, should we presume that this will be the new normal, maybe the 16%, 17% band?

Maybe for a year or 2, Amit, I would say that it would be a new normal. Because like I had said, 5 years back, when we were about $50 million and when we moved up to $100 million of revenues, we were about 12%, 13% of margins, which went up to 17% to 18%. So the costs do come in early, but they don't stay along too long when the results start to kick in. But I think for the next 12 to 18 months, it would be realistic to say that this is the new normal.

[Operator Instructions] Next question is from the line of [ Ritika from SR Capital ].

My first question is like any light on account mining strategy?

Yes. We have -- I think if you had attended our last earnings call, we were very clear that we have now divided the sales team into account farmers and hunters. So no salesperson is doing both, and that allows them to have a clear focus. So account mining, there's definitely a lot of focus. We have named strategic accounts. And for each strategic account, we have a dedicated client partner close to the customer, so on the ground, meeting the customer on a daily basis. Also a clear strategic plan for them and how do we grow. So yes, there is a clear account mining approach and focus is given on that front.

And also our contribution has reduced in top 5, 10 and 50. So like any specific reasons for that?

No, there is no specific reason. In fact, the focus has been that customers who are in the lower rate, we try and bring them up. Because as a part of account mining and strategy, we do categorize the customers into A, B, C category. And those in the B category, which have a good potential to grow, the objective is to try and see how we can increase the revenue share from us in them, which is why you would have seen that we also had a new customer in the $0.5 million range this time. There is no loss in the existing set of customers. It's just that we are focusing more on, I won't call it the tail, but on the next 10 set of customers, whom we can mine and make it more better.

Okay. Just last question. What is the utilization for this quarter? And what is the max that we can do?

So the utilization for the quarter is around 85%. I think expecting anything beyond that would be definitely challenging. The reason we have also been at around 85% is the attrition levels have been low. And we are investing in capability and the centers of excellence. There could be quarters because of some efficiency, we could see 100, 150 basis points higher. But I think 85% to 86% is typically the high end of the utilization for a company of our size.

Next question is from the line of [ Anjali from Value Capital Limited ].

Sir, 2 questions. One is, could you highlight the reason for increase in DSO from FY '24 to '25? And how do you expect that moving ahead?

Sorry, can you just come back on the question, please?

Am I audible?

Yes, yes.

Sir, I was asking for the reason for increase in DSO from FY '24 to FY '25 and how to expect this going ahead?

I think we've increased almost from 67 days to 74 days. I think those are short-term blips. We really don't think it will go beyond 75 to 80 days. It's also because of the texture of revenues. If you see that the contribution from the Asia Pacific and other regions is almost 35% plus. So the payment terms in most of the APAC is anywhere between 60 to 90 days, whereas in the U.S. geography, it is 30 to 60 days. So I think 75 to 80 is where the DSO will be there, but nothing of concern.

Sure. And just another one, that I see that the debt has increased despite we have cash in our balance sheet. So what is the specific reason for the same? And are we expecting to reduce the debt? And when can we expect that?

Yes. So the increase in debt is a short-term phenomenon because you rightly pointed out there is adequate cash on the balance sheet. The only challenge is it is spread across between the overseas geographies and India. This debt was taken for the acquisition, which we did in October of last year. But it is short term, and we strongly believe that in the next 6 to 9 months, they should be repaid off. So it's basically a short-term debt.

Next question is from the line of [ Haris Ahmed ], an individual investor.

I'm just trying to understand about the company's current operations. So we have always mentioned that we want to increase our exposure to U.S., but our contribution remains around 42%. So can we expect this to change going ahead?

Yes, Haris, we can. We can definitely expect it to increase. Our focus is all U.S.-centric. So all our efforts is towards the U.S. market, and that's where we feel there's great potential. So you will see an increase in that region.

Okay. And I had one more question. So we were not able to add any large deals, any deals above $1 million, if I'm not wrong. So going forward in FY '26, can we hope for a change in this, like any larger deals in that aspect?

Yes, yes. That's our focus, and that's the plan. We -- in most of our engagements, we start small. So if we started with a new customer or a new project or new space of service, we start small, and we showcase our capability, and then we have a larger deal. But now we're trying to change our approach and trying to start with larger deals because our target market would have also increased. So yes, that's the plan. Pipeline should have more larger deals.

[Operator Instructions] Next question is from the line of Miloni Mehta from Monarch Networth Capital.

Can you throw some light on discretionary spending across vertical? And how has it been on the macro level? Also I want to understand what percentage of our business is dependent on discretionary spending?

Not much. We are not seeing any impact on the discretionary spend. Right now conversations are happening, pipeline is building. So at this point in time, we're quite positive.

And overall, how has it been across the vertical? I mean is there any slowdown in any of the verticals? How is the trend? Can you put some light on that?

No. No slowdown in all 4 verticals. We have a healthy pipeline in all 4, a lot of conversations. The BFS and the Emerging Verticals, I don't see any impact. And the industry is strong and customers are speaking to us about many conversations in the roadmap.

Okay. And secondly, on financial point of view, I see that there is an increase in our third-party charges. So moving ahead, should we consider this as the run rate, or what has changed there? Can you throw some light there?

Yes. Actually when you're saying that you're seeing a spike in the third-party charges, it's actually a regrouping from the other expenses line to the third-party charges, because these are some of -- we have partnered with some of the tools and licenses like the HCLs, the Salesforce, the BusinessObjects. And when there is a sale of these which happened to the customers, these are predominantly in relation to third-party licenses, which are bought and sold. So the regrouping has been done in the right line today. Earlier, it used to be very insignificant component. But since the amount was slightly higher this year, it has been regrouped. And like you rightly said, it would be more appropriate to treat this as the basis for your forecasting going forward.

Okay. I just have one more question. From a cash flow point of view, I see that we have sold some INR 17.5 crores of investment. So what is this exactly?

We have not sold investments. See, what has happened is, at a group level, if you've been following, we have merged 3 of our subsidiaries, DreamOrbit, 360Logica and Terafast. These subsidiaries which were acquired way back in 2014 and '16, they have been merged with Saksoft Limited. Now whatever liquid funds were there, premerger, we had to liquidate it as a part of the process so that the transfer between the companies happens easily. So it's just the liquid investments which was sitting in some mutual funds were liquidated and have been reinvested. They are not any third-party investments as such.

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

We thank everyone for taking out time to participate in this call and for their interest in Saksoft. I hope we've been able to answer your queries. In case of any other questions, please reach out to us or our Investor Relations advisers, Valorem Advisors. Thank you for joining us.

Thank you. On behalf of Monarch Networth Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.