Systango Technologies Limited (SYSTANGO) Earnings Call Transcript & Summary

[Audio Gap] Gen AI certified by Google because our software delivery pattern is now AI native. What that means is we accelerate our deliveries of modern applications and platform migrations through AI-assisted engineering teams, wherein we are utilizing AI tools to deliver our solutions. We use data heavily. We call it as our backbone because one of our key offering is we transform fragmented business data into insights and predictive decision and modeling. And we -- whatever we deliver, whatever we work on, it is -- we follow a governance model, which is very important in today's times of AI. What else is important? Yes, one important update for last year is we formed a Strategic Advisory Board. And the goal of that Board is to provide us the guidance to improve our sales guidance towards revenue, bettering our go-to-market strategy and continue our expansion efforts in the U.S. and U.K. technical innovation and leadership development, which is why all of these advisers are based here in the U.K., and they are well placed in larger organizations. They've done it, and they are helping us in doing it with them. As far as numbers are concerned, I think last year, we did approximately INR 90 crores operating revenue. And I think we had a very good margin last year, which was about 37.5% approximately again. I think this is it from my side for now. It provides a good amount of information and background about the company. And I think I'll be happy to answer some questions.

[Operator Instructions] We are now moving towards the Q&A session. So we have received several questions from our investors along with the registration forms and we will address those questions first. And after that, if any investor have any additional questions may submit them through the Q&A box, and we will address as many of them possible during session. So now I'll start with the questions which we have received along with the registration form. So first question, which is asked by Mr. Abhishek Mathur, he is asking that how is AI impacting your business model? And what percentage of your revenue is currently AI related...

Okay. So first, I will answer the second part of the question. What percentage of your revenue is currently AI related? If -- see, I think the percentage of those projects where one or the other AI element is involved, I think that is about 60% to 70% of all the projects we do in So. Everything has one or the other AI element in it. Now how AI is impacting our business model? I think our focus has been on embracing AI across our internal delivery process and client-facing solutions. So we are more solution-based now than we were already earlier. We have started using the tools like AI Workbench, which is essentially the list of tools and standards which we are using with AI. We have been doing AI knowledge-based sessions, and we are enabling our internal decision as well through AI and data. So this is how I think the AI is impacting our business model right now.

Now the next question is from Mr. [indiscernible] and he is asking that are clients asking for any price reductions due to AI-driven productivity improvements?

They are not really asking for price reductions, but they are asking for a better output and velocity. This is actively happening across all the clients. They are obviously interested in getting those productivity benefits through AI, but not necessarily asking for reduction. Over to you [indiscernible]

Now the next question is receiving the Q&A box that is how are you differentiating yourself from large IT services companies and AI net?

I don't think there is any competition with the larger IT companies. So I don't have to demonstrate this to my existing or prospective customers. As far as the competitors are concerned, I think we were ahead in the curve in adopting AI like AI -- becoming AI native and how we're doing it, we are offering value with AI. We are velocity differentiators like previous versus now. That is the key difference. And what our customers have always appreciated is the customer-first approach, not the other way around, not the scope first, but the customer first, and we work with our customers deeply in working around their needs. And yes, I think that's our differentiator.

Now the next question is again in the Q&A box that is what investments are being made in AI capabilities, talent upskilling and new service offerings.

Okay. Well, -- so see, as an IT company, we have always had to invest in building our capabilities and upskilling our RT and T&D company. In terms of specifically AI capabilities, we started that work 1.5 years ago and 1.5, 2 years, bits and pieces. It has been a fourfold approach of AI-enabled enablement and adoption. First one was AI workbench, which we would like to call. It's the focus of bench is on embedding AI tools and frameworks directly into our software development and delivery life cycle. So we call it AI SDLC now, not just SDLC. This includes AI-assisted coding, documentation, code review, all the aspect of delivering a project and working on a project. The objective is to improve the productivity, demonstrate it and accelerate the time lines, deliver with better quality. Then the second approach is, as I mentioned earlier, AI knowledge engine. We have built a conversational layer on top of the knowledge base that helps us and our team members in pricing and delivering better and quickly to our customers. It is evolving. It is not like it's done and tested. No, I don't think that will ever happen. Then we have -- again another one which I mentioned earlier, that has been part of our AI capabilities is intelligent data decision-making when we are delivering solutions to our customers, we combine data engineering, analytics and AI to build those software for them to identify patterns, generate recommendation, forecast outcomes and make more business-friendly decisions for them through their software. And I think the sort of the fourth pillar of our -- this activity is generative BII. So I'm assuming that most of you already know what generative AI is, but I will still sort of say a couple of lines around that, that instead of relying solely on predefined dashboards and reports, which was happening earlier and then the software developers were needed to build those dashboards and reports. Now we have our own solutions, which we are able to integrate with the customers the larger requirements in softwares where they are able to use their natural language, ask business questions and system is able to provide them the business intelligent information on the fly. That is how I would like to answer, [indiscernible]. I think that's it for this one.

Now the next question is, again, in the Q&A box that is Mr. [ Harshal Kapoor ] again. And he is asking that how is AI expected to affect hiring, utilization and employee productivity?

Right. Okay. So whatever I will comment about hiring or utilization and employee productivity, it will be related to the -- our engineering team and engineering capabilities. I'd say because of what's happening right now, we are going to see almost 0 hiring at junior level. And that is, I think, true across the board, across the companies. We are realigning, recalibrating, upskilling our existing members, junior, mid, senior everybody. We will continue to hire and invest more in mid and senior capabilities. And I don't see that changing in the future. I think this is the new normal. And if you will see in the last 24 months, we have grown our revenues consistently. However, our headcount has almost remained same. And we were able to achieve by embracing AI in our software delivering capabilities, which, as I said earlier, we were calling AIS TLC. So we have been working on it, and I think we are doing a bit better than earlier.

Now our next question is from Mr. Harsh. He is asking about the future growth perspective, navigating the AI.

See, we don't see this headwind. We feel it's an industry transition. And it presents opportunities that adapts to it quickly and adopts AI into how they're delivering to their customers. And as I said earlier again, we have been embracing AI across our internal delivery processes and client-facing solutions. We have been leveraging AI tools to improve developer productivity, to improve the quality, to deliver quickly like with better time lines. And we've had a fair bit of success in that.

Next question is from Mr. Shah, and he is asking that what are the growth areas we are working on? Do we see room for merger, joint venture with existing IT companies of our size to move through the headwinds? Are we seeing any replacement of contracts with AI? And even after the currency depreciation, our revenue on a half yearly basis was stagnant.

My short answer is yes, for all the parts of that question, except replacing -- getting replaced by AI. That is not happening. We have not come across that we are being asked to go out and we are being replaced by AI. What we are being asked, as I already mentioned about, that we are supposed to be demonstrating better productivity, better quality, better time lines. And that is, I think, what is happening. And in short term, I think AI will impact some part of business, while we continue to calibrate. If you'll see that 2026 was the best year in company's history. And we -- year-on-year, we have seen good growth. We celebrated like we had a very good year. So -- and we hope to deliver and continue to deliver on that because we are highly disciplined in evaluating the opportunities and upskilling ourselves.

Next question is, what is the current demand environment across your key markets and verticals?

See, demand has definitely -- in the last 1 year, specifically, demand has definitely changed its shape about which I talked earlier and answered briefly in 2 questions earlier. Demand is still there, but it is not coming across in the same way as it used to be. We have healthy level of engagements. We are through -- and that is happening because of our digital transformation sort of the AI-led initiatives for digital transformation for the companies and our cloud modernization capabilities, which we are able to demonstrate and our product engineering capabilities, which we have consistently delivered to our clients. So because we have a history to demonstrate over there, as I said, so demand is not gone, but demand has changed its shape and we are also evolving with that.

Okay. Now the next question is from Mr. Dean, and he's asking that management has spoken about AI native SDLC, the Alibaba Cloud Alliance and the ambition to scale the business beyond its current size. Over the next 12 to 24 months, what are the key measurable milestones investors should take in terms of revenue growth, AI contribution, profitability, client addition and main board migration readiness? And where does management realistically see Sango position by financial year '28?

What are those things which investors are supposed to be tracking as key milestones? I think first, I think our revenue growth targets where we are trying to penetrate to mid-market customers instead of a lot of start-up or scale-up customers. We aim that we are at least able to onboard 5 customers with $1 million or above per annum. This is one of our goals to achieve this year. And there is an objective of merger and acquisition, which we have been actively pursuing. We have not stopped pursuing that. Over the years, we have spent in that search and hunt, we have not been successful so far, but we have not stopped. So that is one of the key, I think, which everybody must be looking forward to. And this year, we are hoping to be able to cross the next milestone in terms of revenue for the company. I think how as a company, we are adopting AI more. That is -- that will be the key, and we are completely aware about it, and we will continue to do that. So that will be, I think, one of the key sort of indicator for the company to do well. From a profitability perspective, we aim to continue to be as profitable as we have demonstrated in the last 3 years. That is one of our key target this year. we have accelerated -- we were already accelerating, but we have accelerated in a lot of different ways, our GTM like go-to-market. If you see like as I mentioned earlier, advisory board was one of that step. U.S. expansion is one of -- we continue to expand in the U.S. in terms of our foot presence over there. And I think one of the most important for the customers as well is the AI governance, how we are adopting and how we are working towards the AI governance and it is everywhere, AI laws like all over the world, just like EUAIet, which has just sort of begun everywhere AI practice is taking its shape or already taken its shape. The covenant is going to -- how we have adopted to that covenant is going to be a very key role.

Now the next question is that what does the deal pipeline look like for financial year '27? And how does it compare with last year? I think on...

'26, '27. So we have just finished 2 months of this year. And I'd say I already see a pipeline of half the revenue of last year. If I look at the whole year. and with a more settled team in U.S. like I'm talking about the front team like sales team and the outreach team, the revenue generating team, a better and more settled team in U.S. and U.K., we are totally concentrating our efforts towards the mid-market and enterprise customers. And we see some decent conversations already happening for quite a few months now. So as I said, it's just 2 months. I next 10 months, I see -- I'm buoyant about this year. I think we will have without being too optimistic, but I think we will have a decent year. Conversion cycle will not be as quick as it used to be to add my comment on that because with mid-market and larger customers, conversion doesn't happen quickly. It took time. Discussions take time and proposals take time. Getting that foot in the toe takes time when we are working with larger customers. So -- and we could already see that and which is why we started working towards that more than 6 months ago. And I think as I said, I'm buoyant about it.

Okay. Now the next question is from an analyst that has thought PMS. And they are asking that what is management's outlook for revenue growth and profitability over the next 12 to 24 months? I think the same question is asked by many investors, so this will answer.

I think I've already answered that we aim to keep our profitability levels similar to what we have done in the last 3 years. We have consistently demonstrated where we are able to keep it. I will not quote just 1 year. So we aim -- our goal is to stay in similar range. And I think we are doing every bit to be able to do that. And in terms of growth journey, again, through the concerted efforts we are putting in, in our markets in new emerging markets, whatever parallel efforts we have started putting in, I think we have a good amount of time to be able to cover a lot of ground and we are working towards it. So I'm quite hopeful that we will -- in terms of growth or revenue growth as well, we will have a good year.

Now the next issue is, are there any large client strategic partnership or expansion opportunities that could materially contribute to growth?

There have been deals. There are a lot of discussions as I said, like we have created a goal for ourselves that we will onboard at least -- or we want to onboard at least 5 customers this year with $1 million per annum plan. So -- and all our efforts are driven towards that. It is -- we have a robust pipeline, and we have multiple prospective clients right now with annual revenue in hundreds of millions of dollars. So these opportunities are significantly larger than our historical average. And I think it aligns well with our GTM strategy and domain as well. And other than that, I'm quite hopeful that we will have some movement towards our inorganic expansion as well. So this was already our organic, but towards inorganic and we are going to see some action over there.

Question is what are the key risks management is monitoring in the financial year '27? And how are you mitigating them?

I think key risks from a delivery perspective are the execution governance and if we continue to deliver and execute with excellence while keeping governance in our processes, we reduce risk of customer churn. So we increase our retention over there because that is the most important thing for the customers as of today. And from the demand perspective, we have seen healthy demand in the sectors which we are targeting. So all we have to do is continue to demonstrate what we have done now with AISTLC. And from the risk -- see, we cannot control broader macroeconomic environment or what's happening over there. What we are doing is embracing and building our capabilities that we are least affected by it, and we are able to maneuver and steer through whatever is happening macroeconomically. And I think we are quite well prepared. diversified pipeline, strong client relationships, which has always been our strength and focus on high value and business-led engagements, not just saying yes to everything, whatever is coming to our way. I think this is how we are managing the risk right now.

Now the next question is from Mr. Aditya and he's asking that future guidance about revenue visibility and clarity about purpose and structure of the U.K. Advisory Board formed a few months back.

I think I've already answered that. That was the purpose of Advisory Board as well in the revenue and profitability guidance. I can answer again for the Advisory Board that the purpose of Advisory Board is to equip and help us more in improving our sales and improving the revenue, our marketing, whatever path we are taking in technology evolution and innovation that is keeping pace with the broader market and leadership growth. So this is why Advisory Board, like their primary objective is the company's growth. So every single adviser has one key element, which is supposed to be contributing towards the company's commercial growth.

Now the next question is from an institutional investor that is from Capital. They are asking that strategic and investment road map. They are asking about GTM and capabilities.

I think I've touched in bits and pieces in other responses. So because of the changing market needs, our GTM strategy is around how we are delivering through our AI, which will strengthen our delivery performance and quality to what we deliver organic growth across U.K. and U.S. and we continue to organically invest more into our sales and revenue generating capabilities in U.S. and U.K., not just in India. We are actively investing in building our partnership deeper with the hyperscalers like PWC, AWS, GCP, Alibaba, and another strategy, which I just spoke about and last question is advisory board. They have -- each one of them have an objective to help company grow in commercially as well, not just noncommercial objectives. And inorganic growth through M&A or through other complementary capabilities or strategic partnerships along the way. I think I'm able to answer that. Is that...

Okay. Now the next question is from Mr. [ Shikhar Mundra ] and he is asking that revenue growth CAGR [indiscernible] about this. Can we maintain current growth rates? Would it be a challenge as we are becoming bigger...

See -- we continue to focus on delivery capabilities, and we are strengthening our go-to-market strategy, which I spoke about earlier, right, through a mix of organic and inorganic efforts and those parameters which we are able to control. So I think we would want to keep registering the double-digit revenue growth, and we are aiming and working towards that through all the efforts which I explained earlier.

Now the next question is from Mr. Anand Patel, and he is asking that INR 103 crores cash invested usually, where does company park such cash? And is it in INR terms or dollar [indiscernible]

Most of it is in India. I mean, most -- almost majority of it. And it is in INR. We have parked those in safe instruments and FDs from medium to long term or debt-oriented mutual funds. We have been keeping that intact for our inorganic expansion and some organic activities, which is why we have been continuously and actively and aggressively working towards that objective. And See, as I said earlier, the macroeconomic or larger environment is in nobody's control. In last 1 year, the exponential or sort of the phenomenal change, which is AI brought across the industry, nobody saw it coming at that pace. So a lot of companies like ourselves, we saw that it is coming. But the mind-boling pace at which it has arrived, it was not expected. And these are some of the outside factors which we could not control. Otherwise, I think we would have already achieved our -- one of our inorganic objective of M&A. We don't want to just achieve the objective by any means in a way like we burn our own hard-earned money to buy the company, and we are able to tick box that, yes, okay, we have done M&A. That's not what I want to do. It's our own money. So if we are not really cautious and we are not really completely 100% satisfied with what we're going to do and how we are going to work with this company, we will not be able to do the acquisition and which is what has taken a bit of time. Our approach is cautious and very practical that we don't want to experiment with our own money over there.

Now the next question is from Mr. [indiscernible]. He is -- he's a fund manager from Counter Cyclical PMS. He's asking that by when we -- are we expecting to conclude the acquisition? What stage are we at currently? And what is the remaining EBITDA target company and nature of this?

See, over the course of last 3 years, we had discussion with several companies. Some of those discussions were really high level, and we almost completed the acquisition. Unfortunately, some -- like a few of those fell through at the last stage where some due diligence came sort of unfavorably, some demands changed in some of the acquisitions, demands changed at the moment. So that's why those deals sort of dropped. But I mean -- and because of this, we did not stop whatever activities we were doing towards the acquisition. And I'm hoping that we will see some action this year if something of a similar sort doesn't happen like during the due diligence at the moment, if something unfavorable is to come. That's not something we can do anything about it, and we cannot disregard it, which is what we didn't do earlier. So we are hoping that with the advanced level discussions we have right now, we should see something happening.

Next question is asked anonymous and that is what is your repeated client percentage?

I think approximately 60% of the revenue is from repeat clients and 40% from the new ones. Approximately, yes, I think so.

Okay. And the next question is what is the utilization rate of engineers...

If I sort of see it across the grades from the junior ones to the more senior ones, average, I think utilization should be about 80%. So we have decent utilization, and we have healthy bank as well to be able to onboard new customers. And this is also helping us in giving enough time for upskilling and recalibrating...

Now the next question is the person wants to know about the U.S. business outlook, and this is asked by [indiscernible]

Maybe Abhishek can take this one? I mean I'm okay. Abhishek, you want me to answer that? Abhishek, if you're taking it, please go ahead.

Yes. So like Ritesh mentioned earlier, we hired a VP of Sales in America last year. So until last year, our sales mix was roughly 65% in the U.K. and nearly 30% would be in the U.S. and 5% in the rest of the world. So we are targeting to have an even mix of our sales in the U.K. and U.S. regions. So we would ideally want 50% of revenue to come from U.K. and 50% from U.S. Yes. So that is the ideal target, but we target that to happen in maybe a couple of years. So we are expanding and consolidating in the U.K. and expanding in U.S.

Now the next question is again from [ Mr. Amit Sonigara ] and he is asking about what is the expected time line for the main go migration?

[indiscernible] migration time line, I wish I had a certain answer for that. See, our focus is building the underlying fundamentals, which will continue to drive the growth. And I think these fundamentals are going to be the key in supporting such a transition. I think if I understood it correctly, the statutory requirement is about INR 100 crores of operating turnover is needed and on profitability front, I think we are doing okay. And these events are not in our control, but we are -- through our natural growth view, we see this event coming soon. Right now, our focus is not main board. Our focus is building the larger and stronger business and the main board will be, I think, the prior product of that. So -- and we will continue to work on parameters to build the business and byproduct will follow.

Now the next question is from an analyst that is [indiscernible] and he is asking about vertical mix shift.

Vertical mix shifts. I'm not sure I entirely understand that question. I mean if the question is about like the kind of verticals which will be as an internally, we are going to focus more to build our business, to build our revenue and pipeline. I think that is how I would maybe answer it because that's what my understanding is right now. I think it will evolve in line with the -- where technology spending is growing the fastest across and that technology spending is happening across AI-led solutions, automation, database decisioning and cloud and infrastructure. So these are -- these will be our key verticals.

Okay. So we have received so many questions and that was around like around AI and the finance and whatever. So I think we have covered most of them. But due to time constraint, we may not be able to address all the questions of all the attendees. So if your question has been unanswered and you want to ask something, you can write us at [indiscernible], and we will review your questions and answer appropriately. Now I would like to thank each one of you for attending today's investor meet. Thank you very much for your continued support and confidence in Sustango. We sincerely appreciate your interest in the company and value your continued trust and engagement. We look forward to updating you on our progress in coming quarters. Thank you, and have a great evening. Thank you, everyone.

Thank you, everyone. Thank you. Bye.