Updater Services Limited (UDS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '27 Earnings Conference Call for Updater Services Limited. [Operator Instructions] Before we begin, a brief disclaimer. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on the date of this call. These statements are not the guarantees of future performance, and it may involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Raghunandana Tangirala, Promoter and MD of Updater Services Limited. Thank you, and over to you, sir.

Yes. Thank you. Good morning, all of you, and welcome to Updater Services Limited Q1 FY '27 Earnings Call. Joining me are Amitabh Jaipuria, our Senior Executive Director; Ram Praveen, our CFO; Elizabeth Jacob and Sunil Munshi, CEOs of Athena and Denave and our IR advisers from SGA. I hope you've had a chance to review our investor presentation and the results are also available on the exchanges and our website. Before we get into the industry highlights and our performance for the quarter, I would like to share that the Board has approved an interim dividend of INR 1. This reflects our company's commitment to disciplined capital allocation, growth-led investment and long-term value creation while maintaining a strong balance sheet. Turning to the IFM industry. Q1 FY '27 saw a healthy momentum driven by growth, driven by strong commercial real estate activity, GCC expansion, rising enterprise outsourcing and continued industrial and manufacturing investment in India. India's office market stayed resilient with strong leasing from MNCs, tech firms and GCCs, seeking comprehensive workplace solutions across engineering, housekeeping, maintenance and energy management. We also saw continued consolidation towards integrated technology enablement outsourcing. And large enterprises favor single strategic partners for their efficiency and governance, a trend being a trend benefiting organization -- organized players like us over the fragmented unorganized sector. Now let me get deep into our IFM division. During the quarter, our IFM business continued to benefit from these long-term industry tailwinds. We added 6 new significant logos during Q1 FY '27. For Q1 FY '27, the IFM revenue from operations grew by 11%, accounting for INR 525 crores. The growth was driven by new client additions across diversified industries, higher volume from large-scale contracts and continued focus on cost optimization. EBITDA for Q1 FY '27 stood at INR 24 crores with a margin of about 4.5%. Our priorities within IFM for the quarter and for the year ahead remain unchanged. We continue to deepen relationship with existing customers, improving client level profitability, optimizing manpower deployment through our technology-led interventions, deepening wallet share with existing marquee clients and continuing to shift our mix towards higher-margin specialized technical services. Yes. Technology continues to play a central role in enhancing our operational excellence. We are increasingly leveraging digital workforce platforms, AI-enabled workforce management, predictive maintenance tools and automation to improve service quality, optimize manpower deployment and strengthen productivity across client locations. Looking ahead, we remain confident of delivering healthy growth in IFM, supported by strong industry tailwinds, increasing outsourcing penetration and expanded opportunities across industrial manufacturing, infrastructure and commercial real estate. Turning to Global Flight Handling. The aviation ecosystem stayed supportive this quarter with healthy domestic traffic and airlines improving fleet utilization and connectivity, supporting steady momentum for our Airport Services business. Global continued -- Global is our flight handling and ground handling company. Global continued strengthening its footprint across operational airports while expanding into higher-value training and aviation support services, including security training and regulatory certification that complements our core ground handling operations. We are proud to report Global's highest ever profitability, EBITDA of 9%, up from 5% last year, driven by higher-margin nonscheduled flights and strong seasonal traffic. All 23 airports are now operational and are generating revenue. Moving on to Avon, the core mailroom management and integrated support service business continued to demonstrate resilience during the quarter, supported by long-standing client relationships, consistent service delivery and improving operational excellence. Before turning to performance, I would like to highlight that this legacy business is showing resilience and remains on a growth path even as the transport business has been completely shut off. Revenue from operations for the quarter grew 10% year-on-year, reflecting a steady demand across core service offerings. During the quarter, Avon also continued to strengthen its portfolio by increasing the contributions of higher-margin value-added services, particularly in enterprise transport and logistics solutions. This strategic shift is expected to enhance the overall quality of revenues, improve profitability and deepen customer engagement. As we move through the rest of FY '27, we remain confident that this expanding mix of value-added services will support sustainable growth and margin improvement for the business. I would now like to hand over the call to Mr. Amitabh for an update on our BSS segment.

Thank you, Raghu, and good morning, everyone. I'll quickly deep dive into what has happened in the BSS segment, and then I will hand over to Mr. Sunil Munshi, who is our CEO for Denave and then to Elizabeth Jacob, who is the Founder and CEO of our other Sales Enablement business, which is Athena. Turning to Business Support Services for Q1 FY '27. This is the first full quarter where we operated under our BSS simplified structure with Denave, Athena and Matrix all reporting directly into the senior leadership team. Over the last year, we have undertaken several structural initiatives to simplify our operating structure, strengthen leadership, improve governance and enhance profitability across all our businesses. I'm glad to say that these initiatives are beginning to show encouraging progress and early trends of consistent confidence as we look to the year. Across our BSS portfolio, the common strategic theme continues to be technology-led transformation as well as organizational simplification. We have added 4 new significant logos during the first quarter. The BSS segment revenue from operations for Q1 FY '27 reached around INR 25.3 crores -- sorry, INR 253 crores and EBITDA for the division stood at INR 19 crores with a margin of 7.5% as compared to 6.9% during the last similar quarter, Q1 of last year. This reflects improvement and shows good signs for the future. This is also because of a sustained cost optimization campaign that we have been running and which is a result of our simplified organization structure as well. Our sales enablement business under Denave reported a revenue of INR 161 crores, registering an 18% year-on-year growth with an EBITDA of INR 7 crores and an EBITDA margin of 4.3%. During the quarter, the company's strategic initiatives began translating into results with Intellibank, which is our AI forward product, witnessing increased client acceptance and also improved performance. The revenue of our sales enablement business under Athena, which is our BFSI-focused B2B business, which we run for mainly for banks, insurance companies, et cetera, in FY '27 stood at INR 28 crores with an EBITDA of INR 5 crores and an EBITDA margin of 18%. During the quarter, we secured and commenced execution of our first agentic AI engagement with implementation beginning in May and continuing through June. I would like to highlight that we are seeing green shoots and seeing increased inquiries for both our traditional services as well as agentic AI. So the growth pipeline looks good. Matrix delivered a stable operational performance during a challenging demand environment. Revenue for the quarter grew 2% and is stable quarter-on-quarter. However, EBITDA increased by around 76%, primarily due to cost-saving initiatives, better processes and tighter vendor cost discipline, especially in our EBGC business. The EBGC business continued to perform broadly in line with expectations. This quarter witnessed improvement in revenue growth of 9% year-on-year. You will remember that in the previous quarters, this revenue growth has not been strong because of the IT hiring scenario, but we are seeing green shoots there. And this was also supported by a pickup in hiring in some of our tech clients during the quarter. Within the Audit and Assurance business, revenue declined marginally by about 2% during the quarter. The primary reason was the postponement of several large client audits with projects originally scheduled for May getting deferred to June and July. With that brief overview, I will hand the call over to Mr. Sunil Munshi, CEO of our Denave organization, to take you through the business highlights of Den in detail, and then he will hand it over to Elizabeth Jacob for Athena. So Sunil, over to you.

Thanks, Amitabh. Good afternoon, everyone. I'm pleased to provide you all an update on Den's performance and the strategic progress that we made during the first quarter of FY '27. The global sales enablement industry does continue to undergo one of its most significant transformation recent year. while remaining disciplined in their discretionary spending, there is a clear shift towards investments that promise that improve sales productivity, customer engagement and obviously, measurable revenue outcomes. Across industries, organization has been increasingly moving away from traditional linear sales models towards more of AI-assisted insight-driven revenue generation models. So rather than simply expanding sales teams today, we see all the enterprises looking to make more salesperson significantly productive through automation, through intelligent analytics, through data-driven decision-making models, so on and so forth. And this structural transition aligns well with Denave's long-term strategy. Over the few -- last few years, if we see, we've been consciously transforming Denave from a conventional demand gen organization to a technology enablement revenue execution partner, which combines our domain expertise with AI-powered platforms and, of course, intelligent sales workflow. Now coming to this quarter, during this particular quarter, Denave, we delivered a strong performance with revenues growing 18% year-on-year. Growth is supported by our demand generation and field marketing services businesses, both of which continue to gain traction and as we also keep on new logos. On margins, we saw pressure during the quarter, driven by 2 factors. First, a change in business mix, a greater skew towards field marketing services, which operates at a low margin. Second, budget planning of one of our large customer also have been a factor. During this quarter, we drove a focused cost rationalization initiative also in the organization to improve operational efficiencies and EBITDA, and we remain quite confident that this will translate into continued improvement in profitability going forward on a long-term basis also. On the demand side, we continue to witness healthy client engagement, especially across our enterprise customer base. While technology spending, we still see spending remaining selective in certain global markets. Clients are increasingly prioritizing projects that demonstrate faster return on investment, improved pipeline conversion and higher sales productivity. And this is precisely where our AI-led enablement enabled services portfolio continues to differentiate itself in the market. One of the key pillars of our transformation remains, of course, the Intellibank our proprietary AI-led sales intelligence platform. Over the past few quarters, we further enhanced Intellibank by expanding our intelligence capabilities, improving buyer intent identification, enriching decision-making maker mapping and of course, strengthening the analytics, predictive analytics that helps. Finally the sales team to prioritize their high probability opportunity, thereby improving productivity and delivering higher outcomes to the clients. We also did continue to improve our CRM integrations, which means enabling our seamless synchronization across various client sales ecosystems and therefore, delivering richer pipeline visibility with actionable insights. And our automation capabilities are definitely also helping us reduce manual intervention, which is helping in turn to improve time to market, improve campaign execution speed and delivering and high-quality sales engagements for our clients. While the external environment continue to evolve, the long-term demand drivers for AI-enabled sales transformation remains exceptionally strong in the market. And we at Denave remain committed to help our customers, therefore, accelerate revenue growth while continuing to build a stronger, more technology-led enabled Denave. Thank you. And I will now hand over to CEO and founder member of Athena, Elizabeth Jacob. Over to you, Elizabeth.

Thank you, Sunil. Good afternoon, everyone, and thank you for joining us today. I'm pleased to provide an update on Athena's performance and the progress we made during the first quarter of financial year '27. The customer engagement industry continues to undergo a structural transformation. Across industries, enterprises are increasingly reimaging how they acquire, engage and retain customers in an environment where customer expectations continue to evolve rapidly. Organizations today are no longer evaluating customer engagement purely based on service delivery costs. Instead, they are increasingly prioritizing customer experience, personalization, faster response times, higher conversion rates and measurable business outcomes. On the business development front, we secured 2 new client wins during this quarter. Both contracts commenced in July and carry an initial tenure of 2 years, providing healthy revenue visibility going forward. We secured and commenced execution of our first agentic AI engagement with implementation beginning in May and continuing through June. We are also pleased to share that another agentic AI project has received customer approval and is expected to go live in August. Beyond these wins, we are actively engaging with several existing customers to expand the adoption of our agentic AI solutions. While enterprise customers have shown strong interest, these engagements typically involve approval cycles of around 2 or 3 months. We remain confident that this is the pipeline will translate into meaningful business opportunities over the coming quarters. While the BFSI sector continues to remain an important part of our business, we have steadily progressed in diversifying our customer portfolio across industries such as real estate, retail, consumer products and other emerging sectors. This diversification remains a strategic priority as it broadens our addressable market, reduces the concentration risk and enhances the overall quality and the resilience of our revenue base. Another important trend we continue to observe is the growing demand for omnichannel customer engagement. Customers today expect seamless interactions across voice, e-mail, chat, messaging platforms and digital channels. Organizations are therefore looking for partners capable of delivering integrated customer engagement solutions, which are supported by analytics, automation and AI-driven decision-making. Athena is well positioned to capitalize on this shift through our expanding digital capabilities and technology-led delivery model. Innovation remains -- continues to remain at the core of our strategy. As enterprises continue their digital transformation journeys, we believe these capabilities will become increasingly important differentiators. Looking ahead, we remain optimistic about the opportunities. We remain committed to continuously strengthening our capabilities, expanding into newer verticals and building Athena into one of the leading technology-enabled customer engagement platforms in the region. Thank you. And I will now hand over the call to Amitabh to give an update on Matrix.

Sorry to interrupt, we cannot hear. Did you hear me?

I am sorry. I'm so sorry. I was on mute. Yes. So thanks, Elizabeth. I'm happy to give a quick update on Matrix. As you know, our Matrix business has 2 subsegments. One is Audit and Assurance and the other is EBGC. During the quarter, if you compare it with the previous quarter, we have grown about 2%, but profitability has rebounded quite sharply. And right now, our margins have also improved quite sharply. So from INR 2.4 crores in the same quarter last year, we are now at INR 4.2 crores and margins instead of 7.6%, now are at 13.1%. So therefore, we are seeing a revival in this business, primarily driven by EBGC. But let me start by giving a very quick piece on audit and insurance and we'll then come to EBGC. In Audit and Assurance, the quarter's main challenge were timing related, as mentioned earlier. And a few large audits scheduled for May have been deferred to June and July. This is not generally a demand issue, but largely a timing issue. We continue to see a healthy pipeline from large multinational audits and in sectors like food and automobile. To support this, we have also built a dedicated sales team to strengthen customer acquisition and deepen client engagement. Results are expected in H2 of '27, and you will start seeing those trends. In EBGC, as mentioned earlier, the business has picked up quite nicely, but we continue to see subdued hiring in banking and the BPO segments, along with mixed IT trends, which has been impacted -- which has impacted our overall volumes, but IT has come back to some extent. And we have seen turnovers and a number of cases that are being referred to us on an upward trend. We have also been extremely cost focused. And we have -- like we explained about Denave, even here in this business, we have been very, very cost focused, simplification focused and organization focused in terms of making us more agile. Those -- all of those have started showing clear results. EBGC is inherently tied to hiring cycles, as you know, and we are building a more agile technology-enabled model. AI integration is also now beginning to pay dividends. Over the medium term, we remain focused on improving profitability through revenue growth, of course, because it's a scale game as we have been talking about in EBGC and of course, a richer business mix, digitalization and disciplined cost management. So all in all, we are seeing good progress in Matrix, which had been a drag in our previous quarters, but beginning to look good. I'll hand it over back to Raghu for his concluding remarks.

Thank you, Amitabh. Thank you, Sunil and Elizabeth, for the updates. In summary, Q1 FY '27 has been a quarter of steady execution at Updater Services. We delivered a 9% year-on-year revenue growth to INR 764 crores with a healthy momentum across both IFM and BSS, while continuing to invest in technology, talent and structural simplification to strengthen the business for the long term. With strong industry tailwinds across our end markets, a diversified and resilient portfolio and a robust balance sheet, we remain confident in our ability to deliver sustainable profitable growth in the years ahead. Before I conclude, I would like to reiterate our continued commitment to strong corporate governance. Over the past year, we have taken deliberate steps to simplify our organization, strengthen leadership accountability and improve transparency across our businesses as reflected in the consolidation of BSS portfolio under a unified leadership team this quarter. Our disciplined capital allocation reflected in the Board's approval of an interim dividend to reward all our shareholders and our continued net cash position. Along with our compliance-first culture across all business segments remain central to how we operate and create long-term value for all our stakeholders. Now I'd like to hand over the call to Ram, our CFO, give you an overview on the financials. Over to you, Ram.

Thank you, Raghu, and good afternoon, everyone. I will take you through the financial highlights for the quarter FY '27. The revenue from operations for the quarter FY '27 grew by 9% year-over-year to INR 764 crores as compared to INR 700 crores in comparative period Q1 FY '26. The IFM segment grew by 11% year-year to INR 525 crores and the BSS segment grew by 7% year-over-year to INR 253 crores. The revenue split between these 2 segments stood in the same range of 67% to 33%, directionally similar to the same percentages compared to the earlier quarter. Consolidated EBITDA for Q1 FY '27 stood at INR 42 crores. EBITDA margin for the quarter is at 5.5%, that is INR 42 crores. At segment level IFM segment EBITDA stood at 4.5%, that is approximately INR 24 crores, while the BSS segment is at 7.5%, that is approximately INR 19 crores. The consolidated PAT for the quarter is at INR 30.3 crores for the Q1 FY '27. Coming back to the return on employment is return on capital employed is at 16.1% for the quarter. UDS continues to remain a net cash company with a good balance sheet on a long-term basis. Net debt to equity stood at negative 0.24x as of June 2026, reflecting our strong cash position and generation during the quarter. On headcount, we have crossed 76,991 with 20,000-odd (sic) 60,000-odd ] coming from IFM segment and 16,700-odd from the BSS segment. With that, I would like to open the floor for questions.

Thanks Ram. So back to the organizer of the call. We are open for questions.

[Operator Instructions] The first question comes from the line of Love Gupta from Counter Cyclical Investments.

So firstly, I wanted to understand the margin improvements on the BSS side in Matrix particularly. Is this sustainable going forward? And on the IFM side, we've mentioned that you had some moderation due to addition of employees. Is that now done and we can see some trend going forward?

So I'll take that. So in Matrix, the improvement See, if you look at the history of how this business has performed, and this will just give you some confidence. So if you look at Q1 last year, we were at INR 11.4 crores, Q4 last year, we were at 11.7 crores and Q1 this year, we are at INR 12.5 crores. So over the years, you can see that the volumes are picking up. Similarly, if you look at our gross margin percentage, in Q1 last year, we were at about 12%. Q4 last year, we were about 17%. And Q1 this year, we are at about 20%. So therefore, improvements in margin as well as improvements in the revenue number. In the past, Love, you will remember that we have been always saying that EBGC is a business of volumes. And as you get more volumes, the cost structure largely remains flattish and therefore what happens is this margins are improving quite nicely. We believe that this margin profile is sustainable. Also on back of a lot of cost optimization that we are doing at our back end. So for this year, we do believe that these volumes and these margins are sustainable. As far as the overall IFM numbers are concerned, you are absolutely right. IFM margins are slightly depressed overall margins -- if you look at Q1 over Q1. We are at INR 23.6 crores EBITDA versus INR 23.1 crores. So there is a marginal improvement in EBITDA. But on the PAT basis, of course, we are at INR 20 crores versus 20.7% in the same quarter last year. So margins have been stable, minor variations also because of some front-ending of costs and some front-ending of contracts, in some cases, what tends to happen. But these are normal business variations. At this margin level, we do believe that we will not decline any further.

All right, sir. And the second question would be how -- what are our plans to utilize our cash? Like what are -- I believe it was above INR 200 crore cash balance that we hold. So how do we intend to utilize that? And any acquisitions planned this year?

Yes. So we do have a cash balance of upwards of INR 300 crores. And the plans to utilize that, we have briefly mentioned that in the last call as well that they'll basically be 3 large buckets in which or 3 buckets in which this cash will get utilized. One remains inorganic, the second bucket will be brownfield growth, which means organic growth. So whether it is in accelerating our product development, technology transformation as well as building a sharper go-to-market team to actually develop some markets and business. So that will be the brownfield piece where we'll be investing money. The third, of course, is to reward shareholders. We have made a small beginning with this Board meeting and with this result with this quarter. Where we have declared a dividend of INR 1 per share, which will take away about INR 7 crores of cash. So this is a small beginning, it's an interim dividend. But rewarding shareholders, while continuing to use and deploy cash mainly to drive growth, both internal and organic growth as well as inorganic growth. That remains the use of our cash. That is the cash allocation strategy.

So on the third point of rewarding shareholders, are we planning considering any buyback of shares?

Right now, there is no proposal to buy back shares on -- in front of the board, and there is not a discussion on it. But this is not to say that we will never do it. These are various mechanisms exist to reward shareholders. And at the appropriate time, all of these mechanisms and tools are being considered and will continue to be considered by the Board.

[Operator Instructions] The next question is from the line of [ Adena Chauhan ] from J&J Investments.

Sir, I have a couple of questions. Firstly, how do you expect current revenue mix between IFM versus BSS, which is currently 67% and 33%, going to evolve over the next 2 to 3 years?

So our revenue mix at roughly 2/3, 1/3 has actually been quite steady over the past few years. Going forward, we expect this to continue, because both our businesses are, we believe, can grow low double-digit numbers, which is in the region of around 9%, 10%, 11%, 12%. So therefore, we do believe that this mix will probably continue.

Okay. Sir, second question is on for Athena, can agentic AI become a meaningful revenue contributor over the next 3 years. And what margin [ profile shoul ] your investors expect?

So we do believe that agentic AI will become an important part of how we deliver to our customers. However, at this particular point in time, we are not seeing any wholesale replacement of human agents, especially in the BFSI sector, and we don't see this happening in the near term. That said, Athena is right now at the forefront of experimenting with Agentic AI for various other segments. For example, incoming service calls, for example, things like customer satisfaction surveys and other such areas where adoption will be faster. So I will invite Elizabeth to just add a quick to 3 lines to how she is seeing agentic AI evolve?

Agentic AI today for BFSI clients is primarily used for outcalling customers to qualify leads before and getting consent to call. In the service area, what they do is what we're doing is replacing human agents for answering repetitive queries. So basically, both the exercise, there is utilization, one where the client is looking at adding -- getting qualified data using outbound for the BFSI sector and in-bound where repetitive queries can be answered on the phone.

The next question is from the line of Diksha Motwani from Siddhant Partners.

My question is there is a reduction in EBITDA of BSS. EBITDA margin from 11.5% in March to 7.5% in June. Any specific reason? And is this the normal EBITDA for BSS?

No. So where you're -- what you're referring to, so there is -- if you look at the margin reduction, yes, it is. The answer really lies in what happened with Avon. So in Avon in the last quarter, there was a restatement as you know. So what that has done is that, that has actually added to last year's number, the Q4 number, and that is why the comparison looks skewed. If you take that impact out, then actual last year, Q4 '26 BSS segment delivered an EBITDA of INR 19.1 crores. And this year, we have delivered INR 18.9 crores. So the margin profile is largely similar, and the EBITDA numbers are also largely similar. So it's because of an exceptional unnatural item in last year Q4, which is where you're seeing the skew.

Okay. Another question is there is increase in the other expenses. So any onetime expenses is there?

In other expense?

Yes.

This is Ram here. This is largely due to some restructuring expenses as well as the provisions that have been taken for the transport segment in last year FY '26 versus this quarter FY '27.

Okay. Any update on the acquisition?

Yes. So the conversation that we have been having, at this particular point in time, that deal is on hold because there are differences in terms of valuation. As you know, we are a conservative acquirer, and we do not believe in overpaying for any acquisition. And there is a disagreement in terms of what the final value should look like. So therefore, right now, we have put the deal on hold. It may revive if there is a positive movement. At the same time, we continue to look at other acquisitions and we do have a pipeline that we are looking at.

. The next question is from the line of Aryan Vijan from RV Investments.

Sir, my question is on the GCC you have mentioned what do you think about the sector? And do you see the sector will go in the future?

Aryan, you're asking about the EBGC sector?

GCC, Global [indiscernible]

Oh GCC. Sorry, sorry. Okay. Yes, I understand. So GCC, of course, are becoming quite a large consumer of office space in this country. In fact there are reports that they now account for almost half of total A and A+ great office leasing in this country. Our exposure to GCC is actually limited because as we have been explaining in the past, out of the 5 core segments of the IFM business, we are strong in industrials, in warehousing as well as in infrastructure. In the commercial side, our exposure is low. And on the residential side, we don't operate. So that is the -- so therefore, while it's growing, we are now rejigging our entire business development effort and team to focus on growth and emerging segments. The GCC focus will be also a part of that. So right now, it's not impacting us too much, but we are looking at it. We have put in place a team which will start looking at growth opportunities, including GCC.

And sir, can you provide this year's guidance?

Sorry?

Guidance for this year.

We normally don't give formal guidance. So -- and I think we will continue with that. What we have said, I mean, you can take our Q1 number as an indicator. And that is what you can sort of perhaps extrapolate, but we are not giving formal guidance.