Q4 24/25

May 16, 2025

Summary

FY25 revenue grew 11.2%, with 3% organic growth and the remainder from acquisitions. FY26 margin improvement is expected, while tariff uncertainty and captive-center shifts remain headwinds.

Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Jagtap from EY LLP Investor Relations. Thank you, and over to you, sir. Thank you, Mano. Good afternoon to all the participants in the call today. Welcome to the Q4 FY 2025 earnings call of Datamatics Global Services Limited. The results and presentations have been already mailed to you, and it is also available on the website of Datamatics. In case anyone has not received a copy of press release or presentation, please do write to us, and we will be happy to send you all. To take us through the results today and to answer your questions, we have with us the top management of the company represented by Rahul Kanodia, Vice Chairman and CEO, Ankush Akar, SVP and Chief Financial Officer, Mitul Mehta, EVP and Chief Marketing Officer. Rahul will start the call with a brief overview of the quarter on business, which will be then followed by Ankush, who will take us through the financials. Then we will open the floor for Q&A session. I would like to remind you that anything that is said on this call, which gives any outlook for the future or which can be construed as a forward-looking statement, must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to, what we have mentioned in the prospectus filed with SEBI and subsequent annual reports, which you can find on our website. With that said, I now hand over the call to Rahul, sir. Over to you, Rahul, sir. Thanks, Pratik, and a very warm welcome to all of you, and thank you for joining us for the Quarter 4 FY 2025 earnings call. I will begin by sharing key strategic highlights from our quarterly and annual performance. After which Ankush will provide a detailed overview of the financials. We will then open the floor for questions. We delivered a steady performance in Quarter 4 FY 2025 with a revenue of INR 497.2 crores, which is up 20.5% on a year-on-year basis, and an EBITDA of INR 74.5 crores, reflecting a 15.3% year-on-year growth. Of course, this includes Quarter 4 revenue contribution from TNQ Tech, which we acquired on the 31st of December 2024. For the full year, we achieved revenues of INR 1,723.4 crore, representing a year-on-year growth of 11.2% over FY 2024. On an overall basis, 3% of our growth came from organic performance, and the balance came from acquisitions. This year we have seen an unexpected dip in volume from our tax business due to the tax volume shifting to in-house captive centers, and we are seeing some slowness in pipeline velocity and decision-making due to the tariff uncertainties. Going forward, we will continue to focus on our strategic accounts, expand our presence in the U.S. and European markets, and drive cost optimization to achieve this. To achieve this, we are aligning our teams around strategic and key growth accounts. AI remains a cornerstone of our strategy. We believe that AI's transformative potential and remain committed to delivering impactful business outcomes for our customers through our AI-first approach. We are seeing more POCs being done in this space and some of them converting into projects. The board of directors has recommended a final dividend of INR 5 per share, which translates to 100% of the face value, which is a INR 5 face value, reaffirming our commitment to shareholders. In closing, I would like to express my sincere gratitude to our employees, customers, partners, and shareholders for the continued trust and support. With that, I will hand over to Ankush Akar for the financial update. Thank you, Rahul Kanodia. Welcome, everyone, and thank you for joining us in Quarter 4 FY 2025 earnings call. Let me start with financial performance for the Quarter 4 FY 2025, and then I will take you through the full year FY 2025 financial performance as well. Our Quarter 4 FY 2025 revenue stood at INR 497.2 crore, reflecting growth of 16.8% on quarter-on-quarter basis. Our EBITDA for the quarter stood at INR 74.5 crore, reflecting a 36.6% growth compared to previous quarter. Our EBITDA margin for the quarter was 15% compared to 12.8% in the previous quarter. Our EBIT for the quarter stood at INR 54.5 crore, reflecting a 21.9% growth compared to previous quarter. Our EBIT margin for the quarter was 11% compared to 10.5% in the previous quarter. Our Quarter 4 FY 2025 performance includes full quarter numbers of TNQ Tech, acquired on 31st of December 2024. Our other income for the quarter was INR 8.1 crore as compared to INR 10.7 crore in the previous quarter. Decline was due to the utilization of funds for the acquisition, reflecting in lower income from investments. Our PAT after non-controlling interest was at INR 44.9 crore, down by 39.6% on quarter-on-quarter basis. The decline is due to an exceptional item, one-time gain in Quarter 3 FY 2025. In terms of segment, our digital operations revenue for the quarter was INR 266.4 crore, which is up by 49.7% on quarter-on-quarter basis. Digital operations EBIT margin was 16.4% for the quarter. Digital technologies revenue for the quarter was INR 159 crore, which is down by 8.3% on a quarter-on-quarter basis. Digital technologies EBIT margin was 1% for the quarter. Digital experiences revenue was INR 71.7 crore, a decline of 3.3% on a quarter-on-quarter basis. Digital experiences EBIT margin was 13.1% for the quarter. Talking about FY 2025 financials, our revenue stood at INR 1,723.4 crore, reflecting growth of 11.2% on a year-over-year basis. Our EBITDA for the year was INR 229.3 crore, and EBITDA margin was 13.3%. Our EBIT for the year was INR 181.2 crore, and EBIT margin was at 10.5%. PAT after non-controlling interest was at INR 205 crore, and PAT margin was 11.6%. For the financial year, if we see the segment, our digital operations revenue for the year was INR 785.8 crore, which is up by 13.2% from the previous year. Digital operations EBIT margin was 14.9% for the year. Digital technologies revenue for the year was INR 655.9 crore, which is up by 7.3% from the previous year. Digital technologies EBIT margin was 3.6% for the year. Digital experiences revenue for the year was INR 281.7 crore, which is up by 15.4% for the previous year. Digital experiences EBIT margin was 14.3% for the year. We continue to maintain a healthy balance sheet. Despite utilization of funds for two acquisitions during the year, our cash and investments net of debt remained strong at INR 415.3 crore. Our billed DSO was 57 days as of March 2025, as compared to 67 days as of March 2024. In terms of geographical footprint, U.S. remains our largest geography with 54% of the business coming from here, followed by India at 21%, U.K. and Europe at 15%, and rest of the world at 10%. In terms of industry footprint, technology and consulting was the largest segment for us, which constitutes 26% of the revenue, followed by BFSI, which stood at 21%. Then education and publishing stood at 18%, manufacturing and logistics, which stood at 13%, non-profit and non-government organizations at 10%, retail at 8%, and rest of all our 4% of the revenues. Our client concentration remain healthy with top five, 10, and 20 clients contributing to 20%, 33%, and 48% respectively. With this, I will now pass on the call to the operator to open the floor for questions. Thank you for your patience and continued interest in Datamatics. Hello. Yes, sir. Should we begin the question and answer session? Yes, please. Okay. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use handsets only while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead. Yeah, hi, thanks for giving the opportunity. Am I audible? Yes. A little muffled, but yes. Is this better? Yeah. Yeah, sure. Sir, largely wanted to understand on the digital tech part of the piece. When I go through the presentation and through the website, broadly, we are doing managed services, Salesforce implementation, Microsoft related work, and automatic fare collection also. If you can throw some light there as to what exactly are we doing here in digital tech. The reason I wanted to understand is your margin side is a 4%-5% EBIT margin range, 4% to 6%. So why is it that our EBIT margins are in this band versus when we see for other IT companies, they are in the 11%-15% band, depend on the company that you select. Just wanted to get a sense as to what are we doing exactly here, and why our EBIT margins are in this 4%-6% range. Sure. If you look at the core IT services, they are in the range of about 15% odd in EBIT terms. That is impacted for two reasons. One is that all our investments in the product development and the R&D that we're doing in AI is going into this bucket. The second is the business that we do with automatic fare collection is also not a very healthy margin business, plus it has a large component of hardware. Since we are not a hardware company, it's basically a trading margin that you make on that. So the AFC piece and the investments in products is what is eroding the margins. If you look under the sheets, basically, the core IT services is running at about 15% margin. Okay. So this 15% you are mentioning of EBITDA or EBIT? 15% is EBIT. EBIT. Okay. If you can quantify the impact of both this thing, AFC as well as investments, that would be. AFC is how large for us? Out of INR 650, INR 700 crores. AFC is about INR 85, INR 90 crores, roughly. Ballpark. On a quarterly basis? No, no. Annual basis. That's a very low margin. Understood. Sure. Correct. These investments that you are mentioning about, these are the company-level investments or only the segment-level investments? All the investments on technology fit into this. No matter where in the company we do R&D, all of it comes into the IT bucket. Okay, understood. Sure, yeah. That's it from my side. Thank you. Yeah. Thank you. A reminder to all participants, if you wish to ask a question, you may press star and one. Anyone who wishes to ask a question may press star and one on their touchtone telephone. We have our next question from the line of Hemant Shah from Seven Islands PMS. Please go ahead. Hi. Thank you for taking the question. Am I audible? Yes. Could you help me with the revenue contribution of TNQ in Q4? TNQ revenue contribution in Q4 is about INR 74 crores. 74 crores. For the full year FY 2025, what would be. I mean, when we acquired the company last year Yeah. around 280. 287 or 290. Okay. Yeah. Okay. Secondly, is there any one-off with respect to this acquisition? In Q3 we had INR 5 crore of one-off, I think you had mentioned. We had Is there any one-off in Q4? One-off expense, you mean? Yeah, one-off expense. Correct. We had a one-off expense for the acquisition of TNQ Tech, which Ankush, you want to say something? Yeah. We had a one-off expense in last quarter three, which was for the acquisition. For this quarter, there is nothing as one-off in this quarter. Okay. Basically the depreciation and amortization, which has gone up from, say, almost INR 7 crore to INR 20 crore, this is going to be the new normal? Basically, when we do the acquisition, there is intangible assets as well which gets generated. There are two- Right. basically intangible assets, the goodwill and the customer contracts. Okay. This is basically amortization of that customer contracts, which will continue for the few quarters basically, till it is amortized. Okay. So this includes goodwill amortization as well? Goodwill is not amortized. Okay. Only the customer contracts which we have created. The INR 7 crore will continue for a few quarters, till it is amortized fully. Could you quantify how many quarters? It will be roughly over three years. Over three years. All right. My next question would be, after this TNQ Tech, this is the first full quarter, correct? Q4 was the full quarter. This will be the first full year. Yeah. FY 2026 will be the first full year of TNQ numbers, correct? Correct. I mean, consolidated numbers. If you see, we have done INR 1,723 crore of top line, and I think TNQ anyway is going to have a top line of INR 300 crore. Technically, we should do around INR 1,950 crore of sales for going forward in FY 2026 comfortably, without assuming any growth in the normal businesses. That is correct. including the Lumina as well as Datamatics standalone. That is correct. Okay. Where do you see, Rahul Kanodia, the margin expansion scope? I mean, in terms of digital operations, we have done in Q4 16%, but if you see yearly, it has declined. Even in digital experiences, Q4 has done okay, but yearly, I think it has declined. Yeah. Digital technologies I think has done really bad margins, I mean, EBITDA margins. So, yeah, it appears bad because of just the spend that we have, point number 1. Right. And point number 2, in digital technologies, we did have a little bit of a dip in revenue in Q4. Correct. Having said that, the measures that we've taken to control costs should show us a significant change across the board. The maximum change should be in the digital technology area that you'll see. But even in digital experiences, we'll see an improvement in margin. Okay. So you will see a margin improvement more so in these 2 pockets, but you will see it across the board. Okay. Even in digital operations Yes. we will also see some improvement because of TNQ? No, that is correct. Partly because of TNQ, partly because of some cost-cutting measures that we have already taken care of. Okay. I mean, if you just analyze this, I mean, for the next year, can we comfortably expect 150-200 basis points of margin improvement? I am not talking about the guidance, of course. This is pure mathematics. Yeah. I expect that. Okay, great. Lastly, could you throw some idea on deal wins, Rahul Kanodia? We have mentioned four or five deal wins in the presentation. Yeah. Is the size above INR 20 crore annually or below INR 5 crore annually? These new deals or new logos that we win typically always start small and they scale. There are some very good logos that we have acquired. They will always start within the range of $200,000-$300,000. That is about INR 1.5 crore-INR 2.5 crore. Then they scale depending on how the performance goes, yeah. Okay. Is there any deal we have won over, say, INR 10 crore or even higher? Yes. There are, and there are some in the pipeline as well that we will close hopefully very soon. Okay, great. Lastly, I think if you can throw some light on AI-driven revenues in FY 2025. I think you had mentioned around $40 million in Q3 USD. $40 million of AI? 40 a year. No. Okay. Our total top line roughly is $200 million. It is $40 million in just pure AI would be very heavy. Okay. Okay. What would be the AI-driven revenue with respect to? Right now we are not tracking specific AI-driven revenue because we are injecting AI across the board in multiple areas. Every project has now AI because that is coming in. It is very difficult to track a pure AI revenue. Having said that, there have been a few POCs that I mentioned in my address. There are a few pure AI proof-of-concept projects done, and they are now converting into live projects. Okay. Every year we spend around INR 40 crore-INR 50 crore with respect to the R&D and the technology spend. That is correct. Which is going to continue even in 2026, 2027 as well? It will continue. We are realigning some of that from some product investments that we were making towards AI. We are sort of reallocating some capital. But yeah, fundamentally, that will continue. Okay. Fair enough. Lastly, sorry to take so many questions. Thank you for this INR 5 dividend. This is a very good gesture. Just wanted to know, there is one likewise competitor in the market in the stock listed space, which is MPS Limited. Yeah. If you see the financials of MPS, I think it has steadily grown in terms of volume and even in terms of margins. If you see three years back, the size of the company was almost half the size which is today. The margins have already expanded from, say, 18% to almost 23%, 23.5%. Yeah. Can we see this kind of trajectory with Lumina Datamatics, Rahul? Because we have acquired so many fantastic assets Yeah and so many beautiful companies. Yeah. It would not be correct to compare all of Datamatics with MPS. MPS is one component of what we do. TNQ Tech, for an example, fits into that space. But there is a lot more than Datamatics, that is point number one. Point number two is that the margins in that space is similar for our division that is into digital content, as well as TNQ Tech, it is similar to MPS. As far as the growth rate that you have seen in MPS has largely come through acquisitions. Right. It has not been an organic growth. If you consider acquisitions, then you will see that. But right now, we have already this year done two acquisitions. Right. Coming financial year, we are not looking at any significant acquisitions. Okay. But margin expansion, as you rightly mentioned, around 150-200 basis points is on a consolidated basis, Datamatics all inclusive. Yeah is visible, right? Yeah. And possible? Yeah. Okay. Thank you so much. Thank you for taking my questions. Thank you. Thank you. Thank you. A reminder to all participants, if you wish to ask a question, you may press star and one. Anyone who wishes to ask a question may press star and one. Anyone who wishes to ask a question may press star and one. If you wish to ask a question, you may press star and one. We have our next question from the line of Hemant Shah from Seven Islands PMS. Please go ahead. Sorry, I think it seems a one-on-one call, Rahul. Thank you. Thank you for taking one more question. This is with respect to the interest cost and the debt, what we have taken, around INR 150 crore in the balance sheet. Yeah for 2025. Yes. How would repayment be doing, and this is for the TNQ acquisition, I assume. That is correct. It is for the TNQ acquisition. We are cash-rich, so we can pay it off. I do not think we have any concern from our payment. We will pay down those from future revenue accruals and profit accruals. That is the plan. Right. It is always good to remain liquid, and that is the reason why we did take some debt. Okay. No, fair enough. But we will be repaying it in the next 2 years or so? I- No more internal cash flows. Three years, I think. Three years, yeah. Three years. Okay. On a yearly basis, we are generating almost 200 crore plus of operating cash flow. I think the borrowing is not an issue as of now. Correct. I think with TNQ Tech, we can generate even 20%-25% more, Rahul Kanodia, if I am not mistaken. Yeah. All right. Fair enough. I think since it is a one-on-one call, I think you are doing a fantastic job. Thank you. But as a shareholder, we would like to see margin improvement in all three segments, Rahul Kanodia. Yeah. In technologies, operations, as well as experiences. Since you are spending so much on R&D and automation, I think the fruits are still not visible. Is there any reason or it is still, I think, the business is asking for more spend? No, I think the spend in the business will be at a steady state, so it is not asking for increasing the spend. I think now the spend has to be more in some solutions that we take to market. So it is more from a go-to-market kind of a thing. Right. I am confident that we will see improvement on the bottom line across the board in this new financial year. Okay. Because we have, I think, almost spent maybe INR 250 crore or INR 300 crore in last five or six years, right? That's correct. I think it would not be fair to assume 20% ROI for those investments. No, some of them have an opportunity potential to give us some very good returns. Let's see how that goes. Okay. We are still progressing. No, fair enough. You mentioned some slowdown in terms of intake of the orders and some slowdown with U.S. markets. I mean, you can throw some light. Yeah. We are seeing some of our customers go slow or pause some projects, given the uncertainties around tariff and given the possible inflation that they are talking about in the U.S. And we also see that impacting the pipeline a little bit. However, in the last week or 2 weeks, we have seen some easing off with the U.S. administration as far as China and Turkey and Syria and Saudi, all these countries that we talk about. If some of these things settle, then we should see an uptick, hopefully soon. Okay. Fair enough. Lastly, we have 20% of our business from India. Yes. Where do you see the potential of Indian market going on? 20% is almost roughly INR 350 crore of business. India is a tricky one because India is a very good market, but it is a price-sensitive market. From a cost perspective, India looks good. However, from a margin perspective, India will always be a little compressed. Okay. That is the challenge we have with India. Do you see the products you are offering, I think no other companies are offering to the MSME sector or maybe a small company. I mean, do you see that kind of potential? I think India is growing. I do not know how far the market is growing in terms of the products, what you are expecting to. The products we are selling, we sell in India as well as the Western market. In the Western markets, of course, we get much better margins. A large part of it is also digital operations. Digital operations, hopefully, will get a flip when we are able to implement some AI solutions. Although, having talked about AI, again, right now the pricing structure of AI for India is still a bit of a challenge. The cost is not as cheap as India would like it to be, as a geography that is, because labor cost is quite cheap here. Once that matures, then we can deploy and try to reduce the cost in India. But right now, the Indian customers are a little wary when it comes to deploying AI because it does not give them a financial gain. It gives them automation, but not necessarily a financial gain. Right. Fair enough. All right. Thank you for taking all my questions, Rahul. All the best. Thank you. and we will connect soon. Thanks. Thank you. Thank you. A reminder to all participants, if you wish to ask a question, you may press star and one. We have our next question from the line of Reuben Mathews from Equity Intelligence India Private Limited. Please go ahead. Yeah. Hi. I just have a quick question. I believe you recently met with Google. I am just trying to understand how did that meeting go and maybe you can give us a bit more. Can you give us some information on what exactly would you be doing with Google? We had a good meeting with Google. It is about a joint go-to-market. We are taking some of their solutions, particularly using AI to the market, and they are taking us to their customer base as well. It is a joint initiative to deploy AI solutions to the customer base that we have and that they have. Okay. We are building some of the solutions on top of their platform. Okay. Is that one of the deals that you said that you won or is it still under discussion? No, we've not yet closed any deals with Google. Those are still in the pipeline. Yes, that's all I need to know. Thanks. Thank you. Thank you. We have our next question from the line of Mihir Manohar from Carnelian Asset Management. Please go ahead. Yeah. Thanks for giving the follow-up. Pardon for my ignorance, sir. I broadly wanted to understand this AI investments that we are making and what are these towards exactly. I know that we have TruBot, TruCap+, TruBI, different category of products. I mean, these investments that you are making, what exactly are they into? They are in building these products, and now we've been putting a lot of GenAI into these products. And now we've got something that we're developing is agentic AI. So we are building solutions around agentic AI. All of that is where the R&D is going, around the latest technologies around AI. The whole space of AI is moving very fast right now, and therefore it means that we are on our toes constantly doing R&D and implementing the latest solutions available. These products are around automation, around intelligent document processing, so extracting and interpreting information, and around business intelligence. Okay. Understood. And these products, would these products be sufficient itself for us to. I mean, in the future revenue generation becoming directly possible only from the sale of products or subscription of products, or will it be a part of managed services and productized services kind of a thing going ahead? It is both. We are selling these products as licenses, and we are also using these products as part of our managed services. So it's both. Okay. Understood. Out of 700 crores, how much will be pure product revenue? That's a little tough one because those that go as part of managed services, we are not able to track that revenue specifically to the product. The cost of the R&D and product building is all put into the digital technologies bucket. Therefore, you see the technology bucket having a little depressed margin. But yeah. Understood. What would be the annual investment that would be towards this agentic AI investment? That's hard to say. AI in general, AI and all the products together is about 40-50 crores. But I can't slice it out, break it up to give you these slices because there's a lot of interrelationship between them. It's hard to say what is what. Sure. Second question was when you commented at the start you made, Amit, there was a dip in volumes because of the shift to captive centers. Is this happening in your top 10, top 20 clients? How to see this and how important, I do not know how significant is this, but in which area is this happening? Yeah. It did take place in some of the top customers. If you see the top five customers that we have had, we see a different percentage of revenue that we get. But generally, in the industry, one does see a trend towards captive centers, and we see a growth in the captive units and companies preferring to or slowly moving in that direction. However, the current customer base that we have, I am not seeing too many shifts, so I am not worried about that. But yeah, some of the larger customers do explore having their own operations in India. Understood. Sure. Correct. Yeah. That is it from my side. Thank you. Yeah. Yeah. Although I do see very often captives and vendors coexisting in an enterprise. So they have a dual model where they do both. Understood. Just one last. Hello, should I go ahead? Yes, please. Yes. One last question on the captive centers. I know we have seen captive centers built up in the last 2, 3 years. From a broader, I mean, from process perspective, from an industry perspective, when do captive centers start getting importance versus outsourced players? At what stage of industry does that happen? How does the industry evolution happen? Just wanted to understand that. Is it that when a new technology comes in, people tend to have more of captive centers and slowly, gradually, eventually, as and when it gets more used, it starts shifting to outsourcing. How does that happen? No. There's no pattern in the industry, and we've seen it across the board. Large companies have captives which they've divested. Small companies have started captives. So it's all over. There's no pattern as such. Typically, they don't do it for new technology. New technology is easier with vendors because vendors service many more customers and therefore more exposed to technology. So that is certainly not a trigger, but there's no pattern in the industry as to who is inclined to go with a captive versus who's inclined to go with a vendor. Okay, understood. I mean, the captive center shift which we saw, this was in BFSI or tech and consulting part of the piece? BFSI. Okay, understood. That's it from my side. Thank you. Thank you. Thank you. We have our next question from the line of Sahil Jain from Enigma Investment Partners. Please go ahead. Yeah. Hi, sir, am I audible? Yes. Yeah. Sir, with the increase in TNQ revenues, will we see a shift in the geographic concentration? Will the U.S. and the Europe concentration increase from the pie? You will see, and you have seen some of it already, but yes, you will see that piece increasing more in Europe than in the U.S. Because Datamatics' ratio in the U.S. and TNQ's ratio in the U.S. is roughly the same, you will not see too much impact on the U.S. But yes, you will see a growth in Europe. That will automatically transfer into higher margins, right? From what we are currently doing in digital operations. That is correct. Understood, sir. What guidance is given out about how the Dextara business is performing? Is there any sort of tariff impact or anything that is affecting that business type of sales? No tariff impact on that. I think the whole tech and BPO industry is right now insulated from the tariff wars. You never know what comes in the future, but as of now, I think it is okay. Dextara has been a little soft in performance, but this year we should have an uptick. In fact, I mentioned in the last call that we have about five logos from Datamatics customer base where we have successfully cross-sold Salesforce services. Understood. That was all from my side. Thank you so much. Thank you. Thank you, sir. A reminder to all participants, if you wish to ask a question, you may press star and one. A reminder to all participants, if you wish to ask a question, you may press star and one. A reminder to all the participants, if you wish to ask a question, you may press star and one. As there are no further questions, I would now like to hand the conference over to the management for closing comments. Thank you, everybody, for being on this earnings call for the year ending 2024, 2025. I look forward to talking to you once again as we enter the new year in the next quarter. Thanks once again for your time with us. Thank you. On behalf of Datamatics Global Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.