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00:00Hello and welcome, you are watching a special conversation that we are having with Sandeep
00:09Kalra, CEO of Persistent Systems.
00:11Sandeep, good morning, thank you very much for joining us.
00:15From the look of it, it has been a good quarter, like you mentioned to me before we got into
00:19this conversation, 17th quarter of reporting and you have done good.
00:24Revenues are up, EBITDA is up, margins have also improved.
00:27So all in all, from the look of it, things look good.
00:30But let's start with the demand environment first.
00:33Has that changed between the last quarter and today?
00:37We've talked about green shoots, are we actually seeing green shoots today as we speak?
00:42And also, do you feel a lot more confident, do clients feel a lot more confident going
00:46into conversation and closing deals with companies like you?
00:49So a quick check of what's happening on the demand front.
00:52Yeah.
00:53So, first of all, thank you for having me.
00:56It's been a good quarter for us, both in terms of revenue, profit, as well as the order
01:00book.
01:01In terms of the demand environment, as you alluded to, the demand environment continues
01:05to be somewhat the same, although there is a bit more optimism, there's a bit more optimism
01:11from the perspective of rate cuts, et cetera, happening.
01:14People are expecting start September, they will start to see some amount of rate cuts
01:19and post the elections, they do expect things to accelerate.
01:22So there is some amount of optimism.
01:24I would say it is not necessarily converting into order wins yet, but the discussions are
01:29starting to turn a little bit more positive.
01:32You know, Sandeep, when I looked at your earnings last quarter around healthcare, it held up
01:37quite nicely, but BFSI and high tech segments were still not looking as good.
01:43From the way we look at it today, all those three verticals are firing up.
01:47Your BFSI is growing, so is healthcare.
01:50Do you want to chart out and pencil out what sort of growth can we expect for F525 on those
01:55two verticals?
01:57Sure.
01:58So we don't give forward-looking guidance, so I'll not give you percentage commentary,
02:01but I can give you qualitative commentary on things, which should help.
02:04So if you look at our pipeline and order wins and so on, so the order wins have been fairly
02:10secular.
02:11Order wins have picked up on the back of generative AI-related discussions in software product
02:16engineering, and so we are seeing the success based on our platforms as well that we are
02:21bringing to bear, especially on the cusp of enterprise software and private equity and
02:26mid-to-large enterprise software companies.
02:29So we do expect that to accelerate our high tech revenues or ISV revenues over the next
02:34several quarters.
02:36Healthcare has been a very good journey for us.
02:38We have won multiple large deals and multiple customers.
02:41It has been a story where we have grown 66% year on year.
02:44Sequentially, we have grown several quarters, double-digit from a growth perspective.
02:49BFSI, last quarter, saw a fairly decent growth.
02:53So we are expecting healthcare to lead the growth, followed by BFSI, followed by high
02:57tech for us.
02:58And overall, the demand environment for us, I think, based on the initiatives we are taking,
03:03looks decent.
03:04Hello, Mr. Kalra, thank you so much for joining us today.
03:08I just had one question on margins.
03:11Now, we have seen on an absolute basis, of course, they have gone up on a year on year
03:15as well as on a quarter on quarter basis.
03:18But it is coming out roughly 14% versus 14.9% in the same quarter last year.
03:24If you could just talk us through, you did speak about demand, if you could just talk
03:27us through on margins specifically, how are you seeing the current negotiations as well
03:32and anything on qualitatively or just you could tell us about the story as well on margins
03:37going forward.
03:38Sure.
03:39So if you look at the margin side, there is two, three things happening there.
03:43Number one, overall, if you look at the last year, the last year, the environment has been
03:47tough.
03:48So while there have been larger deals on the table, those deals have been led by cost optimization
03:52initiatives from our customer side.
03:54So when they are trying to do cost optimization, they are looking at doing vendor consolidation
03:58as well.
03:59So a number of larger deals that we have won, we have done rebadging onshore, consolidated
04:06vendors onshore.
04:07We will optimize this over a period of next several quarters offshore.
04:11There will be a margin level for us.
04:13So if you look at it increasingly, we have won against the bigger players in a cost optimization
04:18initiative and we feel good about it.
04:19The revenue growth in a difficult environment is definitely a sign of continued revenue
04:25growth as the environment eases and it also gives us the levers to be able to optimize
04:30margins.
04:31We have said aspirationally, we want to deliver industry leading growth at margins which are
04:35equal to the margins that we delivered last year.
04:38What that would also mean is if we are starting with 14% in the first quarter, which is lesser
04:43than the last quarter, we will incrementally see margin improvement.
04:47And by the time we exit the year, aspirationally, we should be, you know, meeting the margins
04:52and setting the base for margin improvement to come for the next several years.
04:55I'm just going to come in as Sandeep and this may be a little more qualitative in that sense.
05:00But what you indicated to me is that you've gone in and won clients and orders in terms
05:06of cost optimization.
05:08Are you now beginning to feel that post-completion of those jobs, the money that is saved is
05:13now going into your discretionary products?
05:15So is there a cross-selling opportunity that is probably contributing well to your top
05:20line or could do so in the next six to eight months?
05:24So an excellent point.
05:25Yeah.
05:26So look, what is happening in the industry is this.
05:28On one side, there is significant buzz around newer technologies like generative AI and
05:33AI at large.
05:34Now, if people have to experiment with those technologies, leverage those technologies
05:37to disrupt their business models, be more competitive, etc.
05:41In a demand environment where our customers are also facing tough conditions, they're
05:45trying to optimize spend from certain areas, put it into next generation areas.
05:50And to your point, yes, it is.
05:52It is a good thing for us.
05:53On one side, we are winning cost optimization deals.
05:56And as and when we give back the money to the customers in terms of what we are signing
06:01up for, part of that will also come back to us in terms of next generation initiatives,
06:05which are revenue enhancing based on newer technologies and newer initiatives.
06:09So yes, it could mean revenue growth from both perspectives for us.
06:14Just one quick question on that.
06:16Have you lost any clients this quarter or added any big significant ones that you should
06:20tell us about?
06:22No.
06:23In terms of losing any customers, look, we are always looking at long tail rationalization.
06:27So there is nothing that we can say we have lost a customer that we did not want to lose.
06:33In terms of adding any significant customers, look, we keep adding customers.
06:37But if you look at our order wins, we have announced certain large deals, etc. with some
06:41of our existing customers and newer customers.
06:44So I think overall, it's a healthy journey.
06:46I don't think there is anything in terms of any negatives that we should be reporting.
06:51I think the order book that we have done, the deal sizes that we have seen should bode
06:55well for our future.
06:56Just as we were speaking about order books, we have mentioned that your top 10 clients
07:03share has been steadily going up over the past few quarters.
07:06We've also seen additions in this particular quarter on your TCV as well.
07:10We saw a big jump in Q3 of last year, crossing the 500 million mark.
07:15How are you seeing on these two parameters going forward on the top 10 as well as on
07:19bookings?
07:20We have seen an increase from the previous quarter.
07:22How are you seeing the demand environment on these support aspects?
07:25Yeah.
07:26So just to give you some numbers, our top five customers grew year on year, 28% in the
07:30quarter gone by.
07:31Top 10 grew by 25%, top 20 by 19.3%, and top 50 by 19%.
07:37So if you look at it, our endeavor to grow our top accounts, if you look at our current
07:42growth rate, we are at 16% year on year.
07:44All of these categories are growing higher than that.
07:47So the initiatives that we have on focusing on our larger accounts is paying out well.
07:51We are also winning newer deals at scale.
07:54So from that perspective, the bookings are panning out nicely and Q3 for us usually,
07:59if you look at it, is the October, November, December quarter, which is the financial year
08:02end for us.
08:03It's seasonally a stronger quarter for us.
08:06So we are hoping as we are increasing our revenues, you know, the order book should
08:10also proportionately increase with time.
08:12So all handy trends and running in the right direction from customer concentration, order
08:18book and every other perspective.
08:20Right.
08:21The biggest talking point these days is Gen AI.
08:24Most of us understand very little of it, unlike, of course, people like you who know this at
08:28the back of your hand.
08:30So it's mandatory for me to ask you this, right?
08:33Where do you see yourself?
08:34Where do you see persistent?
08:36So forward looking guidance over the next two to three years.
08:39And where do you see Gen I?
08:41How much of it is going to?
08:43Is that going to be the leading is lead indicator for the revenue growth of the two billion
08:47dollar aspiration that you have a persistent?
08:49Yeah.
08:50So look, Gen AI is a subset of AI.
08:53We have been playing in the AI field for long, but Gen AI has definitely been something which
08:58is transformational.
08:59It is not an incremental thing.
09:01And the fact that everyone is talking about you, including on this, about this, including
09:05you on this call, the awareness is very big.
09:09The adoption is going to be much faster than even the cloud adoption we saw in the past.
09:13And so from our perspective, we are looking at Gen AI slash AI in two vectors, one AI
09:19for technology, second AI for business, AI for technology.
09:22We are focused on using AI to do product development, application development, etc. faster and making
09:28it more platform driven.
09:30So forward looking persistent should be looked upon as a company, whether we are doing AI
09:36for technology or AI for business, where we are helping enterprises develop new business
09:41models, reduce cost, use data to insight and action, improve customer experience.
09:46You should look at persistent as being a company which will scale revenues based on a platform
09:51and human centric approach rather than being a human centric services delivery.
09:57So from that perspective, over the next several years, and please don't expect it in the next
10:01quarter, two quarters, our revenue per employee should move up, our profit per employee should
10:06move up because we are doing a platform and services.
10:09So the platform should become something that can increase productivity of an average employee
10:14in persistent that will help us disrupt our own business and the business of our competition
10:19and so on.
10:20And overall, the market would also expand.
10:22So that's where the story is.
10:23It should be revenue and margin accretive over a period of time.
10:27Right.
10:28So of course, from what I understand, a lot of the tech you're developing or AI you're
10:32developing is first being used internally to improve, you know, utilization in that
10:37sense and of course, profitability and then of course, is also sold to other companies
10:40to do so.
10:42You know, you've also talked about expansion growing at the pace that you're looking to
10:46grow.
10:47Would any of it come in from the inorganic acquisition route?
10:51And if yes, would that be in the gen AI space?
10:53So are you on the lookout for a good match for yourself or for your company?
10:58Sure.
10:59So look, we have been doing inorganic part as well in terms of acquiring companies for
11:04capabilities that we want to get into.
11:07So in the last several years, we have, you know, incrementally invested in cloud based
11:10technologies, payments and so on.
11:12As of this point in time, from a gen AI perspective, there are certain use cases which are horizontal
11:17use cases which are applicable across verticals.
11:20So for example, contact center, you know, infusing AI into contact centers is one big
11:25horizontal use case.
11:26We recently, you know, announced a small acquisition in that space and we'll build it up to bring
11:31in technology from our side, our partners like Google, Microsoft, Amazon and others.
11:37So like that, we are on the lookout and we will definitely do both will create IP internally
11:42as platforms and reusable components and bolt on these acquisitions, most of which should
11:47be smaller tuck in capability based acquisitions.