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00:00We have with us Kamini Shah, CFO of Birla Soft, now joining in.
00:03Hi Kamini, good morning.
00:04Thanks for taking the time out to talk to us.
00:07Kamini, let's start with revenues.
00:09Revenues have grown about 2.6 percent
00:12QonQ, largely on back of ramp up in previously delayed projects.
00:17As we look ahead into the second half of the year,
00:21how confident are you of sustaining this sort of momentum,
00:25especially considering that quarter three usually has seasonal headwinds?
00:30What are your thoughts?
00:32So absolutely, Sanjana, like you mentioned,
00:34that I think this quarter has been good, a rebound from a revenue standpoint.
00:40The good fact is it is across all verticals,
00:43you know, where you see the growth in our manufacturing sector,
00:46if you see it in our utility sector, you see it in BFSI.
00:49So we are quite pleased from a revenue standpoint
00:52that we are back on track as far as that is concerned.
00:54Q3 is normally a seasonally weak quarter because of furloughs.
00:58And I think we do expected furloughs in the current indication
01:01seems more or less in line with what was there last year.
01:04So I think Q3 will be a little soft from that standpoint.
01:08And I think from Q4 onwards,
01:11you know, we are expecting that the US elections out of the way,
01:14companies will start becoming a lot more confident
01:16and hopefully we should start seeing a lot more momentum from Q4 onwards.
01:22OK, Kamini, would it be fair for us to ask you,
01:25what are you quantifying internally as a goalpost
01:28in terms of run rate for revenues in Q4?
01:34We don't give a specific guidance at this point of time,
01:38but suffice to say that our pipeline is looking very good at this point of time.
01:43So which I think is giving us the confidence to say that,
01:46you know, we need to see the conversion of the pipeline into strong deals.
01:50And I think once we start moving into that direction,
01:53things should start looking a little better.
01:56Deal win TCV was down 19.3% year on year on a TTM basis.
02:02And new deal wins are also lower than what we've seen in the previous quarters.
02:07How are you addressing the slow pace in decision making from clients?
02:10Are you changing your strategy?
02:12Because I do believe that the focus now is on top line as opposed to bottom line.
02:16Where do things stand?
02:17And again, is the improvement going to be fourth quarter?
02:20So if you really look at, you know, like I just mentioned earlier,
02:24our pipeline is looking better.
02:26A reason why our deal wins are a little soft,
02:28and I must admit that, you know,
02:30we are not happy with our performance as far as deal wins are concerned.
02:33But a lot of our wins have actually, you know,
02:36been the paperwork had not been completed.
02:39So we don't typically expect that Q3, Q4 of the year
02:43would probably be a better quarter from a deal win standpoint.
02:47If you look at from a proportional standpoint,
02:49actually our new wins are much better competitively as a part of it,
02:53because, you know, we've got about 89 million of new wins
02:56that we had out of our 136 that we have declared for this quarter standpoint.
03:01So that gives us a confidence that, you know,
03:03I think as if you continue on this momentum,
03:06and if you really get things working well for Q3, Q4,
03:10then I think we should not have a concern from that standpoint.
03:13I also wanted to call out one change, right?
03:15See, we are definitely focused on profitable growth,
03:18and I'll address that to that extent.
03:20The reason we focus a lot more on consolidation deals
03:23as far as the current quarter is concerned
03:25is because it gives you a higher share of the wallet.
03:28And on top of that wallet share,
03:30you have an opportunity to play a lot more
03:32in a digital and transformation space.
03:34So definitely we do not want our margins to operate
03:37at the level that you've seen in quarter two.
03:39We as a management team are very focused to make sure
03:42that our margins start moving up in an upward direction.
03:46And we do expect that starting Q4 onwards, right?
03:49Because Q3 is a seasonally weak quarter because of furlough,
03:53and we are giving a wage hike starting October 1st.
03:55So there will be an impact on margins
03:57as far as Q3 is concerned.
03:59But starting Q4 is when, you know,
04:00we will be focused on improving margins quarter on quarter.
04:03And as a CF, I think you're most concerned about that
04:06and cracking the whip at all times.
04:08But I want to spend a little more time on margins with you.
04:11There has been a very obvious contraction.
04:13And like you said, the focus is to increase wallet share.
04:15And then of course, bring in the pricing power
04:18when you are in a position to do so with your clients.
04:20But margins at 12.1%, there's also a higher onsite mix
04:24and upfront investments in vendor consolidation,
04:27like you indicated to us.
04:28As we look at the timeline and expectations,
04:32and I'm not saying this has to be next quarter,
04:34because I do know that there'll be a further impact
04:36on wage hikes in Q3.
04:38When do you see yourself or the company returning back
04:41to the 15, 16% margin range?
04:44Fourth quarter, is that realistic as well?
04:46So then we know in terms of what our expectations are, right?
04:48You know, while I would wish it to be in quarter four,
04:52it would never happen in quarter four.
04:53I think it'll take us a couple of quarters, right?
04:56And I just also want to outline some of the things
04:58that we are doing, right?
04:59Because one is, of course, you've picked up
05:01our onsite ratio is definitely higher.
05:04We're looking at, you know, how as we consolidate
05:06and mature in some of these deals,
05:08we should be able to move our ratios more towards offshore.
05:10I think that's a very key lever.
05:12Our utilization is lower than what it used to be in the past.
05:15So that's going to be our priority area, our pyramid.
05:18Are we looking at also G&E?
05:20I think we're doing multiple things on various fronts
05:23at this point of time to get our margins back on track.
05:26But if I have to be very realistic,
05:28I think it'll at least take us about three or four quarters
05:30before we get to that stage of 15, 16%
05:33that we were there right now.
05:34So I think we will continue working on it
05:37by making sure that our revenue growth is in line
05:41with what we are aspiring to.
05:42At the same point of time,
05:44the efforts on margin will continue.
05:45But realistically, I think it'll take us a couple of quarters,
05:49at least three or four quarters
05:50before we get back to that trajectory of 15%
05:53that we spoke about.
05:55Because at least we know what we are focusing on
05:56in the next couple of quarters as investors.
05:59Project Optimist was an initiative that you mentioned,
06:02that the company mentioned for margin improvement.
06:05You want to talk to me about Project Optimist?
06:07What is this about?
06:08What sort of margin contribution are you expecting
06:10and what will be the contribution
06:12in terms of top line as well?
06:13It would be good to understand.
06:16Project Optimist is actually
06:17our internal tech transformation program
06:20that we had embarked about two quarters back on this.
06:24Now, what it essentially intends to do
06:26is that we're really looking at simplifying
06:28our internal processes,
06:30digitizing the entire workflows
06:33to make it easier in simple terms,
06:35I would say it makes it easier to work within BuildASoft.
06:38And the kind of insights that we are creating with this
06:41will also help us run our business a lot more effectively.
06:44So, it is actually in an agile mode.
06:47So, the bodies are start coming out.
06:49We started looking at areas and areas.
06:51We've seen some initial gains from Optimist standpoint,
06:55which you're also seeing in a reduction
06:56in our sales and support headcount.
06:59I think that's really an initial indication.
07:01I think we are expecting at least
07:03it should be able to contribute at least
07:05about a 50 to 100 bps point from a margin standpoint.
07:09And that will be one of our strong levers
07:11that we will be focused on in the next couple of quarters
07:13that would enable us to reach the margin recovery.
07:18Kamini, digital and data and ERP services
07:21have grown six and a half and four and a half percent
07:23queue on queue.
07:24And infrastructure has seen a significant decline
07:26of about 19%.
07:29Are there plans to revive growth
07:31in the infrastructure services?
07:32And what role do you think digital
07:35and ERP will play?
07:36Because I do know that's a better margin business
07:38for you as well.
07:39So, is it a conscious effort to sort of,
07:41you know, change the product mix or the service mix?
07:45See, we are definitely focused
07:46on infrastructure business.
07:47And the reason we are focused
07:48is because it is annuity business,
07:51you know, and as we work with integrated services
07:53with our customer,
07:54it is important to have a footprint
07:56in all the areas,
07:57whether it's digital ERP and infrastructure.
07:59The reason you're seeing a significant gap
08:01between quarter on quarter
08:03is because in the last quarter,
08:04we had one significant services
08:07that we had worked with our customers.
08:09So, that's the reason why you see
08:10the share of infrastructure business
08:13really lower compared to last quarter.
08:15But, you know, ERP and digital data,
08:18most specifically ERP was lower last quarter
08:20is because some of our projects
08:22that were stalled, right?
08:23Which is a reason why we had a lower revenue
08:25and actually come back on track.
08:27So, you know, I think our focus
08:28will definitely be on digital ERP.
08:30I think we are equally focused
08:32on all the three service lines
08:33because that will enable us
08:34to get a good balance of margin
08:36and annuity business.
08:38Kamini, you talked about how the strategy
08:40of the organization is to focus on top line
08:43instead of bottom line,
08:44increase revenue and wallet share.
08:46And then, of course,
08:47once you're in a comfortable position
08:49with your client,
08:50you will start, of course,
08:52implementing better margin products
08:54in that sense.
08:55But I want to draw and get an understanding
08:57because while that is a strategy,
08:59that's not what's happened this quarter.
09:01Over 50% of the deals that you won
09:03are net new.
09:05How are you ensuring repeat business
09:07while wallet share will increase?
09:09Sure.
09:09But when you go back
09:10to renegotiating contracts
09:12with your clients,
09:13don't you think you may be
09:15on the receiving end on this one?
09:16Because at least this is
09:17what we've seen so far.
09:18So what is going to change
09:19in your opinion?
09:22Just if you really look at it,
09:23it's also, you know,
09:24if you look at the whole TCB
09:25or the deal win process,
09:26there's a cycle in terms
09:28of how renewables happen, right?
09:30And in our business,
09:31a lot of our renewables
09:32typically happen in Q3
09:34and Q4 of the year.
09:35So our initial indications
09:37to what we have seen,
09:38I don't think we are seeing a challenge
09:40as far as renewables are concerned, right?
09:42So, you know,
09:42we are aggressively going
09:43behind market share
09:45as far as our clients are concerned.
09:46And we're also trying to work with them
09:48to make sure the renewables
09:49are taken in place.
09:50So from my standpoint,
09:52I'm seeing the two hours
09:53very different key focus areas
09:56that our sales organization
09:57is working on
09:58to make sure that we continue
09:59to retain our existing business.
10:01At the same point,
10:02we go aggressively behind
10:04in terms of increasing the wallet share.
10:06I think it will probably be
10:07a prolonged strategy
10:09in that sense to be able to grow.
10:12Very quickly,
10:13America has shown,
10:14again, a strong growth, 6.7%,
10:16but there's quite a bit of uncertainty there.
10:18On one hand,
10:18you've got geopolitical stress.
10:19The other, you've got elections,
10:21which, of course,
10:23has seemed to be
10:24or will be an overhang
10:25for at least this in the next quarter.
10:27Life sciences has seen a decline of 1.2%.
10:30What is the strategies
10:31improving life science
10:32and in geographies as well?
10:34What are the verticals
10:35you're sort of focusing on?
10:37And the reason I ask you this as well,
10:39because apart from the US,
10:40you've got about 50 hot countries
10:41going into elections this year.
10:44You're absolutely right.
10:45So US will obviously be
10:46is our biggest market
10:48and will continue to be our focus.
10:49So if you really look
10:50at our focus verticals
10:51and the way they're doing right now,
10:53BFSI has done exceedingly well
10:55for us in the last one year.
10:56We've grown almost at about 20%.
10:58So we will continue to focus on BFSI.
11:00It's a small business for us.
11:02Manufacturing has been a little bit slow,
11:04I think, from that standpoint,
11:05but we are confident on manufacturing
11:07given the investments
11:08that we are making in this area.
11:10See, life sciences,
11:11while we work with some
11:12of the real market global clients,
11:14I think we've seen it very soft
11:16for the last couple of quarters.
11:17Our expectation is that
11:18in the second half of the year,
11:20we expect the life sciences business
11:22to start to turn around
11:23and start growing growth in this area.
11:25So this would be,
11:26ANU, I think,
11:27would continue to operate
11:28at the current level of growth
11:29that we are seeing.
11:30But these are the sectors
11:31that we would definitely bet on.
11:34Now, if I look at rest of the world,
11:35right, and we have made
11:36a very specific strategic investment
11:38because we also wanted
11:39to grow outside the US.
11:41As far as rest of the world is concerned,
11:43we are not focused on all countries.
11:45We are focused on UK.
11:46We are focused on Middle East.
11:47We are focused on
11:48some countries in Europe.
11:49So I think we are definitely
11:51making sure that we don't spread
11:52ourselves too far,
11:53but very focused on certain countries
11:55that will enable us also
11:56to grow from that standpoint.
11:58So I think it's a balanced approach
11:59that we are taking
12:00at this point of time.
12:01And that's what a lot of our investments
12:03are also going,
12:04which is also making
12:05a little bit of stress on our markets.
12:06But we believe
12:07that from a long term standpoint,
12:09if you really want to think long term,
12:10you know, we should really look
12:12at continuing this investment.
12:13And as CFO,
12:14my role is to make sure
12:15that I drive returns
12:17and ROI out of the investment,
12:18which is really going to be
12:19our focus on very,
12:20very closely,
12:21strongly at this point of time.
12:23Tough times to navigate
12:25and you're running a tight ship.
12:26Thank you for that, Kamini.
12:27We'll hopefully see you soon
12:29and good luck with the next quarter.
12:32Well, that's the management
12:33of Build Our Soft.
12:34There's been a little bit
12:34of a change of strategy.
12:35The focus is to increase market share
12:37and revenue share from clients.
12:39So the idea is
12:40to increase wallet share,
12:42get into a little bit
12:43of a price discount.
12:44And eventually,
12:45once the comfort is built,
12:46it gives Build Our Soft
12:48an opportunity to increase prices
12:50and renegotiate existing contracts.
12:52The fact remains that 50 percent
12:54of the deals that they've won
12:55in this quarter are net new deals.
12:57So the question still remains
12:58whether or not they have the ability
13:00to, of course, get repeat business
13:02from existing or new clients.
13:03Now, margins have been compromised.
13:05Next quarter will be tough
13:07as follows and the fact
13:08that there will be wage hikes.
13:10So some more decline
13:11and pressure on margin
13:11than Q3 expected.
13:13But Q4 is expected to see
13:15the temp turn a corner
13:16in terms of bottom line.
13:18In about three,
13:18four quarters from now,
13:19the expectation is that margins
13:20should return back
13:21to 15 to 16 percent.
13:23Well, ambitious,
13:24but nevertheless,
13:26something worth taking note of.
13:27The stock, though,
13:28under pressure this morning.