Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Datamatics Global Services Ltd (BOM:532528, Financial) reported total revenue of INR 394 crores for Q1 FY'25.
- The company integrated Generative AI technologies into its products TruBot, TruCap+, and TruBI, and rolled these features out to existing customers.
- Datamatics expanded its client portfolio by adding 9 new customers, including a Fortune 500 company.
- The company received an ISO 42001:2023 Certification for AI Management Systems, highlighting its commitment to AI innovation and governance.
- Datamatics successfully secured a significant AI-driven video monitoring and analytics project with a leading American supermarket chain, covering 250 locations.
Negative Points
- Revenue growth was sluggish, with a 0.7% increase in Q1 and a negative 2.4% organic growth year-on-year.
- EBIT margin reduced to 10.8%, down from 15% in Q1 of the previous year, due to slow revenue growth and continued investment in AI projects.
- The company's EBITDA for Q1 FY'25 was 13%, a significant drop from 17.3% in Q1 of the previous year.
- The Digital Operations segment saw a decline in EBIT margin from 23.5% in Q4 to 15.5% in Q1, attributed to the cyclical nature of the business.
- The pipeline of potential deals decreased from $200 million to approximately $170 million, reflecting market softness.
Q & A Highlights
Q: Can you explain the softness in growth and the trajectory for the rest of the year with key accounts?
A: On the Digital Operations side, there was some delay and shrinkage in volume, which we expect to recover in Q2 and Q3. On the technology side, certain projects were pushed out, expected to resume in Q3. We maintain our projection of 4% organic growth and another 3-4% from inorganic growth for the year.
Q: How has Dextara performed this quarter, and what is the outlook?
A: Dextara's growth was flat this quarter. Our strategy is to leverage their expertise for larger deals, which takes time. We have submitted 10 proposals in Q1 and expect to close some large deals soon.
Q: What is the current pipeline, and how is it segmented?
A: The pipeline stands at around $170 million, down from $200 million last quarter due to market softness. We do not provide a segment-wise bifurcation as many deals are hybrid.
Q: What are the impacts of increments and AI investments on margins?
A: Increments averaged around 9-9.5% and will stay through the year. The softness in revenue growth and continued AI investments have impacted margins. We expect margin recovery in Q2 and subsequent quarters.
Q: What are the new verticals and markets you are targeting for growth?
A: We are focusing on expanding in the U.S. market, particularly in the AFC (Automated Fare Collection) space. We are also leveraging our AI capabilities, working closely with Microsoft and Google, and have secured significant AI-driven projects.
Q: What is the status of the AFC projects and their profitability?
A: We have kicked off Mumbai Metro Line 2B and are bidding for Pune Metro. We are also focusing on the U.S. market for AFC projects. The U.S. market offers better profitability compared to the price-sensitive Indian market.
Q: Are there any plans for new acquisitions?
A: We are in dialogue with some companies, but nothing is at a serious level to announce currently. We will inform stakeholders as these discussions mature.
Q: What is the margin outlook for FY'25?
A: We are guiding for a margin improvement of 150-200 basis points in Q2. For the full year, we expect to maintain an EBIT margin in the range of 12-13%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
