Category
🗞
NewsTranscript
00:00 Hello and welcome to BQ Prime.
00:04 Joining us today is Mr. Nitin Rakesh, Emphasis CEO and Mr. Manish Dugar, Emphasis CFO, after
00:10 the company's quarterly earnings.
00:13 Emphasis in the first quarter reported revenue that was down 3% sequentially and the net
00:20 profit was also down 2% sequentially.
00:23 Gentlemen, welcome to BQ Prime.
00:27 Thank you for having us.
00:28 Coming to you, Mr. Rakesh, first, what are your key takeaways from these results at this
00:34 moment?
00:35 I think it's fair to say that the short-term revenue environment has been fairly headwinded
00:42 and a little bit more acute for us given our large exposure to banking segment and especially
00:47 the mortgage side has been declining for almost four quarters now.
00:51 Also I think this was kind of the crescendo quarter for all the regional banking crisis
00:56 that started late in calendar Q1 and in a way kind of started to get resolved through
01:02 the remainder of the first half of the year.
01:04 So I think all of that impact is showing up in quarter in the Q1 numbers.
01:09 One thing to note though is that our deal wins have been very strong.
01:16 More importantly, we've started to see unlocking of the decision-making cycle that was kind
01:20 of frozen for the past couple of quarters, conversion from pipeline to TCV and TCV to
01:28 revenue, while still not ideal, has started to improve as well.
01:31 We do believe that there are early signs of uptick on the mortgage side.
01:36 We've started to see volume uptake over the last few weeks.
01:38 And more importantly, we've also started to get client requests around capacity buildup
01:42 in anticipation for improvement in that through the remainder of the year.
01:46 So I think it's fair to say that Q1 was a base formation, a bottoming out quarter, and
01:51 we expect growth to pick up through the remainder of FY24.
01:55 You actually preempted my next question to you.
01:57 My question was to you was whether do you see this is at the bottom.
02:02 The other thing I wanted to say, which what is interesting that you're pointing out is
02:06 that you are seeing some client interest in ramping up deals.
02:11 This is actually opposite to what we're hearing for say from some of your larger peers, especially
02:16 when Infosys also said the same thing yesterday, and others also said that this picture of
02:21 the delays in decision making has been pushed to about the second half.
02:26 Why do you think your case is different than as compared to larger peers?
02:31 I think at a very high level, what we're saying is not that different.
02:35 We're saying that it has been difficult for the last couple of quarters.
02:38 I think they probably saw it maybe at a different time in their cycle of the business.
02:45 More importantly, I think our exposure was a lot more to the distress segments around
02:50 banking, especially regional banks and mortgages.
02:52 I think we've already seen the brunt of that.
02:56 Some of that what you're seeing with the names you talked about is probably a continuing
03:00 effect of what we've already been seeing in the last couple of quarters.
03:03 More importantly, I think where we've seen green shoots of activity is in the decision
03:09 making around taking decisions around awarding contracts.
03:15 What we want to see improve further is that conversion of those close deals to revenue.
03:20 That has been a sore spot across the industry.
03:23 We've also seen that.
03:25 We've seen some uptick in that.
03:27 Green shoots are visible, as I mentioned, but I think a long way to go before we can
03:30 say that we've normalized where conversion is picked up.
03:34 I think the shorter duration organic growth deals, those have to come back as well because
03:38 those are typically linked to discretionary spends.
03:42 The trickling of those deals is something that still has to revert back to normal.
03:48 Okay, Mr. Duggar, I would like to bring in to you at this point of the conversation,
03:53 especially when you want to talk numbers.
03:56 How is the dealmaking looking like in terms of numbers, in the terms of total contract
04:00 value, as well as the number of deals that you have right now?
04:04 Secondly, we see that your BFSI is down around 9% quarter on quarter, and the logistics and
04:11 the TMT verticals also not looking good.
04:15 How does that impact your margins?
04:16 And again, like what Mr. Rakesh said, revenue is not coming in as much as you would like.
04:23 So how do you maintain margins also in this case?
04:32 Can you hear me?
04:33 Yeah, I can hear you.
04:34 Please go ahead.
04:35 So coming to the TCV and the pipeline, we closed $707 million of TCV, which is a record
04:42 quarter for us.
04:43 And it is more than 100% growth, both YOY as well as quarter on quarter.
04:49 More interestingly, the trend over the last so many quarters, we have been increasing
04:54 the number of large deals.
04:55 And it is very, you know, good to see that not only did we close seven large deals, four
05:02 of them were more than $100 million.
05:04 More importantly, within that contract closures, we also see diversification from a vertical
05:11 perspective, a large percentage of the TCV contracts came from outside of the BFS vertical.
05:17 We also saw AI investments that we made in the past starting to yield results with close
05:24 to one third of the TCV wins coming from AI deals, right.
05:28 So all of this suggests that everything that we have been investing in has started yielding
05:35 results.
05:36 And like Nitin mentioned, if you were to think of three stages, origination, closure and
05:40 conversion, origination was happening, which was resulting in pipeline growth.
05:45 Now it has started showing in conversion.
05:47 And some of that converted deals have started impacting the revenues as well.
05:51 So you know, we also saw some of those contracts that we closed actually translate into revenues
05:55 in the same quarter.
05:57 So from a stage perspective, I think we are progressing towards things coming back to
06:04 normalcy and hopefully it will soon result in revenues as well.
06:10 On your question relating to BFSI, mortgage is a large contributor to what you see in
06:15 the BFS space.
06:17 And within that, you know, there has been a recent uncertainty in the banking sector.
06:24 And that has had impact on discretionary spends across the banking community.
06:29 So we believe that when we look at our clients, and when we look at our conversations, we
06:34 haven't lost any market share at any place.
06:36 In fact, in most of our clients, we have gained share of wallet.
06:40 What we see is a temporary phenomena as that spend comes back as the certainty comes back,
06:45 we should see an uptake there as well.
06:48 If you look at an overall level with the closure of contracts and with the green shoots on
06:54 conversion of those contracts into revenue, we believe that as we go forward, we should
06:59 start seeing decent sequential growth in the second half of the year.
07:04 That's a very interesting take, sir.
07:06 Just wanted your take on also on the margin front.
07:11 Like you don't see the revenue coming in as much at this point of time, you're seeing
07:16 green shoots of recovery.
07:18 At what levels do you expect to maintain your margin, sir?
07:23 We have stated the philosophy of maintaining margin in a narrow band while investing for
07:28 growth.
07:29 We have guided that we will be in the range of 15.25% to 16.25% for the year.
07:35 We started 15.3, we did 15.4 this quarter.
07:39 Given what we see today, you know, with revenue decline, as well as with the challenges in
07:45 the macro, we were still able to expand the margin in quarter one.
07:49 As we look forward to growth coming back and tailwinds existing on both operating metric,
07:56 our improvement in pyramid, our investments in what we have delivered from a value delivery
08:01 perspective leading to customers willing to give us price, we feel confident that we should
08:06 be able to report expanded margins going forward as well.
08:10 Despite planning to make investments, which we had been slowing down because of the uncertainties
08:15 that we faced in the recent past.
08:17 So at an overall level, we feel pretty good about where we are from a margin perspective.
08:22 Okay, coming to you, Mr. Rakesh, against that backdrop, how are you of hiring plans for
08:29 the year given the evolving situation that is FY24?
08:34 I think we are fairly comfortable.
08:36 We have done a lot of work in pyramid optimization, in building up supply chain engine, in doing
08:42 manpower planning, in obviously re-skilling those resources.
08:47 You know, we had a pretty large percentage of campus hires on board over the last three
08:51 years.
08:52 So I think utilization is fairly comfortable.
08:53 We are not at peak, we are not at the bottom, we are right where we want to be.
08:57 And that's the reason why I think there's a fair bit of confidence and comfort that
09:01 we should be able to manage the profitability as growth recovers as well.
09:05 So I think we will be definitely looking for opportunities to continue to upskill our talent
09:12 given just the massive investment that's going on across the enterprise space in things like
09:17 AI and cloud.
09:18 And that definitely gives us the operating leverage we need in the system.
09:22 So you wouldn't like to quantify the amount of pressure hiring that you will go for this
09:26 year?
09:27 Oh, we typically don't quantify only because, you know, things have been so dynamic.
09:31 We'll definitely let you know once we get to that point.
09:35 But at this point in time, I think we are being fairly, you know, as I mentioned, nimble
09:40 and agile around those bands.
09:43 So Mr. Rakesh, how do you see your partnership with Core AI fitting in with your AI strategy
09:48 going ahead, sir?
09:51 Absolutely delighted that we were able to partner with the world leader in conversational
09:55 AI and Gen AI solutions.
09:57 I think they have, you know, they're a leader in the Gartner magic quadrant.
10:02 They've been around for a very, very long time investing in building up their platform
10:05 that enables enterprises to deploy conversational AI solutions as well as Gen AI solutions embedded
10:11 into areas like customer experience, content, you know, IT, support transformation, and
10:18 of course, any form of automation that you need to bring in in dealing with internal
10:23 or external consumers.
10:24 So I think very pertinent, very, very interesting customer base, both the customers that we
10:30 are engaged in delivering those platforms to and as well as, you know, taking those
10:35 solutions bundled into our services to our customers as well.
10:38 So strategic partnership gives us a head start in actual live implementations.
10:43 And that's the bedrock of, you know, a lot of what we've done in Q1 in terms of TCB as
10:47 well.
10:48 Mr. Duggar, one final question to you.
10:51 And then there'll be one last question to both of you.
10:53 Mr. Duggar, how much do you see AI contributing to your top line in the near future, given
10:59 these uncertain times?
11:02 How much of the deal making is going to be driven by AI?
11:06 As we go forward, it's not unlikely that almost everything we do will be powered by cloud
11:14 and cognitive, as we've been saying for the last five years already.
11:18 Even if you look at things like application development, there is a significant embedment
11:22 of Gen AI with large language models that is underway.
11:25 If you look at modernization, extreme opportunity available to actually use large language models
11:32 to actually reverse engineer code and accelerate the pace of application transformation.
11:37 If you look at QA, you know, absolute, you know, right for using AI solutions as well.
11:44 So I think almost everything we are doing is getting powered by cloud and cognitive.
11:49 We have been on the journey for five years, and now we're at a point where I think it's
11:52 going to become almost omnipresent in every deal archetype and every solution that we
11:57 are building.
11:58 All right.
11:59 Final question to you, gentlemen.
12:01 You mentioned about green shoots.
12:02 You mentioned about some deal wins coming in right now.
12:06 Would you say confidently that this is the pain that we are seeing, the slowdown that
12:11 we are seeing is bottoming out?
12:13 First year views, Mr. Rakesh.
12:16 I think we've already called out for the fact that Q1 was a base formation and a bottoming
12:20 out quarter.
12:21 And we do believe that through the remainder of the year, sequential growth will pick up
12:24 even though it might be backloaded.
12:26 So I think that's kind of where we are based on current visibility.
12:30 You know, obviously, we can't control the macro environment.
12:33 If there is another macro event that we can't foresee today, things might change again.
12:37 But given where we are, given the declines we've seen in the last few quarters in most
12:42 cyclical parts of the business, at least that seems to be largely behind us.
12:48 But at this point in time, I think it's fair to assume that we will see sequential growth
12:53 pick up through the quarters for the remainder of the year.
12:56 All right.
12:57 Thank you, gentlemen, for joining us today.
12:59 It was a fairly insightful chat.
13:01 The bit about green shoots is actually very refreshing to hear in this gloomy scenario
13:07 that we are seeing in the IT.
13:09 Thank you viewers for joining in.
13:10 This is Tushar for BQ Pride.
13:19 [BLANK_AUDIO]