EBITDA margin may decline in coming quarter: Sasken Comm

"We have no indication from Nokia of any impending decline. We have purchase orders that run into the end of this calendar year. Looking at the current situation and the change in their platform strategy, they could any time make a decision which could impact us," she elaborated.

The company has announced salary revision effective from July 1 because of which the EBITDA margins is likely to decline in the coming quarter but is hopeful of seeing it pick up through the rest of the year.

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Below is the verbatim transcript of his interview with Reema Tendulkar and Ekta Batra of CNBC-TV18. Also watch the accompanying video.

Q: One of the biggest concerns this time around has been what has happened with Nokia and their continued shift to onsite work versus offsore, can you give us an outlook and more details with regards to that?

A: For us business from Nokia has increased in this quarter and a lot of it has come onsite. We have not yet seen the declines that we are expecting from Nokia but yes, going forward we will see some declines in revenues.

Q: Could you tell us what exactly are you expecting by way of a decline, have you quantified it just for your internal targets?

A: No, we have no indication from Nokia of any impending decline. We have purchase orders that run into the end of this calendar year. It is just that looking at the current situation and the change in their platform strategy, they could any time make a decision which could impact us.

So we have being cautious, we are taking risk mitigation actions in terms of rescaling our people and we are just being prepared for the inevitable. We have no indications as of now of any business degrowth in the current year.

Q: It does contribute close to about 20% of your total revenue, have you managed to sign any other clients in the android space or any other accounts to offset the possible decline from Nokia?

A: Yes, we are very consciously working towards getting newer business which has lesser churns. So we are focusing on the quality of business we get. We have had quite a bit of traction with android both with our semi-conductor partners and with their customers. So yes, we have seen some growth in the current quarter and we are looking to replace declining revenues in other sectors from android revenues.

Q: Give us an idea on what we can expect from margins this time around from Sasken in FY12 because attrition still remains a problem for you going forward. Do we see a further decline from this 12.4% level that you clocked this quarter?

A: It is very difficult to give you a quarterly view of EBITDA and whether it will decline. But on an overall basis, if you look at our twelve months period, we do expect to be maintain EBITDA at these levels and not see fiurther declines. Mainly because we have some levers in our control yet which have to play out through this year, which is utilisation.

We are running at sub-70% utilisation and there is scope to bring that up with newer business coming in. However, we have just announced our salary revisions which will be effective July 1. So in the coming quarter, we could see a decline and then we will have to see it pick up through the rest of the year.

Q: What is your outlook on utilization, can you give us an outlook on what you could possibly scale it up to considering it is sub-70%?

A: Yes, we would look to maintaining utilisation of about 75% so we are trying to get it up there at the earliest. Our hiring right now is very selective.

Q: Focusing on your two business lines, one of them is products which has been quarter after quarter degrowing even this quarter, the revenues declined by about 5.5% and the other one is IT services which is showing you muted growth, could you give us the outlook and what do you expect on these two service lines?

A: Our services business - we are seeing some churn in business from our key accounts. We are trying to replace that with good quality revenues which will not churn so fast. It will take some time to get there until then you would see some turbulence.

As far as our product business is concerned, we have been saying that we expect revenues to be in USD 1.8-2 million range per quarter and that is where we have been maintaining it. In some quarters if we hit some big licensing deals then you will see a spike. But USD 1.8-2 million is the minimum range that we have been saying we will maintain and that is what we have been able to maintain. Royalties have come down because shipments of phones from Japan have gone down.

Q: Last year your margins did close to about 17.5% and that time there was an expectation that for the full year in FY12, you would be doing EBITDA margins of about 18%, this quarter it has come in at just 12.5%, next quarter you will have the wage hike impacting your margins as well, what is the sustainable margin level for FY12?

A: That is a very difficult one to answer especially when you have currency fluctuations working against you. But if you keep these currency fluctuations aside then for mid-tier companies like ours, anywhere between 12% and 15% is sustainable margin in the current market situation. There is headroom to improve beyond that and get to 18-20% but that will take some more time especially for Sasken as we get better quality of revenues, which have longevity in them.

Q: Give us a quick word on the demand environment that you are working with and what are the key challenges you expect in FY12 in terms of possibly client acquisition?

A: We are seeing a reasonably good demand from our customers. Our key accounts though are not growing as much and we see challenges with each of our key account. And because of that we are not giving any guidance for FY12 itself, we have to see how this year pans out.

Meanwhile, we are trying to find newer customers, go into adjacent markets and see if we can scale business there. We are also looking at android as one key driver that will help us grow our revenues in the current year.

Q: Any negotiations with your current clients which you are facing a problem with, which we could expect in FY12?

A: Not really, actually most of our key customers - our billing rate negotiations are already over and we have got rate increase so that is behind us right now.