Zensar pruning non-core a/cs; to focus on high growth projects

Despite tepid second quarter show for Zensar Technologies where it reported a 25 percent decline in consolidated net profit at Rs 68.8 crore on account of currency movement, the software services firm says it has performed well on a sequential basis.
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Home » News » Earnings » Results Boardroom

Oct 18, 2016, 03.29 PM | Source: CNBC-TV18

Zensar pruning non-core a/cs; to focus on high growth projects

Despite tepid second quarter show for Zensar Technologies where it reported a 25 percent decline in consolidated net profit at Rs 68.8 crore on account of currency movement, the software services firm says it has performed well on a sequential basis.

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Zensar pruning non-core a/cs; to focus on high growth projects

Despite tepid second quarter show for Zensar Technologies where it reported a 25 percent decline in consolidated net profit at Rs 68.8 crore on account of currency movement, the software services firm says it has performed well on a sequential basis.

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Despite a tepid second quarter show for Zensar Technologies where it reported a 25 percent decline in consolidated net profit at Rs 68.8 crore on account of currency movement, the software services firm says it has performed well on a sequential basis.

Sandeep Kishore, CEO & MD, Zensar Technologies said, “If you take a look at the growth vectors which we have been talking about constantly as part of our strategy, we have done well on digital lead businesses. We have announced USD 40 million worth of new digital wins which is about one-third of the total wins which we announced in Q2.”

Going ahead, the company will focus on high-growth accounts, Kishore said, adding: “We are pruning down the list of accounts which are non-strategic, non-core or where we do not see adding significant digital lead value to our customers."

The Pune-headquartered mid-sized firm had posted a net profit of Rs 91.3 crore in Q2FY16. Consolidated revenue in the second quarter of FY17 rose 2.7 percent to Rs 776.7 crore during the period from Rs 756.4 crore in the same quarter of FY16.

Below is the transcript of Sandeep Kishore’s interview to Sonia Shenoy and Latha Venkatesh on CNBC-TV18. 

Sonia: What could be the reason for the slowdown in the dollar revenue growth and what do you expect as the way forward for the business itself? 

A: If you take a look at the operating numbers over the sequential quarter. We have done quite well. The constant currency growth over Q2 and Q1 actually grew 2 percent, dollar terms 1.8 percent and across all the operating parameters which is gross margin expansion, we expanded gross margin by about 3.7 percent. Earnings before interest, taxes, depreciation and amortisation (EBITDA) expanded by 4.1 percent. So, we have delivered a good set of numbers on a sequential basis. Profit after tax (PAT) declined predominantly because of the currency impact. But for the currency, it would have actually grown by about 40 basis points. 

If you take a look at the growth vectors which we have been talking constantly as part of our strategy, we have done well on digital lead businesses. We have announced USD 40 million worth of new digital wins which is about a one third of the total wins which we announced in Q2. So, that has done well. Operating parameters across the mining of our top 20 accounts has also done exceptionally well. We are now at about 59 percent of our total business comes from account mining which has grown at about 4 percent sequentially. The expansion on the off shore lead revenue saw a growth of about 260 basis points. So, on the operating parameters across the business in the sequential Q1 and Q2 numbers, we feel pretty good about it. 

Latha: We were given to understand by your reports that you are actually pruning down some of your non-core and low yield businesses. Is there more to go of that? 

A: We have always maintained that we want to focus on high growth accounts and high growth territories. US, Europe and South Africa clearly is a part of that strategy. You have seen all of them have actually done at the level, at the company’s performance which is 2 percent on constant currency. US grew on that, Europe grew 3 percent and Africa actually grew 4 percent. Yes, we are pruning down the list of accounts which are non-strategic, non-core or where we do not see adding significant digital lead value to our customers. But we continue to invest into the top-tier global-1,000 or Fortune-1,000 customers. And you will see a lot of traction, a lot of investment in solutions that we are building in around those areas. 

Sonia: Digital is something that the street is most enthused about and as you just mentioned, you have seen USD 40 million of wins there. Can you tell us what the growth in the digital vertical can look like for you? It has been growing at about 30 percent on a year on year basis, but going ahead, over the next couple of quarters, what do you see as the growth there? 

A: Return on digital which is our framework has been taken by a lot of solutions investment which we have done, particularly in our market segment which is manufacturing, retail and consumer, and financial services. And in each of those, we are seeing over 25 percent growth on the digital businesses. You have seen retail doing exceptionally well. This quarter, retail grew at about 10 percent sequentially. Financial services grew about 1.8 percent. Manufacturing saw a little bit of a seasonal decline because of some projects getting over, but we have some fantastic pipeline on each of those businesses and we feel pretty good that the digital business, based on the return on digital framework that we have put will continue to see significant growth traction for us.

 

Latha: So, margins are likely to expand further?

A: We are focused clearly on the operating parameters and there are multiple levers. Lever number one which we have talked and we have done well is to really focus on more managed services projects than the traditional time and material basis. That has done well. We saw an expansion of about 260 basis point moving project from onsite to offshore. And as we continue to evolve into more managed services on digital, I do think there is a scope for further improvement there as well.

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