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Last Updated : Oct 21, 2015 02:29 PM IST | Source: CNBC-TV18

After robust Q2, Zensar confident of upping margins further

IT services firm Zensar Technologies posted a strong set of second quarter numbers, clocking profit of Rs 91.34 crore on revenues of Rs 758.65 crore.

IT services firm Zensar Technologies posted a strong set of second quarter numbers, clocking profit of Rs 91.34 crore on revenues of Rs 758.65 crore.

The company neatly broke above the 10 percent profit margin mark, and CEO Ganesh Natarajan says they will continue to further rise.

"Our focus on new services and digital is paying off. Our order book is good and while the third quarter may be seasonally weak, we will bounce back in the fourth quarter," he told CNBC-TV18 in an interview.

He also spoke about PE firm Apax Partners picking up 23 percent stake, and said the deal would help Zensar up its M&A drive.

Below is the verbatim transcript of Ganesh Natarajan’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: It has been a steady quarter for you, the revenue growth of almost 7.5 percent but just take us through what the dollar revenue performance has been and what the constant currency growth has looked like?

A: Dollar revenue growth, sequential, is 5.6 percent. It is actually one of our best quarters because sequential growth of 5.6 percent is really good for us. Overall, the driver is clearly digital because our investments in digital, ecommerce, mobile commerce that is really paying off. Given the trends in the US market, I am pretty bullish that that will take us forward.

Latha: This is the dollar revenue, it is not the constant currency growth?

A: Constant currency is a little higher actually.

Latha: What about deal wins then, can you also tell us from where the deals came?

A: Our deals are coming from all over. Currently we have a pipeline of close to USD 390 million and that is roughly USD 140 million in the infrastructure management (IM) space and the rest is a combination of digital and traditional enterprise business. So, it is coming primarily from the US; that is our focus, in fact we have a large deal pipeline of close to USD 160 million which is all deals over USD 20-30 million and that is coming in at a very steady clip. In fact we just signed up one of the largest retailers in the world to look at their entire new ecommerce platform. So, once you are in a position to provide an end-to-end ecommerce service that really changes the complexion of the game.

Latha: Are the margins better in ecommerce and digital?

A: Absolutely, in fact, if you look at the ecommerce rollouts that we do, we are talking about bill rates going as high as USD 160-200 per hour on site and as high as USD 50 per hour offshore. So, that is the lead and then it leads into maintenance business, other collateral businesses. So, as a strategy it is really working for us.

Sonia: You said you just signed a deal with one of the largest retailers, how big could that deal be?

A: The deal is to build out their entire ATG platform. So, that will be roughly USD 12 million at the first pop. However, then that kind of leads to a lot of follow on business, you really build out the rest of their mobile commerce and ecommerce strategy, so, that just leads to multiple stuff.

Sonia: You mentioned that digital is the main driver for you now. Currently it forms about 15 percent of your revenues.

A: Yes, this quarter is just upwards of 15 percent.

Sonia: Going forward in the next couple of years how much could it contribute?

A: In theory it is 50 percent but let us see how it plays out. However, clearly we have come from what was 2 percent two years back to now 15 percent and as I said I think we are in all the right spots – social listening, ecommerce, mobile commerce, cloud of course everybody is in but the ability to crack the whole ecommerce model, that is what is going for us.

Latha: What might be the guidance in terms of revenue growth for the full year or for subsequent quarters? Can we expect this as a pro rata run rate?

A: I would not like to say that. As you know, seasonally, the third quarter is always bad and you never know which client wakes up in a bad mood and says two weeks furlough. So, third quarter is unpredictable. However, give the pipeline, given the order book, it looks pretty good and this year will be a good year Zensar Technologies.

Latha: It would be what, 20 percent? Some idea of what might the year look like?

A: No idea. You just pro rata and then subtract whatever you feel like.

Latha: What about margins, you are crawling higher so does it get to 16 percent or even better?

A: Right now we are just under 15 percent EBITDA and that is good. Our profit after tax (PAT) as a percentage, 12.2 percent is the highest ever. So, the goal which we have set in the past also is to cross the 10 percent which we did and maintain that. If we continue to do more IM services deals because products tend to be very low and we are completely downplaying the infrastructure management products business, so, if we focus on new services, focus on digital, I think there is no other place for the margins to go but up. Plus of course, like everybody else, automation, productivity improvement, flattening of the pyramid all that is on.

Sonia: In fact in infrastructure management your margins have fallen this time, why is that?

A: Infrastructure management, we have had a slow quarter because the product business has been down. It is very seasonal. Products business will be fantastic in the current quarter because that is when it is the end of the year for American companies; they do all their buying. So, it is still a kind of a wobbly business but the good news is last four quarters have been profitable and going forward we see very good up tick because the order booking has been good, both the maintenance services and what we call the remote infrastructure services will continue to grow this quarter which is what trends up the margins as well.

Latha: Has the coming in of Apax Partners meant any change?

A: All it means is that we have a new director on the board at this point because our board meeting was only yesterday but I am excited. I know Apax, I know the value they can bring both in terms of robustness of M&A as well as potentially deal pipelines from the portfolio companies. So, I think it is certainly the first strategic investor we have had and we are looking forward to see how that plays out.

Latha: It was the former that interested me, M&A, should we expect anything shortly?

A: Just to give you a sense of our digital ecommerce play, today we are very good in almost I would say 80 percent of the areas. One area where everybody looks at and I don’t think any company except probably Accenture and maybe Deloitte have played that well is digital studios. You actually have a experience center for digital, manage the user experience and that is an area where most of us are weak. So, that is one area of M&A. Big data continues to be an interesting area. We do a lot of analytics, etc. but if we find the right companies at the right price which is difficult in these spaces then we are certainly in the market.  

Sonia: Some of your larger peers like Infosys have given a softer guidance for the second half of the year. Do you see any problems?

A: I don’t see any problems but as I said, seasonally this quarter is slow. So, I don’t expect miracles in this quarter. However, given the pipeline we will back to good growth again in the fourth quarter. Next year is looking very good at this point.
First Published on Oct 21, 2015 09:00 am
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