Digital biz share in revenue may hit 30% over 2 quarters: Zensar

Ganesh Natarajan, Vice Chairman and CEO of Zensar Technologies cited seasonality, weakness in the enterprise business and revenue loss of nearly USD 2.5 million due to customer furloughs as the three key reasons for the company’s muted third quarter (Q3) FY16 performance.

On Tuesday, Zensar reported 1.4 percent quarter-on-quarter decline in dollar revenue at USD 114.8 million for Q3FY16 compared USD 116.4 million.

Natarjan, however, pointed out that he is excited about the strong performance of the company’s digital business. "Our digital business performance has been spectacular with deal size increasing gradually. We are currently executing a deal of USD 20 million,” he added.

He highlighted that currently 20 percent of their pipeline is linked to digital and this is going to increase to 30 percent within the next 2 quarters.Below is the verbatim transcript of Ganesh Natarajan's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: Can you start off by telling us what the reason for the weakness is in terms of your dollar revenues, was there any challenges apart from the usual seasonality furloughs etc?A: Absolutely, we had two-three challenges, which has resulted in the sequential decline. One was of course the furloughs, which always creates a problem and that contributed to almost 2.5 million of less revenues and profits.The second of course we had two large projects in the previous quarter, which resulted in a big bump in the last quarter, which completed and that order pipeline has now been filled and we are moving forward.The good news is that our digital growth has been spectacular. If you look at the digital growth over last year, it has been almost 17 percent, the profits have almost doubled and I would think that if you look at our year-to-date revenues 9 months, that has been growing at close to 13 percent. We have had a good growth in terms of profits of almost 23.9 percent. So given all those parameters, I don’t see any concerns.As I said, I am particularly excited about digital e-commerce and going forward that is going to be spectacular for Zensar.Latha: There were no Chennai related problems, you don’t have an office there?A: Fortunately not. There were no other issues except for seasonality and the enterprise business being slower this quarter.Latha: Will the enterprise business slowness persist, how much of this quarter's weakness should be read into the current quarter and the next?A: I don’t see any problem because we are looking at good pipeline. In fact, pipeline is the strongest we have ever seen. It is over USD 500 billion for the first time we have seen a pipeline that big and the good news is that close to 20 percent of that is digitally enabled and as I said, our e-commerce business is tracking well. So I don’t see any real problem this quarter. We will be back on track. Normally it is a seasonal quarter combined with some project slowdowns that has affected this quarter.Sonia: Your Q3 digital business has grown at 17 percent and I think year-to-date (Y-T-D), it contributes about 26 percent to your overall revenues, so can you give us a sense of how much the growth could be for the rest of the year?A: It is difficult to predict exactly but we will hit a 30 percent of business from digital over the next two quarters. There is no doubt about that and what is delighting for us is that the digital used to be these sporadic small business but now we are seeing deals of over USD 10 million in size, we are executing one of those. We are also seeing a lot of the digital clients moving towards maintenance and enhancements, which again is a fairly large deal we signed last quarter. So given these two, the trends are more of transformational digital from what used to be more of incremental or mobility and e-commerce. So given that, I think that is a great trend and being early movers in digital, we have been working on this for almost 3-4 years, now seeing the results of digital being mainstream in our business today.Latha: Can we believe that your annual run rate for revenues will be 15-13 percent as the nine months are indicating, will your earnings be 23-24 percent?A: You will certainly see. As I mentioned, if you look at the nine months and you have a 12.6 percent revenue increase and a 23.9 percent in profit, I think that trend should continue. There is no reason why we should do worse in the last quarter. However, we don’t give formal guidance but I am pretty comfortable that this year will end up as a good year and given the pipeline, I think the next few years should be very good and obviously powered by digital and e-commerce.Sonia: You did speak about the deal wins but the revenues from your top five clients have declined about 7 percent on a quarter-on-quarter (Q-o-Q) basis, are you facing any kind of stress because of competition from some of your top clients?A: The biggest furloughs are from the top clients. So given that, it is pretty predictable that it will decline. In fact, our top clients are doing much better this year than they were last year. Last year we had a slower growth in top clients so I don’t see any reason to have any concerns at all about our top clients. The good news is our dealwins -- if you look at the big deals we signed last quarter, it is in all the three geographies that we are focusing on, US, Europe as well as Africa. So at this point of time, I don’t see any issue at all.