Zensar Technologies Limited (ZENSARTECH) Q1 2027 Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Zensar Technologies Q1FY27 Earnings Conference Call, hosted by Asian Market Securities Private Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Shraddha Agrawal from Asian Market Securities. Thank you, and over to you, ma'am.

Thank you, Alaric. Good morning, everyone. On behalf of Asian Market Securities, I welcome you all to Zinsa Technologies Q1 FY27 earnings call. We have with us today from the management team, Mr. Manish Tandan, CEO and Managing Director, Mr. Pulkit Bhandari, Chief Financial Officer, and few other members of the Senior Management Team. Before I hand over the call to Manish, I would like to highlight that the Safe Harbor Statement on the second slide of the earnings presentation is assumed to be read and understood. Over to you, sir. Thank you.

Thank you, Shraddha. Hello, good morning, good afternoon, and good evening, everyone. Thank you all for taking the time to join us today to discuss Zensar's financial results for the first quarter of financial year 26-27. With me on this call are my colleagues, Polkit Bandari, Chief Financial Officer, and Vijay Sima, Chief Operating Officer. Let me begin with a brief perspective on the broader environment first. First, the global macroeconomic backdrop remains uncertain. Geopolitical volatility, shifting trade dynamics, evolving policy frameworks, continue to weigh on business sentiments and investment decisions. Yet, the IT industry has shown remarkable resilience, and beneath that resilience, we see a structural shift. Clients are moving past technology modernization towards AI-native transformation. Reimagining entire operating models to improve service quality, use complexity, and unlock sustainable productivity gains. This is one of the largest opportunities our industry has seen, and Zensar is well-positioned to leverage it. This quarter marks a significant milestone in our AI journey with the launch of Zensar.agentMesh, A universal enterprise platform for discovering, building, deploying, and governing autonomous AI agents at scale. Building on that foundation, we have moved decisively from strategy to adoption. We are actively introducing AI-native offerings, expanding partnerships across the AI ecosystem, and investing in AI-certified talent. Together, we strengthen our ability to help clients Adopt Frontier and Sovereign AI Innovation and capture measurable value while uploading the highest standards of governance, security, and enterprise-grade controls. Turning to our financial performance for this quarter, the company registered a revenue of $159.5 million, representing a sequential quarter-and-quarter growth of 1.1% in constant currency. In IRNR terms, this equates to year-over-year growth of 8.9% and a sequential quarter growth of 4%, reflecting continued revenue momentum despite a dynamic demand environment. Within a vertical portfolio, banking and financial services and insurance vertical remained a strong growth driver, delivering a 8.3% sequential quarter growth in constant currency. This was partially offset by softness in select markets, reflecting the stresses in the broader environment, with revenues declining by 3.8% in healthcare life sciences, 2.3% in manufacturing and consumer services, and 9.1% in telecom, media, and technology. Beyond revenue, our operational metrics underscores the strength of our execution. We expanded our workforce by 5.2% sequentially. Importantly, we increased our 10 million-plus client count by 4 as compared to the same period last year. Utilization improved to 85.1%, up 80 basis points sequentially, while voluntary attrition remained in an industry-leading low at 9.6%. Additionally, we were ranked sixth in India's best companies to work for 2026 by Great Places to Work, and this converted into an overall rank of number one in IT services sector category. Together, these metrics reflect our disciplined operational focus, enriching talent culture, and continued progress against our strategic priorities as we position the business for sustainable and long-term growth. With that, I will now invite Pulkit Bhandari, our Chief Financial Officer, to provide an update on critical financial metrics.

Thank you, Manish. Good day, everyone. Thank you all for joining this call. I will take you through some of the key business and financial metrics for the quarter ending June 26. The reported revenue for the first quarter of financial year 27 stood at $159.5 million in USD terms, reflecting a growth of 1.1% sequentially in constant currency terms. In reported terms, sequentially it grew by 0.7%. Our EBITDA this quarter contracted by 150 BIPs, sequentially driven by pre-staffing and transition for large deal setup, which is around 2%, increase in other costs, which is around 1.5%, which includes increase in travel, visa, and training costs. This was offset by positive Forex impact of 0.8%, reversal of management bonuses of 1.3%. Our path margin for the quarter stood at 12.2%, contracted by 220 BIPs. Some other key financial highlights. BRSR or FY25-26. I would urge you to basically go through that. With that, I will now invite Vijay, our Chief Operating Officer, to comment further on Q1 FY27 results.

Thank you, Manish and Pulkit. Greetings, everyone. I will share details about our operational efficacy, service line performance, and AI journey. Our utilization for the quarter stood at 85.1%, which is an improvement of 80 basis points quarter-on-quarter. The rigor associated with accelerated fulfillment and capability enrichment picked up a lot of momentum in Q1 of FY27. We had a gross addition of 1,451 employees in the quarter, which is 50% higher than the previous quarter. Our voluntary attrition was 9.6% as Manish just talked about. This is the sixth successive quarter where our voluntary attrition has been below 10%. The offerings from our service lines and industry services groups continue to resonate well with our clients. The share of revenues from our service lines increased to 72.1% in Q1, which is an improvement of 325 basis points YOY. On YOY reported currency basis, data engineering and analytics service line grew by 10.8%. Cloud infrastructure and security services grew by 5.6%. Products and platforms, including CMO services, grew by 1.2%. Enterprise application services declined by 3.2%. We continue to deliver significant value to our clients, leveraging our pragmatic AI offerings. Some examples are, we have productionized agent-based software development and testing life cycles across multiple global VFSI clients. With this, we were able to achieve 25 plus percent productivity uplift with 44 percent of the code being AI generated and 50 to 60 percent acceleration on large-scale application migrations. We re-platform legacy assets, including mainframe COBOL environments to modern architectures through repeatable technology-agnostic agentic workflows, achieving 40% to 60% effort savings. We have scaled the Zens AI platform family across many accounts. These include Zens AI.QI, which is our quality engineering set of agents, the newly launched Azure AI for agent assurance, agent mesh that Manish talked about, which comprises of banking and risk assistant agents, and Zens AI.Guidewire, which is the insurance platform delivery acceleration suite. We have won multiple projects leveraging AI-native SDLC, where we are using GHCP, Cloud, Code, etc., as well as our agentic engineering methodologies, while simultaneously driving outcomes with Zen's AI-led managed services. Our content factory suite of agents is being leveraged to run marketing campaigns for many marquee clients. With that, we can now open the line for questions.

Thank you. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles.

The first question comes from the line of Shraddha

Agrawal with Asian Market Securities. Please go ahead.

Yeah, thanks. Two questions, Amanish. First is on BFSI. We saw a sharp 8% growth in this quarter in BFSI. So how much of it is to do with the large $210 million deal ramp-up? And X of that, how has BFSI performed? And then I'll ask the second one.

Yeah, so some part of it is, so we started executing this deal in mid-February. So the transition and so on is going on, but still there was a contribution from this. I don't think we would like to disclose the contribution. But beyond that, also your second question, BFSI grew despite, even if we had not accounted for the last deal, BFSI still grew.

So, I think earlier the plan was that the deal would ramp up in a material way in 3Q. So, are we running ahead of our initial plans and the deal has seen some good ramp up in the first quarter itself?

I mean, as a company, we try to execute very well. Well, so we were anticipating, I mean, first of all, it's half quarter only.

So that is what you need to remember. Second is most of it was transition related.

So it is not that we have been able to get all the revenues that we wanted

in this quarter itself.

But again, it's a process. Yes, I think Q2 and Q3, we will – Q2 also, I think, will continue to ramp up, and the full rate or the revenues of this deal should start appearing in Q3, Q4.

Got it. And the other question is, Manish, that many of your larger peers have also called out that they are entering the small and mid-sized enterprises market by carving out a different business unit to focus on this segment. So if you could also talk about the competitive intensity that we've seen in the last few months, given the higher focus of larger peers in this SMB segment.

See, the competitive intensity has continued to increase because the market conditions, you are aware, you have seen the results of other companies also. So, the market conditions, the competitiveness of that has increased. We are not too worried about, you know, the large companies entering into this segment because their operations, their processes, their – the overall structure is not really designed for SMBs overall. SMBs need a different type of execution agility, which is, you know, when your client number 350 for a large company, there is that limited amount of bandwidth, talent, leadership, management capability that you'll focus on it. So that is, I think, going to be the primary issue for the larger players.

Right. And if last, one question I can squeeze in. The fresh order intake at broadly $149 million is at a multi-quarter low number. So how do you look at the pipeline, and what should we expect in terms of TCV win for the remaining quarters of the year?

Yeah, so first of all, 150 million approximately is the number, but the interesting thing in this number is that new business, a proportion of new business, which is new business from existing clients and net new, is at an all-time high. And usually Q1, usually is a seasonally weak quarter because most of the renewals either happen in Q3 or Q4, depending on when the budget cycles and the financial yield cycles of our clients are. So, we are not unduly worried, because as I said, the proportion of EN and NN in this is much higher than what we have seen in the past. And Shrata, you should also remember that we were coming out of a bumper quarter last quarter with nearly 450 million or so in order booking. So, I won't be too worried about it.

That's all from my side, Dr. Trey.

Thank you. The next question comes from the line of Nitin Padman with Investec India. Please go ahead.

Yeah, hi. Good morning. Thanks for the opportunity. Nice to see the growth in BFSI beyond the deal. Just a few questions on how do you think the other verticals which have been sort of declining, which includes MCS, HLS, TMT, do you think that should start moderating? Or do you think MCS or HLS should start sort of improving at some point? So that's the first one. The second is that from a deal win perspective, do you believe that the book to bill should start increasing going forward? Because considering the leak that we're seeing with the other verticals, unless there's a 1.2, 1.3, it becomes slightly difficult. I wanted your thoughts on how you're thinking about that and how that could sort of change. And finally, just a question on how should we think about margins from a put-and-takes perspective on a going-forward basis.

All right. So, first question is commentary on verticals. So, again, what is past is past, but I can tell you that at this moment, I am less bullish about what we are seeing in Europe, what I am seeing in Europe, and what I am seeing in MCS or consumer services. I think Africa, we are doing well. I mean, one-off cases here and there isn't a problem. BFSI, obviously, we are doing very well. And actually, in TMT, if you leave aside the largest client, we are actually doing quite well there. On SLS, you know, when we started the year, we expected the trip to be much higher because of consolidation, and we have recovered there at least, I would say, 75% of the drop that we had. And so, HLS, I think we will continue to see growth in the subsequent. So, that is the overall commentary. On book to bill, see this, see, you have to factor in the mega deal. Okay. Last quarter, we had a book-to-bill of whatever, three times or something like that. Correct. Right. So, you know, the overall book to bill can be lower in subsequent quarters because there is a mega deal which is fairly booked 403, 430 million or whatever per total in that quarter. So, if you look at that, I mean, you have to say that the book-to-bill metrics can be lower without us getting uncomfortable with it. But with that said, we would like to maintain our original thinking around 0.9 to 1.1 signs are projected.

Does that answer your question? was where I was coming from. And I think the question on margins was the last one.

Yeah, on margins, I'll let Pulkit comment on the margins. But I think, you know, the jury is still out there. But I think at least we, I feel that the slowdown in the, The largest client might be more muted going forward, particularly because there is not too much to go down from there. So, that perhaps should mitigate your concern.

I will get over to you on the margin. Sure, sure. Hey, Nitin, hi. So, Nitin, on your question around margins, I think let me basically start with what our priorities are from an investment perspective. Priority one is, of course, building capabilities, investing in SG&A as and when needed. And third and most Most important is basically ramp-up of the large deal. And to that extent, at least for Q2 and Q3, we would expect the margins to be in the similar range as what we are seeing in Q1 because the ramp-up and growth are priority. And eventually, once we have achieved that, margins will follow from Q3 onwards. So, I would say, at least for next one to two quarters, the priority will be around investments in SG&A, capability building on AI, and lastly, ramping up the large team.

So, that's very helpful, and thanks for all the color. All the very best.

Thank you. A reminder to all participants, you may press star and want to ask a question.

The next question comes from the line of Sukrit Patel with iSight FinTrade.

Good morning, team. I have two questions. I have a question to Mr. Manish. There's a power-looking guidance on beyond the regular outlook. What are the top two to three execution priorities you're focusing on in the next two quarters? And alongside that, what do you see as the biggest risk in client demand shifts or competitive pressure? And how are you planning to manage them while strengthening Densa's position in the IT services and digital space? That's my first question. Let's make a second question after this. Thank you.

Yeah, so priorities, I think, priority number one is making Zensar an AI native organization. So from a management perspective, a lot of effort, serious execution, bandwidth, etc. is going there. And we don't want to just become AI native for ourselves. We want to become AI native for our clients. So that is the priority number one and two. Priority three is, as Fulkit mentioned, making sure that the mega deal ramp up goes smoothly. And we continue to invest in that and in our SG&A to get the ball rolling on revenue growth. Did I answer your first question?

Yes, yes, yes. That was a pretty good guidance. My second question to Mr. Pulkit is, again along the similar lines, from a financial point of view, what key risks or challenges do you anticipate in the coming quarters? And what specific measures have been taken to manage margin, cash flow, and balance sheet strength, especially in areas like currency volatility, receivables, or, you know, any compliance? Thank you.

Yeah, that's a, thank you. That's a very wild question. I'll try and basically take every point. So, on margins, as what we stated, right, the priorities and focus on growth, that will drive. Our margins, at least for the next couple of quarters, will be similar to what you see in Q1. We are investing, and to that extent, we do not see any large expansion there as of now. But on growth, the priority stays as strong as it was before. Second, you said how is the balance sheet and any risks there? Our EBITDA to cash conversion is, again, pretty good. It was OCF to EBITDA this quarter was somewhere close to 70, a little more than 70%. Historically, also, our cash conversion has been pretty strong. I would like to believe that it has been higher than the industry average for last two years. On anything on the receivable side, it's business as usual, no major call-outs. Our DSO, when we ended FY26, it was 71 days, which was, if I recall, number two in the industry. When we are closing Q1, it is 75 days, which is, again, pretty good as a number, and we are okay with that kind of a trajectory. What we are seeing as a trend is that the payment terms are getting stretched, and to that extent, anything which is between 74 to, say, 79 is an okay number from our angle.

Thank you, and best wishes.

The next question comes from the line of Sandeep Shah with Equirius Securities. Please go ahead.

Yeah, thanks. Thanks for the opportunity. Manish, sir, just the first question is, this is a second quarter in a row where we had a broad-based decline outside BFSI. So, you explained this to some extent, but just wanted to understand, is there a portfolio specific or competitive risk which is leading to this broad-based decline outside PSSI?

No, I don't think so. I mean, you know, structurally, one of the biggest risks was declined concentration risks that we were carrying. And as I mentioned in my comments, we have actually increased our 10 million plus accounts by four. So, that is a very healthy sign from a reducing concentration, client concentration perspective. You know, the environment is such that there will be some ups and downs. It is to be expected. You know, sometimes, you know, there will be a small hiccup here and there. I mean, we are measuring things at a three-month frequency. So, I don't try and read too much into it, but continue to focus on building a good portfolio through net new and also by efficient farming. But I don't think there is anything structurally wrong or something that needs working on in the portfolio.

Okay. And just further to what Nitin asked, sir, why is the aspiration on book-to-bill being lower at 0.9 to 1.1? I do agree, sporadic large deal will take this number higher, but it continues to remain sporadic. Why I am asking is, this could be a third year in a row where constant currency growth would be low single digit to mid single digit. And to address that, we have to have more feet on the ground, more aggressive in terms of creation of deal pipeline, more aggression in terms of converting pipeline into revenue. So, what is hampering us to compensate this?

So, if you notice, our SG&A, particularly our sales costs, have gone up, and we are investing heavily in revamping and adding to our sales costs, both. So, there are lots of deletions The second thing I would say is, I mean, the jury is still out there, but the headwind from the large account has reduced a little bit. So that is another thing. And third is, I mean, we are not saying that the book to bill, our aspiration is lowered. There is no way we are saying that. But you need to remember that the deal that we are talking about is not a large deal. It's a mega deal. Okay. So, the deal size is close to one-third of the company's revenue. To put it in perspective, if it was a tier one and it was one-third of the revenues, it will be in the range of five to six billion dollars. Right? Right? So, you have to take that into account. The other way of thinking about it is, if you take a book to bill of 0.9 to 0.1, 1.1, apply it to 430. Right? And you will get the number that you are looking for. So, I won't read too much into it, as I said, on the order booking. But, as I said, we are focused on revenue growth, and we are focused on revamping our go-to market to make it more aligned with the AI story that is going on, And the consequent changes that we need to do in our salesforce to make that newer go-to-market more effective.

Okay, okay. Fair enough. Thanks for the detailed explanation. Just a couple of last few questions. Can you give some color in terms of large deal pipeline or mega deal pipeline? And how do you see the growth on a quarter-on-quarter basis in the coming quarters? Maybe a qualitative aspect rather than giving a guidance. And just in terms of margins, there has been close to 300 bps decline in gross margin in this quarter. This is more to do with a large deal ramp-up, and once it is ramp-up, we can go back to normalised gross margin.

Yes, that is true. On the margin, the primary thing is declined in the gross margin, and that is primarily because of the mega deal. On pipeline, if I remember correctly, close to 23%, I think, of our pipeline is large deal. There are no mega deals, just to be clear. Large deal definition is about anything greater than 25 million in TCV. So that is where things stand from a pipeline perspective. I think I think pipeline is good. On, you know, prognosis for the rest of the year, see, it is very difficult to, things are changing so rapidly in this new AI world that it is difficult to give a long term or, you know, three, four quarters prognosis. But from where I stand, I think Q2 will be better than Q1, is all I can say.

Does that answer your question, Sandeep?

A reminder to all participants, you may press star and 1 to ask a question. The next question comes from the line of Amit Chandra with HDFC Securities. Please go ahead. Thanks for the opportunity.

My first question is on the healthcare and life sciences vertical, you know,

I'm sorry to interrupt, Amit, you're not quite audible, your voice is muffled. Please use your phone on the handset mode in case if you're using a hands-free device. Thank you.

Hello, is it better?

Much better, thank you.

Yeah. So, on the healthcare and life sciences vertical, apart from Basel side, this vertical was the one where we have invested. And we are seeing last three quarters it has been declining. So, how much of this decline you attribute to the macros versus the portfolio issues or are there any client-specific issues here?

Mostly portfolio issues and client-specific issues. I don't think macros, I mean, we are too small to really worry about macros, actually. Okay. So, I mean, the slowdown in FDA decision-making and some adverse FDA decisions did not help our clients because our focus is on biotech quite a lot. So, some of those adverse decisions for our clients did not help us. But I would say healthcare lifetimes as the primary issue has been consolidation in one or two clients, where we have been consolidated out.

And in terms of the, you know, headcount addition that we had in this quarter, in terms of cross also, it was, you know, how much of that is related to the last deal? And in terms of the rebadging exercise and, you know, the headcount addition, is it all in the base or we can see some more addition there?

I would request Vijay to answer that question. I don't know whether we can answer that question or not, or we are allowed to answer that question or not, but anyway, over to you, Vijay.

Yeah, so I think without getting into too much specifics of how much was it, large deal was obviously a fairly significant component of the headcount addition. But I am happy to note that like outside of large deal also, there were quite a bit of additions as compared to the previous quarter. So it has been largely aided by the large deal, but good additions elsewhere as well.

The last question, we have healthy cash on the balance sheet. So, what are the plans to deploy that, whether to fill some gaps in the portfolio, some geographical expansion or entering into new areas? What's the plan?

So, we are actively, I think, we are actively looking at scaled assets. We are not looking at tuck-in acquisitions. So, we are looking at scaled assets in the north of $200 million range of revenues, or maybe $150 million at least. I believe that this is the right time. At least the pricing is not observed on some of these assets. I believe that it is the right time to look at some of these assets seriously, and we are looking at two or three assets, even as we speak.

Okay. Okay, sir. Thank you and all the rest.

Thanks. The next question comes from the line of Sandeep Shah with Equirius Securities. Please go ahead.

Yes, sir. Just one question. As of the total pipeline, you mentioned 23% is the component which relates to the large deal. Can you give us a number, a one-quarterback and a four-quarterback?

See, it has... So, for example, the mega dial that we did was... When we had put it in, it was one-third the size in the system. Okay. Right. So, it's difficult to, I mean, I know where you are going with it, Sandeep, but look at it as a qualitative answer rather than a quantitative one. And I would say that the last deal composition as a percentage of our overall pipeline has been pretty much in this 20 to 30 percent range.

Thanks, and all of this.

Thanks, indeed. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Manish Tandar for the closing remarks.

Right. Thank you, everyone, for joining this call. I want to reiterate my gratitude to our clients for their continued trust, To all the Ansarians for their unwavering dedication, and, of course, to all of you and our shareholders for their confidence and support. In summary, while the demand environment remains mixed, our revenue growth, broad-based volume growth, and robust cash position collectively reinforces our confidence in the path we have chosen. As we move into Q2,

our priorities remain clear,

maintain the growth momentum, discipline the execution, and deepen the value we deliver to clients and continue advancing our AI-native capabilities. Thank you once again for taking the time to join Zensar's quarterly earnings call. And those of you in India, have a good day. In other geographies, have a good evening.

Thank you, sir. Ladies and gentlemen, on behalf of Asian Market Securities, that concludes this conference call. Thank you for joining us, and email now to disconnect your lines.