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Total Revenue (Q2 FY25): ?406.8 crores, 8% year-on-year growth.
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EBIT (Q2 FY25): ?39.3 crores, EBIT margin at 9.7%.
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Total Revenue (H1 FY25): ?800.7 crores, 4.3% year-on-year growth.
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EBIT (H1 FY25): ?81.9 crores, EBIT margin at 10.2%.
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Net Cash and Investments: ?615 crores as of September 30, 2024.
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DSO: 58 days as of September 2024, down from 61 days in June 2024.
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EPS (Q2 FY25): ?7.18 per share.
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Digital Technology Revenue: ?162.2 crores, 5.5% year-on-year growth, 40% of total revenue.
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Digital Operations Revenue: ?176.6 crores, 7.3% year-on-year growth, 43% of total revenue.
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Digital Experience Revenue: ?68 crores, 16.2% year-on-year growth, 17% of total revenue.
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Geographical Revenue Distribution: US 56%, India 22%, Rest of the World 22%.
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Industry Revenue Distribution: Technology and Consulting 27.27%, BFSI 23%, Education and Publishing 15%.
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Client Concentration: Top 5 clients 21%, Top 10 clients 36%, Top 20 clients 51%.
Release Date: November 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
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Datamatics Global Services Ltd (BOM:532528) reported a revenue growth of 8% year-on-year for Q2 FY ’25, driven by new client acquisitions across digital technologies, operations, and experiences.
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The company expanded its client portfolio by adding 12 new customers in the quarter, including a global logistics leader.
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Datamatics has been recognized by Google as a strategic partner for back-office solutions and has partnered with Microsoft to develop copilot solutions, enhancing its AI capabilities.
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The company is actively investing in AI solutions and has seen positive market responses, with significant investments recognized by major partners like Google and Microsoft.
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Datamatics maintains a healthy balance sheet with net cash and investments totaling 615 crores as of September 30, 2024.
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The EBIT margin for Q2 FY ’25 was 9.7%, reflecting margin compression due to lower volumes in the tax processing business.
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Digital technology EBIT margins were notably low at 4.2%, attributed to significant investments in AI and a large portion of India-centric business.
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The company experienced unexpected volume shrinkage in digital operations, impacting margins and revenue.
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Client concentration has decreased, with the top five clients contributing 21% of revenue, down from previous levels.
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The macroeconomic environment presents uncertainties, including geopolitical tensions and economic softness in Europe, which could impact future growth.
Q: What is the outlook for Datamatics Global Services Ltd after the first half of the fiscal year, and how is the integration with the recent acquisition progressing? Also, why are the digital technology EBIT margins low? A: The integration with the recent acquisition is progressing smoothly, with two deals already closed. The digital technology EBIT margins are low due to significant investments in AI and a large portion of India-centric business, which tends to have lower margins. Efforts are being made to pivot to the US and Europe to improve margins. The outlook for the next two quarters is stable, with expectations to claw back some of the margin erosion.
Q: How does Datamatics plan to achieve higher growth rates, and is there a strategy to become a billion-dollar company in the next 4-5 years? A: Datamatics aims to achieve higher growth through alliances with hyperscalers like Google and Microsoft, investments in AI, and strategic acquisitions. The company is also augmenting its sales and marketing efforts in the US and Europe. A refined strategy for growth is expected to be shared in the next quarter.
Q: Can you explain the decline in top five client concentration from 25% to 21%? A: The decline is due to volume reductions from some larger clients, which was unexpected. However, new customer acquisition remains healthy, with 12 new logos signed in the quarter. The company expects these clients to bounce back soon.
Q: What are Datamatics’ views on the macroeconomic environment, particularly regarding interest rates and geopolitical issues? A: The US Federal Reserve is expected to reduce interest rates to support the economy. However, geopolitical uncertainties, such as the Middle East conflict and US elections, pose risks. Once these uncertainties are resolved, the US economy is expected to bounce back.
Q: What initiatives are being taken in the AI space, and how are new products being received in the market? A: Datamatics has invested significantly in AI, developing solutions that are receiving positive market responses. The company is focusing on co-pilot solutions and AI-native applications, with strategic partnerships with Google and Microsoft enhancing growth opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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