The managements of a handful of IT firms namely Persistent Systems Ltd, Zensar Technologies Ltd, eClerx Services Ltd and Firstsource Solutions Ltd attended JM Financial India Conference 2023. In its takeaways note, JM Financial said the IT sector commentary remained muted, as it is exposed to the external sector. Here's what IT managements told JM Financial at the conference:
Persistent Systems
In the case of Persistent Systems, JM Financial said the demand environment has incrementally improved compared
to a quarter ago. Persistent Systems has not seen any major ramp-downs in the past couple of quarters, reflecting stable TCV to revenue leakage, it while noting that the improvement is not material.
"Deal to revenue conversion is sticky as spending is still going through multiple rounds of scrutiny. ROI from excess IT spending during pandemic has not been very forthcoming. This is resulting in clients optimising their prior spend instead of new project starts. The company remains confident of growing 400-500 bps above Industry
growth. The company has an aspiration to achieve $2 billion of revenues (implies 18-19 epr cent CAGR) and 200bps of EBIT margin expansion by FY27," JM Financial said.
The brokerage noted that 25 per cent of this is likely to come through acquisitions. For Persistent Systems, will be impacted by furloughs, especially in BFSI and Hi-Tech. The company however expects H2 margins to be
better than H1 given focus on cost optimisation, JM Financial said. The IT firm disagrees with the general
market perception that it is more exposed to discretionary projects as 70 per cent of deal TCV won over past 12 months have been cost optimisation deals.
eClerx Services
JM Financial said two out of the three business eClerx Services’ segments witnessed growth in the September quarter. Customer Operations and Financial Markets saw growth while Digital services were weak, it said adding that KYC services were strong within the Financial markets segment.
"The company expects to grow sequentially in Q3 on back of the momentum in Q2. The company has seen positive momentum in margins as well. The company has revised its guidance from below 28 per cent post Q1 to its year beginning guidance range of 28-32 per cent post Q2 result. The company is confident of achieving stable margins in Q3/Q4 (in-line with Q2 levels)," JM Financial said.
The brokerage noted that the new CEO is evaluating various strategic changes in the business. The mandate for him is to accelerate growth, it said adding that he is looking at improving incentives for sales/adding capabilities to achieve the same.
Firstsource Solutions
Firstsource aims to deliver top-quartile industry growth and margin expansion, JM Financial said. Ritesh Idnani, the newly appointed CEO, is keen on execution in terms of cross-sell and upsell, it said. Client relationship officer is designated for top accounts to drive growth through cross-selling and upselling, it added.
Organisational change in terms of realignment of responsibilities is underway. All business units are working together on their offerings to the clients. Operating environment under the new leadership is now more focused.
The FY24 revenue guidance cut to 0-2 per cent from 2-4 per cent earlier was on account of general economic slowdown impacting client volumes. Business pickup was not as sharp as company was expecting," JM Financial said.
Capacity addition for Firstsource Solutions will be in sync with demand environment. Company is looking to fill white spaces in terms of offerings.
Zensar Technologies
As per JM Financial, the Zensar management thinks is no change in the overall demand environment. The December quarter, it said, will though be impacted by furloughs.
"The company is working on making certain structural changes: Improving pyramidisation – e.g., any attrition is being replaced with n-1 level resource. The focus is on making recently hired freshers billable," JM Financial said.
The IT firm reiterated its mid teens margin guidance despite a higher margin in H1. It intends to keep a buffer for future investments, JM Financial said. Deal tenure has lengthened and so has deal-to-revenue conversion timelines,JM Financial said.
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