Ksolves India Limited (KSOLVES) Earnings Call Transcript

Ladies and gentlemen, good day, and welcome to Ksolves India Q2 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pratik Jagtap from E&Y. Thank you, and over to you, Mr. Jagtap.

Thank you, Siddhant. Welcome, everyone, and thanks for joining Ksolves India Limited Q2 FY '27 Earnings Call. The results have been mailed to you along with the investor presentation, and it is also available at www.ksolves.com. In case anyone does not have a copy of investor presentation, please do write to us, and we will be happy to share it with you. Joining us today from the management team, we have Ratan Srivastava, Chairman and Managing Director; Umang Soni, Chief Financial Officer; Manish Gurnani, Chief Technology Officer; Darpan Audichya, Head, Business Transformation and Consulting. We will begin with the management's remarks covering the business updates and quarterly performance highlights and then move on to the Q&A session. Before we start, I would like to remind you that anything that is said on this call that reflects any outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual report, which you can find on our website. Having said that, I will now hand over the call to Ratan sir. Over to you, sir.

Thank you. Thank you, and welcome to our Q2 and H1 FY '27 earnings call. Before I talk about where we are headed, let me briefly update you all about the quarter gone by. It has been a mixed quarter for us. Our revenue was impacted by a cautious spending environment and ramp down at a couple of large enterprise clients. At the same time, we maintained healthy profitability, secured several strategic wins also, strengthened our position in the banking sector, especially and made meaningful progress in embedding AI across the business. With that context, let me start with what defines Ksolves today. It is Agentic AI. Over the last few months, Ksolves has become a select partner in both Anthropic, that is Claude partner network and OpenAI partner network. These are not just badges, you can simply buy or apply for and receive. Reaching the selected peers requires certain certified practitioners means architects, live production deployments for customers, public client endorsement with the credentials reviewed periodically. Holding both certification confirms one thing. Ksolves is putting agentic AI into production for paying clients, not just running pilots. This is changing how we sell and how we deliver. AI at Ksolves is not confined to a specialist team. It runs across the mission. 100% of our engineers are Claude certified. So every team is AI fluent rather than just a few experts. Our in-house Agentic AI center of excellence build the agent accelerators and governance frameworks that our delivery teams use across client engagement. First, how we sell. 2 years ago, client conversations were about technology and headcount, how many people were required for Salesforce, ODO data engineering or whatever. Today, almost every conversation includes Agentic AI or it starts with Agentic AI, I can say. Clients are asking for ODO with Agentic AI or you can reverse it, Agentic AI with ODO, Agentic AI with Salesforce, Agentic AI with data engineering, okay? The question has moved from how many people to what business outcome can you deliver. Second, how we deliver. We are moving towards a forward deployed engineering model. Our engineers work closely with the clients to understand the business problem, use AI to design and build solutions and take ownership of the outcome. With AI, our engineers increasingly work across platform now. That gives us flexibility in deployment, faster ramp-up and better utilization. The progress we are making across AI and our core technology practice is also translating into the new business. During the quarter, we secured market wins across diversified sectors and our key technology offerings include banking in South America, banking in U.K., banking in Europe, global ports, education industry in Australia. Three of our Q2 wins are in banking. That reinforce our BFSI story and provide us with a stronger foundation to pursue further opportunities in this segment. These opportunities are mainly in -- or you can say, with Adentic AI and Salesforce or with Agentic AI and data engineering. Alongside our Anthropic and OpenAI select partnership, we have been upgraded to Frappe Bronze partner in India. Coming to our financial performance. Q2 revenue stood at INR 37.8 crores, down to 4.7% year-on-year. For the half year, revenue stood at INR 79.2 crores, reflecting a growth of 2.5% year-on-year. Across the industry, client remains selective and discretionary spending is still under scrutiny. Our Q2 performance reflects that along the ramp down at a couple of our large enterprise clients, we indicated -- as we indicated last quarter, these are client-specific ramp down, not a structural change in our business or our client relationship. We have also taken an important lesson from the period. When these accounts slowed, our pipeline was not deep enough to fully offset the impact within the quarter. We are now building a pipeline, even a strong pipeline enough that no client-specific decision can move our quarter the way this one did. We are also pleased that [indiscernible] and Pldstet has recognized Ksolves as one of the leading SMEs for 2026. To sum up, we expect FY '27 revenue will remain soft and to trail last year levels. This reflects cautious client spending amid global macroeconomic and geopolitical uncertainty. In H2 FY '27, our focus is on building a broader and stronger pipeline, scale our AI opportunities, support the recovery and expansion of our enterprise account. Thank you. I will hand over to Umang to take you through the financials in detail. Thank you.

Thank you. Thank you, Ratan. Good day, everyone, and a very warm welcome. I hope you have an opportunity to review the earnings presentation and the press release. Ratan has outlined the business environment and our strategic progress. I will take you through our financial performance with a focus on profitability, operating efficiency and balance sheet strength. Our consolidated revenue for the quarter was INR 37.8 crores, a decline of 8.8% sequentially and 4.7% Y-o-Y. As Ratan has mentioned, and we have also indicated in our previous calls that the sequential moderation was primarily driven by client-specific ramp-downs against a backdrop of cautious client spending. EBITDA for the quarter stood at INR 9.7 crores with a margin of 25.7% compared to 30.3% in last year and 30.4% in Q2 FY '26. The moderation in margin was primarily attributable to lower revenue, offset by cost optimization and AI productivity improvements. We have since rationalized headcount and deployed AI more extensively across delivery. As revenue recovers, this leaner structure should translate into stronger margins. So simply put, this was a revenue-led dip. We absorbed a revenue decline of INR 3.6 crores in a single quarter and still stayed within our guided margin band of 25% to 30% EBITDA. Our focus remains on protecting profitability through disciplined cost management and operational efficiency while continuing to invest in our AI banking and enterprise technology capabilities. Profit after tax for the quarter stood at INR 7.25 crores with a PAT margin of 19.2%. EPS for the quarter stood at INR 3.05 compared with INR 3.55 in same quarter last year. For the first half of FY '27, revenue stood at INR 79.2 crores, registering a year-on-year growth of 2.5%. For the first half, EBITDA stood at INR 22.3 crores, broadly in line with H1 last year at an EBITDA margin of 28.1%, within our guided range. For the half year, PAT stood at INR 16.5 crores with a growth of 10.9% year-on-year. AI is changing the skill mix we need, and we are deploying AI wherever it can absorb work and focusing our talent on AI skill tools. Many of our cost actions were taken during this quarter Q2, so the full quarter benefit will be shown from the end of Q3. In terms of business mix, IT services continue to be our core business, contributing 98.4% of revenue. Our geographical mix remained diversified with 80% of revenue coming from overseas markets. North America contributed 59% of total revenue, followed by India at 20%, Europe at 6%, Australia at 4% and rest of the world at 11%. Our top 10 clients contributed 50% of the revenue. On cash and balance sheet, we continue to remain a debt-free balance sheet -- maintain a debt-free balance sheet with a cash and bank balance of INR 17.6 crores as of 30th September 2026. Our focus remains on disciplined working capital management and cash conversion. The Board has also declared a second interim dividend of INR 1 per share, taking our total interim dividend for H1 to INR 5 per share, which is about 72% of our H1 profit after tax. This reflects our continued commitment to shareholder returns by keeping a strong cash position. Going ahead, client-specific ramp-downs, macroeconomic uncertainty and billing seasonality will continue to influence the near-term performance. Our focus remains on navigating this environment while protecting profitability. A key priority for H2 is to drive higher utilization and revenue per employee by deploying our engineers across platforms using AI to raise output per person and filling capacity from our existing team before adding new hires. Hence, we expect the EBITDA margin to remain in our guided range of 25% to 30% for FY '27 with a scope for improvement in Q4 as the recent wins ramp up. Now with a leaner cost base, strong balance sheet and strong AI capabilities, we are well positioned for H2 and return to growth in FY '28. Thank you. With this, I will hand over to the operator for Q&A session. Thank you.

[Operator Instructions] The first question comes from the line of Apurva, who is an individual investor.

Sir, I have one question regarding the dividend. So like from the last couple of years, we are giving dividends of approximately the which we have. So we would be continuing this policy going forward or there might -- we can see some change here?

Shareholder returns remains a priority. And since we are debt-free with healthy cash, so we are well placed to continue on this. And the Board will decide each payout based on the each year's profitability and cash needs. And we'll continue to review the further payouts.

Okay. Okay. And sir, my next question is on the Australia side. I think we have recently started our business in the Australia geography. So if you can throw some light on the response there?

Sure. So in Australia, we have opened a sales office, particularly for local client contracts and bidding purposes. Employees complete team is based out in India only. So we have just recently established that office, and we expect in coming few months or few quarters that we'll get some business.

Second. Sorry. So we have already business. Even today, we have got one deal, okay, from one university, okay? I cannot take the name. So we are already getting business. And we have a running business also. So that is, I think, the answer for your question.

Got it. Got it. And sir, like earlier we had our business in Middle East as well. So we have shut it down. Is the understanding right?

Sorry.

Yes, we had our business in Middle East as well maybe a few quarters back. So do we have clients still from there? Or like we have shut down that...

Have clients. We have retained those customers, okay? We have one bank also there, okay. Plus, we have increased the business in Middle East. But as compared to Q4, Q3 last year, the number of acquisition in Middle East businesses is a little less, okay? But we have increased the business as well. I cannot say we have -- the business has stopped there.

Okay. Okay. And sir, one more thing. Let's suppose like this financial year would be like we have got a hit because of fewer clients. So our FY '27 would be in the similar range of FY '26. Sir, but going forward, maybe FY '28 and going forward, can we have a growth rate of around 20% and more than that? What are your views on that?

See, first of all, I think I have given the guideline last year that 20%, I will make, okay? And that time, everything was good in terms of geopolitical and all, okay? But we could not do due to geopolitical and few random surprises from the customer side, okay? Now if I will -- if you will ask question about the next year, I'm very optimistic, okay, that we will do this, okay? But again, condition is that geopolitical problem, all these things should not be there, okay?

Got it. Got it. Sir, are we seeing the revenue from our customers increasing year-on-year from the same customer? If you can throw some light there as well.

Yes. Many customers we have, okay, even from the Middle East, okay, one customer, we have -- from the Middle East, that customer has increased the business, okay? From North America, many customers. Last 2 quarters, me last, I can say this month is going on October, right? I can say 10 September, everything was on hold, okay? But now because of -- mainly because of the AI, people were in wait-and-watch mode. But now they are coming to us for new requirement. Definitely, they are asking for the AI, which means they are saying that use AI, but start adding new features.

Got it. And sir, just one last question on the industry side, as you might know much better. Sir, there was a very high risk on this industry, software side in the industry that the clients would be using AI and might be developing the tools themselves, maybe having the in-house team. So do you see -- is that happening or still the clients are outsourcing companies like us for their product development?

Initially a few customers, I can say they tried, okay? Not sure maybe they were excited to know about the AI or maybe they were exploring, okay? They have done some jobs on their side. But now what they have started that they have started outsourcing the projects, adding features and they are focusing mainly on the business side, okay? But yes, definitely, in the starting few months, everyone was exploring AI. Maybe they were trying to understand the limitation of the AI...

Got it. So you are saying that initially, people were trying, but...

They understood that it is not something that AI will do everything. AI will do, but we need human experts, domain experts, especially who will control the AI, who will validate the result of the AI, okay? So they understood it, okay? Initially, it was kind of a rumor that everything will be done by the AI. It is not possible, okay? Even in beginning, I was thinking in that direction. But now we all are on the same page that AI will be part of the life or even AI is part of our life, but payments will be also there to control the AI.

Got it. Got it. Sir, just one last question. Sir, if you can just throw some example when you say that earlier people were having discussions on only on having a product on ODO or Salesforce. Now people are asking ODO with Agentic AI and Salesforce with Agentic AI. If you can share some.

It is very obvious if you are a customer and you are reading in the newspaper and reading articles that AI is reducing the cost and increasing the efficiency and you are -- you have a vendor who is developing a software ODO ERP or Salesforce CRM, you will definitely ask your vendor to use AI to save your cost or maybe you will be interested to pay premium, but in less time, you may need more features, okay? The same case is with everyone. Everyone is asking less time, sometimes less cost or sometimes they are ready to pay more, okay? But definitely, time is important for them.

The next question comes from the line of Nikhil [indiscernible] who is an individual investor.

So my first question is, do we have any numbers around the constant currency since I presume the weakening rupee would have quite a positive impact on the numbers.

Umang will answer.

No. For now, we are not calculating it on constant currency.

Okay. And the second question is, are you also exploring opportunities among the GCCs of foreign companies in India? I presume that would be probably a lower margin business, but I guess it could generate quite a bit of volumes there.

Honestly speaking, we are majorly focusing on North America or Europe, Australia and Middle East, okay? In India, somehow we are not able to focus or we don't have that kind of them, okay? So if they come to us, we definitely work with them. But we don't have a dedicated sales team or we are not doing a marketing for domestic market.

The next question comes from the line of Priyanka Prashant who is an investor.

So my question is, we saw 3 banking wins in the Q2. So just wanted to know whether banking and BFSI is now becoming an important growth area for you? And how big can this business become over the next few years, if you could throw some light on that?

Definitely. See, for banking customers, we were working for a long time, okay? But a small piece of work. We have at least -- at least 5 customers or maybe 10 customers, banking customer, okay, but for a small piece of work, okay? This year, we have one South American -- we have one contract with South American bank, okay? And we have delivered them their project successfully, and they were very happy. So they have given us more work, okay, especially with the Agentic AI, Salesforce, and a small amount in ERP also, okay? And we had a meeting with them, okay? However, they have not given the assurance in written and all, and we don't have anything in written, okay? But what -- they have shared me -- I'm sharing with you, they have a long vision with us, long vision. They have a long vision for their bank, and they want to execute that vision or they want to execute those -- all those things majorly with us, okay? There are some work which we don't have expertise, for example, networking, Infra side, okay, that we will not -- okay. But that bank is actually a small bank, okay? And they are going very fast, okay? And they have a very limited budget. So they cannot go with the big companies, okay? And their technologies are latest technology. And they found us -- basically, they have chosen us because we are cost efficient, we are very quick, and we can deliver those complex technologies what they are expecting, okay? I mean as per their expectation, we are delivering everything, okay? So we are hoping that this year, because if everything goes well, I'm adding this line. If everything goes well, our team delivers everything as per their expectation. And so that business may become bigger. And because of that, we can get other banking customers also because we are getting to learn, you can say, or we are getting to develop so many things, which is very demanding in the industry, in the BFSI sector. and very less people have that kind of skill. So we are facing challenge even, because skills are rare, very less people are available. So we are putting extra time, hard -- we are doing hard work to deliver those things. But once it will be done, for that bank, I think other banks will select us. But again, I'm saying this is my -- you can say, expectation with my team, okay? I hope -- I don't know, but this is what we are thinking it may happen.

Just a follow-up question. So how many banking clients do we have right now?

Exact number, Umang can give you. I told you, but Umang, do you have any number in your mind?