Q1 Review: LatentView Profit Slips, Margin Declines
Category
🗞
NewsTranscript
00:00 BQ Prime, joining us today is Mr. Rajan Sethuraman.
00:02 He's the CEO of Latent View Analytics.
00:06 He's speaking with us a day after the company's Q1 earnings
00:09 where revenue rose 4.69%, but there
00:12 was a decline in sequential profit as well as margin.
00:16 Mr. Sethuraman, welcome to BQ Prime.
00:19 Thank you for having me on this.
00:21 So first take after the first quarter results,
00:25 and what is the outlook for the rest of the year,
00:27 given how the rest of the technology space
00:30 has not performed up to the mark?
00:32 Right.
00:33 You would all remember that the last quarter for us,
00:36 in quarter four of the last fiscal, was a little flattish.
00:40 And in fact, at the point in time,
00:42 there were questions about getting back
00:44 on the growth trajectory.
00:46 So first off, we are really happy that we
00:48 are back on the growth path, albeit lesser
00:52 than the percentage growth that we would have wanted it to be.
00:56 But as you pointed out, amidst all
00:58 of the macroeconomic uncertainty and the performance of other IT
01:01 companies, I think these are pretty good results in terms
01:04 of getting back on the growth track.
01:06 The year-on-year growth number is also pretty good.
01:09 We've clocked more than 23% at this point in time.
01:12 The profitability has been impacted
01:15 because of the investments that we have been making
01:17 for some time now.
01:18 And we haven't slackened on that because we
01:20 believe that these are exactly the investments necessary
01:24 to actually get on to an even steeper growth trajectory
01:27 when the market rebounds, when the uncertainty is resolved.
01:30 So from that perspective, I would
01:31 say that while Q1 and Q2 will be of the order of growth
01:36 that you currently see, we are still
01:38 hopeful that the second half of the year
01:41 will be a much stronger bounce back.
01:43 So at this point in time, I would
01:44 say that we would want that to pan out
01:47 to have a better commentary for the remainder of the year.
01:50 So you mentioned about the second half of the year, which
01:53 is actually--
01:55 your expectations are quite contrary
01:56 to how the rest of the industry is facing up right now.
01:59 We have reports saying that the IT sector, the technology
02:02 sector in India, will have a longer than expected slowdown
02:06 and is also maybe staring at a washout
02:08 because the deal-making is delayed.
02:10 I mean, deal closures are delayed.
02:13 You are into analytics.
02:15 Are you seeing those same trends, if I may say so?
02:20 If you're seeing the same trends in this space?
02:23 Right.
02:23 And I think this question is important from the context
02:26 that sometimes analytics is seen as discretionary spend.
02:30 But for us, the experience has been quite contrary in the sense
02:34 that for us, all the book of work
02:37 that we had in the last fiscal, that has all
02:40 been completely renewed.
02:42 Plus, we have also seen some incremental growth
02:45 with those stakeholders that we are working with.
02:48 For them, their mandate and remit has increased.
02:50 Of course, they have the leeway to do and launch
02:54 big new initiatives.
02:56 But for whatever work that they were undertaking,
02:58 that is still seen as very critical,
03:00 either from a revenue growth or from a margin enhancement
03:02 perspective.
03:03 And therefore, we are very happy to see
03:06 that the entire book of work that we were executing
03:08 has been renewed.
03:09 And we have seen some incremental growth
03:11 on top of that as well.
03:12 Where we see a certain amount of uncertainty
03:14 is on the kicking off the large initiatives, new initiatives.
03:18 And we are expecting that some of that uncertainty
03:21 will also be resolved as we wrap up the first half of the year.
03:26 I mean, there are quite a few large opportunities
03:28 in the pipeline where the conversations have been
03:30 underway for six months or longer.
03:32 And given that most organizations
03:34 at this half-way mark, they need to take a call
03:37 on whether they could do anything substantial this year
03:40 or whether it is just lights on and business as usual.
03:42 So we are expecting that some of those initiatives
03:44 will come through, which will create the kicker
03:46 that we are expecting in the second half of the year.
03:50 So first, just a small question first.
03:52 So you are saying the analytic services that you provide
03:55 are not discretionary but essential for your clients?
03:58 That's correct.
03:59 All right.
04:01 Secondly, a point that you mentioned about large clients.
04:04 If I look at your numbers and your investor presentation,
04:07 over 50% of your revenue is coming
04:09 from the 50 pro plus clients, which are your largest clients.
04:13 And the top 10 clients are bringing about 71%
04:16 of the revenue in Q1 as compared to 73% in Q4.
04:21 So sorry.
04:23 So in that respect, you're saying that there's
04:26 some delay in the conversion of these deals.
04:30 But do you think the concentration,
04:32 I mean, about 50% of your revenue
04:35 is coming from those large clients.
04:38 So is that a deterrent to you for the rest of the year?
04:41 Not at all.
04:42 I mean, while these five accounts, for example,
04:45 contribute a significant amount of revenue,
04:48 it is not just one deal that we are executing for them.
04:52 With these large accounts, we will
04:54 have upwards of 15, 20 individual statements of work.
04:58 And all of these are seen as important and critical
05:02 initiatives.
05:02 So when I talk about some of the newer initiatives,
05:05 I'm talking about initiatives that
05:08 are in the size of 750,000 to 1.5 million in size.
05:12 And those are the initiatives on which people are still
05:14 sitting on the fence.
05:15 These could be existing stakeholders,
05:17 or these could be new prospects that we
05:18 are having conversations with.
05:20 We are expecting that a certain percentage of them
05:22 will convert and come through.
05:23 And it could happen in some of the existing accounts as well.
05:26 But these will be new doors that we
05:27 are opening in those accounts.
05:28 I mean, these accounts are very large,
05:30 and they spend a large amount of money on analytics.
05:32 And we might be present only in some aspects of the business
05:35 today.
05:36 There are opportunities in the remainder of the business.
05:39 OK.
05:40 That, again, to extend to that, you also
05:42 see that about 70% of your revenue
05:45 comes from the technology work.
05:46 And you also specified that now you
05:48 want to grow your expertise in BFSI as well as retail.
05:51 But there is a dichotomy here, because BFSI and retail
05:55 are the most affected verticals for, say,
05:57 some of your larger peers or for the wider IT industry.
06:01 So why is that that you want to push into BFSI and retail
06:05 in this climate?
06:06 Right.
06:07 So I think that's a good question in the sense
06:09 that it also helps me explain the impact that we are
06:13 seeing on the profitability.
06:15 So the decision to push into BFSI and retail
06:18 was taken around the time that we did the IPO.
06:21 And then we have started making those investments
06:24 into the front end-- expertise, hiring senior people
06:28 to run the practice and drive the value propositions
06:30 and so on.
06:32 However, you will realize that once you make the decision,
06:34 it takes a certain amount of time for you
06:36 to bring those people on board.
06:38 And once they come on board, it takes a certain amount of time
06:40 for them to get assimilated into the organization
06:43 and then for them to be really productive.
06:45 Unfortunately, the macroeconomic downturn
06:49 has happened at a time when we have started
06:51 making those investments and we went ahead.
06:53 And then you saw that downturn.
06:55 And those two sectors have been hardest hit
06:57 in terms of new spending that is happening.
07:00 But we believe that these sectors will rebound.
07:03 If you look at the broader picture
07:04 and the long-term trajectory, BFSI and retail
07:07 are very large spenders on IT data analytics.
07:11 And it is only a matter of time before that rebound happens.
07:13 So we don't want to take the foot off the pedal, which
07:16 is the reason our investments are continuing
07:18 to go in that direction.
07:20 We are expecting that after the sluggishness is resolved
07:24 and uncertainty goes away, those sectors can rebound very well.
07:28 And we are underrepresented in those sectors.
07:30 So if we make the investments now,
07:32 that will pay dividends when the turnaround starts up.
07:35 So again, expanding into new geographies now.
07:38 Your 90% of-- more than 90% of your revenue
07:41 comes from America, from the US.
07:44 You have expressed your intent to expand
07:46 into the Asia-Pacific and Europe.
07:49 What are the sentiments or what are the trends
07:52 that you're seeing in Europe that is pushing you
07:55 to get into those geographies?
07:57 Europe, as I have pointed out earlier,
07:59 is home to over 70 out of the Fortune 500 companies.
08:03 We had all of three accounts that we were working with
08:06 around the IPO time.
08:07 So the investments that we've been making into Europe
08:10 are aimed at capturing a lot of that market opportunity
08:15 that is present there.
08:16 The good thing is that we have been
08:17 able to hire a fairly strong team there.
08:20 I mean, I had only one person in the European market a year back.
08:23 Now we have a 10-member strong team,
08:26 including our new Europe business head, the front end
08:28 sales team, people who can do the solutioning.
08:31 So the infrastructure and the capacity is in place.
08:34 The good news also is that we have over 30-plus opportunities
08:37 in the pipeline.
08:37 All of these are with very high-quality brands and names
08:41 in the market.
08:42 Of course, in general, Europe is a little challenging
08:46 because of the nature of the selling that
08:49 happened, the very relationship-driven market.
08:51 And it's a lot less transaction.
08:53 What I mean by transaction is if you can very clearly demonstrate
08:56 a value proposition, that doesn't mean
08:58 that you'll get the deal signed the next day.
09:01 You still need to work through the process
09:03 and the relationship.
09:05 And that is something that normally happens.
09:06 In this environment and climate, that
09:09 is taking even longer because many of them
09:11 are also still in a tentative mode.
09:13 So I think, again, I think the investments and the capacity,
09:16 everything is in place.
09:18 We are just expecting that a lot of the opportunities
09:20 that we have now identified that are in the pipeline
09:22 will start converting as we move into the next few quarters.
09:26 OK, finally, you are investing a lot.
09:30 You are betting on BFSI and retail as well.
09:34 There is the AI opportunity, I'm sure,
09:35 that comes your way as well.
09:38 What are your plans for hiring, especially when AI is also
09:41 coming into the domain?
09:43 You are investing, so you look to hire.
09:45 So what are the numbers that you're looking at,
09:47 especially in the context of AI coming in?
09:50 Right, so I mean, by AI, I'm assuming
09:53 that you're talking about generative AI.
09:54 Generative AI, sir.
09:55 Because AI has been around for--
09:57 Of course, of course.
09:58 --we have been doing a lot of work.
09:59 Interestingly, even in the generative AI space,
10:03 we have been working with the BERT and large language
10:06 models and transformers-based approaches
10:08 for more than 18 months now.
10:10 In fact, a very large client that we
10:12 work with who's in the devices manufacturing space, printers
10:16 and laptops and computers, we have
10:19 been using the exact same concepts of large language
10:24 models and GPT type of mechanisms
10:27 to help them process and better understand customer experience
10:31 and queries that are coming in so that they can really
10:34 shorten the timelines that are needed for addressing
10:36 customer requests.
10:38 And that has actually helped them improve their customer
10:41 service levels from about a 65% to an 85%.
10:43 And this is the work that's been happening over the last 18
10:46 months.
10:46 So we believe that there will be plentiful more opportunities
10:50 that are available as organizations better
10:53 understand the power of what can be done with Gen AI and GPT
10:58 mechanisms.
10:59 I think the opportunities will be plentiful.
11:01 Of course, right now, there is a lot of hype in the market.
11:04 And people are still trying to figure out
11:06 what are the use cases where you can apply them.
11:09 The GPT type of models lend itself better
11:12 when you're dealing with more unstructured text data as
11:15 opposed to structured data.
11:16 So you need to be able to clearly identify
11:18 what is it that you will do with those technologies.
11:20 We see plentiful opportunities.
11:22 Now, coming to your other question,
11:23 we have made about 350 plus offers on campus.
11:27 We have started onboarding in batches.
11:29 We are expecting that the remainder of those people
11:32 will get onboarded over the rest of the calendar year
11:34 that we have.
11:35 Of course, it will be in a phased manner,
11:37 taking into account how the demand scenario picks up.
11:40 But we believe that these new, fresh people that
11:44 will be coming in will come with that enthusiasm
11:46 because they would have experienced GPT and Gen AI
11:49 technologies personally, using whatever queries
11:52 that they are doing, maybe using it for their coding,
11:54 learning, all of those purposes.
11:56 So the excitement is very high.
11:58 Yesterday, we had an analytics convention event
12:01 within the organization.
12:03 And there were six topics that were presented.
12:05 All of them were around generative AI.
12:07 And there's a great deal of interest
12:08 that we can leverage it for use cases.
12:11 OK.
12:11 Final question, sir.
12:13 There's a lot of conversation about generative AI,
12:15 like what you mentioned.
12:17 Who are some of your clients?
12:18 Or where are they coming from in the generative AI space?
12:22 And how does AI, or generative AI,
12:25 the inclusion of generative AI, impact your margins
12:27 going forward?
12:28 Because your margins have dipped in this quarter.
12:31 Do you think that generative AI is the margin lever
12:34 that you require to get to those higher levels?
12:37 No, I don't think generative AI is going to impact.
12:40 I mean, the margin impact you see is not on account of that.
12:42 I mean, because people do ask the question
12:44 whether this is going to result in any number of productivity
12:50 gains, losses, those kind of things.
12:52 I think some aspect of that will pan out as better use cases
12:56 get identified.
12:56 I think generative AI will create plentiful revenue
12:59 opportunities, though, because there'll be a lot more use
13:01 cases that organizations can pursue.
13:03 We see interest from across the spectrum.
13:05 So it is not just technology and digital native companies.
13:07 We see interest from consumer packaged goods companies,
13:10 for example, because they are very much interested
13:12 in processing customer sentiment.
13:14 And customer sentiment analysis can get a completely new flavor
13:17 and deeper perspective using technologies like generative AI.
13:20 So we are expecting that it'll be a broad-based kind
13:23 of requirement that will come through from multiple sectors.
13:27 And it'll create a lot more revenue opportunities for us.
13:29 I'm not particularly worried about the margin part
13:32 at all at this point.
13:33 All right.
13:34 OK.
13:35 Thank you so much, Mr. Sethraman, for the chat.
13:38 You're back on the growth path.
13:39 I hope the rest of the fiscal pans out the way you want it.
13:42 Thank you, Tushar.
13:43 Appreciate it.
13:44 Thank you.
13:45 Thank you so much, viewers, for tuning in.
13:47 This is Tushar for BQ Prime.
13:48 [MUSIC PLAYING]
13:52 [MUSIC PLAYING]
13:55 [CLICKING]
13:58 [BLANK_AUDIO]