Decoding Mphasis' Q3 | NDTV Profit
#Mphasis' revenue rises 1.9% over the previous three months to Rs 3,337.9 crore in #Q3.
Watch Tushar Deep Singh decoding the company's Q3 earnings and future plans with CEO Nitin Rakesh and CFO Manish Duggar. #Q3WithNDTVProfit
Read:https://bit.ly/3I3ukFD
Watch Tushar Deep Singh decoding the company's Q3 earnings and future plans with CEO Nitin Rakesh and CFO Manish Duggar. #Q3WithNDTVProfit
Read:https://bit.ly/3I3ukFD
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TVTranscript
00:00 Hello and welcome to NETV Profit.
00:02 Joining us today is Mr. Nitin Rakesh.
00:04 He's the CEO of Emphasis and CA for Manish Dugar.
00:07 They're speaking to us a day after the company declared its third quarter earnings, where
00:12 the revenue rose about 2% quarter on quarter to about 3,340 crores.
00:18 And while the EBIT margin actually came off about 57 basis points to 14.89%.
00:24 And profit was also down about 4.7% to 373.6 crore rupees.
00:30 Mr. Rakesh Mitras Dugar, welcome to NETV Profit.
00:33 Thank you.
00:35 My first question is to you, Mr. Rakesh.
00:37 We see that there is a margin hit in the third quarter.
00:43 What can be the reasons?
00:44 Is it due to the silver line acquisition that you made in the third quarter?
00:47 Yes, I think if you look at the reported numbers as against the 14.9 that you're seeing in
00:55 the reported line, if you normalize it for the acquisition, that EBIT is actually 16%,
01:01 which is a 50% expansion from Q2, despite a seasonally difficult quarter in Q3.
01:07 So I think we're very pleased with the fact that at an operating level, we managed to
01:11 expand the margin by 50% at an EBIT slay and even gross margin has expanded.
01:17 But it is driven by operational efficiencies than the levers that we were able to pull
01:22 to manage the profitability in a difficult quarter.
01:25 So essentially what you're saying is that you're not looking, you didn't face any issues
01:29 because of furloughs, again, because you're saying that this is a seasonally weak quarter.
01:35 I think furloughs definitely plays out in the seasonality impact and furloughs were
01:39 a tad higher than what they normally are in this quarter.
01:42 And I think that's a phenomenon that you've seen across the industry as well.
01:45 If you adjust for just the impact of seasonality, including furloughs, I think the revenue also
01:50 has been fairly stable and the margin actually has expanded.
01:53 Okay.
01:54 Mr. Dugar, coming to you, Mr. Rakesh mentioned about the revenue and also the silver line
02:00 acquisition that has happened so far.
02:02 So while the silver line acquisition hit the margins, so to speak, has those synergies
02:09 from the silver line acquisition started reflecting in your revenues?
02:11 Can you give us a color on that?
02:13 What are the synergies, what are the benefits?
02:15 Have they started accruing from the deals?
02:17 As we have spoken about it earlier, primary thesis for our acquisitions is capability
02:24 led and silver line is no exception.
02:27 We talked about the fact that we consolidated the revenues of silver line for the full quarter
02:32 and we have also disclosed that that number is approximately $15 million for the quarter.
02:37 So all of that $15 million was an incremental revenue we got this quarter or last quarter.
02:43 Because it is capability led, the expectation is that this capability will help us expand
02:48 our time with our customers and make us able to sell and provide services that we were
02:54 not able to do before.
02:56 And hence, a large part of what synergies are expected are from being able to sell this
03:01 capability and scale our accounts even further.
03:05 The pipeline and the conversations that we are having with our existing emphasis clients
03:10 using this capability has been very, very positive.
03:13 And we have already been able to close a few transactions.
03:17 Given it is two and a half months since the acquisition, some of these will take a while,
03:22 but we are very happy and confident that we will be able to do the plan if not better
03:29 than the plan.
03:30 In what we assumed, we will be able to deliver with these capabilities in our emphasis accounts.
03:35 So how much do you expect silver line to contribute to your top line going ahead?
03:40 If you can give us that quantum at about 15%, 20%, how much do you think it's going to bring
03:45 in?
03:46 You must have a target, I think.
03:47 So the objective of all these capability acquisitions is to be able to provide more and fuller services
03:56 to our clients.
03:57 And when we do the acquisition, the assumptions that we make are primarily driven by what
04:03 we see as a visibility at that time.
04:06 Given what we have been able to deliver with our earlier acquisitions, and while we don't
04:11 give out a number either for them or for this going forward, but in all those cases, we
04:17 have been able to do much more than what we expected when we did the deal from a synergy
04:21 perspective.
04:22 So I would refrain from giving a number, but I can assure you that we are very happy with
04:28 what we are seeing right now compared to what we expected from silver line in terms of our
04:34 ability to sell to our clients.
04:35 Yeah, I think if I can just add to that, as we integrate this capability completely into
04:39 our practices and competencies, we probably won't even need to track that number separately
04:46 because it will become fully embedded into each and every one of our existing customers
04:50 as well.
04:51 So I think it's fair to assume that this was a gap in our competencies that we needed to
04:56 fill with the Salesforce capability.
04:58 There is a pretty big demand for infusing AI and customer experiences, which is exactly
05:03 where I think the intersection of Salesforce, our contact center, customer experience transformation,
05:09 and AWS and other cloud providers are coming through.
05:11 So I think it's an interesting one from that standpoint.
05:15 And if anything, it will actually expand the ability to provide services to existing customers.
05:19 So I think instead of focusing on what the standalone number or contribution will be,
05:24 we'll be more focused on driving TCV wins and revenue using this competency.
05:29 Okay.
05:30 You mentioned about TCV and the revenues.
05:32 And my next question was actually that only.
05:34 Your TCV is at about $241 million in Q3 and your DSO has reduced by one day sequentially
05:42 to 69 days.
05:43 So against those metrics, what is the sense you're getting as far as conversion of deals
05:50 into revenue is happening?
05:51 We had seen in the past that the deal pipeline was elongated.
05:55 It was taking longer.
05:56 So what is happening now?
05:58 And do you think the length of the pipeline will shorten here on?
06:03 I think a very valid question.
06:04 I'll get Manish to talk a little bit about the DSO.
06:05 I think we're very pleased with the operating metrics, both on cash collection and the DSO,
06:06 as well as just the overall rigor with which we managed the whole function.
06:07 In terms of DCV, I think we had talked about the fact that we had a bump for the first
06:08 half of the year.
06:09 I think we're pleased with the fact that in a seasonally difficult quarter, we still had
06:10 four large deals.
06:11 We have definitely seen some uptake in TCV revenue, TCV to revenue conversion in the
06:12 last year.
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10:44 You're saying that the clients are also accelerating towards newer sources of value such as AI to
10:50 stay ahead.
10:51 Against that backdrop, how are your client conversations shaping up at the top of the
10:55 year?
10:56 I'm asking you because this is the time around when clients set their budgets for the full
10:59 year.
11:00 So what are the client conversations like from the AI perspective?
11:03 And if you can also tell us, how do you see the rest of the year shaping up?
11:07 Yeah, I think if I can give you just two big themes that clients are talking about.
11:14 One, they're still very focused on relentless prioritization of where they need to spend
11:19 money in 2024.
11:20 The initial signal of budgets is, I think the budget is probably flattish to slightly
11:26 higher.
11:27 Again, it depends on the segment.
11:28 Even within banking, it's more nuanced depending on who you talk to, consumer bank versus corporate
11:32 investment bank versus wealth and asset management.
11:35 But I think broadly, the first message is we have to relentlessly prioritize because
11:39 the macro is still uncertain.
11:40 There are still questions that pop up on the health of regional banks, for example, or
11:46 the environment from a real estate, for funding standpoint.
11:49 So I think still some work to do to get through that micro uncertainty.
11:53 And the second question is, can I do more with less?
11:55 Which means, can I adopt new tech that gives me higher productivity?
11:59 Because I have a lot to do, and I'm really, really focused on driving that value that
12:03 I can get through adoption of things like AI and contact center automation, and adoption
12:08 of all things such as GitHub Copilot or Code Whisperer.
12:12 So I think this is the duality that I talked about that continues to be visible in client
12:17 conversations.
12:18 But the mood definitely is indicating that there will be spend on new areas because that
12:25 agenda has to carry forward.
12:27 All right.
12:28 I mean, it seems like a green shoot for the industry in 2024.
12:33 Thank you so much, Mr. Rakesh and Mr. Dugga for joining us today.
12:36 Thank you, viewers, for also joining us.
12:38 Thank you.
12:39 Thank you.
12:40 Thank you.
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