- Q4FY17 was a soft quarter with a revenue decline of 4.9% in dollar terms and a growth of 1.1% on the year-on-year basis compared to Q4 of FY16
- For the complete fiscal 2017, the revenue was up by 1.4% in dollar terms and 3.5% in constant currency
- In INR terms, the FY17 revenue was up by 3.9% YoY from INR 2,964.3 Crores to INR 3,080.5 Crores
- No revenue from Keystone in Q4FY17 as the acquisition got consummated in April 2017. Foolproof had a full quarter so revenue was$ 4 million compared to$ 2.5 million in Q3FY17
- Cash at the end of the quarter, as on the balance sheet date, was Rs. 571 crores, which is $88.2 million. Of which almost $37.5 million is invested and rest is available globally in terms of liquid cash for future growth
- Loss of $4 Million on FOREX, largely on a mark-to-market, working capital items, foreign balance and the debtors, which is recognized in other income during the period
- In terms of company outstanding debtors, is Rs. 532 Crores as of March, which is $ 82 Million
- Depreciation and amortization amount on the P&L, moved from Rs. 65 Crores to Rs. 48 Crores this year
- DSO improved from 62 days last quarter to 58 days during this quarter end
- Zensar has a total Forex cover of $31.5 Million and GBP 3.5 Million
- A market-to-market gain in the balance sheet of Rs. 15 Crores is carried forward into the future period
- As of the end of the quarter, company spent around Rs. 41 Crores for the last financial year towards CAPEX and for the quarter alone was Rs. 4.2 Crores
- Zensar has a short-term debt of $2.4 million, which is largely packing credit and a long- term working capital debt of $18 million. So, net of that, the free cash that we have as on end of March 31st is $67.8 million
- An increase of 1.7% in ETR during the year. This is because in the previous year we had tax refunds that went ahead and reduced the ETR and we have had some increase in our onsite business versus offshore business which added to the ETR and the ETR has increased by close to 1.7% during the year
- Over 183 Cr of intangibles got adjusted from reserves effective April 2015 due to transition to Ind As
- Amoritzation due to reconciliation between IGAAP and Ind As is 22 Cr5 in FY17 and 7 Cr in FY17. Going forward it will be 5-6 Cr
- Overall voluntary attrition has actually gone down marginally from 15.9% to 15.4%.
- Overall critical talent attrition has gone down from 7% to 5.5%. The overall attrition, voluntary, involuntary together also has gone down to 21.2%.
- Utilization has gone up marginally to 82.5 vs 82 last year
- Sustainbale EBITDA margin is between 13% and 14%
- Zensar is now recognized by all leading industry and technology analysts for the quality of its solutions
- A completely revamped leadership team in place that is driving the future growth of the company
- Zensar is mainly investing into three clients segments
- Retail- Keynote acquisition is well positioned to address this opportunity
- Insurance- largely focused around improving the process automation and putting BOTs
- New products- loT and cloud hosted services
- The company also announced the launch of two world-class facilities
- Zenlabs, which pivots the research based transformation for customers and
- Innovation hub for Zensar.
- The company faced some delay in start of some of the traditional projects, particularly in Q4FY16.This impacted the business in US which saw an overall decline in revenue, even though the decline in non-core MVS business and IM products we had planned for.
- The reason US on a constant currency has a decline of 2% is because almost all of IM business is sitting there
- US as a region has a new leadership in place, and with the investments in digital and automation solution and the sales team, the company expects the conversions to be much better going forward
- An increase of 600k due to client event
- US team is getting rejigged and there will be new hires in Q1 and Q2
- Europe and Africa which cumulatively account for 20.2% of Zensar's revenue grew quite smartly in constant currency terms at 24.8%, but were impacted by currency and therefore grew 13.6% in dollar terms
- Europe has grown 35.7% on constant currency including Foolproof, if Foolproof is excluded, it has still grown at 20% while Africa has grown 11.6% on a constant currency basis year-on-year.
- Zensar got their platform Vinci validated by top global analyst firms globally and that has helped gain a lot of traction in Europe in the infra business
- Zensar's digital revenue grew both on YoY as well as on QoQ by 11.6% and 8.1% respectively. For the quarter, digital accounted for 34.1% of overall revenue thanks to the growth in Cloud, Mobility and Automation and the addition of CX/UX from the Foolproof acquisition done in Nov 2016
- With acquisitions of FoolProof and Kestone, Zensar expects digital will account for between 35% to 37% for the full fiscal 2018 revenue.
- 27% growth in dollar terms on digital business in 04FY17 compared to 03FY17
- Zensar has now completed over 10 world-class digital platforms that provide a positive business outcome to our customers, which covers all business functions from client engagement to marketing to finance
- The digital business deals sizes vary from as small as 200k to even deal sizes of $30 Million
- Largely US based and was impacted by the change in strategy of Oracle had a soft quarter
- Retail has grown at 21.8% on constant currency year-on-year and a little of it has actually come from Foolproof
- Zensar is moving away from ATG as oracle no longer supports ATG
- Keystone is now a part of this business
- The management believes that digital supply chain, combined with commerce and customer experience, will be a key growth pivot for Zensar
- Zensar had closed one commerce deal worth 30 Million which announced in Q3FY17
- The company works with almost eight out of the top ten retailers in America and we are going to continue to expand our footprint into retail
- Zensar has Vinci which basically looks at core managed services in infra both on premise and cloud, and it has the digital workplace which is largely focused on end user and both are doing really well and pipeline is at an all-time high
- The IM services decline that was witnessed in Q4 over Q3 was largely the product sale which typically has a seasonal spike in Q3 and it kind of almost disappears in Q4
- A lot of the investments that we made both for digital workplace and Vinci are already baked in the numbers for FY17
Reason for Margin Compression
- The onsite revenue ratio actually increased 250 bps from 64.3% to 66.8% due to:
- Increase in digital business, also new wins in traditional business, both of which being onsite heavy impacted the gross margin
- Impact of exchange rate fluctuation on both gross margin as well as FOREX losses
- Specific discount in two customers to the extent of $1.6 million
- The delay in project, especially in the US part, impacted the utilization levels as well as the gross margin.
- A one-time provision in maintenance business and some provision for collection in India government business
- One-time expense to the extent of $0.5 million for some property tax and BEE compliance in South Africa were also accounted for in the margin.
- Total of $2 million hit due to one-time costs which is expected to reverse going forward
- The company hopes to protect margins going forward through a combination of high value added services and more automation
- The total pipeline is $ 800 Million and the way defined large deal is more than $ 25 Million plus TCVs, multi-year deals, multi services or it could be single services
- As on date, 50% of pipeline is on account of large deal currently, which includes services from infrastructure, commerce, digital and some traditional business as well
- The number of $1 million accounts increased to 86 from 75 and revenue from Fortun Global 500 continues to show upswing with addition of both Foolproof and the Keystone acquisitions which only work with Global and Fortune 500 Companies
- Zensar did not lose a single client in the top 20 list
- Zensar is currently engaged in digital conversations about 70% of the top-50 clients
- The largest pipeline has deals from manufacturing, insurance, retail and banking- from all the four critical verticals
- The largest account that amounts to 25% of revenues has shown a growth in single digits in FY17.