Informist, Monday, Feb 5, 2024

--Zensar Tech CEO: Hi-tech vertical to see growth 3-4 qtrs from now

--CONTEXT: Zensar Tech CEO Manish Tandon's comments in an interview

--Zensar Tech CEO: Long furloughs ate into 200 bps revenue in Oct-Dec

--Zensar Tech CEO: Furloughs extended for up to 2 weeks in Oct-Dec

--Zensar Tech CEO: Expect growth to sustain in BFSI vertical

--Zensar Tech CEO: Focus on annuity deals even if they have low margin

--Zensar Tech CEO: Gross headcount addition in Oct-Dec was 565 

--Zensar Tech CEO:At peak staff utilisation, hiring just for new deals

--Zensar Tech CEO: Focusing on both lateral, fresher hirings

--Zensar Tech CEO: Don't want a big bench, as hiring easy as of now

By Vivek Kumar and Shiladitya Pandit

MUMBAI - Zensar Technologies Ltd is confident its hi-tech vertical will deliver good growth after three-four quarters, even as the near-term outlook for the segment remains uncertain, Managing Director and Chief Executive Officer Manish Tandon told Informist in an interview. This vertical has seen a decline in revenue on a sequential basis in five of the last six quarters, and has been a key concern for investors and analysts.

In a post-earnings call on Jan 22, several analysts had queried the company's management about the continued decline in revenue from the hi-tech vertical. The company had indicated that the vertical is likely to remain sluggish in the near term, while the other verticals will continue to do well.

"We will do well in the medium term (in the hi-tech vertical). I have no doubt about that," Tandon told Informist. "The question is - have we bottomed out? Nobody has a perfect answer, including the clients themselves." The hi-tech vertical, which contributes around 26% to Zensar Technologies' revenue, has seen a sequential decline of 8% in Jul-Sep and Oct-Dec. 

Tandon refused to hazard a guess on the growth the company would expect from this vertical three-four quarters down the line. "We do not give forward projections.... Hi-tech has been sluggish for the industry, which is true for us as well," Tandon said.

Hi-tech companies, including the likes of Apple, Microsoft, Amazon, Meta, Sony, and Intel, have significantly curtailed their discretionary spending over the last year due to high interest rates and fears of a recession triggered by multiple interest rate increases. While the impact of this has been seen at other information technology companies as well, the concerns at Zensar Technologies have been stretched due to issues with large clients.

"If we continue to see significant stress in hi-tech, I don't know whether the growth (in other verticals) will be enough to offset," Tandon had said in the analyst call. "If hi-tech remains flattish or grows slightly, then I see us growing significantly."

In the interview, Tandon told Informist that furloughs had eaten into 200 basis points of Zensar Technologies' revenue growth during the December quarter. "Furloughs in hi-tech were very wide and very deep. I have not seen (anything like this). Typically, you get one week furlough. This time, you have two weeks' furlough," said the industry veteran.

International clients do not pay IT companies for the latter's staff deployed on their projects during a furlough, a period of mostly unpaid, forced leave. This becomes burdensome for the IT companies as they still have to pay their employees.

For Oct-Dec, Zensar Technologies' consolidated revenue fell 3% on quarter to 12.04 bln rupees and its net profit declined 7% sequentially to 1.62 bln rupees. On a year-on-year basis, the revenue was up 0.5% and the net profit had more than doubled.

The banking and financial services vertical, which is the biggest for the company, also saw a sharp moderation in growth in a seasonally weak Oct-Dec. The revenue from this vertical rose a mere 0.1% on quarter in Oct-Dec, compared to around 3% in each of the previous two quarters. However, the CEO of the RPG Group-company said he was hopeful of sustained growth in this vertical.

Tandon said Oct-Dec was a good quarter considering the seasonality factor. "Oct-Dec has been a good quarter for us. Although people might say sequential revenue growth was -3%, if you look at year-on-year, except for hi-tech, everything else has been growing," Tandon said. 

Shares of Zensar Technologies today closed at 564.40 rupees on the National Stock Exchange, up from 561.65 rupees before the earnings announcement on Jan 22. So far in 2024, shares of the company are down around 8%, but in the last 52 weeks, they have soared 140%.

Tandon said he is confident of sustained growth in the BFSI segment in the near term. "A lot of our BFSI is actually I (insurance)... We are doing well there. If you look at capital markets and investment banking, they are not doing well, but the consumer side is doing well, except for mortgages. So cards, payments, are doing well, and we have reasonable exposure on that side," Tandon said.

Apart from the hi-tech and the banking and financial services vertical, Zensar Technologies operates in the manufacturing and consumer services as well as the healthcare and life sciences vertical.

"When I came here, I realised that 10% of our revenue was coming from healthcare and life sciences... I said if we can do 10% of revenue without focusing on it, we should be able to do better than that," said Tandon, who took up the role of CEO of Zensar Technologies a year ago. "And I also have a lot of background in that space," he said. Earlier, the revenue from the healthcare and life sciences vertical was reported as part of various verticals including the emerging business, hi-tech, and manufacturing and consumer services verticals.

Tandon was with India's second-largest IT company, Infosys, for two decades till 2016. He was the executive vice-president of healthcare, life sciences, insurance, and hi-tech business at the Bengaluru-based company. Asked about the difference he saw in working for a smaller company, Tandon said, "When I started working with Infosys, it was smaller than Zensar.... I've been through that journey, and it has been very good learning for me. So I don't get worried about the size of the company.... You have to figure out what your strengths are and play on those fronts. I'll not go after a $500 mln deal because I don't have that kind of a balance sheet."

"We are one of the few companies who can straddle the entire thing – from product research to design to engineering and to marketing," Tandon said. "For a cable network (company), who were launching a new product, we actually designed the entire experience. Of course, we engineered it, and we (also) helped them market. How many companies in the technology space can say that they do that?"

Sharing details about the healthcare and life sciences vertical, Tandon said, "We have just given it a vertical focus; we have started building a team, and I am very positive about it. It will continue to grow." He said Zensar Technologies' focus is not on the payers in healthcare, but on med-tech, pharma and hospital chains.

HEADCOUNT, DEALS  
Tandon also spoke about the company's employee headcount and the kind of deals the company was working on. The total employee headcount at Zensar Technologies was down to 10,225 as of Dec 31 from 11,559 as of Jun 30, 2022. The employee utilisation rate was at 80.7%, excluding trainees, in Oct-Dec compared to 77.6% a year ago and 83.1% a quarter ago.

"Our gross (employee) addition for Oct-Dec was 565. But the net addition was marginally negative. We have reached almost the peak of our utilisation. So for the new business that is coming in, we are hiring," Tandon said. The company is focusing on both lateral and fresher hiring, he said.

While Tandon indicated that the company's headcount is likely to increase, he added that having a high number of employees on the bench was not required in the current environment, when talent is readily available. "The bench is your inventory. If it is easy to hire in the market, if the lead time between hiring and joining is less, why do you need more inventory? That is what we are doing," he said.

On the outlook for new deals, Tandon said the company is focusing on annuity deals, which are usually for a longer-term, even if they may come at a low margin. Tandon said many of the deal wins of Zensar Technologies were of this kind. The company won deals worth $167.5 mln in Oct-Dec, compared with $194.8 mln a quarter ago and $130.5 mln a year ago.  End

US$1 = 83.06 rupees

Edited by Ranjana Chauhan

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