Will Gen AI Lead Persistent Systems' Revenue Growth? | NDTV Profit - video Dailymotion

NDTV Profit

Watch Will Gen AI Lead Persistent Systems' Revenue Growth? | NDTV Profit - NDTV Profit on Dailymotion

Transcript

00:00Hello and welcome, you are watching a special conversation that we are having with Sandeep

00:09Kalra, CEO of Persistent Systems.

00:11Sandeep, good morning, thank you very much for joining us.

00:15From the look of it, it has been a good quarter, like you mentioned to me before we got into

00:19this conversation, 17th quarter of reporting and you have done good.

00:24Revenues are up, EBITDA is up, margins have also improved.

00:27So all in all, from the look of it, things look good.

00:30But let's start with the demand environment first.

00:33Has that changed between the last quarter and today?

00:37We've talked about green shoots, are we actually seeing green shoots today as we speak?

00:42And also, do you feel a lot more confident, do clients feel a lot more confident going

00:46into conversation and closing deals with companies like you?

00:49So a quick check of what's happening on the demand front.

00:52Yeah.

00:53So, first of all, thank you for having me.

00:56It's been a good quarter for us, both in terms of revenue, profit, as well as the order

01:00book.

01:01In terms of the demand environment, as you alluded to, the demand environment continues

01:05to be somewhat the same, although there is a bit more optimism, there's a bit more optimism

01:11from the perspective of rate cuts, et cetera, happening.

01:14People are expecting start September, they will start to see some amount of rate cuts

01:19and post the elections, they do expect things to accelerate.

01:22So there is some amount of optimism.

01:24I would say it is not necessarily converting into order wins yet, but the discussions are

01:29starting to turn a little bit more positive.

01:32You know, Sandeep, when I looked at your earnings last quarter around healthcare, it held up

01:37quite nicely, but BFSI and high tech segments were still not looking as good.

01:43From the way we look at it today, all those three verticals are firing up.

01:47Your BFSI is growing, so is healthcare.

01:50Do you want to chart out and pencil out what sort of growth can we expect for F525 on those

01:55two verticals?

01:57Sure.

01:58So we don't give forward-looking guidance, so I'll not give you percentage commentary,

02:01but I can give you qualitative commentary on things, which should help.

02:04So if you look at our pipeline and order wins and so on, so the order wins have been fairly

02:10secular.

02:11Order wins have picked up on the back of generative AI-related discussions in software product

02:16engineering, and so we are seeing the success based on our platforms as well that we are

02:21bringing to bear, especially on the cusp of enterprise software and private equity and

02:26mid-to-large enterprise software companies.

02:29So we do expect that to accelerate our high tech revenues or ISV revenues over the next

02:34several quarters.

02:36Healthcare has been a very good journey for us.

02:38We have won multiple large deals and multiple customers.

02:41It has been a story where we have grown 66% year on year.

02:44Sequentially, we have grown several quarters, double-digit from a growth perspective.

02:49BFSI, last quarter, saw a fairly decent growth.

02:53So we are expecting healthcare to lead the growth, followed by BFSI, followed by high

02:57tech for us.

02:58And overall, the demand environment for us, I think, based on the initiatives we are taking,

03:03looks decent.

03:04Hello, Mr. Kalra, thank you so much for joining us today.

03:08I just had one question on margins.

03:11Now, we have seen on an absolute basis, of course, they have gone up on a year on year

03:15as well as on a quarter on quarter basis.

03:18But it is coming out roughly 14% versus 14.9% in the same quarter last year.

03:24If you could just talk us through, you did speak about demand, if you could just talk

03:27us through on margins specifically, how are you seeing the current negotiations as well

03:32and anything on qualitatively or just you could tell us about the story as well on margins

03:37going forward.

03:38Sure.

03:39So if you look at the margin side, there is two, three things happening there.

03:43Number one, overall, if you look at the last year, the last year, the environment has been

03:47tough.

03:48So while there have been larger deals on the table, those deals have been led by cost optimization

03:52initiatives from our customer side.

03:54So when they are trying to do cost optimization, they are looking at doing vendor consolidation

03:58as well.

03:59So a number of larger deals that we have won, we have done rebadging onshore, consolidated

04:06vendors onshore.

04:07We will optimize this over a period of next several quarters offshore.

04:11There will be a margin level for us.

04:13So if you look at it increasingly, we have won against the bigger players in a cost optimization

04:18initiative and we feel good about it.

04:19The revenue growth in a difficult environment is definitely a sign of continued revenue

04:25growth as the environment eases and it also gives us the levers to be able to optimize

04:30margins.

04:31We have said aspirationally, we want to deliver industry leading growth at margins which are

04:35equal to the margins that we delivered last year.

04:38What that would also mean is if we are starting with 14% in the first quarter, which is lesser

04:43than the last quarter, we will incrementally see margin improvement.

04:47And by the time we exit the year, aspirationally, we should be, you know, meeting the margins

04:52and setting the base for margin improvement to come for the next several years.

04:55I'm just going to come in as Sandeep and this may be a little more qualitative in that sense.

05:00But what you indicated to me is that you've gone in and won clients and orders in terms

05:06of cost optimization.

05:08Are you now beginning to feel that post-completion of those jobs, the money that is saved is

05:13now going into your discretionary products?

05:15So is there a cross-selling opportunity that is probably contributing well to your top

05:20line or could do so in the next six to eight months?

05:24So an excellent point.

05:25Yeah.

05:26So look, what is happening in the industry is this.

05:28On one side, there is significant buzz around newer technologies like generative AI and

05:33AI at large.

05:34Now, if people have to experiment with those technologies, leverage those technologies

05:37to disrupt their business models, be more competitive, etc.

05:41In a demand environment where our customers are also facing tough conditions, they're

05:45trying to optimize spend from certain areas, put it into next generation areas.

05:50And to your point, yes, it is.

05:52It is a good thing for us.

05:53On one side, we are winning cost optimization deals.

05:56And as and when we give back the money to the customers in terms of what we are signing

06:01up for, part of that will also come back to us in terms of next generation initiatives,

06:05which are revenue enhancing based on newer technologies and newer initiatives.

06:09So yes, it could mean revenue growth from both perspectives for us.

06:14Just one quick question on that.

06:16Have you lost any clients this quarter or added any big significant ones that you should

06:20tell us about?

06:22No.

06:23In terms of losing any customers, look, we are always looking at long tail rationalization.

06:27So there is nothing that we can say we have lost a customer that we did not want to lose.

06:33In terms of adding any significant customers, look, we keep adding customers.

06:37But if you look at our order wins, we have announced certain large deals, etc. with some

06:41of our existing customers and newer customers.

06:44So I think overall, it's a healthy journey.

06:46I don't think there is anything in terms of any negatives that we should be reporting.

06:51I think the order book that we have done, the deal sizes that we have seen should bode

06:55well for our future.

06:56Just as we were speaking about order books, we have mentioned that your top 10 clients

07:03share has been steadily going up over the past few quarters.

07:06We've also seen additions in this particular quarter on your TCV as well.

07:10We saw a big jump in Q3 of last year, crossing the 500 million mark.

07:15How are you seeing on these two parameters going forward on the top 10 as well as on

07:19bookings?

07:20We have seen an increase from the previous quarter.

07:22How are you seeing the demand environment on these support aspects?

07:25Yeah.

07:26So just to give you some numbers, our top five customers grew year on year, 28% in the

07:30quarter gone by.

07:31Top 10 grew by 25%, top 20 by 19.3%, and top 50 by 19%.

07:37So if you look at it, our endeavor to grow our top accounts, if you look at our current

07:42growth rate, we are at 16% year on year.

07:44All of these categories are growing higher than that.

07:47So the initiatives that we have on focusing on our larger accounts is paying out well.

07:51We are also winning newer deals at scale.

07:54So from that perspective, the bookings are panning out nicely and Q3 for us usually,

07:59if you look at it, is the October, November, December quarter, which is the financial year

08:02end for us.

08:03It's seasonally a stronger quarter for us.

08:06So we are hoping as we are increasing our revenues, you know, the order book should

08:10also proportionately increase with time.

08:12So all handy trends and running in the right direction from customer concentration, order

08:18book and every other perspective.

08:20Right.

08:21The biggest talking point these days is Gen AI.

08:24Most of us understand very little of it, unlike, of course, people like you who know this at

08:28the back of your hand.

08:30So it's mandatory for me to ask you this, right?

08:33Where do you see yourself?

08:34Where do you see persistent?

08:36So forward looking guidance over the next two to three years.

08:39And where do you see Gen I?

08:41How much of it is going to?

08:43Is that going to be the leading is lead indicator for the revenue growth of the two billion

08:47dollar aspiration that you have a persistent?

08:49Yeah.

08:50So look, Gen AI is a subset of AI.

08:53We have been playing in the AI field for long, but Gen AI has definitely been something which

08:58is transformational.

08:59It is not an incremental thing.

09:01And the fact that everyone is talking about you, including on this, about this, including

09:05you on this call, the awareness is very big.

09:09The adoption is going to be much faster than even the cloud adoption we saw in the past.

09:13And so from our perspective, we are looking at Gen AI slash AI in two vectors, one AI

09:19for technology, second AI for business, AI for technology.

09:22We are focused on using AI to do product development, application development, etc. faster and making

09:28it more platform driven.

09:30So forward looking persistent should be looked upon as a company, whether we are doing AI

09:36for technology or AI for business, where we are helping enterprises develop new business

09:41models, reduce cost, use data to insight and action, improve customer experience.

09:46You should look at persistent as being a company which will scale revenues based on a platform

09:51and human centric approach rather than being a human centric services delivery.

09:57So from that perspective, over the next several years, and please don't expect it in the next

10:01quarter, two quarters, our revenue per employee should move up, our profit per employee should

10:06move up because we are doing a platform and services.

10:09So the platform should become something that can increase productivity of an average employee

10:14in persistent that will help us disrupt our own business and the business of our competition

10:19and so on.

10:20And overall, the market would also expand.

10:22So that's where the story is.

10:23It should be revenue and margin accretive over a period of time.

10:27Right.

10:28So of course, from what I understand, a lot of the tech you're developing or AI you're

10:32developing is first being used internally to improve, you know, utilization in that

10:37sense and of course, profitability and then of course, is also sold to other companies

10:40to do so.

10:42You know, you've also talked about expansion growing at the pace that you're looking to

10:46grow.

10:47Would any of it come in from the inorganic acquisition route?

10:51And if yes, would that be in the gen AI space?

10:53So are you on the lookout for a good match for yourself or for your company?

10:58Sure.

10:59So look, we have been doing inorganic part as well in terms of acquiring companies for

11:04capabilities that we want to get into.

11:07So in the last several years, we have, you know, incrementally invested in cloud based

11:10technologies, payments and so on.

11:12As of this point in time, from a gen AI perspective, there are certain use cases which are horizontal

11:17use cases which are applicable across verticals.

11:20So for example, contact center, you know, infusing AI into contact centers is one big

11:25horizontal use case.

11:26We recently, you know, announced a small acquisition in that space and we'll build it up to bring

11:31in technology from our side, our partners like Google, Microsoft, Amazon and others.

11:37So like that, we are on the lookout and we will definitely do both will create IP internally

11:42as platforms and reusable components and bolt on these acquisitions, most of which should

11:47be smaller tuck in capability based acquisitions.

Will Gen AI Lead Persistent Systems' Revenue Growth? | NDTV Profit

Category

Transcript

Recommended