What's Next For Persistent Systems? CEO Sandeep Kalra Discusses AI Growth & Strategic Plans For FY25

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00:00We start with persistent systems. The IT firm reported a 6% sequential increase in net profit

00:06for the quarter ended September on a year-on-year basis. Net profit surged over 23% driven by the

00:12company's focus on AI-led services as well as the strategy. We spoke to the CEO Sandeep Kalra

00:19about the quarter gone by and his outlook on the second half. Listen into that conversation.

00:24The quarter, as you rightly said, came in well. We had another good, strong revenue growth quarter,

00:3281.4% year-on-year in dollar terms, 20% plus in rupee terms. And on a quarter-on-quarter basis,

00:38it was roughly about 5.3% in dollar terms. Now, this was led by our healthcare life sciences

00:44segment, followed by BFSI. We saw reasonably good growth in both the segments, followed by tech,

00:48which we are seeing a good revival. The EBIT for the quarter also came in healthy,

00:5322.8% year-on-year growth at 14%, which is flat quarter-on-quarter despite the salary increase,

00:59which dings us by about 210 basis points. So, we were able to overcome the negative effect of the

01:05wage hike that we had given effective July 1st. And for you and your viewers, we basically kept

01:11the timeline that we had for the wage hike. We did not defer the wage hikes as some other peers

01:15in our sector have done. So, overall, broadly, a good quarter, good segmental growth across,

01:21and good client growth across. Happy to answer any questions.

01:26I want to start off with the geographical areas because for you, both America and Europe did well.

01:32The belief was that for all companies, product companies, services companies,

01:38US will probably do materially better only after the November election verdict is out of the way,

01:43uncertainties out of the way, clients will take calls on budget there.

01:46What's happening there? Because you seem to have done well.

01:50So, Neeraj, see, in the last several years, if you look at it, there have been many different

01:53phenomena. There was a COVID phenomena, there was a post-COVID, there was a fears of recession,

01:58now it is the US elections. So, all we have to do is, and sincerely, we are a small company in a

02:04much bigger sector, all you have to see is where the customers' minds are at, what is it that they

02:09are looking at. If they are looking at revenue growth versus cost optimization versus saving

02:15from some areas, investing in places like AI and so on and so forth, we have to be able to work

02:20with them and we have to build in the capabilities that we have. If you look at our AI capabilities,

02:25we have been investing in that and that has held us in good stead, good market, bad market,

02:30and so on. So, we are reasonably confident that will be the case going ahead as well.

02:34We don't control the economy, we don't control what happens in the macro in the world,

02:39whether it is in APAC or wherever else, Middle East and so on, but we control our reaction and

02:44so far, as a team, we have done well with our customers and they have grown with us

02:47and we hope that to continue. Yeah, but even sectorally, so not,

02:52US has done well, BFSI has done well, what is this? Is this an up-trending piece? Because most

02:59people were thinking that it will actually trend lower. So, how do you look at BFSI and US

03:05combined? Because that will be a big driver, not just from your perspective, I'm saying,

03:09but from the sectoral perspective. Yeah, from the sectoral perspective, look,

03:14we are seeing some amount of spend easing up. Yeah, the people are worried about the elections,

03:21but you know what, with whoever comes in, the markets have to continue, the people have to

03:26do their business. So, we are definitely seeing some amount of uptick in terms of people looking

03:31beyond the short term and we have been a gainer of that. We have also been a gainer of

03:36cost optimization, we have been a gainer of vendor consolidation and I do think people who are

03:41investing in AI capabilities, et cetera, will continue to gain market share. So, yes, there'll

03:46be a little bit of loosening in the shorter term, longer term, we'll see, but within that, people

03:51who are focused on their customers, on next generation technologies, services, which kind

03:55of add value to their customers, will keep growing. Okay, now, before I come to margins,

04:00a couple of other questions, Sandeep. One of them is on technology. I heard you mention in

04:03your opening remark that tech seems to have starting to perform at the, I think, what,

04:091% sequential growth, but the belief in the commentary that I've read from the analyst

04:13community is that the bottoming out process is underway. It'll probably bottom out in the next

04:16couple of quarters. Is there a dichotomy between what the suite is understanding versus what you're

04:20thinking about? No, so far as if you look at it, we have been investing in our AI platform called

04:26SASVA. We have been evangelizing that with our tech customers. We've got very good traction on

04:31that. We are winning some good large deals, including in the quarter gone by, and we do

04:36believe from what we see, the ramp up will happen over the next two to three quarters big time in

04:41those. So, we are expecting tech sector to kind of turn around for us because tech for us versus

04:47tech for our larger peers are two different things. We are in the heart of the engine. We

04:50are in product engineering. We are their extended teams for product development, maintenance,

04:54professional services, nine yards, whereas tech for our other peers means IT into their CIO

05:00organization, and we are heavily focused on CTO, VP engineering, the business lines, and somewhat

05:06in the CIO organization. So, we are confident that will turn around for us and we'll see a

05:10secular growth across all the three segments. But happens, I mean, bottoming out in the next

05:15couple of quarters or already bottomed out, Sandeep? It's kind of bottomed out. We should see,

05:20you know, obviously December quarter is a furlough quarter. Some of the tech companies

05:23also have furloughs. But if you look at the overall thing from our vantage point,

05:27from our bookings, from our pipeline, I do think it has kind of bottomed out.

05:31But furloughs, you reckon, are similar to what you've seen in the previous year?

05:35So far, yes. But, you know, these things get firmed up towards November and December,

05:40December mid. So, we'll let it flow. From what we see today, the discussions with our customers,

05:44we do believe there'll be similar lines as the last year.

05:47Okay. Operational metrics. Last couple of questions, Sandeep. Operational metrics, margins,

05:52no complaints there. The question only is, or the one thing is that maybe,

05:58are you hitting the sweetest spot on the utilization? And therefore, would that

06:03need to change a little bit? Would you need to do more hirings? How would that process shape up?

06:08Yeah. So, right now we are roughly in the range of 84% plus. It will be in a band of plus minus

06:132%. Now, obviously, we will have to hire as we go along, as we keep, you know, ramping up. But our

06:18hope is that as we are using more AI platform that we have, we did not necessarily have a linear

06:24increase in headcount with respect to our revenue increase. So, from that perspective, we are trying

06:29to use the latest technologies that we are evangelizing to our customers to be operationally

06:34efficient, whether it's our own operation, whether it's our service delivery to our customers.

06:38And that's where, you know, we believe there is scope while we keep the utilization where it is

06:43to have better margins as we go along, as we use more technology for service delivery.

06:48Well, the last question, TCE was very solid. I believe in the commentary you mentioned that Q3

06:56will actually see substantial deal flow as well. Can you talk a bit about the landscape and the

07:04nature of the deal wins now and anticipated? So, if you look at our historical, you know,

07:10financials, we have been declaring all our wins or all our, you know, bookings,

07:14whether it is renewals versus new. October, November, December, given the fact that 80%

07:19of our revenues are US-based, October, November, December is the final quarter

07:22for the year for many companies. That's where a majority of our renewals happen.

07:26What I had said on the earnings call is we will see a bulk of our renewals happen in this quarter

07:31that will take the ACB up. Even if we were to do the same, you know, amount in new wins,

07:36as we did in the earlier quarters, an average of that, our overall ACB bookings will be higher

07:40given the nature of the seasonality of the booking quarter. And overall, the pipeline is

07:45healthy. That's all I would like to say, because, you know, otherwise I'll be giving forward-looking

07:48statements, which we don't. But 14% QOQ growth and ramp up anticipated there too, I presume.

07:54Sandeep, just before we wrap up, anything that has happened, which is of note, and I haven't

08:00managed to figure that out and ask you. If there is something else that stood out for you in the

08:03quarter, please do tell us. Yeah, so see, from various perspectives, if you look at it, our

08:09industry is at a very interesting cusp. On one side, people keep talking about the macro economic

08:13environment, the US elections. There's a much bigger pivot that is happening on the technology

08:18side. And that is basically the AI slash Gen AI. And I would rather say the AI pivot at the Uber

08:24level. And we have been investing in that significantly more so in the last six quarters.

08:29That is helping us very well. We are seeing good traction based on our AI for tech platform called

08:34SASWA, and our AI for business, you know, platforms like IOR, Gen AI Hub, and so on.

08:40That, in my mind, for persistent will be the growth story, very differentiated from the sector.

08:44And that should give us sustainable growth going ahead. So that's the only other thing that I'll

08:48add to the commentary. Okay, well, that's the management of persistent systems telling us

08:52about how the quarter has gone by and what we can expect going forward.

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