DATAMATICS - Datamatics Global Services Limited Share Price

In the management's outlook for Datamatics Global Services Limited, key highlights from the Q2 FY '26 earnings call revealed promising growth prospects. The revenue for the quarter rose to Rs. 490.2 crores, marking a 4.8% increase quarter-on-quarter and a substantial 20.5% year-on-year. EBITDA improved to Rs. 88.8 crores, reflecting a 17% quarter-on-quarter increase and an impressive 82.2% year-on-year growth, resulting in an EBITDA margin of 18.1%.

Management emphasized the improving financial metrics, projecting continued resilience despite challenges. They noted that Digital Technologies achieved an EBIT of 10.8% in Q2, the best in recent quarters, while maintaining a focus on operational efficiency and cost management. They expect sustained momentum across their operations and anticipate a strong performance trajectory ahead.

Forward-looking points include an expected mid-teens growth for FY '26, incorporating both organic and acquisition-based growth. Management indicated that they will maintain their annual investment in innovations, particularly in AI, ranging from Rs. 40 crores to Rs. 50 crores, aligning with strategic goals to stay competitive in changing technological landscapes.

The company also foresees the softness in Western markets beginning to stabilize, underscoring their commitment to adapting and seizing opportunities in AI and emerging technologies. They highlighted a healthy cash position of Rs. 509.4 crores, enabling strategic investments and potential future acquisitions to boost growth and profitability. Overall, management's outlook reflects optimism regarding performance sustainability and potential market recovery, focusing on innovation-driven growth avenues.

Here are the key questions and detailed answers from the Q&A section of the earnings call transcript:

1. Question: "What are the perspectives for the future, as AI is coming in a big way and going to replace human manpower?"

Answer: As we continue to invest between Rs. 40 crores to Rs. 50 crores annually in innovative technologies, we believe AI offers strong potential. It is still nascent in adoption, but we are confident in our ability to address these changes and provide solutions to our clients, solving their business problems effectively.

2. Question: "What is the better perspective you will give for the coming 4/5 years? Is Indian IT under threat?"

Answer: AI will undoubtedly change business models across the industry, including ours. However, we are proactive and adaptable, having navigated multiple technological changes in our 50-year journey. We are confident in our ability to evolve alongside these trends.

3. Question: "What is the plan to increase our ROE?"

Answer: We are focused on prudent financial management and cost optimization. Our ROE is currently around 16%, and we expect it to improve as we leverage sustainable, profitable growth going forward.

4. Question: "Are we doing any acquisitions for them?"

Answer: We completed two acquisitions last year and continue to explore potential targets. However, there are currently no specific acquisitions in the pipeline that we can discuss.

5. Question: "What is our current expense or loss on the AI front?"

Answer: We invest around Rs. 40 to Rs. 50 crores annually in AI. This is considered an investment in future growth and benefits rather than a loss, and we plan to maintain this level of spending.

6. Question: "For H1, how much of our growth is organic and how much is inorganic?"

Answer: The growth associated with the acquisition of TNQTech, which had a run rate of Rs. 73-74 crores, is included in our figures. The remaining growth is organic, as reflected in our reported quarter-on-quarter results.

7. Question: "Are we still maintaining that mid-single-digit growth guidance for FY '26?"

Answer: We initially guided for mid-single-digit growth. However, we are now confident of achieving mid-teens growth, including the impact of recent acquisitions.

8. Question: "What is driving the strong EBITDA margins this quarter?"

Answer: The improvement in EBITDA margins is due to strategic focuses on operational efficiencies and cost optimization, which we have systematically addressed over the past quarters.

9. Question: "What would our revenue from AI products be for this quarter?"

Answer: We do not break down revenue by specific AI products. However, our Digital Technologies revenue, which includes AI-related products, saw a 6.1% quarter-on-quarter increase.

10. Question: "Can you share about the AI projects developed in partnership with Microsoft?"

Answer: While we cannot disclose client-specific details due to NDAs, we are actively developing Large Language Models (LLMs) and Service Level Models (SLMs) to automate operations and enhance efficiencies across various client engagement areas.

This summary encapsulates the key discussions regarding Datamatics' strategies, financial performance, and outlook within the context of AI and other operational aspects.