R Systems International Limited
Q1 FY25
Call date · May 09, 2025
1 · Management Commentary
Key Positives
- Robust pipeline of large deals, with several key wins in Q1 across North America, Europe, and APAC.
- Year-on-year revenue growth of 6.2% to INR 442.5 crore; adjusted EBITDA up 28.1% YoY to INR 76.8 crore.
- EBITDA margin improved to 17.4% (up 296 bps YoY); PAT up 36.2% YoY.
- Continued traction in AI, analytics, and cloud offerings; enhanced partnerships with AWS and Azure.
- Successful launch and scaling of OptimaAI (generative AI workbench) and expansion of Mexico operations.
- Interim dividend of INR 6 per share declared.
Key Negatives
- Quarter-on-quarter revenue degrowth of 1.5% due to global uncertainties, delayed decision-making, and some discretionary spend cancellations.
- Gross margin declined to 36.7% from 37.9% last quarter, impacted by offshore wage increments.
- DSO increased to 64 days from 61 days last quarter.
- Some ramp-downs and SOW non-renewals in Q1, though management does not expect further knock-on impact.
Forward Guidance
- Capex: Not specifically disclosed.
- New products/segments: Continued focus on GCC (Global Capability Center) offerings for mid-market tech companies, expansion of AI/data/cloud services, and security/CloudOps/MLOps.
- Expected client wins/losses: Robust pipeline; several large deals in transition, expected to ramp up in Q2/Q3.
- Revenue/margin outlook: Management aims to deliver above-industry growth if deal closures are timely; confident of maintaining FY24 EBITDA margin of 16.7%.
- Other initiatives: Strengthening sales leadership in North America and Europe, building annuity business through product sustenance and managed services.
2 · Q&A Highlights
Q 1 (Composite): What is the outlook for discretionary spend in high-tech, and how is the GCC strategy progressing (deal sizes, ramp-up timing)?
A (Management):
• Discretionary spend in high-tech remains tepid, but R Systems is gaining traction by helping clients accelerate AI initiatives and reduce engineering costs.
• GCC deals are multi-million, multi-year contracts with a couple of months’ transition before revenue recognition; ramp-up expected from Q2 onwards.
Q 2 (Composite): How is European expansion progressing, especially with FTAs, and what is the revenue outlook from Europe?
A (Management):
• Europe remains strategic; sales team strengthened and pipeline building up.
• FTAs open corridors but do not directly impact business; US remains primary market, but Europe expected to grow at a similar pace.
Q 3 (Composite): What is the trend in ACV/TCV after large deal wins, and when will significant ramp-up begin?
A (Management):
• Average ACV is rising with more large deals; consistent wins will meaningfully move the needle.
• Net headcount already rising; further ramp-up expected in Q2/Q3 as deals transition.
Q 4 (Composite): Are Q1 ramp-downs likely to impact Q2, and what is the growth/margin outlook for CY25?
A (Management):
• No knock-on impact on Q2; Q1 impact was front-loaded.
• Above-industry growth possible if deal closures are timely; confident of maintaining FY24 EBITDA margin.
Q 5 (Composite): What differentiates R Systems’ GCC offering versus larger peers, and what is the current business size/margin for GCC?
A (Management):
• Focused on mid-market tech companies (not large enterprises), innovation/R&D-led GCCs, and niche engineering services.
• GCC business is nascent but expected to grow; margins not dilutive due to value-added nature.
Q 6 (Composite): What is the annuity vs. project-based revenue mix, and how is annuity business being developed?
A (Management):
• Most revenue is project-based/discretionary, but relationships are sticky.
• Building annuity through product sustenance, CloudOps, MLOps, and managed services; focus on existing clients.
Q 7 (Composite): Details on AWS IoT connector partnership and headcount trends?
A (Management):
• Strategic partnership with AWS to develop IoT connectors for telco marketplace; revenue from AWS and telco operators.
• Net addition of 50 employees in Q1; expect higher gross and net additions in coming quarters as large deals ramp up.
Q 8 (Composite): What measures are being taken to reduce volatility from ramp-downs and increase stickiness?
A (Management):
• Closer client engagement, proactive account management, and delivery leadership involvement.
• Dedicated team building support/maintenance offerings to increase annuity and client stickiness.
3 · Other Key Numbers
- Q1 FY25 Revenue: INR 442.5 crore ($51.1 million)
- Q1 FY25 Adjusted EBITDA: INR 76.8 crore (17.4% margin)
- Q1 FY25 Net Profit: INR 41.1 crore ($4.8 million)
- Q1 FY25 Basic EPS: INR 3.26
- Interim Dividend: INR 6 per share
- Cash and Bank Balance (net of short-term borrowing): INR 243 crore
- Accounts Receivable (including unbilled): INR 361 crore
- DSO: 64 days
- Gross Margin: 36.7%
- SG&A Expenses: INR 85.6 crore
- RSU Cost: INR 6.2 crore
- Depreciation: INR 14.6 crore (includes INR 6.3 crore for intangibles from acquisitions)
- Interest Expense: INR 1.5 crore
- Other Income: INR 2.3 crore (includes INR 1.1 crore interest income)
- Exchange Gain: INR 71 lakhs
- Forward Cover: $36.4 million at INR 86.03; EUR 1.9 million at 94.76
- Effective Tax Rate: ~32%
- Utilization: 83–84%
- Top Client Contribution: 6.2%; Top 3: 13%; Top 5: 17.7%; Top 10: 24.8%
- Revenue by Geography: North America (increase of 0.8% QoQ), Europe (8.9%), Southeast Asia (12.7%), India & Others (small %)
- Net Headcount Addition: 50 in Q1
- Average USD Rate: 86.58; EUR Rate: 91.06
All figures as stated in the call; undisclosed figures marked as Not disclosed.