00:00 Hello and welcome to BQ Prime. Joining us today is Mr. Kartik Natarajan. He is the CEO of Scient.
00:06 He's speaking to us a day after the company's second quarter results where the DET vertical,
00:12 the Digital Engineering and Technology vertical, clocked in 1.5% quarter-on-quarter growth in
00:19 revenue. The EBIT margin was at 16.5%. The profit was up 1.5% to 172.5 crores. The earnings are the
00:28 first after Scient DLM, a part of the Scient Group, got listed. Mr. Natarajan, welcome to BQ Prime.
00:36 Thank you Dushyant. Good morning everyone. Thanks for getting us on to this session and
00:42 appreciate your time. The pleasure is ours. Just take us through those numbers of the second
00:48 quarter and what is the impact of the listing that the listing of Scient DLM has had on the
00:54 metrics of Scient DET. Thanks Dushyant. As you would have seen, we decided to have Scient DLM
01:02 as an independent company with the board and the management team and they got into an IPO last
01:09 quarter. It was one of the best IPOs of the last 12 months. We are really happy with how the DLM
01:15 got listed and having said that, the group will comprise of two key components. One is the Scient
01:22 DLM, which is a listed company and Scient DET, which is Digital Engineering and Technologies.
01:28 This was an Estuaile Services business. We re-coined the term as DET, which is a short
01:35 name for Digital Engineering and Technology, which represents the kind of business that we do.
01:40 Having said that, I think this has been a decent performance given the macro challenges that all
01:46 of us have seen and we are happy with the progress that we made with four of the positions that we
01:52 made sometime last year. All of them have started to get integrated well. The synergies are starting
01:58 to pick up. We had two new logos that were won through the synergies of some of the acquired
02:04 entities. We also had reported a growth of 1% quarter on quarter in constant currency.
02:11 This is taking into account the non-telecom business has grown by 4% quarter on quarter.
02:18 The telecom business has come at minus 8% on the big growth of 8% compared to the last quarter,
02:24 which resulted in a net of 1% quarter on quarter growth. This is also a steady growth from year
02:30 on year perspective. We have seen a growth of 17.1% and which has been one of the highest in
02:37 the industry that we have seen so far. We are pretty happy with the progress that we made on
02:42 the revenue growth aspect of it. Interestingly, we also have seen the margin uplift to 16.5%.
02:49 This is one of the best of our margin that we delivered in the last 11 or 12 years
02:54 from the DET or the S2L service. Are you also seeing the troubles that the IT services
03:04 companies are seeing? You are essentially an ER&D company. The IT services companies have complained
03:09 about a delay in conversion of deals into revenue. You see that the synergies from the
03:16 four acquisitions that you made last year are coming in. But are the deals also converting
03:21 meaningfully into revenue for you? I don't think we are operating with a
03:26 different set of customers than the rest of the IT industry is. Having said that,
03:31 the verticals we may be operating would be very different. For example, we are not
03:36 so much focused on BFSI or retail. I think that's some of the 45 to 50% of the business
03:42 comes from those two segments for the rest of the industry and specific to science, we are also not
03:47 heavily exposed to the high-tech vertical or the ISV vertical. So to that extent, we are protected
03:53 from what we are seeing from our vertical growth and we have reported 40% growth in our order
03:58 intake. I think this is one of the best performances that we had in the recent quarter and
04:03 interestingly Q2 is not seasonally the best quarter and amongst all the four quarters that we see,
04:10 Q3 and Q4 tend to be higher because of the year-end or the new year beginning for many of
04:15 our customers. And having said that, I think we are seeing momentum from two of the four verticals
04:21 significantly, which is led by transport and led by aerospace specifically. And aerospace has seen
04:27 a robust order intake as well as revenue growth. We reported a revenue growth of 27.5%,
04:33 which is an indication of how the order intake gets converted into the revenue. And the second
04:38 one was about sustainability vertical, where we have also seen a significant increase in our
04:44 order intake, which has also shown a growth of close to 5% quarter on quarter in constant currency
04:50 and also roughly about 20% year on year. But if you look at the combination, including the
04:57 acquisitions, we have reported about 71% growth in year on year for sustainability. So I think
05:02 those two are definitely the growth engines, which are really starting to do well. And we've also
05:07 seen steady growth from automotive and which has been one of the key new growth area that we
05:14 identified about 22 and a half years ago. I think that's starting to take off well. We have seen
05:18 more than 30% year on year growth from automotive and along with semiconductor and healthcare and
05:25 medical devices, which are starting to play up well. So you mentioned about the auto vertical
05:31 that you started a few years ago. How do you see this business growing in the next decade? We know
05:37 that the car is increasingly being built around the computer. So what do you think is the leg room
05:46 for growth in this particular sector? Do you think by any chance it can become as big as BFSI?
05:51 I don't know whether it will be as big as BFSI, but it is likely to be one of the strong growth
06:00 vertical for the entire industry. And if you really look at an autonomous car would need about
06:05 a hundred million lines of code, but with more and more semiconductor coming in with more and more,
06:10 the future of vehicles will be defined by software led. And now you're going to really see connected
06:18 cars, so they are upgrade making this as an e-commerce platform. So you really want to make
06:24 car as almost like an iPhone and how do you think you can really make many of the services can be
06:30 delivered through the car. And now that's the future that we are really looking at. So it may
06:35 not exactly be defined as automotive like the way it was defined by the last hundred years.
06:40 There'll be a lot more things that we get integrated to that, whether it is shade services
06:44 like an Uber and Ola in India or similar to that in many other geographies. And we'll also see many
06:52 more e-commerce related things. Is this your biggest future growth prospect? Do you see
06:59 on those lines? I think we have kind of, sorry, and we have kind of really said,
07:06 we want to really pivot the company on technology led future. I think that's one very clear
07:11 direction that we have taken, which is flanked by three key pillars of tenants of this growth.
07:18 And one is by autonomous world, which is led by robotics software led growth with cloud AI and
07:27 cybersecurity. And we call them as an industrial AI. The second is about the sustainability of the
07:33 planet, what we need to do on decarbonization energy transition. And third pivot is about
07:38 digital engineering and R&D. So all three will play an horizontal role while it could be for
07:44 automotive and mobility, it could be for transport, it could be for mining, because when we are
07:49 talking about autonomous operations, and this is likely to have a larger impact for many industries
07:55 and whether it is about autonomous mining, autonomous construction, and autonomous plant
08:00 engineering, and it will include the autonomous mining operations. So you'll find it is going to
08:06 have robotic surgeries. And so when you are talking about autonomous operations, it cut across many
08:12 world vehicles. And we are pivoting on four growth pillars. And we talked about which is the
08:18 transport, and which is mobility. The second is about connectivity and communications. And third
08:25 is about sustainability, energy and utilities and mining. And the fourth is about new growth areas,
08:30 which include essentially healthcare, medical devices, and the semiconductor part. So we said
08:36 we are going to really create a balanced portfolio, supported by the three horizontals with
08:41 a technology and AI led future. I think that's how we are really pivoting the company for
08:45 this decade. So it's very evident that you have your future roadmap pretty much charted out.
08:54 Let's talk about a little bit more of the near term. You clocked an EBIT margin of 16.5%.
08:59 How do you think you're going to sustain this operational profitability over the next six months?
09:05 Have you given out wage hikes this quarter, sir? Yeah, so we have kind of distributed the wage
09:11 hikes, I would say about two thirds of the wage hikes were already given out before Q2. It started
09:16 from Q1. And this biggest chunk has been distributed in Q2. We have some more left to be
09:22 done between Q3 and Q4. And we also have our operating levers, which is in the form of
09:27 automation, utilization, offshoring, and along with automation. I think you can see that these
09:35 are four levers that we are really betting on, apart from pricing, and we still saw a robust
09:39 price hike for the last 12-18 months. And because of the higher inflation in most of the developed
09:46 countries and the customers to appreciate the support they need to extend to us, and we do hope
09:52 that would act as a fifth lever for us to really expand on our margin. And having said that, there
09:57 could still be some headwinds that we need to get prepared for, and which is led by some of
10:02 the investments that we are making on the technology future that I talked about. And we are also trying
10:08 to double down on the front end sales and solution investments led by technology and digital teams.
10:15 We want to be a digital and technology advisor for our customers, and we are doubling down on
10:20 some of the areas of investment. So, even balancing out, our intent is to improve our margin over a
10:26 period of time, but we are also conscious of the fact that where we need to invest, we want to
10:30 make sure that we do the right investments. Okay. You also mentioned, finally, my last
10:36 question to you is, you also mentioned that you see the second half of the year as stronger than
10:41 the first half of the year for you. Where would you want to end the year as far as revenue growth
10:48 is concerned? Have you had any targets set for you? I think we have said we would like to be
10:55 at the lower end of our guidance, and we still didn't want to... That would be exactly, if you
10:59 can specify. Around 15% constant currency around year growth. So, okay. Okay. Thank you. All right.
11:10 So, Mr. Natarajan, thank you so much for chatting with us today. Quite an insightful chat.
11:15 Thank you viewers for tuning in. This is Pushar for BQ Prime.
11:26 [BLANK_AUDIO]
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