Expleo Solutions Limited — Q4 FY25 earnings call

Call held 23 May 2025

Management summary

Expleo Solutions reported a strong FY25 with 6.2% revenue growth and an 80 bps EBITDA margin expansion, driven by strategic focus on existing clients, US, and Middle East expansion, and significant AI investments. While Q4 saw a slight QoQ revenue dip and margin compression due to wage hikes, the company remains optimistic about FY26, expecting continued growth from BFSI, retail, defense, and AI-driven services, despite ongoing slowdowns in auto and aero sectors.

Highlights

  • FY25 Operating revenue grew 6.2% YoY to INR 10,248 million, driven by onsite opportunities in Middle East and US.

  • FY25 EBITDA margin expanded by 80 basis points to 16.2%, attributed to higher revenues, improved utilization, and controlled bench.

  • FY25 PAT increased by 0.8% to 9.8%, and EPS grew 14.2% to INR 66.52.

  • Strategic focus on existing customers, US, and Middle East yielded good results, with a new subsidiary operational in Saudi Arabia.

  • Significant investment in AI capabilities, with 60+ associates hired and 'expleo.ai' platform launched, already generating revenue from 4 accounts.

Concerns

  • Q4 FY25 operating revenue saw a 0.7% QoQ drop to INR 2,558 million, mainly due to project closures in the auto industry.

  • EBITDA margin in Q4 FY25 declined QoQ to 15.6% from 16.9% due to wage increments.

  • Engineering division revenues have declined by INR 10 crores over the past 3 years, with auto and aero industries facing continued slowdowns.

  • The company's client count declined to 201, as management is actively reducing low-revenue, low-margin accounts.

Key financials

2 periods

Q4 FY25

  • Operating Revenue
    2,558 Mn
    YoY +0.2% QoQ -0.7%
  • Total Income
    2,603 Mn
    YoY +1.2% QoQ 0%
  • EBITDA Margin
    15.6%
    YoY 0% QoQ -7.7%
  • PAT Margin
    9.1%
    YoY +59.6% QoQ +23%

FY25

  • Operating Revenue
    10,248 Mn
    YoY +6.2%
  • EBITDA Margin
    16.2%
    YoY +5.2%
  • PAT Margin
    9.8%
    YoY +7.7%
  • EPS
    ₹66.52
    YoY +14.2%

What they filed

Q1 FY27: revenue up 12.3%, net profit up 70.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue259 258 256 260 283 +9%279 +8%286 +12%292 +12%
EBITDA42 39 40 30 47 +12%46 +18%43 +8%42 +40%
Net profit35 20 24 20 40 +14%22 +10%42 +75%34 +70%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

medium confidence

Pipeline

deal pipeline tcv

Working with 22 GCCs at initial stage, expecting results from June/July onwards.

Cancellations & deferrals

  • cancelled: Few project closures in auto industry due to headwinds.
Management is working with 22 GCCs and expects results from June/July. They are also focusing on high-margin accounts and exiting low-margin ones, leading to a decline in client count.

Source: Prepared remarks

Capital allocation

high confidence
  • Debt Debt disclosed
    So, there is a related party loan of INR 115 crores. So, can you just comment on that? So, it is very much within the limits that the Board has already approved, and shareholders also have approved, yes. These are time-bound loans at arm's length pricing. So, when the cash is required, definitely it will be made available for our disposal.
  • Liquidity Cash ₹2,294 Mn Cash position stood at INR 2,294 million at the end of FY '25, up from INR 1,840 million in FY '24. Management also mentioned having about INR 250-300 crores cash on the balance sheet.
    Cash position stood at INR 2,294 million at the end of FY '25 versus INR 1,840 million at the end of FY '24.

Guidance & targets

Profitability

  • EBITDA Margin Profitability · next couple of years · High confidence 16% to 18%
    But as we have said in the past, it will be in the range of 16% to 18%. And we are currently at 16.2%. So, we are only striving to improve it further.

    — P. Palaniappan

Revenue

  • FY26 Revenue Growth Revenue · FY26 · Low confidence single-digit growth, hoping for double-digit
    But directionally, a single-digit growth is where we are heading to. But with all these efforts, I'll be more than happy to be surprised with the double digit.

    — Phani Tangirala

Headcount

  • Headcount Growth Headcount · this year · Medium confidence parallel to revenue growth (6-7%)
    Now, going forward, most likely the revenue and the headcount line will be parallel to each other. Otherwise, the entire last year, you would have seen that the revenue is growing up and then the headcount is coming down, right? That may not happen in this year because we have cut it to the skin now. So, it will follow the same path of revenue.

    — Phani Tangirala

Industry Outlook

  • Aero Industry Recovery Industry Outlook · 2026 · Medium confidence bouncing back
    Aero is a supply chain issue, which once it gets sorted I think we'll be bouncing back in 2026, and that's the directions which I'm getting, both from Airbus and Boeing now with the Spirit being split and bought 1/2 by Airbus and another, a huge amount of supply chain issues there are addressed.

    — Phani Tangirala

What to watch in Q1 FY26

Results from 22 GCC engagements

June end or July onwards
Current Initial stage, working closely with 22 GCCs
Target Some results to come

Why it matters

These engagements are a significant step in bringing India back into focus and could contribute to revenue growth.

As we speak, we are now working closely with 22 GCCs and these are at the initial stage, and I'm expecting some results to come with all these 22 from June end or July onwards.

Risks & concerns

  • Geopolitical situation and macroeconomic conditions in Europe

    high

    The war-like situation and macroeconomic conditions in Europe are causing an extreme slowdown, impacting auto and aero industries.

    Management acknowledged

  • Slowdown in Auto and Aero industries

    high

    Auto is spiraling down, and Aero faces supply chain issues and lack of R&D motivation from big giants, leading to declining revenues in these segments.

    Management acknowledged

  • Volatility in the market

    medium

    High market volatility makes it difficult to commit to specific growth numbers for the future.

    Management acknowledged

  • Cybersecurity attacks with AI

    medium

    As data size increases, so do cybersecurity attacks, posing risks when blindly trusting AI-generated content.

    Management acknowledged

  • Difficulty penetrating Chinese OEMs

    medium

    Chinese OEMs keep cards close to their chest, and geopolitical situations make it difficult to work with them, leading to a cautious approach.

    Management acknowledged

Q&A highlights

4 direct
Decline in Engineering division revenue Partial
So, the outlook which I have given primarily on increase in the internal revenue is taking every other industry into consideration and which includes not just engineering but significant portion coming from digital again. So, those cannot be taken as a linear answer for engineering also. Engineering, the slope or the angle at which it is growing will be slightly lower than the DigiTech as we currently see. But overall, it is much better than 2024.

Analyst questioned the decline in a core division despite group offshoring efforts, prompting management to clarify that internal revenue growth is broader than just engineering and that engineering's growth trajectory is lower than digital.

Asked by Athreya Ramkumar

Decline in client count and GCC strategy Direct
So, one is I'm not very frankly, too much carried away with the number of clients because while we are adding clients, we are doing a massive exercise of compartmentalizing all our customers into 4 quadrants where the high revenue, high-margin accounts to low revenue, low-margin accounts and low revenue, high-margin and high revenue, low-margin. So, we are putting them into 4.

Analyst noted a decline in client count, and management explained a strategic shift to focus on high-margin clients and exit low-margin ones, rather than just adding logos, and detailed their GCC engagement strategy.

Asked by Athreya Ramkumar

Revenue growth expectations for next couple of years Partial
So, to put it in actual numbers will be very, very difficult at this point of time. But let me confirm that as we are in the first quarter, I can guarantee that this is going to be a better quarter than the previous, and we are only looking at it. But at any point of time, 1 month before Operation Sindoor we never knew it is going to come. With that kind of volatility in the market, I don't want to commit myself a number, but it is extremely promising, both from revenue and EBITDA point of view.

Analyst sought specific revenue growth numbers, but management cited market volatility and only provided directional industry outlooks (BFSI, retail, defense growing; auto, aero declining), avoiding concrete figures.

Asked by V.P. Rajesh

Sustainability of current margin levels (16-18%) Direct
At the end of the day, our whole game plan is to see that how much we can pass on the benefit back to the shareholders. And in a way, our group also is only looking at that as a primary thing. Margin point of view, I don't think so we will do anything to slip it down unless there are any unfortunate situations come.

Analyst questioned if the current margin yield could be sustained, and management confirmed their commitment to maintaining or improving the 16-18% EBITDA margin range through continued cost control.

Asked by V.P. Rajesh

Impact of AI on headcount Partial
But I mean, again, I will repeat the current dip in the number. I don't want to take the credit or give that credit to AI. That is purely because we have been very strict on our bench, and we have cut down our bench to a very low number, that's where the overall headcount is coming down, though the revenue is growing at 7%, what you have seen.

Analyst linked declining headcount to AI, but management clarified that the current dip is due to strict bench control and not directly AI, though AI will eventually reduce headcount by improving efficiency.

Asked by V.P. Rajesh

Wallet share and potential with top 20 customers Direct
Now, we lay low at anything between 15% to 25% wallet share. That means any piece of innovation we bring in or the differentiation we bring in, then that piece of work can come to us from a different vendor. That's a huge possibility.

Analyst asked about wallet share and growth potential with top clients. Management stated a 15-25% wallet share, viewing it as a significant opportunity for growth through innovation and diversification of services.

Asked by Anuj Sharma

Capital allocation strategy: M&A vs. dividend payout Direct
Yes, as an organization though we have a dividend policy, our primary outlook is to invest it more into acquiring a part of business which can complement us growth. That is our top priority. And like what we have done last time, when we run short of that, and when we don't see any M&A kind of an opportunity coming in the next few months that's when dividend becomes our second priority.

Analyst questioned the dividend policy given significant cash on the balance sheet. Management reiterated that M&A for growth is the primary capital allocation priority, with dividends being secondary if no suitable M&A opportunities arise.

Asked by Anuj Sharma

Flat US revenue despite positive commentary Partial
So, when it comes to U.S., one is U.S. is a market where the initial trust levels to build up is something which will take a bit of time. So, that is where we are staying invested in. As I said, we have seen growth, and I don't know where you are referring - ok, from 16% to 12.9%. Yes, there is a traction, and we are extremely upbeat about it.

Analyst pointed out flat US revenue despite management's positive outlook. Management explained that building trust in the US market takes time, but they are seeing traction and are heavily invested, expecting future growth.

Asked by Rohit

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Detailed narrative

FY25 Financial Performance Overview

Expleo Solutions reported a robust FY25, with operating revenue growing 6.2% year-on-year to INR 10,248 million. Total income increased by 7.1% to INR 10,410 million. The company achieved an EBITDA margin of 16.2%, an 80 basis points improvement over FY24, driven by higher revenues, improved utilization, and effective bench control. Profit after tax (PAT) stood at 9.8%, up 0.8% from FY24, and EPS grew 14.2% to INR 66.52. The cash position at the end of FY25 was INR 2,294 million.

Q4 FY25 Performance and Margin Dynamics

For Q4 FY25, operating revenue was INR 2,558 million, a slight 0.7% sequential drop, mainly due to project closures in the auto industry. Total income remained flat QoQ at INR 2,603 million, supported by higher forex gains. The EBITDA margin for the quarter was 15.6%, down from 16.9% in the prior quarter, primarily due to wage increments. However, EBIT improved to 12.5% from 12.1% QoQ due to lower one-time depreciation costs in the previous quarter, and PAT increased to 9.1% from 7.4% due to a forex gain of INR 15 million compared to a INR 51 million loss in the prior quarter.

Strategic Focus on Existing Customers and Go-to-Market

The company's strategy for FY25 focused heavily on growing existing customers and improving service diversification. They identified 7 key account managers for the top 20 accounts, which contribute 70-80% of revenues, and implemented account-based marketing initiatives. This focused effort has shown significant results in at least 75% of these accounts. The go-to-market strategy prioritized regions with good past results, specifically the US and Middle East, which continue to show promise.

Geographic Expansion and Industry Outlook

In the US, Expleo increased its visibility through AI and data conferences, focusing on the QSR industry, with a major roundtable already held in New York City and another planned for Chicago in September. In the Middle East, a subsidiary has been created and is operational in Saudi Arabia, with plans for a soft launch. Dubai continues to grow, with the highest-ever headcount. India has also re-entered focus, particularly with 22 GCCs (Global Capability Centers) being engaged, expecting results from June/July onwards. BFSI and retail are promising, while auto and aero continue to decline, with defense showing growth.

AI and Data Initiatives

Expleo made significant investments in AI and data capabilities in 2024, hiring over 60 associates and launching 'expleo.ai' as a platform. This platform offers ready-built accelerators, LLMs, and copilots. The company has conducted nearly 50 proofs of concept globally and has started generating revenue from 4 accounts by April. An AI lab has been set up in Pune with a dedicated execution team. AI and data services currently contribute 7-9% of total revenues, with the bulk coming from data, which is foundational for AI-related services.

Cost Management and Headcount Strategy

The company has extensively worked to control operational expenses, significantly reducing them over the past year, and plans to maintain the lowest overhead expenses. While the headcount has seen a dip, management clarified this is due to strict bench control and not directly AI. Going forward, headcount growth is expected to parallel revenue growth, estimated at 6-7%. The focus on cost rationalization will extend to SG&A expenses this year.

Capital Allocation Philosophy

Expleo's primary capital allocation strategy is to invest in M&A opportunities that complement growth. Dividends are considered a secondary priority if no suitable M&A targets are identified. The company currently holds INR 2,294 million in cash and equivalents. A related party loan of INR 115 crores is in place, which is time-bound and at arm's length pricing, available for disposal when needed. Management emphasized the intent to utilize cash effectively rather than holding large reserves.

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