Latent View — Q3 FY25 earnings call

Call held 7 Feb 2025

Management summary

Latent View reported a strong Q3 FY25 with significant revenue growth and healthy adjusted EBITDA margins, driven by large deal wins and new client additions. The company is heavily investing in GenAI and Databricks capabilities, seeing strong traction in these areas. However, reported profitability was impacted by a one-time forex loss and higher tax rates, while the CPG vertical faces headwinds.

Highlights

  • Revenue of INR 228 crore, up almost 9% QoQ and 37.5% YoY.

  • Adjusted EBITDA margin at 26.1%, reflecting strong operating performance.

  • Secured largest deal to date in terms of annual revenue from a single statement of work from an existing account.

  • Added 9+ new accounts, with 3 being re-engagements from the past.

  • BFSI vertical crossed $10 million in revenue, growing over 40% YoY.

Concerns

  • Headwinds in the CPG (consumer goods) space due to subdued market conditions and cost-cutting initiatives.

  • Reported EBITDA and PAT impacted by a forex loss of INR 6.8 crore from intra-group loans.

  • Higher effective tax rate due to the loss of SEZ benefits and ESOP carry-forward benefits.

Key financials

  1. Revenue ₹228 Cr +37.5%YoY
  2. Revenue 27.2 Mn
  3. Adjusted EBITDA Margin 26.1%
  4. Reported EBITDA Margin 22.1%
  5. PAT ₹42.6 Cr
  6. PAT Margin 17.6%

What they filed

Q1 FY27: revenue up 21.6%, net profit down 7.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue209 228 232 236 258 +23%278 +22%289 +25%287 +22%
EBITDA45 50 55 50 56 +24%62 +24%68 +24%57 +14%
Net profit41 43 51 51 46 +12%51 +19%55 +8%47 −8%
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

Almost 20% of next year's pipeline conversations are around Generative AI.

Management expects the order book to show a good 35% jump by the end of Q4 FY25 compared to Q4 FY24, driven by cyclical renewals and inorganic additions.

Source: Prepared remarks

Capital allocation

high confidence
  • Debt Debt disclosed
    • Forex hedge Taking corrective actions on intra-group loans to subsidiaries to reduce forex loss volatility.
    So, these are loans that we had given out to our subsidiaries in U.K., Netherlands and Germany to capitalize them. And there was a sharp movement in the INR versus the GBP and euro, which meant that for this particular quarter, the total loss that we had to book on account of the forex movement was close to about INR 6.8 crore.
  • M&A Decision Point Acquisition · Integrated

    Strategic acquisition to enhance capabilities, especially in CPG space.

    Q3 FY25 results include Decision Point. Retention bonuses related to Decision Point acquisition are being accrued quarterly for 5 quarters.

    Now of course, the 37.5% on a year-on-year basis also includes Decision Point for the current quarter, whereas we didn't have the results for Decision Point in the previous year. But the good thing to note is for this particular quarter, both the organic as well as the inorganic business on a sequential quarter grew in excess of about 8.9% to 9%, as you can see in the investor presentation that we put out on our website. ... The second reason is also that last year, we had the benefit of certain ESOPs that were exercised in the U.S. due to which there was a carry-forward loss, which we were able to offset in the previous year. So both those benefits cease to sort of continue in this particular year because of which our effective tax rate has gone up for this particular year. Also the PAT for this quarter, as I called out, was also impacted by the forex loss that we had to report.
  • Liquidity Cash ₹1,000 Cr Strong cash generation capability of the business.
    Our cash balance again stood at in excess of about INR 1,000 crore as at the end of the last quarter, which reflects the strong cash generation capability of the business.

Guidance & targets

Revenue

  • FY25 Revenue Revenue · FY25 · High confidence $100 million to $105 million
    Overall, I would like to end by saying that as we had outlined during our Analyst Day in the last quarter, we had given a revenue outlook, which was in the range of $100 million to $105 million. Our current performance is definitely tracking towards that number. We expect to close, on a full year basis, our numbers will be in that range that we had indicated in our Analyst Day.

    — Rajan Venkatesan

  • Revenue Target Revenue · next 3 years · Medium confidence $200 million to $220 million
    And as we speak, we are also in the process of putting together a strategic plan for us to deliver the $200 million to $220 million that we had outlined over the next 3 years that we had outlined during our Analyst Day.

    — Rajan Venkatesan

  • Financial Services Revenue Revenue · following quarter (Q4 FY25) · High confidence $10 million
    In fact, we are well on our way to sort of deliver a $10 million sort of a business for the financial services in the following quarter.

    — Rajan Venkatesan

EBITDA Margin

  • Long-term EBITDA Margin EBITDA Margin · long term · Medium confidence 20% to 25%
    But long term, the intent would be to stay between that 20% to 25%, if possible, towards the higher end of that guidance, but we will continue to invest for growth is the guidance that I would like to give.

    — Rajan Venkatesan

  • Subsequent Quarter EBITDA Margin EBITDA Margin · subsequent quarter · High confidence 24% to 25%
    at least on the EBITDA side, we will be in the range of 24% to 25% for the subsequent quarter.

    — Rajan Venkatesan

PAT Margin

  • Long-term PAT Margin PAT Margin · long-term · High confidence 20%
    If you take that out, realistically, the business should continue to deliver a 20% PAT number in the long-term.

    — Rajan Venkatesan

Revenue Growth

  • Q4 FY25 Sequential Revenue Growth Revenue Growth · next quarter (Q4 FY25) · High confidence 2% to 3%
    revenue growth guidance that we can at this point in time give for the next quarter will be between 2% to 3%. That will be the range at which we will sort of operate on a sequential basis.

    — Rajan Venkatesan

  • FY26 Revenue Growth Revenue Growth · FY26 · Medium confidence 18% to 20%
    We would like to be a bit conservative and then put out a guidance more in the 18%to 20% kind of a range in terms of what we see.

    — Rajan Sethuraman

  • Combined CPG Practice Growth Revenue Growth · Low confidence 40% to 50%
    And at this point in time, aspirationally, we are still targeting 40% to 50% growth, right, in terms of the combined CPG practice that we have.

    — Rajan Sethuraman

Client Additions

  • New Logo Additions Client Additions · every year · Medium confidence half a dozen to 10 accounts
    I'm not expecting that 60 to become 120 in a 3-year time frame. On the contrary, we will be comfortable if we are able to add even anywhere between half a dozen to 10 accounts every year, but accounts which are strong and which can provide the kind of revenue trajectory right, over a period of time.

    — Rajan Sethuraman

Revenue Contribution

  • New Logo Contribution to Growth Revenue Contribution · Medium confidence 15% to 20%
    We will have a growth team focused on acquiring new logos, but we are fine with that contributing a certain percentage, right, around the 15%to 20%, right, with the bulk of it coming from growth from existing accounts.

    — Rajan Sethuraman

What to watch in Q4 FY25

Q4 FY25 Sequential Revenue Growth

next quarter (Q4 FY25 results)
Current Q3 FY25 QoQ growth 9%
Target 2-3% sequential growth

Why it matters

This will indicate short-term revenue momentum and the company's ability to execute against its conservative guidance for the upcoming quarter.

revenue growth guidance that we can at this point in time give for the next quarter will be between 2% to 3%. That will be the range at which we will sort of operate on a sequential basis.

Risks & concerns

  • Headwinds in CPG space

    medium

    General market conditions, subdued performance, market capitalization impact, and cost-cutting initiatives affecting client spending appetite in the CPG sector.

    Management acknowledged

  • Productivity gains from GenAI impacting FTE-based revenue model

    medium

    GenAI could automate work, shifting from FTE services to product/solution models, requiring the company to find 2x-3x current work volume to sustain revenue run rate.

    Management acknowledged

  • Forex loss from intra-group loans

    low

    INR 6.8 crore forex loss due to movement in INR versus GBP and Euro, impacting reported EBITDA and PAT. Corrective actions are being taken.

    Management acknowledged

  • Increased effective tax rate

    low

    Loss of SEZ benefits for delivery centers in Chennai and cessation of ESOP carry-forward benefits from previous year.

    Management acknowledged

  • Client confusion regarding GenAI stack choices

    low

    Clients face many options (buy vs. build, different foundational models) in the evolving GenAI stack, leading to confusion. LatentView's consulting practice is addressing this.

    Management acknowledged

Q&A highlights

6 direct
Future growth momentum, FY26 outlook, and margin trajectory amidst investments Partial
So yes, you're right. I mean, this quarter has been a definite bump up in terms of the growth trajectory. The reason we are being a little cautious about guidance for the full year as well as for the next fiscal is also because of the winds of change that are blowing at this point in time. I also called out the headwinds in one of the verticals, right, which is the CPG space. So we do want to watch this and understand this a little better.

Management expresses caution on future guidance despite strong Q3, citing CPG headwinds and the evolving GenAI landscape, which could impact business models and margins.

Asked by Vimal Gohil

LatentView's value addition in the context of decreasing GenAI hardware intensity and increasing focus on software engineering Direct
So from a decision-making standpoint, which is what data analytics is all about and also embedding the decision, into the operating flows and processes of an organization, the stack is evolving, right? I mean you do have a data layer at the bottom. And there is work that needs to be done on the data layer itself. I mean, because you can deploy, even if you have high-quality foundation models, and reasoning model, all of that is only as good as the data layers that you have built.

Clarifies LatentView's strategic positioning across the GenAI stack, from data engineering to foundational and reasoning models, and Agentic AI, emphasizing their role in helping clients navigate choices.

Asked by Vimal Gohil

Passing productivity benefits to clients and potential deflationary impact on revenue Direct
Our intention would be to try and find ways by which we can create contracting models where we get some part of that productivity outlook right, or not pass on everything to the client. If you engage only in FTE services model, then the client just pays for the number of people that you deploy, right? We will find ways by which we can also price and cost the solutions and the assets and the accelerators. Or if possible, even build these out as products, that can be licensed out. So that is what the attempt will be, right, in the coming months.

Addresses how the company plans to manage pricing pressure and retain value from GenAI-driven productivity gains by shifting to product/solution-based contracting models.

Asked by Karan Uppal

GenAI pipeline and its potential to cannibalize existing analytics business Direct
The Generative Al pipeline is pretty strong. I mean, even in this fiscal, about 10% of the work that we are doing is around Generative AI. If I look at the pipeline for the next year, almost 20% of the conversations that we are having are all around Generative AI.

Quantifies the current and projected involvement of GenAI in the company's work, indicating a strong pivot towards this technology rather than cannibalization.

Asked by Karan Uppal

TCV growth and FY26 growth expectations Direct
So, part of the jump is also on account of the inorganic addition, I mean, out of the 35%. So I mean, obviously, there will be a re-baselining effect, that will kick in at some point. And then we will have to look at that. I mean our sense at this time, like I said, we are still going through the internal discussions. We would like to be a bit conservative and then put out a guidance more in the 18%to 20% kind of a range in terms of what we see.

Provides specific FY26 revenue growth guidance (18-20%) and clarifies that the 35% TCV jump includes inorganic contributions, indicating a more conservative outlook for organic growth.

Asked by Karan Uppal

Plans for future acquisitions Direct
So, the area that we have all been discussing, debating and converging towards to do something around data engineering, specifically around Databricks as a capability because that's the area that we are doubling down significantly. I did mention earlier on how in the new stack around decision-making, the data layer will still be a very important aspect on the foundational layer, right, of the stack.

Highlights the strategic focus for potential M&A in data engineering and Databricks, emphasizing a selective approach for accretive deals.

Asked by Varun Kumar

Impact of bonus charges on EBITDA and GenAI's contribution to revenue Direct
Yes, absolutely. I mean, I think Generative AI and the entire emerging evolving landscape around that presents a whole host of opportunity. Also, what has happened in the last 2to 3 weeks, it has kind of opened up a lot of clients and stakeholders who are kind of sitting on the fence and then thinking about what they do or what they do not do.

Clarifies that bonus charges are retention-related for Decision Point, accrued over 5 quarters, and reiterates the significant opportunity GenAI presents, driving new client engagement.

Asked by Shubhansh Singh

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Detailed narrative

Strong Q3 FY25 Performance Driven by Existing Accounts and New Logos

Latent View reported a robust Q3 FY25, with revenue reaching INR 228 crore, marking an almost 9% sequential growth and a 37.5% year-on-year increase. In dollar terms, revenue stood at $27.2 million, up from $25.1 million in the previous quarter. This performance was significantly bolstered by strong traction with existing accounts, including the largest single-value Statement of Work (SOW) secured to date. The company also successfully added over 9 new accounts, with 3 being re-engagements from past collaborations, indicating strong client mining and acquisition capabilities.

Margin Impacted by Forex Loss and Strategic Investments

While the adjusted EBITDA margin for Q3 FY25 was a healthy 26.1%, the reported EBITDA margin came in at 22.1%. This difference was primarily due to a one-time forex loss of INR 6.8 crore, stemming from intra-group loans to subsidiaries in the UK, Netherlands, and Germany, exacerbated by INR versus GBP/Euro currency movements. The PAT for the quarter was INR 42.6 crore, with a margin of 17.6%, also affected by the forex loss and a higher effective tax rate resulting from the loss of SEZ benefits and ESOP carry-forward benefits from the previous year. Management is implementing corrective actions to mitigate future forex volatility.

Strategic Focus and Investment in GenAI and Databricks

Latent View is making significant investments in Generative AI (GenAI) and Databricks capabilities, recognizing these as key growth pillars. Approximately 10% of the current fiscal year's work is in GenAI, with projections indicating that almost 20% of the pipeline for the next year will be GenAI-related. The company has developed four GenAI solutions and is integrating Agentic AI. Furthermore, Latent View has achieved elite partner tier status with Databricks and has a lead nominated to the Databricks Partner Advisory Board, underscoring its commitment to data engineering excellence.

Mixed Vertical Performance: BFSI Shines, CPG Faces Headwinds

The BFSI (Banking, Financial Services, and Insurance) vertical demonstrated exceptional performance, crossing the $10 million revenue mark and achieving over 40% year-on-year growth. This was attributed to new client wins and successful re-engagement with past accounts. Conversely, the CPG (Consumer Packaged Goods) space experienced headwinds due to challenging general market conditions, subdued performance of CPG companies, and increased cost-cutting initiatives. Management is actively reallocating efforts and resources to navigate these challenges within the CPG sector.

Conservative Outlook and Long-term Growth Targets

For Q4 FY25, Latent View anticipates a sequential revenue growth of 2% to 3%. Looking further ahead, the company projects an 18% to 20% revenue growth for FY26. Long-term EBITDA margins are targeted to remain between 20% and 25%, with subsequent quarters expected to be in the 24% to 25% range. The long-term PAT margin is guided at 20%. The company also expects a 'good 35% kind of a jump' in its order book by the end of Q4 FY25 compared to Q4 FY24, reflecting strong future visibility.

Evolving Business Model to Capture Productivity Benefits

Management acknowledges that GenAI will drive significant productivity benefits, potentially shifting the business model from traditional FTE (Full-Time Equivalent) services to product and solution-based offerings. The company's strategy is to develop licensable solutions and assets to partake in these productivity gains, rather than passing all benefits to clients. This approach aims to maintain revenue run rates and enhance margins by leveraging proprietary technology and domain expertise, while also advising clients on navigating the complex GenAI ecosystem.

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