Revenue Growth Hit By Sluggish Demand, Hope For Revival After 2 Quarters: LatentView Analytics' CFO

LatentView Analytics reported its earnings for the quarter ended September late last week. The global digital analytics and consulting solutions firm’s consolidated profit after tax came in at ₹34 crore for the July-September quarter, this is an around 8.7% decrease from the ₹37.2 crore profit posted in the quarter last year.

Revenue from operations for the company stood at ₹155.7 crore, up 17.6% from the ₹132.4 crore reported in the September quarter of 2022. Since the results came out, the stock has tumbled around 6-7% at the bourses.

We sat down with the company’s CFO Rajan Venkatesan to know more about the company’s performance in the September quarter and its plans going forward.

Revenue Growth

Venkatesan acknowledged that the company’s revenue growth has not been as robust as the company previously estimated. “The overall demand outlook at this point in time is quite muted. I mean tech spending in general across the US has been fairly muted. Budgets, I would say to a large extent still continue to be, I would say quarter-on-quarter type budgets. Clients are also not willing to commit to long-term spending and therefore not willing to sign larger-size deals. And also in general, new client acquisition has been, I would say, a little slower than anticipated.”

As per Venkatesan, all these factors impacted the company’s revenue growth in the September quarter. He adds that things are expected to remain this way in the near future as well. “So while the initial expectation was that H1 would be slow and H2 would see demand come back stronger, what we are witnessing now is that there is still some level of, I would say weakness in H2 as well.”

Margins Under Pressure?

The company’s margins have also been under a bit of pressure for the past two quarters. While this quarter saw margins improve sequentially, on a year-on-year basis, there was not much improvement. Talking about the situation, Venkatesan said that the company’s margins are not that different from what they expected.

“It is in line with what we had planned for. What is not planned out really is the top-line growth. So you will see that there has not been much contraction at a gross margin level. So it is not like our pricing power has eroded or we are running a much more inefficient delivery engine which is resulting in lower gross margins. I don’t think any of that is happening. So our gross margins, I would say compared to even the previous year are more or less in line. Yes, they could be a down a couple of percentage points here or there, but mostly in line with expectations.”

Venkatesan said that the reason behind the drop in the EBITDA margin is mainly because of the new investments the company has been making to grow the business.

“I think fixing the margins back to historical levels is much easier I mean if we really had to cut back we can cut back on spending and bring margins back to historical levels, but the intent is to continue to keep the investments going so that once the demand recovery comes, we are well poised and we are well positioned to take advantage of the demand recovery and we can grow at a much faster pace.”

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Growth And Expansion

As mentioned above, the company has been making significant efforts and investments in business development. So we asked Venkatesan when the company expects these efforts to bear fruit.

“See the initial expectation was that we will be back to the 30% growth levels by Q4 of this year. But at this point in time, it’s a little difficult for us to say. It’s also because clients are unwilling, like I said, to commit to longer budget cycles. Our hope definitely is that either Q4 or Q1 of next year we should start seeing a strong bounce back in revenue growth.”

He also added that the company expects to see good results from the Europe region as well in the near future. Currently, the company’s client base is largely in the US, but recent investments made by the company in business developments have been in the Europe region.

“We are hopeful that we should start seeing some deal closures in the Europe region. We are seeing very positive traction on our pipeline in Europe, which has been, I would say from historical levels it is quite strong. We expect that Europe as a region will start contributing in a significant way towards the end of this year and that should contribute to the overall company growth as well.”

Europe as a region currently contributes less than 2% to 3% of the company’s revenues. Venkatesan said that the company expects that number to go up to about 5% by the end of March and by the end of the next financial year it is expected to be between 8% to 10%.

Apart from Europe, the company has also been looking to expand strategically in the APAC region. The company is looking at the Middle East region as a big market specifically for financial services and looks to close to some clients in the near future.

Expanding Offerings

Currently, most of the company’s revenue comes from the technology vertical amounting to around 70% of the total revenue. The company however is also planning to expand its presence to other sectors such as retail and BFSI.

“CPG, retail and BFSI will be big focus verticals for us and we’ve been saying this for the last few quarters. We will continue to invest in these sectors. Within BFSI we’ve identified two or three verticals to go after because BFSI is a very large sort of space, right? So within BFSI, we are looking at fintechs, new-age fintechs especially, which use data in an extensive way to run their businesses. We are also looking at insurance as a big sector for us because we are building some solutions around insurance which we will shortly announce and take to market,” Venkatesan said.

Venkatesan explains that while these expansions are something that the company is looking at Technology will continue to be its strongest vertical. “However, our dependence on technology as a vertical, we would expect it to come down to around 50% of our overall revenues and then the remaining being contributed through CPG, retail and BFSI.”

Demand Revival

As mentioned earlier in the interview, one of the major reasons behind the company’s lukewarm performance has been the sluggish demand from clients. So, we asked Venkatesan, when does the company see things getting better in terms of demand?

“I would say that a lot of the work that we execute is business critical and has a direct impact on topline. Therefore it cannot be that the clients that we work with just sit on the fence and do not do anything. We believe that in a couple of quarters, all these clients that we work with have to still get work done and deliver to the business plan and we will see a bounce back in spending in a couple of quarters. 

And we are already seeing some of those signs. But as we’ve seen through the earlier part of this year, while we are having a lot of initial level conversations in the pipeline, deal cycles have become longer. Sales cycles have become longer. And therefore, for you to from the stage of the initial conversation to the closure of the deal, the sales cycles have elongated and we have to see for that. Once that trend starts reversing, we should start seeing a bounce back in revenue growth.”

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