Updater Services Ltd (NSE:UDS) (Q1 2027) Earnings Call Highlights: Revenue Grows 9% to INR 764 ...

Negative Points

• IFM segment margins remained subdued at 4.5% EBITDA, with only marginal improvement year-on-year, impacted by front-ended costs and contract timing.

• Deneve's EBITDA margin declined to 4.3% due to a shift towards lower-margin field marketing services and budget planning issues with a large tech customer.

• The audit and assurance business saw a marginal revenue decline of 2% due to postponement of large client audits from May to June and July.

• The company faces ongoing labor shortages in key regions like Gujarat, Tamil Nadu, and Maharashtra, which could pressure operational costs and service delivery.

• A potential acquisition has been put on hold due to valuation disagreements, indicating a cautious approach that may limit inorganic growth opportunities.

• The BSS segment's EBITDA margin comparison with Q4 FY2026 is skewed by a one-time restatement in Avon, making sequential performance appear weaker than actual.

Q & A Highlights

Q: What is the status of the previously discussed acquisition, and how does the company plan to utilize its substantial cash balance of over INR300 crores? A: Amitabh Jaipuria, Senior Executive Director, stated that the acquisition deal is currently on hold due to differences in valuation, as the company is a conservative acquirer and does not believe in overpaying. He outlined a three-pronged strategy for cash utilization: inorganic growth (acquisitions), brownfield growth (organic investments in technology and go-to-market teams), and rewarding shareholders. The company has made a small beginning by declaring an interim dividend of INR1 per share, which will distribute about INR7 crores. While a share buyback is not currently under board consideration, all mechanisms for rewarding shareholders will continue to be evaluated.

Q: Can you provide an update on the SIS acquisition of company shares and any potential M&A activity? A: Amitabh Jaipuria, Senior Executive Director, clarified that there is no conversation between UDS and SIS spurring the share acquisition. He understands it to be a treasury operation by SIS, viewing UDS shares as a valuable investment at current beaten-down prices. He emphasized that there is no deal on the table and that the founder, Raghunandana Tangirala, and his family continue to own 59.1% of the equity, with no discussions regarding a sale or M&A action.

Q: Is the significant margin improvement in the Matrix business sustainable, and what is the outlook for IFM margins? A: Amitabh Jaipuria, Senior Executive Director, expressed confidence in the sustainability of Matrix's margin profile, citing a clear upward trend in revenue (from INR11.4 crores in Q1 FY26 to INR12.5 crores in Q1 FY27) and gross margins (from 12% to 20% over the same period). He attributed this to the scale-driven nature of the EBGC business and ongoing cost optimization. Regarding IFM, he noted that margins have been stable with minor variations due to front-ending of costs and contracts, and he believes they will not decline further from current levels.

Q: How is the company leveraging Agentic AI, and what are its prospects as a revenue contributor? A: Amitabh Jaipuria, Senior Executive Director, and Elizabeth Jacob, CEO of Athena, explained that Agentic AI is seen as both an opportunity and a productivity tool. It allows Athena to enter new segments like inbound service calls and collections without heavy investment in real estate and people. It also optimizes existing outbound operations by improving call quality, targeting, and closure rates. Elizabeth Jacob noted that for BFSI clients, it is currently used for outbound lead qualification and answering repetitive inbound queries, and they do not foresee wholesale replacement of human agents in the near term.

Q: What is the company's outlook on the GCC (Global Capability Center) sector and its potential impact on the business? A: Amitabh Jaipuria, Senior Executive Director, acknowledged that GCCs are a growing consumer of office space in India, accounting for almost half of Grade A+ office leasing. However, he noted that UDS's current exposure to GCCs is limited, as the company is strong in industrials, warehousing, and infrastructure, with low exposure on the commercial side. The company is rejigging its business development efforts to focus on growth and emerging segments, including GCCs, with a dedicated team being put in place.

Q: How is the company navigating the labor shortage and wage hikes across multiple states? A: Amitabh Jaipuria, Senior Executive Director, confirmed that labor shortages are real in southern, western, and NCR markets. To mitigate this, the company has recruitment teams in labor-surplus states like Eastern India, Bengal, Jharkhand, Bihar, and Orissa to recruit and redeploy workers. He noted that since the business model is a pass-through model, the company is working with customers to ensure requirements are met, with customers increasingly understanding the need to cater to migrant labor by improving costs and offering facilities like food, transport, and stay arrangements.

Q: Can you explain the reason for the reduction in BSS EBITDA margin from 11.5% in March to 7.5% in June? A: Amitabh Jaipuria, Senior Executive Director, clarified that the apparent margin reduction is skewed due to a restatement in the Avon business in Q4 FY26. Excluding that exceptional item, the BSS segment delivered an EBITDA of INR19.1 crores in Q4 FY26 compared to INR18.9 crores in Q1 FY27, indicating that the margin profile is largely similar. The comparison is distorted by the unnatural item in the previous year's fourth quarter.

Q: What is the reason for the increase in other expenses, and are there any one-time expenses? A: Ram Praveen, CFO, explained that the increase in other expenses is largely due to provisions taken for the transport segment in FY2026 versus the current quarter FY2027. He clarified that there is no spillover of Avon-related expenses in the current quarter, as all transportation-related revenue and expenses were squared off and adjusted in the last financial year.

Q: Is there any seasonality in the business, particularly regarding hiring cycles and audit seasons? A: Amitabh Jaipuria, Senior Executive Director, acknowledged that there is some seasonality in parts of the business. For example, the catering business is typically low in Q1 due to campus closures and vacations. Additionally, Q2 and Q3 are traditionally festive seasons, leading to increased demand for people, services, and campaigns in the sales enablement businesses. While the seasonality is not massive, it is certainly present.

Q: Can you provide guidance for the current fiscal year? A: Amitabh Jaipuria, Senior Executive Director, stated that the company does not normally give formal guidance and will continue with that approach. He suggested that investors can use the Q1 numbers as an indicator and extrapolate from there, but no formal guidance will be provided.

For the complete transcript of the earnings call, please refer to the full earnings call transcript .