ICRA reaffirms rating of Datamatics Global Services with 'stable' outlook

Datamatics Global Services (DGSL) said that ICRA has reaffirmed its rating on the debt instruments of the company at "[ICRA] A+ (Stable)/ [ICRA] A1+".

ICRA said that the rating reaffirmation favourably factors in DGSL's steady financial performance, as demonstrated by its steady revenue growth, healthy cash accruals and strong liquidity profile (unencumbered cash and liquid investments of approximately Rs 416 crore as on 30 September 2022).

Moreover, healthy internal accrual generation has continued to result in minimal reliance on debt, translating into a comfortable capital structure and robust debt protection metrics.

The company's order pipeline remains strong with TCV2 of deal wins worth $126 million in FY2022 and $48.3 million in H1 FY2023, which provides revenue visibility over the medium term. Additionally, the ratings continue to factor in the extensive experience of promoters in the IT and business process management (BPM) industries.

However, the ratings are constrained by DGSL's moderate scale of operations and profitability compared to other major IT services players and its exposure to intense competition from other established industry participants in India and other low cost locations. Additionally, the industry participants, including DGSL, continue to face challenges in the form of wage inflation, foreign currency fluctuations, talent acquisition and retention.

ICRA also notes the company's plans to grow inorganically through acquisitions in the short to medium term, funded by its sizeable cash and liquid investments. Any sizeable debt-funded acquisition can materially impact the company's financial risk profile and will be evaluated on a case to-case basis.

Further, with significant presence in the US and Europe, the company's business remains vulnerable to any regulation restricting outsourcing and evolving macroeconomic headwinds in these key markets.

The 'stable' outlook on the rating reflects ICRA's opinion that DGSL will continue to benefit from its established business profile, order book position and diverse customer base.

DGSL provides solutions for data driven businesses to enhance their productivity and customer experience. The company's services can be bifurcated into three segmentsdigital operations, digital experience and digital technology. The company has also developed products in robotics process automation, advanced analytics, business intelligence, and automated fare collection.

The company's consolidated net profit rose 13.20% to Rs 39.96 crore on a 14.76% increase in sales to Rs 343.40 crore in Q2 FY23 over Q2 FY22.

The scrip rose 0.16% to currently trade at Rs 283.05 on the BSE.

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