Rationale

 The rating reaffirmation favourably factors in Datamatics Global Services Limited's (DGSL, or company) healthy financial performance, as demonstrated by its steady revenue growth, improvement in profit margins, robust debt protection metrics and strong liquidity profile (unencumbered cash/deposits/liquid investments of ~Rs. 364 crore as on September 30, 2021). The steady improvement in profit margins in FY2021 and H1 FY2022 have been driven by increased automation in its Business Process Management (BPM) division, offshoring of partial work to low-cost locations, constant optimisation of process and reduction in operational overheads. Moreover, healthy internal accrual generation has continued to result in low reliance on debt, translating into a comfortable capital structure and robust debt protection metrics. Additionally, the ratings continue to factor in the extensive experience of promoters in the information technology (IT) and business process management (BPM) services industry, DGSL's established and diversified customer profile, its comfortable financial risk profile, and a strong liquidity position. The company's diversified customer profile is reflected in its presence across sectors such as banking, financial services and insurance (BFSI), publishing, manufacturing, hospitality, and international organisation. The company is focussed on enhancing its presence in IT services through Robotic Process Automation (RPA), Intelligent Data Processing (IDP) and Automated Fare Collection (AFC) products, which is expected to drive its future growth and profitability. 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 lowcost locations. Further, with significant presence in the US (drove 58% of revenues in FY2021) and Europe, including the UK (16%), the company's business remains vulnerable to any regulation restricting outsourcing from these key markets. The ratings are also constrained by the susceptibility of profitability to foreign exchange (forex) fluctuations, since a significant portion of its revenues is generated in foreign currency (US Dollar, Euro and British Pound), thereby exposing its profit margins to forex fluctuations. However, the company's policy of hedging a sizeable portion of its receivables mitigates the risk to an extent. The Stable outlook on the [ICRA]A+ rating reflects ICRA's opinion that DGSL will continue to benefit from its established business profile and diverse customer base. Also, owing to the cost optimisation measures taken by the company, overall profitability is likely to be maintained over the near to medium term.