ZENSARTECH Q2 FY27 Earnings Call: AI Deals Hit 36% of Order Book, EBITDA Margin Up 120 Bps

ZENSARTECH held its Q2 FY27 earnings call on October 28, 2026. Here's a quick read of what management said — performance, strategy, and the outlook ahead.

Broad-Based Sequential Growth with Margin Expansion

• Revenue of $166.2 million — up 4.1% QoQ in constant currency and 4.2% QoQ in reported terms; in INR terms growth was 5.1% QoQ and 11.5% YoY in Q2 FY 2026-2027.
• EBITDA margin of 15.8%, up 120 bps QoQ — bridge: forex +0.4%, volume/working days/utilization +1.3%, lower ESOP costs +1.3%, offset by management bonus reversal -1.3% and other software/AMC-related costs -0.5%.
• PAT margin of 12%, down 20 bps QoQ — diluted EPS at 8.3 per share, up 3.6% QoQ in Q2 FY 2026-2027.
• Cash including investments at $297.3 million — after a dividend payout of $29.9 million, which the CFO cited as the only large payout in the quarter.
• DSO rose to 77 days — management cited payment terms being renegotiated across the industry as a pressure point. A watch item on working capital.
• Management tone confident but cautious — CEO Manish Tandon said he was "not very surprised" by the 4.1% QoQ growth but cautioned "one swallow doesn't make a summer"; the next 2-3 quarters (Q3 FY 2026-2027 onward) will show how strong the growth or weak the recovery is.

BFSI Leads; All Regions Grew Except Telecom

• 3 of 4 verticals grew sequentially in CC in Q2 FY 2026-2027 — BFSI +7.1%, manufacturing & consumer services +2.9%, healthcare & life sciences +2.4%; telecom, media & technology declined 2.2%.
• BFSI is now 50% of revenues (cited by analyst Amit Chandra) — management said growth is coming from several accounts beyond the large deal, but did not explicitly confirm whether the large deal has reached steady state (analyst expectation was Q3 FY 2026-2027).
• Service lines contributed 72.2% of revenues in Q2 FY27 — a 420 bps YoY improvement; YoY: products & platforms (incl. CMO services) +18.3%, data engineering & analytics +13.4%, enterprise application services +1.8%, cloud infrastructure & security services -0.6%.
• Healthcare strategy targets providers, not payers — management stated Zensar's expertise lies in pharma and biotech and it is targeting the provider sector, as payers and life sciences are heavily penetrated by outsourcing while providers remain underpenetrated; focus is on mid-market innovative pharma/biotech firms rather than very large players.
• Telecom exposure reduced significantly — CEO Manish Tandon said the worst is behind us for telecom, so the sector's impact — positive or negative — will be relatively limited.

AI Reshapes Bookings; Analysts Probe Compression

• Order book stood at $151.5 million in Q2 FY 2026-2027 — AI-influenced deals now account for 36% of the order book, having "moved from 10s to 30s" over the last 3-4 quarters; management expects this share to continue inching up (period unspecified).
• Analyst flagged H1 FY 2026-2027 TCV down ~9% YoY — with TTM TCV (adjusted for the large deal) also down YoY; two deals of ~$30 million that did not get signed in Q2 FY 2026-2027 slipped to Q3 FY 2026-2027 purely due to paperwork, per management.
• CEO expects deal sizes to keep shrinking in the "new AI world" — citing ~30% reductions as illustrative, so order bookings will remain muted industry-wide (period unspecified); with 3-6 month deal durations, reported bookings capture only part of the delivery period.
• CFO Pulkit Bhandari pushed back on anchoring — clarifying there is no material change in TCV yet; deal-size compression is an emerging trend, not a current reality, and contract tenors are shortening (deals previously structured as 5-year contracts now seen as 3-year contracts).
• Renewal win rates north of 95%, very close to 100% — per Manish Tandon; peers have indicated 50-60% of their client portfolios have already seen a renewal cycle (industry context, not a company metric).
• Management urged analysts to fragment the order book — into renewals, existing-new (EN) and net-new (NN), since compression commentary applies primarily to EN and NN; very large deals remain a "race to the bottom" and Zensar is countering AI-driven compression by "expanding the overton window" per client. No numeric book-to-bill target was committed for FY 2026-2027.
• Proof-of-value model since start of CY 2026 — Zensar stopped doing POCs (typical success rates only 20%-25%); its proof-of-value-to-production conversion now runs at 80%+.

From Proof of Value to Production-Scale Deployment

• AI adoption has moved to production scale — several clients are on the ZENSAI suite; 92% of people are progressing on the four-level competency ladder via the Ignite AI Academy, and 59+% of projects have adopted AIDLC ways of working in Q2 FY27.
• 50+ new AI-based offerings built across the five service lines — plus 50+ industry-specific AI solutions developed; ZENSAI carries no license revenue model — IP stays with Zensar and the platform is intended as a differentiator, accelerator, and speed-to-market/quality/governance tool, since Zensar is not in the product business.
• AI tools capitalized as intangibles — amortized over roughly 5-5.5 years; H1 FY 2026-2027 cash flow shows ~Rs.250 crore of payments for property, plant and equipment, which the CFO attributed to AI tools capex; no employee salary costs were capitalized.
• Mix shifting toward fixed-price and outcome-based contracts — Manish Tandon said using AI in T&M contracts "just doesn't make sense"; Zensar expects outcome-based (primarily) and fixed-price components to rise over the next 3-4 quarters (spanning into FY 2027-2028).
• No structural change in AI contracting — CFO confirmed the MSA construct remains as before, with no separate AI-specific MSAs; Zensar does not report AI revenues, citing the absence of a clear definition ("everything is AI these days").
• Skepticism on large peers' mid-market push — Tandon called it a "good statement of intent" with execution not visible in the market, noting retraining sales forces to chase deals under $1 million is a "mammoth task"; he also downplayed mid-size AI adoption advantage, saying AI change happens only when driven from the very top of the client organization.

Headcount Surge, Wage Hikes and Q3 Headwinds

• Headcount crossed 12,000 in Q2 FY 2026-2027 — up 8.6% QoQ with a net addition of 978 employees, 73% higher than Q1 FY27; hiring late in the quarter veered toward the graduate population.
• Voluntary attrition at 9.3% — the seventh successive quarter below the 10% mark; utilization rose 250 bps QoQ to 87.6%.
• Wage hike impact guided at 1.5-2% for Q3-Q4 FY 2026-2027 — annual hikes in two batches effective Q3 and Q4 FY 2026-2027; the CFO said management is working on levers to absorb this, which is why margin guidance has been maintained.
• Q3 FY 2026-2027 headwinds flagged — large-deal ramp-up, furloughs, and ASR impact (partly mitigated by spreading ASR across two quarters); the analyst also noted the ~130 bps ESOP-cost benefit in Q2 FY 2026-2027 will not repeat and utilization appears to have peaked.
• Mid-teens margin guidance maintained for Q3 FY 2026-2027 — unchanged over many quarters, preserving headroom to invest and to grow; Q2 FY 2026-2027 D&A reflects the full-quarter impact and can be construed as the normalized run rate going forward, per the CFO.
• AI-native fresher hiring at ~30% of total fresher hiring (FY 2026-2027 to date) — COO Vijay Simha said AI-native hires go through an internship model before conversion, with post-conversion salary likely about 2.5x that of normal freshers (period unspecified); the AI-native share is expected to increase.

Measured Demand, Selective Large Deals, Focused Playbook

• Demand environment remains mixed — clients are measured in spending and long-term commitments, directing committed spend toward embedding AI into core operations focused on service quality, simpler processes and measurable returns; enterprise AI spending is entering a scale-up phase.
• No explicit H2 FY 2026-2027 growth guidance was provided — management emphasized secular growth momentum while reiterating its view that industry-wide order bookings will stay muted as AI penetration rises; the company does not give quarterly guidance.
• Q3 FY 2026-2027 "looking better than what it has in the past" — per Manish Tandon, with furlough impact expected to be lesser than before as telecom (TPS) exposure has declined, though furlough remains broad-based beyond telecom.
• Q3 FY 2026-2027 priorities — maintain growth momentum, disciplined execution, deepen client value, and continue advancing AI-native capabilities and execution.
• No geographic or vertical expansion planned over the next 2-3 years — management believes existing markets offer enough opportunity, positioning Zensar as a "speedboat" versus a large "aircraft carrier" and a "swarm of drones against an F-35," aiming to win in every sector and market it operates in.
• Large deals to be pursued very selectively — management characterized them as margin dilutive; Q2 FY 2026-2027's positive QoQ numbers in all verticals except telecom were cited as evidence the strategy is working.