Fidel Softech: Navigating Growth with Strategic Acquisitions and AI Ambitions in Q2 FY25-26

Fidel Softech Limited, an emerging player in IT Technology Services and Solutions, has reported its financial performance for Q2 and H1 FY25-26, showcasing a blend of robust top-line growth and strategic investments. The company, known for assisting clients in global and local expansion through technology-driven solutions and last-mile delivery in local languages, continues its impressive streak, marking its 14th consecutive quarter of consistent growth. This period highlights Fidel's commitment to both organic and inorganic expansion, setting the stage for future milestones.

For Q2 FY25-26, Fidel Softech recorded a revenue of INR 23.15 crore and a Profit After Tax (PAT) of INR 2.77 crore. While the revenue demonstrated a strong 39% quarter-on-quarter (QoQ) growth, the PAT experienced a 22-23% decrease. Management attributed this dip to several factors, including the deferment of a few projects impacting revenue realization, substantial one-time M&A costs associated with the recent US acquisition, interest payments on a foreign currency loan, and the annual salary appraisal cycle kicking in during the quarter. Despite these short-term pressures, the year-on-year (YoY) performance paints a more optimistic picture, with Q2 FY25-26 revenues growing by 67% compared to Q2 FY24-25, and PAT increasing by 16.88% YoY, signaling a robust underlying growth.

H1 Performance and Strategic Shifts

The first half of FY25-26 saw consolidated sales reach INR 39.78 crore, reflecting a significant 51% YoY growth. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) grew by 43.33%, Profit Before Tax (PBT) by 40.73%, and PAT by 43.08% YoY. This strong H1 performance underscores the company's ability to expand its operations and improve its financial metrics over the longer term. The company's strategic focus on exports remains strong, with 90% of its business derived from international markets.

A pivotal development in this period was the acquisition of Techvine, a US-based IT consulting firm. This strategic move has significantly enhanced Fidel's footprint in the US, providing direct access to new clients and accelerating top-line growth by an estimated 1.5 to 2 years. The acquisition has also led to a more balanced geographical revenue mix: 25% from the US, 25% from Europe, and 50% from Asia-Pacific (including Japan and India). In terms of service offerings, IT and Consulting Services now contribute 60% of the revenues, while Language Localization and Engineering Services account for 40%. This diversification is crucial for mitigating market risks and leveraging global opportunities.

AI Initiatives and Future Outlook

Fidel Softech is actively investing in Artificial Intelligence (AI) capabilities, recognizing its transformative potential. The company's AI services generated approximately INR 1.2 crore in Q2, primarily from projects involving AI engine output validation, data collection, and cleaning for training AI models. Management envisions AI as a significant growth vertical, with the potential to contribute INR 20-25 crore in revenues per vertical. The focus is on delivering AI-enabled services and developing vertical competencies in areas like capital markets and manufacturing, rather than creating proprietary AI products.

Looking ahead, Fidel Softech maintains a cautiously optimistic outlook. The management aims to sustain quarterly revenues between INR 22-25 crore and achieve double-digit PAT and EPS. The company has set an ambitious target of 30-40% overall growth for the year and is on track to achieve a 5X growth in 5 years since its IPO in 2022. Efforts are concentrated on driving H2 numbers to surpass H1, with a focus on sustaining and potentially improving margin profiles. The US-Japan-India corridor is expected to create unique value propositions for clients, combining technology, language, and people consulting services.

Sustained Growth and Margin Management

Fidel's management is committed to enhancing shareholder value through sustained growth and disciplined margin management. The company's cash flow position remains strong, with consistent positive cash generation and ongoing efforts in receivables management. While acknowledging that US and Japan operations may initially yield slightly lower margins due to their onsite nature, the company expects the H2 profile to be better than H1 as these operations stabilize and contribute more significantly. The focus remains on strategic inorganic growth opportunities, evaluating complementary capabilities, new competencies, and market expansions to scale the business effectively.

In conclusion, Fidel Softech Limited's Q2 and H1 FY25-26 results reflect a company in a dynamic growth phase, strategically expanding its global footprint and diversifying its service portfolio. Despite short-term profitability pressures from M&A and operational costs, the strong YoY growth and clear strategic direction underscore management's focus on long-term value creation and sustained performance.