Basilic says Rs 22 crore AI build lifted reported depreciation

Basilic said its Rs 22 crore investment in artificial-intelligence tools, servers and a USD pipeline lifted depreciation in H1 FY'27 before the operating savings and additional volume from those assets could be quantified. Management said the assets were principally capitalised as intangibles with a three-year life, creating an immediate charge to reported profit.

Why did Basilic's depreciation increase so sharply?

Basilic said higher depreciation primarily reflects the capitalisation of about Rs 22 crore in technology assets, rather than an increase in property, plant and equipment. Gaurav Mehra said the assets created between March and September were recorded mainly as intangible assets in the standalone balance sheet. They include artificial-intelligence tools, servers and an integration USD pipeline funded through the company's last qualified institutional placement, or QIP.

Management said the accounting charge arrives before the commercial return from the assets. Mehra said the technology assets have a three-year useful life, so depreciation is recognised under accounting rules even when cost savings cannot be measured over a quarter. He said a smaller amount was capitalised in the prior year's first quarter, while the larger capitalisation occurred in the current H1, affecting year-on-year comparisons in both standalone and consolidated accounts.

How has the investment affected Basilic's reported profitability?

Basilic said the main effect has been on profit after tax, or PAT, rather than its standalone operating margin. Management said standalone PAT margin declined to 20% from about 30% to 31%, attributing that change to depreciation and amortisation, or D&A, associated with the technology investment. The distinction matters because D&A is charged after earnings before interest, tax, depreciation and amortisation, or EBITDA.

Standalone EBITDA margin was 48.5%, compared with 49.5% a year earlier, according to management. Mehra said consolidated EBITDA margin would remain unchanged after excluding the one-off severance cost incurred in the first quarter. He also said the higher contribution from overseas work affected the consolidated margin mix, although the individual EBITDA percentages of overseas and standalone operations remained intact and the standalone percentage had improved.

What operating benefits does Basilic expect from AI and infrastructure?

Basilic said the technology build is intended to increase offshore execution, improve access to high-end assets and support larger project bids. Management said its infrastructure lets artists in India access assets from machines in London without transferring those high-end files. NetApp storage and Artist Connect were identified as tools that can scale this workflow, alongside the first completed phase of the USD pipeline and a second phase that was nearing completion.

Management said artificial intelligence can increase the amount of work delivered in an eight-hour day, but it does not expect to retain all of the resulting efficiency in-house. Mehra said lower operating costs can enable more competitive client pricing and help Basilic win larger assignments. He linked these efficiencies to 11% year-on-year overall growth and said bid and win sizes had increased from 1.5 million to 2 million earlier to 4 million to 5 million.

When could Basilic's savings affect margins?

Basilic said savings should emerge as more technology-enabled volume is executed, rather than by a specified quarter. Management described the current period as a transition involving investment in artificial intelligence, integration of UK and Paris operations, and recruitment shifting toward India. In its explanation, depreciation is immediate, while the revenue and delivery benefits depend on projects reaching execution milestones.

Management expects EBITDA margin to be around 20% in subsequent quarters, with possible improvement, while noting that H1 included first-quarter severance costs. It also expects employee cost as a proportion of revenue to decline by about 4% to 5% over time as technology and offshore capacity expand. An analyst on the call cited H1 FY'27 employee cost of Rs 137 crore, or about 65% of revenue.

How does the Bengaluru plan support Basilic's technology strategy?

Basilic said its planned Bengaluru physical facility is meant to make its technology-enabled delivery model more scalable. Management said the site was expected to be ready by January, after the team began working remotely. The facility is intended to support recruitment in India while London and Paris retain teams for delivery and growth, with certain future roles moving to India.

The Bengaluru team had increased from zero to 50 people over the preceding eight to nine months, and management expected another 50 to 60 full-time-equivalent, or FTE, roles within six to eight months. Mehra said those additions would equal more than 12% to 15% of current total FTEs and would focus on high-end work. Management linked the planned expansion to the USD pipeline and the ability to execute both short-timeline and longer-timeline offshore assignments.

What other factors are affecting Basilic's cash and execution?

Basilic said larger overseas projects are extending working-capital requirements because revenue is delivered against milestones. Management said the India business was running at about Rs 120 crore in the current year after increasing from Rs 75 crore two years earlier, while H1 growth in India was only 2.4% year on year. It said growth from Rs 190 crore to Rs 208 crore was instead driven by overseas business, where project ticket sizes and delivery periods are larger.

Management said it collected Rs 40 crore during H1 and expects the receivables spike to normalise over another two quarters. It attributed the increase to rising project sizes, higher overseas volumes and associated hiring. Separately, Mehra said H1 cash flow was primarily affected by tax payments after March, as tax liabilities that had not involved substantial advance-tax payments in the prior year were discharged during H1.

Conclusion

Basilic's account is that the Rs 22 crore technology build is reducing PAT through a faster D&A charge, while the change in standalone EBITDA margin was narrower at 48.5% from 49.5%. The investment is designed to shift more high-end delivery to India, support larger bids and share some efficiency gains with clients through competitive pricing, rather than to produce an immediate one-quarter profit benefit.

The next disclosed milestones are the planned January readiness of the Bengaluru facility, completion of the USD pipeline's second phase and the expected addition of 50 to 60 Bengaluru FTEs within six to eight months. Management also expects receivables to normalise over two quarters and said H2 is usually higher than H1 because production schedules concentrate in the second half.