Notes from recent Q2 FY 24 concall
Business:
Revenue
- Revenue from operations: Rs 205.3 crore up 58% YoY
- Revenue in the previous quarter: Rs. 206.81 crore
- Compared to QoQ revenue, India segment revenue went up by Rs 20 crore but overall revenue declined by Rs 1 crore. Additionally, most of the increase in India revenue came from AMC re-pricing. I need to understand if the AMC revenue is recurring or one-time.
- Revenue from “Product segment”: Rs. 174 crore up 68% YoY (contributes 85% to overall revenue)
- Revenue from “project and services”: Rs. 31.2 crore up 31% YoY
- Revenue contribution from the top 5 clients for the quarter is 28.8%
- Order book: Rs 705.1 crore including Rs 648.2 crore of the products business and Rs 56.9 crore of the projects and services business. Since TTM revenue was Rs 788 crore, the “book to bill” ratio is 705.1/788 = 0.89
- Order book in the previous quarter: Rs 758.6 crores including Rs 689.1 crore of product business and Rs 69.5 crore of project and services business
EBITDA margin
- EBITDA margin: 25% up from 9% YoY but in Q1 the same was 30%
Net Profit
- Net profit: Rs 44 crore up 305% YoY!
- Net Profit in the previous quarter: Rs. 53.6 crore
Cash position
- Total cash including investments in mutual funds, bank deposits, tax free bonds, etc. is Rs 718 crore.
- Considering current market cap of Rs 3778 crore, the cash balance constitutes to 19% of the market cap.
- In other words, since 2.68 crore shares are issued, Cash per share value is ~Rs 268
- Enterprise value = 3778 + 0 – 718 = Rs 3060 crore
- Management stated that there is no intention of investing cash via acquisition. Board to decide about dividend or buyback
Management
- Management initiated re-pricing of annual maintenance charges across all contracts a few quarters ago.
- Most domestic contracts have been revised with higher annual maintenance charges. Oversees contracts are in the process of renewal
- Management believes that the product offering is high quality and is priced low. Hence they are optimistic about re-pricing going smoothly with international customers as well. So far the customers have agreed to renew contracts at higher prices. Most of the revenue increase in Q2 FY24 came from renewing annual maintenance charges.
- It will take upto FY25 to complete the re-pricing exercise
- Bench strength is not applicable. After training employee starts on product or on project right away.
- The current employee strength of 1908 will go up by 300 in coming quarters. The addition will encompass all departments including engineering, sales, marketing, etc.
- Per management, business is lumpy but there is no seasonality. Need to understand better
- Spent 8 crores on marketing as management believes clients do not understand tremendous value addition. They declined to confirm that the marketing expense was to enter a new geography. However, they did say that the next leg of growth will come from international markets. The marketing expense will be a recurring expense.
- Want to focus on non-Indian customers. Expect growth from various geographies soon
- Expect an announcement of new deal wins in near future. Large deal for FinnAxia offering is still in pipeline
- Management is going to continue with marketing spend and hiring. However, since revenue is bumpy, the margin is also going to be bumpy
- Total addressable market as per management is $20 to $30 Bn since software cost for the lending business is between 0.5% to 1% of AUM
- Voluntary churn by customers is less than 5%
- There is going to be spillover of revenue in Q3 since certain orders in Q2 did not come through
Risk
- Due to the nature of the business, the revenue growth is bumpy – I need to understand better
- Data about customer churn, attrition and new product/feature development-related information is not shared by management
- 20% of market cap lies on the balance sheet in the form of cash with no visibility of how the management intends to use it
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