Nucleus Software Exports Limited (531209) Earnings Call Transcript
August 7, 2023
Earnings Call Speaker Segments
Good day, ladies and gentlemen. I'm Talshia, the moderator of this call. Thank you for standing by, and welcome to Nuclear Software quarterly earnings conference call. [Operator Instructions] I would now like to hand over the conference to Swati Ahuja. Over to you, Swati.
Thanks, Talshia. Good afternoon, everyone. This is Swati from Investor Relations team at Nucleus Software. A very warm welcome to all of you for this Nucleus Software earnings conference call for the quarter ended on June 30, 2023. For discussion, we have here leaders from the management team, Mr. Vishnu R. Dusad, our Managing Director; Mr. Parag Bhise, CEO and Executive Director; Mr. Anurag Mantri, CFO and Executive Director; Dr. Ritika Dusad, Executive Director and Chief Innovative Officer; Mr. [indiscernible], Chief Human Resource Officer; and Mr. Tapan Jayaswal, Financial Controller. As you all are aware, Nucleus Software does not provide any specific revenue earning guidance. Anything which is said during this call, which may reflect our outlook for the future or which may be construed as a forward-looking statement must be reviewed in conjunction with the company -- with the risk the company faces. An audio and transcript of this call would be shortly available on the Investors section of our website, www.nucleussoftware.com. With this, we are now ready to begin with the opening comments on the performance of the company. And post that, we would be available for question-and-answer session. With this, I now pass it over to Vishnu, sir. Over to you, sir.
Good afternoon, and a warm welcome to all of you for this first quarter ending -- investor call. We at Nucleus Software continue to do a tough balancing between all our stakeholders, customers our [indiscernible] our suppliers. The quarter that we are talking about is a satisfying one, and we continue to look forward to delivering on a sustained basis more and more value to our customers. With those words, I would now hand over to Parag.
Thank you so much, Vishnu, sir. This is Parag here. Good afternoon, everyone, and I welcome you all to this investor call for quarter 1 of this financial year. As regards this quarter, it had gone as per our expectations, both in terms of financials as well as in terms of attrition that we have been watching very closely and also been reporting. I had mentioned in the last quarter that -- in the last quarter financials, there was a onetime impact on the revenue. So that's why this quarter, you would see that the revenue growth tends to be flat. Otherwise, we continue to work on various improvements that we've been talking about, including improvements on the engineering side, on the project management side, so that we are able to conclude more and more of our implementation in shorter times going forward. That's it from me. Thank you very much.
Now I request Tapan sir, please put some light on financial numbers.
Hello Swati?
Yes, you're audible. Please go ahead.
Am I audible?
Yes, sir.
Key highlights from financials are, as for revenue. Our consolidated revenue for the quarter is at INR 206.8 crores against INR 206.2 crores quarter-on-quarter, and INR 128.8 crores year-on-year. Overall revenue in foreign currency, including India rupees revenue is USD 25.3 million against USD 25.2 million quarter-on-quarter and USD 17 million year-on-year. Revenue for the quarter is at INR 182.6 crores against INR 179.6 crores quarter-on-quarter and INR 108 crores year-on-year. Selling from projects and services for the quarter is at INR 24.2 crores against INR 26.6 crores quarter-on-quarter, INR 3.8 crores year-on-year. For expenses, cost of delivery, including cost of product development for the quarter is 0.5% of revenue, [ 51.8% ] of revenue quarter-on-quarter, 75.6% of revenue year-on-year. In absolute terms, this is INR 125.1 crore against INR 106.9 crores quarter-on-quarter, INR 97.4 crores year-on-year. As for marketing and sales expenses for the quarter, it is 3.4% of revenue and [ 2% ] of revenue quarter-on-quarter and 3.3% year-on-year. In absolute terms this is INR 7 crores against INR 4.6 crores quarter-on-quarter and INR 4.2 crores year-on-year. As for G&A expenses for the quarter is 6% of the revenue, 5.9% of revenue quarter-on-quarter, 9.9% year-on-year. In absolute terms, this is INR 12.3 crores against INR 12.2 crores quarter-on-quarter, and [ INR 13.7 ] crores year-on-year. EBITDA for the quarter is at INR 62.3 crores against INR 82.5 crores quarter-on-quarter, INR 14.5 crores year-on-year. Total other income from investments and deposits is at INR 11.3 crores against INR 9.1 crores quarter-on-quarter and INR [ 9 ] crores year-on-year. Total other income for the quarter is INR 12.8 crores against INR 9.7 crores quarter-on-quarter [indiscernible] year-on-year. Total taxes are at INR 17.9 crores against INR [ 20.9 ] crores quarter-on-quarter and INR 4.7 crores year-on-year. Profit is at INR 50.6 crores against INR 67.6 crores quarter-on-quarter and INR 10.8 crores year-on-year. Other comprehensive income is at INR 3 crores against INR 2.8 crores quarter-on-quarter and INR 0.18 crores year-on-year. Total comprehensive income, which includes net profit and other comprehensive income is at INR 56.6 crores against INR 70.4 crores quarter-on-quarter, INR 10.9 crores year-on-year. As for EPS for the quarter is at INR 20 as against INR 25.27 quarter, INR 4.02 in June 30, 2022 quarters. In terms of foreign currency hedges on June 30, 2023, we had USD 3.25 million forward contracts at an average rate of INR 83.04. It is a mark-to-market gain of INR 0.21 crores which is taken to hedging reserve in the balance sheet. Revenue contribution from the top 5 lines of the quarter, 27.7%, 34% in the previous quarter. Order book position is INR 758.6 crores, including [indiscernible] product business and INR 69.4 crores of projects and services business. In March 31, 2023, the order book position was INR 639.7 crores, including INR 585.8 crores of product business INR 53.9 crores projects and services business. Total cash and cash equivalent as of year 2023 are INR 701.5 crores, INR 595.3 crores as on March 31st 2023. This includes balances in current accounts of INR 60 crores, various schemes of mutual funds INR 548.9 crores, fixed deposits of INR 26.4 crores, investment in tax-free bonds to INR 61.1 crores, INR 5.1 crores in preference shares. With regards to receivables, we are at INR 200 crores against INR 174.6 crores in the previous quarter. In the quarter, there is a gross addition of fixed assets of INR 3.06 crores consisting primarily of INR 2.62 crores on computers and INR [ 0.26 ] crores on software. I'll hand over to Swati.
Thank you, sir. With this, we are now open for question-and-answer session. I will hand over to Talshia. Over to you, Talshia.
[Operator Instructions] The first question comes from Niteen S. Dharmawat from Aurum Capital.
Just correction. My name is Niteen Dharmawat not Jiteen Dharmawat. Okay. And before I ask questions, just one suggestion, if you do not mind. Since we gave these numbers up to 2 decimal points, it will -- they still be fine instead of giving and drilling all these number if we give them as a press release and just highlight 3, 4 points. Just a suggestion, it will be helpful for everyone and it will be more relevant. Okay. My first question is, we have around 200 customers. I would like to know the percentage revenue contribution from the top 10 customers.
Yes, the Top 10 numbers will not be available really, but top 5 number, we have shared with you. And we'll certainly share the top 10 number, next time.
Thank you for the clarification. Now my next question is since we have taken a price hike, is there any partial or complete loss of clients till then? If so, what is the impact? And if you can highlight that?
No, there is no loss of client whatsoever. We continue to service all our customers as we have been servicing before the price hike.
Okay. My next question is, we have done buybacks in the past but we still have a significant amount of cash on the books. So any plans to do more buybacks, sir?
Certainly, we will let the Board know about this, and they do take these decisions at an appropriate amount of time.
Perfect, sir. Any plans to do M&A in this space, sir?
No. As far as that is concerned, we are clear, as of now, we'll continue to focus on organic growth. [indiscernible] future reason plan to acquire any company.
Okay. And what are the top 3 challenges that we are facing currently when we have changed our pricing strategy? Including that, so any specific challenges that you see on top 3 challenges that you can highlight.
Not really a big challenge, but we had talked in the past about the mass designation, which has hit us. We had also talked about that we had hired 2x candidates from the campus. Now while these are already as part of our workforce, but as a product company, we do take a lot more time to train our people on the products and their contributions in implementation. So that is something -- I won't say the big challenge, but that's something which we are working on with focus. That's a focus area for us.
So that mass resignation that you are talking about is now gone, right? It is past, it is no more impacting us?
Absolutely, absolutely. What I'm saying is that since we are into this product business, which is far more complex than the services business. Here, we do take a lot more time to get our people back to the level where they were before the mass resignation.
Yes, absolutely. And who are our top 3 competitors in India? And how are we difference on them?
Sorry?
On 3 competitors.
No, we do not like to mention about our competitors on our investor call. Okay, if you will be able to find out on the market. We are reasonably ahead of our competitors.
Next question comes from Deepan Shankar from Trustline PMS.
So firstly, from my side, so what is the status on the annual contract renewal? And do we expect this renewal of customers contracts continuing in this year also?
Yes. That will -- I think we've been talking about it that we have a large customer base, right. So we -- the process continues -- that's I think a short answer to it. The process continues.
Okay. So can you throw us some light on what proportion of these customer contracts has already been renewed and what proportion of customers is still under progress?
No. As we've been saying, those numbers, you would not want to share specifically. There is, of course, the reflection that you saw in the past quarters and I would limit my answer to that.
Okay. So does this Q1 also include new customers anyone?
Yes. As I said, the process continues. So every quarter, we would convert some of the customers, take them to the next level.
So does that mean that retrospective amount is the equivalent to the new customer renewals during this Q1, that's why Q-o-Q revenues were flat?
I'm sorry, not really understood your question. Could you please repeat?
See, you have already -- during last call, you have told us that retrospective amount will not be repeated. So Q-on-Q, our revenue numbers were flat. So -- and you were saying already that new customer renewal contract has also happened during Q1. That means the retrospective amount is equal into the new customer renewal contracts happened during this Q1? Is it fair to assume that?
So while those specific details will be difficult to share, but I would request my colleague, Anurag, if you want to share or throw some light on this.
Thanks, Parag. So just to answer to your question, we have the last quarter revenue had taken into account of many of the AMC rebase lining and increase and the sale process continues. So some of the revenue for the previous quarter had come from this and the trends continue like this. So we will not be able -- as Parag mentioned, we will not be able to give you details about the state of this particular trend. But for next many quarters, this particular process will be on, and we will be definitely taking those particular...
Okay. So what is the reason for sharp improvement in Australia revenue?
One of our large engagement in Australia, there is a particular milestone which got achieved and the related revenue was recognized for that particular engagement and describes the increase in Australia revenue.
Okay. So so far, this renewal contract has been done only in India region, right, and not in other regions outside India?
This is happening across all the geographies where we are serving our customers.
Okay. Okay. And lastly, from my side, also what is the reason for soft increase in employee costs. And in this current run rate will continue in the coming quarters as well?
So our annual performance adjustment excise for up to particular level. And that particular reason has led to the increase in the personnel cost.
I just wanted to further add -- Yes, yes. Further, I want to add that for us, as we are in the intellectual property business, for us, our teams are most important resource and to ensure that we have dedicated and satisfied, of course, we have taken a proactive measure of increasing the compensation.
So this run rate will continue, right, sir?
Yes, it will continue. It will continue.
Next question comes from Jiten Parmar from Aurum Capital.
Yes. The name is Jiten Parmar. Anyway, see, my question is more on the trajectory of the margins since the last 2 quarters because of the price hike. We have moved to like 30% plus. My question is, is this sustainable? I mean, we'll be able to maintain that?
Yes. As we have mentioned in the past, we do not give any guidance, but our effort would always be to maintain the positive margin that we have maintained in the last couple of quarters.
Okay. And can you give a breakup of revenues, what is it from India? And what is abroad? Is it possible for you that you could had?
In fact, our revenue cost is 48% of our total revenue.
Sorry, we missed your -- I think your line. Can you please repeat?
India revenue is total 48% of our total revenue.
Okay. And any plan to increase the revenue from international clients or this will -- what is the plan for the company about the international market?
Certainly, the plans from the international markets are for us to increase the revenue from international markets substantially. And at some point of time, our domestic revenues used to be less than 25%, and that's where we will go back to.
Okay. Okay. And my final question is basically, if you can throw some light, what are the growth plans of the company? How -- are we adding any new products or any new verticals?
As far as that is concerned, we will continue to focus on our existing lines of businesses, which is lending and transaction banking. We see huge opportunities for both these lines of businesses, both in Indian market as well as globally. We will continue to focus on Australia, Europe and U.S. in near future. These are the 3 target geographies that we are working on.
Next question comes from [ Yogesh Bhatia ] from Sequent Investments.
Sir, I missed out in the beginning commentary, we said what is the total order book? And also, you mentioned that this INR 120 crores run rate of salary will continue. So is it because we have taken only hikes or the employee base has also increased?
No, it's a combination of increase in employee base as well as a hike.
Okay. And what was the order book, sir, at the end of this quarter?
Tapan, if you could repeat that number, please?
The total order book position is INR 758.6 crores.
And what was this last quarter, sir?
Last quarter was INR 39.7 crores.
Sorry, INR 39.7 crores was last quarter?
INR 139.7 crores.
Tapan, your line actually has a lot of disturbance. We can't hear.
[indiscernible]
Next question comes from Vaibhav Badjatya from Honesty and Integrity Investment.
So what's the employee -- number of employees at the end of [ June '23, ] number of employees?
It is 1,832 employees.
[Operator Instructions] Next question comes from [ Ankur Kumar ] from Alpha Capital.
Question is on revenue breakup. You said in Australia, there were some project completion. Was it a similar pace in Middle East also, Middle East also, there is a big jump?
So that is also linked with commercial project that we completed in the Middle East...
So in terms of Middle East and Australia, is that like a one-off and some of this is like -- so Middle East, there is a INR 8 crore jump in Australia also there is around some INR 13 crores, INR 14 crores. So is that like the one-off?
This Australia one is definitely -- one of the milestones which was pending for some time and such milestone is not expected in the immediate months. For the Middle East, we are driving the projects. They have the ongoing projects, and we will be seeing similar type of project milestone being achieved there as well. From a revenue perspective, we will not be able to share any insights about that.
And sir on India side, there is a degrowth. So -- versus the last quarter. So is it like because Q4 has extra previous impacts. Is that the reason? Or there is something more to that?
Related to AMC, there were many AMCs we've got to put the discussions got concluded in Q4, leading to the corresponding revenue coming in. And of course, a few of the AMCs have been closed in this quarter also. But in Q4, a number of AMC, we got close were much, much higher.
And sir, employee benefit, you said -- is that high -- or high process is annual? Or is it a bit like we do every 3 or 6 months?
Annual.
So is it largely done in, say, April month only? Or was it done later?
In across multiple grades, or up to a particular grade, this has been done. And for the remaining grades, which are the higher grade, it will be done in the coming months.
Next question comes from Anuj Sharma from M3 Investment Private Limited.
Yes. And congratulations for continued good numbers. My question is an attempt to understand current revenues. I would understand there will be 3 parts to this revenues. One is flow-through of revenues through -- of earlier renewals, on newer renewals and the regular business. So can we say that the flow-through of revenues from earlier renewals is largely done? Or that also has a significant component? And I understand your hesitancy to give detailed numbers, but some sense as to which part is dominant will be helpful.
As Parag mentioned that it's a continuous process and that remains the way. Beyond this, we will not do -- to share any further details on this.
We have a follow-up question from Vaibhav Badjatya from Honesty and Integrity Investment.
So for AMC contract, would it be correct to say that most of our AMC contract is -- contracts are annual, is it? Is it like that or there are 3, 4 year AMC contracts as well?
Contracts are always annual. They are signed for longer duration, but...
Okay. And so in terms of order book, so I just wanted to understand that -- so any particular quarter and the order book number provided, will have the AMC revenue for the next one year, right? That is the correct understanding? Or you have in order book that components are something else?
Typically, the order book has AMC for one year.
Okay. So for all the clients, whatever is the AMC for next one year, it will be in the order book?
That's right.
[Operator Instructions] Next question comes from Rahul Jain from Dolat Capital.
Just wanted to understand your traction on a new business front, we have stopped sharing data in terms of new deal wins, so any color on that aspect would be of great help. And also if you could please repeat the order book numbers?
Yes. The order book number, as we mentioned, is INR 758 crores. And as far as new orders are concerned, we are working with a number of our customers, both domestic as well as prospective customers, both domestic as well as international. And we are very hopeful that we'll be able to announce a few of them in the coming quarter.
Okay. And during the quarter, we have seen a significant jump in the revenue from Australian region. Is this an outcome of this AMC revision in that market? Or this is led by new license then?
As explained by my colleague, Anurag, this is on completion of a specific milestone of an existing customer. And that's how there is a significant jump in the Australia revenue.
Sure, sure. And in terms of the cost increase in the quarter, this is entirely attributed to hike and what was the range on it?
Sorry, could you repeat the question? Is that the hike is entirely attributed to?
To wage hike or there are more aspect to it? I mean, what led to the employee cost jump?
Essentially wage hike.
And is it effective for the entire workforce? And what was the range for the quarter?
Yes, it is for the entire workforce.
And any range we could share in terms of domestic versus overseas headcount?
We won't be able to share more details on that.
Right, and I understand there are many -- various people have asked on this aspect, but let me try one short again. Just on the AMC renewal plan based on your past comments. But just from a logic perspective, since all this initiative in your revenues were reflected more from Q3 of last fiscal. Is it safe to assume all your customers who you are engaging with would be done with Q2? Or could there be anything more beyond that as well?
We are talking to all our customers to explain them the value that our intellectual property delivers to their business. Some of the customers take longer than others to appreciate that point of view. So -- and they would have other compulsions. So we would not be able to say that by Q2 this process will be over.
Right, right. So and in such cases, they are continuing with the old way. And at some point of time, they may agree or disagree accordingly, things would shape up?
Absolutely.
Yes. And what is the ratio where people have instead decided to forgo or any attrition because of this aspect, which you might have witnessed so far?
I'm very pleased to let you know that none of our customers have felt that way. They continue to see the value and they continue to engage with us in these AMC related discussions.
Excellent. Excellent. And sir, I would really appreciate if you would give you any thoughts on FinnAxia as a product. We usually talk less about this product. So what is the current base of installed base, and have you been able to win new customers on it? Or is it existing one buying some more modules? Any color on that would be a great help.
Certainly, we have 18 customers who are in FinnAxia product or with previous version of it. And we would be announcing at least one win on that product in near future. And we're very happy to let you know that all our customers are very happy to continue using. Some of them are considering buying more modules of that product also.
Okay. And would it be fair to understand that given that this AMC renewal value proposition, which you are talking to your customer is taking a significant amount of your bandwidth as an organization, while new wins, of course, is an important aspect, but maybe this is the KRA for you as an organization at this point?
Both, I would say. We continue to focus on building new customers as well, while we are making sure that our existing customers are satisfied and they are able to see the value that -- appreciate the value that is getting delivered to them.
Right. And sir, people who are -- I mean, the salespeople or account managers who are able to get this value proposition pass on to customers where they are agreeing and converting. Is there a differentiated incentivization for that?
Okay. Now we're getting into too many details. So yes, every UPI -- we try and make sure that she or he gets compensated as per the efforts and there is a reasonable incentive plan to make sure that they are happy with that effort and the compensation.
Right, right. And sorry, sir, but you said INR 758 crores was the total order book, I would appreciate if we could get the break of that?
Tapan, could you please specify these numbers?
Yes, sir. Total order book position is INR 758.6 crores. Should I give a break up also, sir?
Yes.
INR 689.1 crore is a product business and INR 69.4 crores is the project and services business. And as for 31st March, we get ended other order book position was INR 639.7 crores which includes INR 585.8 crores towards product business and INR 53.9 crores towards project and services business.
Perfect. Just last bit, Vishnu, if you could tell about this credit on UPI, which is a big force that is -- that we are seeing everywhere in India and all the regulators are talking about it. Do you think this kind of an initiative would change the NBFC landscape in the market? And any successes that we are seeing on this path?
Very extremely relevant question. I think this will certainly change countries, the landscape, how it will pan out between banks and nonbank finance companies remains to be seen. Today, we continue to talk about extremely high interest rates, some of the micro enterprises, they have to pay, [ 365% ] and at times going up to as high as [ 3650% ] interest rate in an informal sector, that is what will undergo change here, with it -- with this digital capture of small transactions that is happening, thanks to UPI. So yes, we -- over the next 3 to 5 years, we should look forward to changes in credit space, similar to changes that we have seen in micro payment space in the last 5 years. It is a very exciting development and milestone for India as an economy. And I think a whole lot of countries would be able to benefit from what we have been able to achieve in the last 5 years and what we are going to achieve in the next 5 years.
Right. But as you know, this data as a collateral opportunity that these people talk about with -- now even some scores of [ FLDG ] also approved for distributors. Do you think because this -- most of it would go away from banks to maybe smaller entities and Fintechs, your target market currently, which is relatively sizable entities, would you see that the participation for your business would become lesser than this or you think because eventually these companies would parcel many, many distributors, they would require more of our services to enable that.
The way we are looking at it is, for us, the business is going to increase and increase substantially because while we do make use of the transaction rate to achieve borrowing capability of the entity, there is a process of lending also, which will continue and which will get further fine-tuned using products like FinnOne.
We have a follow-up question from Vaibhav Badjatya from Honesty and Integrity Investment.
Sir, I just wanted to understand. So whenever -- so we will have 3, 4 revenue stream type, which is like license revenue, implementation revenue, AMC revenue and some other revenue stream. So when you give order book, which revenue stream is included in which -- so product order book is a specific number or is the order book is a specific number, sort of this revenue stream, if you can help us understand which orders -- which time of revenue stream goes into which order book, that would be helpful.
Okay. We do have strictly services line of business where we offer services which are not around our product. And that is what is mentioned when we talk about services revenue and the balance is all product revenue, which includes licenses, which includes implementation and which includes AMC also and change request [indiscernible].
Okay. Got it. So you can give us example of services which are not around your product to maybe one or two example, that would help us understand better that why you are doing these services business?
Anurag, you want to take that?
This is Anurag. The services offerings in the space of digitalization. So for example, data analytics, type of services, robotic process automation related services, cloud -- related things, which we do for our -- There is a whole gamut of services, but these are the typical services which we offer to our customers.
Thank you. That would be the last question for the day. Now I'd like to hand over the floor to Swati Ahuja for closing comments.
Thanks, Talshia. Now we would like to thank all our investor today for joining us today on this call. I would now pass it over to Vishnu Dusad for his closing comments.
I would like to take this opportunity to thank all of you for your continued interest in Nucleus Software and would like to reiterate our commitment to long-term value addition to all our stakeholders. Thank you.
Thank you. That concludes our conference for today. Thank you for participating. You may all disconnect now.
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