All E Technologies Limited (ALLETEC) Earnings Call Transcript & Summary

And as you said that we are completing 25 years in this July, investors should expect something?

Well, if the company performs -- continues to perform well, you will expect something, they could cover, but...

We always expect something. I'm just trying to understand that. Do we expect the Board to actually announce a bonus or maybe a good dividend? We have good cash on our reserves, I mean that's why.

You see my view on these are a little bit at divergence with how some people think. And I think the amount of investment somebody makes in the company is, I would say, much larger. And whether the dividend is INR 1 or INR 2 or INR 3 is really very small in comparison to the overall business gains that we see. So we have very cautiously tried to secure our funds to use them for appropriate purpose. So I think, I would be happier if the business as a whole delivers more than what you are even thinking of in terms of a little dividend increase here or there. But some of the questions that you have asked, whether there can be a rights issue or there can be something else. So all of those are topics of conversation, which are kind of looked at from time to time, and it will be inappropriate for me to talk about any of these before the Board of Directors has brought it up and have thought about it, so.

Absolutely. I just wanted to understand since you're doing -- I mean, I'm sure with the cash, if you are doing an ROE of about 18%, I think it's more than what we -- I mean, we are fine about it. But can we maintain this ROE to -- I mean, plus 20% in going few quarters and years?

You see, we know what it takes, and we are working towards that, and we are trying to invest towards that. Incidentally, for -- you probably know it already, but when we look at a U.S. company, and now I have looked at 3 companies very closely in the last 6 months, those companies do not make this level of margins. So it is not as if our acquiring a U.S. company will immediately increase margins. It will not. Briefly, it might actually reduce, but that will give us the ability to turn it around because we will be able to get into those companies and move a lot of delivery operations to India, which therefore, will enable us to increase the margins of that business and the overall business. So this is precisely the reason. If you look at our presentation, which were maybe made in the Q3, Q4 of last year and you compare it today, you will see a shift in the percentage of business from the international services. And it's no magic. I mean, we know this is how it happens. We have been working at it. We have been getting some results out of that. We will continue to work at it. We will try to keep improving it. It's very hard to say that when will how much of this be accomplished because it's not just a mathematical solution to something. You need to have clarity and you need to keep working at it.

We'll take the next question from [ Suendar ].

Congratulations on a very good set of numbers. As per the presentation, you mentioned that there are like 4 projects which are in the advanced stage of kind of signing up. Can we know what are the sizes of those, please?

Yes. So the -- yes, sure. So the smallest one is in the range of about $100,000 and the largest one of them is about $600,000.

We'll take the next question from [ Akshay ].

Congratulations on the great set of numbers, especially on the margin side. I wanted to ask a different question. So with the advent of DeepSeek now, how do you see the AI adoption happening going forward? How fast do you see it's happening forward? And the -- so with the kind of projects that are coming to us, do you kind of sense in the market that there is more need for the AI applications going forward? And are we prepared? And how are we prepared for that happening?

Absolutely. So AI is here for everyone to see, experience and gain from. ALLETEC is not a company which is dependent on driving one particular technology. We are in the business of helping customers consume solutions which are building up and evolving. So when AI is maturing, as AI is maturing, we are trying to help our customers gain from that. So AI is definitely changing the landscape, our customers are needing different things, and we are in the business of helping them gain from what's new on the market. So this trend will continue. And we will -- as this trend continues, we will keep on adapting and adjusting our offerings to still keep helping our customers consume it and gain from it.

Just a quick follow-up question on that. So does the AI application side of things have the similar scale of the enterprise application side of things, like, let's say, there's a computer enterprise application that we are building using Microsoft Dynamics. And if it's on top of that, if AI application is required to maybe increase the efficiency, do you see the same sort of scale in that side of things as well?

You see, the Dynamics 365 applications already have AI embedded in them at different degrees. So for example, all Microsoft products have this Copilot now in built, whether you look at the browser or you look at Microsoft Office or you look at any of the other applications. So these Copilots enable users to enhance their efficiency. They make them fast, they make them more productive. But now in addition to that, the new generation of AI capabilities are becoming available. So this whole concept of agents, which is coming up. Now for example, the Dynamics 365 Business Central has now agents which enable you to do things which are way different from how you would have done them otherwise or even with the use of Copilot. So these are all stages. So initially, it was all everything being done by a human. And then the next stage is where Copilots are helping them do the same thing. And in the agentic world, many of these things will become autonomous and the adoption of this is basically, the first thing is conceptualizing that what is possible to do, building those products and then enabling people and businesses to consume them. So this is a journey, and the journey is already kind of -- it's been on for the last, I would say, at least 2 years, and it's only getting speed.

We'll take one more question from the chat from [ Shashank Rastogi ].

Just one question from my side. Sir, with the DeepSeek advent in the technical arena, sir, our revenue portion comes from the cloud business as well. So this open source AI, will it impact our cloud revenue of Azure from the Azure side? So just want to know a little bit about it.

I think you probably need to take a step back and look at what is DeepSeek or for that matter, what is -- what does OpenAI do? Or what are the large language models? What are they doing? So first of all, a very important thing is that these models require the cloud even in order to get the data and get trained and so on. If you look at the Azure offerings and services that we currently look at, people are moving their on-prem applications to the cloud, which enables them to leverage their data in a manner where they can do better analytics with it and they can train their models with their own data to leverage them for some kind of better automation and even machine learning and then AI. So DeepSeek is another model, which basically has enabled humanity to train these large language models with a significantly lower level of compute than one had thought of earlier. So for example, a large language model like ChatGPT, I think it takes approximately 25,000 GPUs of -- I think it is A100 category of chipset, whereas DeepSeek was trained with only 2,048 GPUs. So that is a scale. And it's just a new way of doing the same -- solving the same problem, which has come -- done this. Now people will still -- so these will help people do more analysis. But this is not taking the cloud away. It is, in fact, going to reinforce the advantages that cloud brings.

Just because I was having a feeling that it needs a hardware side for the development of the software rather than the cloud side. So that is why I asked this question, sir.

You see our customers are in the business that they are in, whether somebody is in manufacturing, or professional services, or travel, or EPC and they want these applications to run their business. Now to run their business, they need applications, and they need infrastructure to run those applications. These applications are becoming increasingly more intelligent. They are throwing up more data. The cloud infrastructure helps to capture that data at a significantly lower cost than it was available before, right? So that is where -- this is where you will have some usages of things like a ChatGPT or Owen model from OpenAI or the DeepSeek, but it is not going to fundamentally change the business that the customers are in. Our customers are not the companies -- like, OpenAI is not our customer. We are not in the business of providing people to these large tech company. We are in the business of helping other businesses that you know of in the physical world or digital businesses for that matter, we are in the business of helping them become more efficient, more competitive. So these are good things for us because these things will increase the demand and awareness for people to use technology.

So sir, that means our cloud business margins will remain intact and no threat on them as such?

See, margins are dependent on a lot of things. Margins are dependent on pricing, margins could be dependent on the OEM policies. But I would say, it would be wrong for me to say the margin will be same or less or more. But I would say the cloud business itself will only increase because there is more and more applications which are available from cloud, and this trend is only going to grow. So our cloud business is going to grow. If you look at -- even if you look at the Microsoft results that were announced yesterday, you will see their cloud business has marginally grown. The Azure Plus business as last quarter grew at 30%, but now it is at 31% or something like this.

Yes, yes. Its expectation was 31.8%, just a little bit it came down, but yes, almost in line.

We'll take the follow-up question from [ Vidhi Shah ].

So previously, last quarter, the U.S. contribution was around 61% to our revenues, and this year it was around 59%, so looking ahead by FY '26 and FY '27 and the years to come so what percentage of revenue are we expected to U.S. versus the other countries?

It's very -- it becomes a little impractical to kind of either forecast or track these numbers at such like, fraction of percentages from that point of view. One project here or there or one milestone being done earlier or later can make this difference. And I get you from your point of view, you have only these numbers to see and kind of try and make a forecast from. But I would only say these fractions of decimals one way or the other are no trend. They are fairly impractical. What you have to see, though, is while you are looking at this difference -- a fractional difference between last quarter and this quarter and whereas you see that the revenue in the last quarter and this quarter is about the same, the point which you have not seen though is that in this quarter, our services component grew substantially in comparison to our product component. So even though percentage point-wise, it may appear down by a fraction, but in absolute, it increased in a very healthy manner. And as I said, we very clearly know where we want to go. Will we always get there in the -- in any forecasted period of time? That's what we keep trying, but nobody can ride these things to a very high level of precision in stone.

And in the previous con calls, you were given a guidance of 20% to 25% revenue growth year-on-year. So are we still intact on those numbers for FY '26 and '27?

Well, you see, when you take a target, it's not right to keep switching it. We don't do it. And as I said, maybe we are a percentage point a little bit down or a little bit up, which is okay. But we can't just change these numbers based on our convenience. We still want this to be what drives the people towards it. We will see at the -- we'll see what does it take us to get there. We will do everything that is needed for us to get there. Whether we get there, we fall a little short or we go a little further, we will see when we come to that point.

We'll take the next question from chat from [ Ravikiran Hegde ].

At the outside -- I mean, great set of numbers, great results. Two questions I had from the business viewpoint. One is now as we are competing in the U.S. for clients, speaking to clients and competing against like other American service providers, I'd like to know how we kind of compare with the competition there you're seeing. And so obviously, we'll be price competitive being a company from India. But apart from that, how would you rate our company in terms of the various parameters? And any interesting cases you could share in terms of getting those deals et cetera, it would be interesting to know for us.

Sure. So you see, the area that we work in, in that area, the cost of the project is not really what the customer pays us. A significantly higher cost is what the customer incurs in change management, in getting their people trained in aligning the organization with a new solution. So the cost of failure is very high. Because of that, nobody compromises on the project outcomes simply because something else is cheaper. What that means is that being a little bit cheaper or being cheaper from the local competition gives us a competitive edge, but that by itself is not a winning mantra. Winning require that you still are able to instill the faith and trust in the customer that his objective will still be met and his project will succeed and he will get the desired outcomes from the project impacting his business. And if you are able to do that, only then will be the question, if you are able to do that at a price point which is better than the price point being given by local people, you have possibly a winning proposition. There will always be some, who will say that maybe we have 5% risk in trying to go to somebody who will do on-site, offshore and all this kind of stuff, and he says, I don't want to take that risk, and I would much rather pay 50% more or 100% more and go only to a Big 4. Well, yes, sure, you will have those kind of people. But you will also have the -- a lot of other people who would say, I want what it takes for me to succeed, but I also am very conscious of my price, and I want to go and do it at the best price possible, but nobody compromises on an outcome.

I mean, yes, that absolutely makes sense. But then how do you convince your prospective clients in terms of -- is it -- I mean, I'm sure there will be client referrals and so on and so, but anything you could share in that regard?

Well, it's very simple. In -- as I just mentioned in this call also, in our business, customers buy on trust. Now this trust is not something which is kind of instilled in one conversation. Our opportunities take many months. And what happens over these months are several conversations, demos, solutioning, talking to several people from different departments. And it is this process of talking to people, showing the product, showing them the solution, which gives them the comfort that you understand their business and you understand how the solution needs to be delivered. So when this faith -- so there is a process. And when they get that faith, then they think, yes, you probably are somebody that they can trust and have faith on. That is when you get an opportunity to progress. It's all consultative.

The second question from a business perspective is in terms of the service revenue, right? So we would have a service component, I understand for most of the deals. And so the proportion of the service income would increase over time as we have more and more clients on board, right? So if you could help me understand how that would play out in terms of over time, how it -- sorry.

Yes, sure. So you see, the service rates that you realize in India are different from the service rates that you realize, for example, in the U.S. The product pricing, however, is roughly the same. Now what happens in India, if I just average out over many customer wins, in India, our product to services ratio stays somewhere in the ballpark of 55-45 or maybe 60-40, the higher one being the product, but if it is a medium-sized customer. But if it is a very small customer, maybe the product price is lower. But comparing apple-to-apple, for the same customer in the U.S., the product will probably be 25% and service is 75%. So this ratio is not likely to change simply because we get more projects. But what is likely to happen is that if you get large customers who have a large number of users, the product component may go up. The service component may not scale up in the same proportion, though, you will end up doing more things for those customers because their needs will also be in proportion to their scale.

So the more complicated the organization would -- there would be, I imagine, more customizations, more things you need to take care of to make it suitable for the customer, right? So service component shouldn't that be more?

You are right. You are right, but those things don't change the value of the project that much. Comparing a very simple to, let's say, a little complex, the price difference will be not more than maybe 20%, 25%. But let's say, if you have an organization which has 10 users versus an organization which has 100 users, the product price will be significantly different.

We'll take the next question from [ Bobby J J ]. We'll take the next question from [ Harsha Karanth ].

Congratulations, first of all, to all the Board members to have been making so far together. It is very rare to see all of you together like this. So my other questions have all been answered. So I just have a small question here. Of all the companies that you were analyzing to acquire, okay? Hypothetically, if I have to ask you, if you had acquired a company, would it make our company vertically integrated or horizontally integrated? Just some lines on that. You've been analyzing so many other companies to acquire, right? So I just wanted to know what sector do they cater to which makes our company vertically or horizontally integrated? Just some color on that.

Correct. So even though we have looked at many companies, but I would say that the companies that we have advanced, I would say, to a serious level so far have all been doing exactly what we do, but in the U.S. What that basically means is that we are looking at the same customer type. We are looking at the same technology, we are looking at the same nature of solutions. So if that would happen, we'll kind of get joined at the butt and we will be able to deliver more of those projects from India, which will, over a period of a couple of quarters, enable us to increase margins in that business.

[Operator Instructions]

Bobby, if you're there you can unmute and ask.

I think there isn't -- yes, Bobby, you can go ahead please.

You mentioned that before clients can use generative AI, you need the data to be on cloud. So do you help your clients do that?

So the data is in cloud for most of the customers now. And it's not just -- be it an ERP data or CRM data or data from other applications, barring a few customers who may be still continuing with their on-prem ERPs, as I said, most of the new projects are all cloud-based projects. One of the core offerings, and you may look back at our presentation, one of the slides was showing the 6 offerings that we have. And one of that is digitizing the core. And that includes the cloud transformation. So it's a very important offering from us. In fact, my colleague, Sandeep, who is here with us in this meeting, he runs the cloud practice and Azure infra platform, managed services and many other services that go from Azure is what he runs, now probably for close to about 100 customers.

So what do you mean is you create a data warehouse where different departments of the organization with their varied data, it all consolidates into one sort of a warehouse, which you can use for artificial intelligence -- inference models for artificial intelligence.

Yes. But you see this thing has evolved in the last couple of years. So when you talk of data warehouse, most of the data warehouses are all gathering structured data. So data warehouses would typically get created, let's say, with a SQL data warehouse. But organizations increasingly also have data, which is not structured data. This may be data from, let's say, your social media. This could be data from, let's say, your e-mails and there could be various other types of data, which is also very, very important. And when you need to bring all this data, you have to move to other technologies, which are now known more as the data lakes or even the data lake houses. If you have streaming data, for example, you can't store it in a SQL type of a database. So you have other technologies. And as data has become more important and as more -- for example, IoT data, you can't store IoT data in a SQL server. So you have to move to a data lake or a data lake house for those data sets, which is all now a part of the Microsoft Data Fabric. And yes, this is what we do.

We'll take the follow-up question from Ravikiran.

So I'm sorry, I had joined late, so I'm not sure if the question has been asked. So we had talked of a little slowness in the customer decision-making leading to affecting the deal making. So subsequent to the quarter end, how are we seeing things now in terms of closing of the deals already in the pipeline?

So I -- indeed, we did discuss this a little bit. So as I had mentioned that mid-November to somewhere like mid-January, we saw a little bit of a freeze, but we started seeing some warmth happening in some cases, defrosting happening in the last couple of weeks, things are warming up. Several conversations are back on table. So we do anticipate some or several of them getting converted in the coming weeks.

And just a last small question pertaining to -- I mean, you had shared your thoughts on the kind of prospects you are looking for in terms of acquisition. I mean I understand the opportunities for margin expansion with that strategy. But the only downside I see is the limited cross-selling opportunities in that case. So I'd like to know your thoughts on that.

Sure. So if you look at our overall set of offerings, and there's a slide in the deck, which will give you a view of it, our offerings are not limited just to enterprise applications, so it's not just ERP, CRM and commerce applications. Our offerings go beyond this. Now data engineering itself is a very vast area. And it is very adjacent to our other offerings. So this is something where opportunities exist for all growing companies -- so while we see that organizations of -- typically of this size in the U.S., 10 million, 12 million kind of remain focused on their core, but that is what brings us the opportunity because to the same customers to the same companies, to their customers, if they are bringing only an ERP or a CRM, we have the ability to take to them and bring opportunities from data engineering. We have opportunities to talk commerce applications or portals to them. So we may get from them a customer base and how do we bring our other offerings to that customer base is then for us to figure out. This is not going to happen on day 1. This will probably take like a year, sometimes a little bit more, depending on the customer base and the size and the specifics of that organization. But other than this, there are 2 other areas in which we have been continuously either evaluating other companies and also gradually building up ourselves, and that is an area of digital commerce, but also the area of data engineering. So we have our own team, but in terms of acquisition, if we come across companies who are at least a couple of million dollars, have some international customers, we are happy to look at that and make investments to strengthen this area. We are also talking to candidates who could come in, senior people who would come in and give a further boost to this. So we are looking at all the areas which are associated with our core. So it's not just one thing.

We'll take one follow-up question from the chat with [ Devendra Rawat ].

So I was asking, do we have like ongoing engagements with research firms like Everest Group and Gartner kind of firms, right? Because a lot of time, many of the clients start looking for potential partners for these forums.

You are right. And my answer to you at this point in time is no. And it's not because we have not looked at it. But sometimes you have to do a good amount of ROI analysis in terms of what is it that you are getting at what price. So Gartner typically comes at a very, very high ticket price. It is something that is under, I would say, conversations, but we have not yet bitten the bullet.

I believe that was the last question for the day, sir. Would you like to give any closing comments before we end the call?

Well, yes, thank you very much, all of you for taking your time and joining us this afternoon. Overall, this period has been a little bit different from how we have seen the last couple of quarters, but we think that things are warming up. It will get better. At a macro level, I think we are placed very well. It takes a lot to establish a business in a completely different geography. Sometimes, we may think that, oh, okay, if you have to set up in U.S., you can send somebody, one person there or you can hire somebody there. It doesn't happen that way. You have to have a lot of customer engagement. You have to have reference cases. You need to be well connected with -- if you're working with Microsoft, people have to know you. So it just takes a certain -- you have to log in a certain number of years before you become of any relevance in these geographies. So fortunately, we have come a long way in doing that. So we are now a business which is in serious contention for leadership positions in some of these geographies. We will continue to push that. We do think -- well, the next several quarters, they are not going to be easy, but I think we will have opportunities for us to go upgear. So I'm very optimistic for the next couple of years. I think we are doing what the market needs. We are in the geographies that are growing, and so we are all set.

Sure. Thank you. Thank you, sir. Thank you to all the participants for joining on this call, and thank you to the management team for giving us the valuable time. This brings us to the end of today's conference call. Thank you very much.

Thank you very much.

Thank you very much everyone. "