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

Ladies and gentlemen, on behalf of Kaptify Consulting Investor Relations team, I welcome you all to the Q1 FY '27 post earnings conference of All E Technologies Limited. Today on the call from the management, we have it with us Dr. Ajay Mian, Managing Director; Mr. Rajiv Tyagi, Executive Director; Ms. Ritu Sood, Executive Director; Mr. Sandeep Jain, Chief Financial Officer; and Mr. Sandeep Salman, Head of Cloud and Managed Services. As a disclaimer, I would like to inform all of you that this call may contain or forward-looking statements, which may involve risks and uncertainties. Also, this call -- this is a reminder that this call is being recorded. I would now request the management to detail us about the business and performance highlights for the period ended June 2026, the growth perspective and the vision for the coming years, post which we will open the floor for Q&A. Over to you, sir.

Thank you very much, and good afternoon, everyone, who has joined the call. We will take the initial few minutes to go over an overview of what's been happening, what the numbers are. You might have already took at this presentation last night or this morning. But let's quickly run through this. We are going to talk about what's happening, what the numbers are, what we are doing. So broadly speaking, we can say this quarter is signaling a return of growth. And if you look at that from a numbers point of view, we saw a Y-on-Y total revenue growth of 9.1%, this is INR 37.2 crores in the Q1, which is the first clean Y-o-Y acceleration since the slowdown again. Our product side of the business has grown faster in this quarter. We had 14.7% license revenue growth. The service sales Y-o-Y have grown 4.8%. And on the international services side, the growth has been 3.7%. However, if you look at the Q-on-Q of the entire [indiscernible], that growth has been 9.1%. So these parameters at least signal very clearly that some of the things, which had been bothering for the last over a year seems to be tapering down. We are not completely out of woods in certain regions, and we will talk a little bit about that. But broadly speaking, the parameters look getting healthier. What has been happening is over the period of time and last quarter in particular, if we look at the overall customer engagement that we have had, the number of sizable customer engagements that we have, I mean, large customers where we have multiple offerings made to them, these number of engagements have grown. When we spoke -- we spoke of some significant opportunities that we had been working on for a very long time, which we had hoped to close in the last quarter. There's some date and some again shifted, but at least some important ones have closed in the current quarter that we are talking of. We have also seen demand buildup on the data and AI solutions. We continue to invest on this both in IT and skill building. Our international business has accelerated where we had last time seen some decline. And the product business has grown. Ironically, there's a set of products where Microsoft does not have the same level of margins as in the business application space. So we had a fair share or a good healthy share from that side. So the overall product margins have declined in this quarter, but the overall number to still grow. And all this is based on the 10-plus industries where we maintain significant domain depth, we have 5 industry solutions, 5 additional accelerators and of the 6 Microsoft designations, we have all the 6. All of these things help us in customer engagements. If you look at from a customer acquisition point of view, you will see that we have had increase in the percentage of revenue that we get from our top 5 and the top 10 customers. So this is a signal that we have been getting more from the larger customers. which is up to a certain point, it's a healthy sign because we still do not sit at the risk costs customer concentration, but then the engagement with these customers are becoming sequel. The chart on the right also shows what kind of revenue we take in this quarter from our top 5 customers. So -- which basically enables you to see that these engagements are non-resi. From an accomplishment and recognition point of view, this last week, Microsoft announced us to be, again, the winner of the [indiscernible] for AI business solutions from India, barring the global SIs in the partner ecosystem, Microsoft typically fix only 1 from India, and we won again this year. We have the recognition we have picked up some in the last couple of quarters. So we have all the [indiscernible] recognitions, the inner circle recognition and winner this year again. All of these things make our base solid for growing the business. The one thing which many of the investors have been asking about is why are you not moving to the main board. So glad to inform you that we did as a board take a decision to go ahead it. So Board approval was obtained on Friday, and we will have the follow-up actions being initiated now. So we see this taking shape in a short couple of months. I'm excited to share with you what we are building, giving you a view of what is being done. So we have captured a little video of what we are building. So I'll just present it to you, it is done specifically for retail industry. So let me give you a view to this video. Just let me know if you don't hear the sound? You hear the sound? [Presentation]

Okay. I may close this. So just to give you a view of what has been built. So not everything that you have seen [indiscernible] right now, but initial parts the retail OS, they are. We already have a couple of customers who are signing up. So we should be seeing this getting rolled out during this year. Looking at the key numbers, the total revenue in this quarter was INR 37.18 crores. Total income was INR 39.5 crores. The EBITDA margin stood at INR 6.98 crores, 17.7% repeated and recurring 90.3%. We added 8 customers. The team size continues to be at approximately 350. The industries and the percentage revenue breakup that we have from these industries, seen this chart before that the numbers are from this quarter. We think you have known though some of our offerings have slightly changed. There is more focus on the data and AI was [indiscernible] one box earlier. Now they are separate boxes. We still have the same 6 offerings but some pieces have expanded to their own space. Working with the full Microsoft stack across their all cloud offering, the business applications, data and AI offerings, the Board of Directors, the lead managers, the index [indiscernible], you probably know them or can look at them. There is not specific that they have on the CSS side. So there is all standard stuff. So I'll just stop presenting here and open for any conversation.

[Operator Instructions] Sir, we take the first question from [indiscernible] Tripathi.

My first question is the demo of the prototype which you showed. I just wanted to understand in terms of client conversations where it is. Like use it like we are in the stage where we are vibe coding and showing what can be done or we have a fair visibility and go ahead from a client to develop this thing so that it can move to products. So what is the visibility of this thing being a vibe coded prototype? Or [indiscernible].

Let me first explain what this is. So this is not a solution that we are developing on the order of our customers. There's a product. And this product has obviously -- we have taken this to a few customers who have all shown tremendous interest in this. So we should be starting some of these implementations of the solutions in the next couple of weeks. And I'm talking of situation where we either already have order or will be signing it without in the next few days. Rajiv, do you want to add something?

I'd just like to say that recovery intelligence layer, we are going to provide as a chat product to our customers who will subscribe to this intelligence layer, and this is kind of a fee-based solution for them where we just connect with their data sources. We have identified 20 [indiscernible] of customers where we are three at least where we are in the stage of issuing the few, and then we roll them out. So in the 1 quarter, we expect to roll it out to at least 10 customers, mature it more and then scale it to the remaining customer base.

Okay. So when we say roll it out, we mean put it in production.

Correct.

Okay. My second question is on the lines of -- so there is a lot of conversion when we talk to clients is happening. It will -- -- sometimes it looks like a delay this isn't making but actually what is happening, clients are moving towards better like doing things in-house they are considering the coding -- you understand that a lot of tools are available, we can do it in-house. And at the same time, just taking proof of concept from the vendor, but then developing it in-house, Okay? So what type of evidence when we -- it is giving us a confidence you need our interaction with clients that what seems to be a delayed deal conversion is actually delayed conversion not something which is getting lost and client is doing it on our own or getting it done from some place or somewhere else. Okay. So this is a trend which I'm seeing a lot while with my traction as well, where we are getting POCs, which Mackenzie or somewhat developed and then they are getting it developed by some -- whether like internally or some vendors. So I just wanted to understand, when you interact, what sort of evidence you are getting that you are getting confident all these things will get converted rather than this is just getting delayed and we might be using a time [indiscernible] as well.

Yes. So Rishad, before Rajiv comment on that. I also want to share, look, we are not talking of like million-dollar solutions. Every investment has to have an ROI. So we are talking of bringing a solution which brings together the experiences that have been gained from multiple customers. That's not somebody -- that's not something that a company can do on its own. The other important thing is there's also platform which just keeps maturing. And then you will have all types of customers. There are customers who find doing this valuable and the customer to find it valuable to use something which is already available and focus on their own business. Rajiv?

I add to this is that this is our interaction in all the sales and presales engagement that we have been having. As of now, customers are not looking to build their own ERP as -- in some cases, point solution, they are trying to -- they will obviously be open to use AI and build on its own. But at least the core power business app they are very much focused. They are not building on their own. And as far as this intelligence layer and we are obviously contains a lot of the business metrics kind of stuff for them to get to that level to define all that scope will take a lot of time for them to mature. That is why they seem to be very keen to start because they can get going with their existing data where there it is an hierarchy [indiscernible] or wherever a distributed situation. So that is the experience swap. Point solution, yes, people are doing a lot of trial with whatever they can do.

Okay. One last question. can either, sir, you or Rajiv, sir, you. Can you help us understand that give us confidence going here, let's say, over the next 4 quarters, what are the [indiscernible] things internally that you will be tracking that gives you confidence that we are going in the right direction. So it can be anything like a number of fraud deployment, number of clients conversions.

Yes. Absolutely, absolutely. So one thing that we are tracking is, of course, the number of customers who adopt our AI offerings. So both data and AI [indiscernible]. In some cases, they just require a solution like this. In some other cases, we also have to prepare a modern data platform content. So it's a combination of these 2 things. So there is one thing. The second thing that we are tracking is the number of customer engagements where the customers are large-sized, when I say large size, these are customers who have the ability to consume not one but multiple services from us okay? So this is the other part of it. And then the third part of Scot is we always track how much of business we are doing from different geographies. There are geographies which are at the moment, showing significant momentum. I would name Africa, particularly at one where we have a lot of engagement and a lot of interest from the commodity impact within the Microsoft internal reckoning, we are already one of the top 3 them in the business application space in Africa. So we track businesses from these regions. And we also then make sure that all none of these is done at the cost of what is our bread and butter business, which will keep maturing because the products keep maturing. So I would say these are the 3 top things that stay in our mind that we monitor.

The next question from Kumar Saurabh.

We don't hear you.

Sir, we will move on to [indiscernible]. Go ahead please.

Okay. Sir, my question was, you mentioned that we've increased our product licenses revenue by 14%. So does that mean that license revenue is a precursor to implementing services. So how is the billing then? So first, we get the license revenue and then we do the AI services. Can you explain how do we bill our customers. And if that means that we first built the licenses, then we are implementing these services of them, then the margins can also increase because services have higher margin.

Sure. So there are different types of solutions that we bring to our customers. In some cases, we always have a product going together with a significant size of services. The typical ERP, CRM data and AI offerings they fall in that category. But you also have then the other very important size of our offerings would include, let's say, the Azure infrastructure, security solutions and everything that goes around with that. They may not necessarily have that bigger piece of services. Though invariably, they will have at least a managed service piece, which is recurring and goes along, with the overall product license. But the value of the license there is significantly higher than the value of the services.

Do you have any other questions?

Yes. My second question was, how are you seeing the landscape now? Is it better than the last quarter in terms of the U.S. deal closures and all.

Yes, absolutely. So U.S. has been better for sure. Just to give you an idea from our services revenue point of view, in this quarter, we had nearly 60% of the services revenue coming from the U.S. all everything went together. And when I say U.S., I Conor America, there is U.S. and Canada.

Got it. One more thing. What about cybersecurity, can we have some peers on how our cybersecurity is doing -- solutions are doing?

Yes, absolutely. So we have security solutions now already provided to some key customers, but I would ask Sandeep to comment on that.

Yes. Yes. So this particular vertical has grown significantly in last quarter. We have closed so large [indiscernible] for e-mail security. And we have also started [indiscernible] and then we required a couple of customers in that area. And the traction has started. So probably we are expecting a few more large deals to close in this particular sector strategy. So we steady and Panther that we are focusing on, and that's what we are gaining customers and visions.

So is the nature of the cybersecurity revenue recurring because EM security has to be done every year.

Some of the areas, for example, in terms of the email security, for example, for the solutions that you provide to the customer. that is rated. However, DAPT, initially, you will have to sort of give the customer, but they show you there's always every quarter you do at least if not the [indiscernible] election, both are sort of ratings.

Sir we will take the next question from Kumar Surabh. [Operator Instructions] So I will move on to [indiscernible].

I wanted to ask our this year's revenue and last year's revenue has been quite flattish even though we have added quite new customers and having a 90% repeat revenue, like what is actually constraining the growth right now? Is it demand sales cycle deal size delivery capacity or pricing. And when should we realistically expect this to translate into meaningful revenue growth.

Well, if you look at a Y-o-Y quarter 1, the revenue has grown 9%. So that's not exactly flat. It's obviously not possible for anyone to say that how will the next quarter be or the next 3 quarters be. But overall, we see good business momentum. We are currently quite busy. We have -- we are -- as I mentioned earlier, we continue to work with more larger-sized customers. So we are seeing a good momentum in the overall engagement. How much this converts into actual revenue and profit is to be seen. But the momentum at the moment is certainly more than we had last year. And the revenue in this quarter are about 9% higher than we had in the same quarter last year.

Any revenue guidance you could give for this year?

I don't think it's meaningful at the moment. I think we are coming out from a period which was flattish of [indiscernible], but it was also turbulent, not only from a geopolitical point of view, but also the impact of AI and everything. Things are stabilizing, but giving guidance at this time will just be a theoretical exercise.

[Operator Instructions] Sir, we'll take the next question from [indiscernible].

Sir, you have highlighted strong demand variant and agent transformation. How much AI and data revenue is already signed today? And how much is currently pipeline or opportunity?

So data and AI put us, in our business, it influences almost everything that we are doing today. All our ERPs, for example, these engagements are AI-led our CRM engagement or AI led, there are some engagements which are pure data and AI. But I don't think there is anything at all that we are currently doing, which is not being done because we have an embedded AI offering. It is therefore a little bit of -- I mean, we can, of course, talk how much revenue are we likely to make from our IPs and so on. And Rajiv already kind of said that we are looking to engage at least a certain number of customers these revenue will build up, but trying to identify just how much data and AI will give -- will probably be not be any correct assessment of that because there is nothing at all that we do today, which is not influenced by or quoted by or enhanced by AI.

Sir, we'll take the next question from [indiscernible] Mishra.

I wanted to understand why your margins have declined compared to last year and we led to this? And when can we expect the margins to get normal?

Sure. So the margins have declined because as I mentioned, we have had significant growth on the product side of the revenue, and some of those products are lower margin products. So that has been one reason. The other reason is that there is obviously a continued investment that we keep doing in terms of the product development work that we are doing. So that takes some cash out. If you still see from a percentage point of view, yes, they have declined. If you look at an absolute point of view, our earnings before that, they are a little bit higher than what they were in the last quarter, but we have had this impact of this department, which reduced our tax burden in the last quarter because of which, from a percentage point of view, the PAC appears lower this time. So it's a combination of things, but there is absolutely nothing alarming if all what's been there. And if our product business continues to grow. And it's the component of the relatively lower margin product that is larger, the margin will be a little bit lower.

One more question, sir. Can you tell me about the split for product revenue and service revenue for the last quarter?

Yes, absolutely. So we had 46% coming from the product and 54% coming from services. So this proportion was more static towards the product in the last quarter. In the past, over the last so many quarters, you will see that our product revenue have been in the range of 42%, 43%, 44%. So a little bit higher this quarter.

Sir, Saurabh has put his question on the Q&A box. I'll ask on his behalf. "At current margin, we are back to pay 2024 operating profit, which means 0 profit growth on a 3-year basis, do you think next 1 to 2 years, can be different and we can go back to profitable growth and not just sales growth?"

Well, we are growing profitably. I mean, the engagement that we are in, they are all profitable engagement. And as we get into larger engagement, we certainly have a larger profit. Now on the overall from a percentage point of view, whether we will have a PAT in the range of 20-plus or not. I think there are too many parameters and factors that play a role there. And for some of you, as we are looking to grow aggressively, we will also -- we are also adding more people. And some of those people cost -- and when we are bringing in a few people who are at a significant cost, the PAC may significantly get impacted for some period of time. But if you shy away from doing that, we will have an impact on the long-term growth but we may see as anything short-term numbers. So that's not a trap that we want to get into. As long as we ensure that our project engagements are healthy, as long as we are growing in the direction that we want to grow in -- the direction in which the world is moving, I think a little bit of flattish on here or there will happen, and we don't want to be in that trap of trying to forecast percentage 1 or 2 percentage points here on there.

The next question from Siddharth [indiscernible].

I think in your opening remarks, you had mentioned that some of the engagements you had completed in this current month or current quarter. Can you talk a little bit more about that? I think with potential maybe with a potential acquisition or a partnership or something like that.

I'm not sure if I get you correctly, I certainly did not give any indications of any potential acquisitions. I don't think I spoke of any specific partnerships. Maybe I wasn't clear enough for you, but if you can just leave aside what you think I said, but just if you could just elaborate. If your question is that are we working on an acquisition? Well, that's something that we always look for. we did evaluate 2 very closely in the last quarter. Unfortunately, it didn't work out. And it's not because we didn't want to spend money, but we have to be sure of the quality of acquisitions that we do. So that is the answer to the -- to that part of the question, which I understood, but if there is something that I have missed out, please repeat.

Apologies, I think maybe I misunderstood. So that would have been my next question considering the cash on our balance sheet. So no, I just wanted to get some clarity on that.

Certainly, certainly.