Aurionpro Solutions Limited (AURIONPRO) Earnings Call Transcript & Summary

Thanks, Varun. So 2 questions, right? So first coming -- tackling the transit side. Typically -- so we do compete on new projects. I think the way to look at demand for the transit side is, there is 2 sort of parallel movements happening. One is you've got the whole Western world, which is largely an existing legacy technology, which is usually closed loop and there is a movement from closed loop to open loop, California being 1 example. So a lot of the western world is closed loop to open loop, so old tech to new tech. A lot of the emerging world is where new projects are coming out. So a lot of times, it's no tech to open loop tech, right? So both of them are kind of very strong demand drivers for us. We will play in both of those spaces. So California is an example of old tech to new tech. Something like Haryana Transport or Noida Metro or Nagpur Metro is an example of almost no tech to new tech, right? So we'll play in both of those places. And the revenue model typically will depend on the nature of the transaction. See, by and large, we don't do too many CapEx deals. We've done those in the past. We've also done some recently, but then we will normally find a partner who will provide the capital and we will provide the tech. And usually, outside of India, it's a pure tech deal. California has proven, Canberra has proven. Central America, Latin America were wins. Even in Africa. Proven that, we can go head-to-head on a tech competition and win pretty much anywhere in the world, right? So globally, we will obviously collaborate with our larger partners like Mastercard, for example. So Maldives, for example, if you look at it, is together in partnership with Mastercard, right? So we will find partners where capital is needed, but by and large, we will go and provide the tech. In India, we will do larger CapEx transactions as well, but then find a capital partner to work together with us on it, right? So which is like Nagpur Metro, Noida Metro, Kanpur Metro, Haryana Transport, et cetera, right? So that's essentially transit. The segment has been growing very, very strongly for us, and we see a long demand as the world moves from closed loop to open loop tech. The open loop basically is, you used to preload an instrument and go to the metro gate, now you want to use your card, you want to use QR Code, you want to have account-based ticketing, and all that stuff. So essentially moving from here to here. And that I don't think is a movement that can be soft, and that will go on for some time. On data center, this is a specific bet we have on the digitization of India. We see a significant long-term demand as well as we saw a gap in the market, right? So we built out what we believe is one of the strongest data center design teams in the country, one of the strongest teams in terms of project managing a build, right? And there is a significant demand. We've announced a lot of wins in that case, including some highly complex competitive projects that we were in the space, and we've got some fantastic strategic partnerships with a few clients who've been investing heavily in the space, right? So data centers, we will play across the spectrum, we will normally maintain a mix between design and project managing a build, essentially to deliver a net result, which delivers to the enterprise expectation on margins, right? Because design would tend to be higher margin and the rest of the stuff would tend to be lower margin. So you work on a blend which still delivers to the enterprise margin for sure, right? And this is a business, again, which has been -- so TIG on the whole has been growing exceptionally strongly. This is a business which is probably growing even more strongly than the TIG growth level.

The next question is from Krupa Desai from Electrum Capital. So on the banking side, sir, in U.S., Europe, would you be replacing the existing competitor or find new customers, because I believe large banks, they would have already be having such solutions placed.

[Audio Gap] normally get involved is where the bank is -- so if I take corporate banking as an example, where the bank is looking at a transformation on the corporate banking side, right? So whether you go into U.S. or you go in Asia, you will hardly find a bank which does not have existing technology. I don't think such a bank exists. So you will always have some tech to replace. Typically, what would happen in a corporate loan origination space is -- this is a space where a large bank believes its competitive source lies in the workflow process, in the origination process. They have built up a system largely in-house or used an outsourcer to build it, which is a reflection of how they ran their process. Now there is a need to move to a best practice process. Hence, do a transformation of the system, move from a custom-built application to an actual first-rate product, right? So if you see corporate loan origination space, we participate in Chartis RiskTech Quadrants. We are squarely in the leaders quadrants on corporate loan origination, on collateral management, on limit management, and this is leaders quadrant globally. So we are one of the top choices the bank has in terms of if I wanted to incorporate best practice in my origination process and move to a packaged product, we are one of the choices. So typically, the move is not from some other product to us, typically the move is from a customer whose job the bank did and which is 90% of it, or especially weak product they bought long time back and moved to an Aurionpro solution.

The next question is from a participant from Columbus Investments. Please share details of the new product that you have launched in this quarter, especially since you mentioned that it was a great quarter for the R&D team.

Yes. So thanks for bringing that up. So it really was an exceptional quarter, right? And I think there are -- so numbers are numbers, but there are some quarters that make you truly feel -- I suppose why you jump out of the bed every morning and come to work, right? I mean, so it's -- so ECR-One, for example, that we launched in Barcelona last month, Sanjay and his team launched, that's almost 2 years of grueling hard R&D to go out and build the card reader, which is EMV compliant. And it does several things. One is it obviously completely changes the margin profile of our own validator units that we were manufacturing, because that's a key component of the validator. So it immediately improves our margins wallet. But the second thing is, you really need high-quality card leaders everywhere, right? So it just opens up a brand-new new market, strategic partnerships of a very different scale for us once we roll these out and can manufacture them at scale, right, not just for our own validator units, but even as a standalone product by itself, right. Similarly, we launched -- so that is like -- I mean it is really exceptional. I don't think there are many firms, forget in India, even on a wider scale who can do it, right? And that was a great achievement. We launched a health care SaaS platform in the U.S., Revique, which again has gone through a few iterations and finally launched for a very, very specific segment of the market. We are already taking in a few clients and fine-tuning the product further. So that is a big one. We came up with core sort of new releases for a number of our products. So what is happening to Aurionpro right now is, as we go into new markets -- so we did not really have -- till 9 months, 12 months back, when we started investing in the sales channels, we had a much smaller pipeline, which was a lot more narrowly focused in terms of geography. Now as we go wider, we enter new markets, even when you have the core product deal bills done, you need to fine-tune the product for the market that you are going to. Banking tends to be a highly regulated industry. Transit as well. On the application side, we'll need to do a bunch of work. So we actually had new versions come out of a number of our offerings. So that is on the banking side. We're also working with a few strategic partners in terms of -- so like the Finastra partnership that we announced. And now we have -- by and large, we will not announce new partnerships in the space for confidentiality reasons, but we're working on a number of other product releases which are specific to licensing our technology to other large global ISPs. So if I go back to the Finastra example for a second, what is it that we are doing. We have a cutting edge with management solution. So we know how we do that. Finastra has the #1 trade finance solution in the world. We are co-creating a real-time limit management functionality, call it a module, inside -- which will work together with the Finastra trade finance solution, right? Now we are already working on the first client on that one, and once the integration is done and the product is generally available, it becomes accessible to the entire sort of client base for Finastra, if they want to get into real time fair limits. So arrangements like those need products to be fine-tuned and then released. So we actually got 3 of our code offerings, the versions out as well in the quarter, right? So I think there is a lot of work that was in the train for 12, 24 months, that came out in the quarter. And that is something that we are especially proud of. I mean numbers are numbers, and obviously, that's what we work for, but we also work for the impact that we make, right? And that's the sort of R&D success that I was talking about. Thanks for the question.

The next question is from Vivek Gautam from GS Investment. What are we doing to improve our perception due to past CG issues? Please highlight our USP and moat and how is our size in all our segments?

Okay. So unless there is something specific to answer, I don't know what I can say about past issues. Look, the way we are running the business is, our goal is to be highly transparent, our goal is to create net new value in the world, our goal is to build out a global IP-led products and platforms player rooted in India, rooted in Asia. We don't believe there are too many of those, and we believe there's a giant market opportunity if we get our view right. We chose a few bets. We are building against those bets. We are running a highly transparent business. We have a very clean balance sheet. We had, what, INR 170 crores, 180 crores of debt. We retired it down to a fairly low number. We don't capitalize any -- with the exception of the payment side, where for regulatory reasons we capitalize a very, very small, not material amount. We expense all our R&D. So there is no significant intangible asset sitting on the balance sheet. So unless there is something specific, I can't answer around corporate governance. I think we run one of the cleanest businesses, one of the most competitive businesses in the place. We've been -- our products, Chartis RiskTech Leaders Quadrants, there is no vendor in India, there is no vendor in Asia, which can claim to be there. I mean, if you talk of a few competitors, they are far to the left, not even threatening to get anywhere close to the leaders quadrant in the next 10 years, right? So we create real value. We run a competitive business. We have been very clear about where we want to be in 2030. I mean, I hope that is good enough. But very happy to take on any specific questions.

The next question is an audio question from the line of Sahil Sharma as an individual investor.

Yes, sir. The question is, since we have Tier 1 IP and when I look at the distribution or geographical distribution of our revenue, most of it comes from India and then from APAC. We get a very small percentage from U.S.A. and I think almost none from Europe. So what I wanted to understand is what is our strategic direction for growing that by selling our Tier 1 IP to Europe and U.S.A. and increasing that? And what could this look like in 2 to 3 years or whatever time frame you can talk about.

Thank you, Sahil. So look, first, our product businesses in Southeast Asia, Middle East and India, I think that's where we've primarily been centered, are highly profitable, right? I think we can drive margins in these markets, which are better than what most players can drive in U.S. or Europe, right? And I would say, pretty much 98% of the industry would do lesser margins than us than what we can do in Asia. Typically, the reason people don't like being in Asia and India is because they are selling essentially services, which is selling work hours for someone, and you don't get the right realization on those hours in these markets, right? But when you're doing product, that is not a big problem, right? So that's number one. So we can run a highly profitable business in these markets. But of course, you are right. We don't aim to be just in Asia. Our ambition is to get to, like I said, top 3 in our chosen segments globally by 2030, right? Now it is a long, hard journey to get there. And to compete in U.S. and Europe, there are 2 things that are needed. One is the products really need to be very competitive and suited to the banks or suited to the providers there, right? On the transit side, I think we are there. We can go out and compete with the best in the world and win. So I keep coming back to California, but if you look at it, it's a competitive global RFP. There's no choosing favorites on that one. There is no fixing the game. It's a competitive head-to-head and we go and win, which means if I can win in California, going head-to-head with pretty much everyone in the world, we can win anywhere, right? So we believe from a product standpoint, we are very well placed on the transit side. On the banking side, we are very, very well placed in Asia. So corporate loan origination is as deep a product as you get anywhere in the world, but we want to really go market by market, make sure we are suitable, and then go, right? So one is that making the product fit for purpose for the bank. It's not a question of depth, it's a question of adapting to the market and we will go slowly as we do that. The second is building a sales channel. Now building a sales channel, I'm not a huge fan of hiring 10 guys, throwing them in the U.S. and then hoping that works, right? I mean selling in large banks is, you need to play the long game here. So what we are trying to do is, we are saying, yes, we will organically build out our sales team. We beefed it up in the U.S. We don't have any in Europe right now. And we will support those teams to succeed. As that unit succeeds, we will scale up. So we are not in a rush to scale up with a large sales team day 1, we will scale it up organically as we build a box, that box succeeds, then we scale it up; double the size, that box succeeds, we'll double it again. So we will organically grow. But to speed our time to market, what we will do is we'll go and focus on strategic partnerships that can take our products global, right, which is where in every large segment that we exist in, where our products can play together with a large global ISP, we will go and get into an arrangement where we develop IP, because we are very good at building products. We are very agile. We are very cost efficient. In terms of building it, we know how to play the product game. We know what it takes to build the product. We know what it takes to manage it. We know what it takes to stand up an implementation team. We know what it takes to surround it with API framework. We know what it takes to make it cloud native, right? There it's not a game that the commoditized outsourcers can play, right? So we use our strength, strike win-win partnerships, and that will allow our products to go out to see a lot more. So Finastra, we announced. We will probably announce a few more, but most likely without mentioning the names of those vendors, right? And we'll do more and more of those. And those will also take our products to Europe and to U.S., right? And I think those will be -- once you see the results of it, and those results should come out much more sooner than 2030, those would be exceptional win-win situations, which is a win for the client, win for both the partners working together in terms of cocreating those solutions, right? So I think that is how we'll go, strategic partnerships, deep partnerships, expand sales channel in the U.S., grow organically and continue to drive the channel in Asia. Asia is also -- if you see, most of our sales expansion is 9 to 12 months. It's very, very new for us, right? So we've got a lot of headroom in Asia as well, which we will keep tapping onto. So that's essentially the game.

Sir, can I ask one more question? Sir, when we look at the license we got for payment aggregation, can you just share like how we would leverage that and what is the business model there for, I think AuroPay, right?

Yes. So AuroPay, look, payment, as you know, digital payments is a vast market. We've applied for licenses in India, which we got an in-principle approval from RBI, and we applied for license in Singapore, which is still in the process. The goal is not to become the 51st payment gateway in India and join the race to the bottom on margins. The goal is to strategically play in areas we are strong in, right? So this is something that I've explained before. What is the key strategy when we go into a segment, right? So first is we choose a segment, right? We choose a segment where we believe the demand runway is long, we believe the leadership is fragmented or at least contested on a global basis, and we believe we have the ability to build out in Tier 1 assets, right? So once those 3 conditions are met, we are in that segment like corporate banking, transit, whatever, right? So we choose a segment. When we go into that segment, then what are we trying to do, right? It's not just building a product. What we are saying is, we're not that keen on sitting in a box that says software or hardware or services or whatever, right? So we are a tech player. We will look at the whole value chain. We will look at how does the client buy. In the case of a transit operator, it goes from a validator to the software around ASC to the payment stack to gate, the whole thing. In the case of a bank, it goes from the software, to the implementation, to the cloud, right? So we look at the value chain. We will try as far as possible to occupy every point on that value chain, right, and become the most cost-efficient producer on every point of the chain. That is what allows us to really build up a competitive advantage over everyone else who's playing that game, who think they're a software vendor or hardware vendor or a services vendor, right? And that allows you to drive margins, right? So that is the game. Now coming back to your AuroPay point, transit, for example, we are end-to-end and the payment offering can play very well with transit, where we already hold the contracts, right? So allows us to expand the margin on the same business that we are doing anyways better, right? Second thing is, for example, the B2B SaaS platforms we have, enabling B2B payments, which we believe is an underserved lease, right? So we've chosen spaces where, A, we have a competitive advantage, we think. Second, we have a margin expansion gain. Third, we have the ability to really differentiate ourselves and go after the underserved market, right? So that is essentially the game for digital payments. We believe this is a huge market. Even when you get so specialized, you're obviously competing with everyone else, but we are in spaces where we believe we are. Once we have the offering fully ready, so we got the in-principle approval, but we still need to get the final one, right? So then we essentially play in spaces where we have that unique competitive advantage.

Sahil, may I request you to join the queue for any follow-up as we have several participants waiting for their turn. The next question is from the line of Suryansh from BIZX Enterprise LLP.

Congratulations. So I need to ask that after recent capital raise, do we need further capital raise in near time, sir?

Okay. Thank you, Suryansh. I mean, the short answer is no. The capital raise that we did is actually a very, very minor capital raise. It's not a significant capital raise. As a business, so like I've said on previous calls, we are kicking up enough capital to reinvest back in the business and can support the organic growth of 25% to 30% levels, right? And the additional capital that we've raised, it sort of improves the strategic flexibility for us a little bit as we go into an environment where we see some very large opportunity. Our ability to react to it improves slightly, right? But it's not a huge amount of capital raise, it's a very minor capital raise, right? So that is the only ambition behind that. It sort of improves the strategic flexibility over the next 12 months to react to significant opportunities, which we think may appear, right? So if they don't appear, it's essentially used in general corporate purposes. Do we need more capital long term. So this is what is happening to the business, right? What we said is, first, choose the segments. We did that. Second, build out assets in each of the segments that will compete. We've done most of it, right? Third, go out and expand organically in each of those, be ready for scale, right? So if you go back and see that Vision 2030, the period in the middle is that scale readiness period where we say -- because product business is not the same. If I want to grow 30%, doesn't mean I have to go and hire 30% more people. I need to actually have far lesser people, but then I need to tie the whole thing end-to-end right from how we design, how we fine-tune, how we manufacture even, we've got a bunch of manufacturing facilities for electronics out in Southeast Asia as well as India, how we get the software side right, how we get the operations side, right? So we need to get the whole thing fine-tuned as we really scale. So we can see a situation where we have built out a lot of products and we are ready for scale from design to manufacturing, to software, and we can deploy more than the amount of capital that the enterprise is kicking up. But I would say if we ever reach that situation, that would be to support growth rates more than the organic 25% to 30% that we've been committing. So the short story, 25% to 30% to support that growth, I don't think we need any excess capital.

And one last question was that, sir, are we also playing something in the insurance side or not? Like we are in banking, are we playing in something, insurance also?

Not in any significant way at the moment. We've been talking to a few insurance clients in terms of supporting their digital efforts and especially on the payment side. But we are -- in the U.S., it's by happenstance, but essentially, we have become some sort of a key link in the payment chain in the insurance business because of our license technology being used by some of the very large payment facilitators to the insurance business in the U.S., right? So we've been exploring some conversations in the insurance space around leveraging the payment technology further. But that's not an insurance domain offering, that's essentially a payment offering. It's just that an insurer happens to use it.

Sir, we'll take the text questions from the line of Paresh Doshi. One, next generation treasury application, NGTA, issuance of RFP, a pre-bid meeting for the captioned E-tender was conducted at 3:00 p.m. on June 23, 2023. This was attended by the company. Two, when can we expect RBI license to operate as payment aggregator. Please throw light on the above two matters.

I don't think the two are linked. I think the information that you picked up on the participation in the RFP, if that is an open thing, then just go by what it says. I'm pretty sure it doesn't say anything about the payment licenses, right? So the 2 things are not linked.

Next question is from Umesh Matkar from Sushil Financial Services Limited. Congratulations on a great set of results. Can you explain on Revique Healthcare SaaS platform and how it fits to your current business model?

Just on the previous one, right, I missed answering the second part of the question, which was how long does it take for us to get the license, right? So while I'm pretty sure that the RFP point made and the payment thing is not linked, we are going through the process in terms of fulfilling the operational parameters that RBI needs for them to come in and do the inspection and do that, right? So I think that will take a few months before we get into that inspection. As we get to that milestone, we will inform in the right forum as we get there, right? So coming to Revique. It's a SaaS platform which focuses specifically on specialized kind of practices. We've built up a platform that if you are a specialized health practice or a med spa, you can actually use this as the main software to onboard new patients, to manage your practice, and to enable all the payments around it. Now this platform has come out of an acquisition we did 12 months -- okay, I may be wrong on the time, but last year, which was called Hello Patients. And what we've done is we've combined our payment technology with some of the software that was getting built around Hello Patients. We completed the software -- or we completed large parts of it to be delivered to one part of the market and combine that with the payments technologies, and that's what we've launched, right? So this is still a soft launch where we're going out and fine-tuning it for the initial set of prospects and clients, and then we intend to push it a lot harder, right? I think we -- even if you go after just the med spa space in the U.S., that's a huge space, and there is a clear edge we have on the payment side of things in terms of really enabling a seamless transaction for the client, right? So I believe we have some real value to add in terms of the experience that a client gets from the practice, both in terms of onboarding, regular usage of practice, as well as the payment side, right? So that's essentially the game.

The next question is from Mayur Damani as an individual investor. Congratulations on a great set of numbers to team Aurionpro, in spite of the biggies not able to deliver on a high base and business model. What is our strategic planning for future orders, that is beyond INR 800 crores and 4 quarters from now, expanding in U.S.A., MEA region and others.

Okay. Thank you, Mayur. I would not speculate on where the order book will be in 12 months or 24 months. I don't think that's really very relevant to our planning. For the next 12 months, honestly, we need very little sell and deliver to the next 12 months revenue. As I've said a few times in the past, when we look in the near term, which is 4 to 6 quarters, demand is less of a problem than capacity. What we need to get is our capacity in order, what we need to get is end-to-end, make sure the chain is so tight that we are growing while enhancing our delivery operation, not putting it at risk as we grow too fast, right? So the challenge for us is not that. In terms of new business that we really need to close to deliver the next 12 months, that is a very, very small amount, and 75% of that would come from the existing clients, right? So it's really not a big thing in terms of order book expansion, right? Over the longer term, we plan to grow at 25% to 30%, the revenue. Roughly 1/3 of our revenue every year is new revenue, so which basically needs to come from the sell and deliver, right? To deliver that 1/3, you typically need to sell about kind of 70%, 80% more than that, right? So I think that is essentially what the sales number should be at, but the way we go is, we really go bottom up, we go product by product, we set a number of what we can take, honestly, at the moment and then derive the revenue from that, right? And we will sell correspondingly what is needed to deliver that number, right? I don't think we are in a situation to really go all out and capture as much of sales as we realistically can, right? Because I think the way to look at it is this, in most of the segments we are, we are extremely competitive, whether it's transit, whether it's banking, extremely competitive, right? So if your limit is your revenue to take business, not your revenue to sell, you would want to calibrate sales to make sure you're not sort of endangering the capacity, right? So I think that is essentially what we are doing. It's not blindly sell as much as you can, it is decide how much you need to sell to deliver the 25% to 30%, and then calibrate the sales there in terms of how much capacity you put on the field, right. Now that does not take into account some of these new strategic partnerships that we formed, because honestly, we don't know what that would drive in terms of future sales, right? So that is one sort of variable which we're not planning for at the moment, which may increase the amount of sales we may have to take, but we will sort of cross that bridge when we come to it.

Ladies and gentlemen, that would be our last question for today. I now hand the conference back to Mr. Ashish Rai for closing comments. Thank you, and over to you, sir.

So thanks, everyone, for joining the call. Q1 I think was a good demonstrator of, I suppose, the continued success of our strategy. The journey we are on is a long journey. So 1 or 2 quarters do not really -- they are not so material in the larger scheme of things other than as proof points to say whether we are going in the right direction. In that sense, Q1 was an encouraging quarter for us. We will remain focused on delivering to our plan of growing 30% to 35% this year and maintain the margins that we are at. I look forward to seeing you in the next earnings call. Thank you very much.