Aurionpro Solutions Limited (AURIONPRO) Earnings Call Transcript & Summary

Okay. And just my next question is within the reporting segments that are there, the sale of software services, we've seen a bit of a sequential downward movement. If you could just speak on that a little bit. And if you could comment on what the execution time period is for the order book that has been given of about INR 1,500 crores at the end of Q2. What is the execution time line for this?

So -- okay, 2 different parts, right? I think the way to look at the sale of software services versus license and equipment, the reason we declare it, the way to look at it is more largely what is one-off versus what is more of a continuous stream. I think it's important not to look at mix from one quarter to the other because, for example, in this quarter, because of MMRDA, that recruitment and licensing fees jumped quite a bit. So there will be like from one quarter to the other, depending on the mix of business, that number will go up and down. But I think the way to look at it is what is largely a one-off going in and what is sort of more continuous in terms of the business. I think that's how I would look at it anyways. On the order book, so typically, the way we declare our order book, we don't really have, for example, the AMC streams inside it and a lot of the recurring stuff inside it, which will get added every year as we get into it. So I would say 80% plus of the order book is typically executable over the next 5 to 6 quarters. I think that's generally the mix is. There will be some 20-odd percent which will sort of go a lot further because there's always a tail to several orders. [ id="-1" name="Operator" /> [Operator Instructions] The next question comes from the line of Deepak Poddar.

I just wanted to understand first on the data center part. I just wanted to understand what exactly -- I mean, what the scope of work in the data center? And apart from that, per megawatt, whatever investment is being done in data center. So our scope would constitute what percentage of the entire investment and what is the margin profile in data center?

Okay. So I'm not sure if I got the first part of the question correctly. I thought you said what do we do in the data center space and then you said what is sort of margin profile. Look, I think what we do, we run one of the top data center design teams in the country. We specialize in the complex end of design. I think that's our specialization. That's usually fairly high-margin work. As a percentage of the overall pie, it's not significant, it's single digits. We also program manage the build of data centers for a few strategic partners, which is where the size gets bigger, right? I think on the overall margin profile standpoint, so of course, there is a massive demand in that space, but we are very selective on the deals that we take on. And that has largely got to do with us being very careful around the margin profile of the business that we take on. The longer-term ambition is to build more products in that space, which we are slowly building out, and I think then the margin profile will, of course, change. But that will take some time for us to mature the products. In the meanwhile, I would say data center is probably 5 or 6 points below the enterprise margin at the moment, right, and continues to grow at about enterprise levels. I mean slightly above the enterprise levels at the moment.

No, so I got this. So the margin profile of data center is 5% to 6% below the enterprise -- I mean, below the company level EBITDA margin?

Correct. That's correct. So we've been -- I think the way to look at it is we've been steadily investing in that business as well, plus it's largely a services-led business at the moment, right? So in many ways, if you look at it, any business that we enter initially, we normally enter as a services business like transit 6 or 7 years back when we entered purely services business, validators from one place, gates from somewhere else, AFC payment system somewhere else, software somewhere else. But then slowly, we go and find places where we feel there is value extraction that can happen with IP. We understand the space well enough, then we build it and then we go for it, right? So slowly, we like nonlinear play that IP allows. So slowly, any business, we will try to productize it. But at the moment, it's largely a services-led business.

Understood. Fair. And my second question is on your overall growth. I mean just wanted to understand when we say a 30% kind of a growth, so what are the growth drivers, I mean, geographically as well as segmental? And how will this growth profile change for next year, let's say FY '27? Because you did mention that we are stressing more on Europe and U.S. market. So just wanted to understand this trajectory. I mean what is driving the growth in the current year and how will this change over the next year?

So look, it's not any single year that we've been growing 30%, right? I think we basically have grown at something between 30% and 35%, 36% over the last 4 years. So 4 years back, we pivoted the business away from what was largely a diversified some products, largely services play into what we are today, which is where we said we will choose a set of segments. I would highly recommend you watch one of the few Investor Day videos that should be available somewhere. But if I was to summarize it, we said we'll choose segments where we see a demand runway that goes out at least 6, 7, 8 years. Obviously, in the tech industry, everyone wants to see a long demand runway. It's very hard to find. So there has to be something fundamentally transformative happening in that space for us to get comfortable around the demand. There has to be a space where we bring some unique advantage, and we believe that global leadership is contested. And then we published the Vision 2030, we went after it. So what are these spaces? Transit payments is one where we believe over the next 8, 10 years, the entire world is going to move from closed loop to open loop payments, which is tens of thousands of transit operators. Data center was another space we felt India was undercapacitized. We felt AI computers undercapacitized and we thought that will grow. Enterprise AI was a third area, lending, transaction banking, right? So we chose spaces quite recently, which is 4 years back when we pivoted where we knew the demand is going to be strong. And then we went about methodically building the business. And that's how the business has grown. FY '21 when we started this, we were a INR 375 crore business. FY '22 we were INR 505 crore, then INR 660 crore, INR 880 crore, INR 1,200 crore this year, probably something between INR 1,500 crore and INR 1,600 crore. So we've basically been growing the business at that pace for the last 5 years. To my knowledge, we are the only listed technology organization, at least in this country who's done that over the last 5 years, grown above 30% consecutively for the last 4 years. And that's how we do it, right? So these are segments where we know the demand is. Now obviously, the demand drivers vary for the segment. Transaction banking transformation is a huge theme in where we see a lot of new logo wins, a lot of demand. The driver for data center space is completely different. The driver for transit payments is completely different, right? But these are spaces which have high demand. And I think we have built out over the last few years probably the most competitive set of offerings out there. So now the question is where do you go from here? I feel the core IP for us exists in most of these spaces. Of course, there is a whole AI wave that came in after we pivoted and -- but we were aware of it, and we've invested against it. And now it's a question of continuing to invest in that IP, but also continue to expand into markets. We feel very good about where we are in Asia. Now the game is can we become strong in Europe? Can we become strong in U.S., right? So that's the focus. I don't know if that answered the question, but that's the philosophy. Yes.

Yes, yes. That perfectly summarized. And we intend to grow at 30% for next 2, 3 years? I mean, would that be a aspiration for us?

Look, I don't know what I don't know, right? I mean, so businesses don't run in a straight line. I think we've got good visibility over the next 4 quarters. We intend to grow strongly for the next several years. I think we have the business model. I think we have the products and the IP. We've methodically built out one of the finest teams in this business. And I believe we will continue to grow stronger than the industry as we've done over the last 4 years, right? Now is it exactly 30%? Is it 25%? Is it 40%? I think let's take it 1 year at a time and let's see. But we feel that from now till 2030, we painted a Vision 2030 in 2021, which we published. So outside is a qualitative view, inside is a quantitative view. I never published a quantitative view outside because I don't like making big bold statements saying $1 billion or $10 billion. But it's a precise number. 4 years in a row, we've beaten that, right? So we feel good about the trajectory. We feel good about being able to grow for several years. [ id="-1" name="Operator" /> The next question comes from the line of [ Vaibhav Chaudhari ].

Congratulations on a good set of numbers. So I have 2 questions. One is on AI data center. So what is the order book there? And the second question is the receivables is a bit high for this quarter. So can you help me a color on this?

Sorry, I did not get the first question, Vaibhav. What do you say about data center?

So what is the AI data center order book?

So look, I think it's sort of hard to segregate it at that level. A lot of the AI compute, so we've done -- we've got one of the more specialized shops, right? I mean I think we published some things publicly in the past, the sort of high-performance compute with IIT Guwahati, with IIT Mumbai. So we've got a lot of expertise in the space. We've got a lot of offerings in the space. The whole AI compute build-out is a relatively new thing for India right now. So I think -- and we are a very India-focused data center business, right? So I think some of it is still getting built out. Right now, I would not be able to give a mix, but I think the future demand does seem to be building up. So most of the AI compute, if you see where did that get built out, probably even now 70%, 75% is still like training workloads going in, and those are mostly -- they've not been in India. I mean there's been some GPU as a service sort of offerings out there where small model building people have been using the compute, but most of the training workloads have been outside. Now as the usage is going up, there is a lot more inferencing workloads which need to get executed closer to where the customer is, where the user is. And India, obviously, is one of the larger markets out there. So we do see a steady build-out of AI compute as the inferencing workloads take over, right? So I think that's sort of how I would summarize it. I think in the past, it's been small. We've been active participants in designing it, working together with IIT, lots of places. We do see that building out as we go. So that will pick up, and I think we'll play a key role in it.

Got it. My second question is on the receivable part, so it seems to be a bit high for this H1. So can you just throw a little bit light on this?

Yes. So receivables, look, typically, for us, if you -- it's like it's usually high at this time of the year for us, right? And I think that's understandable, especially because we also had some large orders in Q2 that we build out against, right? The -- compared to March, of course, it will probably look higher to you. Compared to September 30 last year, I think our DSOs last year were something in the range of 110 days. Now it's about 100 days. So I think it's sort of steadily gotten better in terms of gotten like lower -- sorry, better is the wrong usage in terms of where the DSOs are. But overall, this time of the year, they are usually high and they are high. [ id="-1" name="Operator" /> The next question from the line of [ Rohan Advak ].

My first question is on the 2 line items in your balance sheet, which is other intangible assets and intangible assets under development. If you could elaborate on what is included or what is -- what constitutes these 2 line items because I've seen growth in them in FY '25 and also in H1 of FY '26. So how do we decide what do we include here versus what we expense in the P&L? If you could just throw your thoughts on this?

Yes. So look, the way we operate is, obviously, we invest a lot behind product build-outs in this business. Like I said, this year, it's probably clocking something north of at least 25 a quarter, if not closer to 30. So that goes out. But most of that goes into our core large products like transaction banking, like lending, like transit payments, et cetera, we don't usually capitalize those build-outs. We usually expense them out because these are large businesses. And typically, we are quite comfortable with the net margin that comes out from it. The only places where we've been capitalizing is, to my knowledge, 2 places. One is the payments business where I've also said in the previous earnings call as well because we have capitalized. The reason we have is because it's a business which is a regulated business. We've asked for licenses in some geographies, including India, and there is a sort of asset build-out that happens that we also need to sort of show that we are building out -- building the products out. So that's number one. And the second place where we've done some recently is the AI side. Of course, we've been investing a lot on that side. But in some cases, we're also trying to work together with, let's say, government funded agencies in a few countries in Europe as well as in India, where we are looking at grants and all that stuff, right? So we need to see -- show some asset build-out there, right? Those are the -- that is sort of the bulk of it, I would say. Relative to the size of product build-outs that we do, it's not really material, at least in my view. And I think these are like very specific small businesses inside the firm.

Understood. That's clear. And my second question is...

The other way to look at it -- sorry, just so I'm clear about this, right? These are businesses with a very large future. So even relative to the size -- so AI, for example, is growing at 100% for us. I mean, I don't know what the future size of the business is. I don't think anyone knows, but it will become a very large business. Same thing with payments as we scale, right? So these are relative to even the future size of these businesses, the size of the product build-outs actually is fairly small, and I think we are probably one of the most efficient shops in the world in terms of building product, right? Product building takes dollars, takes effort and takes like years of patience, which we have in [ Udles ]. And that's why for the larger products, there is basically no capitalization that we do.

Understood. Understood. And my second question is that if I look at the segmental breakup between sale of software and sale of equipment and what you said in an earlier answer is that you would look at it like what is one-off versus what is recurring.

Largely.

Yes. If I look at sale of software, June versus September, it's down from INR 252 crores to INR 207 crores and sale of equipment is up from INR 84 crores to INR 150 crores. So it seems extremely lumpy. And if sale of software services is largely recurring, it shouldn't have fallen so much. So am I missing something in my understanding of this?

Yes. So it's like -- it's not just software. So there's a lot of services in there, which basically is the size of the projects that we do, right? So a lot of the skew that you see in Q2, for example, one single project, which is MMRDA, which we got signed on caused a very large skew in terms of moving towards the equipment and licensing side, right? So some of these variations will happen from one quarter to the other. I would say don't read software and services as pure software. And so it's not -- so we are not big on, for example, subscriptions, right? There's obviously always a steady stream of AMCs and all that get captured there, which are like recurring revenues. But a lot of it is also project implementations and services revenue, which will go up and down as we close new orders as we execute on projects. And the mix -- relative mix between what is licensed versus what is service will also change, right? So depending on the sales mix in a quarter, you will see one of those 2 going up. If you were skewed towards the license, then that line goes up. If it was a very competitive deal, the license prices were down, but a lot of loading was towards the project work, then that goes up temporarily till the project is getting done, then obviously, that number is not there. So it's not like a SaaS style subscription revenue, which you say, okay, how does it vary so much? I mean some of it is like 20% of it is probably recurring or maybe 25%, but not all of it. [ id="-1" name="Operator" /> The next question comes from the line of Jalaj Manocha. Your voice is not clear.

Is it better now?

Yes, I can hear.

First of all, congrats on a good set of numbers and the momentum. I just wanted to have a view around if I were to break down the banking and the fintech business unit or the vertical as we report it, could you give some directional view around the newer verticals where in the NBFC and the fintech and the traditional banking, what we were doing? So could I have some flavor around there, how the progress is? Because I understand that the NBFC and fintech were newer products, which we have been investing on. So some direction there or some flavor would be helpful. And rather request would be we can start to -- if we reach to a sizable amount or a sizable quantum of business in both the businesses separately, we should -- could we report them separately also?

Yes. So longer run, you're totally correct. I think we will probably, at some point, start reporting the businesses separately. Fintech, again, you're correct. I think the banking side of it is the larger platforms around lending, transaction banking that we have Fintech side is where we've done a lot of new product build-outs over the last, I would say, 5 or 6 quarters. Where are we? I think fintech is becoming more and more material. So obviously, Sanjay Varma, I think he's been on Investor Days before. He's the President who runs that business. We have built out what we think is probably the most modern retail LO product out in the market today. We've come out with it. So this is stuff that it just doesn't just go to NBFCs, also goes to banks. We have outside -- so India, of course, we've got a lot of sites for the product. Outside of India, we had our first win in Saudi recently, and we are implementing it. This is also a fully AI-led product, which we feel we're seeing a lot of traction in Europe with at least in terms of pipeline buildup, and we do think we will win. So that business will grow. We are very close to coming up with a brand-new loan servicing system, probably out over the next 3 months. This again will be the most cutting-edge, most modern product in the market. We've got a completely new self-service portal, largely on the auto side that we came up with 4 quarters back. already a win in New Zealand, a win in U.S. and we're looking at probably some wins in Europe this year with it. So I think this, again, is a large auto finance facing product, which I think will do very well and the initial wins have been very, very strong, very promising. And a lot of sort of AI native application build-out, agentic application built out in that space. For example, we announced the win in the U.K. with an SME lender. I think we are probably just a few weeks from going live with it. I think once we go live there, that builds up a solid local reference that we can build on and expand into Europe with. So there is a lot of new product build-out, I think, in that business that's happened over the last 4 quarters. I think it's maturing very fast. Each of these products, I'm convinced are today the most modern deep products in the market in their respective spaces. And this is going to see a lot of traction, especially in terms of new market push that we are seeing in Europe as well as in Middle East and Africa, right? So I think that's how I would sort of summarize it. I hope that answers the question.

Could you give me some -- yes, that answers. Could you give me some sort of quantitative flavor to it also, what sort of size would we have reached there?

I think it's north of 30% of the overall banking and fintech pie. I would not be able to give you a specific number.

Okay. So you're saying the fintech and the newer products are almost 30% of that.

Yes. A lot of the new growth is getting driven from it. And actually, a lot of the new future growth will get driven there. Understood.

Understood. Got it. And sir, my second question was around the TIG, what we have been trying to sell it across outside India. So have you had any success there? And how are things shaping up there specifically? So outside of India, the primary solution line that goes out is the smart mobility transit payment side. That is where I think we are enormously successful, right? So I think the transit payment side is almost 50 and 50. Of course, we won some large deals in India, so the SKU -- it may get skewed for some time.

But typically, I think -- so like we had that win in California a few years back, full global RFP. We are live in 8 or 9 Californian cities. This is the open loop -- the open loop win we had. So today, if you go to Disneyland in California on a holiday and you're doing a tap and tap out from your card, you're doing it on an Aurionpro validator, the same one you can see in our experience center in Mumbai or Singapore. If you go to holiday in Maldives, and you take any public mode of transport, the whole technology stack is Aurionpro's, of course, in partnership with Mastercard, who runs it. But the technology solution is ours, you do it -- you do tap and tap out on Aurionpro unit if you take a ferry or something like that. So Americas, Costa Rica, Ecuador, Mexico, large wins. I think we've proven ourselves. We've entered Australia, we entered U.K. We've proven ourselves as probably the strongest end-to-end solution provider in the space. Of course, the very large providers in the space tend to be double-digit billion-dollar players or multibillion-dollar players, and we don't have the balance sheet to go out and try to compete, for example, $1 billion tender or something like that. So we tend to collaborate in international deals. We are a very strong partner with Mastercard. We recently started partnering with Visa as well. So, for example, the Egypt win -- the Maldives was Mastercard. The Egypt win that we announced that we're implementing right now is together with Mastercard. We are collaborating on a lot of projects there. We are now increasingly competing on larger deal sizes across Southeast Asia, across Europe and the international side will continue to grow. I think transit, we have built out between the R&D centers in Istanbul, London and Singapore and the manufacturing setup in Malaysia and in India as well as the software piece. We have the whole software chain on it. We also have a payment license in India. So you've got the payment chain getting worked on as well. We have today probably the deepest, widest stack in the space. We are probably the most efficient producer of software and hardware in that space. and the margin profile of the business keeps getting better every year, right? So I think this is in the long run, going to be a key powerhouse of growth for Aurionpro, and we intend to be one of the bigger players around globally, and we'll continue to push towards it.

Understood, sir. Understood. And one last question quickly. Specifically in the businesses we have won or the projects we have won in TID, which is the MMRD or the metro lines. Sorry, I'm hopping up on the same question again, but what sort of margin profile are we seeing there? Or if you don't want to talk about that ROCE profile is something because receivables are usually higher in this business.

No, they're not higher in the transit business. I don't agree with that. I think it's like -- so transit is a beautiful business. So one, now with the -- with our own -- we own every point on the value chain now. We even down to having our own manufacturing in this, right, our own IP, our own mechanisms as well as our own software. This is the first place we are also putting the clearinghouse the back office software as well. So the margin profile is very strong in the business. I think there is a reason why we can pretty much compete and win most deals. So the reason we were not taking on some transit business in India until recently, and now we got on to take a larger because we feel very confident about the economic profile of this business, right? And I think it's very, very strong and it's getting better. The second way, transit, generally, we don't face. So initially in the setup, you may have some milestones to finish to collect some payments during setup time. It's not too problematic. But the other thing is once you are running in steady state, then all money goes into an escrow, everyone gets their share. So it's not problematic from a payment standpoint at all. So that's where I would sort of contest that view a little bit, right? So even if you had a little bit of a milestone delivery while you're doing setup, just given that the contracts are long, over time, the economics improves and over time, the business actually tends to deliver fairly strong cash flows. At least that's been our experience. We are very selective in the deals that we take on. We have one of the most competitive stacks out there, at least in India. And I think we will only take on business where we feel confident of the economic profile.

Ashish, this is Debashish. So just one follow-up question what Jalaj just asked. As far as I understand that in case of TIG is concerned, we are the most kind of end-to-end integrated player where we have the hardware capability also, we have the software capability also. And if I remember correctly, we have put in our hardware manufacturing facility in Singapore, I think, last year or so. So just wanted to get some sense that what is the competitive intensity, what is the kind of margin profile if you can compare with your competition in India and give us some sense because what I understand initially in your Lucknow projects in Metro and all, you were not able to take out very significant margin. So how those things have changed in the recent times?

Yes. So look, I think it's important to understand how we sort of win the business. So if you go back to some of the initial deals that we did, right? I mean, one we said we want to bet on the transit payments as a space, right? Why do we want to do it? Because the closed loop to open loop movement, you can't stop. I think it's a movement across the world. Over the next 8, 10 years, tens of thousands of transit operators around the world will need to change. This is a fundamentally transformative event that happens in the industry 40, 50 years, and we intend to play it. When we got in, it is like a lot of our competitors right now do it, right? You're almost like a system integrator. You're taking products from various places, putting it together and then the margin profile is single digits, right? It's not good. But it helps you learn the game. That's where we were 5, 6 years back. Since then, we've steadily built out -- and this is one of the only businesses where we built out both the hardware and software stack. Why? Because if you really looked at the whole value chain, you get -- you are able to extract value, you are able to capture margins only when you have that integrated hardware to software play. It's very hard to capture it if you play either or you say, I just do software, I just do hardware, I just bring it together. In neither of those places, you get the margin profile and which is what most of our competition in this business does, right? We will drive a very different level of economics from this business. We used to manufacture on our own the validator side of it as well, but now we outsource it to manufacture in Malaysia. So you're right about that Singapore piece, but we actually start outsourcing. The designs -- the whole R&D is ours, the design is still ours, up to the BOM level and then we get it done from the outsourcer because we've been methodically working on every single point, what is the most efficient way to do it. And when you put it all together, we are probably one of the more efficient if not the most efficient player in this game today. We will drive a very different level of economics from just about everyone else. There's a reason why we have such strong partnership in the space with Mastercard, with Vix. We've announced a few overall. There's a reason why we are a preferred partner for everyone because we can do the whole chain, we can do parts of the chain, and we can do all of them efficiently. So that's why we are such an in-demand consortia partner for larger deals as well. So I think that's essentially what I would say. I feel very, very good that as the business scales, as we become more and more global, the R&D strengths that we have, the software strength that we have, the hardware manufacturing strength that we have, we will be very, very hard to beat in that space. [ id="-1" name="Operator" /> We will take one last question from the chat box. I would request Hanishi Shah to review it.

The question is, what is your opinion about AI as a stand-alone opportunity?

So look, I think AI, like I said, we -- as a stand-alone opportunity, it's pretty large, right? So there are 2 ways -- there are 3 ways we are playing that game, right? And I said one is the AI native applications. Application -- if you look at history of any technology, as the technology matures, it doesn't matter what you're looking at. Ultimately, a lot of value capture happens on the application layer, right? That is where we've traditionally been strong. That is where our strength is. That is where a real bank uses a real application to run its real business process. That is where value gets created. That is where value will get captured. We play that game. We are good at that game. We will be very strong at it. That is number one. The second major play is AI is very new. It's fundamentally transformative and there can be a lot of value from a single intelligence intervention. It doesn't need to happen on the application layer. It can have the application layer around it, but that specific intervention, depending on which lever you go for. So some banks, some financial institutions may want to start from that intelligence intervention because you say, that's how I prioritize value, right? This is where some of the global AI vendors also have been doing work. I don't think this will happen from the likes of the services vendors and all who are kind of making API calls to LLMs and do that. You will still need the whole gamut of sort of suite. So the way we built it out is there's a predictive AI suite, which is where you use the classic models to actually drive predictive algos. You got the Gen AI suite, you got the agentic AI suite and you bring all of them together to see where does the value get created in the enterprise I think stand-alone at the moment, that is a good-sized game. I think that is getting larger at a furious pace. And that itself, Arya will play. And we intend to be a strong player in that game. We've got a very mature set of offerings around there, right? The third game, which is slightly different is the sort of foundational technology game where we say, can we come up with strong solution to the key challenges to taking models into production, right, which is explainability, observability, risk, how do you put the guardrails on, right? Even how do you process tabular data, for example, right? So that is the third play. And I think #2 and #3, both are pure AI plays I feel these are very, very large plays for us to play or for Arya to play over the next several years. That will obviously need a lot -- I mean, we've got probably one of the strongest teams in the country today, but it will need a lot more investment as the field matures, right? I think both are -- in my head, they are linked, but they are independent races. You don't need to win both of them to be very, very large, but we intend to run both of them with very, very strong -- building up a very strong set of assets and play that. Does it make sense? [ id="-1" name="Operator" /> Due to time constraints, that would be the last question for the day. I would now like to hand over the conference to Mr. Ashish Rai for closing comments.

Thanks, everyone, for joining this call. I'll come together again next quarter, and we'll share where the business is. 4 years back when we started this pivot, there are a set of hard choices to make. I think we've made the hard choices. I think we've proven that the model works. We need to double down on the strategy that works. AI is a fundamentally transformative event. That's probably -- it's happening for the first time in all of our lives. We feel that is transformative for how technology is used in an enterprise. We will methodically go about building the set of assets as well as the applications and we'll play the game to win. Thank you for taking time to join this today, and we'll meet again next quarter. Thank you. [ id="-1" name="Operator" /> Thank you, sir. Ladies and gentlemen, this concludes today's conference. You may now leave the meeting.