Dev Information Technology Limited (DEVIT.BO) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Dev Information Technology Limited Q2 and H1 FY '26 Earnings Conference Call hosted by Kirin Advisors. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Saki Panjiyara. Thank you, and over to you, Ms. Panjiyara.

Thank you. On behalf of Kirin Advisors, I welcome you all to the conference call of Dev Information Technology Limited. From management team, we have Mr. Jaimin Shah, CEO and Managing Director. Now I hand over the call to Mr. Jaimin Shah for the opening remarks. Over to you, sir.

Thank you, Saki, and thank you, team Chorus. Good afternoon, everyone, and thank you very much for once again joining us today on this particular call. On behalf of the entire Dev IT team, I'm happy to welcome you to our Q2 and H1 FY '25-'26 earnings call. This is always a valuable moment for us to connect with all of you, share our progress and equally hear your perspective so that we can also incorporate in our forward-looking journey. We truly appreciate your time and continued trust as well as your valuable inputs. Before I get into the numbers, I want to take a moment to reflect on the broader journey, which we are building at Dev IT. As I mentioned in my previous calls that in this financial year, we all have seen lots of geopolitical turbulence. We are witnessing lots of, you can say, product creation, lots of emphasis on AI, cybersecurity and IoT kind of technology. And we are also witnessing that India is becoming one of the biggest IT consumer in the world. Over the last 2.5 decades, we have consistently evolved from being a regional software solution company to a diversified global IT services organization. Today, our work spans across cloud, digital transformation, enterprise applications, managed IT services and products like Talligence, ByteSIGNER and many more on Microsoft Dynamics, which are already published on Microsoft Marketplace through our group company, sister company called Dhyey Consultancy. Our engagements with government and enterprise clients continue to strengthen our positioning in India's growing digital economy. Along with this, our presence in international markets, including North America, Australia, Europe continues to grow, supported by our partnership with Microsoft and other technology leaders as well as local ecosystem partners. Q2 FY '25-'26 was another meaningful step towards in that journey so that we can achieve what are the value proposition we are creating having all these value propositions as well as group companies. We secured new strategic projects from RajCOMP, Gujarat Informatics Limited, Gujarat Info Petro, NICSI across enterprise software development and that to e-governance ecosystem. There are lots of cloud migration, e-governance modernization and financial management orders, system order, which we have grabbed in last 6 months. For us, these wins are not only revenue opportunities, but also validation that the market trusts our capability and long-term execution strategies. The public issue of our subsidiary, Dev Accelerator Limited worth INR 143.35 crores was also an important milestone. This strengthens the balance sheet of the business and enable expansion in the managed office space segment where DevX is already an increasingly recognized partner or player. Internally, we continue to stay focused on building capabilities that are relevant for the future. Investment in AI, cybersecurity, blockchain and platform development are progressing well, and those are our focus area in last 9 months. The ABCD framework that we follow, and you all must have seen our last financial year annual report where we have mentioned ABC of any framework -- any businesses. We have added D in current quarter. So it makes ABCD framework that we follow and that comprise of AI and BI, blockchain, cybersecurity and data center infrastructure that will guide our road map for the future. Our subsidiaries, Minddeft and products like Talligence and ByteSIGNER continue to add capability depth while DevLabs maintaining the center of innovation, building new intellectual property and products. And that's what you all must have seen in last EGM that our focus is building more and more India-centric product as well as innovative product so that we can create more asset-light companies or IPs, what we have created with DevX. As you all know that this current year, and I also have mentioned in my previous call that in this current year, we are focusing more on India market business, though it's a low-margin business, but our focus is to create high-value assets like DevX and also maintaining our sustainability because we don't know that what is going on with North America. We don't know what are our tariff implication on IT services business as far as U.S. is concerned. We don't know about our trade treaty with Canada. So all those things has created uncertainty. And here, we are in a great position as a Dev IT because we are also present in India market and also present in overseas market. So we want to focus mainly on sustainability and creating more and more high-value assets so that we can utilize this particular period where we can grab more and more India-centric business for the sustainability and creating solutions like Talligence, ByteSIGNER and many more solutions under Minddeft and Dhyey, which will be utilized once this geopolitical turmoil will be settled and over in next couple of quarters. For Q2 FY '25-'26, our consolidated total income stood at INR 49.18 crores as compared to INR 48.24 crores last FY '24-'25. EBITDA for quarter stood at INR 3.82 crores against INR 11.23 crores in the same time period last year. Reported net profit for Q2 stood at INR 71.88 crores compared to INR 8.11 crores in corresponding quarter last year. It is important to note that this number includes an exceptional gain of INR 93.55 crores of DevX. I just want to draw your attention that DevX is not just like an investment to any other thing. DevX where Dev IT is one of the promoters. It's like our own business unit, which we have created, and this is like a different type of assets which Dev IT has created in the last 5 years. And now we can see because DevX has gone public, and now we can see the value of this investment or, you can say, an idea, which grew 6 years ago that has given a high valuation to the company's growth. So for Dev IT, DevX is not just an investment. For Dev IT, DevX is one of the business unit. For half year H1 FY '25-'26, our consolidated total income stood at INR 92.64 crores compared to INR 83.97 crores in the same period last year, reflecting a growth of 10.32%. EBITDA for H1 stood at INR 7.85 crores against INR 17.29 crores in H1 FY '25. Reported net profit for the half year stood at INR 74.06 crores compared to INR 11.83 crores last year, again, including the exceptional gain of INR 93.55 crores. Alongside financial progress, we continue to focus on strengthening the organization foundation. This includes skilling people across new technology areas, improving delivery efficiencies and creating a recurring revenue mix through long-term contracts and managed services. Our ESOP program rolled out this quarter as well reflected our confidence in the future and our belief in building a wealth for employees who are part of our journey. And this is because our philosophy is people first and business always where we believe that whoever are there with our journey, even though we are having a low-margin business, but we are having a very high other net asset class IPs, we believe that whoever are there with us should also be part of our journey and should also be benefited through a different class of assets valuation. While the industry environment remains dynamic and sometimes uncertain, the long-term demand drivers for digital transformation, cybersecurity, AI adoption and enterprise system modernization remain very strong. We believe that the momentum we are building today positions us well for consistent and sustainable growth in the year ahead. As we move forward, our goals are very clear. We are very focused even though we are extremely cognizant about our margins, we are extremely cognizant about our investments as well as our cash flows. But still, we are extremely bullish about wherever we are investing so that we can create asset class or we can create intellectual property, which can give us extremely high valuation, what we got in DevX. And that is how you will see a few different things from Dev IT, those concepts as well as ideas are under development, but those are all reached at POC level within organizations so that we have not yet informed exchanges about it. But let me give you without giving you a concept -- a naming about those ideas, we are building one of the unique blockchain-based solution for India market, which will definitely solve lots of hassle for every citizen of this country. This will also solve issues for bodies that to government as well as different certificate issuing body for verifying those documents. So that entire thing is getting ready. It's already been done. Now we are waiting for a couple of customer confirmation. Once those are all available, we'll definitely come back to you all and launch that product. We are expecting that product will also be like what we have created in DevX. So that investment right now going from Minddeft and Dev IT. And whenever that value will be created, that value will be an exceptional high-value return for Dev IT in near future. Similarly, we are also riding on India market growth by way of having Talligence by way of our DevLabs concept and creating a separate ecosystem so that the entire ecosystem of product can be benefited through a particular entity. So more and more people can join in their journey as well as more and more people can come and invest into that entity so that our reach to customer base goes tremendously high. As you all know, the Talligence is one of the unique AI/ML-based SaaS-based blockchain solution, which will be catering to 4 crore of Tally users in India. Our target is to achieve, not, if not 100%, but to achieve 10% of Tally this 4 crore user by 2028. Similarly, we are also working very closely to gain our early entrant access or early entrant first-mover advantage in GIFT City by -- through DevX. As you all know that DevX has a center in GIFT City. Now as we all know that many GCCs are entering in India and GIFT City is offering outstanding opportunities for those GCC to enter. So we are creating an ecosystem where we'll be providing end-to-end solution to those companies entering in GIFT City, starting from real estate to IT, to compliance, everything that will be under one banner. So that kind of ecosystem or an entity is being created. And once everything is done, we'll definitely come back and inform exchanges as well as inform all of you. With all those things, our focus, as you all know, that our focus is ABCD. Our focus also to create more and more profitability. Our focus is more to create export business. This year, our target was to increase more and more export business. But because of geopolitical situation, we are not diverting our focus from U.S.A. or North America. But we are -- for sustainability, we are capturing more and more business, India market business. But good part is this e-governance expertise, which we have created in the last 28 years, that is also giving some kind of return to Dev IT through our group company. I'll again come back to you that once agreement we reach out to an agreement. But we are on the verge of final talk where -- through our subsidiary, Dhyey, we are also going to capture some of the U.S.-based e-governance project because Dev IT has a strength in e-governance. Dhyey has a strength of Microsoft Dynamics and Power platform and the company in U.S., they are having a strength in government sector in U.S.A. So by collaborating this thing, we'll be capturing that particular business. And our target is also said that at least $1 million to $3 million of business will be done in FY '26-'27. Once we are through with that particular agreement, we'll definitely inform exchanges and inform all of you. As you all know that U.S.A. is becoming very, you can say, uncertain market. And as you all know that we have a Canada presence since last so many years. Though Canada was not having a good political relations in the last few years, but now India and Canada is also building good relations and trade is playing a very crucial role. And because our presence is there in Canada, we see in the last 3 to 4 months, many Canadian entities now moving towards India service-based company like the Dev IT, Dhyey to solve their Microsoft Dynamics problem to provide them cybersecurity solutions. Very soon, we'll be announcing a couple of closures in Canada as well. So our investment and our presence in Canada, we see a great opportunity in coming quarters in Canada. And also, we are extremely bullish about Australia, then Europe market and MENA market, where in Australia, we are right now working with a local partner because we don't have a direct presence on a few AI and Microsoft Dynamics projects. So next year, we'll see more and more our direct presence in Australia as well. As far as AI, blockchain, cybersecurity and data center businesses are concerned, in AI, we have built a really good team in last 9 months. And those teams got a really good experience and those teams have really created an excellent AI/ML-based Talligence new version. You all must have seen our social media posts that we launched our Talligence 2.0 a couple of months ago. And that entire team, you can say, creating a new Talligence in just last 6 to 7 months. So whatever investment we have done in last 4 years, we did it in last 6 to 7 months because we wanted to -- we have seen that entire demand is growing towards AI, growing towards BI and growing towards cybersecurity. So that product is busy and is ready. And now we see really great traction where around 4 to 5 serious partners, they are already aligned and enlisted and they have started selling Talligence. So we are bullish about Talligence now because of this new avatar of Talligence. Similarly, in blockchain, as I mentioned earlier that through Minddeft, now we are getting good services contracts, and we are creating intellectual property, and that will launch and announce very soon. As far as cybersecurity is concerned, as you all know that in last January, we have -- in last December, we announced that business unit. And in January, immediately within a couple of months, we got a contract from one of the data centers and existing customer from U.S.A. and that business have also grown. And we see that business growing from $0.5 million to $2 million in next financial year-end. As far as data center is concerned, data center is one of our key delivery and managed IT expertise, which we have created in the last 10 years. And now you all know that India is becoming a very popular destination as far as data center is concerned. In Gujarat, we are having more and more companies coming in GIFT. In Gujarat, government have started providing incentives to data centers. And similarly, states like Chhattisgarh, states like Maharashtra, they are also offering more incentives to data centers. And we being very old data center service provider, we are right now in a final talk to a data center creator, where we can provide data center management solutions and services to their customers. So this is how Dev IT is focusing. We are extremely cognizant about our revenue. We are extremely cognizant and aware about our margins. But we are extremely, you can say, confident about our asset class creation, which you have seen in DevX. And similarly, you will see in these 4 segments, which we are focusing right now. So once again, thank you for being here for today and for being part of the story, which we are building at Dev IT. We look forward to your questions and the discussions ahead.

[Operator Instructions] The first question comes from the line of [ Vinod Shah with VS Ventures ].

Sir, total income growth this quarter year-on-year was very modest. So going forward, what would be the key drivers that could accelerate this revenue growth?

Vinod, as I mentioned in this call as well as in last couple of calls, currently, our focus is maintaining the growth, which we are doing since last couple of years, but maintaining sustainability is main focus. So we are really optimistic about growth in this next 6 months because we are focusing mainly on India market. And fortunately, our U.S.A. market and our export growth has also been seen in the last couple of months. So by this year-end, we'll be, I think, if not surpassing, but we'll be doing reasonably good as far as revenue is concerned -- revenue numbers are concerned in current year.

Okay. And sir, what about the EBITDA margins? Like they have declined year-on-year basis. So what were the main pressures and how soon we can expect the improvement in that?

Yes. That's what I mentioned in my -- all the calls that one of our focus area is low margin. And as you know that we are investing more and more in creating other asset class like what we created in DevX. For you, it will be an investment. But for me, it's a business. It's a business unit which -- where we have invested a few years ago, and now we are getting extremely high return. Similarly, we are -- in this 6 months to 9 months, we have invested heavily into creating a few intellectual property. And those intellectual property, those expenditures, which we are spending right away, if not all, then few will definitely give us a high return in next few quarters because I also wanted to upskill my employees. If I do that upskill mind and if I don't utilize them in creating some kind of value proposition, then that's my sheer loss. So what we have done, we are upskilling them. So our margins will decrease, but we are utilizing them for creating IP-based solutions, not only in Dev IT, but also in Dhyey. And if you can go and see Dhyey's Microsoft Marketplace, around 40-plus solutions are already available on Microsoft Marketplace. So those are all investments are done during this particular period so that we can gain those return in coming quarters.

Okay. And sir, I can see that there is an exceptional gain of some INR 92 crores. So can you describe that? And going forward, how would be the profitability look like?

So the exceptional profit or income is DevX. So DevX, as you all know that DevX went public and Dev IT's shareholding decreased from 23% to 17% in DevX so that as per accounting norms, we have to calculate the current valuation of DevX shares and we have to take it into our P&L. So that is the valuation of DevX share market price based on 30th September 2025. So that will be totally linked with DevX's performance as well as market price in coming quarters. And similarly, we'll be having more and more value proposition businesses through Dhyey or Minddeft and Dev IT per se. So EBITDA, which we are focusing right now is to increase that EBITDA. But currently, our focus is to maintain sustainability. So this year, we might have a similar EBITDA like last year, but creating this value proposition will also result into extraordinary valuation like what we got in DevX. Similarly, we are working on 4 different concepts that may give us a really high growth valuation in coming quarters.

Okay, sir. And sir, next question is like on the revenue mix. So how much of our current revenue is recurring versus project-driven?

Do you mean to say what -- how much is the project, which -- so can you please elaborate?

Yes, sir. I just wanted to know like how much of it is like a recurring revenue? So we have client...

Yes. So normally, our business, we are having 1 year of contract with majority of our customers. And till now in last 28 years, over 80% of customers, they have renewed those contracts for another 1 year. I might not be exactly aware about 80% or 90% or 70%, but majority of customers, they are renewing our contracts for another 1 year. So you can say 60% are recurring business and 40% are new business.

Okay. Okay, sir. And sir, are you facing any pricing pressure in cloud services or digital transformation or government-led IT modernization project? So are you facing any pricing pressure there?

So pricing pressure, we are definitely facing not only in India market, but also in North America market. Everywhere, pricing pressure as well as payment pressures are there that previously in North America, people were ready to pay in 30 days, but now, they are negotiating it with 45 days to 60 days. And similarly, in India, it is open secret that India is a price-conscious market. But even though it's a price-conscious market, but business credibility is there. So -- as far as pricing pressure, your exact answer to pricing pressure is there, yes, there is a pricing pressure in every market. And now having this labor code introduced, now we have to revisit our pricing structure as well.

Okay. And it's still a primary, but how much with new labor codes, how much increment in cost you are expecting?

That's really not been done, Vinod. So I cannot predict any number right now. Fortunately, our majority of our contracts, they are having a clause of this government regulatory increment. So we don't see much of margin pressure as far as Dev IT is concerned and as far as India market is concerned that we might have to take a hit of those, if at all, there is something incremental pricing. But those things are already covered in our -- majority of our contracts.

Next question comes from the line of [ Mahesh Seth with VY Capital ].

I have a question like how is the traction shaping up in overseas market, like especially in the U.S. and Canada, where you are strengthening the partnerships?

Okay. So Mahesh, in U.S. and Canada, traction are already there. People are rightly -- right now slightly uncertain about how their local government will treat service export. But as our relations with those companies are very old, so we are not facing that issue. And that is how our investment in Dhyey results into a positive side because they have their presence in Houston there -- and they have a company called Dynamics Stars. So companies are not seeing it negatively. So that's becoming a positive part for Dev IT. As far as opportunities are concerned, we see really great traction in last 3 months in U.S.A. as well as Canada market in terms of their SME companies are now spending more and they are also ready to outsource their services. But only thing that they want to deal with local entity, and that's how our Dynamics Stars and Dev IT North America become a very important part, and that's how that those 2 companies, which we have started are giving us a positive response. Another thing which we have seen in last 2 months about Canada that Canada and U.S.A., their relations are spoiled and Canada has now seriously thinking that they should move away from U.S.A. and they should also maintain extraordinarily good relations with India and also part of Indo-Canada Business Chamber Association in India. So I see that traction very well. But now those companies are moving away from U.S. service provider to other service provider like India. And now those companies in Canada are really focusing more on ERP business and cybersecurity services. And that is how -- as I mentioned in my speech that we are getting good traction from Canada. And because our presence is there in Canada from year 2012, we are being seen as a serious player.