Expleo Solutions Limited (EXPLEOSOL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Expleo Solutions Limited Analyst Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Diwakar Pingle from Christensen IR. Thank you, and over to you, sir.

Thanks, Stephen. Good afternoon, good morning, good evening to wherever you're logged in from. Welcome to the analyst call to discuss the consolidation of group businesses in India under Expleo Solutions Limited. The press release and investor presentation have been already mailed to you, and they're also available on the company's website. In case anyone does not have a copy of the same, please do write to us, and we'll be happy to send the same to you. Representing the management today, we have: Mr. Rajesh Krishnamurthy, CEO of Expleo Group; Balaji Viswanathan, Managing Director and CEO of Expleo Solutions Limited; and Desikan Narayanan, Chief Financial Officer of Expleo Solutions Limited. Balaji will start the call with a brief description of the transaction. Rajesh will make some introductory remarks. And then we'll kind of open up the floor to the Q&A. As usual, I'd like to remind you that anything that is mentioned on this call which gives any outlook for the future or which can be construed as a forward-looking statement must be viewed in conjunction with risks and uncertainties that we face. These risks and uncertainties are included but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual reports, which you can find on the website. Having said that, I now hand over the floor to Balaji. Balaji?

Yes. Thanks, Diwakar. Hello, everybody. It's a great pleasure to be in the investor call once again. Thanks once again for all the interest that you have shown in our company and in our progress. We've been discussing about this over the last 2.5 years, where there have been many questions to me during every other quarter's presentation about consolidation and the perceived conflict of interest or the focus of the group on the India business per se. We've been working on this particular project for a while now, for almost 5, 6 months. We have had the best of the advisers working with us during the process as well with JM doing the full advisory, PwC doing all the meetings and statutory, JSA doing all the other agreements -- J Sagar and company doing all the agreement pieces and BDO doing the valuation, along with IDBI Capital Markets who did the fair value assessment for this merger of all the group entities into Expleo Solutions Limited as well. It's been a long journey, and we're quite excited that all the businesses getting consolidated under Expleo Solutions. And we now -- with this consolidation, we have a very strong 3,200-plus people company with close to around INR 600 crores of annual revenue. And just 1 second, Stephen, can you reconnect Rajesh? He got disconnected, I think. With more than -- close to INR 600 crores of annual turnover. And with that, we also have unique capabilities that we are adding as part of this consolidation. While Expleo Solutions have been focused primarily on banking and financial services, now we have a focus on multiple other domains and the industries as well. And we are also adding engineering capabilities. This is also one of the other fastest-growing segments with automotive and aerospace businesses as well. But with all these consolidation and with the kind of focus that we are looking at, the centers in Pune, Bangalore getting added into the Chennai center, it's going to be -- we see a significant positive momentum for all of us through this consolidation. Finally, I also actually have one small request. If you could probably restrict the questions today on the transaction and the consolidation alone because anyway we are going to be coming up with our first quarter results and the investor call for that in the next 4 weeks. And we are also in the quiet period where we can't talk much about the financial results for this quarter or the coming quarters as well. So if you could restrict to that, we'll be able to stick to our timeline of 1 hour. Thank you so much. Rajesh, would you like to add?

Thanks, Balaji. I think this is a good milestone for us. With this exercise, we have managed to bring all our entities of the group into one single operating entity. This will go a long way in ensuring that our business structure is simplified and ensures that we are aligning the interest of all the stakeholders. Broadly, the advantage which I see is that India is a significant opportunity for us, both from a talent pool perspective as well as from a business perspective. Expleo as a group has many significant capabilities, starting from consulting, engineering services, quality and digital. And having India as a significant base is crucial for the growth plans which we have over the next 3, 4 years. So having this in a single consolidated entity is a significant step in ensuring that we are able to really leverage the synergies and the potential of what an India center can do for us. So I'm quite excited that we are able to bring this to a closure. This was one of the first initiatives which I decided to work on after I took over as group CEO last year. And I'm glad that it has moved forward quickly. Thank you.

Thanks, Rajesh. Stephen, now we can open up for questions.

[Operator Instructions] The first question is from the line of Anuj Sharma from M3 Investment.

Congratulations for this combined entity and the merger. My first question is what is the reason of the growth in terms of how do you see the opportunity going forward, basically improved testing and non-testing and the synergies which you see from this merger in terms of cost and others?

Yes. So first one is that we have always had three different entities, one focused on quality, the other two focused on both quality and engineering put together. So now there is a good consolidation, apart from going beyond banking and financial services and the quality business and also enhancing our consulting capabilities and technology capabilities through the Pune unit that are getting added as part of the enhanced quality business. We also have a significant presence on engineering capabilities that are getting added into the entity. The engineering business incidentally has seen a significant growth while globally all the other engineering businesses have been going down. But the India engineering business has seen significant growth, including the entity in Bangalore, which is focused on engineering, growing at almost 25% to 30% this year. And with this, we will be able to find a full end-to-end capability for ourselves, right from engineering and design, consulting and quality and also the enhanced capability on digital services as well. So the opportunity is significant, and we see ourselves harnessing whatever we have built so far in the last 12 to 13 years independently now will be combined. And we will actually see a stronger momentum for the company, both for the group to send business to us and also in the local marketplace. Rajesh, would you like to add anything?

No, I think, yes, overall, if you look at Expleo Group, we have 2 very strong heritages. We have a very strong heritage of engineering services with very strong presence in Europe and because of the old SQS acquisition, which brought very strong quality and consulting capabilities. And those are the key tenets of the services offered by Expleo. If I look at what we are planning over the next 3 to 5 years, we are looking at a very strong strategy around diversification of moving into newer industries. So we have headed -- we have always been very strong in automotive and aerospace. But given the current situation with the pandemic, et cetera, we have in a very aggressive fashion diversified into health care, into medical devices, into construction and manufacturing industries, et cetera. At the same time, on the quality side, we've also been expanding into newer industries like energy, utilities and services, et cetera. The bridge which is bringing together these service lines is around digital because we believe that products are becoming more intelligent. The processes used to make these products are becoming more intelligent. And given our traditional strength in domain skills, we believe that building a digital capability on top of our domain capabilities will set us apart. And for this, scale is required. And for this, India will be very, very critical. So for me, bringing together the very strong quality testing, test automation and quality engineering skills, which were traditionally there in Expleo Solutions, with the engineering skills which we have been building in Pune and bringing them under one umbrella gives us the size and scale and ability to attract the talent and ability to scale up, which is going to be critical in executing the group strategy.

My second question is very specific on the Bangalore entity. The Bangalore entity, while it has been growing faster, the net margins are much lower than either the listed company or the Pune company. Any reasons why the margins are lower? I mean they hover around 5% versus 14% and 20%, respectively. And what is the outlook there?

So if you look at the Bangalore entity and how it has actually shaped up the potential for us, there have been a lot of investments that are being -- going into the Bangalore entity because the size of the entity is not as big as what the Pune entity is. And most of the margin-related challenges, because in terms of pricing, in terms of what the kind of services that are being offered, there are not too much a difference. The primary reason has been around the investments to propel the growth. And we expect that with all the buildup the group -- the company has had in the last couple of years with new clients, including capitalizing on some of the offset requirements for aerospace in India and through the Indian defense as well, it should be in line with what we are doing in the other 2 companies as well.

And a very small question, have you finalized the org structure?.

Sir, sorry to interrupt but for any follow-up, may we request you to rejoin the queue.

Sure.

[Operator Instructions] The next question is from the line of Himanshu Upadhyay from PGIM Mutual Fund.

My first question was, with the merged entity can you give a breakup industry-wise what was the revenue last year? Which industry contributed to what percentage of the combined entity if, let's say, FY '21 is the basis?

We haven't really done an industry-wise split, Himanshu but we have it by entity-wise. But if you were to look at it entity-wise, it's primarily -- the Bangalore entity is focused on automotive and aerospace, and the Pune entity is focused to some extent on automotive but also have a variety of other industries as well, gaming and entertainment, media. Insurance is also another big component of what the Pune entity has been doing. And both the Expleo Solutions one, we have always had banking and financial services as well, 95%-plus contributor from an industry perspective. Maybe we'll work on that and we'll come back to you with the industry-wise makeup, but that's how the split is. And if you were to look at the size of the organization, approximately -- the Bangalore entity is approximately INR 97 crores to INR 100 crores and the Pune entity is approximately INR 150 crores to INR 155 crores. And the listed entities are around INR 301 crores is what our revenue was. So that's the rough split. But for a more accurate number, we'll probably come back to you when we do our next round of investor call.

Okay. And the size of balance sheet of the combined entity, what would be the...

As of March 31, 2021, we have approximately INR 562 crores.

The net cash on the combined entity balance sheet?

Desikan, do you want to take that?

Combined entity cash balance will be around -- including the -- including [indiscernible] is around INR 270 crores.

Okay. And the Pune entity, I think the working capital is higher, okay? So what will be the reason for that?

Working capital, it depends upon the -- generally it depends upon the AR and [indiscernible]. It is not -- traditionally, it is more from a one-time perspective. As of 31st March, it is the reason. But it goes up and down, and it ended up in the 31st of March with little higher working capital. But subsequently there were some payments which happened from the debtors, which has reduced it in the month of April and May. So it's more a time-related thing rather than a permanent thing.

The next question is from the line of Rohit Balakrishnan from iThought PMS.

So one question, in the presentation that you had shared, the group share was around 30% for the consolidated entity. How do you see this moving over the next 3 to 4 years? I mean what is the strategy of the group now that everything is consolidated? If you could share a bit about that.

Yes. The current group business share for the combined entity is approximately 33% to 34% and the direct business is approximately 66-odd percent. The growth projections are also something very similar on what we have projected at this particular point of time. And we expect that over the next 2 to 3 years, the group business contribution would probably be in the range of around 42% to 45% and the direct business contribution would be in the range of 55% to 57%.

Got it. And in terms of the -- I mean our geographical mix, I think Rajesh mentioned that the other 2 entities also have a strong bias towards Europe. We, as a company, don't have a very big presence in the U.S. So I just wanted to understand that strategy. How do you think that will evolve over the next 2, 3 years? Is that a big part of the growth lever for you guys? If you can talk a bit about that.

Yes. So U.S. is -- we've been talking about this in almost every other investor call that the U.S. is an unconquered territory and it's something that is an interesting geography. And we are all interested in tapping that particular market. But if you look at it, we haven't really even scratched the surface of the other geographies as well. U.S. is certainly an important element. But maybe the focus will be more on consolidating and making sure that we stabilize and play to our strengths in the regions where we are right now. And as we go forward, 2022 and 2023, we will have a more stronger U.S. focus. From the traditional Expleo Solutions business, that is the banking and financial services business, we have been doing some investments in sales and infrastructure in the U.S., where we will probably see some traction going forward around the end of this year and early next year. But overall, a full-fledged focus on the U.S. market is likely to happen maybe 3 to 4 quarters from now. Rajesh, would you want to add anything more?

No. Look, overall, the U.S. -- the North America business is a relatively small business for the group. Today, it represents in the range of 5% to 6% of the total revenues of the group. So given the size of the market, the complexity of the market, it's our strategic intent to consolidate our position as a very strong European player. It doesn't mean that we will not do business in the U.S. We are continuing to grow our U.S. business; in fact, quite aggressively. The U.S. growth of our U.S. business is significantly faster, but it's a much smaller business. Today, we don't have any significant expansion plans, but we will continue to chip away and grow the business. And we will also obviously leverage the strong capabilities which we have, especially in the BFSI segment in India, and the growth will continue. But at this stage, our primary focus is on strengthening and expanding our position in the European sector.

The next question is from the line of V.P. Rajesh from Banyan Capital.

So just a quick clarification before I ask questions. Basically, what was the cash number you said for the consolidated entities?

It's INR 277 crores.

INR 277 crores, okay.

As of March 31, Rajesh. So that has changed now. But it was as of March 31.

That has changed now, but that's the published number.

Right. Understood. So my first question is, Balaji, you had given the guidance that the business is looking to double its headcount in India over the next 2 to 3 years. So what is the update on that after this merger?

So when we talked about it in the beginning of this year, we were at approximately 2,600-odd people in India. Now -- as we speak now as of June, I think we have already crossed 3,200-plus. And we are well on the way in terms of building a 5,000-people organization in India by 2023.

By 2023? Okay.

That's right.

Okay. And then you mentioned that you have now -- aside from quality and testing, you will have quite a big revenue from the engineering and R&D services. So can you just talk a little bit more about that? Because investors were not well aware of what you guys do in that particular area.

Sure. So from an engineering services perspective, we have -- we work from -- right from software engineering to mechanical engineering and supporting production for primarily automotive and to some extent in the aerospace segment as well. Our revenues, like what I mentioned, primarily the Bangalore entity revenue is completely from the engineering services. And around 15% of the Pune revenue also is through the engineering services business as well. This actually opens up quite a few new clientele for us, both from a direct perspective and also from our parent as well as we have some of the work that is being done -- from Europe, which is actually being done -- which is also being executed from India as well. So it will be spread across the hard mechanical engineering and setting up of plants and setting up of infrastructure for production to software design, embedded systems, digital piece in the engineering space as well.

So you compete with the folks like Cyient or Tata Elxsis of the world in that particular area?

Yes, that's right.

Okay.

So from a direct market perspective, we would be competing with them. In this market as well. But until now we have not been active on this side of the market because most of the businesses have been focused on what we were able to do in Europe and other parts of the world.

Right. And what kind of cost synergies do you expect once you integrate these 2 businesses?

We expect -- the Pune entity actually has a significant amount of building space and real estate considering the kind of [ seats ] and facility that Pune has got. So looking at consolidating some part of the leased premises. And apart from that, we are also expecting that some of the shared services will start delivering synergies, particularly the finance, HR and some of these other elements as well. It's not that we are going to be doing any cost-cutting or reduction per se because of the kind of growth that we have projected for ourselves. We may not really add too much of capacity, and we'll be able to cater to the growth without adding too much of capacity.

[Operator Instructions] The next question is from the line of Amar Mourya from AlfAccurate Advisors.

Sir, what would be our strength? I mean you had alluded that currently the combined entity has something around 3,200 employee base, right?

Yes.

And what was this number in March '20?

It was approximately 2,900, I think. In the beginning of the year, we were approximately 2,600.

Okay, 2000. And when you say that 5,000 number, you want to reach by 2023, correct?

Yes, that's the aspiration. It's not that -- that's a guidance, but that's what we expect in terms of the growth that we will be able to drive from India based on the talent pool available and also the kind of scale that we'll be able to build. As we all know that the market has been going through -- our entire technology industry has been going through a significant amount of talent challenges as well. So that's our expectation.

Okay. So sir, what I was trying to understand, like if I see the last 4, 5 years, I mean there was a kind of a very muted growth even in the listed as well as in the unlisted entity. Probably '21 was the year where unlisted entity had also seen a significant growth. So in the unlisted entity, the combined number would be what in '20, because if '21 you said INR 258 crores, what was the March '20 number?

Desikan, do you want to take that?

The combined revenue numbers of all the 3 entities, right?

No, I want the unlisted 2 entities' number of March '20.

Unlisted entity of 2 number is around -- one moment.

It was around INR 230 crores -- INR 231 crores. Approximately INR 230 crores to INR 231 crores.

Okay. And INR 231 crores had grown by 13%, 14%. So basically, sir, now when we are seeing this kind of growth, practically we are talking about more than 15% to 18% kind of a growth from hereon. So is this because of the change in the momentum which we are seeing in the IT industry or you are also factoring the merger that you know now the cross-selling opportunity as well as other things into this?

So we are seeing a significant momentum in the IT industry in the last 6 months. And we think that it will probably stabilize at some point of time. But that is one of the factors. And we have always been looking at what are the opportunities for us to drive a double-digit growth consistently as well. So we managed to do that in 2021, the whole of -- rather 2020/'21. And we think that we'll be able to sustain it. But like in a normal practice, we really don't have the -- we really don't give a forecast or we don't really give a forward-looking statement. But our expectation is or our endeavor is to try and drive a double-digit growth year-on-year.

The next question is from the line of Ravi Naredi from Naredi Investments.

Sir, why don't you mention the equity capital of EIIPL?

Sorry?

You are merging the company. So why don't you mention equity capital of other companies?

Equity capital of other companies?

Yes. My question is after merger what will be the capital of Expleo Solutions, merged entity?

I can share, what is the total number of shares in the merged entity will be around 15,519,739, it will be.

You mean to say INR 15 crores will be equity around?

No, the equity will be around INR 15 crores. Yes, correct.

INR 15 crores, okay, okay. And sir, first, you see -- first, we see consolidation at parent level, now at Indian company level. We hope you are doing everything for benefits of shareholders and market is wanting that only. So can you tell how this merger will help shareholders of Expleo Solutions?

So the way we are looking at it is that how do we actually create a company which has a sustained growth and which actually is able to generate sufficient cash and profits. And with the merged entity, our objective was also something very similar where we are looking at accelerating the growth from where we are at this particular point of time. And that is the biggest advantage that I see for all the shareholders, including the promoter as well. So the objective is to try and build a company which is -- which will accelerate the momentum. If we have been growing at a CAGR of approximately 4% to 5% over the last 3, 4 years, our objective is to try and do maybe a double-digit growth. And that will obviously translate into better margins and better cash and a better return as well for everybody.

The next question is from the line of Mithun Aswath from Kivah Advisors.

Yes. My question was more on the group parent level. What kind of size does the group have? And that was one question. The second question is, in terms of us trying to win business directly, with this merger, do we get any benefits of going to the market directly and trying to win more business? Because before we have talked about potential acquisitions that we wanted to make, so just wanted your thoughts there. And with this merger, do we also get some sort of a foothold in the U.S. market in terms of some salespeople in the other 2 companies which are getting merged?

Sure. So from an -- I will probably take the first -- second question and then I'll probably have Mr. Rajesh talk about the group business and the size of the group per se. On the second business of focusing on the direct market and selling engineering and the non-BFSI quality services to other direct markets, which primarily is India, Asia, Middle East, and to some extent in the U.S. as well, is something which we'll be able to do much better because the teams we have now in sales, support and the solution architect teams across other entities as well, which will be able to help us in bidding to the customers and winning new engagements in this market as well. And as far as the sales teams of the other 2 companies are concerned, at this particular point of time the sales team is primarily for sales or the team's focused only -- or based in India. There is really nobody who is based out of U.S. or for that matter any other geography services. But all the sales is actually being done from India. And they support either the group to sell in those markets or we sell directly in some of these markets as well. So that's what we expect the sales capability or the presales capability to help us in leveraging this particular industry as well. On the first part of the group, Rajesh, if you could probably...?

Yes. Sure, Balaji, thanks. Look, at the group level, we are targeting pretty aggressive growth. This year, we expect to grow at double digit. We are currently forecasting to grow year-on-year, 12%, 2021 over 2020. And today, our -- and we call it best shore, our best shore leverage is relatively small and which is what I plan to accelerate. I believe there is significant potential of scaling up our India operations and to become more cost-competitive in the markets we operate in by being able to offer a combined offering. And especially in the newer capabilities around embedded electronics, software, digital, et cetera. So -- and that is probably the main reason why we see that by consolidating the group and simplifying the structure, I believe it makes it easier for our European teams to access talent in India. So this year, we will -- we are expecting to grow about 12% year-on-year and we expect double-digit growth over the next 2 to 3 years.

Just the size of revenue, I wanted to know.

We did EUR 900 million business in 2020 and we will do EUR 1 billion in 2021.

The next question is from the line of [ Suhas Naik from Creda Capital ].

My question is to Rajesh. You are seeing total revenue of $1 billion. And whatever I heard from you is that it's likely that a large part of the business can get shifted to India to make it more cost-competitive. So in that sense, in the next couple of years, we should be looking at a much higher growth for the Indian entities. I'm just trying to [ add 1 plus 1 ]...

You're right. You're exactly right. And that is the reason why Balaji has put forward what I believe should be -- we should be able to do better than that because as we continue to offer productized and industrialized solutions to our customers, where we are able to bundle capabilities around mechanical engineering, manufacturing engineering, electronics and embedded systems and so on and as we're able to scale these capabilities, combine it with our quality services, our footprint in our large customers can become significantly bigger. We are increasingly targeting larger deals, which allows us to really leverage our scale, so which is why for me, getting our Indian setup simplified and have a single entity, a go-to entity, is a critical part of the strategy. And that's the reason why we went ahead with this project.

As we have seen, this combined delivery model, which is getting built or which is already there, which we are trying to consolidate, how about the front end here? Are we going to invest significantly also in the front end to get more of the business?

The front end already exists. Let me remind you that Expleo Group is -- we have 14,000 engineers in Expleo Group, out of which India has only 3,000. So we already have 10,000, 11,000 of our employees who are front end, if you like. So we already have a very strong front office. We have teams deployed physically in France, in the U.K., in Germany, in Spain, in Netherlands, in Belgium and so on. So the investment in the front office, as you are referring to, already exists.

Okay. So the good part is that we are already present in that space. We need to just scale up the Indian operation. That's what we are talking about.

Exactly.

The next question is from the line of Sunil Shah from Turtle Star Portfolio Managers.

Yes. Sir, I was just doing back-of-the-envelope calculation, so when we are going to do this new share, our equity I believe will be getting diluted to about INR 15 crores. First, on a combined profit, we will be having earnings EPS around INR 60 for FY '21? Is my calculation ballpark in the right direction? EPS for FY '21 on the consolidated entity, the merged, the listed and unlisted both put together?

Desikan, do you want to take that?

EPS will be, yes...

It was around INR 59, right?.

INR 59. Fair enough. And sir, the ROE, the return on equity, on a standalone we are at 28%. So when you combine both entities, what could be our ROE, return on equity, in percentage?

Percentage.

I don't have the net worth of the unlisted company, hence I have to get this figure.

The net worth of the unlisted company is there. I can tell you the net worth of unlisted company. Around INR 257 crores is the net worth of the unlisted company.

INR 257 crores. Okay. Fine, I'll do the calculation. Sir, another question is, sir, earlier, I have been looking at this from the time of SQS deal, sir, there was always an apprehension that more and more automation is coming in the field when it comes to testing the software. And thereafter the business was getting difficult for the company at that point in time. Sir, how is the situation really there on the ground in terms of increased automation is actually doing the testing of the software and is it such a challenge for us? Or actually -- could you give me some more insight into this?

Sorry, I'm not able to understand the question. What do we see as a challenge?

Sir, the automation. So by which being the software that's getting developed, instead of getting tested and verified by third-party entity, there are softwares which automatically get this tested. So products have been developed which are able to really analyze the error in the software upfront instead of getting it tested through third-party?

So that is -- see, the static code analysis and the software code analysis, softwares have been there for a long time. But what we are talking -- what we do is, software testing is not just the code. There's a question of what are the features? What are the functionalities? How does it actually will be -- how does it actually manifest to the client -- end client, whether it's the banks' clients or our customers' clients as well. So it's not a question of just the code analysis alone. The code analysis is a very small part of the entire software testing element. And we also automate most of those elements because there is no point in -- you can't read through millions of lines of codes to find out what the errors are. And most of it is automated even when we do it as well. But it's not just the software code analysis alone. It's a question of understanding the features, understanding the risks involved. Are there any malware as part of the particular software? So all those are actually part of the software testing practice as well. So there is a functional testing. There is a nonfunctional or analyzing how it will perform at scale. So the software testing life cycle actually is a significant step and not just a code analysis. Code analysis is expected to be done as and when you are testing as well -- as and when you are developing as well.

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

Sir, my first question is in terms of the organization structure, since now there is a combined entity, how the organized structure will look like from the MD and the division's perspective?

So we have classified the organization as 2 segments. One is the engineering capability that we have and the other one is the quality capability that we have and all the other administrative and shared services piece as well. So that's how we have classified the company into 2. Rajesh, do you want to take the one on org structure?

Sorry, Balaji, I had a small disturbance. I did not hear the question. Can you please repeat it for me?

He wanted to know the org structure. Mr. Kothari wanted to know the org structure, how it is going to be in the future.

Org structure for the group or for...

For the India entity.

Well, look, the whole idea of simplifying this is to ensure that we have a single, unified organization structure. Balaji, of course, will be the CEO. Our colleague, who was heading the engineering services business, will become the COO of the new entity. Balaji will continue to be the leader for everything related to quality and financial services as an industry and so on. And Prashant, who is the MD of the unlisted entity, will continue to be the overall lead for delivering the engineering services business.

And engineering, you mentioned -- I got a little bit confused. You said Balaji is CEO and heading engineering and somebody will be COO. I'm a little bit confused.

We have merged the unlisted entity along with the listed one. So Balaji will be the combined CEO of the overall entity. And the Managing Director of the unlisted entity, he will become the COO of the new combined entity. And in terms of their functional responsibility, Balaji will continue to lead -- of course, lead the overall company. But Balaji comes with a financial services background, with a quality and testing background, et cetera. Prashant comes with an engineering services background and engineering delivery background. And they will be the respective people who will ensure that the work which we are transferring from the group entities abroad will get executed in India.

Sir, my second question is with reference to winning the clients. As I understand, there's a lot of revenue; as you just mentioned that the group revenue which will increase from 33% to something like 50%-plus, something like that. So it means you are expecting higher revenue share and therefore higher growth in your -- within the group compared to the outside group. So for outside group, what is the strategy? Whether India company gets the clients or whether the group parent company gets it and then give it to India, how actually it works? And within the group, since you're also dealing with the parent company, how does the transfer value mechanism works?

So I'll take that. So the way we are looking at it is that the direct markets have always been there as part of the listed entities all the while and it will continue to be the same. So we have a sales team already in place in India, Middle East, Asia. And now we also started our team in the U.S. as well. So they will sell the quality services. Now they will also add the engineering capability and selling engineering services as well. And apart from that, we are looking at partnering with a group where there are large global clients in the digital servicing who are also present in these markets. So we will work with the group to try and tap on those global clients in these markets so that we can actually sell it to them directly in India, Asia, Middle East markets as well. So that's how we are looking at it. And in terms of growth, the growth is not going to be very different because both these segments will have to grow. Only thing is the group's business we are expecting it to grow faster. So both of them will -- in terms of the quantum, like what I said, we said that we'll move from the current 32% to 33% to approximately 42% to 45% in the next 3 years. And the same -- the group -- the direct business from the current close to 66% will move to around 57-odd percent. So -- but in terms of the quantum, when you look at the growth, it will still be in the range of -- both of them will have to grow at -- one will have to grow at probably around 12%, 15%. The other one will have to grow at around 8% to 10%.

The next question is from the line of Deepan Sankara from TrustLine PMS.

Congratulations for this merger announcement. Firstly, I want to understand is, until now we have been holding cash utilization for the merger so far. But now this is over. So will this cash be utilized for distribution as dividend or buyback? Or you're going to focus on larger perspective in terms of acquisition? So if it is acquisition, so what kind of size we are looking at and any region-specific and what kind of the area we are looking at?

Thanks, Deepan. We haven't -- so to be -- we thought that we may not probably get into that cash distribution question in this particular call. But it's still -- we have been focusing -- the last 6 months we have been focused primarily on this particular engagement. We haven't really focused on how we will be utilizing the cash. Maybe when we have our next conversation during the first quarter results, I can probably try and give an outlay of what's the -- what is there, what we could think of but -- and then over the next quarter or 2 we can finalize on kind of how we will manage it.

And on acquisition front, is there any specific plan?

We are not looking at specifically acquiring only with the India money or India cash within the India entity at this particular point of time. While the -- if there are any interesting opportunity, we will evaluate whatever comes. But at this particular point of time, we are not -- that's not something that's there in the strategic road map until now. Maybe like what I said, over the next couple of quarters, we will finalize on what we need to do and how we can utilize the cash for better use.

The next question is from the line of Somil Shah from Paras Investment.

I wanted to know the PAT number for the 2 unlisted companies separately.

What number is it?

The PAT numbers, the profit after tax.

Okay. For the Bangalore entity, it is INR 25 crores. And for the -- sorry, Bangalore -- Pune entity is INR 25 crores and Bangalore entity is INR 12 crores.

So Expleo Infosystems you mean to say it is INR 25 crores?

Expleo Infosystems is INR 25 crores and Expleo Technology is INR 12 crores.

Okay. So now if I see the financials for '19/'20 for the unlisted company, Expleo Infosystems had a PAT of INR 33 crores.

Right.

Is it right? So why has it gone down so much?

So we -- there was a correction in 2020 after the pandemic had hit. I mentioned earlier also, the engineering side of the business had a significant impact in the last year when the pandemic hit because many of the work got suspended, moved out, put on hold. So there was some -- this is more a one-time aberration rather than a systemic number. So if you look at the last 3 years' number, that will probably be a better view than just the last year's number alone. So it has been a one-time impact for the Pune entity only for 2020. Desikan, do you want to add anything more?

No, that is true. It is more a one-time revenue impact which has happened in the last year, which has impacted the bottom line. Other than that, if you look at in the previous year growth was almost -- the '19/'20 there was a growth of almost 9% from what '18/'19 was.

Okay. And my last question is, as you are saying within 2 years we are expecting our workforce to almost double, so what kind of revenue we can expect?

So I mentioned this in my last investor call as well. So the headcount growth may not exactly translate into revenue growth. Because the way we are looking at it is that as we grow in the direct markets, the revenue per headcount is different compared to what you would see as what we get from the group market as well. I would say for 100% or 90% growth in the headcount, you can probably expect 65% or 70% growth in the revenue. But I just wanted to mention this again, this is not a forward-looking statement. This is what our aspirations are.

The next question is from the line of Jagdishwar Toppo from Japa Investment Adviser.

First of all, congratulations on this great move, which is value-enhancing as well as shareholder-friendly. And valuation for the unlisted entity is also quite reasonable. And it eliminates the conflict of interest. It shows quite clearly. But one issue is still there. If I look at Expleo Solutions' disclosure of related entity, there is a INR 20 crore loans and advances to SASU, France SASU. So that number is still pending or it is clear? And it has been -- since it has been outstanding since last 6 to 8 months, would it not have been much, much clearer or much better -- because we missed the dividend twice, I mean last year as well as this year. It would not have been better by giving a good dividend to the parent and to address any liquidity that parent would have faced last year? This is my first question.

So Desikan, do you want to take that?

Actually, if you look at it, it is more not from a loan perspective, which -- this is from our U.K. subsidiary to the French group, where we had this amount which has been given. And this is not from a loan perspective because if you look at our bank balance in the U.K. facility, we want to utilize it better, that surplus cash what we had, that we parked it into group pool which gives us almost 4% to 4.2% interest, which you don't get it here if you keep it in the bank in the U.K. So that's the whole purpose is that we wanted to -- it's more utilization of the balance which is there in the subsidiary is the reason we had transferred -- we had advanced it to the group entity. That was the reason for that. And then the...

There is no liquidity challenges anywhere. Actually, it's a cash pool arrangement and it's available on call. So whenever we need, all it requires is a 48 hours' notice. But the reason why we kept it is more a treasury decision to get a better return on the money rather than a loan per se.

No, sure. But when we miss dividend to the ordinary shareholder and the money is going out from our entity to the parent entity, I mean that's why I used to say, I mean the alignment of the interest was a great move. So how do you want to eliminate them and still remains? Because you have a INR 270-odd crores of cash on the balance sheet and the money has gone out from the Indian subsidiary of U.K. to the parent. So that conflict of interest is still there, even though it may be 4%. So how do you address that?

The 4% is not -- so the 4% is basically the return that we are getting. It's not 4% of the revenue, it's not 4% of any particular number. It's a return that we are getting. It's a treasury decision to get better returns for our cash. Instead of keeping it in the U.K., we have kept it with the group as a cash pool so that we get a better return, so that we get better cash for that as well. So that doesn't have anything to do with the decision on dividend.

Yes. We have a standalone from which we will be declaring the dividend. So that way, there are two different things which we are looking at here.

The next question is from the line of Ritesh Rathod from Nippon India.

Rajesh, maybe your thoughts on how Expleo as a group will expand in the coming 3 to 5 years in terms of the global delivery locations. You mentioned you have 14,000 employees, other than the 3,000 in India. How that has changed in the last 3 years? And what are the plans in terms of a nearshore on-site and offshore locations such as India? If you can just give some color over there, it would be helpful.

No. So look, like I said earlier, last 3 years, we have not really expanded nearshore or offshore in a significant way. It is only since last year that this is a new strategy, which, in fact, I have put in place. When we created the business plan last year for 3 years, we are looking at a CAGR of about 10% to 12% over the next 3 to 5 years, growing from -- we started with EUR 900 million last year, we will be about EUR 1 billion this year, we are looking at EUR 1.1 billion-plus next year. In terms of best shore, we call it best shore capabilities, India, of course, is the largest by far. And that's where we want to continuously expand. And that is the premise under which we actually went ahead with this whole merger situation, to simplify our setup in India so that we can ensure that the right capabilities are being built, et cetera. In addition to that, we have capabilities in Romania. We have teams in Morocco and in Egypt. And these are relatively smaller teams. We have only about 800, 900 people in Romania. We have about 200 people in Egypt and maybe about 70-odd people in Morocco. So the bulk of the volumes will continue to go to India. Because I believe that's where we get the scale advantage and we get the cost advantage and the delivery skills, et cetera. So given that today our overall offshoring is very small, it is in single digits, and really the objective is to take that to 25%, 30% in the next 3 to 5 years. So that is why this becomes quite critical and a pillar of our strategy to transform, to go after larger deals and to be able to leverage the synergies we have between engineering capabilities, quality and testing services. So that is the reason why this was a big step for us.

We will take the last question from the line of [ Rajagopal Ramanathan ], an individual investor.

Just a simple bookkeeping question. The shares which are going to be issued, what is the indicative price? And therefore, what is the expected goodwill that we would need to recognize in the books?

I don't think there will be a goodwill coming in this. Because if you look at it, it will be an additional issue of shares, which is going for the valuation -- for the value which is coming in.

So are you issuing it at par or are you issuing it at a certain price? The reason why I asked you this question is -- just bear with me. The reason I asked you this question is the net effect remains the same. All that I'm saying is supposing you had issued the shares, let's say, INR 900 or INR 1,000 or whatever, that would have led to a creation of goodwill on the -- on Expleo's assets. And then obviously, you have the -- you could sort of choose to either write it off or keep the goodwill on the books over a period of time.

So this is going to be issued at par. At INR 10 rate is going to be the issue of what is going to happen now.

Okay. So you are going to be issuing it at par. Okay. Fine. I think for the rest of the questions, I'll probably wait for the quarterly earnings call. I just wanted to convey my best wishes to the entire group at Expleo.

Thank you so much. And also I just wanted to highlight, as we move -- as we also submit our applications to SEBI and to stock exchanges, the actual reports from the valuer, which is BDO and IDBI, all those will also get uploaded into our website and also into the stock exchange website as well over the next week to 10 days.

Thank you. I now hand the conference over to the management for their closing comments. Over to you, sir.

Yes. Thanks, Stephen. Thanks once again for all the investors and analysts who participated on the call and the interest shown in us. Really appreciate and overwhelmed with the kind of responses that we saw today, and looking forward to continuing the momentum of what we will be able to build. Thank you so much. So Rajesh, do you want to give a closing remark?

Well, thanks for all your questions. Thanks for taking the time to attend this call. Clearly, this is a major step forward for us and the group. And we are very confident that with this setup we will be able to accelerate growth. We will be able to leverage synergies and have a much better return, not only for the group but also for all other investors. Thank you very much.

Thank you. Ladies and gentlemen, on behalf of Expleo Solutions Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.

Thank you.