InfoBeans Technologies Limited (INFOBEAN) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome, everyone, and thanks for joining this Q2 FY '25 Earnings Call for InfoBeans Technologies Limited. The results are available on the stock exchange. In case anyone does not have a copy of the same, please do write to us, and we will be happy to send over it to you. To take us through the results of this quarter, we have with us Co-Founder, Mr. Avinash Sethi. We will be starting the call with a brief overview of the company's performance, and then we will allow the Q&A session. Kindly ask your questions by raising your hand after the brief overview by Avinash is over, and then we will address all the questions one by one. I would like to remind you all that everything said on this call reflects any outlook for the future can be considered as a forward-looking statement and must be used in conjunction with the uncertainty and risks that we face. These uncertainties and risks are included, but not limited to what we have mentioned in the prospectus filed with the SEBI and the subsequent annual report. With that said, I turn over the call to Mr. Avinash Sethi. Over to you, Avinash.

Thank you very much, Surbhi, and thank you, all shareholders, investors and potential investors for attending this call. Thank you for your time and attention. This will be presentation around the last quarterly numbers and also will cover half yearly numbers. Those who are new to InfoBeans, those who are not aware, I quickly run through the standard commentary about the company first, and then we'll talk about the financial numbers and then we'll open up to question and answers. InfoBeans is a company founded in 2000. Today, we are a 1,500 people team across all the locations that you can see on the screen. We are present in India in 5 locations: Indore; Pune; Chennai; Vadodara and Bengaluru. In Europe, in Germany, we are in Frankfurt. In Middle East, we are in Dubai. And in U.S., we are in Bay Area, Silicon Valley and New York. Next, please. This is a quick roadmap of how we have progressed over the year. The first 10 years were more foundational, and we are a first-gen entrepreneurs. So we spent a lot of time holding ourselves and understanding and establishing the business in the initial 10 years. Our real growth started only after that when we started building the organization and having professionals run the show. And then we went public in 2017, we acquired our first company in 2019, then the second one in 2021. In 2023, we reached a revenue of INR 399 crores. And last year -- I mean, this year, we actually onboarded Phaneesh Murthy, who is -- who was with Infosys and then IGATE as a CEO of IGATE, and he retire -- when he left IGATE. So he's helping us as an adviser to the Board trying to grow the business to the next level. Next, please. A quick overview on the numbers. We have one of the biggest strengths of InfoBeans is direct relationship with very large customers. And we have added 4 more to this kitty. So put together, we have 29 plus 4, 33 large enterprise customers. 90% repeat business is what, again, another strength that we have. Our clients stay with us for long, and we generate repeat business year after year. We've been successful in acquiring 2 companies to grow the size of our business. And another interesting point is that we have a large number of team members who are with us for 5 years or more, that is very unique to -- which is very difficult and unique to us as a part of the IT industry. We've been able to retain so many professionals with us. We are listed on both NSE and BSE. Half yearly snapshot, we have INR 202 crores in revenue in the first 6 months. INR 42 crores EBITDA, which is about 21% EBITDA now. Our aim is to reach a 24% size on EBITDA. PAT is INR 20 crores, which is about 10%. Cash and equivalent that includes AR of INR 75 crores is about INR 231 crores is the cash that we have in the bank. And 26% is our revenue CAGR in the last 5 years. We are very gung-ho about the partnerships that we have in place, right from Microsoft from the early age -- early times to the latest one, which is agineo, which is a German company working in ServiceNow. Then we have partnerships from Salesforce and ServiceNow also in place and Microsoft Azure also comes in as a cloud partnership. We are very proud and happy to have achieved multiple accolades and recognitions from the third-party institutions. The latest one being Best Companies for Women, and Dream Companies to work for, Great Place to Work. We have also got Asia's Best Employer Award very recently. This is what we do. This is -- these are the set of services that we offer. We do customized development for enterprises, and we build applications for them for their usage as well as we build products for them. We also have a specialized capability in terms of user experience and rapid prototyping where we build early stages of application before it goes full-scale development. Then we are exploring and building solutions around AI capabilities. We also are helping our developers use tools to generate code while they are developing software. So we are trying to improve our efficiencies using AI tools. We are also trying to help our customers deploy AI-enabled solutions so that they can do their job in a much faster way. At the same time, they are more efficient in terms of their outcome, the quality of their outcome. We are also partners to Salesforce and ServiceNow, as I mentioned, and we help in implementing and consulting our customers on the solutions around these 2 platforms. Then we have automation around robotic process automation for obviously improving the speed of operations for our clients. We also do a lot of test automation so that any time software needs to be tested, we don't have to do it manually, it just goes through test scripts, which run on automated way. And again, makes the GTM very, very fast for our existing customers. Next, please. Key updates. Our revenue has grown to INR 102 crores, which is an 8% growth Y-o-Y and 3% (sic) [ 2% ] growth Q-on-Q. EBITDA margins jumped from 19% in Q1 to 23% in Q2. We onboarded 4 new clients, one Fortune 100 company, two U.S.-based large enterprises, one from India. M&A pipeline, where we continue to evaluate companies, specifically focused on ServiceNow and Salesforce. And we are finding that there is some moderation in valuation expectations now. Still I'd say it's not as close to what we would have expected, but we are still pursuing those opportunities and working towards it. It is a constant exercise that happens all the time, but the closure takes a lot of filtration and a lot of due diligence before we come to a term sheet signing stage. Our Events and applauds, I talked about it. ESG and CSR InfoBeans Foundation continues to go well. We had 2 batches that went -- underwent the placement program. And again, 90% of them got placed successfully. We also did a very specific program for women leaders in the organization. And 25 out of those 60 people enrolled in a year-long program is called Shakti, it is an empowerment program for women leaders, they -- 25 of them have now proceeded to the next level, where we'll again focus with them and hand over them towards their career progression. Next, please. The 3 founders on the top, Siddharth, Mitesh and Avinash, myself, then we have independent directors, Shilpa, Sumer sir, and Mayuri. Shilpa and Mayuri live in the U.S. Sumer sir live in Punjab. Again, a very senior leadership, Emerson looks after sales and marketing. Amit is our Director of Delivery now. Kannan is handling delivery efficiencies, process implementations. And Denise is the heading design function. Manish looks after operations, Ram, client success in the U.S. Darshana looks after Salesforce development -- Salesforce business development in Pune. Kanupriya is VP of People. Arpit, heading design. We look at it, they have been with us for so long. Tarulata looks after sales and marketing in the U.S., Geetanjali, sales in the Middle East market. Chaitanya looks after delivery and Salesforce Practice in Pune. For the clients that we talked about, ALM is one of the largest -- is one of the longest relationship that we have, more than 22 years in the making. We continue to work with them. They do a legal content publishing in the U.S. IQVIA is one of the large healthcare services provider. CoAdvantage is one of the HR solutions. Then we have clients which are under NDA, again, a very large company on the logistics side. SMBC is a financial institution based out of Japan, but we work with their U.S. firm. There's a cloud data services and storage company that we work with. And there's a German client, which is a multinational conglomerate in the technology space. And there is a wireless communication company, which is again one of the largest players, and then the pharma company again a very, very big name based out of Germany. So our large enterprise clients is our strength. We have direct relationship with each one of them. And on an average, the -- if I look at the average age of my top 10 customers, it will be easily crossing 9 years on an average. So we generate a lot of repeat business from our customers. This also shows the amount of strength in terms of delivery and the trust that we have gained from our customers. Let's jump on to the financial snapshot. This is a quarterly snapshot, September '24 to September '23 (sic) [ September '23 to September '24 ] , 8% growth in revenue, 52% growth in EBITDA and a 200% growth in PAT margins. When I look at quarter-on-quarter comparison, 2% on revenue, 25% on EBITDA and 63% on PAT. In constant terms, constant currency, which is particularly, let's say, USD terms, we have grown by 7% Y-o-Y. Some detail here. We have seen demand improvement from September '23 to September '24. And we've also been able to control expenses so that we have a better gain in terms of margins, both on the sales and marketing expenditure as well as finance cost has reduced slightly. We also have been able to improve our -- in utilization, and that also reduced the salary cost and therefore, a higher utilization led to a better margin. Here, we see the H1 comparison between September '23 first half to September '24 first half. The revenue has grown by 7% from INR 190 crores to INR 202 crores and EBITDA has grown by 39% to INR 42 crores and PAT has grown significantly from INR 8 crores to INR 20 crores, 166% growth. Next, please. This is the P&L for 30th September half year ended. Some details here in terms of how revenue has changed, how expenses have been able to maintain constant between first half and therefore, the increase in EBITDA and PAT margins. We -- let me also tell you that we continue to invest in sales and AI technologies. So there would be a certain amount of expenses which are going in the right direction towards the growth of the business that will continue. Next. Quick snapshot on the balance sheet. So we saw last time one of the founders have resigned from InfoBeans Cloud Tech. And therefore, the earn-out portion attributed to that founder has reduced our liabilities and also reduced our -- the asset portion -- noncurrent asset portion also. So that has reflected in the balance sheet right now. The profits have added to the assets and the equity portion. And yes, so the -- so the current liabilities have reduced from INR 56 crores to INR 41 crores. And similarly, the noncurrent assets have reduced from INR 189 crores to INR 167 crores. Next, please. Almost equivalent split between Digital Transformation and Product Engineering. InfoBeans Cloud Tech is contributing 15% to the overall revenue. U.S. market has reduced to 63%. And interestingly, Europe has jumped to about 20% in revenue, in Germany. And this is the quarterly number, by the way. UAE has grown to 11%. So both the markets, Europe and Middle East have grown well for us. India has shrunk and for right reasons, we curtailed all the low-margin accounts from India. That is -- that might have further reduction in future. But yes, interestingly, we used to have 80% U.S. revenue just a year ago, and we are now at 63%, which is a good sign. We are not overly dependent on 1 market and that we're seeing Europe is growing and Middle East is growing very well. Next. One quick snapshot of the award that we received, eighth time in a row, Best Employer Award. And we have got the best companies award for top 100 companies in India for women. There are certain events that we attend and invited to. This is the ServiceNow event in Mumbai. This is the Shakti empowerment picture where we have women running through the entire program and 25 of them are now to the next level in terms of leadership. So out of the InfoBeans Foundation students, 73 students have got placed. And 1 remarkable achievement that we've seen here is 40 of them got placed into one company called Softude. And this is the picture of that team in their office. Very happy and proud of that. Next. So Indore has a recent event where they planted 11 lakh trees and saplings in a single day. We contributed to that. We participated in that exercise. This is a picture from there. Market data, you would be knowing it already. Thank you. Thank you, Surbhi. We can open up for question and answers.

[Operator Instructions] The first question comes from the line of Rajesh Chaudhry. Rajesh, kindly ask your question. Rajesh, we are not able to hear you.

Okay, go to the next in line. Rajesh can come back again.

The next question comes from the line of Rohit Singh.

I am audible, sir?

Yes, Rohit.

Considering the recent uptick in the IT job index alongside the U.S. Federal Reserve rate cuts, what are the projections for the demand environment in the coming quarter over the next year?

Thank you for asking, Rohit. I think what you're asking is with the rate cut in U.S., what is the demand scenario for us, right?

Yes, sir.

Okay. So Rohit, let me tell you, honestly, we are a micro company and such changes at a macro level does not really affect us much. It does change the sentiment in the market, which is a good news for us. But our business typically is affected by the customers that we work with. And those customers, if they come up with new work, new demand, then we grow irrespective of the macro environment. We do take 6 to 9 months to sign up a new client. So that process continues. I would say that there's not much of a change in our cycle with such changes in macro environment, particularly in the U.S. and there is another factor which is elections. So it just slows down certain things, but our clients don't see any such impact per se.

In light of the anticipated market recovery, are we aiming to achieve a strategic growth target that will result in double our performance in every 3 years?

We do want to do that. I think I've been telling in the past also that it is a combination of organic and inorganic growth. In last 2 years, we have seen certain setbacks in terms of our top clients fading out very, very quickly. And therefore, we lost a lot of revenue from those few names. But I'm happy that we've been able to recover that. Plus the last couple of years, the valuation asked by the seller companies was very, very high. And it was not logical or rational to purchase those companies. So we have kept on sidelines. We keep accumulating funds. And as and when there's a right opportunity, we will go ahead and acquire. So the target remains the same. We want to grow at a faster pace. We are not happy with the current pace of growth. But all said and done, there are certain factors which are out of our hands. But we are still assertive and aggressive in that space. We want to grow fast.

The next question comes from the line of Rupesh Tatia.

Am I audible?

Yes, Rupesh.

Yes, I've got a few. So first thing is this margin performance that we did for this quarter, is there some one-off? Or this is now the kind of like base going forward?

It has come after a lot of effort, Rupesh. So I would not say it is a one-off. You see we have made increase -- we have increased our revenue. We have decreased our cost. So there was a constant effort on all directions. I think it is a good sign that we are turning around. Will it be constantly upwards from here? There might be slight ups and downs. But I think directionally, we are in the right path, in the right direction. So I would be not saying that this is one-off. It is definitely -- we are going to build on top of it.

Okay. Okay. So it is sustainable. Okay. So other question, sir, is, can you update on the agineo partnership? How -- what is the revenue contribution in the half year? How is that scaling up? Is it scaling up as per your expectations?

Yes. agineo is going well. We have not published any revenue numbers as such. But yes, we are going in the right as per the projections. So for a year-long projection, we had that we would be having a team of about 45 to 50 people. I think we are already at 30-plus team size. So we -- by the end of the year, we'll be reaching there. So we are on track. We've attended a couple of events in the U.S. and Germany with agineo. And if you are following our LinkedIn portal, we do post those developments there. So it is going strong. And we are talking more business. We are talking other things also. So yes, it is on the right track.

Okay. Okay. And sir, this -- I think in the last quarter, you said in the Cloud Tech, some issue happened with one of the clients. Has that been sorted? Is Cloud Tech now -- I mean, have we recouped the lost revenue? And are we on a growth track now?

No. So that client has gone totally, and we are able to -- we are not able to recover from that drop. However, we are inching towards increasing the revenue, but not able to recover completely from that. So it is a slow process. It will take its own time. But I mean, we have come out of that, what you say, hurdle.

Okay. Okay. And this explanation on balance sheet, some founder-related Cloud Tech, I didn't understand that. Maybe can you throw some light on that?

So when you acquire a company, there is always this mechanism where you pay a certain portion of the payout as a part of yearly achievement. Now since the -- one of the founders has left midway, yearly achievement, which is -- which would have otherwise been due by the end of this fiscal is not payable anymore. And therefore, that needs to be rewritten in terms of the asset value as well as the liability that we had towards that founder.

I see. I see. Okay. Okay. Understood, sir. And I mean, Avinash, you have always said that macro doesn't matter. We're a small company, 1 or 2 deals can change our growth trajectory. So are you now in a position to say that our trajectory has changed and over next, let's say, 4 to 6 quarters, double-digit, high double-digit growth kind of will return? Are you now in a position to give that kind of directional guidance?

Rupesh, we don't offer guidance, but I'm positive now. I'm much positive than probably 2 quarters ago. So things have shown good signs, there are businesses that we have, the clients that we are seeing are generating a lot of work and a lot of demand. So yes, I think we are going in the right track. Whether it will convert into a 20% growth, 30% growth, I don't know. But we certainly want that. That is the hunger, that is the need that we have. So yes, we are striving for it. We would want that to happen.

Okay. And then finally, sir, suggestion, I know you look up to best in the industry in terms of practices, corporate governance and all that. So I would also suggest you maybe look at their presentation, maybe if we can start showing up total contract value, deals win, some other by product, by industry segment, some revenue, because a lot of details are there given by other industry players. And I know you want to be at like follow the best practices in the industry. So I would urge you to look at that.

Sure, Rupesh. Point taken. Surbhi, there are certain questions in the Q&A. So a very good question from Vipul. We have been saying from the last few quarters that we're actively working on potential deals on the equipment side. So he's asking what are the challenges that is preventing us for a successful acquisition? So Vipul, the fundamental point here is that we are very selective in choosing the targets. Second, we want the customers only from the U.S. market. We don't want the customers from the other markets, primarily because we understand the U.S. market better than the other markets. We've been -- just because we've been there for a much longer period, plus one of the founders live there. So when you look at the filters, we have a very strong filter. And therefore, the number of deals that we come out through that filter is less. Plus, when we look at acquiring company, it's not just the financial transaction. It is a much more detailed work in terms of how the integration will happen, what are the cultural alignment, what are the synergies, how are we going to make 1 plus 1 more than 2. So all of those analysis are being done. And therefore, it takes time. Third is the valuation itself. If there is an illogical ask, then we will not be able to pursue that. So we have dropped a lot of deals where we have given a term sheet based on the value that we estimate for the business and we make an offer to the seller company, but then they would drop it because their ask was much higher than what we have offered. So we do our work. And obviously, if it doesn't close, it doesn't close. We are not willing to make any irrational choices here. We're not willing to make any acquisitions just for the sake of growth numbers by being a much higher valuation for the company. Because we want the ROI to happen in 4 to 5 years and if the ask is such that the ROI will happen in 10 years, then there's no point in acquiring that company. We are better off building that capability eventually. So that build versus buy analysis happens. And therefore, these acquisitions are tough to happen and it's not very, very simple transactions. The second question you have is we hold more than INR 180 crores in cash. Should the acquisition opportunities are not available, has the management considered share buyback in the open market? I think one of the things that all the investors, I would request you to understand is we are a tiny company. So the comparison that you make of ROE or ROCE from large IT companies is not comparable. That's the first thing. Second is all of those presentations that we see of the larger companies may not really apply appropriately to us. Therefore, having cash in hand is a good thing. We saw that in COVID times. It gave us a lot of strength even in the severe adversity. And even though it is nothing if we compare to the kind of companies that we're looking at, let's say, INR 100 crore company typically would be available for more than INR 200 crores in value. If I have to acquire INR 100 crore company today, I'm actually short of money in that sense. So it is a business of large companies to do buybacks and give hefty dividend. But for a company which is growth-hungry, giving back money to the community doesn't really help. right? We rather -- I mean, it doesn't make sense. If we are trying to grow the business, there's no point in giving back in terms of share buybacks or dividends. We'd rather grow the business and deliver that growth, which becomes a multi-method return for the investors rather than a tiny buyback. So I've answered Vipul. Do we have a next question?

The next question comes from the line of Rajesh Chaudhry.

Am I audible, please?

Yes, Rajesh.

Yes, Rajesh.

Yes. First of all, congrats for an excellent set of numbers. My question would be. What is the attrition rate at the moment? And has the salary hike been taken care of in this quarter?

Most relevant question, Rajesh. Attrition rate is at around 16%, which is fairly healthy for us. The appraisals have happened from 1st of October onwards. So yes, we are on the track in terms of what we committed to our team. So we don't see any tough times in the coming quarters. Therefore, we delivered on what we committed in terms of appraisals to happen from 1st of October. That has already happened.

Okay. And can we expect this kind of a run rate now because like since now we are pretty much growing and growing decently, especially in this quarter, can we maintain this run rate going forward?

Yes. As I mentioned earlier to Rupesh, we do want double-digit growth annually as well as -- so we are unhappy with single-digit growth, let me tell you. But yes, we do want to continue on that path. And we are investing in sales. We are bringing more salespeople, more teams across the geographies, investing there. We're investing in AI technologies trying to understand how we can implement those AI tools and technologies for our customers. So that is an exercise that we continue to invest in. So yes, we are, in a sense, unhappy with the current rate of growth. We certainly want a higher rate of growth from where we are. So we are investing in that direction.

The next question comes from the line of V.P. Rajesh.

Congrats, Avinash, on a good set of numbers. So a few questions for you. When you're talking about the salary hikes, so that increment will show up in Q3 in your employee cost, right? It is not in the Q2 numbers?

It will show up in Q3 onwards, yes.