Intense Technologies Limited (532326) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 and FY '21 Earnings Conference Call of Intense Technologies Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Siddharth Rangnekar from CDR India. Thank you, and over to you, sir.

Thank you. Good afternoon, and thank you for joining us on Intense Technology Limited's Quarter 4 and FY '21 Earnings Conference Call. Today, we have with us Mr. C.K. Shastri, Managing Director; Mr. Jayant Dwarkanath, Director; Ms. Anisha Shastri, Director; and Mr. H. M. Nayak, CFO of the company. We will commence the opening remarks with Mr. Shastri and Ms. Anisha Shastri. Following which, we will have an interactive question-and-answer session. Before we begin, please note that some of the statements made on today's call could be forward-looking in nature. And a note to that effect has been included in the earnings release of the company, which is available on the stock exchange website. I would now like to invite Mr. Shastri to give us a brief overview on the company's performance and his views going forward. Over to you, Mr. Shastri.

Thank you, Siddharth. Thank you, everyone, for joining today's earnings call. I appreciate your interest in our -- in Intense. I hope and wish you and everyone in your families are fine and safe. I'd never be -- in the beginning of last year, we never expected that the country would go through this kind of a turmoil for such a long period due to COVID, which is really, really impacted every -- most of us in our families, and we have lost some dear ones, some of them have got impacted. Some industries faced a brutal impact. However, fortunately, we were also very nervous, and we were also very, very -- we were all anxious. But the first thing which we took care is to take care of our employees, safety of our employees. On 23rd March of last year, we were the first people -- we've made the entire employees work from home. The infrastructure was created. All -- everything what was required to be made was provided, And we -- the first goal for us was to see that we do a complete support to all our existing customers see that there is a seamless thing because that's was one of the first and important initiative which we have taken and was -- and we were acknowledged by almost 100% of our existing customers for the splendid work my team has done in delivering an uninterrupted services and support because as you all know, that our solutions are mission-critical and they need continuous support from us. And I'm so pleased to tell you that from that kind of a year more, we have come out with a very, very satisfying results. As you all know that we have done INR 73.83 lakh crores with an EBITDA of 23.16 on a consolidated basis. And with a PAT of INR 18.07 crores. And that is -- that accounts for an EPS of INR 8, And also, consecutively for the third year, we've declared dividend, So we are pleased to tell you that the company is moving in the right trajectory and direction to see that we perform and improve better than what we do as we go along. We have seen some great traction. Thanks to pandemic, what has really happened is that the IT has seen upside IT business and IT solutions because everybody is looking towards the digital side of business. Of course, on the -- how do they digitize and their business processes, and we found -- they have found our solutions very, very hard for such requirements. I'm also proud to tell you that our long-term managed services engagement has completely come on steady state, and we are reaping the benefits of it. Some of these things, we also -- our platform and our product has been recognized in the Aspire leaderboard, which is a leading analyst company based out of the U.K. As you will already know that we've been recognized Gartner, and Gartner's Magic Quadrant in the past. Our local platform is also seeing a great traction, which is in the coming years, as you know, that low-code is the new wave of the IT trend which the world is seeing. And fortunately, we have taken that strategization of moving into it in the past, and we have seen some good benefits coming out of it. On the -- some of the things, we have improved our cash flows. Of course, you would, from the balance sheet, it will be looking a little alarming as most of our revenues tend to come from the last quarter, which we going forward modulated, we've changed our, we are changing our engagement model and going about looking at from an annuity-based revenue so that the predictability increases. You will see that trend in the coming -- in the future. And I'm happy to more than we, I would like to hear your opinion, your questions. Please be open and be willing to answer everything whatever you would have to say. Thank you very much. Over to -- Anisha, would you like to add anything?

Sure, sure. Good afternoon, everybody. Thank you so much for joining this call. My voice may be slightly muffled behind the mask, but let me assure you, spirits are extremely high. Over the last 2 years, we had -- there were some very steady decisions that we wanted to take as an organization, 3 fundamental pillars. The first thing was vertical. We were very, very heavily dependent on telco 2 years back. And the telco industry as such was seeing a lot of dynamism in it. And so we decided we wanted to, and given the fact that all our products are vertical agnostic, there was no reason why we were so dependent on just 1 industry. So over the last few years, we've made the conscious effort to diversify that. And you are seeing that pay off right now in the way of, we have acquired 3 large private banks in the country, a lot of insurance players. We have also coded into utilities this time as government for the first time. So that's one on the vertical side. Second on the business model. We wanted to get to more predictable, revenue models, more predictable, business model both for the customer and for us. So over the last 2 years, we have invested a lot in moving towards either monthly or transactional models, and we are seeing that also pay off with our customers. The third thing that we focused on was the platform. We invested in the platform early on, and we continue to invest and grow it. And today, we are also reaping benefits of utilizing that platform to deliver to our customers better. So these were 3 strategic initiatives that we had constantly taken 3 years 2 years ago. And all 3 of us, Jayant, Shastri and I are extremely committed to continue working on this to ensure that we go to the next level soon. Thank you.

Jayant, would you like to say so take something? Jayant.

In fact, both Anisha and you have more or less...

Hello? Hello?

Mr. Shastri, we can hear you, sir.

Can you...

Yes, we can hear you.

Yes.

Both Anisha and Shastri have more or less reported our views. And we stayed committed to the path that we always have stated that we have been taking. And I think for us, we believe -- while we believe that we -- or the company was always in the right direction. I think from a result and a metric perspective, I hope that you, as our larger partners and stakeholders into our business, also appreciate and acknowledge that, yes, probably this marks the around from your own -- from your individual perspective. And what we look forward from you in the future is a lot more support and a lot more entity. And what we can promise is we'll stay true to the course and see that the -- your company does as well for you as it is destined to. Thank you so much.

[Operator Instructions] The first question is from the line of [indiscernible] from [indiscernible] Consultancy.

Congratulations, sir, for your good results. I have 2 questions. See, when Anisha Jee is saying that -- and you have returned the best to -- it is a mission-critical operation which you are doing in telecom, banking and insurance. So if you can throw some more color on that, what kind of service do you vendor in 3 verticals? That is the question number one. And the second question is what is the growth outlook for the current year? What kind of growth and margin you are seeing in this year? And our cash flow from the operation is very poor. So what steps we are taking [indiscernible]?

Yes. So there are 3 questions. One is the mission-critical aspect of it. We are an enterprise product solution. So the thing is that we send bills, we take -- make payments, we have digital engagement, policies are processed and sent out to you in insurance, your credit card statements and your existing and banks are there, and then we do revenue reconciliation. We also do customer onboarding. For example, in one of our large telcos in today, we are onboarding about 1.3 million customers a day, which means that if you onboard in this -- if it stops for even 0.5, your revenues get impacted. Similarly, if your bills don't go and the payments don't happen, then the business gets impacted. And if you have your digital engagement that is your transaction on today's world of digital, every step-up, a purchase or an action with any customer takes, you're informed digitally through mobile, through SMS, through e-mail, through the website, omnichannel things.

WhatsApp.

Through WhatsApp. And when it comes to the next question, which you put is on the cash flows, Mr. [indiscernible], so these are...

[indiscernible] working capital side, highly receivables, our cash flow from operation is very poor. So if you can throw some light, and how -- what steps are doing to improve that?

Yes. See, some of our clients themselves, large clients, we have agreements of 120 days and so on and so forth. We are looking at -- and all of them are blue chip companies, more of them AAA-rated companies, whereas we are also looking at doing the bill discounting factor in to see that has improved. Even otherwise, we are renegotiating and contracting this thing, you would see that this year, we have already, for example, when in the first quarter itself, we almost collected about INR 40-plus crores from -- in the quarter as we speak. So we are on top of it. It is -- well, I hope -- we are working on improving the cash flow performance.

Right. And the current year growth outlook, if you can share?

Sir, it can only improve, it can only get better. And we are working towards that. We are also as ambitious as you all are. We are also -- the thing I would not like to give any guidance. But definitely, it will be much better than what this year you have seen us.

And sir, last question, are you doing any government work?

Yes, we are doing not directly, but through system integrators, we are doing. One in Philippines for a large Supreme Court, and the other in India and PSU also.

The next question is from the line of Rajendra Shah from Fidelity Management and Services.

Congratulations on the outstanding results. But from the -- what are the 3 applications or things that could be combination of high volume and high profit and which geographies?

Sir, currently, if you really look at it -- our digital platform, that is the low port platform is one thing which we are seeing a big promise. Apart from that, we also have using that, new technology as well added to our portfolio. Our digital onboarding -- but still major traction we are getting is for digital engagement, especially with the -- with the COVID pandemic, there's a lot better traction coming for digital engagement. And on the B2B customer experience, which we are seeing, we are also seeing the traction a large transformation project, which typically it is. So that is about the 3 flagship solutions which we are looking at. As far as geography is concerned, typically till last year -- last to last year, we were always doing 51%, 49%. 51% India, 49% overseas. But this year, the tilt is more towards the domestic side. There is the split in revenues, 70-30. Nevertheless, we are making our investments. Europe is our next -- Europe and Middle East, Africa would be good [indiscernible]. Hopefully, today, we say that we have customers across 4 continents and over 40 countries right from Fiji Island in the east to Mexico in the extreme right, we have our customers. And hopefully, we will add -- we will become -- one more continent we'll add and it will become transcontinental this year. We are taking the right risks. In our current sales model, we are engaging more through system integrators and partners.

Mr. Shastri, what about constraints and headaches that you face in running and growing the business?

So the biggest challenge which we face is for enterprise business as such, the selling cycles are very long -- and the stakeholders who are involved because you have the business operations, the IT, the architecture teams. They also look at the -- selling cycle is one big headache, which we see because sometimes this large multibillion-dollar companies, the process is in place at the final space that our management or the whole -- the teams are changed, then again, you restart the cycle. But where we are well poised to make the right investments and grow the business, build more brand, you will see us more -- we are and taking initiatives on the digital side of the marketing also. And you'll see -- that is the biggest challenge we have, the long selling cycles.

But starting...

Sorry, just to ask you what Mr. Shastri said and if you kind of build on your own question, about -- until about 18 months ago, we were also concerned that we probably did not have the wherewithal to kind of expand into the overseas territories, which is ideally where we aspire to be because that's where the biggest bang for buck for solutions that we build. And we've also seen from past experience, we've seen that the margins that are afforded out of overseas contracts are far, far more than what we have ever experienced in India. And so we also -- you would also have had been a part of conversations with us, where we had said that we were probably scouting for partners who probably is as a good partner with us both financially and strategically to kind of progress this endeavor. But in the past 18 months, thankfully, and I'm keeping my fingers and toes crossed, because of our own engagements with large system team integrators and large projects that we have been passed in India, with internal accruals, it tells the kind of shows the -- it's not the money muscle, at least the mental confidence that in the immediate and the short term, we'll be able to kind of do it on our own, while at this point in time, we probably are not actively looking for monetary participation. We still are open to participation, stakeholder participation in terms of people who can expand those for us. So what is -- what the change that has happened from the past where we felt in our minds to that we were construct for funds to expand that, I think, we still are slowly putting behind that.

The next question is from the line of Chirag Shah from Edelweiss.

Congratulations on the outstanding result. Also thank you for the dividends that you've declared. My question was while we've spoken about the strategic initiatives over the last 2 years, could you also share some insights over the future initiatives and plans that the company has?

Yes. Thanks. As Jayant just now illustrated, we were looking at a financial and a strategic partner. But at the moment, we would want to look at engaging -- we are already engaged with very large system integrators today, who are globally renowned to -- so as the traction improves, we would want to see that we create joint go to meetings with these people because they have a reach, they have the brand, and the whole thing which we are looking at strategic partnerships. In the process, it's something materially, if they would look at an equity or something like that, we will consider it as it comes. But the most critical aspect we'll be looking out is that our products and platform area tried and tested and trusted by Fortune 100 companies globally. And that -- it clearly proves that we have the right technology, and we are in the right space at the right time. It's all today we need is -- the reach to scale up and grow this business and privately our outlook, and we will -- we are already engaged pretty aggressively with large system integrators. We are talking to them a joint go-to-market, joint stake because there is definitely a very positive traction coming.

To build on Shastri's comment to your question, while in the past, we were solely focused on very large enterprise accounts. Now with our local low-code platform, we are also actively looking at the smaller businesses with where the sales cycles are far lower than what we have been experienced, too, so that there is a separate line of traction and the separate line of opportunity that we can service.

The next question is from the line of [indiscernible], an individual investor.

Yes. Congratulations, sir, and the entire team for an excellent performance. I keep my questions very specific. And if you could respond to them in a specific fashion in the interest of the other participants. Sir, first is on the managed service deal. The deal was truncated in the middle and the value went -- that was likely to accrue over the tenure of the deal got a little in terms of cash flow adjustments was a little skewed. So I just want to understand that is the same value of the deal, the monies that were likely to accrue to us on a yearly basis along with the time period on the similar lines, is what we had discussed?

Yes. Thanks [indiscernible] for that. Just to let you know that, yes, we have lost 2 years of revenue because of the -- whatever it was in public domain, the Supreme Court predicted a lot of changes in the thing. We lost 2 years of revenue, but now the entire thing is back on track. And we are becoming -- we have become a complete critical aspect of it. They have no other -- even they sunset, their homegrown solutions which they were using either to when we were present. So currently, surprisingly, we are able to see that the digital onboarding is -- the volumes have not dropped and they're going as they're happening. And the similar thing is because you know that they have a very large landline presence, that is also going well. But of course, the growth in numbers is not there because it's a transaction-based thing. We are not seeing the growth what we want, but there is not significant -- there's not much of a drop in the volumes, what is happening. So we are having a steady income from them. On the -- I have to be honest and candid with you, there are some delays in the payments we are receiving continuous only customer where we are having some delays in our collections. But we are receiving some money, but there is part of it, which is it's like a cash flow rotation, which is happening. A part of the chunk is always spending, which is there with them.

Got it, sir. And sir, the ad revenue portion has started...

I hope I've answered your question.

Yes, sir. Has the ad revenue started from them as well?

Hello.

Hello. Are you able to hear me, sir?

Not again.

Members of the management, please confirm if you can hear us. Ladies and gentlemen, we lost the line of the management. We request you to please hold the line while we join them back on the call. [Technical Difficulty] Ladies and gentlemen, thank you for patience and waiting. We have the management back on the conference. I will request Mr. Lakhani to please repeat your question.

Yes. Sir, did you answer my question?

I hope you've heard my response, or should I repeat that?

No, sir. We heard your response. I just wanted to -- as a follow-up, the ad revenue has also started tripling too or not yet?

Yes. That is a very good question. What we have learned is that because there was a participation which was supposed to come from the operator also in a significant way, which has not happened. And it is not -- we've not becoming vital for us to pursue that anymore. So we are not seeing any revenue from that activity as much.

Got it, sir. That's very helpful. And sir, one understanding of our business was that, look, we sell the license and the small portion of it is in the form of annuity or change costs, et cetera. Now you mentioned -- Anisha mentioned on the call that we're trying to streamline this into a more predictable annuity sort of revenue. So what exactly is the -- how are you making this transition? And what is the change that is leading after this?

Yes. See, what is happening is you know that the entire world is moving towards the cloud side of -- everybody's known to a cloud. They don't want to have the data center and so on and so forth. So one of the things, models, which people look at our transaction -- per transaction, not model, or the it -- it's not -- isn't transaction, typically large enterprises are very because the growth trajectory is higher, their cash outflows will be heavy. So in such cases, what they tell us is that the license, the annuity, the ASP and the -- as you said, the services on the support service operational support. So the pandemic brought together and make a monthly payment to us. So we have 2 models. One is monthly fixed price and the other is the per transaction, right? That's how the entire thing is the license, the services, the infrastructure is all we are providing infrastructure. In some cases, like in Europe and other places, they have been our clients in Europe where it is a private cloud. So they paid for the infra, but they pay for the license and name services on a monthly basis. So this is the 2 models for agility in this predictability. So this is how of most of our new engagements we are looking at. Some of them -- there is a definite shift also from the customer side to get into it, so we are able to convince them saying that you will also be able to predict your costs upfront. And that way, they're appreciating this model.

Got it, sir. And when we give it this monthly commitment, is there an underlying underwriting of some basic volumes that they commit to you, or that is not the case?

That is typically not a case, but most of our enterprise customers are all on the growth side. To really look at the revenues going forward, 55% of our revenues will be coming from the but annuity side of our business.

Sure, sir. And sir, I would urge you that do not make the dividend payout, use it to build sales and marketing and grow the pie instead because the business is inherently very profitable, and I mean I think we can benefit far more if we can increase the traction of sales, which you can use to hire expensive resources with the capital.

Sure, sure. Point taken.

The next question is from the line of Suresh Kumar from [indiscernible] Investment.

Yes, sir, see, I see on the balance sheet, that is INR 63.04 crores in accounts receivables. So I'm just wondering how the company would be dealing with accounts receivables moving forward.

Okay. Just to let you know that both end -- more than 50% of that has already been collection. And we have a pretty healthy cash flows at the moment. The only thing is that we have certain contracts with large customers where their payment terms, these they are AAA rated, but the payment terms are 120 days, 90 days. So that is what it is, but there's not -- it's not a problem. We are very well -- at the moment, as I mentioned to you that more than -- the 50% of that -- more than 60% of that is already collected.

Yes, sir, it's more than 60% is collected, that's a good news, sir. That's, yes -- that's -- congratulations on that.

The next question is from the line of [indiscernible], an Individual Investor.

Shastri Jee, congratulations for the fantastic results.

Thank you.

And I think you have a really professional team within the company. I have observed one thing about the remuneration of the management. I can see that in last year, about 4% of the total revenue remunerated to 2 of the directors, 4%. And the standard is 1% or 2%, let's say, 2% is acceptable. When it comes to 4%, that sounds too much. And on top of that, I think there is 5% for profit share also. That is okay, we can deal with it. It's -- you guys are working hard. You must be awarded and rewarded accordingly. One thing I always ask you, what was the reason for the financial shares to be promoters? Was it because of the net adhere of funds, or was it because of raising the stake of the promoters' shareholding stake? What was the reason for the different in shares?

See, if you really look at it, it was to increase promoter shareholding as we continuously accuse that we are -- though we have been in this business, and our commitment is fully on for the last 20 years, we have made so many sacrifices, put our personal assets and everything at stake and we have done it. But still, the investor community feels that we have to increase our stake. So what we have done is that, yes, we have increased our remuneration so that -- we don't have any other income. So we -- the same thing we are again putting back in the company to see that we increase our stake so that the confidence in us goes up.

That is one way to look at it, but there is another of -- 2 more options, which gives confidence to the investors, and which will really push the value of the shares. If the owners go and buy from the open markets, that seems a good idea. Other one is buybacks. These two options are...

Sorry to interrupt you. [indiscernible], your voice is breaking up. [indiscernible], may I request some in a better reception area? Your voice is breaking up, sir.

Yes. Now, I'm in a better reception area. I have one suggestion. I'm not criticizing you because you guys are wise and been doing this business for a long time. There are 2 ways to increase -- good ways to increase the stake. You buy from the open market or you buy back the shares so that your stake also goes up. We will be happy that stake of the promoters is high. Then that brows more confident. If you [indiscernible] when the investors think that the management is not unduly rewarding themselves and they are getting regarded along with the investors, that is my request to you, sir.

Sure, sure, sure. Point taken, well taken, and you will see some of those actions also.

The next question is from the line of Milan Shah from Urmil Research Consultancy.

Congratulations. Sir, after some time, you start consult, and my request to continue -- because our industry are a touch in the company have 3 years -- 3 months -- And Congress also the [indiscernible] is buying in con call. And they gave a very good presentation of company. My question is, someone has asked and you have replied, I don't want to [indiscernible] Intense assets under development, which is cost of INR 5.96 crores. Sir what is this amount is [indiscernible] for?

Yes, yes, yes. So for about last 15, 20 years, we -- we have a product and platform company, we never capitalize any of our product development that this is towards fact, which we have done to -- towards the product development, the new product development, which we are putting in the thing.

Is this a new product or it developing? Is going to develop new products for the existing production?

Yes, that is -- yes, we have answered it. I hope it is fine.

Okay. Sir, one more question. The employee cost is going to down last 3 quarters. Is it going to continue, or it is for lockdown effect?

I didn't hear clear. So can you repeat the question?

Employee cost is down in 3 quarters. Is it going to be decreased or stable or because it is a lockdown, so work-from-home reaches on company [indiscernible]?

No. the employees costs will be going up. We are scaling up for after this new model of managed services approach. We'll be increasing our people and the existing we have -- in fact, in our difficult times, we had a lot of our employees who have taken a cut in their salaries. We are compensating that better. So you will see an increase in the expenses, but it will not significantly -- it will offset a majority of it get offset the savings what we have towards COVID like from the event, travel and other conveyance expenses have come down drastically that we are compensating largely from that savings toward the employee benefit. So you will see a marginal increase in the employee cost.

And just to add to what Mr. Shastri has said, we will also continue investing new salespeople internationally. So that will also add to this cost.

Okay. Best wishes for the future. And I think con call is going to be continued every quarter.

Sir, we would want to -- that is one thing we have yet to take a decision. We had taken a decision last year in that we will do a call annuity. But if not annuity, will do a 6-month release the earnings call because we wouldn't want the results to speak not -- we would want to be more focused on business, and I can assure you that we are available to whatever you have anything.

The next question is from the line of Prateek Shahanan an individual investor.

Sir, my question has already been answered by you -- question was raised by the earlier analysis that if you can -- promoter can increase their stake now open market or something like that, then that will boost the confidence of investors and other stakeholders. So I was on that point. And I think you have already answered that. And I would like to congratulate you for this good result and best luck for the future.

Thank you. Thank you very much.

The next question is from the line of Abhishek Kapoor, an individual Investor.

My question is again on trade receivables, which you have answered that you have received 50% of what is outstanding -- which was on 31st of March. But my question still remains, if you see at the trade receivables, which were INR 53 crores, it is almost a 9-month revenue of the company. And when you say that receivables are due in 90 days or 120 days, we are saying it is almost 270 days. So this -- does that match what you said actually 90 and 120 days?

No, no. See, there are -- there is one customer where we are definitely having a lower outstanding, as I mentioned, Apart from that, most of our collections are well within the 120 days. The fact that, as I mentioned, over 60% of our collections have been from the out 31st March, outstanding has already been collected. It's just averaged on that.

And is it okay for you to divest that out of this INR 53 crores? How much is that particular customer?

That single customer?

Yes. The largest one.

No, we cannot reveal it, but we can -- if you would want to have a personal call, we could do that. It is not really significant.

The next question is from the line of Sumit Kotari, an individual investor.

Mr. Shastri, congratulations for a great set of numbers. My question is regarding the other expenditures that we see. I mean can we get a breakup of the INR 7.5 crores that -- we have incurred in Q4?

The -- these are related to the other expenses are related to advertisement, statutory, audit fees, business promotion, and what we have -- all directors remuneration professional services. What we have also done is that for one of our large engagements, we had to hire a lot of contract [indiscernible] that is the charter accountant and all of those. We have also hired about close to 30-plus also [indiscernible] for delivering the project. That is also part of that. Of course, the travel expenses come down. They are -- that -- those are the significant costs.

So just to understand the trend, will it always be something like 20%, 22% of the revenue or it might be dependent on the revenue and might change?

Your voice is breaking, Sumit.

No, I was saying that is it always a percentage of revenue of 22%...

Hello? I lost you completely. Your voice was breaking.

So what am I saying is that I see that it's around 20%, 22% as a percentage of revenue? It is always going to be this number, or is it going to change on a quarter-to-quarter basis, the other expenditure, that is?

It will be in and around that [indiscernible]. We are also trying to hire a lot of the professional consultants even for us business development, senior people as consultants. So we will be [indiscernible] around that.

And since we are looking for opportunities in the global markets, and that's always had higher margins to the international business. So I mean can we expect the margins to go up higher? Or will it be around the same levels of around 28%, 30%.