Intense Technologies Limited (532326) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Intense Technologies Limited Q2 FY '24 Earnings Conference Call. [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.

Thank you. Good afternoon, and thank you for joining us on Intense Technologies Second Quarter FY '24 Earnings Conference Call. Today, we have with us Mr. C.K. Shastri, Managing Director; Mr. Anil Kumar, Chief Operating Officer; Ms. Anisha Shastri, Director; Mr. Nitin Sarda, CFO; Ms. Pratyusha, Company Secretary; and Mr. Lokesh from the finance team. Before we commence, 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 also available on the stock exchange website. I would now like to invite Mr. Shastri to give us a brief overview of the company's performance and to introduce the team. Over to you, Mr. Shastri.

Thank you, Siddharth, and good afternoon to all our investors. Thank you very much for taking time for this earnings call. It's always a privilege to engage and interact with our investors because your critical feedback always helps us improve and do better and better as we move along as a company. As such, I'm sure we know -- most of you know about Intense Technologies. But for those who do not know about Intense Technologies, we've been an enterprise product company for a very long time and rechristened ourselves today into a tech-enabled services in the last 9 months or so. And we are building -- as I've shared in the last meeting, we have very marquee customers, whether it is banking. We have customers like Axis Bank, HDFC Bank, IDFC First Bank, IndusInd Bank, YES Bank. And similarly, in the insurance sector, we have who's who as our customers. Same in the telecom, we have Jio, BSNL, Vodafone, to name a few. And we have started on to a path where we would want to expand from our existing product to product-enabled -- tech-enabled services, which is seeing good results, which my colleague, Anisha would be sharing with you a detailed overview of this. I'm sure we are seeing the investments what we are making progress in the right direction, what we wish -- where we wish the company to go forward. And the results are the reflection of the same. We had year-on-year growth on a quarter-to-quarter basis at a 55% growth, INR 32.78 crores is what we have done in Q2 FY '24 vis-a-vis INR 21.16 crores. Similarly, half yearly INR 56.73 crores to INR 36.82 crores. There also, we have seen a significant growth in terms of growth, 54% growth. EBITDA, as you can also see that we have INR 7 crores EBITDA, vis-a-vis INR 6 crores last year, which is again increased by 15%. And same goes with the net profit and EBITDA, which are already published and there with you. I would not want to take much of your time so that we'll have more time for your question and answers. I will hand over the -- the details to be provided by Anisha on the company overview and what we see the company and the investments, what we have made in Project Butterfly, how it's panning out and what is the way forward as a company? Over to you, Anisha.

Thank you. Thank you so much, C.K. And thank you all for joining the call today. My name is Anisha. I'm an Executive Director here at Intense. So for those of you who have been joining this call for the last couple of quarters, you will know that in Q4, we started something called Project Butterfly. This was our initiative to ensure: number one, we -- how do we leverage all these marquee customers that we have and how are we able to farm. [Technical Difficulty]

Anisha, we are -- we lost you. Anisha, we lost you completely.

Can you hear me?

Yes, we can.

Yes. So I'm not sure where you lost me, but I will start again. So for those of you who have been following us on this call, you will know that in Q4 last year, we added a project called Project Butterfly. Now the intention of Project Butterfly was to see how do we create more revenue streams for the organization. Erstwhile, we were only selling our license and services. [Technical Difficulty]

Ma'am, I'm sorry, we cannot hear you.

I am right here.

Now it's fine.

Okay. So we added a lot of large marquee names to our credit, but we were only selling that one license and services around that license to our customers. So Project Butterfly was all about adding new revenue streams so that we are able to farm our existing customers better, and we're also able to provide significant value to newer customers that they're adding on to kitty as well. We also further decided that we would focus purely on BFSI, telecom and government. These are the spaces, these are the domains where we have our expertise. And we said without deviating and without diluting our focus and our resources across all verticals. We will focus predominantly on BFSI, government and telecom. And third, we were in a good position from a cash standpoint where we finally had the appetite to make investments into sales. As an organization, I'm sure for those of you who have been following us for a long time now, you know that sales and marketing has always been our weakness. And so we wanted to definitely critically address these pain points. So from Q4 onwards, we started adding additional people in the sales -- in our sales engine. In fact, as a matter of fact, even this quarter, we added 4 additional sales personnel with pointed focus around being able to cross-sell, upsell these new revenue streams that we've added. Apart from the IP assets that we already had that we used to service our customers, what we did was we expanded horizontally and vertically around the skill sets that we have and around the IP that we possess. So we added -- in terms of new revenue streams, we added communications governance beyond just communication, designing and presentment. We added data services, data quality, data remediation, data governance services. We added transmission services to complete the last mile of the communication piece. We added cloud services to manage our customers, cloud infra migrations from on-prem to cloud environment, migration across hyperscalers like AWS, Azure, et cetera, those kind of capabilities. We have a lot of product-minded talent with us, which the world as opposed to conventional services organization, this product mindset really helps in delivering solutions in a much more generic manner, which customers are able to reap benefits for in the longer run. So we added those talent services and government managed services. We forayed into government. We finally had the appetite to take on government. And so we added government managed services also to our revenue streams. We also added strong partnerships with companies like AWS, Oracle, et cetera, so that we are able to look at how we can expand in international markets more economically. For us, erstwhile adding one salesperson to man an entire continent, those models were not working out for us. And so our focus has been around how do we add partners that can help us get to these regions and help us sell our services and IP-based services in those regions. So in fact, if you look at some of these green shoots that we've added, I'm proud to say that even the few projects that we've already closed over the last couple of quarters, our customers have seen significant benefits. For example, on the communications governance front, today, we help a bank save about $10 million every year in their communication spend because of the way they're able to govern their overall communication strategy across the entire bank, pan bank, right? Similarly, if you look at the data quality issue. Now if you look at a bank, for instance, they're selling hundreds of products, right, across CASA, credit card, loans, demat. They have so many different offerings that they're selling to their customers. And regulatory penalties are huge when your data quality is an issue. You're not able to upsell, cross-sell to your customers because your data quality is an issue. And your operations costs are heavy because you're trying to service customers, but you have poor data supporting all your analytics. And ultimately, for any organization, you know how important analyzing your operations, analyzing your data today is. But your analytics are only as strong as the data that is fed into it, like in Java, there is this terminology saying, garbage in, garbage out. So if you don't have relevant data that you're feeding into your analytics engine, then that is going to cost the organization a lot in terms of their decision-making and their ability to cross-sell, upsell to customers further. So we saw such kind of mission-critical problems for our customers. And all of these services are seeing great traction in the market, both with existing customers and with new customers. Similarly, we're also doing things around government -- in government around managed services, automating processes, helping bringing cutting-edge tech to government processes to ensure citizen services are smoother. They're able to say, provide welfare schemes to citizens better, more accessible through WhatsApp, through more citizen-friendly platforms. So these kind of -- all of these kind of green shoots that we've added are definitely helping us understand the kind of potential and the value that we can also offer to our customers better. And I'm happy to say that some of these things are also paying off. You will have seen it in the form of our results as well. From a hiring standpoint, we have continued to invest in sales, and we're doing very sharp shooted sales hiring. We're not hiring generalists. We're hiring people who can help expand on each of these individual revenue streams that we've added. And we've fortunately found some good talent. Let's see how this pans out. So overall, strategy per se, what we started in Q4 last year continues to remain the same. We are pretty bullish about what we set forward. And of course, like all of you know, strategy takes some time to pay off, but we are very confident in what we had originally set forward, and we want to continue on the same path. And hopefully, it will reflect in our year-on-year results. So my request to all of you also is, don't look at us like a quarter-on-quarter organization. Our focus is annual year-on-year growth, which we are gunning. Our annuity revenues continue to support us and the green shoots are also adding to our annuity revenues. So please -- thank you for your patience in us, and we look forward to continuing to put in the efforts to see how we can grow year-on-year. Thank you so much. And now I think we'll open it up for questions if no one has anything else to add.

[Operator Instructions] We have our first question from the line of [ CA Nihar Shah ] from Crown Capital.

Hello? Am I audible?

Yes, yes, you're audible.

Yes. So this was just in the reference to the guidance you gave on the last con call, was expecting around [Technical Difficulty]

You're breaking.

Your voice is muffled.

Hello?

Hello? Your voice is muffled.

Hello? Am I audible now?

A little better.

Better.

Okay. Just a second. So I was just saying that in the last con call [Technical Difficulty]

Mr. Shah?

Yes.

No, I'm sorry, you're sounding muffled. Can you be in an area where the network is good?

Am I audible now?

Yes, a little better. You can ask your question.

Yes. I was just asking that in the last con call, we said that we are expecting around 30% EBITDA growth and 20% to 25% revenue growth. So are we in line to do that for the year? Or has there been any change? Because our numbers have been great. So is there any change or are we in line to do that?

At the moment, we are on course -- I didn't get your name. I'm sorry.

Yes. This is [ Nihar Shah ].

So we are -- while we are investing significantly in all these additional revenue streams to pay off, we will be spending -- we will continue to spend on our sales efforts and marketing efforts, [ Nihar Shah ]. So I would not want to commit anything on numbers as such. We may be requiring to continue to make these investments to see that these green shoots pay off. But from a growth standpoint, we are hopeful and that all our strategies will pay off in the long term, and we are gunning for it.

Okay. Okay. And any sort of outlook for FY '25 or '26 from your end?

So the idea is whatever we have -- it's only been about 2, 3 quarters since Butterfly actually started kicking off. And we are able to -- we are slowly able to see the results of it. We hope to continue on the same trajectory.

Okay. So one last thing. How many -- how much percentage of customers we already have? Have we cross-selled or upselled something like that? Like conversion ratio, do we have a conversion ratio where we use the Project Butterfly for the clients and they have converted and we have been able to sell more?

So -- definitely. I probably don't have a number around the conversion ratio. But we have started -- so what we have done is we have segregated all our accounts into strategic growth, active accounts, et cetera. We set targets for each of those accounts. And our account managers are now consciously working on what all they can cross-sell into existing accounts.

We have our next question from the line of Rajesh Aynor from ITI Limited.

So my question is around the margin profile and -- because we have an existing...

Your voice is very low, Mr. Rajesh. Your voice is very low.

Yes. Is it better now?

Much better.

Yes, sorry. So the question was around margin profile because we have an existing business, and then we are also required to make a lot of investments in the upcoming areas, which is on the Project Butterfly. So can you give us some sense of where exactly the margin will be heading and after a ramp-up phase, how long can this phase be where can -- we are growing at a higher rate?

So this is Nitin here. From a cash and liquidity standpoint, see, when we closed the financial year in March '23, we were sitting on our liquidity of about INR 25 crores, and it has swelled to INR 45 crores for this quarter end. When I say that it is inclusive of fixed deposit with banks, mutual funds and the cash balances lying in our bank accounts. So definitely, we are much more -- we definitely have a higher appetite. But in terms of the expected investments that we have to make in our Project Butterfly, it's more of an exploration journey. We do have it -- like Anisha had mentioned, we are going for hiring talent on a sharpshooting basis, where we see people who have relevant expertise and experience in this particular segment. We are trying to onboard them and talent with experience definitely comes at a price tag. So in the short run, these investments will have to be made to ensure that we are successfully able to navigate this transformation stage.

To further add to what Nitin said, what we are saying is that the investments will be in the next 6 months to a year. Thereafter, it will -- the margin growth you could see.

And what kind of margin profile does the underlying business has?

We are internally targeting at a 35% EBITDA. So basically...

Our revenue streams are multiple margins, like you know, for example, the transmission services is a lower-margin business. But ultimately, it covers the last mile. So it improves stickiness in the customers' premise, right? So some of these are lower margins. And the data is a high-margin business. So whatever green shoots we've added are a combination of multiple margins.

Okay. But that part, you are saying will be relatively clear after we are done with this investment phase, wherein obviously, all these expenses will be getting loaded?

Yes.

Okay, sure. And what is our export business currently? And what is the kind of -- I mean, are we really focusing on export also because we have a lot on the plate in the domestic business itself?

We have added partners internationally, which we endeavor to focus on export business. But in terms of sales personnel per se, our focus has been more in India.

Okay. And how much of exports currently for us as a percent of top line?

It's about around 20%.

20%. Yes.

We have our next question from the line of [ Sumit Kothari ], an individual investor.

There's an expenditure item, which is called the IT infrastructure cost, which has shot up to almost INR 6 crores in the current quarter, which is like 6x year-on-year, still a substantial increase even through the last quarter. Can you give some detail on this cost and the trajectory going forward for this?

Sure. Sure, [ Sumit ]. So basically, if you remember from our last quarter, we have been -- a lot of investors and analysts have been asking questions on our operating expenses as to reasons why it has shot up. Previously, what we were doing is since we have also magnified our offerings, there's a lot of composite deals that we onboard with -- engaged with our customers wherein, there is also a component of supply of IT, hardwares. So what we used to do earlier is just to club this in operating expenses. And that's where -- if you look at our earlier results, you'll see that the operating costs shot up and there were a lot of questions on that. So what we've done is to provide better clarity, we have carved out this from operating expenses and mentioned it separately for the previous periods as well. From a trajectory standpoint, these are deals -- these are -- they cannot -- we cannot say for certainty. This depends on how the engagement programs and delivery processes.

And typically, in most government deals, these are all always composite. So you have to provide hardware, software, managed services, maintenance, all of that as part of an overall tender, right? So like even our BSNL, et cetera, all of these accounts and even the accounts that we've added in government in the last quarter, they all have a component of hardware, a component of software and managed services, AMC. So that's why you see that number go up.

Sure, sure. Got it. The next question is regarding the margins. So I know we have spoken a lot about margins, but see, I've been an investor in Intense probably for the last decade, pretty large investor. And I've always seen that the margins have been in the range of 30% to 35%. Now I know that we are evolving ourselves on an enterprise product company to a tech-enabled company, and we are making huge investments. And the margins are lower currently around 18% to 20% range. So what we are saying is that probably after 6 to 8 months when we are done with our investments, we'll go back to a 35% kind of EBITDA margins in the long run?

Yes.

That is the hope. But like I said, in the new revenue streams that we've added, some revenue streams are low margin but high volume, high stickiness businesses and some are low volume but high margin businesses. We've added both as a combination. And the strategy is, I mean, you understand, with the intention of improving stickiness with our customers, with the intention of improving longevity of deals, et cetera, right? So given the fact that we are adding a combination of margin businesses, I may not be able to comment at the moment as to how much that number will be per se. But the endeavor is to see that we're able to maximize on it.

Even if we have some clarity on the direction, if not the absolute number, is it fair to say that the 18%, 20% is like the rock bottom in terms of margins and it can probably only go up from here? Do we have at least that clarity? I know we are looking at the consolidated mix of different products here, but can we say with full confidence that this 18%, 20% is bare minimum that will rock?

Yes. So Sumit, Nitin here. So, yes, Sumit, like we said, even for the current quarter, if you see 70% of our revenue continues to come from annual engagements and 30% is something that we have started to see from TaaS, government services, transmission services. So it would be safe to say that 18% to 20% would continue to be delivered on a quarter-on-quarter basis. And also, see, the Project Butterfly is something that we have put in place. It's a multiyear transformative strategy. And definitely, as an outcome of the strategy once we have in place overall, depending on the weightage of the revenue coming from each of the segments, right, you will see that our absolute number will definitely be higher from every year performance.

Yes, the operating leverage should come into picture maybe once we have some scale. Nitin, if you can highlight something on the top line front at least? So now we are changing our strategy from enterprise to a tech-enabled service companies. So I expect at least the revenue predictability to be much higher than what we have seen in earlier days like because it was a product company, the cycles were longer, and they were not sure about giving any guidance for the next quarter or for the next year also. But now we have some predictability in terms of revenue. So can we say that this INR 32 crores that we did in this quarter. So at least like the base quarter -- base revenue that we have or can it be very volatile, even the revenue part?

See, I'll address your question in 2 parts, [ Sumit ]. So first thing is quarter-on-quarter results that we declare. I would request you to not perceive this, look us from that prism. Kindly evaluate us from a year-on-year basis. Probably we have done INR 32 crores in this quarter. On a year-on-year basis, we'll definitely deliver good growth compared to the prior years. But it also depends on the traction that we're seeing from each of the segments, like I mentioned, [ Sumit ].

Just to add to what Nitin said, this is not pure-play people resources like you hire a number of people, and number of people like any traditional services. These are all niche technology-based services. And it has also its own selling cycle.

Right, right, right. I mean I was just trying to reiterate the guidance that you have given. So the 32% if you -- INR 32 crores, if you annualize, it will come close to INR 120 crores. INR 90-odd crores we have done in the last financial year. So is this a fair number to have in our valuation sheet, INR 120-odd crores this full year?

So [ Sumit ], I understand you have been joining us from all quarterly earnings calls, right? So while we had mentioned...

Much before that, so I've been there for a long, long time.

Yes. Correct, correct. No. [ Sumit ], so basically in Q4, if you look at -- traditionally looked at our results, Q4 was lumpier where in most -- 50%, rather, of our top line used to come in Q4. But what we have done -- has started to do is we have -- wherever contract is coming up for renewal, we are redefining the milestones so that the revenue gets recognized on a straight-line basis, and which would address your volatility factor. But having said that, from a year-to-year basis, since we are redefining those essentially same contracts with marginal growth in some cases and good growth in some cases, I would not really extrapolate this quarter's performance to the whole year. While our ambition and our objective is to achieve those, but we definitely are looking at what you had mentioned, 20% growth year-on-year.

Great. At least I have some clarity on this. So which -- so, Nitin, what do you think will be the deal? Like -- getting some investments, you're changing the strategy. So which year would you think will be the best year in some time? Like FY '25, FY '26, if you can throw some light, because we can see it happening because we are making some investments so based on some assumptions, and we can see it happen. So can you say with some confidence that FY '25 will be the year for us or FY '26, if you can throw some light on that?

[ Sumit ], I would say with a lot of disclaimers here, because FY '25, '26, 2, 3 years is a very big time for the macroeconomics and microeconomics at play, which are definitely not in our control. But FY '26 and there, we'll see the total outcome of our Project Butterfly because we are at the advanced stages of its implementation. So I'll put it that way.

Right. And because of the change in strategy, can we expect the payables from the debtors, which are there to change now we have like almost INR 40-odd crores of receivables. So because of the change of cycles, because it's more like a service company now, can we expect the receivables to be received much before and the working capital cycle to improve? Or is it going to continue for some more time?

No. See, like I've mentioned, definitely, the collections will improve. Even if in the current quarter, if you look at it from March, although the reported numbers has gone down only marginally from INR 53 crores to INR 51 crores, right? While as we see today, we have actually realized more than 20% of outstanding from September and we are expecting to receive -- have higher collections in this current month as well. So definitely, you'll see improvement in collection cycles with better working capital management, [ Sumit ].

Great, great. Good to know that. And do you have any...

Mr. Kothari, may I request you to join back the queue as there are other participants waiting. We have our next question from the line of Namit Arora from Indgrowth Capital.

Sir, my question was on competitive landscape. If you could give us your thoughts on some of the companies that you run into typically as competitors. That was one. Second is that how do you position yourself in terms of differentiators or what you think is your competitive advantage vis-a-vis these competitors? That's the second question. And the third related question is that are there any larger companies that you sort of respect or admire, which may be sort of role models or aspiration? Would be very grateful for your thoughts on these questions.

That's a very good question, sir. The thing is that we are talking about the niche areas in the technology side. So this is not a pure-play services game, which we are ought to play. We are talking about. We have built IP assets on the -- in the data side. We have data de-duplication, data extraction, data quality tools, all these things. So with our -- even our low-code platform and some of the things which we have built, the digital engagement platform, which have been deployed at scale, these tools help in delivering faster and at a better cost to the end customer. So our value proposition, we've been over the years, for the last 1.5 decade-plus, we've built a lot of IP assets, being the product mindset as a company, and we are now monetizing all these assets in terms of providing solutions, tech-enabled solutions, tech-enabled services. So that's the key differentiator. And you will find very few people with this kind of capabilities. Of course, there are niche data -- only data services players, only low-code players, only transmission players and so on and so forth. So we are giving us a combination of the value what we deliver in terms of time to deliver and in terms of cost advantage.

We have our next question from the line of [ Yogesh Bhatia ] from [ Sequent Investment ].

Sir, actually, I'm -- this is my first time attending the call for Intense Technologies. I wanted to know how do we work in the sense that do we have any sort of order book that we look at or do we have some contracts? Or how does the revenue -- how do they work for us?

See, the farming or the existing annuity revenue comes from the existing contracts what we have with our customers and the new logos, new customers or the new contracts what come in. So existing contracts comprise of the old ones, some of them have licensed AMC, some of them are complete managed services where you get paid monthly basis, some we have on a SaaS model. So existing contracts, we have a mixed thing, but we are looking at building most of our contracts into our annuity-based revenues.

So ideally when Intense Technologies goes and gets a client or a logo, it's more like a 4-year, 3-year, 5-year annuity sort of business that this is the kind of service that we are going to provide for the next 4 to 5 years?

Absolutely. Absolutely. Absolutely.

So do we -- are you able to assess a certain value when we get the contract to keep this is the amount of work that we're going to do for them over the period of next 4 years, 5 years? .

Typically, yes, from a standpoint, we could -- with this new strategy, we could see some upside to it by cross-selling and upselling other services to the existing clients.

Okay. And ideally, what is the size of these kind of engagements, like let's say, INR 10 crores, INR 5 crores sort of client is what we look at annually or its larger? And what sort of resources usually we deploy? I mean by the number of engineers or manhours that we deploy for this engagement?

That's what I said. The difference here is just it's not people versus the revenue. It's not a typical 100% services. The services organization where the number of people per head earnings is what it is taken into. Here, we bring in the IP. With the IP and the services, number of people required will be less because of using the IP. The margins are better.

Okay. And what is the ticket size of a logo that you have?

It all depends, the size we are -- we take deals right from even an INR 1 crore to -- we have customers who pay us INR 1 crore a year to $1 million a year to $2 million, $3 million a year also. It all depends on the size of the deal, size of the engagement, what we take up. We have a mix of all of these. Some have...

Sir, for us as investor community, if we want to track, like you say that you will do 25% growth or 30% growth or some number that you have envisaged as they come to me. But we, as an investor community, how do we track that? How do we get a sense that this is going to happen or these are the chances of -- because most of the IT companies that we understand, they work on an order book basis or they have some contract value basis. How do we, as an analyst investment community, try to track that for your -- for Intense Technologies?

So to answer your question, Yogesh, see, basically, -- like we mentioned, we have our annuity engagements, we typically see a growth of 20% year-on-year.

Is it fair to assume that the INR 90 crore turnover that we did last year, in which how much percent is annuity? How do as an investor I know that?

I understand. So out of which, about INR 60 crores was coming from annuity engagements, Yogesh. And from year-on-year, you can probably assume that we'll be able to deliver 15% to 20% to be on the safe side on our annuity engagements. And since we have forayed into new services, it would be very difficult for us to put any number because the market traction that we are receiving for it looks very promising. And there's only -- it's going to be only a better year-on-year performance, I'll put it that way.

Okay. Okay. So -- and if you can break this number for me for this quarter, the INR 32 crores, I mean, how much was annuity and how much was new business?

About INR 25 crores has come from annuity and the balance has come from our TaaS services, government services, data services and bit of some transmission services. This has started to come in just after 2, 3 quarters of our offerings.

Of the Project Butterfly, what you mentioned?

Yes, yes.