IRIS RegTech Solutions Limited (540735) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the IRIS Business Services FY '20 Earnings Conference Call. We have with us today on the call Mr. S. Swaminathan, Whole-Time Director and CEO; Ms. Deepta Rangarajan, Whole-Time Director; Mr. Balachandran Krishnan, Whole-Time Director and CFO. And Mr. Vineet Kandoi, Finance Controller. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. S. Swaminathan. Thank you, and over to you, sir.

Thank you, Stephen. Thank you for participating in this conference call today. I think it's a milestone for us, and it's a huge relief for us that after 4 years of losses, we are in the black. I hope we can keep it that way. That's the intention. I think the good -- if you see the highlights of our numbers for the last year, the jump in revenues and the controlling expenditure and the addition to the clients, will give you an indication as to how we are headed. For people who are not totally familiar with the business that we operate. We operate through 3 segments. In one segment, which we call, Collect. We help regulators collect data from the enterprises they regulate. So for example, Reserve Bank of India, the data that they collect from the banks in the country, the data goes through a software product that we've installed under the Bank of India, a product called iFile. The iFile product has now been installed across the world in several countries, from Singapore, where the business is using our solution to the capital markets where many capital markets in the Middle East use it to central banks in countries like India, Mauritius and a few other places. The second business that we have is what we call, Create. Create is where we help enterprises create data for submission to the regulator. Here, we have 4 products. One product is basically called Carbon, and that's used by enterprises to submit data to the stock exchange and the capital market regulators or the business industry. Then we have a product called iDEAL, mostly used by banks for submitting data to the Central Bank. Then we have a big helper for GST filings, which is used by across a few companies in India, including are the biggest ones. And then we have a much smaller product, which is a very small part of revenue for AML filing and [indiscernible]. The third segment that we have, which is still largely in the pre-revenue area, where specific and bond investments are actually going in, is the data and the analytics part. And there, we have 2 businesses. We have what's called Data as a Service, where we syndicate data. And we have software solutions that allows people to message data and consume the data that we produce. So to summarize, we have Collect, Create and Consume. Collect accounts for the most of our revenues. Create is where we are focusing a lot currently. The reason why Collect accounted for a large specifically revenues last year because it was a lumpy contract we got from Reserve Bank of India in partnership with TCS and that skewed up things slightly. Otherwise, you would have actually seen a significant jump in the revenues from Create itself. And Consume, it's still a small percentage of our revenues. For a deep dive in the financials, I will now request my colleague Balu to take over. He will take you through the deep dive. We intend -- we have uploaded the presentation to the BSE website. About 2 years ago when we had a conference call, we had difficulties with the PPT. It's not being visible [indiscernible] those people working in different situation. So with regard, we will share the presentation through the BSE website on our own website. While at the same time, take any questions that you will have and make it as interactive as possible. So Balu, over to you.

Thank you, Swaminathan. Thank you to all of you who have come for this conference call. I would focus it more on the financial side, given that Swaminathan has already given our view of our business and where we stand as of today. And as Swami said, we do have industrial presentation slide deck that's already available on the BSE. I'll try to move in [indiscernible] that presentation. Some of you might already be having it, but then when you go back and see that, things should fall into place. So let me move into my presentation per se for my discussion first. To start -- hello. To start with, I want to mention that in the past as well, we have pointed out that our businesses and product extent is seasonal. This holds true for the supporting year as well. One reason for this is that the relatively larger part of annual compliance filings for enterprises typically fall into the second half of the year. And while regulators also tend to spend more in the second half. That's what we are seeing. And that trend has continued for FY '20 as well. With respect to that, our H2 numbers are more than -- are substantially more than the H1 numbers. So if you come to the numbers per se, you'll see that some of our reporting here, our top line has grown at a healthy 35% at the consolidated level. Now we'll talk only on the consolidated level because -- that you see a better picture because we do have subsidiaries or building to some of the clients in certain countries. All these are consolidated. So it would kind of stand-alone in itself, that I want to give you a complete picture, especially from FY '20 onwards, where we have started the building from subsidiaries themselves. So coming back to my origin point, our top line has grown at 25%. And the second half performance for the top line is even better at 29.5%. Let me come back to revenues in a minute. Let me just give you a couple of points on the expense side as well. The important -- I think we've noted that while our revenues saw a good growth rate, expenses have moved at a much lower pace. For the full year, if you look at it including interest and considering capitalization, the growth in expenses has been contained at 6%. For the half year period, it is, of course, a fairly higher rate at about 13%, but the growth income has been close to 30%. And the other point I want to mention from my side, [ maybe a longer perspective ] is that if you look at from our IPO point onwards, we IPO-ed in 2017 October. If you look from FY '17 -- 2017 onwards all the way to FY '20, you can see that our revenues have grown at an average rate of about 23%, while expenses have moved up only by around 5%. So that is why we have been able to close the expense revenue gap and now, in fact, has come to a surplus, which is a strength. We are pretty sure that we'll be able to continue going forward as well. So if you look at the balance sheet, you'll notice that the debt has steadily decreased. As we continue to [indiscernible]. One point I once again [indiscernible] we have taken the deployment of 2 term loan installments for March and June, in line with our [indiscernible] and in view of the fact that the COVID pandemic is still giving rise to certain uncertainty in the overall market -- overall environment as far as markets are concerned. On the receivables side, there's an increase of about INR 5-odd crores compared to the previous year, and that's primarily on account of a single client, which is the Reserve Bank of India [indiscernible] and one reason has been the delays in deployment, which was supposedly started in March [ 1st week ], but there was a COVID situation and [indiscernible] to close down all the data centers. A part of this has [ remained paid ] as of now. The important thing again to mention is that our net cash flow from -- net cash inflow from operating activities for this year is at about INR 1.7 crores, and which has more than doubled compared to the previous year number. Now let me look at a little more of the revenues. So we mentioned about these 3 segments that we see our business falling into. And from that point of view, you'll find that a significant contribution of growth has come from our Collect business, the one that goes to regulators, and which has grown at about 42% for the whole year compared to the previous year. The Create business, which is focusing on enterprises, closed a growth of about 11% to 12%. And of course, we are focused on enhancing the share of recurring revenues in our revenue mix, which primarily comes from the Create segment. But primarily, I think largely comes from the Create segment, I could say. Actually from 2017 onwards, if you look at recurring revenues, we were [ down ] at a component at average growth rate of about 30%, which is pretty much in line with what we have been the planning as well. And for this reporting year, which is FY '20, the recurring revenues are at about 60% of the total sales. And due to couple of large wins, our Collect revenues have gone up, and that is partly one thing that has expected in the Collect segment contributing to about 57% of the revenue, which is about 5% more than the share in the price compared to the previous year. Having said that, the Create segment has a higher growth prospect. And of course, it also gives us a better working capital management possibilities as well. If you look at revenue segment from a geographical perspective, the revenues from India, [indiscernible] it's about 37 percentage. From a rupee -- billing point of view, it's at about 41% because you also bill in rupees [ to a time ] in Nepal. The increase in Indian revenues, again, is due to one large contract which has come from RBI for the new platform for data analytics, where we are doing this with TCS as a primary partner. Coming back to our geography spread, of course, the U.S. and European market share is on the lower side, if you look at FY '20. And -- but going forward, I should say, given the fact that there are emerging opportunities in these markets. Now let me also add a couple of more points on the expenses side. The employee expenses grew at about 12% while other expenses, which is pretty much [indiscernible] and overheads have reduced along with interest. Our amortization costs have gone up this year because we have started amortizing our intangible assets, which are related to our data analytics side, which has kicked in and is contributing to as much as INR 3-odd crores or INR 6-odd crores of depreciation, amortization bucket. Now the last one I want to mention before we begin -- leave the floor open for question and answers, is about our order book. Our order book, as of now, it's about INR 59 crores compared to -- which is what we expect to execute on at around say, 15 to 18 months, based on a combination of recurring revenues and some of the onetime contract that we have for implementation. The [indiscernible] cost is slightly lower than our September figure of INR 70-odd crores. That's because we have started executing, and we are expecting, a few wins from the regulatory side, which has got a little deferred in the previous year. But overall, our take is that the recurring revenues will go up more compared to the current years. And therefore, this order book way of representing information also [indiscernible]. Having said that, we expect that the projects remain -- started to be strictly upward going forward. So that is pretty much from my side as well as the structure of financials are concerned for the year FY 2019-'20. Thank you.

[Operator Instructions] The first question is from the line of [ Rajesh Joseph ], an individual investor.

Sir, I'd ask you more [ than 2 ] questions?

Mr. Joseph, your voice is not clearly audible. Can you speak closer to the handset, please?

Sure. Hello. Can you hear?

Yes, it's better now.

Yes. Sir, you have mentioned that you're suggesting that one of the major components in Collect segment is the income from project to RBI. Can you give some more idea about this project? I mean the tender of this project, possibility of renewable and the total income generated in last financial year from this particular project.

Balu, you want to take that?

Yes. I would not like to mention the share of this project revenue in the overall Collect segment because we have [indiscernible] by some confidential process. Having said that, this is a large data and analytics project, which was given by the Reserve Bank of India to TCS. As a primary contractor, we take of the data collection and validation part of this whole project. This is announced by the RBI on their website as well. The overall project [ site ] is about INR 320-odd crores, including hardware and all the software licenses plus a large element of implementation. So we take care of the data collection costs. And this is an important, very important project for the Reserve Bank of India, with which they hope to completely change the way they collect that validate and do analytics. And this is going to, not only look at the schedule banks, going forward, they look at all the [indiscernible] that are going to be a new [indiscernible] Reserve Bank of India, which includes the urban cooperative banks, NBFCs, going forward, the housing finance companies. So we -- so this is important project. We expect this to run for maybe another 18 months because this COVID situation, it was -- there were just some delay because the RBI data center is not available for implementation of some of the software and [indiscernible] testing. They're still closed. So we expect a bit of delay. But having said that, this project is going on well. Development is going on well, and we expect this to become very important from the national position -- financial [ Suptech ] point of view as well.

Rajesh, I want to add to the answer that Balu just gave, if you don't mind. So the total value of the project was about INR 330-odd crores, and we contribute a significant part of the project itself. The reason why TCS won the mandate is because there are tender requirements, which basically has hurdles in terms of who can bid on the project. But if you see who all bid on the project, almost everybody who bid on the project came -- went with us as a partner. One or 2 people they can go with us as a partner. The final shortlisting was one of companies of whom a majority we actually are working with this partner. So what we bring to the table is the understanding of its [indiscernible]. What we bring to the table is our core technology with the product called iFile, which has been implemented. What we bring to the table is the understanding of the whole compliance space with structured data. What TCS brings to the table is system integration with the RBI system with the entire planning of the project, with the whole hardware implementation, with the whole network implementation and so on and so forth. So the larger portion, the significantly larger portion obviously goes to TCS. The smaller portion, but significant portion comes to us. So as Balu said, there are reasons why we can't give you the breakup. And in fact, if we have to do the breakup about, I have to check with TCS first. Otherwise, I can't even talk about it. So -- but that's the answer. And to answer your question about renewal. The project after it's completed, after it goes live, we'll have an AMC of 7 years, right? Balu?

That's right. 7 years.

7 years during which we'll continue to get paid. We'll get paid in AMC. And the way things have gone, Rajesh, is if you see about -- in 2007, '08, RBI implemented the first XBRL project. Now they've gone on to the next phase of the XBRL implementation using yet another statistical standard, and we have stayed with them. And we believe that as long as we keep delivering value to RBI in subscription phases and successful versions of implementation of newer and newer technologies in the area of data standards, they will continue to come to us. That's the way we see the whole thing panning out. We are grateful to RBI. They are a great referral customer. And because we have RBI, we are taken seriously across the world. And one thing I must tell you, many of you may know or may not know. It's because of the implementation of XBRL that the whole NPA data in the country has come front and center. Again, so we feel very happy that we've been able to contribute to a cleanup of the banking system by bringing to the fore the data from the banking system for RBI to review. And not every company gets an opportunity to be at the front of a transformation of a system. And I think all my colleagues are actually grateful. The other thing I must actually share with you, which is why in the course of this whole quarantine, a few of my colleagues are actually working with RBI to ensure that the compliance system continues. That's how important we are to RBI.

Okay. And sir, my second question is, if my understanding is correct now, company generating more than 90 percentage of income from product base. Can you give an idea about the type of income you are generating? I mean whether it is a pay-per-use model or pay in each year or for usage? Or is this a lump sum payment, like in the case of this RBI projects?

So when you look at the 3 segments that we actually have. In the Collect segment, it's basically a lump sum plus an AMC, plus a system integration for an implementation. In the case of the Create segment, bulk of them are basically pay-per-use model. The iDEAL product is basically pay on a monthly basis, monthly model. That's an OpEx model. In the case of Consume, most of the process is a pre-revenue, and we expect to go more and more to a pay-per-use model in that area. Balu, you want to add to this?

I just said in my presentation, we have given the recurring revenue components, segment-wise. Just to get an idea of what is nonimplementation revenue coming from that slide. How much is recurring? So typically even in the Collect segment, the AMC -- you know fees, is it recurring? While Create, almost all the recurring is pay-per-use kind of model. And referring -- and Consume also, it is pretty much recurring also on a subscription basis.

And if you remember what Balu said, Balu, if you remember, but -- I think you said 60% of revenues is recurring revenues right now.

That's right. That's right. And if you look at, now we can look at even segment-wise, if you look at the presentation that we have uploaded, I would say about more than 90% of credit revenues are recurring. In Collect, it's right now, I think it's at still [ about ] 33%.

And our goal over the next year or 2 is to ensure that as much possible, we can maximize the recurring revenues, that's really where we're headed. And that's the model of the company. That's a business model of the company.

Okay. Sir, in percentage range, how much of your sale is coming from public sector range and then the rest in a [indiscernible] maybe?

So technically, the government is public sector. So if you take a look at our entire Collect reviews, the Collect revenues comes entirely for the government across the world. So we work with regulators in India, regulators in Singapore, regulators in Malaysia, and they're all regulators. So basically, all the revenues you see in Collect is basically from public sector. All the revenues you see in Create is from the private sector. In the case of Consume, the small -- some of the smaller revenues come from the public sector, which is the government. And the bulk of it actually comes from the private sector. So Collect segment is completely from public sector. Create is from completely enterprise private sector. And the Consume is a bit mixed, but then it's too early to talk about it because it's really not a mature thing just yet. Balu, do you want to add to this?

No. I think, no. That is just [indiscernible].

Mr. Joseph, do you have any more questions?

[indiscernible] actually. The software price is currently trading almost at [ 33 ]% discount to your [indiscernible]. From the point of view from investor, promoter stake is around 38% is not a bridge. Do you have any plan [indiscernible] or breakthrough creating acquisitions? [indiscernible] the stock price is available at a 50% discount to IPO price and that show you are confident in your [ company ].

I wish I had the money to do creepy acquisition. I don't have the money to do creepy acquisition. Some of you might know, when the company got into a financial crisis several years ago, I stopped taking a salary, I still don't take a salary. It's -- booked to the books, but I don't take the money out. And under the theme, in salary, I can't even think about keeping acquisition and things like that. I also believe, at the end of the day, the full benefit of whatever happens in the market would actually go to our investors. As somebody asked me a question the other day about the shareholder value. My job, Balu's job, Deepta's job is to continuously improve the company fundamentals and to continuously convey to the market what we are actually doing and how we should do go about doing it. Now if you take a look at our -- we have about -- Balu, our EBITDA is INR 9.5 crores?

[indiscernible]

EBITDA -- EBITDA for last year is INR 9.5 crores, yes?

Yes. This year, it's about INR 8.25 crores at a consolidated level.

Okay. INR 8.25 crores, all right, because INR 8.25 crores, [indiscernible] of EBITDA. I mean market clearly, we failed miserably at [ view maybe ] in terms of conveying the excitement of the company to the market. When you look at international benchmarks, we are way off in terms of what -- how companies are valued. I don't take a view on the market. I don't think a view -- I don't go out and buy when the price goes up, when the price is low. I don't go out to sell when the price goes down. I don't go out to buy because I have no money. I don't go out to sell because it's around [indiscernible]. I don't even have a trading account. And that's the way we want to continue with the company. So we do not -- so as a company, will we do keeping acquisition? I think the more important thing is if I had the money today, I would actually ensure that the company does what needs to be done to grow into something very significant where the market recognizes the value and acts accordingly.

Sir, one more -- one last question. Sir, our company is listed in 24 -- lasted 4 years. Do you have any plan to migrate to main Board anytime soon?

So we've been [indiscernible] on this estimation of the last 2.5 years, we are eligible towards the main board. I'm actually grateful to the shareholders for giving us permission to go to the main board. We've got shareholder resolution that's already been passed. But to go to the main board requires a few other things. So we've been basically spending the last year, year or so getting ready for the main board. It requires quarterly filings. It requires move to Ind AS, which we've now done. And I believe there are things like that. Now if with half yearly filings with this kind of reporting, if this is how the market reacts, I wonder what will happen when we do quarterly reporting when -- and this is not going to happen. So our revenues will not keep -- are not steady on a quarter-on-quarter basis, like many companies are. See ROC filings happens once a year. That's when you see a spike in my revenues. For example, we are changing some opportunity in Europe, where the filings will happen once a year. Our South African revenues happens once a year. Our U.K. revenues happens once a year. Our U.S. revenues happens once a quarter. So if revenues happen once a year, now just imagine as a shareholder, you see Q1, nothing significant. Q2, nothing significant. Q3, it goes up. Q4, it goes up. You will start -- one day, what sort of a company we are. So these are all internal debates we've been having. I think it's inevitable that we'll go to the main Board [indiscernible]. And I think we will consult you in terms of the timing of going to the main Board in order to be able to -- I mean, if we -- so we also look at the value enhancement from main board point of view. We look at -- we search the company who wants the main board. It's a mixed bag. Not every company has been able to discover fair value in the main board. So if you have any suggestions to offer, please write to me, I would love to consider those issues. In fact, I would request every one of you write to me with your ideas in terms of what we should do and how we should handle it. My e-mail is s.swaminathan@irisbusiness.com. We take every suggestion seriously. I keep every suggestion. I respond to every mail personally. So please do that. And we would love to take your inputs in terms of how we should behave on this one. So thank you for your question.

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

Yes. First of all, congrats for getting into black.

Thank you.

And apart from being a small investor, I am a founder of blog news channel you called gstindia.com. I happen to follow IRIS because of that because of my interest in GST. My next question coming up is a little bit towards GST. And I just wanted to know that how -- I mean, I believe that you guys are a GSP also.

Yes.

So as being a GSP, how many doors have you opened up for an ASPs and how the market is growing towards that? A little bit brief about inside how things are happening from a GSP perspective to an ASP perspective. And then maybe I'll ask you something about the products and how the launches are happening, et cetera, if it's okay.

Sure. Balu, do you want to take that?

Okay. I'll do that. Okay, from a GSP point of view, what we have done, of course, we got the license [indiscernible] itself as a GSP. This is with [indiscernible] for the benefit of all the others. And what we have done is we have gone to the market with a campaign offering. We were an ASP plus GSP offering. And we are primarily aiming at the large and medium-sized companies. So when you go the companies like we say, Bajaj Auto, which is our client, we offer them the suite, so they can use the ASP platform to prepare their filings, returns from the base [ GSP ] data. They can then create from returns while seamlessly into the GST Portal. So GSP is a [indiscernible] pipe. But if you select the ASP platform...

It's like an ERP sort of a platform, which you operated for the --

It's a -- I would say, it's a reporting platform, which doesn't do transaction, but it collects all the data from the ERP, which is relevant for the GST reporting and then create those different returns. Plus there's analytics part in which companies can see how they're different, different numbers are [ moved ], including sales, refunds, ITC and all that. So it's a -- I would say, reporting and analytics platform, which is linked with the GST through the GSP pipe. This is one part. We do a small business asset offering, GST as a pipe as well to some of the other ASP. But I think only because of people come to us because we have a really solid GSP operation, which is quite [ fail safe ] . And people come to us for pushing the data to the GSP pipe. That is a very small part of the business. But I would say that something interesting that is coming up is from the digital lending side. So there is a move to look at SME lending without collateral within a cash flow-based approach, and where GST returns become very important. So some of the offerings that we have in terms of the GSP and the ability to provide data through EPS and to look further valuation becomes important. We only have [indiscernible], which is about credit information, which is now going into a few fintechs in the market. And we feel this particular product has a lot of scope going forward as well. So that is a -- my short answer.

Piyush, Piyush, one second. Piyush, I hope you've downloaded IRIS Peridot and you're using it.

Of course, of course. We do. I tell to my clients as well.

Lovely, thank you very much. Sir, one second. So just for the people who don't know, IRIS Peridot is an application, which you can use to scan GST number of anybody and figure out whether the company is compliant or not. And as investors in the market, I want to share one thing with you. Very often, when a company is in trouble, they stop paying the taxes on time. So there are many companies in the market who, when they don't pay taxes on time, it shows up first on Peridot. So if you use Peridot well, you will actually get early warning signals about the stress in companies going through liquidity problems, and you can accordingly make your investment decisions. In the last 6 months, we've identified several companies in that situation. So please, my request...

[indiscernible] if I'm not [indiscernible]

Sorry?

[indiscernible] was one of them. This has been reported from.

Possible. I don't invest in market. I don't know what colleague might have done that. But my request to you is please, all of you, use IRIS Peridot as a tool to spot, to review your research, to do your research on companies before you invest in them. Piyush, go on, sorry. I have to take this commercial break, please, if you don't mind.

It’s okay. So Balu, you were telling that GSP is like towards more of a customized and you are trying to do and ASP is towards the retail or semi-retail level?

So ASPs for companies who want to create their view systems on the base data. So it is a cloud-based software that we have for IRIS software, and that is oriented towards enterprises. And we typically have been targeting medium and large enterprises. The retail, you say, have been using a more of IRIS Peridot to check the counterparties for their GST and cases.

So if I can ask a few more questions regarding the GST, is that fine?

Yes. I would hope that you'll ask questions related to the financial performance point of view. Because product-wise, if you want to engage with this, of course, we can set up a different call and can spend time on this.

The only part which I was curious was because you guys [ have ] GST and you are involving with the government agency where you have to go with the time box setup, et cetera. And how much difficulty is it actually giving you out? And towards -- and the manpower it takes and the performance which we have to do in the -- as a company also. So how is the efficiency towards that?

No, it's not very manpower intensive. It's the early days of [indiscernible], both the GSPs and GST has really set it out to get the things stable. And now, I think I would say that it is the mostly stable. And it's only being driven -- you need to have the right technology to work with the GST and APIs and bill your own applications.

Because as far as I know, in future, they will be opening up their fair opportunities to -- I mean, do you view the GSP an opportunity to collect revenues also for the...