Kellton Tech Solutions Limited (519602) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kellton Tech Solutions Limited's Q3 FY '21 Earnings Conference Call. [Operator Instructions] I would like to thank you all for participating in the company's earnings call for the third quarter of the financial year 2021. Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's con call may be forward-looking in nature, and such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made from the information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and the financial quarter under review. Now I would like to introduce you to the management participating with us in today's earnings call. We have with us Mr. Niranjan Chintam, Chairman and Whole-Time Director; Mr. Karanjit Singh, Chief Executive Officer, India; and Mr. Srinivas Potluri, Chief Executive Officer, U.S. I would now like to hand the conference over to the management. Thank you, and over to you.

Thank you for setting up the call. Good evening, everyone. Thank you for joining the Q3 earnings call. First of all, I want to wish all of you a happy new year since we didn't talk since last year. And last year, as we all know, has been pretty unprecedented in everything that -- the way we operate, the way we engage with the businesses, the way we engage with our employees. There was a complete different way that we had to do things, and that has severely disrupted a lot of businesses. And digital transformation has helped in their operations, in the day-to-day operations. What we believe is that digital transformation is now the new norm, just like what we were talking about SMAC, and that was earlier was -- what was going on. Now everything is digital transformation. Everybody has to have digital transformation. That has become the new norm. And we believe that the coming year is going to require a few changes, but everybody has accepted digital transformation, and we believe that, that's going to continue on. Now coming to last quarter's financial numbers. We had revenue of INR 197 crores or close to INR 198 crores. This was a growth of about 3.1% quarter-on-quarter. EBITDA stood at INR 31.6 crores, which is a quarter-on-quarter increase of 21.6%. And the PAT of INR 21 crores, and which is a growth of close to 38% quarter-on-quarter. The EBITDA margin stood at 16%, and the PAT margin is at 11.1%. The EPS is at INR 2.16, which is close to 36% growth on a quarter-on-quarter basis. Last quarter, we have won 6 new clients, and these will start providing us revenue going forward. And earlier, whatever new clients that we have acquired, they have started producing revenues last quarter. So these new quarters -- new clients would produce revenues starting next quarter. Now Digital Transformation for us has always been a majority of our revenue. We have close to 78% of revenue coming from that. Enterprise Solutions is around 17%. And what we call the [ new to ] consulting services is around 5%, okay? So from a geographic concentration, 83% of our revenue is coming from U.S. here. India and APAC contribute about 11%. And Europe has about 6%, which is a dip compared to the previous quarters or previous years, if you want to look at it, and that is something because of the lockdown that is still going on there, the hard lockdowns that are going on. And we believe that it will start bouncing probably from next quarter, not this quarter. But the coming quarters, we'll see growth coming from there. We also believe that Brexit is going to give us opportunities in the U.K., which we are working on exploiting that. Last quarter, we have launched tHRive+, which is something that is -- we already launched it, but now this is a little bit analytic-based, a little bit of AI included in that, that is going to give a smart way of managing the employees. We also have KeLive, which is a building management solution. Again, there's some underlying AI and smart analytics included in that. These are some of the stuff -- highlights of last quarter. With that, I would like to open up for questions on the results or any operational questions that you might have. Operator, please go ahead and start the queue.

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

Yes. Congratulations on the numbers you achieved as a company. So I have a couple of questions. The first one is on the DSO. So in terms of DSO, we are as high as 95 days now, while the peer are having a -- it around 60 days. So how our company is dealing with the receivables pressure from our clients?

Thank you, [ Gupta ], for asking the questions. It's a fair question, and it kind of keeps coming up every quarter. We have -- yes, the DSO days are high even in this quarter, but compared to last quarter, we had a slight dip in that DSO numbers. But the primary reason is that we have some customers -- or you can say a few large customers of ours [ where they are ] over 90 days, and that really gets skewed when it comes to the DSO days [ or receivable days of like -- which are, I think, it's ] a longer cycle when it comes to that. And since we are not in a negotiation power when it comes to these large corporations, we end up having to agree to the payment terms that the customer provides. Whereas other companies that are in similar lines of business, I think they do not have large customers or they have better negotiation power because of their balance sheet size. And we are only $100 million company compared to what we are being compared with the large players, where they are probably multibillion-dollar companies, and that's one of the reasons why our receivables are high. In addition to that, this quarter, typically, because of Thanksgiving and Christmas holiday season that now the days of receivables slightly increases, but it should start coming down this quarter. So there is -- yes, the receivables are high. But when it comes to the cash positions, we are in a much better cash position than where we were last quarter or we can compare ourselves last year, too. We're in a much better position. So we are able to service our customers, service our debt, service our obligation to the earn-outs. So all of that is in a better shape than where we were even last quarter.

Okay. So my second question is, like recently, I came across an article on Business Standard digital platform, where you spoke about the new normal for the enterprises. You talked about AI, how it is going to play a vital role and the leaders relying on the 4 Cs like communications, collaboration, care and consistency. I just wanted to know that how Kellton Tech, as a company, is focusing on development of the expertise in these technologies, like AI and other technologies, which you talked about in that article?

Okay. Great. Thank you for that question. Yes, 4 Cs, that is, the communication, collaboration, care and consistency, is very important when we engage with our employees. As you are aware, the new norm has been that we are able to work remotely from -- right now today, we are 100% remote. All of our employees are either working from home or in -- at their home offices, wherever be it, and very limited staff is going to our offices. So when it comes to that, communication is very important where -- and collaboration, care, and I'll call it the 4 Cs is very important. The way we are tackling this is we have some homegrown tools. We called about tHRive and tHRive+, right? That is a homegrown tool that has been productized into the tHRive+, where these communication, collaboration, care and consistency happens. And we are able to deploy AI analytical-based capability to address most of, I guess, let's call it, the employee touch points, right? We're able to address that. I mentioned that AI is also -- like I said in the article, AI is also playing critical role in the customer servicing. It is doing the security aspects of it. We believe that the new norm would require a lot of changes to every organization, is the way the customer experience, the employee experience, the security aspects of it, how do you take care of the gig workers/remote workers because what we believe the new norm is going to be a hybrid-based solution, where, again, this is -- everybody is talking about hybrid. We have to wait and see how that plays out. But we believe that it's not going to be back where 100% of our employees are back in office. What that new norm is going to be, yet to be defined, but we believe that people would be coming in a few days, or at least, a few weeks in a month to office, whereas rest of the time, they are working at home. And again, we are mindful of the employees -- some employees have the ability to work from home and some employees may not have the ability to work from home. In that scenario, then we have to bring them to office. We work with individual employees and figure out what makes sense for them to produce our productivity without giving the productivity component of it.

[Operator Instructions] The next question is from the line of [ Jayanth Varma ], an individual investor.

So my question for you is, if we see the past few -- from few years' performance comparing Kellton and its peers, we are hovering around the flat revenue and profitability margins, while other players are growing significantly. Any plans to boost our growth? And how do we project ourselves in the coming year?