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

Thank you. Good afternoon and good evening, everyone. Welcome to Q1 '22 earnings call. Just want to start off with, first, the numbers of what we achieved last quarter, and then we'll give some commentary around those numbers, and then we'll take any questions that you might have. Last quarter, we have -- on a consolidated basis, we have a revenue of INR 204 crore,s, with an EBITDA of INR 26.2 crores, and the PAT of INR 16.3 crores, and the EPS of 1.7%. This is -- if you look at comparable quarter to last year, the revenue was about 12.5% higher than last year's the same quarter. EBITDA is about 3.8% higher, and the PAT was 13.2%. Also, the EPS also was about 12.6% higher. Now coming to the standalone numbers. We achieved INR 25.8 crores or INR 26 crores revenue with a PAT of INR [ 1.92 ] crores, which comes down to an EPS of about [ 20% ] is what it came down for the last quarter. In addition to this, we have won 14 new customers in this last quarter. Some of them have started producing revenue already have been starting at this quarter and some will start soon. So that is a very high-level numbers around what we have achieved in last quarter. With that, I would like to ask Karanjit to briefly talk about some of the customer wins that we have for the last quarter. So just to give you a perspective on the different kinds of industries that these customers span. And also this gives you some confidence as to know our story that we are telling, and how success we are in selling our story and what we are able to achieve. Karanjit, over to you.

Yes. So I will just you brief about a couple of customers. So we have won customers across automotive, aircraft manufacturing, real estate, a new age fintech leader, a human resource services company as well as e-commerce technology company. To give you a sense of the kind of work that we have signed up for, there is an automotive -- the foreign automotive company, where we're selected as the strategic technology partner, where we are going to help them to redefine the end-to-end user experience, and modernize their technical capabilities in next-gen infotainment products. For the real estate technology company, this is an interesting one. Where we are going to help them build a [ blockbit ] a blockchain-based enabled smart fund routing system. What this is -- it will help them make their real estate transactions more transparent and easy to track, and also help with the smooth securitization of expenses as well as the fractional ownership using this blockchain technology. That's kind of what it enables. The work that we are doing with the human resource services, that we do on the digital side, what we are doing there is we're going to help them build a robust organizational behavior influencing platform, which will a kind of -- so these are all, I think, the new age features, refers you to help them to improve productivity and employee satisfaction and machine-making capability, using a lot of behavior influences kind of workflows. Similarly, for the e-commerce technology company, this is in U.K., we are going to help them build a revolutionary B2B e-commerce and customer engagement platform. That will basically help them with user experience and drive higher sales conversions. So these are some of them. Srini, if you would like to talk about a couple of wins on your side.

Sure. Thank you, Karanjit. So obviously, part of the vertical that the U.S. market -- that we have penetrated in the U.S. market and started new projects include a large, probably the largest aircraft manufacturer in the world. We are working with them. They have selected us from a perspective of their digital transformation services. We are helping them or basically their distribution services arm, to manage their core system integration, right. So we were chosen as strategic partners to manage integrations and communications between their core systems for better process management and information exchange. So this is more of a digital integration between their core systems, that is the infrastructure side, application infrastructure. So this is a marquee win for us. We are excited about it. And then another marquee win, obviously includes a leading fintech leader who is doing some innovative stuff in the digital transformation space, building non-fungible tokens marketplace, a scalable ERC-721 compliant, ethereum blockchain-based NFT marketplace. So basically, they're building payment wallet. They're building a non-fungible tokens marketplace. They're talking about cross-country transfers of cryptocurrency as well as regular currency and so on. So we are -- this is a cutting-edge technology space that we are partnering with this fintech services company. And these are the 2 main ones that we have started this quarter, and we are excited about that. Over to you [indiscernible] Niranjan.

Thank you, Srini and Karanjit. A little bit more commentary around the COVID impact from last quarter. While the COVID impact, when it comes to our delivery was not there, we did lose a few of our employees from COVID. A number of, I guess, some extended family of employees. We did lose some of them. But we were able to provide some help by our corona warriors or what you want to call it, the corona task force that we set up. They were able to provide resources for them during this second wave of COVID, which impacted everybody. And while we were initially thinking of or coming back to the office by May, June time frame. And now we have deferred that with -- with I guess, the forecast that there could be a third wave. So all of our employees or majority of our employees rather are working out of their houses. We do have some skeletal staff that is going into the office for the -- tech support people and the critical employees that are using the office, there in office. While U.S. is getting back to normal -- I'll let Srini to explain what's happening in the U.S. side of -- the employees. How we are going back to office, few days a week. Srini, could you just talk about a little bit about how U.S. is coming back into office and the impact there of the customers and what is happening there also?

Sure. Absolutely. So most of our offices -- I mean, obviously, we have offices in different cities. The main offices in the Princeton area as well as in the Virginia area, which I operate out of. We have in the past 1.5 to 2 months started coming into work. We have taken all the protocols that are necessary, and we are meeting 2 days a week. We expect to expand that to 3 to 4 days a week in the coming future. No untoward incidents. The transition has been good. People are adopting or adapting to coming back to work and working together. It's great to be in that mode. So all of our staff that are coming into the offices are vaccinated, and we are considering all the procedures as possible. From a consultant's perspective that report into the client side, a couple of our customers have requested that August is the month that they are coming back into work, their internal employees. And that by September, we need to make arrangements to ensure that our employees, our consultants who are working on client sites, will have to start coming as well. This is all obviously depending on the information we have with respect to what is happening in the COVID world. If things change in the near future, then obviously, this will be reconsidered. But those are the decisions. All of our consultants that are going to be reporting into the client sites in September are all vaccinated, and they are ready to go. So travel has started. We have started visiting our existing customers. Some of them have -- are back in the offices. Some of them are still remote, but we were able to meet them in either outside of their workplaces or whatever it may be. So things are coming back up to -- they're not normal as yet, but there is a lot of activity. There is a lot of face-to-face meetings that are beginning to happen. And from my perspective, I believe that in a month or 2, we should be able to be fully on-site, at our client sites and also in our internal offices.

Yes. So a little bit related to the, I guess, vaccination drive in India. We have -- whoever needed vaccinations, we were able to provide vaccinations for our employees, that are either in Hyderabad and or in the Gurgaon area. We have offered free vaccination to any employee that wanted it. We also extended that to the immediate family. So that is something that we have done, a few drives of vaccination for our employees. While at this time, since everybody is working from home, they are spread out. We have, I guess, not able to provide the vaccine to all the way down to where they are. But that is something that we are also considering, how best to make sure that our employees are safe and the extended family is safe. These are some of the steps that we are weighing when it comes to bringing back people to office. Whenever that happens, these are some of the considerations that are going through within the management as well as the task force that we have. With that, operator, could we open up for questions?

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

Yes, I would like to understand like the promoter holding has gone down by 3%, and pledging has grown up by 0.83%. Any specific reason? And what is the future forecast for the new business deals?

Thank you, Ritesh. We'll talk about first, I guess, the pledging. The pledging actually has come down. We have actually reduced our pledging. I don't know where you saw that the pledging has gone up. We moved from one bank to another bank. Maybe that's what you're seeing when the pledging-related movement happened from one bank to one it was released and then assigned to another bank. But actually, our pledge has come down dramatically. Now coming to the promoters, selling the shares or [ reusing the equity ]. So just like we talked about the COVID. COVID has, I guess, taught us the importance of 2 things when it comes to -- in this pandemic. 1 is the health, health is very important, which is something that like we -- I told you earlier, we are mindful of taking -- ensuring that all our employees are safe, so is the extended family because we do believe that the mental state of the employee is very important. Hence, the reason why we have extended a lot of doctors on call, whoever needed mental health support, we would provide that, all that related. The second 1 that, I guess, has become very important in the COVID times is the liquidity. Liquidity, when it comes to the company as well as individuals, too, right? That is 1 of the reasons why we -- the promoters have divested some of the shares more -- it's to do a liquidity just to ensure that on a, I guess, the cloud burst lately -- everybody is talking about cloud burst, right? We are okay when it comes to a rainy day, but we know, we are not -- we were not okay when it comes to a flood or a cloud burst, and we want to ensure that the continuity happens for the company as well as us as individuals. Hence, the reason why some shares were sold just for the liquidity reasons. The last question you asked, is about the forecast. Currently, we have about INR 600 crores worth of order book that is booked. So the forecast is looking much better than last year. We would do more than last year. So hence, I don't want to give a number yet because we don't know what the COVID third wave impact is going to be. Even though Srini has pointed out to you that U.S. is coming back to normal, but at the same time, there is a worry there about the delta variant in the U.S. and the impact. Right now, I think you are aware that the case load there is more than 100,000 per day -- case is increasing in U.S. What is the impact for that? We don't believe there's going to be an impact, but because of the different variants, right? I don't want to project the number and tell you and then not meet it. But I can assure you that it will be much better than what we were last year.

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

So congratulations on the number and sorry for the loss due to COVID. So I have a couple of questions. So first 1 is -- so due to the new client wins, does the company have to hire resources to deliver the project or the current employee strength is sufficient to deliver these projects? Are we like employing -- providing multiple projects to an employee in a way? And also, is there a challenge the company is facing for hiring talent in U.S., EU and India itself?

Okay. Let me first start off with hiring, right? To answer your question, we do not have 2 large events, right? That is something that we're -- that was, I guess, must have. But what happened lately is because I think you are aware. I think that seems very hard. The talent pool acquisition has become a challenge. While we are working creatively to hire, train staff, we do not have enough people today to fully staff the new project wins that we have. So we have projected out also, I think, there is 1 of the interview that I gave out, that we projected out that probably about 400 people would be -- is what we would be hiring for this fiscal year to support the staff -- I'm sorry, to support the new customer wins as well as the projected growth that we are anticipating that is going to happen. Now coming to your question about the challenges about hiring. Just like, I guess, everybody else in the IT industry, we are all facing the same challenges. So I'll let Karanjit talk a little bit greater detail, but just to -- suffice to say, I'll just give you a broad highlight is that where earlier we were -- I'm just making numbers up just for discussion -- where earlier we were hiring close to 100, I guess, freshers. Now we have increased that by another 50 person to 150 people, just to get these people up to speed and be ready for these new projects wins that we have and also some of the things that we have in pipeline. Karanjit, do you want to talk a little bit about the challenges? And I know you're part of the mass comm, some of these groups. So you can talk in general about what's happening in the industry, too.

Yes. Thanks, Niranjan. Yes. So Pushkar, as Niranjan said, I mean, these are all our challenges for the IT industry. Talent is becoming a big challenge to hire. Initially, it was sort of -- it's kind of hit us. But now it's been a couple of months, and we have kind of started organizing ourselves better and coming up with creative ways to deal with these things. But obviously, there are issues around it being very hard, people taking offers and not only reading those offers, the expectations, multiple offers and all of that. So those challenges are there. We are also facing them, just that we have kind of now figured our heads around it and follow other some creative ways to improve the situation. It's not like in the -- just execute in better. And in fact, this is something that gets discussed in almost every forum that we are part of nowadays. And whatever initially comes when we saw it first time for ourselves, but when we speak with our peers in the industry as part of some forums like [indiscernible], we -- it's the same everywhere. Everybody is dealing with similar challenges, some of them more than us, some faces a little less than us. And obviously, there are also creative ways that people have figured out that get shared and you try to event some of those. Everybody and every time you go there, right now, the agenda, the first thing that comes up is about this and end up pretty much get [indiscernible] as that you seen in the first half, talking about these challenges, man professionalism, multiple offers, people not on doing offers and those kind of things.

There is another question. Half of it actually Srinivas answered in the call about the joining back to the office in the COVID times, but that was from the U.S. perspective. Any plans to following any hybrid model for work? Within India, what is the plan and like what is the strategy to manage the talent over, within India itself?

So to answer your question about the back to office, and ultimately, I think we will have a hybrid model for sure because that is where the industry is going. But at this time, right now, it is going to be remote for us. We are just wait and watching, what's happening with the vaccination drive, and the waves of COVID that is coming around. As you are aware, right, unlike U.S., Indian vaccination, as a percentage of the population, I know absolute numbers, we are doing much better than everybody in the world. When it comes to percentage population, we are very low, whereas U.S. has achieved about 70% vaccination rate. And even though they had a 70% plus, they are getting close to 100,000-plus cases every day, and they are expecting that it's going to get to 200,000 cases. So we are very mindful about the health of our employees because that is very important for us. Hence, we have deferred that decision to a later date. We are going by quarter-to-quarter. At this time, we are saying it is not going to be this quarter. We will revisit this probably sometime in September to see if it is going to be either by this -- before December or we're going to defer it a little bit more than December. But at this time, I don't have a solid answer for you to tell you our solid date to give you when we'll be back. But it is going to be a hybrid model. How much of it is going to be work-from-home, how much of it is in the office, those are things that is too early at this time, given the environment that we are currently.

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

First of all, congratulations on the number you people achieved. So it looks very good y-on-y. So I was having a question about European expansion because in last investor call, we heard that you were talking about expansions in Europe. So are we on track to achieve the revenue diversification targets the company set for the [ EMEA region ]?

Thank you for the question, [ Shivam ]. So we have hired a European head who comes highly recommended, and he used to work at Wipro as a European head, too. And we have hired him. He has come on board. He has charted out his plans. We are discussing that on what it's going to be for this fiscal year, what is going to be for next fiscal year. But we like -- I stated earlier and I think probably 1 of the interviews, where I said we want to get to 15% revenue from Europe. That is on -- still on target. Probably we'll achieve that in a couple of years. So that is something that is in the works. And as you also are aware, COVID has impacted in Europe. And they are much -- I guess, stricter lockdown still going on there compared to other regions. So it is going to take a little bit of time. This year is probably going to be maybe 1%, 2% more than what we achieved last year. But starting next year is when we believe that the growth will be much better than what it is for this year.

So we move to the next question. That's from the line of [ Ritesh Sharma ] from [indiscernible].

I just wanted to check up, like, because I see your enterprise solution and consulting business is small. I don't know how much of the attention it carries of yours. Why not focus only on the digital transformation? Okay. These are strategic call, management [ SOD ].

So you ask the question why we're still doing those 2, right? So let me answer...

We are still continuing that INR 2 crores, INR 3 crores business?

See, what happens -- what we have seen, right? In an enterprise, I guess, customer base that we have, there is a requirement for the SAP. SAP is not going to go away. There are some digital integration-related activities that happen. That is we're talking about the middleware kind of stuff, right? Those demand is still there. And when we go to a customer, we don't want to say no to a customer. So hence, the reason why we do a little bit of consulting kind of a [ good step ]. Because what happens is, like just like us, everybody has what we call the land and expand strategy. So when you say no to some customers saying, hey, I don't want to do that in one body that you want for Java, what happens to go find some other vendor that is going to come and provide them that particular results. And so he has landed into our customer, and then he starts expanding. He says, I can do this also. I can do this also, right? So this is a strategy that we have, I guess, thought about. And we said, okay, we do -- want to do consulting because we don't want others to land and expand. Now when it comes to the SAP kind of stuff, since SAP is not going to go away, that is going to continue on. Yes, SAP has come up with new ways of doing it, what they're calling it the digital. We are doing the digital SAP also, but the legacy systems is going to continue on and new implementations is where most of the money is, but some of the customers are still not ready to do new implementations. They're saying, okay. Hey, we want to move some of these date sideways because we believe that we are not ready yet or the pandemic -- we don't have people that can do it. So these are some of the things that we have in our mind before -- on why we do this enterprise-related solution. I know Srini will have a lot more granular detail on that. I'll let Srini expand upon what I just stated. Srini, can you talk about why we still do enterprise-related services to our customers?

Yes. I think it's a very good question. So it's a strategic reason as to why we continue to do enterprise work. So basically, any ERP system connects the entire enterprise, right, with an organization. So you get to understand the business processes of the organization itself. And we have traditionally -- or rather we have a -- due to our acquisitions and the way we have grown, we do have a bunch of existing enterprise clients. Now if we need to do digital transformation with organizations, then this gives us a good base to land and expand, right? This is an existing client of ours. It would be easy for us to upsell and cross-sell any of the transformational services, the digital transformational services that we talk about. And also the enterprise landscape itself has morphed, right? At this point, you cannot say that SAP is not a part of a digital initiative for an organization. When organizations move from an ERP ECC system, SAP system to an S/4HANA system, it is considered a digital transformation journey. It is a transformational journey that the organization is going through, right? Just based on how the technology has evolved, it is considered as a part of the digital landscape. Even when you talk of the integration services. Earlier where you used to integrate systems in data centers, et cetera, these days, it's all on cloud. Cloud integration is part of the digital integration practice. And enterprises provide a larger revenue base. And it's important that if we want to expand, we need to show the expertise in all areas. Though digital transformation is the focus, we have seen the evolution of enterprises move into digital space as well. And that is the reason, and that is where we are helping our large enterprises move forward in their journey. Does that answer the question or you want me to elaborate more?

We also call it a trojan horse strategy for that matter alike. And second was, like I asked like what is our latest customer acquisition?

I'm sorry. So your question is related to customer acquisition. I think we did state that we have about 14 new customers, and Srini and Karanjit gave a little bit of background of those customers. So did we miss something there? Ritesh, that you are looking for?

Pardon me?

Did we -- are you looking for something specific on the new acquisition -- customer acquisition? Because I thought we already stated that we had -- we already discussed about the new customer acquisitions.

No, no. We are only looking for the new customer acquisition and some specific, which is going to -- you said like INR 600 crore is your pipeline customer acquisition, which is the biggest 1 in this customer line. Any marquee customer on that?