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

Ladies and gentlemen, good day, and welcome to the Kellton Tech Solutions Limited Q2 and H1 FY '26 Earnings Conference Call. [Operator Instructions] Please note that that this conference is being recorded. I would now like to thank you all for participating in the company's earnings call for the second quarter of the financial year 2026. Before we begin, I would now 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 beliefs as well as assumptions made from the information currently available to the management. Audience 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 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 Ms. Srinivas Potluri, Chief Executive Officer, U.S. Thank you, and over to you, Mr. Niranjan Chintam.

Thank you, Ansha. Ladies and gentlemen, apologies in advance. I have a severe cold and cough so I may be coughing on the call. So please, I apologize for that. Okay. With that, I'm going to start off with thank you for joining our Q2 financial year '26 earnings call. For this financial year, we have achieved INR 300 crores in revenue, which is about 11.1% year-on-year growth, INR 37.8 crores of EBITDA and a net profit of INR 24 crores. EBITDA margin is around 12.6%, which is higher than last quarter. PAT margin is again 8.0 -- 8%. 0EPS is INR 0.42. Despite our profit being higher, the EPS is almost in line with what we had last quarter. The reason for that is the whole FCCB round 1 has been completely converted into equity. The number of equity shares went up. Hence, the EPS is like flat. Now for H1 FY '26, [indiscernible] INR [ 597 ] crores, INR 73 crores in EBITDA and INR 46.8 crores in net profit. EBITDA margin stood at 12.3%, a PAT margin of 7.8%. The EPS is at INR 0.90, okay? With that, I want to hand it off to Karanjit. Karanjit, can you talk about operational highlights as well as the customer wins this quarter?

Sure. Thank you, Niranjan, and hello, everyone. So let me first start off by speaking about the operational highlights, and then I will speak about the new client wins. So this quarter, we've had about 5, 6 major highlights. So the first one, let me start off by talking about -- we basically went live. We have implemented a next-generation integration platform for a global food services company. And this is done across 10 countries and over 1,500 stores. So what this meant was they basically decommissioned their legacy middleware and moved to a more seamless and native scalable architecture. The other one, this was really something that was in the media. So we basically played a key role in powering a leading OTT platform in the live streaming of the recently concluded Asia Cup. So this was the first time that they were kind of scaling it up to this level. And this involved a lot of deep expertise in the area of cloud-native engineering, low-latency screening and large-scale digital platform. The whole event went very absolutely flawlessly, and this is thanks to all the readiness in the PSR that the teams have jointly done with the customer before the event. We were also recognized by a leading agritech enterprise for basically helping them with problem solving and technical excellence and exceptional collaboration during a critical production phase. They are a long-standing customer, and they were very appreciative of the kind of deep technical analysis and coordination that the team did during this critical phase for them. We also went live with a platform, a taxation platform that we were building. It's basically we are modernizing or completely building a new taxation platform for a book for consulting company. So this was basically something that we're trying to launch at scale and also modular, something that they can also give in the hands of their customers eventually. So this involved the absolute -- it's almost like what we see in our taxation portals. So it's got all that complexity, has dynamic schedule creation, customizable summaries and all that. So this will eventually replace the old dated platform that we have. Some of you must have also noticed we basically signed a memorandum of understanding with a leading European technology company to help them develop a sovereign human-centric AI ecosystem in the -- under the EU-India framework agreement. So this is something that Europe is focusing on AI sovereignty for the Europe region, and we are basically trying to build a complete AI stack, including AI gigafactory. And we are very happy as Kellton to basically collaborate and have a part to play with that particular thing. And this, of course, will include everything from basically the AI gigafactory build-out to enhancing capacity for advanced AI, cloud and cybersecurity, which is where we would sort of on the services side is where we would help them. We also -- the last one that I would like to highlight is that we partnered with a leading industrial solutions enterprise, where we're helping them modernize the customer engagement and streamline the internal operation through a complete end-to-end digital transformation initiative. That will help them basically provide a seamless experience to both their customers as well as employees. So those were all basically the kind of significant operational highlights that we had. Let me also quickly move to the customer acquisitions in this quarter before I hand it off back to Niranjan. So first of all, we've had 4 or 5 engagements that I'd like to highlight. The first one, we basically partnered with a leading global packaging solution provider to help expand its intelligent payment processing framework across the international entities. So we have already done after having supported the U.S. rollout successfully. Now we are moving it to the international area. So we've just started off with Netherlands. So basically, we are helping that and also optimize the whole SAP-based payment interface that we have and also add an AI-assisted automation layer to the whole thing. We were also recently empanelled as a key technology partner by a leading global logistics provider, and we have initiated offshore IT support services. And also basically, this will expand into basically helping them, first of all, define and then implement the AI-driven initiatives. The other one that we have basically won is basically a partnership with a leading U.S. consumer finance company to reimagine, basically redo their operational efficiency through applied artificial intelligence. So we are basically working with them to integrate frameworks and basically automate risk modeling, portfolio evaluation and digital workflows. So that's another client. We've also partnered with a leading engineering and industrial enterprise, again, to drive a large-scale digital transformation to modernize their ERP system and transition to a unified SAP S/4HANA landscape. And the last one that is in the health care space. So we basically just about started a collaboration with a pioneering health care AI company to develop an Agentic AI-powered risk adjustment solution that will basically autonomously manage complex care workflows. So these were sort of some of the wins that we had this quarter. So thank you. Niranjan, over to you.

Thank you, Karanjit. I think a lot of people might have questions related to H1, the impact of H1 on Kellton. We have a little over 400 people in U.S. Of them, about 40 are our H1. And as everybody is aware, that the existing hedge funds have been grandfathered. It's only impacting the new hedge funds. And also, you must have been reading the news that because of the [ 5K ] that new hedge funds would be required to pay -- the company would require to pay. A lot of companies are outsourcing the work to India. So our impact has been none at this point. We'll have to wait and watch what happens next year. But as we've been hearing the news, the rules that have been framed are getting easier and easier. So basically, when initially what people thought to what it is now is completely different. So there is no impact at this point to Kellton business. Okay. With that, Anushka, I want to open up for questions.

[Operator Instructions] We take the first question from the line of [indiscernible], an individual investor.

My question is, I couldn't find any clarification from management for requirement of this huge fundraising till now.

So far -- I -- okay, let me clarify what that is for, right? See, when we initially -- our company has so far been self-funded. This is the first time where we are taking money from outside entity. That used to be around [ $1 million of $10 million ] that we're taking, okay? That we are using for building our IP because a lot of, I guess, research is going on in the AI world, a lot of dollars that we are spending. And also the second one is for working capital. The third is to increase our reach. Right now, Kellton's brand is known very well in India, but outside India, it is not known. They're trying to spend money there. And the last one is we're looking at opportunistic buys of companies. So that is what the first round of FCCB that we have sought the money, and now we are deploying that money. Now coming to the new round of FCCB, that is primarily, again, some part is going to be for working capital reasons. As we are growing in size, we would need working capital to go after contracts like LIC and HRMS2, where our payment cycles are stretched. For that reason, we are taking money for that. And -- but the biggest chunk, we are setting aside for acquisitions.

Acquisition up to what time frame?

See, as soon as we get the money, right, we would like to deploy it within a year.

Current market capitalization is INR 1,100 crores, okay? And up till for USD 14 million, it sums to around INR 350-odd crores. And more of INR 250 crores of QIP. So we have total amount of around INR 600-odd crores. So what is the targeted company's market capitalization?

See, I don't know what the market capitalization would be. But if you're looking at the revenue that we are targeting, we don't go after revenue. So we go after what we call the technology where we need to beef up our existing technology capabilities to go after. As you can imagine, every day, AI is like changing. What was good yesterday is not good today anymore. So when we start building something 6 months down the road, we find out that whatever we built is not current to what the market is. So since the technology is evolving rapidly, we want to invest or acquire companies who are into this deep tech, who are into data-related companies that would get us the capability to go after additional customers. Mind you, existing customers are going to continue on. We are trying to get after new customers. So when we acquire, we acquire either for capability or for customer is what we look at. Okay? Those are the 2 targets. So to answer your question about QIP, at this point, right, the QIP round is probably a year or so away, whereas the FCCB round that we're doing is immediate that we are doing at this point. And we would continue to look for targets. As we speak, we are actually looking around and seeing what is out there, what can we look at by that would make sense for us from the 2 reasons that I talked about capability and/or new customers that we can acquire.