Kellton Tech Solutions Limited (519602) Q3 FY2026 Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Kellton Tech Solutions Limited Q3 and 9M FY '26 Earnings Conference Call. [Operator Instructions] I would like to thank you all for participating in today's company's earnings call for the third quarter of the financial year 2026. 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 call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now I would like to introduce you to the management participating with us today. 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 Mr. Niranjan Chintam, thank you, and over to you, sir.

Thank you, Mike. Good evening, good afternoon, and good morning to all of you for joining the Q3 earnings call. I want to start off with the financial highlights, and then we'll talk about operational highlights as well as customer wins and followed by questions and answers right behind that. So I want to quickly talk about our financial results. I know we have published this, but I want to go over it just to give you a quick summary of it. So I will not bore you with all the details, but I'll go with the numbers that we have. The revenue we have achieved INR 308 crores compared to INR 300 crores of last quarter, which is about 2.7% growth over last quarter. And EBITDA was about INR 39.7 crores versus INR 37.8 for the last quarter. So we have a 5% growth there. When it comes to the PAT, we are at INR 25.5 crores versus INR 24 crores over last quarter, again, a 5.8% growth. The EBITDA was around 12.9%, and the PAT margin is 8.3%, whereas in the last quarter for PAT was 8%. So we continue to show improvement when it comes to revenue as well as the bottom line. Going back to the 9 months one. The previous 9 months -- last 9 months was INR 905 crores versus INR 812 crores the last year. And when it comes to EBITDA, we are at INR 113 crores versus INR 99.5 crores, and EBITDA margin was 12.5% versus 12.2% for the previous 9 months. Again, the PAT margin is at 8% for the whole 9 months up to now. And the previous year, it was down 7.4%. The diluted EPS is INR 1.4 versus INR 1.3 for the 9 months. When it comes to the quarter, the EPS stood at INR 55 versus INR 45 for the last quarter. So there is an improvement there. With that, I want to hand over to Karanjit to talk about the operational highlights and the customer wins. Karanjit over to you.

Okay. So yes, good evening, everyone, and thank you, Niranjan. So I will cover both the new customer wins as well as the operational highlights. So let me first start with the client wins. So I think I have a long list, we have about 11 clients, but I'll quickly go through some of them so that you sort of get a little bit of color on these client wins. So the first one that I would like to mention is basically a leading end-to-end product engineering. It's a global technology joint, and we are engaged with them on the product engineering for cloud native and cross-device web applications. And we are basically doing this on enterprise-grade services like Microsoft. And on the back-end is all architected on Azure. The second one, which is a very interesting one, is actually a legacy modernization. So the client has basically executed -- we are executing an autonomous modernization strategy to transform their monolithic ERP environment which is built on a 4GL into basically a hyperscalable .NET core micro services-based application. So this is -- what is interesting here is that this is basically not an upgrade in the same technology step. We are basically moving it from one language to another. And this language is a whole generation, 4GL language. And of course, there is a heavy use of AI here. In fact, in here, we have written our own agents to integrate [indiscernible] for development on this one. So we have created our own agents that help us. It's about 4 million lines of code. So obviously, we cannot do it manually. We are basically leveraging AI heavily and in fact, the latest cloud models to help this. Similarly, basically, we are partnering with a world leader in heavy engineering where we're helping them deploy AI driven orchestration systems, which will help them streamline their complex industry [indiscernible] driven manufacturing workflows. Obviously, there is some amount of agentic intelligence being built into their manufacturing workflows and large-scale engineering projects. Similarly, we have basically -- we are driving a large-scale application modernization program, again, for a global leader in food services. And basically, we're trying to help them with data engineering and the AI-led transformation side of things. Similar stuff we're doing with them, the large -- one of the largest providers of travel tech in India, again, where they are, again, trying to basically modernize or modernize their platform and basically inject AI-orchestrated engineering into the whole tool. We're also seeing a lot of traction on the ServiceNow side, and we've been in the ServiceNow [ thing ], and we had an acquisition there. So we basically are engaged with at least two, three clients now that we have won where we are helping them. So one of them where we are helping them engineering high velocity. We orchestrated a source-to-pay workflows. This is again on the ServiceNow platform for a global health care provider. We are doing similar things for [indiscernible] for another North American public sector power company, a similar thing for a financial services customer, which is a global industry leader in kind of deployment of their [indiscernible] assist generative AI platform within the ServiceNow ecosystem. And in addition to that, we're also working -- we just have started an engagement with one of the largest telecom providers in the U.S. where we are helping them architect financial hyper precision by deploying a high fidelity AIOps intelligence layer, again, within the ServiceNow kind of ecosystem. So these are kind of some of the customers that have win. I've not covered every one of them, but this will give you a general sense of the kind of wins and the kind of work that we are getting at this point. To go on the operational highlights. So I covered a few here. So we just basically enabled the algorithmic financial systems for a premier global bank by automating their mission-critical payment workflows across multiple countries across markets. Similarly, we are basically -- we have also achieved the highest level of partnership. We have achieved the Microsoft solution partner designation across three areas: Data and AI, digital and app innovation and infrastructure reserve. This kind of places us amongst a very select group of companies within the Microsoft partner program and our relationship with Microsoft is growing, and we continue to sort of strengthen it and work jointly with them. We also, for one of the senior and largest creative agencies, we basically work with them to develop an AI-orchestrated creative-at-scale ecosystem as they call it. This basically helps them and this company operates around 140 companies. What this will help them is using AI to eliminate a lot of manual production bottlenecks that you face. And basically, it will kind of move them -- move the creative workflows into an autonomous brand-driven kind of hyper-personalized asset generation. So this will help them really scale their outreach to their customer and time to market. Similarly, we have developed for a global communication provider, agentic AI-driven verification fabric. And this has been developed on our own proprietary KAI platform. which kind of helps them to address board-level risks and also things like SIM swap frauds and account takeovers and things like that. We've also been selected by a prominent UN agency to again, design and deliver a generative AI integrated application supporting their global humanitarian program. So these were some of the key operational projects or operational highlights that we achieved during this quarter. So that's all I have. Over to you, Niranjan. Thank you.

Thank you, Karanjit. A lot more detail is in our earnings presentation, and we welcome any questions that you might have in the Q&A. So please do join the queue. Mike, can we open it up for Q&A?

[Operator Instructions] We have the first question from the line of [ Japrika from Axar ] Research.

Congratulation on a stable set of performance last quarter. I wanted to understand that currently -- on the ongoing scenario around the world. If you look at all the shares of major IT companies, for example, ServiceNow company listed elsewhere, which is one company that you have recently acquired also functions on the similar domain that is down around 50% over last one year and there are fears related to AI taking up a lot of services going forward. How do you see that? And related to data center CapEx, which is going to come up very soon, is there any opportunity for Kellton to probably add value or participate in that?

So thank you for the question, [ Japrika ]. So I'll answer the second question where you talked about the data center part of it. Yes, absolutely, right, we have deep expertise when it comes to data center, both from setting it up our data centers as well as managing and maintaining the data centers. So they're actually partnered with a physical setup [ guide ] to cater towards one of the largest data centers in the world. We are still in discussion stage. We are not at a proposal stage yet. We have responded to RFPs and we're doing -- and presenting. So we believe that we are in the front foot when it comes to in the data center space, setting it up as well as maintaining and operating. So right now, we are at the RFP stage, like I said. Now coming to your first question about the software companies taking a tank, including the services company, right, which they're calling the SaaS the [indiscernible]. But don't believe that, it's just a hype that is going around there. We don't believe that is going to be a big impact on this. The impact is going to be more on per seat kind of revenue that people operate. This is where the back office operations that happened for BPO-related activities, that is where we believe that there's been an impact while people are talking about cloud is going to replace all these SaaS platforms. Yes, cloud might replace for the small mom-and-pop kind of places where there is a requirement for a SaaS platform. But when it comes to enterprises, right? Enterprises are not that big on homegrown or setting it up using the cloud cowork platform. Now I want to ask Srini to answer this because he is front and center on these things. So I'll let Srini give a little bit more color on this [indiscernible] and what the impact is for Kellton or Kellton-like companies. Srini, can you jump in and answer this question, please?

Sure, Niranjan. Thank you very much. To repeat what Niranjan has been staying, the SaaS book that happened with the drop in share price value of all these SaaS platform. First, I mean you can already see right now that things are improving and things are going back up. It was just a market reaction to something that Anthropic cloud released, right, recently? It really is nothing but about 11 or 12 widgets or plug-ins, which are open source that seem to do a lot of stuff. But in reality, they have nothing but some workflow automation that was built about by actually a logical steps going through. So Yes. I mean what is being seen right now is that the progress that is being made on the AI front is real, the pace at which it is improving and putting solutions out there or potential solutions is there, but there's nothing that is impacted right now other than the fact that customers are expecting more efficiencies in the workflow and the workforce. So basically, what is fair is that in future scale is -- until now scale has been associated with headcount. That will change, right? It will be more about outcomes and Kellton has always been on selling outcomes rather than selling billable hours and so on. So the impact is going to be minimal, Yes, but the rate at which improvements will happen and what will come out in the market, will increase. So that is the major risk that we see right now. And yes, ServiceNow has also -- 0all of these SaaS platforms, whether it be ServiceNow, Snowflake, Microsoft, all of them have, in some way, shape or form either internally started to build their agents and their AI components within their core. And in some cases, companies like ServiceNow to react into this have also preempted this by acquiring AI companies, right? So we see that the SaaS companies will improve, will do what is necessary to compete and will adopt AI rather than fight. So we don't see a huge impact either way. Yes, the way we operate will change, the efficiencies will improve. But beyond that, I think this was just a market reaction.

Okay. Just a follow-up to the previous question. that on a quarter-to-quarter basis, what type of productivity increase that you are seeing on a per employee basis? You mentioned about efficiency per employees will go up. So I believe that -- let me complete my question. Yes. so -- and are you also looking to make your team more leaner? I think a more lean team, given the productivity increase, will probably [ increase ] shareholder value.

Okay. So let me answer that. I guess we have two part question. Let me answer the second part first. Are we expecting a leaner team? Absolutely. We are expecting a leaner team. But there's a second score of thought where they're talking about the volumes are going to increase because of the efficiency. So we could be keeping the same team and increasing I'm just picking discussions like, every other 300 customers today. That could go to 400, 500 customers or it could be some people are talking about an order of magnitude too, right? So we are just waiting and watching because what we are predicting today with the rate of progress of AI, what are we going to be in a month from now is completely different. So at this point, our prediction is that volumes will increase while efficiencies are increasing. I will let Karanjit take that cost answer or question on this, what we're seeing per customer, but per employee, I'm sorry. But it all depends, right? It will also that it depends because units in our company have different kinds of efficiencies that have come in place. Karanjit, do you want to take that? Sorry, you were asking something else, Jay?

No. That's it.

Okay. Karanjit, can you answer that currently?

Yes, Thank you, Niranjan. Yes. So basically, see, we have various engagements types of customers. So wherever which is outcome. Where will we hear outcome-based contracts, various steps of the development cycle. Obviously, we have different users of AI. So like automation test today, QA test cases are pretty much written using our own KAI tool similarly, in all the documentation again gets generated by KAI tool, stories and stuff like that, that all happens with the KAI tool. On the development side also, we basically use AIs rolled out to all developers. We use Copilot. And then, again, within that, we can use various models. But anyway, so the one where we can very clearly measure it is this outcome-based projects, where we are seeing, depending on the technology kind of project, is it a new one? Is it an old one that you're upgrading to? On new projects, you're seeing between 20% to 30% efficiency gains. That's something that we can clearly see. Now if you already have a huge core base, then obviously, it depends on where you're working and things like that. So that's been our experience, about 20% to 30% general gains, and this is being rolled out internally to every project. I also made a mention in my first part of my comments where we said we are doing this translation or basically a legacy modernization where we are converting a 4-year language to, let's say, a modern Microsoft .NET architecture. Now this is a big deal, it's 4 million lines of code. Obviously, it is sold, assuming certain -- already AI embedded into it. But I think in the manual world, the customer wouldn't even have -- that is something which possibly the customer wouldn't have taken up that project. And even if we did, it would have been at least 3 to 4x of that value. So that's the kind of new work that sort of Niranjan alluded to, right? So that's kind of our lived experience with this.

We have the next question from the line of Rohit, an Individual Investor.

I am Rohit from [ Pune ], a retail investor. Congratulations on acquiring Kumori Technologies. And I have one question. How does Kumori Technologies acquisition contribute to Kellton's growth?

Sure. So Kellton [ bet on ] 3, 4 partnerships for the growth that we want to get through, right? One of them is ServiceNow, the other is Microsoft, and then we have a Snowflake SAP, we already have [ bet on ]. So now when it comes to Kumori technologies, right, Kellton had a certain partnership level earlier before the acquisition of Kumori. Kumori gave us some more expertise and a much deeper expertise when it comes to delivering using services using ServiceNow. Now we are at a different level of partnership with ServiceNow. And that is going to give us better access to more customers. What Kumori has given us is a ready-made partnership with deeper, I guess, expertise. And now using Kellton's sales arm on the global reach, we will be able to get a lot more customers as well as interactions when we are going with ServiceNow they are now saying, "Okay, guys, you have some certifications and you are at a certain level of partnership. Our relationship has changed, and we expect revenue growth to be there." Karanjit, if you want to answer -- add anything on that?

Yes, sure. So basically, as Niranjan said, right, so there is -- one is the strategic intent. So we've kind of zeroed on certain partnerships. And for us, we had to figure out how do we accelerate this. So what Kumori gives us as Niranjan pointed out is ServiceNow -- they already have ServiceNow expertise. They have -- they are working with the ServiceNow ecosystem already. So we get all of that expertise and we are combining that with our sales force. So it kind of helps now to do a global outreach of their capabilities, and there is a lot of traction that we've actually been seeing very specifically at ServiceNow. and take that to market. So kind of -- and also they have sort of -- now we can actually sell to all our customers all over the world, right, from the U.S. and also APAC region, Europe everywhere. So that's kind of what it is. And of course, we get case studies and expertise and technical capabilities, right? That's a given. So it just helps us accelerate our journey.

We have the next question from the line of [ Pratik Daria ], an Individual Investor.

So yes, I think coming back to the efficiency part, so I understand that there have been efficiency gains with the AI part deployment, so how do you see that translating into higher margins going ahead? And what -- if you could quantify, that would be helpful over 2 years or 3-year period.

Okay. So it's difficult, Pratik, at this point to quantify how it's going to reflect on the bottom line. The reason I say that is what Karanjit already alluded to, see, most of our business is T&M, Time & Material, right? It is an outcome-based like I was talking about, where we have the flexibility to use the tools, and we are not dependent on the customer driving the contracts. Some of our customers have told us in no uncertain terms that we cannot use AI. So we have to do the old school way of doing programming as more and more customers are willing to access the efficiency that is going towards AI is going to bring in and the confidentiality is protected then we can start showing more product win increases. But at the same time, right, the customer is already demanding saying that, "Hey, you are using AI tools, pass on some of that margin to me." And we have in some -- in most cases, have passed down that efficiency to the customer. okay? So we cannot, at this point, say, "Okay, hey, because they're using AI, our margins are going to increase by x amount of points." This is something that we cannot do at this point. But we are seeing efficiencies. And like I said, the volume we can do is increasing with the same amount of staff, and we are passing on some of the margins that we are gaining to the customer. So at this point, I cannot quantify it.

Niranjan, if I can just add to that, absolutely. See, what is happening is the way to play out is -- Yes, in fixed -- in outcome-based projects, which is a certain percentage, we could keep the efficiency, but sooner or later, the customers will the customers will demand that they will ask for aggressive pricing or like I mentioned, the last one, right? The customer didn't have even gone ahead with that program because the costs are prohibitive, but it is allowing it to happen. That was the increase in the business. One other thing that will happen even on the T&M side, and this will happen for a small time is AI skills are basically premium. So this happens with every new way we have seen and typically lasts only about one year or so. So like back in the day, there were the blockchain and NFT technologies. So we could command slightly the rate, right? So we would have a $10 or $15 upside on the rate but then quickly, the Indian IT industry is smart, everybody learns it. And sooner or later, that advantage again comes back to wherever it was. So that will happen a little bit. So the ones that are up ahead in the AI, what it will impact is your availability, it will help you in your competitive advantage, and for a certain time, maybe you can command slightly premium rates. But then, of course, everybody will chase those premium rates. That's all I see.

And in terms of the contracts that your client is asking you to not use AI, how are you seeing the pricing happen currently? And what percentage of your new contracts are being signed without AI?

Sorry. Can we get the first part of your question again, please?

Let me answer that, Karanjit. I think I understood this. So this -- the question that was asked was how many of our customers are saying, we cannot use AI, okay, the majority of our customers are telling us we cannot use AI there, Pratik. The reason for that they're still not -- they are still not ready for AI. They see some of our customers when we do a sales pitch also, specifically this is happening in the U.S. They're saying, "Hey, if you want to talk about AI, please don't come to me." Yes, because they are not ready to adopt AI into their enterprises, right? And yes, they will change. If they -- the market will force them to change the competitors will force them to change. This is a long-term thing. Specifically, I think with what has happened with the stock price crash everywhere, people are seeing, hey, "AI is getting adopted." It's in many, many companies. So they will have to do it, okay? So they don't have a choice. But at this point, majority of our customers, because like I said, most of our customers are T&M, so it's Time and Material when it comes to Time and Materials, they are dictating what is it that we can do or cannot do. In an outcome-based, we take on what we call the fixed price contracts then it's based on outcome, what we deliver, how much efficiency we deliver, how soon we deliver. So those are the things that are measured versus what we have used to get there, right? In that scenario, we are getting these efficiencies by using our own internal KAI tool or in other cost products or open source AI tools that are available in the market.

Okay. Got it. So can you elaborate on the pricing part for non-AI contracts? How are you seeing the trends there?

No, it has been the same. There's no change on that, right? That is not changing on the non-AI contracts. It is, first, part of -- I'd say, what you call the billet or engineer based on the seniority of the customer asks in the P&M contracts, they say, "Okay, I need a 10-year experience in Java full-stack person", and we provide that person. Or let's say for this project, "Jimmy, what is your estimate? Who are all the people that are going to be?" It's a named resource there. And they will drive the outcomes, not redriving the outcomes. They're being the customers and outcomes. Mike, any other questions?

Not currently, sir, I'll just announce for questions once more. It appears we have further questions. I would now like to hand the conference over to Mr. Niranjan for closing comments.

Okay. Thank you, everyone, for joining this earnings call. We're really excited to talk about our capabilities when it comes to AI. Looking forward to more interactions. If you come over to Hyderabad and Gurugram, please look us up. We would be happy to show and tell what all we have been doing. But please schedule that to the team ahead so that our availability and the time is locked. Again, thank you, looking forward to talking to you soon.

Thank you. On behalf of Kellton Tech Solution Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.