Kore Digital Limited (KDL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kore Digital Limited Q1 FY '25 Results Conference Call hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ganesh from Kirin Advisors. Thank you, and over to you, sir.

Thank you, Ziko. Good evening, everyone. On behalf of Kirin Advisors, I welcome you all to the conference call of Kore Digital Limited. From the management team, we have Mr. Ravindra Doshi, Managing Director. Now I hand over the call to Mr. Ravindra Doshi. Over to you, sir.

Good afternoon. Good afternoon to all the participants. I extend warm welcome to everyone on today's conference call for Kore Digital Limited. We are pleased to have you with us as we reflect on our remarkable performance in quarter 1 financial year '25. Before we go into detailed financial analysis, I would like to provide a brief overview of our company and the great journey we have embarked on. Since our inception in 2009, Kore Digital Limited has been at the forefront of telecommunication and infrastructure development. We offer cutting-edge solutions and services. We are licensed by Department of Telecommunication, and we provide a passive infrastructure that is(IP)-I. Our unwavering commitment to meeting communication needs of Maharashtra and India has been the cornerstone of our mission through the strategic deployment of numerous cell sites, multiple, okay, and established robust optic fiber network. We have strived to ensure seamless and reliable connectivity across the region. Our partnerships with esteemed clients like Vodafone Idea, Bharti Airtel, Reliance Jio, Tata Teleservices, BSNL and many small Internet service providers in Maharashtra and Gujarat and other parts of India, we are -- our presence is small in out of Maharashtra. We continue our journey. Our focus remains on innovation, reliability and customer satisfaction. We are committed to pushing boundaries of what is possible in telecommunication infrastructure. We look forward to continuing to shape future of the communication in Maharashtra and beyond. Now we are turning to our operational performance during quarter 1 financial year '25. We have achieved a significant milestone by securing a new work order from Navayuga. Additionally, we have commenced the critical task of optic fiber laying on Mumbai Nagpur Expressway started on June 27. This marks an important step in expanding our infrastructure footprint. These developments underscore our commitment to excellence, innovation and strategic growth. I am confident that through our continued dedication and collaborative efforts, Kore Digital will continue to thrive and make substantial contribution to the telecommunication and infrastructure landscape. Looking ahead, Kore Digital Limited is poised for significant expansion and development with improvement in impressive pipeline of projects totaling about INR 400 crores for financial year '25. Here, I would like to add that in next investor con call, that is next quarter, we may have some more positive announcements about targets in '25 and '26. We strategically -- we are strategically focused on enhancing connectivity through fiber optic along expressways and communication corridors as well as specialized infrastructure construction. These forthcoming projects, particularly those connected to Samruddhi Highway and Mumbai Metro lines highlight our commitment to shaping future transportation. We participate even -- we anticipate even greater growth. We envision generating approximately INR 1,000 crores, maybe a little higher from similar ventures in '26. This marks an exciting chapter for Kore Digital as we continue to lead transformation initiative in infrastructure sector. For achieving these things, we are enhancing our manpower and infrastructure machineries. And this year, we'll be adding about INR 50 crores in machinery to achieve the target. Turning on to financial performance of '21 (sic) [ '25 ]. I am pleased to report that we have demonstrated strong growth. Our total income for the quarter stood to INR 50.77 crores. The total revenue reflecting an extraordinary year-on-year growth of 1,031%. This impressive revenue growth is further complemented by strong EBITDA of INR 7.46 crores, representing a year-on-year increase of 635% with EBITDA margin of 7%. Our profit after tax reaches INR 5.3 crores, marking a substantial Y-o-Y growth of 685% and PAT margin of 10% is consistent. Our diluted earnings per share rose to INR 13.21, a remarkable increase of 550% compared to the same quarter last year. On quarter-on-quarter basis, our total income increased by 40%, while EBITDA saw a modest growth of 2.49%. PAT grew by 18.3% quarter-on-quarter, further solidifying our strong financial standing. The consistency in our performance is the testament of our strategic focus and operational efficiency. Here, I would like to add, quarter 2 is always sluggish in our life and quarter 2 will not be this good, depends how far we are able to operate. These outstanding results underscore Kore Digital's strong growth trajectory driven by our strategic initiatives, operational expenses and unwavering commitment to customer satisfaction. As the demand for communication infrastructure continues to rise, our strategic positioning will enable us to achieve new heights and further enhance our market share. Before we proceed to questions and answer, I want to express my sincere gratitude to all our stakeholders for being integral part of our growth journey. Our support and involvement have played a crucial role in our success. We genuinely appreciate your valuable contribution. With this, I would like to open the floor for questions. Thank you once again for your presence and continued support.

[Operator Instructions]. The first question is from [indiscernible] with CAO Capital.

Congratulations on a great set of numbers. Sir, I had a few clarifications that I want to seek from you regarding the press release that you come out with. In that you mentioned that strong growth trajectory with the project pipeline worth INR 400 crores. So this INR 400 crores is confirmed orders, sir? Or are these bids where the bids are going to be opened?

No. I -- once again, I'll explain to you. Our business is a little different than the standard copy book financial accounting or maybe standard stock exchange operations. What we do is we get the projects, we take the right of way and we take the permissions to construct the projects. And once constructed, we lease it out to -- on long term to our customers. So putting it in the terms of order book, that doesn't fit in. INR 400 crores I have given -- I'll explain. Let me try. If I'm not able to, please ask again, no issue. So this year, I'm expecting [ my ] construction revenue because this is in a joint venture. Kore Digital is constructing. So Kore Digital will be paid for the entire construction cost. And this revenue is counted from that? It's only purely construction cost from Samruddhi project and from other partners. And that is why I'm so confident about what I will do.

Understood, sir. Sir, then my question is that you also have an (IP)-I license. And as you mentioned, what you described to me just now, what you're doing, it sounds exactly like (IP)-I, right? So I was just wondering, sir, that do you have ownership of that (IP)-I asset that you have created? Or is it part of the JV [indiscernible] the JV or with the partners?

See, there are certain percentages. JV. And I own my part, percentage of network. Like we are constructing 10 ducts. So I'm 37%. So 37% means I will get about 4 ducts out of it.

Understood, sir. And sir, there is -- from what I understand, there are a few companies in the listed space, which own (IP)-I assets. And there is an element of recurring revenue also from (IP)-I assets.

Let me explain. I got your question. Can I? Yes. Okay. See, basically, (IP)-I assets are of 2 types. One is underground ducts. Other one is the poles. Poles or towers, whatever we call it. There are 5, 6 categories. The (IP)-I recurring revenue, what you are seeing, that will also be generated once the network work is over. Here, we have built in permission for the poles. So poles will be constructed once the network is there. If network is not there, pole will not be useful. Once we are constructing the network. I'm hopeful I'll finish it within maybe 18 months.

In 18 months. Understood, sir. Sir, my next question is that in terms of -- so recently, BharatNet related contracts were also awarded. So is there -- so I saw the -- there are, I think, some 16-odd consortiums. And the total -- sum total of the tenders that government is talking about somewhere INR 70,000 crores to INR 80,000 crores [indiscernible] something like that. So is that an opportunity for us?

It is definitely. That is why I have said that maybe in next quarter results, I'll give some good news.

Okay. Okay. Sir, are you part of any of these consortiums?

No. I'm not part. But if I want, I will get. Whatever I want, I'll get. I'm the senior most guy in the industry.

Right, sir. Right, sir. Sir, one final question before I go back in the queue. I have other questions as well. But in [indiscernible] my final question is, so in this Mumbai Nagpur project, so what kind of optical fiber cable are you laying down? I mean, what is the core comp? Is it like...

Let me explain this part. We are constructing the duct network and those ducts will be leased out to the telecom companies. Telecom companies in their own technical side, they decide which optic fiber cable has to be laid. So suppose if it is Reliance Jio, Jio may prefer 288 core. [indiscernible] may prefer. Maybe. And 96. So it differs company to company, occupant to occupant.

Right. And sir, do you have...

We will be having our own. We will be having our own 96 fiber cable end-to-end.

And sir, how many -- so there is a term which is used in towers, which is a tenancy. In your ducts, if I were to use a parallel term, so you mentioned that you...

So we have 10 ducts for sale. Those 10 tenants we can accommodate.

You can do?

Our project is based on 2 tenants, unless whatever comes, that is plus.

So is it 2 into 10 then...

No, no, no. I am saying we have tenders is the capacity we are building. 2 tenants will take care of entire project and profitability. Additional whatever we get, that will be [indiscernible].

The next question is from [indiscernible] Shah, who is an investor.

First of all, congratulations for amazing set of numbers. Sir, my question was that next year, we are targeting for INR 1,000 crores revenue. So sir, I just want to know that how we will achieve it. I want to know, sir, more on orders that we would get...

Let me explain one second. We get the tenders, we build the network and sell it off. Sell it off is to lease it off. So these are the calculations based on the leasing revenue and construction revenue. There are 2 parts. Construction revenue is about 60% to 70%. Leasing revenue is 30%. So maybe out of that INR 1,000 crores or maybe a little more, we will be billing INR 600 crores from the construction, EPC and rest of it from the telecom. Leasing, it's mostly leasing revenue only.

The next question is from the line of Agastya Dave with CAO Capital.

So just, you went into details of this leasing part, right, the recurring part. So that leasing part would be recurring, right? Sir, recurring in nature.

Leasing is always recurring, sir. Every 3 years, I get the lease.

Correct. So you...

And again, again, let me make it clear. On top of this, we will be constructing more than 5,000 telecom poles. That revenue will be in addition to this. It is not projected because we really don't know the need of telecom companies. This is based on the network requirement. So that cannot be certain we cannot take the figure at this time. But average, I will tell you, sir, each pole generates me minimum INR 8,000 a month. So this is additional revenue, which we are not projecting because we are not sure.

And sir, these would be, I'm assuming 5G poles if they happen.

It will be 5G only.

Right. And with tenancy of 2-point something?

No, no, tenancy 1.

Tenancy 1. Tenancy 1.

These are small poles, 12 meters only.

So micro cell.

It is micro cell. It cannot have tenancy more than 1. Having tenancy more than 1 in the remote area doesn't make sense.

Understood, sir. Understood. Understood. Sir, so then in terms of -- I'm trying to understand how we will see the numbers, right? So you mentioned that there would be an element of lease. So that lease would be renewed every 3 years. You'll be recognizing 1/3 of the total lease amount every year for 3 years, then renew it and then again, 1/3 for every 3 years, right?

True. True.

Okay. Sir, what kind of cost...

Sir that -- again, but that depends on our negotiation with telecom companies. We may get 15 years upfront also with a big discount.

With a big discount or maybe some escalation also, right, annual small...

Kind of yes. Rates will depend on how we -- what is the payment.

Understood, sir. So I was -- let's take this base assumption 3 years tenure and then you're recognizing it. So EPC revenue will be depending on the contracts that you are winning, right? That is the construction part. This is the recurring part. Sir, the margins will be dramatically different, right? So can you -- so if I take FY '24, which is last year. So if I take the INR 100 crores of revenue -- INR 103 crores of revenue last year, was there an element of leasing there? And...

It is the standard 30% and 70%, means approximately.

Broadly. Okay. Sir, can you give some estimate as to how the margins are in the EPC business versus the leasing business?

Sir, nothing less than 10% that we are following the standard. Sir, if margin is less than 10%, I will not take the contract.

In the construction business?

Yes.

And in the leasing...

Leasing, whatever we get in leasing, we normally invest back into the network. So that way, you will not see any massive margin or profit because most of it goes back because I keep increasing my network. I put it back into the network. That is the standard till now.

Understood, sir. Understood. Understood. Sir, you mentioned that you would need INR 50 crores of CapEx this year in...

Yes, this is the new one we are in process of doing. It is CapEx, yes. We are buying construction machinery additional. So that will be CapEx only. Yes.

Right. And sir, you would require some capital for this, right? You don't have -- you are a debt -- almost a debt-free company as of. So would you be going in the equity route debt would be...

I'll be -- immediate basis, I'll be going for that route and then we'll see what is good for us and our investors.

Understood, sir. And sir, one final question on the working capital side. So 10% margin you don't operate. You will never consider that. On the payment terms, sir, what are your benchmarks?

Sir, 90 days is the normal expectation and 180 days is the reality.

Okay. Yes, the standard...

But I also pay in similar terms. So it doesn't put any pressure on me.

Right. So working capital, sir, whatever we have seen in FY '24, is that a good expectation to have for the subsequent years?

I did not get your question.

Payment days in terms of receivable days.

These are the very standard operations, sir. Normally, everything is accommodated within the 90 and 180 days time line.

Perfect. Sir, one final question from my side. What is the make of the BharatNet, this Phase 3, which has come up now? Because Phase 1 and Phase 2, nothing much happened, right? In fact, Phase 3, I would...

So they were not funded. I'm talking on con call, which is not good. But the reality is that funds are released just a couple of months back. Without fund, nothing moves. And BharatNet is not a very lucrative project. Let me tell you. Profit margin-wise, it is not. So maybe 100 consortiums or 50 or 20, whatever they have done all as insider, I know that nobody is happy. And they are really scared if payments will come in time or not. And I am also scared because that is why I decided I will complete my operations and streamline construction of Samruddhi Highway. After that, I will go and meet. I know the top guys everywhere. So getting order is not an issue. Execution and payment is the problem in telecom line overall. Especially BSNL.

Sir, overall the company is growing very well, right? But overall, in terms of opportunities slightly over the medium term, the next 2 years visibility, you were kind enough to provide today. But going forward, sir, how do you see the business and the industry panning out?

Sir, I'll give you some very good news in next 2 quarters. You can see that we are technocrats. That's very clear. And then we are into deep tech. So some very good commercials will come from our other orders also, which is not visible till now. Next 5 years, I see company in a top range. That's all. Hopefully, if we are lucky enough to get the things in defense and others.

Sir, I've been tracking the industry and I've been invested in your company also, I'm a shareholder and like many companies in the industry, I have over the years, invested. And sir, one thing that I feel that the pickup that was expected even during the 4G launch period, right? We were at 20 million roughly optical fiber kilometers before 4G. And by 5G, it was expected that optical fiber cable consumption in the country would touch 100 million. But last year, we ended at 16 million. So I was just...

Let me tell you one thing. Our telecom companies, all the telco operators, those who are the consumers of this product. They are really seriously cash strapped. That is the main reason that infrastructure is -- growth is slow because we always -- as Indian, we do the [indiscernible]. Cut the corners and make the networks run. I was part of a 3G rollout. 3G rollout is supposed to give you X, but the actual backhaul was X minus 30 backhaul. Not the site. The cell site which is supposed to say, deliver 60 Mbps. The total backhaul was 30 Mbps. So this is the reality. 5G really where it works and who is able to get it all the speeds, I really doubt. Maybe I'm not getting in my office. I'm in Mumbai.

I'm not even getting anything in 4G. Even 4G is struggling.

Yes, yes. It has deteriorated.

It has deteriorated. We don't get like 3G speed 4G. 4G was supposed to be 40 mbps plus.

Yes. So the reality is different. Yes, we -- India should have reached that target. It will reach slowly.

The next question is from [ Hitesh ], who is an investor.

Sir, I just wanted to know like during Q4, you mentioned that we would be achieving INR 80 crores in Q1. And I understand that sometimes revenue recognization gets delayed by a month.

This time actually, yes.

Yes. But then you are saying that Q2 might also be a little...

Q2 is normally, sir. Q2, normally in telecom and infrastructure, the road infrastructure, what we are in, it is always low because of monsoon. Our efficiency is hardly 30% during this time.

Okay. But we can expect that revenue that will...

It will cover up. It will cover up. I'm definite.

The next question is from the line of [ Neena Deshpande ] from KM Consultancy.