Nucleus Software Exports Limited (531209) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. I'm Harpreet Kapoor, the moderator of this call. Thank you for standing by, and welcome to Nucleus Software quarterly earnings conference call for the first quarter ended 30th June 2020. [Operator Instructions] So I would like to now hand over the proceedings to Ms. Swati Ahuja. Over to you, Swati.

Thank you, Harpreet. Good afternoon, everyone. This is Swati from Investor Relations team at Nucleus Software. A very warm welcome to all of you for Nucleus Software earnings conference call for the first quarter ended June 30, 2020. For discussion, we have here from the management team, Mr. Vishnu R. Dusad, our Managing Director and acting CFO; Mr. R.P. Singh, CEO; Mr. Tapan Jayaswal, colleague from finance team; Mr. Parag Bhise, Executive Director; Mr. Avnish Datt, Executive Vice President, Global Head Strategy; Mr. Pankaj Bhatt, Chief Transformational Officer; Mr. Prakash Pai, Chief Evangelist Officer; Mr. Pradeep Kapoor, Global Head, Corporate Affairs; Ms. Debyani Sinha, Global Head, HR; and Mr. Ashish Khanna, Business Consultant, Financial Inclusion. As you all are aware, Nucleus Software does not provide any specific revenue earning guidance. Anything which is said during this call, which may reflect our outlook for the future or which may be construed as a forward-looking statement, must be reviewed in conjunction with the risk that the company faces. An audio and transcript of this call would be shortly available on the Investors section of our website, www.nucleussoftware.com. With this, we are now ready to begin with the opening comments on the performance of the company for the quarter ended June 30, 2020, from the MD. And post that, we would be available for the Q&A session. With this, I now pass over to Vishnu sir.

Thank you, Swati, and good afternoon, ladies and gentlemen. I'm pleased to connect with you at this earnings call which takes place in slightly less than a quarter as the last one had got held almost after 2 months of the close of the last quarter. As we are noticing, the situation continues to be uncertain all over the world, with some countries managing to slowly get out of the [indiscernible] of COVID-19 while the rest of them getting deeper into it even 6 months after the outbreak. While there is talk about the vaccine, we are still far from getting the date by which it will be ready and then date by which it will get administered to large populations like India. So as can be expected, the Board and the management are keeping a close eye on development and are and will continue to take decisions that are in the long-term interest of the variety of stakeholders. Simultaneously, we are making an attempt to convert this calamity into an opportunity to learn new things and learn them fast. For example, apart from continuing to deliver value to all our customers in our conventional and new ways, we have created a platform where completely new ideas are being explored. We are confident with this new approach to looking at our role as solution provider, we will continue to not only enhance our award-winning world-class solution but also come up with newer solutions as well. Over to you, R.P.

Thank you, Vishnu, and good afternoon, everyone. Frankly, this quarter will go down in history as a special one, I think, for a lot of us. But I think really happy that we responded to the COVID fallout with 3 steps that we took, or rather 3.5 in a way. First step was to establish full business continuity. I think we excelled at this, and we transitioned into work from home much before the lockdown really hit us, and our timely actions ensured that customer was not impacted at all. Service levels of product support were maintained seamlessly. Product releases, just to remind you the 6 monthly releases we used to come out with, including special service packs were all rolled out on -- as per schedule. And, I think, I do feel that the revenue numbers which are visible are a direct result of the service quality that we maintained and delivered to our customers despite the COVID situation and the work-from-home environment. As a second step, we assessed the possible outcome of the pandemic in terms of its size and length and its impact on business. We quickly took some drastic decisions on expense control. We decided to hold back some rather necessary and critical expenses as well, basically, in order to get some more time to understand the uncertain circumstances which are still in front of us. This has resulted in an EBITDA number which are also visible in this quarter 1 of this year. Of course, needless to mention the EBITDA numbers that are visible today are not a new benchmark because it is still a result of many critical expenses that we have held back temporarily just so that we can get some breathing time to check how the future unfolds. The third step was to align practices and products to the new normal. I think a lot of us have been talking about the new normal setting in, and it's pretty clear that while the COVID situation will continue for a longer period, even thereafter the new normal will set in. So implementation methodologies which were more dependent on physical presence have undergone a change at Nucleus. While we are still working on bringing in more changes, all our ongoing implementations are going on smoothly in our adapted remote implementation practice that we have put in place. The other dimension of the third step was on the product road map. So we've also attempted to align our product road map to the unfolding new normal. The situation is demanding high digitalization from financial institutions, amongst other process changes. In this quarter, we were able to quickly release new digital channels like the WhatsApp self-servicing, e-mail approvals and many other work-from-home enabling or self-service-enabling capabilities in our product. The teams are continuing to comprehend these new needs that are evolving and rapidly aligning the road map to the same. Net-net, we are, at Nucleus, all happy to have delivered a satisfactory Q1. I must say that teams have really responded proactively and responsibly in the tough times that the whole world is reeling under. Thank you very much. Over to you, Tapan.

Thank you, R.P., sir. Good afternoon, everyone. Key highlights from financials are. Our consolidated revenue for the quarter is at INR 128.4 crores against INR 138.2 crores Q-on-Q and INR 124.1 crore Y-o-Y. Overall revenue in foreign currency, including Indian rupee revenue is USD 17.3 million for the quarter against USD 19.4 million Q-on-Q and USD 17.7 million Y-o-Y. Product revenue for the quarter is at INR 107.1 crore against INR 111.9 crore Q-on-Q and INR 97.2 crores Y-o-Y. Revenue from projects and services for the quarter is at INR 21.3 crore against INR 26.3 crore Q-on-Q and INR 26.9 crore Y-o-Y. As for expenses, cost of delivery, including cost of product development for the quarter, is 62.6% of revenue against 60.9% of revenue Q-on-Q and 69.4% of revenue Y-on-Y. In absolute terms, this is INR 80.4 crores against INR 84.2 crores Q-on-Q and INR 86.1 crore Y-o-Y. Marketing and sales expense for the quarter is 1.6% of revenue against 5.2% of revenue Q-on-Q and 7.4% Y-o-Y. In absolute terms, this is INR 2 crores against INR 7.2 crores Q-on-Q and INR 9.2 crores Y-o-Y. General and administration expenses for the quarter is 6.9% of revenue against 11.3% of revenue Q-on-Q and 8.8% Y-o-Y. In absolute terms, this is INR 8.9 crores against INR 15.6 crores Q-on-Q and INR 10.9 crores Y-o-Y. EBITDA for the quarter is at INR 37.1 crore against INR 31.2 crores Q-on-Q and INR 17.9 crores Y-o-Y. Other income from investments and deposits at INR 10.7 crores against INR 8.7 crores Q-on-Q and INR 8 crores Y-o-Y. Total other income for the quarter is INR 13 crore against INR 10.3 crore Q-on-Q and INR 6.5 crores Y-o-Y. Net profit is at INR 36.3 crore for the quarter against INR 28.1 crore Q-on-Q and INR 16.6 crores Y-o-Y. Earnings per share for the quarter is at INR 12.51 as against INR 9.69 in the previous quarter and INR 5.71 in June '19 quarter. Revenue contribution from the top 5 clients for the quarter is 29%, which is same as previous quarter. The order book position is INR 450.4 crores, including INR 404.4 crores of product business and INR 46 crores of projects and services business. In March 31, 2020, the order book position was INR 444.2 crores, including INR 405.5 crores of product business and INR 38.7 crores of projects and services business. Total cash and cash equivalent as on 30th June 2020 are INR 613 crores against INR 559.2 crores as on 31st March 2020. This includes balances in our current account of INR 34.3 crores, various schemes of mutual funds INR 349.1 crores, INR 55.1 crore in fixed maturity plans, fixed deposit with banks of INR 10.5 crore, investment in tax-fee bonds of INR 101.4 crores, INR 42.4 crores in preference shares and INR 20.3 crores in investment in fixed deposits with NBFCs. With regards to receivables, we are at INR 80.1 crores against INR 90.2 crores in the previous quarter. Now I'll hand it over to Swati.

Thank you, sir. With this, we are now open for the Q&A session. I will now pass it to Harpreet. Over to you, Harpreet.

[Operator Instructions] First question of the day we have from Badjatya from HNI Investments.

So obviously, a very good set of numbers. But -- so this sales and marketing cut that you have done, now given the times of COVID, things have definitely changed the way we are going to sell our product. A lot of travel will be restricted and all these things. So do you think for next 1 year or till the time the COVID situation is not resolved, our sales and marketing will be at same level in spite of our market effort being getting affected? Hello?

Yes. Sorry. I was on mute. So that's a valid possibility, I think. I think the way we are looking at it, you're right. I mean there are some cost cuts which have been imposed by COVID itself and some which are voluntary. To be very frank, the travel cost is something that probably will, obviously, remain under a huge lockdown because of COVID till the COVID situation improves. Thereafter -- I mean to be very frank, at this moment, it looks like the new normal would also be a lower travel situation. I hope that's the new normal that we set into. As far as marketing is concerned, you're right. I mean a lot of our expenses used to be on physical events which are also under lockdown. But we are always -- with the numbers improving and the situation not being unfolding well, I think we will look at options of alternate ways to spend the marketing dollars. I think that may move up over the next quarters, but [Technical Difficulty] as and when we find effective alternate ways of using that -- investing that -- those funds. So at this time, as I mentioned in the talk that we put a total ban on any expenses. So this is a very unique place. But slowly, we will look at alternate modes. There are options which are available today, so -- which may not be as expensive as standard marketing expenses, but let's see how things unfold and how we can -- because we need to be active, we need to keep traction on with our customers and prospects. So we will find alternate ways of engaging them.

Okay. Got it. And lastly, I'm sure, a couple of other people will also raise this question that we continue to accelerate cash. And -- I mean I cannot find a year in company's last 2-decade history or even if we go through the advertising IPO in the last 3 years of the IPO, we have not lost cash in any year. Now in spite of that, we continue to hold that -- I mean cash and balance sheet near about INR 600 crores -- roughly INR 600 crores. So there has to be a plan rather than just to have that money in low-yielding asset because ultimately, while the shareholders might have better option to deploy all of that money, I understand the conservative approach of the management and that is where the disconnect is. Probably, management is more conservative and shareholders would probably like to use that money for other matters [indiscernible] So I would sincerely request management that being conservative is good for the shareholders, but there should be relook at the dividend distribution policy of the company.

Yes. Thank you for your continued interest. This is Vishnu. And as we have been mentioning in the past, we would like to be conservative. And as you have noticed in the month of March, in fact, we had -- we've decided to revoke the interim dividend that we had -- decision that we had taken. And then we are, of course, like the situation as it is unfolding. So we've given the interim dividend also. And we will, at the same time, continue to be conservative.

Next, we have Rajeev from DoorDarshi Advisors.

My first question is, it seems to me that the Q1 results came out quite strongly as compared to the guidance that we are -- as compared to what we had mentioned in the Q4 con call, where we were very concerned about the NBFCs not disbursing loans and that may have an impact on the company. So can you please elaborate on what you think has changed between then when we had the con call and sort of the subsequent period which gave us an opportunity to provide these type of results?

So one, you must appreciate that at any time we do operate with a lot of work in hand. And the -- so one point is, of course, there is work in hand. We are moving ahead with that. The first thing that we had forecasted is impact actually more on new sales. And, I think, I must say that even there, we are pleasantly surprised that we were able to book orders. So there is definitely a very bold approach that businesses are ensuring. And probably, we are also fortunate to be working with the stronger businesses who know that they have to utilize this period for probably consolidation and creating competitors. It's very clear that the fact about bookings being low and business being slow, that is a fact still, by the way. I mean that fact is pretty much there. Of course, I must say that it's not -- it's definitely higher, better than what we had envisaged. And whether this is going to continue this way or -- I mean you still can't forecast the next quarter. But signs are definitely that everyone is taking it in a more aggressive manner, which is really nice. So there is still mixed signals from various owners. There are some countries who are opening up, and we see a lot of traction in some of the countries, and there are other countries who are going slow. So there is still that mixed thing. And of course, probably we are 3 months more aware of what this pandemic is leading us to. So it's a mix of all that. I mean that's what I would say. And the first quarter, in any case, everything is -- a lot of the revenue is from work in hand, which is -- which could get impacted for sure, but something that has been secured.

Got it. Got it. So Indian GO -- I mean, clearly, Indian GO performed very well for us, and even Australia, I think, where we have been having a very decent traction, has continued to perform.

That's right.

Sorry, sorry, sorry.

No, no, you carry on. Just complete the question.

Yes. So I just wanted to understand, from your perspective, what are the geographies that you feel pretty excited about, both in terms of what you have in terms of orders but also in terms of prospect currency?

So from a prospect perspective as well as combined with, I think, the COVID situation, I think, and as you would know that one of the -- Australia is doing pretty well on the COVID side and thus would continue to be promising. And isolated countries in the Southeast Asian belt are handling the COVID well and thus continue to be -- so overall market probably is impacted, but we still have these pockets of countries who have managed the COVID well and thus we can see a lot of traction continuing. I mean not getting stretched like in some other countries.

And would you say in some of these geographies you have actually gained market share or is it that the spend has actually gone up in these countries?

In any case, wherever we have gained is because of market share. And of course, every different region has different spend patterns, but I think we would have largely benefited from market share.

In AGM, I think Vishnu had mentioned about a new product that company is working on. Is there any time line around that new product? And at what point would you be willing to share some details around that?

Okay. As far as the new product is concerned, it is still time we get some traction. It is work in progress. So the kind of product that we are talking about, it's involved changes in the very way we make payments and that too at the grassroot level. So we are -- on an ongoing basis, we are [Technical Difficulty] do field test. We are learning from the field test. How the markets at that level are appreciating or not appreciating some of the changes. So it is essentially work in progress. And till the time we see a very clear track, that's how it is going to remain. So that's all we can say at this juncture.

Sure. Lastly, on the other expenses, I think previous questioner also asked you on that. I mean I think we have controlled those expenses very tightly, which basically grow our EBITDA quite nicely. As you said, the travel possibly will remain, but maybe the marketing cost will go up as you see opportunities. So what would be a good base to consider for other expenses? If you can give some sort of a sense of how much can this go up by from Q1 as you see opportunities to spend money on the marketing side?

So while I may not be able to give you a percentage or a number, but I do want to mention that while travel and marketing is the easier one to look at, we've actually held back a lot on the personnel side. We've held back on -- at a senior level on incentives of last year. We've kind of nullified incentives or variable pay for this year. We have -- by the way, we have confirmations -- kids on probation who are pending confirmation, we're kind of holding those. Those are the very -- really the necessary expenses. So the personnel is expected to go up as soon as we feel a little more comfortable about the situation. Increments, as I mentioned, have been held back. So there is a lot of personnel-related expenses that directly on remuneration or even otherwise on welfare, I think, we've held back in addition to any of the standard SG&A stuff. So while in the COVID situation, the travel is not going to come back, but marketing as I talked of alternate one, but the personnel is something that probably we will consider as we move on, I mean one by one. There are just multiple decisions we have taken on the personnel side. Vishnu, anything to add?

Yes. I think we are making sure that the balancing -- the tough balancing between multiple stakeholders is as close to what it should be as possible. Yes. Sorry, you were asking another question.

Yes. I was going to ask the personnel expenses will show up in the employee cost line, right? And so that is where...

That's right.

Right? So the financial year '20 numbers, we could put some additional sort of inflation factor on top of that as your base run rate. Is that the way to think of that?

So one is the inflation and one is the held back stuff. There are, as I said, probations which are pending and then those probations that are at entry level which are kind of a bigger jump that we give. So it's that in addition to the inflationary increment that we would probably consider something.

Next, we have [ Vipin Chandok ] from [indiscernible].

Congratulations for good set of numbers. First of all, I just wanted to check with you that recently Reserve Bank has permitted small value off-line transactions for single payments up to INR 200 on pilot basis. So with this approval, how will be the traction on our product of PaySe will be there?

Yes. That's a very good question. And we are in regular contact with RBI. And immediately after their announcement, we have reached out to them -- we were talking to them, in any case, and after their announcement, we've got in touch with them once again. So yes, we are hoping that we'll be able to get a pilot going very soon.

Okay. Okay. So how far it will take? How much time...

We get good support from RBI.

Okay. How much time it will take?

Yes. As I mentioned in the answer to the earlier question, these are solutions which are going to change our habits at a grassroot level, habits which have been around for centuries and so on. So there is a lot of -- there are lots of nuances that have to be looked at, modified, enhanced before you can make an impact at grassroot level. We are noticing good traction in some pockets, but we would not be able to put a time line as to how soon we'll be able to turn the corner.

Okay. Okay. So if RBI is showing any time line in case of national launch from this pilot launch, to what kind of time line they are referring to?

No, as of now, they are only talking about the pilot launch. They have not talked to us about national launch yet.

Okay. Okay. And also how has been this order book pipeline, considering the focus of financial institutions now towards -- more towards collections and also bringing more efficiency? How are we seeing pipeline?

So, I think, as Tapan had said, there is -- we have booked new orders this quarter. I mean the traction -- so the pipeline continues to be strong as earlier. It's just that the -- I think the conversion is not at the same rate. There are people taking decision and then there are people who are wanting to just watch for another month or 2 and see if there's anything else behind it. So I think it's a question of -- so to me demand traction and pipeline exists. And let's see how the -- what impact the COVID has on the sentiment as we move forward, otherwise, if it's looking okay.

Okay. Okay. Lastly, Q-on-Q, we have seen like INR 15 crore kind of decline in other expenses. So out of this, how much do we expect to be sustainable in the coming quarters?

So Vishnu, if you can add to that. As I mentioned, I think at this moment, we are holding back everything that's -- when and how -- how much and when do we let release the necessary expenses is something that might unfold and not everything in this quarter, but, I guess, in the coming quarters. So -- I mean it's difficult to quantify it. But as I mentioned, there are personnel expenses we are holding back, and we probably will take multiple small decisions to go ahead with those expenses, not just in this quarter but going forward as well. Vishnu, anything to add?

Yes, yes, yes. So the way -- additionally, I would respond to what R.P. had -- further add to what R.P. had said, while the first quarter has gone off all right and second hope would be all right, we are still reasonably unclear about what is the impact of all this on the next 2 or 4 quarters? So that being the case, being conservative, we do want to be very, very carefully trying to balance the entire situation and then take the decisions -- various decisions. As had R.P. said, we'll take smaller decisions which would help us do that balance.

Next, we will have [ Milind Shah from Urmil Research Consultancy ].

Congratulations for excellent number in this difficult time. And [indiscernible] for next quarter.

Thank you. Thank you very much.

Thank you.

Thank you very much. I do want to mention, Milind, that, especially on the bottom line, that number is impacted with a lot of held back expenses. So please do understand that these are -- which is something that we will have to release. So I don't want you to expect this as a benchmark because we're holding that.

No, no, no. But you've done excellent job in this difficult time. So it is grateful to all the investors.

No, definitely. Thank you very much. It's very hard work done by the teams.

Next, we have Samarth Singh from TPF Capital.

Only 1 question. Earlier we had some order wins this quarter. Did we have any new client wins as well?

If I'm not mistaken, most of them are new client wins. Of course, we've been pursuing them for a while now. So a lot of them are new client wins. Yes.

That's great.

Tapan, would you have a number or you could share the number, I mean, later.

Hello? Could you repeat again, sir?

Are there new customers or is it existing customer new business. So -- the question was are there new customers signed up? And -- I mean I can already count 4 new customers, but if there's any specific numbers or -- so just to say from a sentiment time, this is not rolling business, but we've actually added new customers as well, which is very inspiring to be frank.

Yes. That's very impressive. Rest of my questions were answered. Congratulations on a strong set of numbers.

Thank you.

Next is [ Umang Shah ] from [indiscernible].

My first question is that the moratorium is going to be -- in the entire sector to be extended beyond 31 August. And some of the customers that you have are very small NBFCs in India. So for now at least, are you anticipating any stress from your customers with respect to payments or with respect to their loans?

See that is the uncertain times that we live in. So you're right. I mean this could have some cash flow impacts on some -- a lot of customers. And a lot of the customers, I can tell you, are also rereviewing their priorities, their expenses, their investment decisions and we don't know which way those decisions go. So you're right. I mean the moratorium will put and there's -- forget the moratorium and I'm absolutely sure there's a lot of restructuring and RBI talked about restructuring as well. So there's a lot of restructuring which is also expected. And some people may be able to manage that and some may not. So we don't know how it will unfold. And that is the uncertainty of life today, I think.

Perfect. Perfect. This is helpful. So you've not provided for any of these expenses till now, right? Like any anticipation of any nonpayment or anything?

I think we've done it only for what is visible, right? Clearly visible.

Okay. Okay. Second question was, sir, if you could tell me what percentage of your installed base has migrated from FinnOne to FinnOne Neo? Or is it that -- is it such a way that the legacy system will remain to be legacy system for more time to come?

So I guess we'll have to go back a few years. Actually, we, very deliberately, decided to -- we had a lot of happy customers on the older system and they were satisfied and wanted to stay put with their status quo. And we actually -- a few years back we took that decision that it's -- we are not going to make it a revenue-generating machine that everyone has to move out. We just need to keep our customers happy. And that is how it is. So relatively, at the moment, a larger part of the customer -- not total customers, larger part of the original customers are probably still on the older platform. However, I think we are now moving back -- coming back to them because there is huge value that they can derive out of the new product which has really matured over these years. And we are always welcoming them to move over to the new model. So currently, yes, there is a lot of them, but we are in the process now to move. We were going slow with them earlier because they were kind of happy.

Okay. Okay. And sir, what we observed with some of these large companies in software like Adobe, they moved from a licensed -- perpetual license model to a subscription model, due to which initially there was a significant drawdown or degrowth in the revenues as the clients continued shifting. And then overall -- over a long term, the revenue stabilized and they became more profitable. Do you think something like that is also going to be visible in Nucleus? Or is it going to be the case that because you have such a steady state base of FinnOne, the revenue delta won't be affected to a significant extent?

So -- see, the drop is also because of -- if suddenly a lot of the customers convert into that. So a lot of the -- you're right about the customer base. There is a steady base. But having said that, let me mention that for the last 3 years, we've been now offering transaction-based pricing also to our cloud customers. And -- I mean it's not fair to compare, but just for hypothetical situation, if that was being booked in the traditional manner, the numbers would have been different. However, we are at this time going transaction bank -- sorry, transaction based so that there are seeds of future growth which are getting sown at this time. And -- so we have a combination. We will -- because of the approach of some of the larger customers who probably prefer to stick to, for the moment, CapEx based and traditional pricing models, we probably have a -- we have a good combination moving. But we are definitely going into transaction-based pricing. It can have some growth number impacts, but I don't know whether it's -- how that -- whether it will largely impact. And that would be only if we go the same way for all our large customers. Vishnu, any comments?

No, I think that's the right way to describe. This is a very -- thanks for bringing that Adobe example, and this is a very interesting phase in the life of a product company where you are moving from a onetime bill to this recurring revenue. And we are also quite excited about it in a way as to how our customers are going to like it or move to this rather.

Next is [ Amit Joshi from Care CMS ].

Sir, I just wanted to know, because of this COVID thing, whether there has been some sort of a shift in the way this lending is being done? Or do you believe -- because -- what I'm trying to understand is because you mentioned that you were expecting, in the last con call, that things are very uncertain and we don't know how things would work out, et cetera. So despite that, the customers behaved aggressively is what you mentioned in your comment. So I'm just trying to understand what made them, your customers, to kind of build it aggressively or some -- so is there some change that has been there? Or is it just probably a one-off quarter behavior of customers?

So I'm sorry but I will unfortunately probably still say that the future is uncertain because -- let me share with you that while the numbers are good and we've got new orders and everything, but at the same time, by the way, we've also had a situation where there are some customers of ours who were small start-ups, they've actually closed down. I know one of our customers sold his portfolio to another customer and exited from the business. So there is all that happening as well. So there is lots happening on both sides. So why I call it uncertain is because, well, this time, we had the aggressive ones in traction with us and tomorrow there could be different types. That is why we still think it is uncertain. It's not as bad. And then -- definitely, it was not as bad as we thought, but also it could be because of -- when you even go to the [indiscernible] some fortunate wins here and there which have -- we were talking to the right customers. And that's the fortune that probably that we've had. So I think there are -- there is no doubt that the whole industry is facing pressures on various fronts. And as you mentioned, a lot of the customers will need to alter their own processes, by the way. They will have to go digital. They will have to have far more technology-supported operations. Now it's a question of who are -- who have the funds who make that happen? Some may not be able to do it in time or not afford it. So those are the combinations which will happen. So while we were very uncertain last quarter and we've done pretty okay, I would still say that while things are looking better, but we are still uncertain. I'm sorry to repeat that same statement.

Okay. Okay. Okay. Got it. Okay. And on the front of, of course, I think there has been a question probably being repeated year-over-year, the cash that is lying and -- so how do we -- I mean in terms of any inorganic -- I mean, first of all, what about our existing products that we have? What kind of potential you believe is left to be exploited out of it and pursuant to which you will get an incentive to move or use your existing cash to go something inorganic? I mean just I'm trying to link that 2 questions, but I hope you got my question.

Yes. No, absolutely. So Vishnu, do you want to take that?

Yes. So the way -- I'll attempt answering your question in following way. One, talking about the -- how much is the potential left in the existing products? I would say, huge. We've just about scratched the surface and there are markets, there are geographies where this product could have direct product group remains value directly. We're just getting word across and that is what is taking time. So that's answer to the first part of your question. The second part is about the inorganic opportunity. What we feel is that the challenges of cultural alignment when we do an acquisition are substantial. And hence, we would put the cash to use for our internal, maybe, accelerated explorations or development and that's how we will go about it rather than going about in the manner of acquisition.

Okay. So rather than inorganic, you would prefer to develop on your own rather than acquiring something else?

That is right. We feel that we are in much better control, and that's what we would like to do. We have built a reputation which we would want to further enhance.

Okay. Okay. So any plans in that direction? I mean you have, like, of course, a couple of products which you mentioned initially in the pipeline, et cetera, but something big enough which would allow us to go to that next level? Something in parallel to -- inorganic growth, of course, not exactly, but the approach is different, but still something on that side, any thoughts, any plans?

Yes, that's what...

So the immediate opportunity -- sorry, Vishnu.

No, R.P., please go ahead.

Okay. So as Vishnu mentioned that the opportunity that we have right now and considerable opportunity is in the same product because we are -- if you look at the market share of the global world, I think we are far short of where we need to be and especially in the advanced and the paying markets. And, I think, that is a big opportunity with the current offering itself. So -- and that means that a little bit on the what Vishnu was mentioning that if we have to then now spend on entry into various regions, geographies, market segments, I think we would rather use that there than in a buyout or something like that. We'd rather tend to acquire and expand this current offerings and into the new geos. I mean while we have 50 geos, we still have -- plus geos, we still have many geos where we have only 1 customer or 2. I think those are the bigger opportunities we are sitting on.

Okay. Okay. So I'm just -- sorry, this is my last question, third question, but just to squeeze in that. So basically, the potential is quite big, many geographies to be explored. You mentioned we have just scratched the surface. We are very strong in the product where we operate. The industry outlook is also reasonably decent in that sense. So what -- with all these things and the financial strength that we have, what stops you from taking those steps faster in terms of taking those steps so that we can reach out to those geographies or those we can tap the potential quickly, I mean, rather than slowly?

I think this is a very critical question.

The management bandwidth is a problem? I'm just trying to understand is what kind of resistances that we are facing? Is the management bandwidth? Even because sometimes that happens, management has a limited bandwidth to reach out to geographies, et cetera. So just trying to understand that.

So I think -- and this question got raised in the AGM as well, and it's a very critical question. I think actually it's something that we also need to apply our thoughts to. But I think initially, our whole thought process, especially now, was that the revamp of the new product and our ability to break into new markets. And, I think, we feel far more confident today with breaking into Australia. And our whole objective has always been to consolidate a region and then move to the next. I think with the product maturing the way it has matured, I acknowledge your point, and I think not only do we need to be a little more aggressive and, of course, once you're aggressive, you need to create the bandwidth. I mean very clearly with the current bandwidth, it is always going to be limited. So -- but the first point was that initially, we prefer to enter a region, deliver value in that region, ensure that there is satisfaction in the customers and then get -- keep the snowball rolling. We need to look at how we can now roll 4, 5 snowballing regions, and that is what, I think, we are more prepared than at this moment. So that is something that we need to unfold. And that is why we are confident that the current offering itself should be able to deliver value if we play this game well.

Right, right, right. No, I think -- yes, I think, another quickly, reason is if our other income is around 1/3 of our profits that we generate and if it continues like this, we'll -- that percentage of the proportion will continue to increase. So that's the concern that we have over cash utilization. But yes.

Next, we have [ Anuj Sharma from MTM Investments ].

Vishnu, this question is for you. Based on the past 3, 6 months and inquiry...

Sorry, could you repeat your last sentence Again? Based on...

I'm saying based on the large 3 and 6 months, based on the customer inquiries and the demand trend, how do you see the demand evolving in the next 2, 3 years? I know it's uncertain, you said it is uncertain, but any thoughts as to how the demand will evolve? And how are we positioning ourselves to the changes, whatever you can think of the last 3, 6 months?

Okay. I think, clearly, one clarity that is emerging is the banks and financial services companies are preparing themselves for the new normal by laying a huge amount of emphasis on digitization of all their processes and running the bank, again, from, if possible, 100% of the bank employees being at home, especially the back-office employees. So that is an indicator of how the demand is likely to evolve, and we do -- we are quite optimistic about that. And at the same time, we have to just add that incentives which you already said. Having said that, because how the next couple of quarters are going to unfold, no one is clear in the world, we are also uncertain. But this digitization is clearly the direction in which banking and financial services industry is going to move.

Okay. My next question is for R.P. Based on the -- our current existing client setup, how much more wallet share can we gain? I mean I know we have new geographies and new clients as a lever. But on the existing client base, how much more functionality and how much scope we have to drive up revenues currently?

So as you know, we...

Okay.

Yes, Vishnu.

Please go ahead.

Okay. So getting the additional part of the wallet, I think, there are 2, 3 modes. One, of course, as I mentioned, we keep getting -- rolling out these new capabilities in the product and there is the possibility of upselling those. We have 2 product lines. So there is, of course, cross-selling opportunity there. Just to mention that independent of the product business, we do have a services business out of Chennai and Singapore, who do custom build of solutions and build custom solutions and that becomes the -- these 3 then form the mode for additional digital part of the wallet. However, I must say that for the product side, I think, the new geos, new regions and new segments is the bigger opportunity that we have in front of us. Vishnu, you were saying something, sorry.

R.P. that is it. We will conclude it.

And my third and final question is, while you alluded to that some of the financial companies in India will go through significant uncertainty and fortunately, we have been on the positive side till now, any list which you have drawn which points out that this percentage you might be wary of how the business models will evolve in the next, let's say, for the year or so? Any challenging part of the portfolio which you have already seen some signs and you might be careful -- you want to be careful about?

Well, we've got some names on the watch list, but I think, it's not -- I mean we're not doing still categorizing as NPAs as yet. But -- and then a lot of it is sentiment -- it's easy for some of the smaller players where you can see they're running out of funds or they're not -- they're too dependent on equity being raised. And so that those ones you can forecast a bit because a lot of the businesses will probably have to last out the tough times. They are not going to amazingly grow. They will have to survive it. It's not time to grow. It's time to survive and time to consolidate now. So it's really looking at -- so I think the smaller ones is much easier to figure out. The medium and the large, you can have some sense, but nobody saw IL&FS coming down. So I don't know what the rest are.

Last question of the day we have from Vaibhav Badjatya from HNI investments.

Having a follow-up. So I'm quite surprised when you say that you have cut down personnel expenses because if I look at your numbers, last quarter your personnel expenses were something around INR 77 crores, which obviously will include all the employee welfare expenses as well and that has come down to INR 76 crores, that your operating and other expenses nearly halved and also none of the employee salaries comes into operating and other expenses. So is it that the benefit of cuts is going to come going forward and then afterwards can -- will resolve? And I'm just trying to [ reconcile ] your comments...

Yes, yes. So just to mention, again, the bigger cuts that I talked of was on the variable pay of seniors last year and this year a lot of the seniors, which, of course, is not visible, but it would have -- it will -- would have hit us in the end. The other one I'm talking of is the -- so we have interns and on-probation hirings, which are -- which have been working and some of our interns are running -- work with us for 6 months before they come on board. So they undergo a huge change, which is not a cut, but it is a necessary -- it's more than an increment. I mean one is you stop the increment, the other is onboarding what you had committed and, similarly, our campus recruits that we had committed to hire. So those are the ones which are increments that we would have experienced. So that is -- and then some of them are active with us. So some might still be -- some are still to join us, but some of them are already with us as interns and on probation. So those, they need to be confirmed. So that is the kind of thing going upward.

Got it. So this would have happened, but we have kind of stopped it as of now and going forward, it will...

Correct, correct. Correct, correct. That's why you don't see it going down, but it is something that was kind of committed which we've held back. So that way.

Yes. And lastly, on the hedging policy, if I remember it correctly, we continue with the 6-month hedging policy or has it changed? Or what is the current hedging policy?

Vishnu?

Yes. Sorry?

The hedging policy.

Yes. Yes.

So do we continue to have the 6-month hedging policy or it has changed in recent years? And what is the current policy?

Sorry, what 6-month policy you're saying?

Hedging, ForEx -- ForEx hedging. Foreign exchange hedging.

Yes. Yes. Yes. Okay. Okay. Okay. Okay. So what we have done is we used to have 50% of our next 6 months ForEx receivables as hedged. So from 6 months, we have come down to 4 months. the Board took the decision that, okay, we're going to hedge only for 4 months. So that is the range we are in.

Right. So 4 months of receivables -- I mean your receivables are not 4 months. So obviously, it will have some part of revenue as well in terms of forecasted revenue that you're seeing?

Yes, yes, yes. That's right. That's right. That's right.

Yes. And lastly, I'm sorry to raise this point again, but this is the only reason probably you know that company provisioned this increment, which is capital allocation. I would sincerely request the whole management team to reconsider it. Apart from that, frankly speaking, everything is just working fine and this is just not for the current quarter I'm saying. I've been listening to your calls since 2013-'14. And I think we are just doing completely all right. But from a longer term perspective, this needs to be corrected. Otherwise, it will be a significant drag to the -- to our overall performance.

We will continue to make note of this. We do hope that someday you would feel that we were right.

So at this time, there are no further questions in the queue. So I would like to now hand over the floor back to Swati for final remarks. Over to you, Swati.

Thank you, Harpreet. So we would to thank all the investors for joining us today for our earning conference call. I would now pass it over to Vishnu sir for his closing comments. Over to you, sir.

I would like to take this opportunity to thank you all for your keen interest in Nucleus Software. And I would reiterate our commitment on behalf of my 2,000-plus colleagues for a long-term commitment to building value for our stakeholders. Thank you. Thank you very much.

Thank you so much, speakers, for addressing the session. Thank you participants for joining in. That does conclude our conference call for today. You may all disconnect now. Thank you and have a pleasant evening.