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

So in terms of revenue growth, if you see year-on-year basis, there has been a marginal revenue growth. But if you consider what has happened to the dollar exchange rate, there has been some depreciation of rupee. I understand a lot of our revenue comes from the -- from within India itself. But still -- if we adjust for that, there has not been much, much growth at all in the revenue. So can you explain what is the reason -- what are the reasons behind that? Is it that some of the implementations are going slow or...

So it's a mix. Yes. I think, first, it's definitely a mix. There is -- especially during the period of the lockdown and thereafter, a lot of our customers have been setting their shop right, that's take an implementation. So if the customer is going to be testing, their entire test teams are working from home, which is not necessarily the most productive, especially if infrastructure is also a little one thing. So those are the teething issues, which I must say that even today not everyone has managed to smoothen out by now. So those are challenges that do have an impact. And -- so largely, it is those -- except for those who might -- there might be some places where they'll reprioritize the -- not implementations, but the smaller engagements that we have.

Right. And gradually, do you -- I mean given the fact that we don't have significant revenue as compared to other regions coming from Europe and U.S., and for the rest of the countries, Australia, India, I mean the things have been gradually opening up. There's no talk of the -- that's around part of lockdown or something. So do you see these implementation issues gradually resolving on its own? Or do you see that these problems will continue?

Okay. We definitely have seen improvement, say, in the initial days and today, at least having -- some companies are not ready for work from home actually, to be very frank. And that was the first challenge to get done. Now work from home has 2 dimensions. One is the infrastructure and the second is to have the processes and practices in place which makes it productive. I think everybody is still stepping stronger at it. It is definitely -- so I don't think it will worsen. It will only improve because everyone seems to be now realizing that this is going to continue like this for a little while, so they need to sort out these issues. I must say that the little pieces that we have started seeing is, some of the international customers are also opening up to consider no visit -- I mean, let's be frank, everyone was very used to having people over at their premises to do the implementation. But I think -- and that -- those are also reasons to say, okay, let's defer it a little, then you can travel, you can travel. Now that vision is realizing that travel is a little far away now. So some are improving, some better than the others. I think everyone is putting their efforts to become productive, but it's still going to carry on.

Right. Right. And lastly, there has been significant changes on the cost churn because of COVID, post-COVID. The traveling cost has reduced potentially until the time these things are sorted out, I think there's no way traveling can come back. So to that extent, there has been some cost benefit that comes that we've been able to get. And during these times, in terms of our pricing of the product, are you revising your product sizing to take into account those benefits? Or the pricing are still -- is still pretty much the same as what they were earlier?

So one of the direct benefits that we are passing on to the customer was jointly. So whenever we quoted there was a cost to the product and there was, of course, the implementation charges with carried travel as a big chunks. Now if customers are now -- once we convince them that there is no need for us to travel and you can do all this remotely with their help, we directly pass on that benefit to them because if we are not -- that is not our source of revenue anyway. So that is something we are passing on. I don't think -- as far as the product is concerned, the pricing needs to gain at this time. But definitely, as you mentioned, the direct cost, which are directly linked to the service we provided, I think, we are happy to [ share ] that with our customers.

Right. Yes. So just my last point on this. What -- if we change the -- at these times, if we change the pricing of the product for whatever reason, going forward, 1 year down the line, all these cost items will come back, and our margins might not be what we originally anticipated when we price the product. So from that perspective, I was just asking that whether you have seen the product prices?

No, no, no. Actually, not even pricing. Even other decisions, including the increments and other costs, I think we are conscious about the fact that there will come a day when all these business as usual, expenses are going to kick in again. And we should not make it unviable. That is why we cannot believe that the numbers we have today, especially on the expense side, and others are the new normal or reality, and it's going to be back again. Probably improved, but still...

The next and the last question in the queue is coming up from Rahul Jain, Dolat Capital.

Sir, one question in terms of capital allocation. So during the uncertain period, we saw stock price significantly lower from the current price point, and still we think actioned a buyback, which could have been a very ideal move. I understand that given the uncertainty you would have, prefer to preserve the cash, but utilizing it to purchase our own equity, which is a liability. Would not -- would you say that, in hindsight, you would consider that, that could have been a very -- a move which you could have considered given the price that we had and the kind of a cash position you were having?

Vishnu.

Certainly, I think we can look at it from that point of view.

Right. So I guess it would be of great help that if we could arrive at any systemic way of approach towards it that, okay, this is a minimum cash reserve which a company would be comfortable to have given the needs of the business. And residual, any other amount can be technically be given back in some of the other format, be it dividend or buyback. I think if there is some sort of thought process on those lines, I think it will be more clearer to the investors in terms of how our payout can come over a period of time, not necessarily annual exercise. But let's say, over a 3-year bucket, one could understand how much cash flow will be awarded to shareholders, given that we are very strong cash-generating business. And even in such an uncertain period, we have given our product service, we are able to generate a decent demand, which is felt safe that the -- our business is kind of immune to some of these challenges. And that's why being so conservative and not necessarily, be the ideal choice, especially when we get an opportunity and buyback kind of a thing, and now the price is multiples of that kind. So it is just like most rapid acquisition and some feedback.

Thank you for the thought.

The next question is coming up from Anand, Individual Investors.

I have 2, 3 questions. The first question is you mentioned sometime back that traveling expenses have not booked as expense currently because we are not getting charged to the customer. So is that not part of the revenue also...

No, no, no. Okay. Just to clarify what I said. So one of the points that Vaibhav pointed out was the fact that your expenses are down because the travel has come down, but I just -- he wanted to see whether we are keeping in mind that a year later or whatever, when everything is okay, those expenses are going to come back and hit us all over again because that is -- that will be then business as usual. So my response was that, currently we are -- obviously, the expenses are not being incurred, and so they are not been coming under expenses. And when we are now dealing with the customer, if they agree on no need for travel and we'll go ahead with the implementation with remote services, we are happy to remove that from our quotation because those are more -- that's not. So what I was saying that travel expenses was not the revenue that we look at. Those are, in any case, a separate line item with customers and that is something that they benefit and we benefit both by removing head count, at least on the contract front.

No. Understood, sir. So if next year travel starts, so your revenue will also go up and expense will also go up because you'll start charging from the customers based on the revised prices. Is that -- my assumption right?

Correct. And this is for different customers, different models. So you're right. Yes, yes, correct.

Yes. So effectively, our profitability may not get hit, the benefit which you are going from COVID. Effectively, you're passing on to the customers for the new business?

Correct. Correct. Correct. Point.

Yes. Sir, second thing. So effectively, we have grown much higher than what is getting reported in the P&L because some expenses are not getting charged to the customer, you're giving them a discount and incurring not that expense also.

That's a good point. I think that's much -- very significant. But revenue from our perspective, we may continue to have higher growth and reported is better. And also to understand that there is -- all the travel is not necessarily on orders as well because there's a huge travel that happens on sales and supporting sales. So there is a lot of that travel...

Yes. Correct. Correct. I appreciate it. Sir, this floating provision, I've never heard such in any of the companies which we have invested or have built it. And even if you have done sort of floating provision, there is no outlook when you want to give it to your employees, then why you are debiting in the P&L. You do it -- whenever you want to give to your employees, you do it and debit to the P&L, sir. It's very difficult for investors to understand how promoter thinks and how Board thinks. Sir, if the profit is more, you have taken out -- you have made some provisions. If the profit is higher, sir, you have made the provision. Whenever the -- we will -- you will not be accountable to the investors, and we will not know also when it is given.

No. No. No.

No. No. I think a very valid point you have raised. Very valid point you have raised. Let me just clarify that we have had a very detailed discussion with the auditor, and we have communicated with them that there is a consecutive obligation to pay. Okay? So there is no such thing as complete flexibility. All that we are saying is, when meaning within the year or at the most early next year, that is what will be dependent on how the circumstances unfold. You -- I hope you will agree that these are unprecedented circumstances.

Sir, not for your industry, sir. Last 6 months, work is over, at least what we understand. Your industry, you are doing best of the job. Why you are creating unnecessary floating provisions that are confusing all the investors? Sir, if the profitability is higher, if the investor is -- sir, why you're not rewarding to the investors? You're rewarding -- you're creating INR 15 crores of floating provision where Board doesn't know when they want to give it to the employees. If you want to revise the salaries, please do that. Why you're keeping employees also under -- and sir, in any case, you guys are sitting on INR 650 crores, INR 700 crores of cash. No one will question you, if you are giving extra bonus to employee in any quarter. So what is the objective of the Board to deflect the profitability of the company. And if you want to create floating provisions create over the next 6 months, 9 months, 12 months. Why you're doing in 1 quarter? And no clarity for the next 6 months also.

. Okay. I think -- I still think there is clearly a difference between how you are perceiving the situation and how we are perceiving the situation.

Sir, your competitors like Majesco is distributing cash, creating [indiscernible] for the investors, also getting goodwill also. And we are just doing the opposite. They are not competitive in your product line, but the similar businesses I'm saying.

So actually, in a way we were not conservative, we would have probably given an implement in April. And that would have impacted...

Sir, I -- we as investor don't mind if employees are paid on time and properly paid if the company is doing well. But this kind of floating provision, out of a certain -- without any remarks in the note also. And there's no clarity, sir. Sometime back you mentioned 2 -- 3, 4 questions, some fellow investors has asked, and you mentioned that we can do next quarter also. Sir, this is really -- there has to be some clarity, sir. This is not wholly owned by the promoters or the Board. We are also owner of the company. Sir, you have added -- sir, you have added INR 145 crores of cash in the last 1 year. You're not distributing, no problem, sir. Everybody ask you -- I came in -- in the AGM also and asked you, you're not distributing, it's your call, no problems because we can't do it. Sir, this kind of thing, sir please don't do this. Sir, you tell me any listed company in India who has done this kind of thing. I myself is chartered accountant, sir. I have been [ seeing ] audits.

No, which is just fine. And then, as Vishnu had mentioned...

Sir, auditors itself...

We'll also get complete clarity with our auditors and the Board before taking these decisions. And there are always not black and white decisions, either give the increment or don't give anything. I mean there are different models where you can...

Sir, whenever you do, please debit the P&L, sir. Why you -- and sir, I'm not saying don't do this. But whenever you're paying, please pay to the employees. Sir, this is one time. That's okay. You are saying there is no clarity for the next 2 quarters also. How as we as an investor will project your cash flow? Sir, please look at from our perspective also. INR 15 crores is not a small amount. Sir, your profitability for the quarter is INR 30 crores. You have given INR 15 crores as floating provision, sir. And sir, last thing, sir, you have INR 145 crores of cash you have added in the last 1 year. All the IT companies are giving share buyback, dividends. And at least, we should learn from them at least. Anyways, that was my question, sir, just floating provisions. Please send an update to BSE, what we have done and what you have done, sir? We as an investor has right to know and how much it will come in the next 2 quarters, sir. Sir, how will we know who has taken this? Yes. I am done, sir.

Okay. Thank you so much. Thank you so much for the concern that you have shown for yourself. Let me just take this and reiterate this. This company has always believed in balancing the stakeholders, and we will continue to do that. For whatever reasons you feel that this balancing is not appropriate, that's fine. I mean everyone has a different way of looking at things.

Sir, at least, there should be a transparency in this.

What sort of transparency are we talking about? We have very fairly made it -- announced it that this is a floating bonus room that we have created, and we would -- depending upon how the next 2 quarters unfold...

Sir, what kind of floating provision you are targeting to make? How much you want to distribute over the next 9 months? Please give that number. And why you are doing this, sir? You already have a lot of cash. You can always make a provision. It's a profitable company. You have a strong order book. If you want to avoid, I don't know whether taxes can be postponed because of this, it cannot be, unless it is paid. What is the objective we are achieving, sir?

I think objective is very, very clear. And I don't think we will be able to explain it to you, but objective is very straight, very clear.

Sir, at least do us a favor. Give a clarification to BSE, how much floating provision you want to do over the next 9 months, whatever you've discussed in the Board? At least we as an analyst will know how much we have to project over the next 9 months.

No. We cannot give any numbers because situation is uncertain. You might be thinking that the IT is...

Sir, what uncertain? Sir, you have reported the best profit in the last 2 quarters, sir. You have very good order book.

We have simultaneously -- wait a minute. Wait a minute. We have simultaneously also said that these profits are not indicative of how things are likely to continue. That also we have stated.

Sir, I don't understand this. What do you mean? You're saying that INR 400 crores revenue, you don't know how much profitability can come out of this? You don't have any clarity on that?

No, no, no. Wait a minute, please. I just want to clarify. We had told last quarter also, and we are telling this quarter as well that some of the regular expenses, like sales, like marketing that we incur, those have not been incurred neither in the last quarter nor in this quarter.

Sir, that has happened across the industry, sir. FMCG, pharma, they have not incurred some expenses and their margins have gone up. So why you're creating an exception. All the IT companies margins have gone up.

No, no, no. That's what we are saying. That's what we are saying. That's all.

Sir, we know that. So why you're creating unnecessary floating provision?

Because we feel like how France is going to open up and how U.K. is going to open up is not at all clear. That's all.

Sir, how much you are planning to do floating provision next quarter? Any update on that? Any discussion on that?

We've told you that we cannot say that.

Sir, at least do a smaller amount, INR 15 crores is 50% of your PAT. And I have never heard this any of the industry, except floating provision in banks, it's not there, sir. And you reward to the shareholder also, sir. Anyway, sir, there's no point doing argument on this. That's your choice. I've just expressed my views on this.

Thank you. Thank you for this.

The next and the last question in the queue till now coming up from Vaibhav from HNI Investments.

So on this order book, we have seen some jump from INR 450 crores to INR 480 crores after executing what we -- executing the revenue that we have. Sir, can you just broadly highlight in which geographies we have seen traction? And any new geography addition that is there? Or what are the existing geographies in which we have seen traction?

I think the geographies remain -- continue to be the same. As I mentioned, I think, last time, there is, of course, India, the infra family, but Australia, Vietnam, from the -- from Southeast Asia. Some traction in the Middle East has also now started. So existing, of course, are not necessarily in Europe or in the U.S. But our existing regions are where the traction is. And these -- a couple of names that I took are also the places where the COVID impact has been so far controlled well.

Right. I mean to say that there's no bunch up of 30%, 40% additional orders from a single country or single business thing like that. Is it like fairly spread or it is more concentrated in 1 geography?

You're talking about the pipeline?

I'm talking about the new order bookings, which has been done during the quarter.

I think as I mentioned, this quarter, I think it is more India, mostly India.

Turning the program back to the respected speakers. So there are no further questions at this point of time. Please go ahead with the closing comments, sir.

So we would like to thank all the investors for joining us today for this earnings conference call. I would now pass it on to Vishnu sir for his closing comments.

I would like to take this opportunity to thank all of you for your keen interest, including the interest of -- those of you who have strong difference of opinion on how this company is handling various matters, especially pertaining to investors. I'd just like to reiterate our commitment to do the balancing between multiple stakeholders. And on behalf of the Board, I can mention that these details are getting discussed at great length, and then only these decisions are being taken -- I mean, the balancing decisions. And we would like to convey very clearly that there is no favor in any one stakeholder side. Once again, thank you very much for your keen interest, ,and looking forward to connecting with you for the quarter again. Thank you.

Thank you so much respected speakers. Thank you participants for joining this con call. Wish you all have a great day and request you to please stay safe. Thank you so much.