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

Good day, ladies and gentlemen. I am Harpeet, the moderator of this call. Thank you for standing by and welcome to the Nucleus Software quarterly earnings conference call for the fourth quarter year ended on 31st March, 2021. [Operator Instructions] I would like to now hand over the proceedings to Ms. Swati Ahuja. Over to you, Swati.

Thanks, Harpeet. Good afternoon, everyone. This is Swati from Investor Relations team at Nucleus Software. A very warm welcome to all of you for this Nuclear Software earnings conference call for the first -- fourth quarter and the year ended on March 31, 2021. For discussion, we have here from the management team, Mr. Vishnu R. Dusad, our Managing Director; Mr. Parag Bhise, CEO; Mr. Anurag Mantri, Executive Director and CFO; Mr. Tapan Jayaswal, from the Finance Team, Ms. Prema Rajaraman, Vice President; 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 constitute 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. So with this, we are now ready to begin with the opening comments on the performance of the company for the quarter and the year ended on March 31, 2021, from the MD. And post that, we would be available for the Q&A session. With this, I now pass it over to Vishnu Dusad. Over to you, sir.

Thanks, Swati and good afternoon and a warm welcome to this investor call for the Nucleus Software quarter and year ending March 2021. Tough times and estimates of situations that all of us are going through. I'd like to let you know that the financial year 2021 was not as bad financially as we had visualized it to be at the beginning of the year. However, the last couple of months have been rather tough in terms of number of COVID-19 cases. Our task force of more than 100 members was working round-the-clock to ensure that our colleagues and their family members who got infected, got the best care that could have been arranged. It was a challenging year, but we were able to maintain our revenues. We are seeing a strong demand for our product offering and believe that puts forward offerings and believe that, barring any unforced circumstances, we should do better this year. On that note, I now hand over to Parag Bhise, our CEO.

Thank you very much, Vishnu, for the opening address. Hello, everyone. A very good afternoon to you all, and welcome to this investor call. Hope everyone is safe, including their near and dear ones. We had a significantly tough last quarter, as Vishnu said, and also a challenging last year. Especially about the last quarter, the COVID second wave struck us badly, the way it struck the rest of the country. It was very unfortunate that we lost 7 dear colleagues to this disease. And more than 450 [ Nucleides ], as we call them, our associates and their family numbers were severely impacted. While we think we are out -- now out of the second wave, another problem that we are dealing with, which hit us in this quarter -- around this quarter was a severe rate of attrition, which I believe also is the industry trend due to the rigorous and speedy movement towards the digital economy as well as high domestic demand due to increased offshoring work going to travel restrictions. And this was not enough. Very recently, just last Sunday. We were subject to a malware attack about which most of you would now be aware of. The first two challenges mentioned do have a reflection on our quarterly results. Needless to mention that we are fighting back on all these fronts and hope to be soon back on our feet and running faster than before. Thank you very much.

Tapan, sir please take this lead at financial highlights?

Yes, sure. Thank you, Swati. Thank you, Parag, and key highlights from financials are revenue. Our consolidated revenue for the quarter is at INR 124.2 crores against INR 124 crores quarter-on-quarter and INR 138.2 crores year-on-year. For the year, it is INR 513.5 crores against INR 520.8 crores for the previous year. Overall revenue in foreign currency, including Indian rupee, revenue is USD 16.9 million for the quarter against USD 16.8 million quarter-on-quarter and USD 19.4 million year-on-year. For the year, it is USD 69.6 million against USD 73.8 million for the previous year. Product revenue for the quarter is at INR 105 crores against INR 103.2 crores quarter-on-quarter, and INR 111.9 crores year-on-year. For the year, it is INR 430.2 crores against INR 414.3 crores for the previous year. Revenue from projects and services for the quarter is at INR 19.2 crores against INR 20.8 crores quarter-on-quarter and INR 26.3 crores year-on-year. For the year, it is INR 83.4 crores against INR 106.5 crores for the previous year. As for expenses, cost of delivery, including cost of product development for the quarter is 63.6% of revenue against 67% of revenue quarter-on-quarter and 60.9% of revenue year-on-year. In absolute terms, this is INR 79 crores against INR 83.1 crores quarter-on-quarter and INR 84.2 crores year-on-year. For the year, it is INR 332.7 crores against INR 343.8 crores for the previous year. As for marketing and sales expense for the quarter, it is 3.7% of revenue against 3.3% of revenue quarter-on-quarter and 5.2% year-on-year. In absolute terms, this is INR 4.6 crores against INR 4.0 crores quarter-on-quarter and INR 7.2 crores year-on-year. For the year, they are at INR 15.5 crores against INR 34.9 crores for the previous year. As for general and administration expenses for the quarter, it is 7.3% of revenue against 8.7% of revenue quarter-on-quarter and 11.3% year-on-year. In absolute terms, this is INR 9.1 crores against INR 10.8 crores INR quarter-on-quarter and INR 15.6 crores year-on-year. For the year, they are at INR 37.1 crores against INR 49.1 crores for the previous year. As for EBITDA, it is INR 31.5 crores against INR 26.1 crores INR quarter-on-quarter and INR 31.2 crores year-on-year. For the year, EBITDA stands at INR 128.1 crores against INR 93.1 crores in the previous year. Other income from investment and deposit is at INR 6.7 crores against INR 9.2 crores quarter-on-quarter and INR 8.7 crores year-on-year. Total other income for the quarter is at INR 7.2 crores against INR 10.3 crores quarter-on-quarter and INR 10.3 crores year-on-year. For the year, other income from investment and deposit is at INR 34.3 crores against INR 31.8 crores for the previous year. Total other income for the year is at INR 39.6 crores against INR 37.2 crores for the previous year. Total taxes are at INR 8.2 crores against INR 8.1 crores quarter-on-quarter and INR 10 crores year-on-year. For the year, taxes are at INR 35.9 crores against INR 27.8 crores in the previous year. Net profit is at INR 27.35 crores for the quarter against INR 24.8 crores quarter-on-quarter and INR 28.1 crores year-on-year. For the year, it is INR 117.9 crores against INR 89 crores in the previous year. Other comprehensive income is at negative INR 1.5 crores for the quarter against positive INR 1.5 crore quarter-on-quarter and negative INR 6.4 crores year-on-year. For the year, it is INR 1.9 crores against negative INR 7.5 crores in the previous year. Total comprehensive income, which includes net profit and other comprehensive income, is at INR 25.9 crores for the quarter against INR 26.3 crores quarter-on-quarter and INR 21.7 crores year-on-year. For the year, it is at INR 119.9 crores against INR 81.5 crores in the previous year. As for EPS for the quarter, it is at INR 9.42 as against INR 8.55 in the previous quarter and 9.69 in March '20 quarter. For the year, it is INR 40.62 against INR 30.64 in the previous year. In terms of foreign currency hedges, on March 31, 2021, we had USD 4.75 million of forward contracts at an average rate of [ 75.06 ]. There is a mark-to-mark market gain of INR 36.80 lakhs, which has been taken to hedging reserve in the balance sheet. As for revenue contribution from the top 5 client in the quarter is 27% as against 29% in the previous quarter. The order book position is INR 477.9 crores, including INR 450.5 crores of the product business and INR 27.4 crores of Project and Services business. In December 31, 2020, the order book position was INR 460.6 crores, including INR 428.3 crores of product business and INR 32.3 crores of Project and Service business. As for cash and cash equivalent balances as of March 31, 2021, stand at INR 692 crores against INR 673.3 crores quarter-on-quarter. This includes balance in current account of INR 32.3 crores; various schemes of mutual funds, INR 445.9 crores; INR 43.8 crores in fixed maturity plans; fixed deposits of INR 30.5 crores; investment in tax-free bonds of INR 111.8 crores; INR 27.7 crores in differentials. With regards to receivables, we are at INR 85.7 crores against INR 90.2 crores previous year. During the quarter, there is a gross addition of fixed assets of INR 0.96 crores consisting primarily of INR 0.22 crores on plant and machinery, INR 0.15 on software, INR 0.41 crores on computer, and INR 0.18 crores on furniture and fixtures. That's from the financial highlight perspective. Now I'll hand over to Swati.

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

[Operator Instructions] First question of the day we have from Deepan Shankar from Trustline PMS.

Firstly, I wanted to understand, is the outlook for order book improving in Indian NBFC segment? And how is the order book outlook for Southeast Asia, Middle East and Australia?

I'm glad to let you know that the -- this is Vishnu -- like to let you know that outlook for our product is -- as I mentioned in my opening remarks, is this looking good all in the geographies that you talked about. India, Southeast Asia, Middle East and Australia.

Okay, okay. And these other expenses have been more than 50% lower as compared to last year. So how much of this kind of cost savings is sustainable once normalcy returning?

Actually, what is likely to happen is depending upon how the offices -- work from home such as work in office that combination as well as the travel required for implementations, travel required for business acquisition, event participation, et cetera, et cetera. It would vary from this level to -- it may not go back to the earlier levels immediately. But yes, it will all depend on how soon things open up and so and so. So we are not able to predict it with any accuracy, I must say. We have had our -- we've extended our office opening or working from office at least 4 times in the last 1 year. So it's very difficult to talk about it.

Okay. Okay. So what will be this impact on this malware attack? So is there any data leakage of customer data and things like that? So how has the customer reaction on that? So any financial impact on -- because of this?

Anurag, would you like to take that? I can talk about financial impact. We -- as of now, we are still assessing. We do not visualize at this moment, right? While we are still assessing, we do not visualize any financial impact. But yes, customers rightly so are concerned. And I request Anurag to just make a comment on that part.

Sure. So we basically do not keep any customer data on any of our platforms and servers. None of the customer information is kept at our end, and that's why we are extremely confident that since the data doesn't reside at our end, there's no question about customer data being impacted. So -- and we are also talking about -- we are in the process of assessing the financial impact. As per the investigations going on, we do not anticipate anything -- any impact so far.

Okay, okay. And lastly, we have been talking about higher attrition for Nucleus. So are we expecting some employee cost to increase in the future to address this attrition?

Yes. Certainly, board -- in the Board meeting, the Board had approved that this particular aspect of the functioning. And yes, indication is that the cost will increase.

[Audio Gap] Bhatia from Citi Global.

My question is that in the -- that in the Q4, your revenue from operations is very flattish when I see from the Q3 point of view. And even in the quarter 3 of last -- this financial year, you have stated that during your conference call that there is some delay from the customer side also. So I want to know your view going forward, how you are seeing this maybe in terms of the revenue generation in the next couple of quarters on the topline front?

I think we are -- I would say, even keen about it in the sense that while we -- our discussions with most of our customers are on. Some of them are signing up. But various events that are unfolding, as we talked about the intense number of COVID cases, and in the last 2 months, factors like this, there they are affecting us, they are affecting the entire economy. So it is difficult to talk about how the revenue would pan out in the next couple of quarters, we are optimistic. This is all I can say is that.

Okay. And my last question is that you have just stated that employee cost will increase. In the next financial year. So can you -- so can you give some guidance? What is the at least minimum percentage amount if we are seeing the employee cost as compared to the previous year from the FY '20? It is going to increase?

Yes. As a policy, we do not give any guidance. So I won't be able to talk about any specific number.

Next, we have Alok from MC Investment.

This is Alok Sharma. Vishnu, I had a few questions on our business. One is, earlier, earlier, we were cautious on the NBFC segment and entity. So what is our outlook now in the NBFC segment and opportunities in the same?

I think the NBFC segment is going through real difficult period right now because of the economy, because of moratoriums and so on. And at the same time, there is enough of fintech activity also, which is wanting to leverage this opportunity. So yes, we are talking to a number of only fintechs who -- some of them are -- have NBFC licenses also and they are keen to start using our lending platform. And yes, I think this is going to -- some of the conventional NBFCs, they digitize themselves, then they are able to leverage the market. If they do not digitize when they go -- they have to face intense competition. So that is how we are looking at NBFC segments.

Sure, sure. And Vishnu, my second question is, is in tough times, we see strong companies actually performing better. So we have strong client credentials. Do we manage to increase our market share and what is our market share in Indian lending space?

Okay. We're making an attempt to look at the market share, which is some decision, but we like to believe that, as of now, we said something -- somewhere around 70% of the India's retail loans, they are either originated or serviced or collected or all the 3 activities done on our platform. So that's the kind of market share we think we have.

Okay. And did we see some improvement in our market share in the last years?

No. No. I have to admit that we have not done that activity with precision, and we are in the process of doing that.

Sure. And sir, my last question is when we look across product industry, we have seen some places transitioning from a license model to transaction-based and it has benefited them. So what is our reading of this transition? And where are we, particularly in this transition from a license conventional model to more like a transaction-based model?

Thanks for raising this important question. The entire cloud business that we have launched 4 years back, is this essentially transaction-based pricing. And yes, as far as we are concerned, we are open to either of the model, and we would like to offer to all our customers both the ways of pricing, transaction-based as well as the conventional on-prem license-based pricing. And we're happy to let you know that even large customers are sometimes picking up the transaction-based pricing model.

Next is Rahul Jain from Dolat Capital.

My first question is about this order book. Why we are not seeing this order book traction not flowing into revenues? Is it more because the milestone related to revenues are really [ subpar ] versus we booking the orders? Is that the reason or there's a deal ramp-up issue that we're facing?

I would like to say that it is more to do with orders being booked for 3-years, 5-years period, especially cloud kind of orders and some other kind of orders, which take time to get converted into revenue. That is the only reason.

Okay. And this Bank of Sydney deal that we have announced, is this a significant deal that we have made this as a press release? And is it included in the current order book?

Yes, it has been included in the current order book. And -- okay, sorry, I would like to validate that because we've announced it recently. I'm not too sure whether it came before 31st March or after 31st March.

It was announced on 17th May.

Yes, that I'm aware, but the exact date of order, I don't remember right now. So now as far as deal size is concerned, we really don't talk about all these prices. So I won't be able to comment on that.

Yes, I understand. The only reason is that this was a rare occasion when we made a press release. So I thought it must be of certain significance that -- but coming back to your broader comment where you said you look this year to be a stronger year across markets. So what is driving that kind of a confidence? Is it the client conversation? Is it the culmination of order book into revenue? Or any other factor you would like to share?

Okay. That's just both these factors, client -- prospective client conversations, those give us that feeling that, yes, this year would be better than the previous year as well as the conversion of some of our orders into revenue. Combination of both.

Okay. And on the transaction side, as it's been a couple of years, we are selling products on transaction base, and many of them are also live. So are we seeing that we are able to see uptick in our SaaS revenue on a client-to-client basis because more and more books must be adding to this -- to our base from the same customers. So are we seeing a like-for-like or customer-specific growth also because of the transactional nature?

Yes, that's a very interesting question. Also, the way it is happening is we have a situation where some, let's say, we are signed up with an NBFC and for whatever reasons, they will not be able to launch the business because of COVID or most of them because of COVID. So those situations, the revenue either goes flat or sometimes in some cases, where they like to sustain that relationship. And so that is one end. The other end of the spectrum is, yes, because the number of loans are increasing, number of transactions to the same customers are increasing. So the revenues are growing.

Okay. It's kind of a mixed bag. And the attrition element, which we raised in our opening remarks. So where are we on that? Do you think we have a risk of lower implementation or any other element of the business getting affected just because we may find it difficult on the supply side? Or is it too early to impact the revenue, but it's a kind of a warning moment for us?

I would like to say thank all my colleagues. It is because of them for the phenomenal amount of effort that they are putting in to overcome the issue of -- issue that has come because of the attrition. So despite the attrition, they are making sure that the client commitments are not affected at all despite the -- both attrition as well as COVID that they were going through. So despite that client commitment has not been allowed to get affected, except for the fact that on 31st May, we were supposed to come out with the product release, our lending product release. That is something that we had -- we were left with no choice but to reschedule to near 30th June or slightly beyond. We will come to know about it during this month. Better part, we have tried our level best to align and once again thank to my colleagues, for ensuring that despite that, despite COVID, our client commitments are not allowed to be affected.

Okay. I appreciate it. Just last suggestion or request from my side is that just when we give our initial financial data, which is shared by Tapan, instead of this reading that data, if we could just add one remark for anything like why a particular cost is higher or lower. Or anything -- anything which is worth mentioning in those line items. I think those -- that way it will become far more helpful for us to note down these things.

That's a very meaningful alteration. And we'd certainly like to take it up next time onwards. And thank you very much for suggestion and your continued interest.