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

Good day, ladies and gentlemen. I'm Pelcia, the moderator of this call. Thank you for standing by, and welcome to Nucleus Software Quarterly Earnings Conference Call. [Operator Instructions] I would now like to hand over the floor to Ms. Swati Ahuja. Thank you, and over to you, ma'am.

Thanks, Pelcia. Good afternoon, everyone. This is Swati from Investor Relation team at Nucleus Software. A very warm welcome to all of you for this Nucleus Software Earning Conference Call for the quarter and the year ended on March 31, 2024. For discussion, we have here from the management team, Mr. Vishnu R. Dusad, our Managing Director; Mr. Parag Bhise, CEO and Executive Director; Mr. Anurag Mantri, COO and Executive Director; Mr. Surya Kanodia, Chief Financial Officer; Mr. Ashwani Arora, Senior Vice President; Mr. Ashish Khanna, Marketing Head; Mr. Mukesh Bangia, Vice President, Mr. Pradeep Malik, Vice President; Ms. Swati Patwardhan, Chief Human Resource Officer; and Mr. Tapan Jayaswal, Financial Controller. 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 [ uploaded ] on the Investor 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. And post that we would be available for the question-and-answer session. With this, I now pass over to Vishnu sir. Over to you, sir.

Thanks, Swati. We take this opportunity to welcome all of you, the long-term investors of Nucleus Software. And we thank you for your sustained interest in this long-term player in BFSI sector. We're pleased to present our numbers for the fourth quarter and year ending March '24. And over to you -- over to you Tapan.

Thank you sir. Swati, am I audible?

Yes sir, you're audible.

Okay. From financial facts, revenue. Our consolidated revenue for the quarter is at INR 210.3 crores against INR 204.1 crores quarter-on-quarter and INR 206.2 crores year-on-year. For the year, it is INR 826.5 crores against INR 634.5 crores for the previous year. Overall revenue in foreign currency, including India rupee revenue is USD 25.3 million for the quarter, USD 25.1 million quarter-on-quarter and USD 25.2 million year-on-year. For the year is USD 100.6 million against USD 79.7 million for the previous year. As for product revenue for the quarter is at INR [ 179.4 crores ] against INR 175.3 crores quarter-on-quarter answed INR 179.6 crores year-on-year. For the year, it is INR 711.4 crore, INR 536.9 crores for the previous year. Revenue from projects and services for the quarter is at INR 30.9 crore quarter-on-quarter and INR 26.6 crores year-on-year. For the year, it is INR 115.1 crores against INR 97.5 crores for the previous year. Moving on to the expenses. Cost of delivery, including cost of product development for the quarter is 63.5% of revenue against 61.8% of revenue quarter-on-quarter and 51.9% of revenue year-on-year. Absolute terms, this is INR 133.5 crores against INR 126.1 crores quarter-on-quarter and INR 106.9 crores year-on-year. For the year, it is INR 511 crores against INR 405.3 crores for the previous year. As for marketing and sales expenses for the quarter is 3.3% of revenue -- percent of revenue quarter-on-quarter and 2.2% year-on-year. Absolute terms, this is INR 6.9 crores [indiscernible] quarter-on-quarter and INR 4.6 crores year-on-year. For the year, INR 36.6 crore against INR 21.5 crore for the previous year. As for G&A expenses for the quarter is 5.7% of revenue against 9% of revenue quarter-on-quarter and 5.9% year-on-year. In absolute terms, this is INR 12 crores against INR 18.2 crores quarter-on-quarter and INR 12.2 crores or year-on-year. For the year, at INR 59.4 crores against INR 52 crores the previous year. EBITDA quarter is INR 58 crores against INR 47.4 crores quarter-on-quarter and INR 82.5 crores year-on-year. For the year, at INR 219.5 crores against INR 155.8 crores the previous year. Other income from investments and deposits is at INR 14 crores [indiscernible] quarter-on-quarter and INR 9.1 crores year-on-year. Total other income for the quarter is at INR 14.2 crores against INR 12 crores quarter-on-quarter, INR 9.7 crores year-on-year. For the year, other income from investment and deposit is at INR 48.1 crore against INR 28.1 crore for the previous year. Total other income for the year is at INR 50.9 crore [indiscernible] the previous year. Total taxes are at INR 16.3 crores [indiscernible] quarter-on-quarter and INR 20.09 crores year-on-year. For the year, taxes are INR 64.2 crores against [indiscernible] previous year. Net profit is at INR 52.1 crores for the quarter, INR 41.3 crores quarter-on-quarter and INR 67.6 crores year-on-year. For the year, it is at INR 191.6 crores against INR 127.8 cores. Other comprehensive income is at negative INR 6 crores for the quarter against INR 1.6 crores quarter on quarter, and INR 2.8 crores year-on-year. For the year, it is at INR 1.9 crore against INR 8 crore in the previous year. Total comprehensive income, which includes net profit and other comprehensive income is at INR 46.1 crores for the quarter -- quarter-on-quarter and INR 70.4 crores year-on-year. For the year, it is at INR 193.6 crore against INR 135.8 crore in the previous year. EPS for the quarter is at INR 19.48 as against INR 15.43 quarter-on-quarter and INR 2.27 year-on-year. For the year it is at INR 71.56 against INR 47.73. In terms of foreign currency hedges on March 31, 2024, at USD 3.5 million of forward contracts at an average rate of 83.78%. It is a mark-to-market gain of INR 0.04 crores, which is taken to hedging reserves on the balance sheet. Revenue contribution from the top pipeline for the quarter is at 7.5% against 26.7% in the previous quarter. Order book position order book position is INR 780 crores, including INR 707.7 of product business and INR 72.3 crores of project and services business. On December 31, 2023, the order book position was INR 743.7 crores including INR 98.9 crores of product business and INR 44.8 crores of project and services business. Total cash and cash equivalent as on March 31, 2024 are INR 808 crores against INR 749.6 crores as on December 31, 2023. Swati am I audible?

Sir please go ahead. You're audible sir.

It includes balances in current accounts of INR 45.8 crores, various schemes of mutual funds INR 602.9 crores, fixed deposit of INR 125.3 crores investment in tax free bonds. With regards to receivables, we are at INR 166.2 crores against [ previous ] quarter. During the quarter, there is a gross addition of fixed assets of INR 5.53 crores consisting primarily of INR 4.24 crores on computer, INR 0.22 crores furniture fixtures, INR 0.87 crores on office equipment and INR 0.13 crores on software and INR 0.07 crores on plant and machinery. So now I hand over to Swati.

[Operator Instructions]

Tapan sir please, go ahead. Request you to please perhaps connect again.

Hello, Swati? Should I read it again?

Okay sir. Not required. Parag sir are you there?

Yes, I'm here.

Sir, request a few words on the performance of the company?

Okay. Yes. Thank you so much Swati. I welcome, everyone, to this investor call, and thank you so much for your continued support. I think we continue to work on the fundamentals in this quarter and for the year that ended on 31st March. And I think the [indiscernible] indicative of that. Otherwise we are moving -- continue to work on the fundamentals that we've spoke about in the last few quarters, and we'll share more updates on that as we go forward. Once again, thank you all for joining this call. Please go ahead with the questions.

Thank you sir. Pelcia now we can start the question-and-answer session. So I hand over to you. Over to you, Pelcia.

[Operator Instructions] The first question comes from Rahul Jain from Dolat Capital.

Yes. I hope my line is audible.

Yes, it is Rahul.

Thanks, Vishnuji. Basically, first question I would have is that what could be the retrospective component in the Q4 revenue and can we say we are done with the entire repricing exercise?

No. We are still not done with the repricing exercise, there are some I would say, 20% to 30% customers who are -- whom we are -- will be going to.

So this 20% to 30% is in terms of revenue or count?

This is in terms of count.

Okay. And I think earlier you said these are mostly in some overseas market. So any geography, which is still due to go through there?

Asia Pacific, Middle East also.

Okay and ideally, you expect this to conclude over the next 3, 6 months or this may take longer?

It could take longer also. It could take longer also.

Okay. And is it safer to assume that since this process is going for a long time as and when they agree the retrospective component could be way higher because that increase would be for more than 1 year?

That will depend on how the negotiations proceed one may not -- may or not be able to comment on that.

Right. So case to case basis, it could be longer, it could be effective from that date also?

Yes, yes. Right.

And I think you missed the first part, which is like what could be the retrospective element in the current quarter?

Actually, we do not share these insights that what would have been the retrospective effect of this. We will not be able to share that.

Okay. Got it. And it's been almost 6 quarters since we've been doing that, is there any attrition because of repricing or otherwise that we might have observed.

Let me just comment here to say that the value of our intellectual property is so high. And our relationship with all our customers is so good that by God's grace and their deep understanding of the value that we had not a single customer has [indiscernible] us.

Right, right. And sir, we -- any comments you could share in terms of new customer addition, we have seen a significant spend on marketing and overall aspect. So -- have those spends started culminating into a stronger pipeline because from a pure revenue perspective, it is yet to reflect in a meaningful dividend?

This is Ashish Khanna. So thank you for this question. I think since most of our -- I mean the marketing expenditure in different areas on events and top leadership is definitely helping us in changing the brand perception and also to build a effective pipeline. So that's already there now. And I think we are in the process of -- we have large some levels last year, but we are in process of acquiring multiple logos in coming years. So -- so yes, I think that is going in the right direction, it is giving us required outcomes. Just to add that what you mentioned is not reflecting in the revenue. So that is not right because the market events and those activities are aimed at the market, including the prospects as well as current customers. So that's already in that sense, reflective on our revenue.

Sorry, sir, I could not understand. Can you elaborate more?

So this is Anurag.What I'm saying is that the marketing activities are towards the brand management, and this includes this aims at both new prospects as well as existing customers. So I just wanted to respond to you that it's already -- in terms of the existing customers' revenue, it's already reflecting the marketing activities and its effectiveness is also getting reflected.

So Anurag, essentially, what you're saying is that you would be -- you would have been able to sell more modules to your existing customers, although the new logos wins may not be significant in this period?

That's right. Yes. That's right.

Yes. And I would -- I mean this is a repeat question, which I've been asking earlier also, is there a reason why we have stopped sharing the client data earlier we used to give the new client addition data in our press release but you stopped the exercise. So any color in any form if you could share, that would be helpful.

Yes. I think next quarter onwards, we will be able to start sharing some of the names and the wins that we're talking about.

And any overall number we could share that what could be the active clients for us as of now, whom would be using our product?

No, Anurag, once again, we do not share these breakups as well.

Okay, understood. Also, in terms of growth rate, in the order book, trying to slightly understand this -- so whenever we are signing this repricing of the AMC, is it getting -- the contract that we are signing is typically 1 year or this could be longer also for the existing customer, not the new customer?

So these contracts are ongoing contracts. And Yes, the year we started it from that year onwards, when you [indiscernible].

So basically, let's assume a customer was saying INR 100 as AMC now if he's agreed for the reprice number and let's assume hypothetically that is INR 200. So in that case, now the order book would reflect INR 200, right?

That is absolutely right.

Versus INR 100, which was the historical basis, right?

That's right.

And yes, just last bit on any capital allocation thought process that comes to your mind now, now our run rate of cash generation has also picked up. So any thought process on buyback or in any other manner which you think you could look into?

No, these are typically the Board -- as we always maintain, these are the Board decisions, and I'm sure at an appropriate point of time they will take that decision.

Just last one from my side. On a costing point of view the expansion of leadership, as Anurag was also mentioning or any other meaningful initiatives? Is it safer to assume [indiscernible] for this year, is there a good benchmark to understand the steady state and here on the expansion in that base would be minimal?

No, I think the expansion will continue for at least a couple of quarters. And post that, it should be a steady state.

Okay. And what is the steady state margin you think you would land up once this entire process is behind us?

So, as you know, we do not give guidance. So we would not be able to comment on this question.

And this investment would happen irrespective of the revenue traction?

I think the way I would like to make use of this opportunity to respond to your question is, our customers look up to us for their -- for the comprehensiveness of our solution. We -- our solutions as we have talked earlier our transaction banking solution processes transactions worth $13 trillion -- $13 trillion to $14 trillion. Likewise, our lending solution originates services, correct, $0.5 trillion worth of loans in India alone. So these kind of numbers are possible only when you give the confidence to customers that yes, their partner will continue to support them for not just years, decades to come. And for that, you do want to make sure that you are going all out in the market, understanding what are the developments in the market and then which of those technological developments you want to make available to your customers at the earliest and so on and so forth. And that is what has been the theme of the company and that's how we've been able to provide that confidence to all our customers. And that is how we are able to say that despite the price increase, not a single customer has left us.

No, I do appreciate, and I'm sure you are aware, I've been appreciating your business for more than a decade. My question was -- or let me ask you in a different way, for example. So the last, let's say 5, 6-odd quarters of revenue is give or take around the INR 200 crore number and last year, Q4 our profit was around INR 67 crore, if I'm not wrong which is now INR 52 crore. So this is what exactly I'm trying to understand that, of course, we have done really well over a 2-year period, not specific this particular year only, but what I'm trying to understand is whether this INR 200 crore will slowly go to a higher number, whatever is that number. Will the margin also expand with it or whether it would be revenue growth spurt that may happen and profit may eventually come as it's been coming off the last 4, 5 quarters?

Clearly, intent is to make sure that the top line as well as bottom line growth. There is no reason for us to believe that when it comes to bottom line, it will be stuck at INR 200 crore or any such number of that kind. That's all I can say at this point of time.

[Operator Instructions] Next question comes from Chinmay Nema from Prescient Capital.

Sir firstly, if I look Y-on-Y, the revenue growth has been somewhat set to that 2%. And if I look at geographical split, if the India businesses has had revenue degrowth of about 13%. Could we provide some color commentary on why this has been?

So Anurag this side, India business has not seen a degrowth. It's basically the distribution has gone down because the international markets, there are a couple of markets where the revenue has on up.

[indiscernible] INR 124 crores in March '23 at INR 108 crores in March '24 that is what I'm referencing.

That was -- that was related to -- I understand that, that was related to some of the AMC rebased lining that got into effect in the quarter. And since that has -- and some of the projects which were actually completed in that particular quarter has led to this increase. So AMC remained the same, but the project's completion was different in the last quarter of the last financial year.

So basically, the -- you're saying that the low growth is because of a high base for March '23 is that correct?

Okay. The medium cost degrowth is essentially because of the substantial accumulation of revenue in that particular quarter, which was for earlier few quarters. So you can take [indiscernible] we didn't go steady state. Rather than taking once we're taking INR 124 crores as the steady state.

Understood. Secondly, could you talk about the adoption of FinnOne Neo how it's been going? What has been the conversion being like for the older client. If you could provide some color on the...

This is Ashwani. One, we are seeing a good traction in terms of the transmission from FinnOne to FinnOne Neo. We are working on a lot of accounts, including the multi-country accounts based on our Middle East. We are seeing a good traction in India. So a lot of our customers have come forward where they're looking forward to get the FinnOne to transform to FinnOne Neo apart from the new orders. So it is going great.

Could you quantify as in your top 10 clients, how many of them are already on FinnOne Neo?

I think there would be 60 plus accounts, which would be on FinnOne Neo and every year we are getting this number better and better.

This is 60 out of how many accounts?

I think that we already shared, we are not in a position to share the total number of accounts. So...

Okay, sir. And lastly, could you provide some timeline for this INR 780 crores order book that you've highlighted, I mean, what should be the span over which we should see the revenue from this order book?

Typically, this number comes from some orders, which are as smaller division as 3 to 6 months and some -- and at the other end of the spectrum, order which would last for 5 years. So it is difficult for us to quantify in that manner.

Next question comes from [ Shantro Nayak ], an Individual Investor. I'm sorry to interrupt, sir. Could you please speak little louder?

Yes. So I just have 2 questions. Like, first being, how does the product stand in market, which is competitive. Basically, I'm trying to understand the product pick how does our product within the system if we say?

So -- okay, I think Ashish this side, when it comes to positioning our products in with respect to competitors, I think -- so for us, the competitors are really the informal lenders who are lending to the marketed and exurban rate. So we treat them as our competitor. And I think if you look at the depth and breadth of our product adoption, if I talk about India, as an example, I think 60% to 70% of the market share when it comes to origination servicing a collection of retail and corporate assets, it leverage FinnOne or FinnOne Neo as a platform. So I think with that benchmark in place and with that confidence in our customers, we don't really see -- we do really see a complementary product coming into the market, but we don't see a very direct competitor who can bring a similar robust solution to the market.

But I do think we have one TCS Bank right? Have you heard of it? It's a total lending solutions.

Total lending solutions you are talking about? Sorry, I missed your [indiscernible] can you speak louder?