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

Good afternoon, everyone. This is Felicia, A very warm welcome to all of you for this Nucleus Software earnings conference call for the quarter ended on June 30, 2025. 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. Ashwani Arora, Senior Vice President; Mr. Ashish Khanna, Chief of Staff; Mr. Mukesh Bangia, Vice President; Mr. Abhishek Pallav, Vice President; Ms. Swati Patwardhan, Chief Human Resources Officer; and Mr. Tapan Jayaswal, Financial Controller. As you all are aware, Nucleus Software does not provide any specific revenue earnings guidance. Anything which is said during this call, which may reflect company's outlook for the future or which may be constructed (sic) [ construed ] as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. An audio and the transcript of this call would be shortly available on the Investors section of company's 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 it over to Mr. Vishnu. Over to you, sir.

Good afternoon to all of you, and thank you very much for your joining this investor call for quarter ending 30th June 2025. This has been an exciting quarter where we have gone live with some of our biggest implementations where more than 20,000 users are leveraging our system, our product for collections with one of the biggest players in India. We look forward to sharing many more similar exciting news with you in coming quarters in the meanwhile. And with those words, I now welcome you to the call once again. Thank you.

Good afternoon. This is Parag. Just to reemphasize the points mentioned by Mr. Vishnu, we've been talking about working on fundamentals. Our lean journey is progressing well, and we are implementing those principles in our day-to-day life, whether it is about our projects or whether it is about focus on our customers or improvement in products, and that is kind of starting to give us results and what Mr. Vishnu talked about, the implementations are getting more and more traction, and we expect to further improve upon that. That's what I'd like to mention at this stage and looking forward to the questions. Thank you very much. Tapan, over to you. Please do share the financial updates.

Key highlights from financials starting from revenue. Our consolidated revenue for the quarter is at INR 217.72 crores against INR 228.96 crores quarter-on-quarter and INR 195.39 crores year-on-year. Overall revenue in foreign currency, including India rupees revenue is USD 25.46 million for the quarter against USD 26.53 million quarter-on-quarter and USD 23.44 million year-on-year. Product revenue for the quarter is at INR 184.91 crores against INR 199.56 crores quarter-on-quarter and INR 168.01 crores year-on-year. Revenue from projects and services for the quarter is at INR 32.81 crores against INR 29.40 crores quarter-on-quarter and INR 27.38 crores year-on-year. As for expenses, cost of delivery, including cost of product development for the quarter is 70.1% of revenue against 57.3% of revenue quarter-on-quarter and 75.5% of revenue year-on-year. In absolute terms, this is INR 152.7 crores against INR 131.9 crores quarter-on-quarter and INR 147.49 crores year-on-year. Marketing and sales expenses for the quarter is 6% of revenue against 4.9% of revenue quarter-on-quarter, 2.2% year-on-year. In absolute terms, this is INR 13.12 crores against INR 11.24 crores quarter-on-quarter and INR 4.24 crore year-on-year. G&A expenses for the quarter is 8.3% of revenue against 5.3% of revenue quarter-on-quarter and 7.6% year-on-year. In absolute terms, this is INR 18.15 crores against INR 12.09 crores quarter-on-quarter and INR 14.92 crores year-on-year. EBITDA for the quarter is at INR 33.74 crores against INR 74.31 crores quarter-on-quarter and INR 28.75 crores year-on-year. Other income from investments and deposit is at INR 16.87 crores against INR 16.75 crores quarter-on-quarter and INR 14.8 crores year-on-year. Total other income for the quarter is at INR 17.96 crores against INR 16.62 crores quarter-on-quarter and INR 15.05 crores year-on-year. Total taxes are at INR 13.10 crores against INR 22.77 crores quarter-on-quarter and INR 9.71 crores year-on-year. Net profit is at INR 35.20 crores for the quarter, which is 16.2% of revenue against INR 64.77 crores for the quarter, 28.3% of revenue quarter-on-quarter, INR 30.2 crores, which is 15.5% of total revenue year-on-year. Other comprehensive income is at INR 4.63 crores for the quarter against negative INR 0.20 crores quarter-on-quarter and INR 0.04 crores year-on-year. Total comprehensive income, which includes net profit and other comprehensive income, is at INR 39.83 crores for the quarter against INR 64.57 crores quarter-on-quarter and INR 31.24 crores year-on-year. EPS for the quarter is at INR 13.37 as against INR 24.60 in the previous quarter and INR 11.28 year-on-year. In terms of foreign currency hedges, on June 30, we had USD 2.25 million of forward contracts at an average rate of INR 87.03. There is a mark-to-market gain of INR 0.19 crores, which is taken to the hedging reserve in the balance sheet. Revenue contribution from the top 5 clients for the quarter is 28.6% against 27.8% in the previous quarter. The order book position is INR 703.16 crores, including INR 608.70 crores of product business and INR 94.46 crores of projects and services business. On 31st March, the order book position was INR 612.4 crores, including INR 534.32 crores of product business and INR 78.08 crores of projects and services business. Total cash and cash equivalents as on June 30, 2025, are INR 965.93 crores against INR 877.26 crores as on 31st March. This includes balance in current accounts of INR 105.83 crores, various schemes of mutual funds INR 607.79 crores, fixed deposit of INR 218.53 crores, investments in tax-free bonds of INR 33.78 crores. With regards to receivables, we are at INR 126.12 crores against INR 137.41 crores previous quarter. During the quarter, there is a gross addition of fixed assets of INR 3.46 crores, primarily of INR 2.7 crores on computers and servers, INR 0.18 crores on furniture fixtures, INR 0.03 crores on office equipment, INR 0.4 crores on building and plant and machinery and INR 0.15 crores on software. Now I'll hand it over to Swati.

Hello, Felicia. Yes.

[Operator Instructions] The first question comes from Rushabh Shah from BugleRock PMS.

My first question is, in one of the calls, you mentioned that you have a very strong basis for selecting the customer. So could you let us know what are those basis you look out for and why those bases are so important for you?

We are extremely sensitive to prospective customers like politically exposed persons. Likewise, we also look at the financials of our prospective customers before we get into a relationship with them. Essentially, these are the 2 factors that we look at, apart from obviously, the credentials of the promoters in case of start-ups, et cetera. So these are the essentially 3 factors that we look at while qualifying our customers.

So my second question is on the geography part that Far East, Europe and many other markets have come down drastically in the last 10 to 12 years, whereas India has grown from 27% in 2013 to 58%, 60%. So why are we focusing more on the domestic business and less on the international business? Some thoughts would be useful.

No, excellent question. Thank you very much for bringing this to notice. We have been very consciously working on our products for the last decade or so to make sure that they evolve into a product which is globally implementable. And I'm very pleased to say that we have achieved some degree of clarity on that aspect, and we are working in multiple geographies where these new set of products are getting implemented. So we are very confident that over the coming few years, we will start gaining back the same percentage that we had of overseas customers in our overall revenue as it was, let's say, 15 years back.

Sir, my last question is, in the investment part in the notes to accounts, I found out that Ujjivan Small Finance Bank, we have some INR 10 crores. So are there some payments left from the bank and we've got some shares? What is those INR 10 crores, sir?

Okay. When Ujjivan Financial Services was setting up its business I think around 15 or 20 years back, we were one of the earliest investors in that bank. We have had a wonderful relationship with Mr. Samit Ghosh, the founder of Ujjivan Financial Services, when he used to be with Citibank, which is almost a 40-year long relationship. And that is how Nucleus as a company had invested in Ujjivan Financial Services. Subsequently, Ujjivan Financial Services got merged into Ujjivan Small Finance Bank, and that's how we have this shareholding. So this amount that you are looking at is essentially about that investment.

The next question comes from Srinivasu K, an Individual Investor.

My first question is which AI modules of your FinnAxia or FinnOne Neo are actually generating revenue for Q1? And how are you pricing them?

So these are embedded AIs and part of product offerings. So we do not bill -- so far, we are not billing AI as a business model, but we are empowering our customers to leverage these AI capabilities. And going forward, we will be billing them too.

So are they still in pilot phase?

As part of that, we have released product capabilities, which are AI empowered. And it is not that they are in pilot phase. It is being implemented and customers are leveraging and many are in the process of go live.

Okay. And with respect to the audit trials for AI stack, how are you satisfying your regulators, especially for Tier 1 geographies?

So this is Vishnu. Of course, thanks for asking this question. Again, this goes into the kind of depth we put in during the research and development and the ability to explain about the workings of AI and how AI came to reach to a conclusion. So there is an explainability part of it and that is good enough to be able to suffice the need.

Okay. So that model is satisfying that Europe...

We are not relying upon any market model. We have built all of them in-house.

Okay. And next question is, employee cost jumped up sharply in this quarter. How much of that increase is specific to hiring or upskilling for the AI/ML talent? How do you expect that in the next couple of quarters?

Yes. So employee cost jump for this quarter is largely on account of increments that we have given for the upcoming year.

And the last quarter -- specifically last quarter was slightly lower than normal because some of the provisions that we had made right through the year, those were written back. And that is how the last quarter -- Q4 number was lower than it should have been. And that is how the jump would be looking higher.

Okay, okay. Last call, you mentioned that North America lending -- you're pushing for North American lending platform, right? So how is it going? And anything pilot runs in Q1?

This is Ashwani. Yes, I think attempts are going very well in that direction. One, we are having senior sales leader. And second, I think we are already in touch with one of the prospects and we are working on a proof of concept with them. So hopefully, we are looking forward to convert that deal in this year. And similarly, we are also trying to open up a partnership with the consultants, Big 4s, so that they also help us in that direction. Additionally, I think we are already working with General Motors Finance in Latin America and Europe. And that's where I think we are trying to consolidate in North America operations. And we are also looking to get our presence felt in North America with them as well. So these are the multiple directions which we have been working actively for North America expansion. I hope I'm able to address your query.

The next question comes from Vaibhav Badjatya from Honesty and Integrity Investment.

Sorry, I missed the order book number for this quarter. Can you just repeat that for me?

Sure. So the order book position is INR 703.16 crores, including the INR 608.70 crores of product business and INR 94.46 crores of project and services business. And on 31st March, position was INR 612.4 crores, including INR 534.32 crores of product business and INR 78.08 crores of projects and services business.

Right. Got it. And just on this aspect, for the current quarter, you've given order book, but typically from December quarter onwards, you have excluded it from the opening remarks. But this quarter, you've reintroduced it. So I just wanted to understand the thought behind this change happened in December '22 and then again in June in this quarter.

Can you please repeat the question? The voice was not very clear. And what is the precise question, please?

Yes. So see, historically, all throughout the quarters, we always used to give order book number in opening remarks, right? But in December 2024 quarter, when we did the con call for that quarter, then we stopped giving this number. And in March also, we did not give this number. But June 2025, which is current quarter, we again started giving this number. So I just want to understand what was the thought to stop it for 2 quarters and then restart it again this quarter. I just wanted to understand management thinking about making these changes.

No. At least there was no conscious reason. I think we will also check at our end in the transcripts of last 2 calls, but there was no conscious. It would have been covered. Tapan probably can confirm right away. Tapan, if you are on the call, but there is no such decision taken to not share. We'll also check out in any case.

Okay. And what's the employee headcount?

Yes, just to confirm that it was there. So you could check in the last call's transcript, you'll find it there.

Yes. In the last call's transcript, it was given as a response to somebody's question, but not in the opening remarks. I think December quarter, it is completely missing, December '24 quarter.

Okay, we will check once again and...

Yes, that's fine. I just -- if it was conscious, I just wanted to understand the thinking, but that's fine. On the number of employees, if you can give us the number for March '25 and June '25 -- ending March '25 and June '25?

Sorry, could you repeat? Your voice is...

Tapan, you have the numbers ready, you can share.

1,939 as of June end.

Okay. And March ending?

1,945.

Okay. Got it.

The next question comes from Mahak Singhvi, an Individual Investor.

Yes, I wanted to ask the logos at the end of this quarter, and what was the number last quarter? I don't want the new logos. I want the logos total at the end of this quarter.

Total logos at this time. So number of customers.

Total number, we may not have that ready.

Tapan, you have that number readily available? Total number of logos?

Sir, new logos is there.

The question is on total number.

We are not having that number, sir.

We'll make it available next quarter onwards.

Okay. And another thing I wanted to ask is operating expenses have shot up. So are there any one-off items over here?

No, no. No one-off items.