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

Good afternoon, everyone. This is Akash. A very warm welcome to all of you for this Nucleus Software Earnings Conference Call for the quarter and half year ended on September 30, 2025. Discussions we have here from the management team, Mr. Vishnu Dusad, our Managing Director; Mr. Parag Bhise, CEO and Executive Director; Mr. Anurag Mantri, COO and Executive Director; Mr. Ashok Kumar Bhura, Chief Financial Officer; 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 Resource 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 the company's 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 the transcription of this call will be shortly available on the Investors section of the company's website, www.nucleussoftware.com. With this, we are now ready to begin the opening comments on the performance of the company and post that we will be available for the question-and-answer session. With this, I now pass it over to Mr. Vishan. Thank you.

Thank you very much, and a warm welcome to this conference call for quarter ending 30 September, 2025. We thank you for your continued interest in Nucleus Software. And I would also like to take this opportunity to introduce Ashok Kumar Bhura, our Chief Financial Officer, who has joined on 1st of October with extremely rich experience of nearly a quarter century, out of which 18 years he has spent building Airtel as a brand. So with those words, now I hand over to Parag.

Thank you so much, Vishnu Dusad, and thank you very much, everyone, for joining this investor call. I'd also like to -- welcome Mr. Ashok Bhura to our executive team. This quarter's performance is on expected lines. And -- but I wanted to add that we are very -- I'm very excited and very excited to inform about our latest GA release for FinnOne Neo, which is coming out in the next few days. And it is loaded with a lot of new features about which if there are questions, we can answer. Of course, many AI-enabled use cases are also part of this release. So with this, I will pass on further. Thank you.

I going to give highlight the financials for this quarter [Technical Difficulty]

Our consolidated revenue for the quarter is at INR 213.51 crores against INR 217.72 crores quarter-on-quarter and INR 202.2 crores year-on-year. Overall revenue in foreign currency, including India rupees revenue is USD 24.47 million for the quarter against USD 25.46 million quarter-on-quarter and USD 24.12 million year-on-year. Net revenue for the quarter is at INR 181.02 crores against INR 184.91 crores quarter-on- and INR 171.4 crores year-on-year. Revenue from projects and services for the quarter is at INR 32.50 crores against INR 32.81 crores quarter-on-quarter and INR 30.81 crores year-on-year. [ As for ] expenses, cost of delivery, including cost of product development for the quarter is 73.9% of revenue against 70.1% of revenue quarter-on-quarter and 71.4% of revenue year-on-year. In absolute terms, this is INR 157.7 crores against INR 152.7 crores quarter-on-quarter and INR 144.42 crores year-on-year. Marketing and sales expenses for the quarter is 7.3% of revenue against 6% of revenue quarter-on-quarter, 4.5% of revenue year-on-year. In absolute terms, this is INR 15.67 crores against INR 13.12 crores quarter-on-quarter and INR 9.09 crores year-on-year. As for G&A expenses for the quarter is 8% of revenue against 8.3% of revenue quarter-on-quarter and 8.5% year-on-year. In absolute terms, this is INR 17.07 crores against INR 18.5 crores quarter-on-quarter and INR 17.17 crores year-on-year. EBITDA for the quarter is at INR 23.09 crores against INR 33.74 crores quarter-on-quarter INR 31.52 crores year-on-year. Other income from investments and deposits at INR 13.50 crores against INR 16.87 crores quarter-on-quarter and INR 18.47 crores year-on-year. Total other income for the quarter is at INR 16.16 crores against INR 17.96 crores quarter-on-quarter and INR 19.02 crores year-on-year. Total taxes are at INR 9.12 crores against INR 13.10 crores quarter-on-quarter and INR 13.54 crores year-on-year. Net profit is at INR 26.29 crores against INR 35.20 crores quarter-on-quarter, INR 33.06 crores year-on-year. Other comprehensive income is at INR 2.77 crores for the quarter against INR 4.63 crores quarter-on-quarter and negative INR 2.71 crores year-on-year. Total comprehensive income, which includes net profit and other comprehensive income is at INR 29.06 crores for the quarter against INR 39.83 crores quarter-on-quarter and INR 30.5 crores year-on-year. [Technical Difficulty] EPS for the quarter is at INR 9.99 as against INR 13.37 in the previous quarter and INR 12.35 year-on-year. In terms of foreign currency hedges, we had USD 2.5 million of forward contracts at an average rate of INR 87.80. There is a mark-to-market loss of INR 0.40 crores, which is taken to hedging reserves in the balance sheet. Revenue contribution from the top 5 clients for the quarter is 27.1% against 28.6% in the previous quarter. The order book position is INR 671.10 crores, including INR 579.67 crores of products business and INR 91.43 crores of projects and services business. On June 30, the order [Technical Difficulty] is INR 703.16 crores, including INR 608.70 crores of product business and INR 94.46 crores of projects and services business. Total cash and cash equivalent as on September 30 are INR 961.66 crores against INR 965.93 crores as on June 30. This includes balance in current account of INR 42.23 crores, [ various ] schemes of mutual funds INR 628.15 crores, fixed deposit of INR 257.04 crores, investment in tax-free bonds of INR 34.24 crores. With regards to receivables, we are at INR 116.19 crores against INR 126.12 crores previous quarter. During the quarter, there is a gross addition of fixed assets of INR 10.01 crores, consisting primarily of INR 9.62 crores on computers and services, INR 0.04 crores on office equipment, INR 0.32 crores on plant and machinery, INR 0.3 crores on software. Now I will pass it to Swati.

Thank you sir. Now we are open for the question and answer session. I will handover to [Technical Difficulty] over to you.

[Operator Instructions] First question comes from [ Mr. Rushab Shah ] from [ BugleRock PMS ].

I am having a question on employee cost. What we see as a percentage of sales in the last 10 years, we have moved from 55% to around 65% as of FY'25. My question was on the employee cost. What we see that as a percent of sales, we moved from 55% to around 65% in the last [Technical Difficulty] -- so my question is that we as investors how will we track the employee productivity as we have hired so many employees in the previous year also?

[Technical Difficulty].

Employee cost and how will we track the employee productivity as we have added so many employees in the previous year?

Yes, employee additions, I don't know if you -- especially if you look at over the years, may not be so much because we've been talking about it. We had a serious impact when the mass attrition was there. And essentially, we have filled those up. And of course, there are some critical hiring we've done. Employee costs certainly have gone up across the industry because of what happened during the period of the mass attrition. So we are definitely not at same level where we were earlier. As regards productivity that you talked about, yes, our endeavor is to increase that. We keep investing very heavily in our products. As I talked about, our latest release is coming out. And of course, with that rolling out, we'll, of course, expect to have more implementations, upgrades and all that, which will reflect in this financial aspect as well.

Second question was what we have seen in the global companies like [indiscernible] and Telenor, we had around 60% to 70% of the top line as maintenance and support. So although nutrients does not get bifurcated but would you rightly understand how this segment for us has moved over the years and your thought process and how it will move ahead?

Our AMC revenue or annual revenue is essentially in line with the industry, more or less in line with the industry. And going forward, with our latest releases getting rolled out with our existing customers, we do hope that our ability to continue increasing -- investing in releases, which would add greater value to our customers would go higher. That is how we would like to respond to your question.

Okay. Sir, my last question was, one of the challenges we faced in the recent years that the customer had upper hand on us by asking for customization for every small thing and we accepted it [Technical Difficulty] good manpower is behind it. And in return, we couldn't get that much of revenue as it was costing for us. Since the customization was done for the customer, he was very happy with the customization and for that, he wouldn't switch to a newer products and hence we were not able to command a premium rather have a pricing power on our product. Is my assessment right? Just wanted your views on that.

I'm not sure I understood the entire question, but I will respond in any way. Yes, we've been saying that in the past, like this is a new era or era or pre [indiscernible] era, we would very happily do customization because that was the only way we were working. And that is the reason when we created these new age products that were with open architecture that were highly configurable, where the approach was that we will do less and less customization and which is what we are continuing. However, I would want to add this that especially with the fintechs coming in and on the customer acquisition part of our product line, which we call as customer acquisition system or cash, there we are -- we do feel a pushback on making customization because that is an area where all our customers are wanting to build a niche for themselves. So everyone wants to do things their own way. So that's where we get a lot of demand for customization even in the new product. However, as I said that our products are highly configurable. We are making it even more configurable so that we are able to provide such flexibilities to the end customers, such personalization to the end customers without doing too much of a change. So that is the journey which we are already on, and we will continue to work on that. So I hope I've been able to answer what you asked.

The next question comes from Mr. Mayur Patel from [ GC ].

So over the last 4 quarters, our revenue growth has been kind of mulish. And due to the increase in operating expenses, majorly due to our product enhancing. So it has [indiscernible] hit on margin. But in last concall, you mentioned that our main focus is to drive the top line growth. So what I want to understand from your side, what are the key execution drivers that needs to play out to reaccelerate the growth, the top line growth, which there was 2 years ago?

So 2 parts to it. One, we've been talking about upgrading our existing customers from old platform to the new platform that we have -- not as fast as we would have expected it to be. The second, of course, is acquiring new customers. And I've been talking about 2 things. One is that we're getting good traction from the market. At the same time, the conversions are taking time. The situation continues. We are, however, full of conversion, India market, Middle East market and we've been talking about expansion, building the -- consolidating in the markets where we are already present. We talked about our background work in the U.S. market for the last couple of years. It's a tough market to get in, but we continue to work on that and gaining traction there. So with all these -- yes, what we are expecting to grow, we should be doing that in quarters to come.

I just wanted to add that we -- in this context, we put in a sales structure in place. Our sales over the past couple of years, the structure has kind of depleted. We -- today, as we speak, we have 6 regional sales heads in different positions already. We are aggressively looking to onboard a global sales head. So that will help us further in getting the more orders and hence the growth in top line.

The next question comes from Mr. Rahul Jain from Dolat Capital.

Just trying to understand how the market is looking. You, of course, said there is a traction, but conversion is weaker. But what could be the top 2 or 3 reasons that are driving the momentum? And what could make this pipeline or potential pipeline into a revenue that we are expecting to happen in next few quarters?

So one is that, of course, the consumer lending market is reeling, I would say. Government is government regulator, everyone is wanting that the finance, retail finance to the lowest end of the profile, we should increase the stock of that every year. A lot of new NBFCs are coming up, which you know, of course, and many of them are talking to us. So that is the traction part of it. I'll repeat what we've been saying that yes, conversions are taking time because thanks to the regulatory changes, there is a tightening of regulatory norm, if I were to say, decisions are taking time. We're talking about even in smaller NBFCs, the decisions happening at Board level. There is a lot of focus on IT governance, regulatory technology architecture also people are wanting to know. So all that takes time. But the situation is continuing like that.

Right. So I think some of the inputs which you mentioned were more pertaining to India as an end market. Is there anything you could add to make us understand how some of your other markets outside of India is doing? And what is the incremental thing that we are able to do with empowering of our sales organization, which we have announced in the past. So any color on that it will also be...

So sales structure, of course, have come in place. So if you talk about empowering, it is more enablement. One is there are new people who are joining. We are enabling them with understanding our products better. We are, of course, having -- providing all the support from head office for geographies outside. We have also participating in various industry events that you might be aware, whether they are in India, whether there are or outside, there is a very significant partnership, which we have done with GFT, which is -- through which we are participating in various events. We are working with the organization, I think, driven originally by [ MATH ], they were the ones who are doing SFF, the [indiscernible] for fintech festival. They are spread across various geographies. So through -- we have partnered with them and through which we are participating in lot moving events. And -- apart from that, 2 significant -- 2 more significant CXO level hiring, our CMO had joined a few months back about whom we had informed. And very recently, our global alliance head is also very experienced professional has joined us. So all these things put together, we are hoping that we will get to see good traction and conversions.

Right. So just one bit more. If I see your non-India revenue, they've been in that same zone for last 2 years, 3 years now. So we've been consistently investing on [ S&M side] . So if you could help us understand what is causing this longer -- much longer conversion of investment into revenue in these markets? Is it like that's the kind of a cycle we were expecting? Is it taking longer? What could have caused this? And incremental role of this gentleman joining as a global alliance partner, what could be the role? Is it related to system integration or there's any other aspect to it?

So I think a combination of things. even outside the combination of 2 things. So I said that our sales structure really had got depleted, which we have kind of put in place again, except for the global space for whom we are aggressively trying to get them on board. The second, I think the slowing down of conversion is experienced all across. It's not only in India. It could be because of -- one is, of course, regulatory changes are happening everywhere, plus the global factors may be playing a role. We don't know specifically. And the last thing, of course, the alliance head, the global alliance head, partnerships with big whoever, one of them, other partners who can help us sell our products and also subsequently help in implementation and support. So these are the partnerships we are expecting to develop either global, regional. So yes, this is where the alliances is expected to help us even with technology providers, platform providers like AWS, likes of AWS, which will also be partner. They also promote us in some way. So all these things is [indiscernible] expected to help it.

Just last one from my side. We have seen this other expenses line item for us going up pretty significantly. Is it that the number of events in this quarter were higher for this kind of a spend to happen? Or do you think this is the run rate for us now?

So partly because of recruitment that we talked about some senior executives. Just marketing, we are consciously investing more in marketing activities. So a lot of events we are participating. That's it [Technical Difficulty] and travel related to that, of course.

Right. Any medium-term profitability band we would like to operate? Is that something that we have internally assigned?

So you know very well that we don't give any guidance, you've been part of so many calls. So on that, we will certainly not comment.

The next question comes from [ Mr. Mohit ] from M3.

My question is what is the go-to-market strategy for customer acquisition in FinnAxia? What's the traction there?

I would say traction is there. But FinnAxia is [Technical Difficulty] typically, unlike FinnOne Neo, where almost all banks and a lot of NBFCs, they get into the lending, specifically retail lending market. FinnAxia is niche. It is not -- it is done only by big large corporate banks. So of course, the number of prospects and hence, number of deals are expected to be less as compared to FinnOne Neo, though we expect larger deals there. Since we are talking FinnAxia very recently, we also participated in FIBAC, which is an annual event by the [ flagship ], which is a global event, annual event. We typically participate every alternate year, if not every year. And from there, we try to generate leads. So that's the traction on FinnAxia.

And on the conversions from FinnOne to FinnOne Neo, where do we stand there? And I mean could you give us some light on how many of it is actually from the old customer itself, like 80%, 90%? And what is [ spin ] from others to upgrade to FinnNeo because it's been there for the last 8 years, 9 years. And the new generation fintechs are all micro services-based architecture. So why is this conversion not happening?

So yes, I agree because that's what I said in my initial comments also that it is not at a pace where we expect it to be. I except there's one typical challenge that we face is, of course, in FinnOne Neo, as I mentioned, we would do the customization the way the customers wanted it. Now a lot of things in FinnOne Neo, though they are available, but the deliberations we get into is that customers want features as exactly they are developed in FinnOne. So that is one area. Plus I think FinnOne is a very solid product. So the technology is old, but inertia, definitely customers have, they don't want to move out with something which they are very, very comfortable with. So these are a couple of factors.

Is pricing also a big factor like is there a large delta because of which people hesitant to move to the FinnOne Neo?

A) It is not because of pricing pattern.

It's the complexity of implementation and inertia?

Yes. [Technical Difficulty] all those things and change management [Technical Difficulty].