Nucleus Software Exports Limited (531209) Q3 FY2026 Earnings Call Transcript & Summary

Good afternoon, everyone. This is Malti. A very warm welcome to all of you for this Nucleus Software Earnings Conference Call for the Quarter and 9 Months ended on December 31, 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; Mr. Ashok Kumar Bhura, Chief Financial Officer; Mr. Apurva Chamaria, Chief Business Officer; Mr. Mukesh Bangia, Vice President; Mr. Abhishek Pallav, Vice President; Ms. Swati Patwardhan, Chief Human Resource Officer; Mr. Pradeep Malik, Vice President; 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 risks 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.

A warm welcome to our investor call for quarter ending 31st December 2025. We continue to be grateful to you for your continued interest in Nucleus Software. This quarter, we are delighted to welcome Apurva Chamaria, our Chief Business Officer, who brings more than 2 decades of very rich experience with companies like HCL, RateGain, Tech Mahindra and Google. We look forward to his contributing to the betterment of the company. And with those words, I'll pass it on to Parag.

Thank you so much, sir, and my warm welcome to everyone who has joined this call. And I would like -- also like to welcome Apurva to the Nucleus family. I'm looking forward to learn from his experience and his contributions. Yes, this quarter also has been a quarter of steady performance for us, I would say, both on the order booking side and on the implementation side. And otherwise, we continue to work on our long-term strategy as we've been talking about. Thank you.

We can start with Mr. Tapan's financial comments. Tapan, sir, over to you.

Swati, am I audible?

Yes, sir. You are audible.

Our consol revenue for the quarter is at INR 220.03 crores against INR 213.51 crores quarter-on-quarter and INR 205.7 crore year-on-year. Overall revenue in foreign currency, including India rupees revenue is USD 24.92 million for the quarter against USD 24.47 million quarter-on-quarter, and USD 24.41 million year-on-year. Product revenue for the quarter is at INR 185.58 crores against INR 181.02 crores quarter-on-quarter, and INR 174.83 crores year-on-year. Revenue from projects and services for the quarter is at INR 34.45 crores against INR 32.49 crores quarter-on-quarter, and INR 30.87 crores year-on-year. Moving on to expenses. Cost of delivery, including cost of product development for the quarter is [indiscernible] of revenue against 73.9% of revenue quarter-on-quarter, and 70.7% of revenue year-on-year. In absolute terms, this is INR 155 crores against INR 157.7 crores quarter-on-quarter, and INR 145.49 crores year-on-year. Marketing and sales expenses for the quarter is 7.8% of revenue against 7.3% of revenue quarter-on-quarter, and 5.6% year-on-year. In absolute terms, this is INR 17.2 crores against INR 15.67 crores quarter-on-quarter, and INR 11.55 crores year-on-year. G&A expenses for the quarter is 6.9% of revenue against 8% of revenue quarter-on-quarter, and 7.6% year-on-year. In absolute terms, this is INR 15.10 crores against INR 17.07 crores quarter-on-quarter, and INR 15.64 crores year-on-year. EBITDA for the quarter is at INR 32.72 crores against INR 23.08 crores quarter-on-quarter, and INR 33.02 crores year-on-year. Other income from investments and deposits is at INR 14.87 crores against INR 13.50 crores quarter-on-quarter, and INR 14.78 crores year-on-year. Total other income for the quarter is at INR 15.12 crores against INR 16.16 crores quarter-on-quarter, and INR 15.57 crores year-on-year. Total taxes at INR 3.96 crores against INR 9.12 crores quarter-on-quarter, and INR 10 crores year-on-year. Net profit is at INR 20.7 crores for the quarter against INR 26.29 crores quarter-on-quarter, and INR 34.97 crores year-on-year. Other comprehensive income is at INR 3.58 crores for the quarter against INR 2.77 crores quarter-on-quarter, and negative INR 1.69 crores year-on-year. Total comprehensive income, which includes net profit and other comprehensive income is at INR 24.28 crores for the quarter against INR 29.06 crores quarter-on-quarter, and INR 33.28 crores year-on-year. EPS for the quarter is at INR 7.86 as against INR 9.99 in the previous quarter, and INR 13.28 year-on-year. In terms of foreign currency hedges on December 31, we had USD 3 million of forward contracts at an average rate of 89.38. There is a mark-to-market loss of INR 0.37 crores, which is taken to hedging reserve in the balance sheet. Revenue contribution from the top 5 clients for the quarter is 27.02% against 27.12% in the previous quarter. The order book position is INR 656.68 crores, including INR 588.74 crores of the product business, and INR 67.94 crores of projects and services business. On September 30, the order book position was INR 671.1 crores, including INR 579.67 crores of product business, and INR 91.43 crores of projects and services business. Total cash and cash equivalent as on December 31 are INR 971.6 crores against INR 961.66 crores as on September 30. This includes balances in current accounts of INR 41.15 crores, various schemes of mutual funds INR 634.30 crores, fixed deposits of INR 263.17 crores, investments in tax-free bonds of INR 32.98 crores. With regards to receivables, we are at INR 117.44 crores against INR 116.19 crores in the previous quarter. During the quarter, there is a gross addition of fixed assets of INR 2.94 crores, consisting primarily of INR 0.18 crores on computer and servers, INR 0.01 crores on office equipment, INR 0.17 crores on plant and machinery, INR 0.15 crores on furniture and fixtures, and INR 2.43 crores on software. Now I'll hand it over to Swati.

Thank you, sir. With this, now we are open for the question-and-answer session. Over to you, Malti.

[Operator Instructions] First question comes from Raghav Maheshwari from Kamakhya Wealth Management.

So we have been following this company and there was a doubt about migration of the legacy customer base from FinnOne to FinnOne Neo. So last time, the management had mentioned that the migration is going on, sir. And so could you give us a qualitative sense of where we are in this journey? Like in terms of your total installed base, are we 30% through the migration or 50% or just starting? And what is the target by this upcoming year-end?

Yes. Thank you for your question. This is Parag here. So difficult to quantify. I would only say that the migration process is on. We are getting customers moved to the new platform. I had also mentioned earlier that it is a time-taking journey. Customers are comfortable with our existing products. So though technology obsolescence is a challenge, but -- and of course, any change is difficult. So we are -- we have migrated some large customers. Some are in progress, both in India and other geographies. And we are encouraging everyone to upgrade. But at this time, difficult to give any definitive response on time lines or numbers.

Sir, is it -- by when are we planning to complete this migration?

Look, we would want to do it at the earliest possible, but yes, difficult. And as such, with our customers on older platforms, we are not facing any challenges. We are serving them also. We are having maintenance contracts with them. So we are not -- we would want them to migrate at the earliest. At the same time -- but if we have to talk about some time line, then maybe I think next 3 to 4 years.

Understood, sir. And sir, my next question would be around cost of delivery. I think from last quarter, our cost of delivery has come down to 70%-something. And I think this is a contribution given by less employee cost because of this all migration and all happening. So sir, just to get an idea, is this cost of delivery sustainable for the coming time? Or can we see some uptick in this as well?

So we will see -- we should see a little jump because of this new labor code getting injected. I think that impact will definitely impact the P&L going forward as well.

No, I'm particularly talking about cost of delivery, sir.

Cost of delivery includes the manpower cost as well. So that definitely is going to increase based on the recent labor code changes.

The hit which you have taken as -- I think, somewhere around INR 18 crores, that is not a onetime then?

No, no. So that is definitely a onetime impact, but that has not got factored in EBITDA. That will -- that has got recorded as an exceptional item below EBITDA. But however, going forward, it will start impacting EBITDA because then it will become business as usual.

Understood, sir. So this 70% can go a little bit higher from this, right, in the coming year?

It should be. While I can't quote a percentage because there are a lot of initiatives we would take to contain that, maybe in a longer term, if we see, adoption of AI may help reducing some costs, but that might get offset by some, I would say, marketing-related expenses where we set our foot in a different geographical territory. So we will keep on getting impacted by these things, while we will keep a close watch on this should not increase exponentially. We will definitely figure out some way to contain it. But yes, these are the factors which will keep impacting us in the form of costs.

Understood, sir. And lastly, sir, have you added any new logos in this quarter?

We do have added logos. And if you talk about this full year, we have added around 7 logos this year. [indiscernible] we have added 2 logos.

Two logos. Right. And these are all coming for the Neo one, right, the 8.5 version or 8.4 version?

Yes, yes, yes. Absolutely, absolutely. Any new customer acquisition doesn't make sense to acquire at any older version while we are chasing for upgrading them to the newer version. Obviously, that is the thought process behind acquisition of each and every new customer.

The next question comes from Rushabh Shah from BugleRock PMS.

So sir, I had a question. We had entered the Australian market in 2015. And then again, in 2021, when the Bank of Sydney appointed Nucleus to lead its digital lending transaction. But sir, still in that market, we are not able to scale up. So what challenges are we facing in that market?

No challenge. I think the market is high-yield market, but at the same time, the number of players are not as many as it's not as such a dense market as India or Middle East. So that's one. So no challenge as such. It's just that things are moving slowly. Of course, I would want to say that we are still there. We have sales presence there. We have a few people positioned there. And we're also taking inputs from that market and continuously working on aligning our products to what would sell in that market. So that work is continuously on.

So sir, as you said, there, it is not as dense market, so do we have -- let's say, there are less number of players in that market, so do we have an upper hand in Australian market?

Yes, because -- okay, we -- it's not that we are coming across a lot of competition. Our products, wherever we pitch, is -- we are able to make an impression. We are able to impress people with what we have. So that way, if you say, yes, we are very reasonably placed there.

Okay. Sir, my second question is that when we launch a new product, let's say, it's an upgradation of an existing software, so how difficult is it for an existing customer to convince them to upgrade to the newer version? Because historically, we have had problems with conversion of customers to a newer version of the software.

So I'll explain it in 2 parts. One is what I spoke in response to an earlier question, the first question. Our -- from old platform to new platform, that conversion is a bit difficult because, as I said, customers are, one, very comfortable with the old product. And that journey is still, I would say, even for customer, a heavy investment because [indiscernible] old product, we come out with a completely new product. But when it comes to upgrading our existing FinnOne Neo or FinnAxia customers to a higher version of same product, that journey is relatively easy. There have been instances where we've been able to upgrade our customers over a weekend. And there's a continuous effort to make that journey very smooth. So once they are on the new technology stack, new product suite, then it's a very -- relatively very easy journey, I would say. But from the old stack to the new stack is where we need to do more convincing and efforts also there are more.

Okay. Okay. And sir, my next question is, since we work in multiple geographies, is working of banking industry similar in all the geographies? Or is it that the different geographies require different types of software, so we have to make customized software for our customers? So if we make the customized software for them, do the complexities of the software increase and are we able to command pricing in our software?

Yes, my product specialist will answer this question.

So this is where the product capability and configuration comes in. And the value that the platform brings is the regional and the geographical nuances and capability that can be taken care by configurations. Of course, platform is built on layered architecture. So there is a dedicated layer for that, and that takes care of the geographical aspects and good starting...

So the last question is, a couple of quarters back on your conference call, you had said that, in that quarter, we had lost 2 customers. So I wanted to know what were the reasons of losing those customers? And was it -- it was that they got a better software somewhere or they were not comfortable with the price of the Nucleus software? And also, were they huge customers? Like, did they contribute significantly towards our revenue?

So we need to check because I don't recollect any such. Yes, some customers -- I don't recollect talking about specific customers. But then, look, some customers do move out because their mergers happen and acquisitions happen. There are smaller customers who have moved out of -- who have closed down their businesses. Those situations have happened. This happened specifically during COVID, some after that also. Those instances are there. Otherwise, we don't recollect talking about any significant movements out.

Next question comes from Rahul Jain from Dolat Capital.

A couple of questions. So firstly, on the investment that we've been doing for some time in terms of adding the manpower of the senior leadership to strengthen our business, we have done that job. We've been doing that for some time. However, in terms of the order booking, we have not seen any meaningful delta coming out yet. So is it right now setting into an expanded pipeline and may come into order book eventually over next 6 to 12 months? Or any other comment you want to share on that?

Rahul, while yes, these changes has been done in the organization, and as it takes a little time to settle and start reflecting into the results, I hope you will also appreciate the fact that these -- whatever deals we do are long-drawn deals. These deals are -- these deals do take time to come up, fructify because there are a lot of steps which are discussed and debated before a deal is signed off or the order also comes. There are a lot of steps which are involved, and it may take -- and it may go on for months and a few may even change a financial year as well. Having said that, you will be happy to know that, in this financial year, we have added 7 new logos. So I think, yes, we are moving in the right direction. We are on the right trajectory, and we are on the right path. And given the kind of leadership we have got now and with the team below us, I think we are on the right path.

Thanks for that color. Now specific to the most buzzword, which is AI. So what is our strategy right now in terms of embedding that into some underwriting tool like we hear in the market? Where are we on that journey? And secondly, from a demand side of it, are the customers seeking incrementally AI-powered solutions from a company like us? And where are we on that path?

So AI strategy is part of our product road map and the organization's immediate strategy. So we have a strategy that is being built and there is a draft version that has already taken a shape. As far as AI baking into the -- product that is embedded in AI, yes, that is part of our product offering. Even assisted credit decisioning has come up as part of our GA 8.5. And more and more similar AI capabilities around the product capabilities are being built and some of them already exist. As far as the customers' demands are concerned or expectations on AI is concerned, yes, we are getting inputs and guidance from our customers on what they are looking for and -- be it on the Gen AI side or the deep learning or machine learning models or expectations. So that is already on. So we are in touch with our customers and leaders, thought leaders, and we are aligning our strategy towards that accordingly.

So are we expected to have an AI-branded offering also, something like FinnOne AI or something? Or we would just embed those technology into the existing brand or product offering?

Embedded. We'll embed it as part of our product plan.

Rahul, we are not seeing that as a separate revenue line item coming up, it will always be an embedded because we want our customer to be able to serve their customers in...

Will FinnOne move to AI? That is the question.

That is what I said.

Yes. So I hope that answers. So while some of the good capabilities around financial literacy, which is interactive statement of account, 360-degree sentiment analysis on collection sites, and there are other key capabilities has already come up. And there are several others which are under pipeline being built that will be released as part of the upcoming new.

Sure, sure. That's good to know. And one last question from my side is on the capital allocation side. This question keeps coming once in a while. We've been accumulating cash. We've been generating a lot of cash. So is there any road map in terms of giving out a special dividend or doing a large buyback as a way of deploying this capital because as our business does not require a huge sum of capital, but we keep generating every year and getting accumulated?

So Rahul, as of now, we would like to sit with some cash, because as you know, this AI thing has heated up. A lot of stuff is happening. It might require a lot of investment at our end also. We want to be -- we are treading that path steadily. And we will look into that maybe once a clear picture emerge in next 1 or 2, 3 quarters. And that is where we will be in a position to decide which way we want to go.

The next question comes from [indiscernible], an individual investor.

So I just want to understand the quarter gone by, Q3. So I think we have closed a couple of deals. And last call, you also mentioned that there was delay in closure of the deals, like customers are taking longer time. So just want to understand your view that the quarter gone by, how was -- the performance was as per your expectation, or was it below expectation? And how are we seeing that the deal closure will be happening in Q4? I mean some deals couldn't close in Q3, but it will be closed in Q4?

So definitely better than earlier quarters. We've been saying that we are getting traction from the market. And now we are seeing that conversions also starting to happen, a few that has happened, which Ashok talked about. And yes, there is a significant pipeline that we have, which we hope to convert in coming quarters.

Sure. And these recent updates happened on like a tariff deal with EU and USA, are we seeing that, that will be positive for the business going forward?

We are a product company. And as such, those arrangements are not going to impact much in any way. So we don't have too much of traction anyway in Europe. And if you talk about U.S., we have minimal interest as of now there, while we are trying to get our foothold there and gradually succeeding on that path. But deal per se is not going to have any significant impact on us.

The next question comes from Chinmay Nema from Prescient Capital.

Sir, in the last quarter, you talked about growing through partnerships. Could you talk about how that initiative has been going on? Have you been able to make any inroads in the quarter? Some color around that?

So of course, partnership with partners like AWS, Oracle, that is steadily progressing. We -- I think we had updated about a global head of partnership joining in. And so groundwork has started, and we are in, I think, exploratory stage as of now. These things take time, of course. On other side, one area where we are progressing more is on establishing partnerships with various fintechs because that is -- the ecosystem today has become very, very highly integrated. So that part is moving faster. Of course, bigger player partnership, that will take some time, but we are making progress on that.

Got it. And secondly, with the new hiring that has happened in the sales team and as well as the increase in the senior leadership, could you talk about what should be some of the key monitorables or milestones that you want to achieve over the next 1 year?

So as we've been saying, we are focused on long term, and we've been talking about various initiatives at fundamental level we are taking. One of the core parameter that we have set for ourselves is improving customer NPS and the entire leadership team, entire organization is actually focused on that. This is by way of lean initiatives. Of course, by strengthening the sales team and leadership joining in that, we expect to have more sales, more implementations, but focus on existing customers and fundamentals is what is the key focus.

[Operator Instructions] And the follow-up question comes from Raghav Maheshwari from Kamakhya Wealth Management.

So sir, my follow-up question is basically on these client additions that we have done for this year, like 7 client additions. So can you tell us how many -- what is the bifurcation of that into FinnOne Neo and -- so basically the lending management system and the transaction banking part of it?

These 7 are all lending.

Okay. Lending. And sir, what part of our current revenue, let's say, H1 is lending, sir, in terms of percentage?

I think Tapan talked about high-level bifurcation. Beyond that, we track it at that level.

Understood, sir. And sir, next thing, I wanted a clarification on was that we had introduced FinnOne Neo, it's been quite a while now. And whatever clients, like you mentioned, we are adding, we are adding in the new -- basically new version. So sir, as of now, let's say, if you have 100 clients, what percentage of those clients are into this new platform? And what percentage are in just the FinnOne? If you can just give an approx range?

Yes. In terms of -- roughly, in terms of broad bifurcation, that would be 50-50 in terms of number of customers, roughly.

50-50. And by the end of next year, sir, are we targeting it somewhere around 60-40 or 70-30?

Definitely, as we approaches that, whether it will be 60-40, 70-30, that's difficult to say.

Understood, sir. And sir, my next question is, sir, as of now, what is your focus? Is it to get new client addition each quarter or to focus more on migration of existing ones into the GA?

Both, I would say, because there are -- these are different focus areas. So definitely, there's focus on new customer acquisition, there's focus on giving new capabilities to existing customers as well as migration. So these are separate focus areas.

Understood, sir. And sir, lastly, I wanted to talk about industry tailwind a bit, sir, because we are seeing good credit growth on the retail sector coming in, all the banks are posting good numbers. So I think there is some sort of an industry tailwind. If you can give some light about that? And also, for that matter, sir, for the next coming year, like FY '27, can you tell us, sir -- I'm not asking for any guidance here, but just some qualitative factors as in where can the growth come from?

Yes. So we've been talking about growth of the MSME sector. I think the entire industry, government, regulators, everyone is talking about it. So that's definitely a growth area. The other business lines that we are seeing traction is gold loan, finance against securities, co-lending. These are the 3 areas from where we are getting a lot of traction.

Sir, what exactly are you doing in gold loan?

So we have, as we call, a line of business. So gold loan is also a line of business that is available with us, so is the finance against securities, so is co-lending, which is the newest one and, of course, all others that we already have.

As there are no questions, now I hand over the floor to Ms. Swati for closing comments.

Now we would like to thank all the investors for joining us today on this call. Now I will pass over to Vishnu, sir, for his closing comments. Over to you, sir.

We thank you very much for your continued interest in Nucleus Software and would like to reassure you of our commitment to deliver value to all our stakeholders in decades to come. Thank you very much.

That concludes our conference for today. Thank you for your participation. You may all disconnect your lines now.