Protean eGov Technologies Limited (544021) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call hosted by Protean eGovernance Technologies Limited to discuss their latest business development. [Operator Instructions]. Please note that this conference is being recorded. I now hand the conference over to Ms. Pushpa Mani from VP and Head IR from the company. Thank you, and over to you, ma'am.

Thanks, Michelle. Good afternoon, everyone. Before we commence the call, please note this call is solely to discuss the development pertaining to PAN 2.0 RFP. We have our quarter 4 investors earnings call scheduled on Thursday, and all the queries pertaining to results will be discussed there. If you have any queries unanswered during the call, you may reach out to us afterwards. The management on today's call would be represented by Mr. Suresh Sethi, MD and CEO; Mr. V Easwaran, COO; Mr. Sandeep Mantri, CFO; and Mr. Bertram D’'Souza, Chief Products and Innovation Officer; and myself, Ms. Pushpa Mani, Head, Investor Relations. Before we begin, I would like to mention that some statements in today's discussion may be forward-looking in nature and we believe that the expectations contained in these statements are reasonable. However, these statements involve a number of risks and uncertainties may lead to different results. With this, I invite our MD, Mr. Suresh Sethi to address us all. Thank you, and over to you, sir.

Thank you, Pushpa. Good afternoon, everyone. We just wanted to take this opportunity to update you with regard to the update we had with regards to the PAN 2.0 RFP, which has been put out by the income tax department. Over the weekend, we received feedback that our current bid has been considered unfavorably at this stage. We have reached out to the tax department to seek further clarity and while we are in the process of doing that, we wanted to just share with you that, that is the status as of now. With regard to the PAN RFP 2.0. as we've earlier mentioned, the RFP was with regard to design development, integration and management of the tax ITD systems which today we don't manage. This is a system which is used for allotment updation and collection of the PAN data, which is today done by the ITD department. We currently have a mandate from IT department with regard to the processing and issuance of PAN cards primarily meaning that we collate the data from the individuals who are seeking a PAN card or any PAN card update. And the same information is sent to the ITD department for them to then do the allotment and issuance. And we, as of now, see limited impact on that. And the RFP as we see it would anyway take around another couple of years for implementation. So currently, at present, we don't see any immediate operational impact on our current PAN business. I would like to open it for questions with regard to this. So over to you, please.

[Operator Instructions] The first question is from the line of Prakash Kapadia from Spark PMS.

Yes. So I wanted to clarify, you mentioned in your opening remarks about the PAN 2 projects. So is this right understanding if PAN 2 is more of an IT-related project and the operational modalities currently which we are doing in terms of issuing PAN cards, discussing PAN cards is not part of the scope of work of PAN 2 refresh? Is that understanding correct? And if not then, can you just highlight the difference as to what is the scope of work? And how is it being currently done? That will help clear a lot of doubts.

Prakash, I'll just give a little bit of background. We received a mandate for PAN issuance in 2002, 2003. So this mandate was given for collation of citizen data, which is towards the application of the PAN card and then sharing to the IT department, there IT department then does the allotment of the PAN card numbers. Which means they do all the deduping of data and everything to ensure everybody has a unique card, and that will send the ITD end. The work that we do in line with the fact that this is a citizen-centric national ID, so we have both channels today where we have a huge distribution network where we provide assisted services. We have a network of almost 400,000 agents across the country then any citizen can go and submit their PAN card application. And there are also today direct channels on which you can directly apply for a PAN card. So this is about processing of the PAN data and then getting the PAN card issued to you. The PAN 2.0 RFP is to do a tech revamp of the entire tech stack, which ITD has. And that, in a way, is not directly linked to the entire distribution and application process for the PAN card. And therefore, we are saying that while this is a separate IT project, as of now, as we see it, it does not impact the distribution and the processing part of it. Currently, almost 3/4 of our applications are today still processed in an assisted mode which means somebody is using the help of an agent to be able to submit the application, which is passed on to the ITD department. And that distribution is something which we today run as a multiple product distribution, PAN Services being one of them. Does that answers the question to an extent?

Right, right. And we've been hiring a lot of employees upfront to build execution capabilities. Obviously, this is across the line of businesses and multiple business revenues we have. So is the employee cost and some of the increases which we have seen is -- was in anticipation of this to also PAN 2 coming to us because we were pretty gung ho and confident, given our leadership and whatever work we've done, we should be a very strong contender to the PAN 2 projects. So what I'm trying to understand is, assuming there is no update, and it is awarded to somebody else, how will the cost shape up? How will margin shape up and is there a cost utilization, which we can do of employees and whatever cost we've built in?

So this PAN 2.0 is like a regular RFP. So when we are bidding for our RFPs, naturally we do the down work over there, but it is just like any other RFP. So rest of the numbers as we've been discussing, we will be sharing during the results, and we'll provide more details. But with regard to RFP businesses, actually, we don't build up the full stack of new sources prior to the RFP mandates coming through.

The next question is from the line of Rohan Mandora from Equirus Securities.

Just wanted to understand once PAN 2.0 goes live, you only get a 3/4 of the PAN applications that comes by the distribution network. So the remaining 1/4 of the PAN applications will move to the new vendor? Is that understanding correct?

Rohan that is a difficult one to predict. The PAN 2.0 RFP as and when it is mandated, there's a clear period of development and deployment of the tech stack it will take 2 years. And at that stage, we'll actually have to see how many citizens are seeking assisted services, which means depending on an assisted agent to put the application across and how many would be going on to direct channels. Even as we speak today, we have direct channels. You can actually go to a Protean website and directly apply for the PAN card. So the direct channels are already available even as we speak. So I think this is about citizen behavior and what sort of digital capabilities that citizens have and the comfort they have at that stage. So difficult for me to predict what sort of distribution will there be between assisted applications and direct applications, 2 years down the line.

So sir, direct rout would be with the new vendor and on assisted thing, if we were to look at revenues if Protean is participating in the assisted distribution of the PAN card and the PAN 2.0, like out of the current profit pool that Protean is getting what would be shared with the new partners in the assisted distribution thing? If the [indiscernible] stays as it is. Currently, as we understand, there is a certain payout that goes to the franchisees and the remaining difference is what Protean retains as profit. So with the new implementation partner in PAN 2.0 and with assisted distribution where Protean is helping what kind of synergy would exist and what kind of profitability would get eroded?

Rohan, difficult to predict 2 years down the line where things will stand. But I'll give a similar example. Today, when you look at UIDAI and issuance of Aadhaar cards. Today, Aadhaar cards are issued by multiple entities who have distribution networks. There is a revenue model on which they work when they issue the Aadhaar card, similar indication is there even an RFP that if somebody is seeking a physical PAN card, which today is almost 100% of the cases seek a physical PAN card as we speak. There is a cost of INR 50 of issuance which even the RFP mentions. But difficult to talk about revenue split down the line. I won't be -- I would sort of refrain from making a forward-looking statement or a judgement where it stands.

Okay. But you told some part of revenues would get split.

My only point -- only the fundamental point I'm raising there is probably clarity we would provide that PAN 2.0 is primarily a tech stack revamp. That is why I said the form of an RFP. The business we've done is for processing and issuance, which is a separate business as and when the new tech stack gets deployed there will actually be interfaces, which are there also today for direct applications, which will come into play. But the current things, as they stand, there is majority of people seeking assisted support to apply for PAN cards. 2 years down the line, we'll have to see which way it plays, but there is no debt impact on the business revamp.

Got it. And on the PAN verification business that we do right now, after the -- after the PAN 2.0 goes live, what happens to that line of business? The PAN verification?

There is indication in the RFP that the entire verification business will then run with the direct ITD department. Currently, we provide these services at a very low margin to the market, and it's a very miniscule part of our revenues under the online PAN verification. And this is a business we have to get clubbed with our identity business because this is towards opening a bank account or authenticating a transaction or so on. And we club it with our e-sign, e-KYC and e-authentication services, it's under that revenue line and it's a small component of that.

Got it. And any reasons that we got on why we were not considered for next round?

We are seeking clarifications as I mentioned. This came only over the weekend. As of now, we have requested clarification on where it stands.

The next question is from the line of [ Luv Jain ] from Artha India Ventures.

My question is on PAN 2.0 projects. So I see that -- I can see that this is a one-stop solution for a platform where I can make the updates, corrections and other linkage, reassurance, PAN validation, all kind of solution on the 2.0 projects. So if we haven't got the bid or haven't been selected in the market share of this business can go down in Protean? Is there any clarification on that?

Now again, I mentioned that ITD does that today also. So all allotments, updation and correction and the PAN database is done by the ITD. We don't do that today. As I mentioned, we do the processing and issuance of the PAN card which means that we collate the data. So when you're making an application, you would actually have to fill up the application and provide vertical details, including your IT details. And that is what we do today. That has been amended given to us in 2002, 2003. And today, as I mentioned, we collate this data. There are people who go to the agent and provide this information to the agent. Similarly, people have the ability to also take a non-paper journey which means at the agent point, they can do e-sign and do everything without submitting any paperwork. So all that work is done in a supported mode by the agent or you are able to do it directly on the website. So that is what we do. PAN 2.0 talks about the central systems or the core which ITD runs today on which they do the allotment and that should be any deduping, right? If I already have a PAN card and apply a second time you have to dedupe the data. That is what ITD does. So this tech revamp is for that stack, which they are currently running, which we don't run today. So there are two separate parts of the process, if you may which are there and PAN 2.0 talks about the revamp of that core stack which ITD runs.

Okay. Okay. And what in the future, if they include issuance and distribution in their one-stop solution, then it can be affected or they will ask for new bid in future if they come up with something -- alteration in the time to run the project.

Difficult to predict. You know what they will do, but as I was saying, let me give another example. Today, there are -- the other national ID is Aadhaar right? UIDAI too does not have their own distribution points around the country. They leverage banks, they leverage the postal ecosystem. We, as an organization, we're also earlier involved in issuance of Aadhaar cards. We were one of the enrollment agency. So all the central government agencies actually average large-scale distribution networks to do this. As I mentioned, we today have 400,000 points of service at which we do the PAN card processing and collation of data. I very clearly, I don't expect ITD to set up their own distribution network. So this will always be supported by distribution because ultimately, it's a citizen-centric service, and you have to provide it for equitable access and reach to everybody.

The next question is from the line of Pranav Gupta from Aionios Alpha Investment Managers.

Just some clarification on one thing you mentioned earlier. You said that in case that -- just a clarification on one thing you said earlier. You mentioned that in this -- the IT department eventually decides to sort of do the online bit of distribution themselves. That's a bit [indiscernible] is that understanding correct? Obviously, trying to consolidate ourselves --

I lost you. Just repeat it again, please?

So the question I was asking is that you mentioned in an earlier comment, that once the PAN 2.0 framework is implemented, the online distribution or the mode of getting a PAN card that we currently have then gets eventually moved to the IT department. Is that understanding correct? Or did I sort of misinterpret what you said?

No, let me reclarify first of all, even as we speak today, IT department does have an online site on which you can apply for a PAN card. Today ITD, Protean and UTITSL are three entities, which have the channels open also and have assisted channels. With PAN 2.0, ITD will be offering the service online, but that they offer even today. That is the only correction I would make. So there is the online channels are even there today as we speak.

Okay. Perfect. The second clarification was that as I understood it earlier, and you can correct me if I'm wrong, I don't know PAN 2.0 framework, there were certain changes that were going to be made in the PAN cards themselves in terms of the data that is sort of -- that can be found on the PAN card. Is the understanding incorrect? You mentioned that is the revamping of the stack of IT. That's what I understood from your comment.

Yes. So naturally, as technology is evolving, I'm sure more data will be envisaged and that was part of the tech revamp also. That if we can more add more features to the PAN card itself. But even today, if you see the PAN card does have a QR code on it. So naturally, as technology evolves and as this is getting deployed, there's definitely other areas in which you can further enhance the ID protocols over there. But yes, definitely, there would be other features which would come down the line.

Right. So just a last question in connection to that. So if there were new features that -- or there are new features that are going to be added to the PAN card under the PAN 2.0 scheme. Eventually, the current vendors, I mean, how would -- I mean, including you and UTITSL, how would you sort of navigate through the changed output that is required or will it eventually move to the new vendor? That's what we're trying to understand.

The point on the RFPs for a vendor who will develop the entire tech stack do the design, the development, the maintenance of it. Distribution is still something which is out there. So there are 2 parts to your question. One is the entire bulk of first a citizen coming and applying for a PAN card. So citizen applying and putting their application and is something which will be widely distributed activity. Now then the PAN card is being issued, if there are new features in it, then we'll be issuing the new PAN card because when we started in 2002, '03, there was no QR code, for example. And over a period of time, further features were put on to the PAN card, which is what we are issuing today. So whoever is then doing the distribution they'll also get the ability to issue the new revised PAN card. Today, as you know, that Aadhaar -- whatever updates come into Aadhaar, Ultimately, it's the same distribution network, which UIDAI does not go out and do it themselves, right? Because last mile distribution and managing that again is left to the entities which are collating the data and then issuing. So I'm saying the processing and issuance is separate from the tech stack revamp. I again reiterate that point.

The next question is from the line of [ Mayank Babla ] from Enam AMC.

Just to get it more in black and white, what you're saying is that as it stands now, there is no threat or impact to your existing services that you are providing under the PAN tech services being?

The answer is yes, because the part of business we do is processing reissuance is different, right? As we see today, nothing changes. Even the PAN RFP itself, the design development and deployment is indicated in the RFP will be a 2-year process. So even when the new stack comes into play, it will be 2 years down the line.

The next question is from the line of Dhruv Shah from Dalal & Broacha.

Sir, I just wanted to understand, currently, in the last -- if you take an average of the last 3 years, what percentage of this issuance and processing was with Protean? So basically, I wanted to understand the -- I understand 3/4 of the people have been issuing these hard cards. But how has things been changing in the last 3 years? And taking that into account when the 2.0 gets implemented, do you believe that the same process and issuance business would be at a similar scale or that could trickle down a bit? And also, in the PAN 2.0, if there is any modification? Some modification work also comes to a company like Protean or it will go with the tech stack company?

Dhruv, you have multiple questions. So let me take them one by one. First of all, today, as we've already shared, we have a dominant share in the issuance of PAN. We have 60% plus share and the cumulative PAN issuance till date. And we've been sharing our numbers, which you would see anyway in our quarterly results. Now as far as issuance is concerned, there is the part which is about processing of data or rather it starts from the citizen right as a process. So citizen an appliance for the PAN card will always be an activity which will be required just the way you apply for Aadhaar you apply for PAN. So that data collation and then putting the data and sharing with ITD for issuance will continue to be. So that is where we were integrating that. Today also, there are direct channels and there are assisted channels of doing it. That is an activity which will continue because ultimately, you're providing a citizen service. And as far as trickle down is concerned, we've earlier also mentioned that today, see PAN is not a saturation ID like Aadhaar, Aadhaar we actually say something you would seek to have at the moment a child is born. PAN is usually done when people enter the workforce, your minors are becoming adults, you're opening your first bank account. That is when you are seeking a PAN card. So today, if we look at overall demographics. The penetration of PAN is around 35% to 40% in the country. And every year new workforce comes in, the requirement of PAN as an identity is also getting more widely applied. We have seen in the recent couple of years, the government for their venture and benefit teams, a lot of teams are now asking for a PAN and we therefore see the propensity even in rural India, where people are now applying for PAN cards so that they can qualify for a welfare scheme. Similarly, the government has announced initiatives to say we want to make PAN a single identifier for all nonindividual cases, which is for entities because entities don't have an equivalent of Aadhaar. So there are various initiatives and players, which will mean that more and more entities will seek PAN, so we don't see this trickling down. And with a population like us, today, there are hardly 50 crores, 55 crores people who have a PAN card and we have already a population of 1.4 billion. And therefore, we see this continuing and we have generally seen as a trend 6 crore to 7 crore new PAN card issuances every year.

So similarly, like currently, we agree that we have 400,000 touch points. But the way things changed in case of issuance of our passport. Do you envisage that kind of a threat that could come in, in case of PAN 2.0?

See, today as you are aware, at Protean, we are working across multiple DPIs. We've been earlier focused largely on BFSI, which is centers where you can process data for PAN issuance, we similarly out of the 400,000 touch points, there are points serving our pension business. Similarly, as we are moving into agriculture, health, ONDC which is digital commerce, open finance. We are leveraging the same ecosystem or providing citizen centric services. So for us, our distribution is a multi-product or multi distribution PAN is one service we provide over there. And most importantly, it ultimately depends on the citizen, right? If a citizen chooses to or feel that getting assisted at a touch point, which is proximate to them is where they want to consume the service, this distribution will continue to be relevant. It will not be dependent on the core tech stack and what happens to it. It is where I want to apply for a PAN card, which will be relevant to me as a citizen of India.

Ladies and gentlemen, due to time constraints, this was the last question for today, which is from the line of Ashish from Emkay Investment Managers Limited.

Sir, as you mentioned in your comments that mandate was issued by ITD for the existing PAN business. So I just wanted to understand that is it renewed yearly or like when was it last renewed and is there a possibility that the existing PAN business in future comes through an RFP route or not the mandate, which is currently there.

It was last renewed -- I'll have to share the data with you yet. It was recently only. We'll share the date. I don't have. If somebody in the room has the date then please share it. Sandeep, if you guys are on the call. So we'll just share that. But -- so this contract for us has been reviewed every 3 to 4 years. It has been happening right from 2003 onwards. I would naturally not make a forward-looking statement to say whether it will go down an RFP route down the line, but this is what has been happening in the past, which we can share with you with clarity.

Thank you. Ladies and gentlemen, as that was the last question for today. I will now hand the conference over to MD sir for closing comments. Thank you, and over to you, sir.

No, thank you very much. So thank you, everyone, for patiently listening and asking all the questions. We just wanted to clarify the status. So just reiterating that PAN 2.0 is an RFP, which is associated with the design, development and deployment of the new tech stack or ITD from where they do the allotment updation and correction of the plan in their database. On an immediate basis, we see very limited impact on our distribution business. And currently, it is going to be -- and going forward also, it is going to be driven by all citizens will be applying for the PAN card. And this where we today have a service network of almost 400,000 points. And largely that business will be driven by the citizen sequence services over there. So I would not like to add anything further. We've already got a lot of questions further requesting more details on this. So thank you very much.

Thank you, sir. Thank you, members of the management. On behalf of Protean eGovernance Technologies Limited, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.