Protean eGov Technologies Limited (PROTEAN.NS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Protean eGov Technologies Limited Business Update Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Pushpa Mani, VP and Head IR from Protean eGov Technologies. Thank you, and over to you.

Thanks, Robin. Good afternoon, everyone. Before we commence the call, please note that this call is solely to discuss the development pertaining to Aadhaar Seva Kendra's order win. We request you to limit your questions accordingly as no other questions would be taken during this call. If you have any queries unanswered, you may reach out to us afterwards. The management on today's call would be represented by Mr. Suresh Sethi, Managing Director and CEO; Mr. V. Easwaran, Chief Operating Officer; Mr. Sandeep Mantri, Chief Financial Officer; and myself. Before we begin, I would like to mention that some of the 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 that 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, and many thanks for joining us. We just wanted to share details of the mandate we won yesterday. And with great delight, I would like to announce that we have secured a landmark contract worth INR 1,370 crores inclusive of GST from UIDAI. As we all know, this is a regulatory body for Aadhaar under the Ministry of Electronics and Information Technology. Under this contract, Protean will establish and run district level Aadhaar Seva Kendras in 188 districts across India. The Aadhaar Seva Kendras, short for ASKs, hold significant importance that they are designated as the core facilities catering to all front-end activities related to Aadhaar enrollment, biometric and demographic update and other miscellaneous Aadhaar services. These are going to be very fundamental to UIDAI's mission to provide a unique identity and digital platform to residents of India and will help enable them to establish their identity and access services. This is, again, a significant opportunity as we see in this space due to new buzz. There are mandated biometric updates at the age of 5 and 15 years. They are at existing pendencies. And naturally, there are going to be demographic upgrades as we see coming down the line. This is initially a 6-year engagement where Protean will manage the complete setup and run the daily operations, ensuring smooth ethical and secure delivery of Aadhaar services. We are happy to state that this is indeed a historic win for us. It uniquely positions Protean as the only company today contributing towards scaling up two of our critically national IDs for the country. The scale of Aadhaar, as we all know, is unmatched. It's the largest biometric identity platform across the world. It serves today 140 crore Indian citizens, which is more than the combined population of North America and Europe. Since inception, it has evolved into one of the world's most trusted foundational identity, enabling precise delivery of government benefits and services to over 1 billion residents. Our renewed partnership will strengthen the journey of digital inclusion. This project further builds on our proven track record in delivering citizen services at a national scale and will expand our distribution footprint along our PAN and pension services networks. On us, it is not just a business win, but an opportunity to play a key role in India's digital transformation and positively impact billions. As one of the dominant Aadhaar service agencies licensed by UIDAI, we look forward to further strengthening our partnership with UIDAI on this front and we are confident in executing this project with the highest standards of excellence. Thank you again for joining us, and we are now open to any questions that you may have. Thank you.

[Operator Instructions] Our first question comes from the line of Vishal Mehta from Oaklane Capital.

Am I audible?

Yes.

Congratulations, it's a great development. Just had two questions. One is, can you talk about how the revenue recognition for this project would be taking place? So it's a 6-year project, will it be like RFP, majority will be recognized earlier and then we'll have some maintenance or it's a different format? And the second question is, sir, this talks about 188 centers today. So is there a scope for us to even grow that number and maybe Phase 2 will be another set of districts, which we will cover and then that could also be additional revenues that we can generate from future business?

All right. So Vishal, just to answer you on revenue recognition. This is not a turnkey project, this is more a managed services project, where we will get revenue per transaction. So whatever Aadhaar updations or biometric updations or demographic update, whatever we do in this bid, we will get based on per transaction. So revenue will be -- I mean, assuming volume are similar, then revenue will be evenly spread throughout the period of RFP. I mean, this project will take about 3 to 12 months to scale up, but post that, I think revenue will be more or less similar in each year, except the inflation part, which will kick in at the end of second year and at the end of 4 years. This is your first question. What was the second question, Vishal?

This scope covers 188 districts. So is there a potential that we may have more districts we can cover in additional years?

Yes. I think, as of now, it covers 188 district for us, but these are only 60%, 70% of the districts which are covered in the current [indiscernible]. Naturally, there will be -- there may be expansion, but we'll leave it upon UIDAI how they play it out in -- for the remaining districts. To answer you, there is a scope for revenue growth. beyond this 188 districts.

Our next question comes from the line of Rohan M. from Equirus Securities.

Congrats on the contract win. Sir, as per the RFP, this was based on a discovered average rate per transaction model. On the back of the envelope calculation, it was coming at on a blended basis, you'll get roughly INR 105 to INR 106 per transaction. So I just want to confirm, is this calculation correct?

Yes. So you can -- we will not be able to comment on the rate part because this is more -- we are under confidential agreement with the UIDAI. And you have to do back of the envelope calculation. But having said that, I think, I guess, you are more or less right in this approach.

Sure, sir. And sir, secondly, I just wanted to understand the flow of funds, the way it would work. So once an individual subscribes to a service, whatever money you collect with them will be parked with an escrow with UIDAI and they will pay you? Or how will the flow of funds work in this case?

Yes. So some of the -- these projects -- in these projects, the money will first go to UIDAI account and then UIDAI will pay us on a monthly basis based on the volume achieved. This is how the fund will go in this project.

Sure. And sir, thirdly, what is the anticipated cost of running an Aadhaar Kendra?

We don't want to get into a margin or cost question, but I would tell you what are the cost elements in this bid. One is setting up of those Aadhaar centers. Second is hardware cost. So one is real estate cost, second is hardware cost; and third, we will need man power to run all those centers. So these are the three major costs will be there in running the Aadhaar Seva Kendra. But this same like how you are delivering your PAN, issuing your PAN card. A little bit of difference is that we will have our own Aadhaar Seva Kendra in this case.

Right. Just one additional point here. The printing of Aadhaar card in case of new issuance or rectification, is covered under your scope? Or is it part of the UIDAI scope?

It is covered under our scope as well.

Okay. The printing of -- printing. So if the request comes to you, you will be responsible for getting the printing of that.

Our next question comes from the line of Amit Chandra from HDFC Securities.

Congratulations on the contract win. So my question is, is there a minimum revenue commitment per center or minimum revenue commitment in terms of number of transactions that you will accrue in case there is no transactions or you are like below breakeven in some of these centers? And also in terms of like most of the government contracts, we have seen that there is an issue in terms of collections because here the money is going directly to the government and then it will accrue to us. So like what are the payment terms in terms of the revenue getting received from the government?

So Manan, right. Amit, sorry. Amit, of course, there is a minimum revenue commitment is there in this bid, but we would not be able to tell you what kind of minimum commitment it is. If -- the revenue projections are based on some regional numbers. How the revenue will flow in, how -- will there be a collection delays or all that, these are under contract, we will get paid on a monthly basis. So I don't see too much of a working capital get locked into this managed services bit. This is not a turnkey project. This is more a managed service bid wherein I don't see working capital issues.

Okay. And what would the CapEx that would be required to set up these 188 centers at the district level? And are we going to use the existing infrastructure that we have for PAN for the Aadhaar enrollment? Or is it going to be exclusive Aadhaar centers?

These 188 centers will be exclusive Aadhaar Kendras, Aadhaar Seva Kendras. The CapEx will be minimal part of it because we will run mostly on operational -- I mean, OpEx cost model, wherein we will lease some of the real estate. We will lease -- the most critical expenses will be real estate and -- real estate OpEx and manpower. CapEx is light on this project.

Okay. And in terms of the minimum revenue commitment, out of this total order value if you can, just to give a sense, what would be the minimum revenue guarantee of the total order value if you can give that?

I can't tell unfortunately because we are under confidentiality agreement with UIDAI. We can't divulge what will be the kind of minimum revenue we will get, but having said that, I think these -- the numbers which we have -- I mean, we have communicated to SEBI is more a reasonable rational revenue.

End of the day, just to step in over there. So it is -- the business is transactional in nature. And I know that most of us have earlier discussed numbers when we talk about PAN business and what is the estimate. In this case, clearly, there is naturally new buzz, as I spoke about earlier. That is going to be there. These are new people getting born. Then there's a mandate from the UIDAI where you go beyond the age of 5 and go beyond the age of 15, there's a mandated biometric update, which happens. Currently, as we see, there are also pendencies in these updates. Then naturally, there is the demographic changes, which could be a mobile number and address change and so on. And so all these are ultimately going to be -- each is going to be a transaction, which is an earning transaction. And we see consistent sort of numbers coming through on this. And whatever assumptions have been made in terms of the expected flows are driven by historic numbers also. So to that extent, it's a transactional project. As Sandeep rightly said, it's a more of services project than a turkey product from a revenue realization perspective.

Okay, sir. Then one last question. Yes, so my last question on the transaction prices. So the pricing is mostly fixed by -- is mostly fixed or we can also charge some premium in terms of value-added services for the services that we offer? Or is it a flat charge that is fixed by UIDAI?

Under the RFP, this is regulated pricing. So it is fixed by UIDAI along with the bidder, and that pricing will remain even -- except the inflation increase which is every two years, it will remain same.

Our next question comes from the line of Kunal Bhatia from Dalal & Broacha Stock Broking Limited.

Yes, congratulations on the order. Sir, so this a INR 1,170 crores or INR 1,370 crores including GST figure, which we have mentioned, is that the upward limit in terms of the overall revenue we could earn in the next six years? Because as you mentioned that it will be more of a transaction-based, so is there a minimum guarantee on that? A, you obviously mentioned that you can't give a figure, but is the INR 1,370 crores, an upper limit to the overall number?

No. So this is not upper limit per se. This is based on some reasonable assumptions in transactions. Revenue can certainly go beyond that also, assuming if your transactions are more, then your revenue will be more. Right now, this is more on a reasonable assumption basis. I guess this is published on UIDAI site as well, [indiscernible] site.

Okay. And broadly, we would be having some sort of INR 100 to INR 105 per transaction on a ballpark number?

Yes, I mean more or less.

You can do a modeling actually had the number, as we mentioned. So...

But you can go to site, the government site, programme site and you can figure out.

Okay. Okay. And sir, you mentioned that we have to set up these 188 new centers. So the existing centers, which we have for our PAN card services, we won't be able to use any of those for these services of UIDAI...

These are, Kunal, exclusive for Aadhaar services. So as I mentioned, this is a flagship in a way, ecosystems that UIDAI is building, and they are very sort of focused on provision of all Aadhaar services at these centers. So these will be exclusive and specific to Aadhaar.

Okay, okay. But there is a possibility of getting a higher number on this, meaning we already have 188, which you mentioned approximately 60% to 70% of the overall opportunity. So there is a possibility of getting a higher number on this as well?

So currently, a decision has to be taken by UIDAI. The current mandate does not cover all districts. So there will be districts which are out there, where if there is a decision to set up more centers, but that is an opportunity.

Our next question is from the line of Ashish Pareek from MK Investment Managers Limited.

I just had a question. So earlier, what the RFP has come out and you have won the contract. So who was handling it earlier. Was it done by UIDAI alone? Or was it outsourced and then the newer mandate has come to us? I just want to understand that part.

They were -- earlier, there were two parties, Karvy and other one was Idemia. These were the two parties who were handling Aadhaar Seva Kendra. Additionally, this business is being handled through these parties. Now this business will come under our fold.

Okay. So this is exclusive for us or multiple parties will be there and then whoever will get the transaction, will get the income that sort of thing?

Aadhaar Seva Kendra will be exclusive to us and the other party.

Okay. Other parties will also operate in this project?

[indiscernible] and there are two players, as you know, who got the mandate. And we will be setting up our own Aadhaar centers in different districts.

And there is a district-wise allocation, wherein only one provider will be providing service to that district.

We have our next question from the line of Darshil Pandya from Fintrust Capital.

Am I audible?

Yes.

Yes. Sir, firstly, a word of appreciation for the management, as you know, they have been continuously coming on the con calls even after the season gets over to give the business update, so really good from your side. Second -- first question would be on, BLS International has also got order today around INR 2,065 crores for the same thing that we are supposed to do. So wanted to understand how -- is the second part is BLS and are there any other party on this?

So it is only BLS and Protean, so BLS and Protean have won this. Some of the districts will get allocated to BLS, some of the districts will get allocated to Protean.

Got it. So sir, any -- just to understand how many districts have been totally today covered and how much are pending? Do we have that number with us?

So 188 is to us.

Total is 471 and we've got 188 out of that.

Total is 471 you are saying.

It's covered in this mandate.

Okay. Total 471 and we have got 188. The rest is with BLS.

Yes, 40% we got, 60% they got.

Got it. Understood. And sir, last question would be, we have any update of the last call that we had with regards to the PAN 2.0? Any update from the income tax department?

So right now, this call is only for this business update. So I think it will be better if we restrict this to this. You can ask offline about that.

Our next question comes from the line of Apurva Bandhi from Whitestone Financial Advisors Private Limited.

Sir, from when it will contribute to P&L?

So I think the project starts once the LOA is signed. So from the revenue perspective, I think in Q3 onwards, we should see some revenue coming up from this project. And in the next 6 to 12 months, it will be fully scaled.

Okay. And sir, like, what would happen after six years like we would be bidding again or because we will be doing OpEx right for the scale [indiscernible], so it'll be utilized...

Yes. So I am as ignorant as you are. I'll not be knowing what will happen after 6 years. It may get renewed, it may not. They may come up with RFP. Right now, it is 6 years, and that's it.

Okay. And sir, my last question is on, there are 471 districts we have mentioned. So we have the 188 and rest of the districts, the other party has got it. Is my understanding correct?

Correct.

Our next question comes from the line of Mayur Gathani from Ohm Portfolio Equi Research Private Limited.

Sir, I just wanted to check, so in short, there will be four players totally, right?

Two players.

Okay. So what about Karvy and Idemia that you mentioned? They are not there anymore?

I think their mandate will be over with this.

Okay. And even if I walk into a post office, they have allowed this Aadhaar modifications or Aadhaar applications, so that continues?

Yes.

That will continue.

And certain banks also have this mandate.

Yes. They are not Aadhaar Seva Kendra. These are center of excellence for Aadhaar services. These 471 what we are talking about are the one who will drive the most of the volumes in this space.

Okay. So any issuance, any changes, anything et cetera, you can go to these places as well, along with the post office and the banks?

Yes, yes, that's true.

The next question is from the line of Karan Bhatelia from MAIQ Capital.

Congratulations for the order. Sir, I wanted to understand what are the transactional terms with UIDAI? Like we are talking about, let's say, INR 100, INR 105. So the amount we will get on a monthly basis, so is the entire amount or you get -- UIDAI will take some cut and then you'll get the net per transaction?

No, I don't think -- I mean this is -- I'm not -- what -- we are not saying is whether it is INR 105, INR 110 because there are different, different services and different, different pricing. UIDAI is a public institution. They are not going to take a cut. In fact, some of these services are subsidized. And citizens pay less, but the customer pay more.

Got it. And sir, for 188 districts, like what sort of area are we targeting like any top three districts or something, like state, whatever you can just give a geographical...

These are specifically allocated districts. So each party will have named district. I will have 188 named districts. The other party will have their named districts.

Majorly in the eastern part of India?

Not -- I mean it will be across, right?

It is spread out. There is no specific...

Any like top three or something like that?

Only one party, one district. I mean you will not see a situation wherein two parties are basically in the same district.

[Operator Instructions] We have a follow-up question from the line of Apoorva Bandhi from Whitestone Financial Advisors Private Limited.

Sir, my question is on the margins. So what do you expect from this? How much margins can they contribute?

So this business will contribute about -- as we said in our release, this business will contribute about INR 180 crores to INR 190 crores on an rational basis. So this will definitely add to bottom line. What kind of margin, it will be a good margin business according to us. Beyond that, I mean this is same like it's a managed service business, so you can assume.

Okay. Sir, INR 200 crores on EBITDA level per year, right?

I'm saying every year, you will get about INR 190 crores, INR 180 crores, INR 190 crores of revenues.

The next question is from the line of Prem Luniya from Astute Investment Management.

Congratulations on the results -- congratulations on the new update. So just wanted to understand, sir, of course, you cannot share the EBITDA number, but I wanted to understand on the blended level for the company, would it be accretive? Or how should we look at it? And it will contribute to -- by the Q4 or Q3?

So it should be EBITDA accretive for sure because you're straightway adding INR 180 crores, INR 190 crores to the top line, it should be EBITDA -- must be EBITDA accretive. What was your other question?

So that is what I wanted to understand because now we'll have to do an OpEx and have a direct cost as well?

Quarter 3 onwards, but full scale, you will see in the next 6 to 12 months from now. Does that answer your question?

Yes, yes.

Ladies and gentlemen, we will take that as our last question for today. I would now like to hand the conference over to Mr. Sethi for closing comments. Over to you, sir.

Thank you. So thank you very much for making the time to join the call. We wanted to share this. So if there are any other questions or anything you would like to know, you can always reach out to us. Thanks again for your time, and thanks for all the support.

Thank you. On behalf of Protean eGov Technologies Limited, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.