Quick Heal Technologies Limited (QUICKHEAL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day. And welcome to Quick Heal Technologies Limited Q4 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. We have with us today, Mr. Kailash Katkar, Managing Director and CEO; Mr. Sanjay Katkar, Joint Managing Director and CTO; Mr. Nitin Kulkarni, Chief Financial Officer. I would now like to hand the conference over to Mr. Nitin Kulkarni. Thank you, and over to you, sir.

Yes. Thank you, Janis. Hello, and good morning, everyone. I am pleased to welcome you all to our earnings call to discuss our Q4 and financial year '20 results. Please note, a copy of all our disclosures are available on the Investors section of our website as well as stock exchanges. Please note anything said on this call, which reflects our outlook for the future or which could be construed as a forward-looking statement, must be reviewed in conjunction with the risks that the company faces. Let me now hand over the floor to our MD and CEO, Mr. Kailash Katkar to talk about major developments and key initiatives. Over to you, Kailash.

Thank you, Nitin. Good morning, ladies and gentlemen. Thank you for joining us today to discuss Quick Heal Technologies financial results and quarter 4 results for the year 2020. I would like to take this opportunity to update you about major development, initiatives for the quarter as well as some highlights for the year. Before I begin, I hope you and your family are safe and taking proper precautions, while dealing with this pandemic. I would like to take this opportunity to thank all the frontline staff and public authorities for this continuous effort in containing this pandemic and keeping us safe. The year 2020 was more challenging than what we expected. Throughout the year, we saw some slowdown in economy, which coupled with an overall credit crunch affected our business. Going into quarter 4, we were optimistic about the year as our quarter 4 is always strongest for us, and we were hoping to end this year on a positive note. However, the sudden and the unexpected COVID-19 crisis in March 2020 led to a very weakened quarter, actually. I will let Nitin discuss the impact of COVID-19 on the financials in detail. On the positive side, I'm impressed with how the entire Quick Heal team worked with -- to implement work-from-home protocol, while supporting our customers seamlessly. Quick Heal was able to adjust to the rapidly changing work culture due to the lockdown and continue to support our customers in an increased cyber threat environment. We also announced a strategic investment of INR 2 crore in Ray, Singapore-based company. It is a strategic investment in the networking and wireless technology space. I will let Sanjay discuss this in detail. This is the second investment from us during the year, and we will continue to explore such small- and mid-sized strategic investment. Now let me hand over to our CTO, Mr. Sanjay Katkar.

Thanks, Kailash. This is Sanjay Katkar here. Good morning, everyone. As Kailash mentioned, we have invested around INR 2 crores in Ray Pte Ltd. Ray is a Singapore-based start-up specializing in next-generation networking and wireless technology, with a flagship product RayOS, which is an open source, cloud-native, extensible operating system with an ecosystem of application. Ray's vision is to reimagine networking and wireless technology and it intertwines with a vision of safe, secure and seamless digital experience for everyone and therefore, Ray is an ideal partner for us. Ray is an young exciting startup backed by some veteran cybersecurity professionals, and we believe this transaction allows Ray to benefit from Quick Heal's rich leadership and expertise in technology landscapes to build a successful company. At the same time, the investment gives Quick Heal an entry into an emerging space that will help shape the future of cybersecurity. Another key development for the quarter, I would like to highlight is Fino Payments Bank selected us to power and secure its Workforce Mobility. Fino Payments Bank selected Seqrite mSuite after rigorously evaluating multiple products. Our product was selected due to its better ease of use, design and better monitoring capabilities of devices on a real-time basis. Seqrite mSuite also takes it -- makes it easy to remotely schedule security scan for the IT team to identify risk and infection with the best-in-class antimalware capability. The key achievement -- the key achievements we are having this quarter additionally is the 2 patents that we received for our indigenously developed malware scans. First is the Anti-Ransomware and Signatureless Detection Technology. And the 2 patents help us stand apart from the competition and detect and block known and unknown malware on the real-time basis. Currently, our R&D team is working on similar innovation, which will be on in due course of the time. I would like to take this opportunity to bring to everyone's attention, the current trends in cybersecurity, especially as more and more businesses are adopting remote working style. As Kailash mentioned earlier, that the lockdown obstructed our financial year '20 growth due to lower Q4 sale, but it has also opened new opportunities for us. Due to lockdown, we saw a majority of enterprises asking their employees to work from home, which led to change in working style for many enterprises. And we noticed many enterprises were caught unprepared to adapt to this change, which led to numerous cybersecurity challenges. The pandemic demonstrated the fact that cybersecurity is crucial element of successful business continuity plan and cannot be ignored. Following the spread of coronavirus in India, we were on the very few companies to quickly adapt to the remote working culture and encourage our employees to work from home to ensure their safety. All departments, including threat intelligence, protection, response and daily updates to our products continue to remain operational, uninterrupted as normal to provide round-the-clock detections and technical support to all our customers. During the last 2 months, we observed cybercriminals riding on for COVID-19 wave and exploiting security loopholes in remote working to distribute a variety of malware and steal sensitive information. I will give you an example of such attack, which Quick Heal detected, and it was in news recently, a new wave of Adwind Java RAT Campaign targeting Indian cooperative banks across India using the COVID-19 as of date. The campaign begins with a spear-phishing mail, which claims to have originated from RBI or any other nationalized banking and luring users to open the attachment containing a malware. If the malware propagation is successful, attackers can steal sensitive information like swift logins and move laterally to launch larger scale attacks on the financial fraud. So our enterprise arm, Seqrite, was able to detect and block all such attempts using the combination of our technologies of signature and signatureless-based detection. We strongly believe that every enterprises' customer must look at their cybersecurity practices and protocols and begin to take active steps to secure themselves. We had quickly continued to shield our customers from such innovative attacks and are continuously investing our resources in staying ahead of the curve. With this, I now hand over the floor to Mr. Nitin Kulkarni, our CFO, for his comments on the financial performance.

Thank you, Sanjay, and good morning to all of you. Let me take you through the financial highlights for the fourth quarter and full year ended March 31, 2020. I will begin with a summary of the financial performance during financial year '20. As Kailash alluded to in his opening remark of about impact -- severe impact of COVID-19 on the performance, all of you are aware that the World Health Organization announced a global health emergency because of new strain of coronavirus, COVID-19, and classified its outbreak as a pandemic on March 11, 2020. In response, the Indian government has taken various actions and ensured many precautionary measures, which posed significant disruption to business operations and adversely impacting most of industries, which has resulted in a sharp slowdown of economic activity. The lockdown was imposed by the Indian government in the entire country from the last 2 weeks of March, though a lot of business and customers began to take precautionary measures early on. Now if you look at our retail segment, we follow a stock and sale model, and the goods are required to be physically dispatched to dealers. This was not possible due to nonavailability of transport facilities across the country and has significantly impacted the revenue for the quarter for our retail vertical. If you look at the enterprise vertical, revenue was impacted in the latter end part of quarter as most of the enterprises were waiting for better -- waiting to better understand the impact of COVID-19 on the businesses and uncertainty in the economy before committing their orders. As a result of this, if you look at the consolidated revenue from operations, it stood at INR 2,861 million, down 9.1% compared to INR 3,149 million in financial year '19. 80% of revenues come from Retail segment and 20% from Enterprise and Government. Now if you look at EBITDA, our EBITDA stood at INR 914 million, down 28.5% compared to INR 1,279 million in financial year '19. EBITDA went down because in Q4, overall operating costs did not go down in line with the sharp fall in the revenue as some of these expenses were incurred at the start of the quarter itself. We had dealer business meets during the year, and as a result of that, sales and marketing expenses have gone up compared to last year. The general and administrative expenses during the year includes onetime charge of INR 20 million towards buyback expenses. During the last quarter of the year, based on our internal assessment, we have made provision for doubtful dates of about INR 50 million for receivables from few of our dealers. Please note that this is done purely based on the current liquidity situation in the market and its resultant impact on a few of our dealers. We are strongly following up with them for the collections and expect some recovery. However, this provision is done purely on conservative basis during the quarter. The reduction in the other income is as a result of reduction in the treasury side post buyback and overall small reduction in yields across investments. Company does not have any borrowings and correspondingly, no interest expenses. Depreciation for the year remained almost at flat level. PAT for the year stood at INR 744 million, down 19% compared to INR 918 million in financial year '19. PAT margin stood down 26%, down 315 basis points from 29.2% in financial year '19. Coming to the performance of the quarter. For quarter year 2020 -- Q4 of 2020, consolidated revenue from operations stood at INR 643 million, down 25.3% compared to INR 860 million in Q4 of '19. As mentioned earlier, this was due to COVID-19 impact, which has been very severe for us. In terms of segmental performance, the retail segment revenue for the quarter stood at INR 545 million versus INR 681 million in the last Q4. Our Enterprise segment registered a revenue of INR 141 million compared to INR 211 million in Q4 of 2019. Both segments witnessed a sharp fall in the number of license sold. However, we continued to witness growth in average realization for license sold. The Retail segment specifically saw a 20% jump in the realization, and this was mainly driven by a change in the product mix. EBITDA for the quarter stood at INR 76 million, down 80% compared to INR 386 million in Q4 of 2019. While we continue to look at reducing costs across the business, the sharp drop in revenue for quarter and the increase in some of onetime costs, I've explained above, has resulted in a lower EBITDA. Net profit for the quarter stood at INR 80 million, down 71% compared to INR 277 million in Q4 of last year. PAT margin stood at 12.4%, down by 1,982 basis points from the same period of last year. We exercised the option permitted under Section 115BAA of Income Tax Act 1961, which has resulted in lower corporate income tax during the quarter. As a result, corporate income tax rate was reduced to about 26.5%, resulting in lower income tax for the year. On the working capital side of the business, we have maintained our net working capital days at 97 days, despite the drastic slowdown in the month of March. For reference, our net working capital days as at December 2019 was 108 days. In coming future, because of the liquidity situation due to COVID-19 pandemic, this may increase and will have some impact on later days based on distributor financial condition. Our current cash and cash equivalents stands at around INR 3.8 billion, including investment in mutual funds, tax-free bonds and fixed deposits. I would like to highlight this again, that we are cautiously looking for opportunity in order to better utilize the cash on our balance sheet, as we have just completed a share buyback in this financial year. On the M&A side, we again remain very cautious and calibrated in our investments, and we'll be looking at smaller and midsized investments going forward. Finally, a quick update on CESTAT matter that has been pending in our books for a long time. Post favorable order from CESTAT in the month of January 2020, the contingent liability of INR 1,611 million, which we were showing in our books of accounts in our financial statements was removed from the financials after a suitable disclosure and note. And auditors have also removed emphasis of matter in their annual audit report, which they were giving it till last year. Overall, to sum up the financials for the year, we had an adverse impact due to the slowdown in Indian economy. This, coupled with headwinds on the distribution side because of the unforeseen lockdown due to COVID-19 dynamic, has resulted in one of our most challenging quarters today. We remain optimistic that sales growth should return as the country exits from the lockdown and demand for cybersecurity products will continue to remain strong. With this, we'll now open the floor for question and answers. Thank you very much.

[Operator Instructions] We take the first question from the line of Vikram Kotak from Crest Capital.

Yes. Sure.

Well, ladies and gentlemen, looks like we lost the line of the current participant. We take the next question from the line of Karthik P from WealthMills Securities.

My question is, as we are in -- it is unprecedented time, okay, no doubt at all for the business environment, but how do you foresee? Because right now, the crux of the economy is people have started working from home, they're back on their PCs, so there will be -- a lot of focus will be there in terms of the cybersecurity. So how do you foresee the things, how it will influence Quick Heal? And also, how you're tracking your renewals? There should be a tremendous improvement in terms of your renewals. How that segment is looking?

Yes. So you're right. I think things will definitely -- there's a lot of uncertainty around at this point of time, and things will be more clearer when the lockdown -- we are out of lockdown and things start operating. But even -- since you raised the point on enterprise segment, so I will tell you a lot of -- some of the things which we are doing in the last 2 months on the enterprise side. So last 1.5 months, we have been engaged in enabling partners, certifying sales and presales team, so that they can acquire skill set more effective in creating value proposition to the customer as and when their customer base resumes business. Most of the SMEs have already started -- have started resuming the business in a small way. And they are building blocks toward the infrastructure securities. We have been also focusing on our renewals, as renewal sees a significant number and all of our sales team is ensuring customers are renewed on time, as renewals forms a good part of the business. With renewals, we are also trying to do -- trying to enhance the deal sizes by doing upsell and cross-sell to these customers. So this is more on enterprise side. Since we also cover Government segment into that, I will also touch upon a few of the points on Government segment. So state government and central government are slow right now. But few of the government departments also have started floating RFPs, and they are adopting towards the culture of remote working and mostly all customers are following the schedule and trying to meet all their respective internal cybersecurity deadlines. So we are taking a lot of steps with these type of steps. And whenever we are out of lockdown and whenever we see an opportunity, I think we are there to take the advantage. Definitely, at this point of time, the exact situation will get unfolded, maybe in 3 to 6 months' time now. But we are well there for -- to take the advantage of the situation.

And could you just give us the outlook, how it seems to be -- what you're expecting, what is your contingency plan to work on these issues?

So basically, if you look at the Quick -- see, we have -- Quick Heal is one of the companies to quickly move and adopt to work from home before the lockdown to ensure that safety of our employees and their families as well as we are providing the required support to customers. And all the required updates have also been given on time. And if you look at the retail side, on the customer side, we continue to support our customers, as our teams has also quickly adapted to working from home culture. Customer and product updates are also being rolled out on time. And we also believe that consumer business will have a big change and online sales will increase. On the retailer shop side, we remain in touch with them and jointly devising a strategy to increase sales once the lockdown releases. So the point here is, we are taking all these steps, and we are ensuring that we stay current with the situation. And we will also try and adopt to this work from home, changing requirements of customer and changing interaction style with the customer. So these -- all these steps are taken and the moment we see -- we are out of lockdown and things start normalizing, which we expect it will -- Q1 is also expected to be a little bit on a slower side. I think Q2, we feel that things will start, will get to a normal level. And we will -- since we are doing all these things, we'll be able to take it to the next level from there.

We take the next question from the line of Neeraj Bhatia from Sanaka Capital.

Sir, in the last year, we have seen realization increase in your products while volume was low. How do you see the realization and the volume moving, coming in the year forward? That was one. And second, sir, in terms of -- since you are a stock and sell model, has the Quick Heal kits movement has started in terms of reaching out to your distributors and have they started for physical supply of the kits again?

Yes. So the first question was on this realization per unit. So if you see realizations, which we also have been saying on our earlier calls also, so this is all driven by market. So basically, many factors -- so we have a bouquet of products which we sell. And this realization per unit, it is all driven by market, which products which you are selling, what is the competitive landscape, what is the price range given by competition on the enterprise side. So these are the things which really determine the realization per unit. And we have the bouquet of products. So if we take just a holistic view by total number and total sale and coming to arithmetical calculation, that is not something which is -- which gives you a real picture. So this -- since these things are all decided by market, if there is a change in the product mix on any of the vertical, that directly has impact on the realization per unit. And most of these things are all decided by market. We move according to the requirements of the market.

But sir, do you expect the current realization to hold? In the sense, these trends, in terms of, they're probably going for a higher-end product, so that is expected to hold or improve further?

So this is something, which I cannot comment at this stage on the call. So if the situation remains, yes, it may improve. But if the situation changes, then again, it can go back to the earlier level. So it is very difficult. It is all driven by market.

And sir, the physical supply of kits and all that, has it started again?

Look, it has started on a very small scale. So you are aware that, again, till 31st of March -- 31st of May, there is a lockdown. At some places, movement has started, but it is absolutely on a smaller sale. So it has not really picked up, if I have to answer your question.

So some of your distributors might be having stock out of this?

See, I would like to add here that even if we decide to transport these goods to the dealers, most of the dealer shops are not yet open, actually. Hardly 10% shops are open and it totally depends upon area-wise lock down rules and regulations. On that basis, the shops will open, and the actual sale will start happening, actually.

So it is -- yes, yes.

Hope we answered your question?

Yes.

Okay. Thank you.

Next question is from the line of Neerav Dalal from Maybank Kim Eng Securities.

I had a couple of questions. One is in terms of your strategy, how do you see retail and enterprise over the next 3 to 5 years? Would they share -- what would be the revenue share that you're looking at, say, 3 to 5 years from now? Because as I see, the enterprise business is also declining in terms of number of subscriptions. So I think -- I find that worrisome. So I just wanted to understand your strategy in terms of enterprise versus retail, say, 3 to 5 years from now?

So see, we have been saying that enterprise is something which is a growth engine for us. And definitely, a lot of focus, a lot of investment is happening on enterprise. So we definitely have a strong aspiration of growth in the Enterprise segment. And 3 to 5 years, we will definitely see Enterprise segment growing in terms of revenue. Now if I have to put an exact number to this, it will be difficult. But definitely, we are working on growth in the Enterprise segment.

No. Correct. But see, currently, we would be at 20-80, right -- 80-20, retail versus enterprise. So any number that you have in mind in terms of 50-50, 60-40? Because what I think is that enterprise is what would drive long-term growth and annuity, long-term steady growth. And we've been at this 20% -- 15%, 20% range for a long time now. So I just wanted to understand that.

So you are right. So if I have to answer it differently, the aspiration is definitely to have at 50% enterprise and 50% retail over 3 to 4 years down the line, and we are also working towards it.

Okay. So the other thing is, are you looking at change in the sales or strengthening the sales or getting someone, some industry, some new leader under your hold to just push the enterprise side of the business? Any take on that?

So we -- yes. So we have made a lot of changes in the last 6 months on a leadership -- in our leadership team. We also have a sales -- global sales head joining in -- joining with us a few months back. We also have a few leaders in R&D also joined. So a lot of changes have been already done. A lot of changes are also in the process. Yes, mainly on enterprise side, just to get it boosted. So all these changes are done. So it's a continuous process. So we are conscious of this fact. And we also have joined marketing head in the last few months.

Okay. Okay. Okay, and finally, we've got about INR 375 crores on the book, would you be looking at larger acquisitions? Or you are happy with this INR 2 crores, INR 10 crores, INR 15 crores, INR 20 crores, so what is the acquisition size that you're looking at?

Yes. Sanjay, do you want to answer this?

As we go ahead -- yes, we have been discussing this a lot earlier as well. The focus has been to make smaller acquisitions of the size, as you mentioned like INR 5 crores or INR 10 crores, at the most INR 20 crores because we don't have experience of having larger acquisitions because then it becomes too much of a risk for us, actually. Of course, our acquisition strategy is focused on cybersecurity and something where we have strength. In the sense, our business is more -- means our channel partner network and our strengths are in SMB segment for now. And as we were talking, we are also focusing on larger enterprise by releasing products for the larger enterprises, but that is the long process, and it's happening, actually, and it will take time. But at the same time, our strength of SMB segment in this whole market, we are trying to see how we can add product to this basket as well. And that's where the current investment that we did in Ray involves having a focus there because Ray is having OS-based product, which is cloud-based OS, and we are going to revolutionize the router and access points market by having a cloud OS and control from cloud for any router that they bring into the market. And then there's going to be a security fabric that Quick Heal is going to provide to that, actually. And that's completely focused on the SMB and medium-size organizations with a very competitive pricing, actually. We hope that, that's something that we are trying to see how this excels and how this takes our product.

Just a small last question. The recent acquisition that you did, the investment of that INR 2 crores that you've done. What would be your stake and say in the company? And how would the partnership work? In a sense, would you be introducing their products into India? Or you would be pushing yourself into Singapore? How would it work?

Yes. So to answer that, the stake is minor stake. We are like 4% stake that we got from investment. And the focus is to combinedly develop a product that is suitable for SMBs and mid-sized organizations. And the product, like, launch is planned, not only for India, but it is throughout the world. So like their focus is global. So they have already started getting interest and transaction, in the sense, I mean, to say discussions at higher level with Indonesia and Dubai and some customers in U.S. as well. And India -- and Quick Heal will be focusing for their products in India.

Okay. So that's -- and would that be exclusive? Or...

Yes. For now, at least discussions are at that way, so that's why we have been trying to invest and strategically into that.

We'll take the next question from the line of Subhankar Ojha from SKS Capital.

So just on the previous question, can you also talk about the capital allocation in terms of if you have thought any broad guidance on the acquisition size and how you are going to use the rest of the cash? And secondly, what was the free cash flow generation last year? I mean FY '20, what was the free cash flow you generated?

So last year about, if you see PAT plus depreciation, it should be about INR 130-odd crores. And on acquisition side, so yes, it is, as Sanjay mentioned earlier, we are looking for a right kind of technology. And if it really complements our products and if it gives us a niche, so we have been very selective on this. And that is why it takes time, but I think that is what it is required. So as far as price is concerned, yes, currently, we are looking at small and mid-sized deals. But if we see a target company, which fits into our requirement and which fits into our kind of a product mindset, and if it is a niche, then even if it is a larger deal of say, $10 million, $15 million, we will definitely would like to at least explore it.

And you do not have a geography in focus, it can be anywhere, right?

Yes, that is -- it will be more on enterprise side. But yes, I mean, if it is -- if the target is really good, company is really good even we won't mind looking at other geographies as well.

And also, sir, one data point, how much of your sales will be through online? I mean basically the physical and online sales mix?

So our -- if you look at our online sale is about 20% and channel partner sale is about 80%.

Have you seen any changes during the lockdown?

Yes, yes. During the -- see, let me -- first of all, there is no comparison because lockdown -- nothing, no physical dispatches are happening. So whatever is coming through is only online. So yes, there is a big increase in the first 2 months on online, yes.

[Operator Instructions] Next question is from the line of [ Chirag Patel from Adinath Shares ].

Sir, I have a few questions. The first one is like on general administration -- on expenses side is right now on FY '20, this is around 20% of the turnover. Last year, it was 15.5%. So what is the main component of driving these increases in the general administration we saw?

So as I mentioned in my opening comments, so if you look at this -- the increase of about INR 7 crore in general and administrative expenses on year-on-year basis, so we -- you remember, we had a buyback during the year. And for buyback, we incurred a cost of about INR 2 crores, which mainly consist of SEBI file fees and other regulators' fees. So that cost was a one-time cost of INR 2 crores. And during this last quarter, based on our internal assessment and looking at the current liquidity situation, we have made a provision for doubtful debt for a few of our dealers of about INR 50 million, INR 5 crore, in this quarter. Now this is done purely based on the current liquidity position. These are all continuing dealers with us. We are following up with them, and we will have some salvage out of this in subsequent quarter. But purely on a conservative basis, we have made this provision. So these are the 2 components which have bumped up the G&A expenses compared to last year.

And on sales and marketing side, like, it is also around 5% of sales?

Yes. So sales and marketing, as I said, we had a few dealer meets during the year. Dealer meets were across all India. And because of that, some expenses have gone up. And typically, if you look -- yes, and basically, I think if you see the percentage, it looks higher because if the revenue is lower, the number looks higher. But in absolute terms, because of the sales and the marketing dealer meets, the expenditure has gone up.

Okay. And can you just highlight what is our market share currently in India in this retail, particularly the products category?

So if you look at retail, it is about 34 -- 30-plus.

Okay. And what is the special moves in the competitive market space?

See, this data is not readily available. So for us to make any comment on this call may not be right.

Okay. And what was the trend of market share for our products in retail category of last, say, 5 years, like it is in the same range? Or are we getting some ups and downs?

Yes. So it is more or less on the same range and little bit on a higher side.

Okay. And what is the size of industry product sales of antivirus products in India?

Can you come back, please -- come back with your question, again?

Like, the size of industry products in which we operate currently?

So it is about INR 600 crores to INR 700 crores of products where we operate. But this number is also -- it is purely based on -- so this number is not readily available, this is based on our assessment.

Okay. Or does it include enterprise and retail, both category, or just retail category?

No, it is only retail.

We'll take the next question from the line of Sunil Agrawal from Sanaka Capital.

Yes. So I have 2 queries. One was on the market share. So I think you said about 30% retail. So can you throw some light on the enterprise side also in terms of, currently, what is the market share? And how do we see the growth in market share vis-á-vis the competition? And who could be your -- what could be the share for the nearest competitor or something? Second is on the earlier acquisition, I think last year, we're done with Israel-based L7 Defense. So can you just throw something in terms of how the company has gained any traction this year in terms of on the revenue or the P&L impact?

So first is on enterprise side, see, this data is -- enterprise, we are -- we have -- we are there in the selected products. On the enterprise side, this data is not readily available and like-to-like comparison is not there. So it will be very difficult for us to tell you exactly what is market share right now -- our market share on this. On second question on L7. For L7, as we mentioned that it was more of a start-up. And they have started. They are doing very well. And they have started generating some revenue traction. But it is too early to comment. I think we have to wait for another year. Since it's a start-up, everybody knows that start-up investments also, it takes time really to pick up. But so far, based on what feedback we are getting for them, we are tracking, we are working with them very closely. They are doing a better job, but maybe we'll get -- we will have to watch them another for a year, and then we'll be able to comment later on this.

And how will -- Ray would compare in terms of providing -- adding benefits to the company in terms of on the P&L side? Will it be again 1 year down the line? Or what kind of time lines you have in mind?

So Ray is also a part of this. So they started their operations late 2019, and our investment is more of a strategic investment. So we are hopeful that this investment deal will give us a good return, that's why we have made the investment. But it is too early really to comment on this. We have to definitely wait for a year and then observe the performance, and then we'll be able to comment.

We'll take the next question from the line of Vikram Kotak from Crest Capital.

Yes. Sorry, my line got disconnected twice. My question is, you initially mentioned about remote working and work-from-home will take off and which is what the consensus is all about. What sort of things are going to be different for Quick Heal in the sense that before COVID and post-COVID, how your business strategy changes in terms of manpower or business or opportunity or new sectors? Can you briefly spend some time on this one? Your strategy going forward. And how do you see because you look -- things really looks like for IT companies working from home will be very, very good opportunity going forward. So can you spend some time on that?

Sanjay, can you just answer this question?

Yes. So if you are looking at the current situation, what we have been doing is, we are gathering and learning from what is the new need that -- new normal, and what is the new security need for that, actually. And accordingly, we are, in fact, conducting a lot of sessions for SMBs as well as enterprises and seminars about what they should be doing for work-from-home and how our products fit into that. But that is the current, I would say, situation, but at the same time, our team is working on 2 aspects: one is how we -- one is like coming out with solutions and packages or maybe products that will be focused on the current situation. And the other is on the R&D front, working on the features and the new products that will help this kind of new norm that is going to get shaped, actually. So parallelly, we are working on both the themes. So on the enterprise front and on the SMB front, what we have observed is currently, people are more focused on training and -- cybersecurity trainings and cybersecurity-related best practices. The products and solutions, they are yet to start demanding or start implementing because there's a lot of discussions happening, actually. And on the consumer front, we have seen that there is a sudden slight increase in demand for laptops and PCs, maybe because of work-from-home or maybe even schools have started working remotely and students have started committing to classes remotely. So there's going to be a small surge in PCs and laptops that are going to go home. And we see like this should be a positive sign for us because this is an opportunity we are being strongly present in consumer segment, and Quick Heal brand is recognized well within this. So our marketing teams and sales teams are focused on those themes as well -- the current themes, actually. So I do definitely see there's a good opportunity because of the new norm that is getting set. The only thing is like we have to rightly adapt ourselves to this new opportunity and take it. On the other hand, I also see government announcement that happened like around INR 200 crores -- deals of INR 200 crores cannot -- need not go for global tender and all that. So we are looking forward for those things to get implemented properly and see how we get more opportunity to present locally without getting the bid to the MNC level and all that. So this is definitely a positive sign for us actually, I can see that. It's like -- and we are making sure that we are present in all the deals that are happening and pushing all ourselves like to be present in the deals that are going to happen. But currently, what we have seen is government is quite slow on currently expanding on cybersecurity. They are just doing a lot of announcements, but buying and all that is quite low in that sense. But yes, definitely, we see government may have some pickup. Consumer may have some pickup. But SMBs and enterprise, I'm not sure because SMBs are like at very big losses and renewing -- getting them renewed for our existing product is getting challenged. But yes, they are in touch with the security, but their spending is quite cautious now. So currently, we cannot say about the SMBs, actually.

Sure. Sanjay, one more question for you. I think this is about India. Now what about the global footprint because I was reading one of those global health report by McKinsey. And this says U.S. alone will spend $3 billion on cybersecurity, U.S. alone. So I'm just saying that how -- what are the -- what are your -- what's your spend doing on the global side? In the sense where do you see your global revenue going up on a global SMB under the global larger corporations? Are you making some footprint on that?

Yes. So that, again, our team is quite well working on that. Global ecosystem depends more on partner ecosystem that -- partner in the sense managed SMB services and the system integrators that move the dead market. And so our attempt, and we are exploring a lot of tie-ups with these system integrators and managed service providers. So accordingly, in fact, there had been a lot of requests on changes for the -- changes in our product to add up to those ecosystems which are like cloud-based managed service providers need, and those changes have already been rolled out, certain changes and certain things are already in pipeline for our products so that we can better serve the partners in those areas. So we are focusing on those areas, and we'll definitely -- means it depends on a lot based on how they accept our products. At the same time, what we have seen is as the current example of we investing into Ray, we've seen certain, like, different interests from like OEMs like telecoms, actually, or -- because they too are getting pressure from providing changing bandwidth and all that. So that's where we have seen that working with Ray, they are more into OEM kind of deals and talks with the telecom guys for coming out with their OS as a fabric and our security -- for security fabric and providing access points. So all these attempts we are doing. In fact, even in the India, we're trying to talk to telecom guys and bring out a solution which can be -- we will give for telecom as well as us. But these things need to see a fruit, that's what we are trying to see. So that's what our focus is right now, yes.

Sure. And last question. FY '21, we understand, is all about COVID and disruption in supply chain and the shops are not opening and all that. How do you see -- assume the FY '22 is a normal year and what kind of growth rate you are targeting over the next 3 years? Leave FY '20 in a way and just focus on next 3 years once FY '21 is over?

Yes. So you rightly said, the current financial year, we are not looking at anything. In fact, we are looking how much is going to be the lost business opportunity and all that because of the current situation. But I definitely expect the things to become normal by next financial year. And this definitely gives us the opportunity, one is like the new changes that are happening in the market and getting our product ready in this financial year so that they can -- they pitch into the new normal. So I see this year, current year, which I think is very good for looking deeper into R&D and coming out with both products and solutions that can help in the new normal. And at the same time, once the market starts becoming normal and, in fact, I would say, not only normal, it will come back with a bang because a lot of things are going to be changing globally, with few manufacturing moving to India, people -- government focusing on cybersecurity. So all of this is definitely going to create a new market and opportunity. So for me, I feel we should be growing in the next financial year, and then we will -- I mean -- then after, even in the consumer as well as the enterprise segments, both. So I see consumer growth can be just an -- see that from where we were been doing consumer growth in the range of single-digit percent that still -- that should be at the higher single digit, and we should be on track for that, actually, and the enterprise and SMBs. But I'm, like, doubtful about SMBs because SMBs, as you have seen, our enterprise segment has been not growing that fast because certain percent -- major percentage is from SMBs and SMBs -- and throughout last 3 years, I have seen, has been going through a lot of different challenges in India, and that has affected the SMB market, not for only us but for all the vendors, actually. And we hope that if that fits in, we are very well placed for SMB to capture the market. And our newer products that we are focusing and that we are planning to release by next -- early -- I mean, next financial year, early quarter, the first quarter of next financial year, those products are focused towards larger enterprises. And that's where we feel that, that will give us additional revenue from -- apart from the what we already have the product for SMB. So that should also add up to the growth engine. Currently, I cannot put the figure to that, but, yes, we are targeting this market, actually. Yes.

And one last small point that you mentioned about your liquid money is lying in mutual funds. So is there any worry in the mutual fund which supports in the sense a credit fund or some long-term debt fund? Where do you put your mutual fund normally as a build, which is...

Yes. This is Nitin. So these are all debt-based liquid funds. And yes, so they are all safe. And I think what we have done is, we have opposed it frankly with you. We have, again, reassessed the situation, and based on our input from our Board of Directors, we have moved some of the money to bank deposits, with fixed deposits with a few good banks. There, returns are lower, but at least we have relatively safety and there is a certainty on liquidity. So we are taking due care as far as investments are concerned. And at this point of time, there is no need to worry.

We'll take the next question from the line of Parimal Mithani from Credential Securities.

Hello?

Hello?

I hope everyone is safe, sir?

Yes, yes. We all are safe.

Yes. Sir, I just had 2 questions. One is recently the government, which earlier Mr. Sanjay spoke about, about the government tenders up to INR 200 crores would not require globally, and it will be mostly locally extended. How are you placed versus your competitor? And if you have a competitor in that space, what's the difference between you and the competitor?

So Sanjay, maybe you can add to this. So Parimal, this is Nitin. So India, we definitely stand a -- we are at a better place, and we are there to take advantage of this situation. So there is a competition, but we are in a better position to take the advantage of the situation.

Because if my understanding is right, McAfee and Symantec of the world will not be there in that INR 200 crore category now. And that's -- so I just wanted to know level things seen in terms of Quick Heal versus other competitors, if there are, and how you are trying to approach it? Because I think earlier McAfee and the Symantec were giving a lot of competition for us. That's -- so how are we placed now, sir, with that -- if you can just highlight how we are going to tap this opportunity? If Sanjay can say about it, it would be much better, though.

I was disconnected for a while, so I could only hear a part of your question. Can you repeat the complete question, actually?

Sure. The government has come up with this policy, where there will be orders up to INR 200 crores, tender up to INR 200 crores will not require global participants, only local people will be given a preference. And my understanding is that earlier, we had problems in terms of the global majors being part of the competition. So how do you see as Quick Heal could be benefited of this? Secondly, as preference will be given, I think, you are part of the DAM platform also, earlier.

Yes. So what I -- and the move that government has done is definitely a welcome move. And in fact, I feel that should help us a lot in the sense we will not be getting, in fact, MNC competition to face a lot. But that is what we assume. But what we are seeing is government guidelines are something that are guidelines and not enforcement. So many a times, these organizations, they try to -- I mean, some organizations do follow guidelines; some organizations, they don't. So what we are trying to do is, we are aggressively pushing our government sales guys to be present in all the bids that are coming for cybersecurity under INR 200 crores, so that we make sure that we are present there and make sure that we put our best of the products. Definitely, this should help. And we want to see how this evolves. It's actually announced when things haven't yet started moving on government front here.

Okay. Sir, effectively these tenders will serve the government side, whether state or central government, what are the typical order sizes if you can give a ballpark figure for this? Like, are they up to INR 100 crores, INR 200 crores, what is the normal range of these tenders range from?

So Parimal, they are less than that, definitely, less than INR 100 crores, but it will be very difficult to give out the exact number, but they are less than INR 100 crores of size.

So I want to add to that in the sense, the INR 100 crore figure is quite a big figure, it can go up till INR 200 crores only if it is a big department or across the nation some kind of orders, but most of the government orders are of less than, I would say, INR 50 crores or even less than that. And many a times, certain department-wise orders do come in, and we have a lot of presence in most of these departments. So these are smaller orders that they came up, and our -- 60% of our business happens through GeM currently, actually.

And sir, my second point is, since we Make in India -- most of our products are made in India, is there any local MNC which makes any local and distribute it since they will be eligible for -- they can tell the government, since we are doing -- products are being made in India and -- so is there a competition in that level for us also, sir?

And so what is -- you rightly pointed, many MNCs are trying to, means -- to win orders, they're trying to put their -- themselves as MNC on the Make in India because most of these developing MNCs have offices in India like Symantec or even McAfee, they have large offices in Kuli, Bangalore and Pune, actually. But truly speaking, those products are not Make in India because certain part is getting developed here and most of the teams and controls are in the U.S., actually. But that is what something that convincing game that we have to keep doing with the government departments, actually. Because, see, the cloud that they use and everything is not in India since their technology and their main head office is out of India, actually. So this is where we try to pitch in that our complete development happens in India and makes -- and in fact, our servers from cloud to everything is in India. And somewhere they get convinced and certain departments, which are very crucial and they know importance of these have already been pushing their orders to us. But certain departments, which are not very tech-savvy, but the orders can be big like railways or something like that. So there, it becomes very difficult to pitch, but we are trying our best to do that, actually. Yes.

Sir, because if I see from the presentation, you have nuclear power operations, which is one of the biggest in terms of nuclear power.

Yes. In fact, we have a lot of good big orders from government, like Navy completely is protected by Quick Heal and even -- not only Navy, certain departments of DRDO and even banks -- a lot of banks who are feeling that their data is crucial and they want local cloud and everything, they are on Quick Heal. Banks using -- I mean to say cooperative banks and the financial back-ends of the banks like -- and -- but definitely, yes, the very big orders that are there still, they are not coming to us, where we are trying to push ourselves.

Any nearest competitor, like, to you who can -- in this local talent. Is there anyone that you compare to...

Yes, if you see, I'll give you the complete picture. The one thing is if you see MNC competition, which is taking bigger government orders, there are few, like Trend Micro and Kaspersky and Symantec. They are all taking bigger orders. And they are trying to push, but we are much better than Kaspersky in terms of share of the government market. But if you have to talk about Make in India competitor in India, we are the largest player, and we have the largest setup from -- aside from the financial as well as the R&D side. There are small pockets in the retail products in India and small pockets like one in Chennai and one in Mumbai. But they are not up to the size and the product -- number of products are not there up to the mark with data corp actually because our products are quite in comparison with global vendors, and we are competing with them globally as well. So if you see, competition-wise, in India, we are the #1 competition for all the local players, actually, and we are having bigger share. But if you compare ourselves with the MNC competition that is coming to India and trying to grab government markets, there, the competition is like Trend Micro and Symantec and McAfee, actually.

And sir, second point is in terms of the distribution model. I think now since with COVID coming in, I think the physical versus digital, I think that it has both the merits. So how are you trying to approach it henceforth? Like, because I -- in this lockdown, I think, how has your ramp-up been in terms of online side? And what is the feedback that you've been getting since last 2 months of lockdown?

Yes. So you rightly pointed, it has changed a lot of economics and the way people are buying things. So online has definitely gained preference. And I would like to assure you that we are present in all the online platforms like Amazon, Flipkart and our own online platform of our website. And what we have seen is we are getting a good share of online business that is happening for antivirus and security products. These are all consumer products that I'm talking about. So our enterprise is still like it hardly goes online. Enterprise is about doing deals, and that's continuing. But consumer is -- started showing a lot of interest on online. And we are trying to focus our -- all marketing and communication channels more focused towards online. So taking as on Amazon or trying to have some social media presence for bringing customers to buy online, even rolling out schemes for online things. So that is what we are doing, and we are seeing some results on that. But compared to that earlier norm of like off-line business versus the current norm, there are numbers which are quite different. In the sense, I mean to say earlier, the off-line market size was huge, and it's still huge, so which in that level through online is going to be a long time, it's not going to happen immediately. But definitely, whatever online is growing, we are making sure that we keep getting more and more share into the growth of the online market. And earlier as well, the amount of antivirus that goes online, we had more than 30% of market share on that business as well, online business of India, and we are still maintaining that, and we are trying to grab more business online. So our strategy is focused on online, currently, as you rightly said, because we have teams now checking working-from-home. And so all the focus is how to come up with more schemes for online business, and therefore, we are doing that.

So my point was, sir, that I think you guys are in the tailwind of the industry compared to having headwinds in terms of cybersecurity. My point is, are you going to rationalize your physical versus the digital footprint going forward? Or is there any thought process on the management for that in terms of distribution?

Yes. So it's like -- I mean to say, we are not going to give up on our physical distribution in the sense, there is quite a good strength that we have in partner network of more than 22,000 across India. And that ecosystem is not going to die out even if the current situation -- because of the current situation. The only thing is we are facing a dent with this current situation, and we are in touch with those partners as well. So we are not going to give up on that market, but at the same time, yes, we realize that, okay, online is growing faster and we should be there and making sure. So that is what our focus currently it is. I do feel that, yes, this situation had accelerated the movement of off-line market to online market. And this acceleration is what we are seeing, but it's going to take some time. So we are not going to give up on physical distribution because it's like, okay, it's -- clearly more than 70% of our market was, before COVID, it was coming from off-line market, and that's what we cannot lose actually. But because of this situation, we have to wait for that to come to normal.

And sir, last one is...

Mr. Parimal, so sorry to interrupt. May I please request you to rejoin the question queue for your follow-up as we have people waiting for their turn. Next question is from the line of [ Harshit Rathi from KR Invests ].

Hello? Do you hear me?

Yes, we can hear you. Go ahead.

Yes. So my question is like you have mentioned in presentation that Q4 revenue has fallen due to the lockdown post all over in India. But the thing is lockdown was imposed on 25th of March and only 6 days were left in Q4. So how can you justify this statement that due to the 6 days of lockdown, the revenue has fallen by 25% in only a single quarter and only due to these last 6 days?

So yes -- so this is Nitin. So see, if you see Maharashtra, this lockdown started almost from 17th, 18th of March. And if you look at the transporters, so because of the lockdown, transporters were not available. And in our retail vertical, we have to physically dispatch the goods to the dealers. And based -- after that only, we will be able to recognize the revenue. Since transporters were not available in last 15 days of the quarter, which is a very critical and crucial period for us, where most of our revenue comes. So because of nonavailability of transporters, we were not able to -- in spite of having orders from dealers, we were not able to really dispatch the material to these dealers. And because of that, we were not able to recognize the revenue for accounting purpose. So that is the main reason why there is a big dip in the revenue because of COVID-19 situation.

Okay. So like you are saying there were heavy orders?

Yes. We have orders.

Okay. So it will reflect in next -- it should reflect in the next quarter, right?

So some purchase will happen in the next quarter that is what I can say at this point in time. See, if you look at the situation today, today also still that -- it is not fully operational. Yes, Sanjay, you wanted to add to it?

Yes, I was saying that as you see, our model is more stock and sale, and we have to stock all our partners, dealers with the stock. And as you rightly said, quarter 4 is a big quarter for us, and many a times, this -- all this happens in the last 3, 4 weeks of the fourth quarter. And so stock and sale, it has to be -- as Nitin rightly said, we did got -- get our orders, but since we cannot fulfill the orders and because of the deliveries, we cannot recognize it, and that's affecting us. And that fulfilling orders, whenever it happens, it will reset in our books, actually. And in the current situation, we have not even fulfilled 15% of our orders that were there in March, actually. And that's a fact. The lockdown is not even completely open, and we are not able to get the right transportation happening. But we hope that this should change very soon in coming days as lockdown gets relaxed. And as it happens, it will definitely reflect in the books, actually.

Okay. So, Sanjay, this is the only reason due to which the revenue has fallen?

Yes.

We'll take the next question from the line of Saurabh Ginodia from SMIFS Capital Markets.

Sir, can we believe the city finally is safe?

Sir, so sorry to interrupt, may I please request you to speak a bit louder?

Yes. So sir, I have a couple of questions. I just wanted to understand a little bit on the gross margin side from the online business. And in one of the answers to the earlier participants, you mentioned you have a significant share of business coming from the renewal side of the engine of orders. Is it possible for you to share the number, both in the retail and the enterprise segment?

So can you please repeat your question? Your line was not very clear.

Sir, I had a couple of questions. One question was with respect to the gross margin in the online business? And second was share of the business coming from the renewal side in both retail and enterprise, separate. If you can share that breakup?

Yes. So gross margin, yes, I mean, we don't share this data as far as the gross margin is concerned separately from online side. And in terms of renewals, it's -- one second -- so if you look at enterprise side, renewal is about 75% to 80%, and in case of retail, it is close to 35% to 40%.

Well, ladies and gentlemen, this was the last question for today. I would now like to hand the conference back to Mr. Nitin Kulkarni for closing comments. Over to you, sir.

So I thank everyone for joining the call. I hope we have been able to answer and address all of your questions and queries raised by you on the call. If you need any kind of further information or assistance, you can kindly get in touch with EY, our IR advisers. Thank you all. Thank you very much. Stay healthy, and stay safe. Thank you very much.

Thank you.

Thank you. On behalf of Quick Heal Technologies Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines.