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

Ladies and gentlemen, good day, and welcome to the Quick Heal Technologies Q1 FY '21 Earnings Conference Call. [Operator Instructions] Please note, 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; and Mr. Nitin Kulkarni, Chief Financial Officer. I would now like to hand the conference over to the CFO, Mr. Nitin Kulkarni. Thank you, and over to you, sir.

Thank you, Janice. Hello, and good evening, everyone. I'm pleased to welcome you all to our earnings call to discuss our Q1 financial year '21 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, Janice. Thank you, Nitin. Good evening, ladies and gentlemen. Thank you for joining us today to discuss the Quick Heal Technologies financial results for the year -- for Q1 financial year 2021. I would like to take this opportunity to update you about the development and initiatives for the quarter. Before I begin, I hope you and your family are safe and taking adequate precaution while dealing with this pandemic. I would like to take this opportunity to thank all the COVID-19 warriors for their efforts in containing this pandemic and keeping our shape. I would like to inform you that Quick Heal is also at the forefront to help the poor and impacted community during such difficulty time. As a responsible corporate citizen, we are actively involved directly and indirectly for the betterment of our society. Our financial performance in Q1 '21 has improved compared to Q1 FY '20 aided by the revenue spillover from Q4. As a result, our margins have improved considerably. I will let Nitin discuss our financial performance in detail later. On the product side, I'm happy to inform you that Quick Heal Total Security and Seqrite Endpoint Security are certified by AV-Test as the top products. AV-Test is an independent research institute for IT security from Germany. We have launched the next-generation products this quarter for our retail consumer and update our enterprise product to secure our customers from the ever-evolving threat landscape. I will now hand over to Sanjay to elaborate more on products we have launched, AV-Test certification and industry trend. Over to you, Sanjay.

Thank you, Kailash. Good evening, everyone. As Kailash mentioned, we have recently introduced the next-generation products powered with the theme of privacy, protection and performance for our retail consumer. With this launch, we are aiming to redefine consumer security with comprehensive solutions to tackle the growing sophistication of cyberattacks. Apart from the best-in-class protection, the new portfolio is equipped with privacy features like anti-tracker, identity protection, webcam protection, WiFi scanners, among others; and that empower consumers to take charge of their privacy in the digital world. On the enterprise side, we have launched a new version of our Unified Threat Management product in the last quarter, the UTM product. This product enables enterprises with presence in multiple geographies to manage multiple UTM devices and strengthen network security across branches from a single centralized control. I would like to update that we are also working on new innovations, especially for the enterprise segment that will help us to increase our reach end market in this segment. We will update you on these products closer to their launch. As Kailash informed before that AV-Test, which is a Germany-based independent antivirus certification organization, has recognized our flagship product, Quick Heal Total Security and Seqrite Endpoint Security products as the top products. I would like to provide more details on this. During May and June of 2020, AV-Test continuously evaluated 22 global security products with a focus on realistic test scenarios and challenge the products against the real-world threats. We all know during these months, lockdown was in effect across most of the countries, and cyber criminals were taking undue advantage of the situation by targeting remote workers. As per the test results, our products were certified as the top products on 3 specific parameters. Those parameters are: superior protection, robust system performance and usability. This certification is a testament to the quality and capabilities of our R&D team. Multiple PC vendors have reported a surge in demand for laptops and desktops due to remote working and online education. We expect this trend to play out well for us in the future. On the enterprise side, demand from the MSME market continues to be weak. We expect the demand to pick up once situation is back to normal. On the government side, we are witnessing temporary shift in fiscal spending focus due to COVID-19 leading to lower government spending on cybersecurity. While the world is focused on the health and economic threats posted by COVID-19, cyber criminals around the world undoubtedly are capitalizing on this crisis. We have observed a spike in phishing attacks, malspam and ransomware attacks as attackers are using COVID-19 as a base to impersonate brands, thereby, misleading consumers and employees. This will likely result in more impacted personal computers and phones. Not only are businesses being targeted, end users who download COVID-19 related applications are also being targeted in downloading ransomware disguised as legitimate applications. For the large enterprise market, as mentioned in the previous earnings call, COVID-19 has reinstated the importance of cybersecurity and has demonstrated the fact that cybersecurity is a crucial element for a successful business continuity plan and cannot be ignored. Even though we are seeing lockdowns being lifted in many parts of the country, most of the corporates are still preferring to work from home for safety reasons. This presents one new-found opportunity for cybersecurity products and solutions. And with this, I now hand over to the floor to Mr. Nitin Kulkarni, our CFO, for his comments on the financial performance.

Thank you, Sanjay, and good evening, again, to all of you. Let me take you through the financial highlights for the first quarter ended 30th June 2020. As Kailash mentioned, we have delivered strong growth this quarter, but we continue to see the impact of COVID-19. As discussed in the previous earnings call, the nonavailability of transport facilities continues to be the challenge in most of the first half of this quarter. As the lockdown has started to get lifted gradually, we saw some revival in the availability of the transport facility. We expect this headwind to fade away and the situation returning to normalcy, hopefully, from the second quarter of this financial year. Consolidated revenue from operations for the quarter stood at INR 735 million, up 27.5% as compared to INR 576 million in Q1 of financial year 2020. 87% of our revenue comes from retail segment and balance 13% from enterprise and government. The average realization went down for retail segment, whereas the enterprise segment has seen growth mainly as a result of change in the product mix. On the retail side, as mentioned earlier, we continue to face challenges due to COVID-19, but we were able to deliver strong growth due to spillover of revenue from Q4. I would like to highlight that we are seeing demand slightly improving from the retail side, and we are optimistic about the year. On the enterprise side, as Sanjay mentioned earlier, demand from MSME continues to be weak. And temporarily shift in the fiscal spending focus due to COVID-19 has led to lower government spending on cybersecurity. This has impacted our enterprise revenues for the quarter. We are hopeful that enterprise sales will pick up in coming quarters. Our EBITDA stood at INR 321 million, up 150% compared to $128 million in Q1 of last year. EBITDA went up because of higher revenue, lower travel expenses due to no travel and reduction in power and fuel costs, mainly due to closure of our offices during the lockdown period. Depreciation for the quarter is lower, a result of return down value method of depreciation followed by the company. The other income for the quarter has gone down on account of the shift of investment to lower risk products in the form of fixed deposits due to the current uncertain economic environment. Tax for the quarter stood at INR 250 million, up 110% compared to $119 million in Q1 of last year. PAT margins stood at 34%, up 1,331 basis points from 20.7% in Q1 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, the corporate income tax rate was reduced to 26.16% (sic) [ 25.17 ] resulting in lower income tax for the year. On the working capital side of the business, as cautioned in the previous earnings call, we have seen working capital days significantly going up to 124 days. Our average net working capital days for the previous financial year was at 104 days. This rise in net working capital days is mainly due to the rise in debtor days in retail business as many distributors are facing a cash crunch due to COVID-19 situation. I would like to highlight that almost half of the total receivables are with our top 10 to 15 distributors with whom we have been doing business for the last many years, and we are keeping close monitoring on these receivables. The situation is expected to remain like this in Q2 as well, and debtor days are likely to be in this higher range. As a reminder, during the previous quarter, based on our internal assessment, we have already made provision for doubtful days of INR 50 million for receivables from few of our dealers. We are strongly following up with them for the collection and expect part of this amount, part of the recovery during this quarter. However, this provision was made in the last quarter purely on a conservative basis. Our current cash and cash equivalents stand at around INR 3.9 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 an opportunity to better utilize the cash on our balance sheet. On the M&A side, we again remain very cautious and calibrated in our investments, and we will be looking at smarter and midsized investments. Overall, to sum up the quarter, we continue to face challenges due to COVID-19 situation and the lockdown has gradually lifted, and we hopefully expect things to come back to normalcy from Q3 onwards. With this, we will now open the floor for questions. Thank you.

[Operator Instructions] We take the first question from the line of Kranthi Bathini from WealthMills Securities.

Good show -- good resilience Quick Heal has this quarter. But I would like to know how the things are going to pan out because of your experience in the last quarter? How the business visibility is looking because most of the people are working from home? How the demand for cybersecurity products and antivirus products are panning out?

Hello. This is Sanjay here. Yes, we are seeing somewhat demand getting generated because of this new situation where there's an upsell of laptops and PCs. But at the same time, the lockdown has created a lot of challenges for us for the deliveries and the liquidity crunch among the partners is creating challenge of stocking the partners, but we are trying to handle the situation but at the same time, this -- I do see that this will recover by quarter 3 and somewhat -- and then mostly by quarter 4. Currently, we are doing -- seeing an impact on the revenues, actually.

How the PC sales are looking? Because any pent-up demand where the markets can witness in terms of PC sales in India?

Yes. The PC sale…

So we've seen positive impact on…

Yes. So I've seen that there's quite a good jump in PC sale and laptop sales. So there's growth in PC sale if we compare that with the last year. And that will definitely result in growth in security and the product sales, but then that should -- that's like we will have to balance between the liquidity crunch and stocking actually. But at the same time, we will see that there's going to be a good enough demand in future quarters, actually.

Okay. Sir, my final question is, are you going to focus on Indian geography? Or you want to expand to other geographies? What is your plan?

So for retail products, we are already present in lot of other geographies out of India as well, like Southeast Asia and even in Middle East. But for retail, it's like developed countries is not much of a growth we are seeing because the markets are completely changed there and the demand over there is not for the retail products, but morely towards enterprise products. So for our enterprise vertical, we are expanding our geographical presence into multiple geographies, like, even developed countries and having -- and appointing partners there. As we release newer products, we are able to address certain segment of the market in SME and the enterprise segment actually. So we are for growing our presence geographically. And as we'll be releasing more products as I said in my investor call, we will be releasing certain products, we cannot tell now unless we release them. But then those markets, mostly the international markets will be addressed because of those products that we are launching.

Okay. Are you going to have your own team or you are going to have a franchise kind of model in overseas locations?

So we mostly work through partners, actually. So it's not like we will be having our own team. Definitely, we will be having our personal presence there, but that will be managing the partners in that region actually.

The next question is from the line of Varun Goenka from Nippon India Mutual Funds.

I have several questions. Let me take it one-by-one. First, if you can give us some understanding of our device-wise installation? So when I say device: laptop, mobile, PC, any other device, do you have a breakup of -- as on current installations, what would be the breakup across devices?

So we don't have breakup for laptop and PC because, for us, it is the same thing because we consider the windows as a platform. But we do have differentiation among mobile and the Windows products, actually. But the mobile, currently, right now, I don't have that figure in my front. But I can just tell you that most of all, like, almost 95% of our activation or sale is on the Windows platform, so that's laptop and PCs. Mobile is still very less actually because mobile cybersecurity market is still picking up, actually.

Okay. Secondly, if you could break up sales of our customers into, let's say, existing customers, customers who have upgraded, customers who have newly come, repurchased, any breakup or understanding on that?

This is Kailash here. I think we have already given this kind of information in past investor call meetings also. What we are tracking for the product renewal, that is considered not only the product renewal but if same machine buys new product and does the activation that also we consider as a renewal of the customer, and that is close to somewhere between 35% to 38%, actually.

Okay. So 35% to 38% is existing customers renewing new customers.

Yes, they are existing customers.

Okay. And how many customers would that be, sir, at current?

This is in consumer part of it.

Right. So how many consumers would that be, as of now, today?

So we have -- if I tell you the user in front of you -- but exact figure, I don't have at present, but it will be close to 7.2 million or something like this.

Okay. So 7.2 million, these are individual customers, right?

Yes.

Yes. And the sale that we do through our partners, there the billing is to you or to the partner? So do you know your end customer?

We don't know personally the end customer, but we know by the name or contact details. But sometimes they give wrong information while doing the activation part of it.

Okay. I get it. So what I'm trying to get to is, let's say, of the retail of the individual consumers, only, let's say, 35%, 38% is renewals, then of your enterprise sales, how would you track your renewal rate there?

That is very high. That is close to 80%, 85%.

Okay. So how are you able to track that, sir?

It's the same way the way we track for consumer part of it. And Sanjay will add to it.

Enterprise is, like, it's the license sale, actually. It's not a box sale. So most of the things -- even the partners do sell, the product goes through us and the enterprise tracking mechanism is different, actually. So enterprise, generally, is mostly with installations because it's like installing throughout the network. So most of the enterprises go for renewal instead of changing the product. So activations there and the renewals are more than 80% actually. Even in consumer, it's -- even though we are tracking it to 35% to 38%, most of the expired or not-renewed customers do come back to us after 3, 4 months. And if we calculate that as older customer -- as a renewal, then our renewal goes beyond 60%, actually. But that only happens over the period, it doesn't happen immediately after expiry. It takes at least 3 to 4 months extra from the expiry.

Of course. Yes. Sure. And what would be the concentration of our receivables, let's say, top 5 customers? I'm assuming retail does not have any receivables. Am I to begin…

No, no. So in fact, if you see the business model, 80% of our revenue comes through retail, and a significant part of receivables is from a retail business.

Because we have a partner system actually and then distributor as a…

So we bill to T1 partner. And from there, it goes to T2, T3 and the end consumers. So receivables out of receivables, retail vertical will have maximum receivables.

Okay. Would you have any direct-to-consumer sales, sir? I mean, after being in the market for so long, any kind of…

It is only through our website. Otherwise, it is all through channel partners.

Yes, correct. So -- but is there any sales right now directly through Quick Heal? Now that -- I mean, it's a known brand or it's a known product. So have you got any traction?

No. So there is a -- see, it's online sales from our own website, which is directly -- direct sale from Quick Heal. And if you look at the current quarter, in fact, now the online sale has increased a lot because of this lockdown. Physical facilities are not available. So online sales has increased, but this is purely on our website, on our portal.

Right. So how much would that be, sir?

So if I look at first quarter, it will be about 20%, 25%. So this sale is including our sale of online plus portal sale, portal sales through Amazon and e-commerce.

Correct, correct. I got it. I got it. So yes, total online sales. So this is -- even on Amazon, you are selling directly, right, not through a 3P module?

No, that is -- you are right, we are selling it directly.

Okay. Great. Right. Sure. And just a final point before I get back in the queue. In terms of our product superiority? Or where -- I mean, how would you benchmark your product to? Who would you benchmark? And in what areas is you better than, let's say, Symantec or McAfee or vice versa? If you can help us -- you understand the industry better than most of us, sir.

So Varun, as I said in my talk in the investor call, we are benchmarking ourselves and we are getting certified by international antivirus certifying bodies. And in fact, last quarter, we were selected among the top products in the last recent test cycle. So if we see technologically as well as the performance-wise, our product is at par with most of the MNC products, including Norton, McAfee or even…

I got that comment, sir. I heard that comment. What I'm trying is, which are the features, which is really making us better than them? Features, pricing or what is it that is making us better?

See, it might not only features. See, we don't -- I don't think the sale happens only because of features. It's -- there are multiple factors here. If you see the availability, the support, the back end, in the sense, after-sale support and the partner training that we conduct -- because see, a consumer who goes and buy, he doesn't only look at the feature, he needs a lot of support when it comes to threats and viruses that are -- that they -- he has to deal with on the laptop or a PC. So there has to be a trained engineer who can handle any eventuality on such a kind of attack, like ransomware or even hacking attempts. So we've been present across India. We have trained workforce throughout India, not only our own workforce, but other 25,000 channel partners that we have. We conduct weekly training for their engineers, and that is the strength that helps us to convince the partners and the consumers to go for our product, actually.

Okay. So let's say, on the distribution part, 25,000 channel partners, what area does it cover? Or how deep does it go into, sir?

So mostly all the metros and then A, B and C class -- certain level of C class cities as well. And we are trying to expand our presence in even B and C class because we are seeing demand growth in those areas, actually.

And what percentage of sales would be our nonmetro, sir? Maybe that gives us an indicator.

We don't measure that actually. Currently, I'm not having that in front of me, yes.

No problem. Just you were clarifying on the receivables. What is the concentration of receivable, let's say top 5 customers or top 10 customers?

So if you see, as I said, it is mostly from retail vertical. And if you see top -- if I take, say, top 20 dealers with whom we are dealing for many years. So that will be about more than 50% -- that will consist of more than 50% of our receivables. And with this dealers, we have been dealing for at least 2 decades.

The next question is from the line of Keshav Garg from Counter Cyclical Investment.

So can you -- sir, can you quantify that how much revenue has spilled over from fourth quarter to first quarter?

So Keshav, this is Nitin. So if I have to talk about the exact number, it is about INR 28 crores.

Okay sir, INR 28 crores. And sir, so going forward, will we be able to maintain the same run rate as first quarter?

So this is difficult. So looking at the current -- so first of all, this INR 28 crores is definitely a spillover from Q4, so that -- you have to keep that number in mind while modeling. And secondly, in the current situation, as Sanjay also mentioned, that demand will pick up from, say, Q2 and/or Q3 onwards. So it will be very difficult, really, to really tell you what kind of revenue momentum they will have. So we are making all our attempts. We are talking to these dealers. We are talking to customers, partners, and we are adopted to all this new style of work. But commenting anything on the numbers will be very difficult. So we will get a better clarity when we come to end of Q2.

Okay, sir. And sir, also wanted to understand, sir, that our turnover is flat at around INR 285 crore roughly since past 5 years and our EBITDA is flat since past 8 year at around INR 90 crore. And sir, this is in nominal terms, if we adjust for inflation and actually our EBITDA is half in the past 8 years. So basically adjusting for inflation. So I mean, sir, what's the reason for this stagnation in our business?

So basically, if you look at retail verticals, so there have been 2 events in the 2 years, which is demonetization and GST, which has definitely impacted the retail business. And on enterprise side, the sluggishness and slowdown in SME in economy has badly impacted SME and SMB business. This is the main reason for the flatter revenue of about INR 300 crores for last 2 to 3 years. And definitely, as Sanjay mentioned, we are working on new products, which will get released, say, in 1 year, 1.5 years that will definitely give us upside on revenue as far as enterprise is concerned. And if you look at EBITDA, EBITDA, and we have been giving for the past 3 years, we have been -- we have EBITDA of 35% to 38%, which is in that range. So I think that kind of EBITDA with 20%, 25% profitability seems to be a decent number if you look at the way the industry is trending now.

We are investing in the new products.

And we are also investing a lot into new products. We are also looking at a lot of inorganic opportunities. So all efforts are being -- are happening in the right direction, which will definitely take us to the next level in years to come.

So -- and also, our operating margin used to be at around over 50% some 7 years back, and now they have come down to around 1/3 of our turnover, sir. So why this operating margin is reducing?

So I don't know what 7 years back you're talking about. 7 years back, it is a too longer period really to compare. So the kind of cost structure, the kind of development, which we are doing -- so even see the development efforts are happening on existing products also. So we are enhancing our existing products also. So a lot of investment is happening on these products, even in retail vertical also. And that is the reason why we have EBITDA of 35% to 37% and this investment is definitely going to give us better results in years to come. So I really do not -- I think comparing it for 7 years back, I think it will be too old outdated data.

So we have invested heavily into large enterprise products that are still under development and certain products have already, like, for midsized organizations we have already released certain products and this product investments will give results in coming years, actually. So that investment, we have to keep doing because we have to release new products actually. So that is where it may impact actually, yes.

So basically, in the past 5 years, that our turnover is flat so the industry would be growing even though in single digits, but sir, antivirus market can't be stagnant in the past 5 years in India.

So see, when you are talking about industry is growing, it has seemed like about the global thing. Things in India had been quite different and our presence in India had been more than 90%. So here, I'm talking about the licenses that we are selling, the number of licenses has grown, but the price for licenses has come down over the years, actually. And we are, also, at the same time, entered into SMB market, which has got impacted because of other eventualities, the events that happened over the years, actually. And that is, in fact, even COVID situation has impacted mostly the SMBs. And that is where our -- when we say our enterprises sale, where, again, more than 80% of our enterprise sale happens to SMBs because our presence was there. Now we are entering a large enterprise segment as well by introducing more products, which will happen in, like, next 3, 4 quarters. But then as we enter newer segments, certain segments are getting impacted, and that is addressing -- that's creating problems for us. But at the same time, we are trying to increase our presence in other geographies and increase our products and enter newer markets. That's what our focus has been, actually.

And just to add to that, so we have made entry into enterprise vertical, about 7 and 8 years back. So you have to understand one thing that a lot of investment is happening in enterprise business, which will definitely give results in years to come. So that is there. So it is more of an investment which we are making for a future group.

Sir, so basically 7, 8 years back, we entered this new business segment. And sir, still, our revenue is flat since past 5 year. So basically, anyway so you have answered that. Sir, my basic point is, sir, that when will we breakout of this INR 300 crore turnover and INR 100 crore operating profit range?

So see, as I said earlier too, we are working on a lot of products, and these are all new innovative products, which -- with this, we will be able to cater to large and mid-enterprises in years -- in 1 to 1.5 years, and that is different. So all these investments is happening. It has already started happening. Our R&D team have already started working on this development. And this is -- so as far as the enterprise segment is concerned, these are the products which will definitely be -- we will be able to sell it in India as well as overseas market, and it will be more of a growth engine for us. So these investments, we are confident. Again, I'm repeating the same question -- the same point that with this investment, we are confident that revenues in 1 to 2 years down the line, we'll definitely show growth in the revenues.

Okay. And sir, please consider doing a buyback since our large buyback was more than 1 year back, and we have ample cash on balance sheet.

We take the next question from the line of Nikhil Chandak from Landmark Group.

My question was, when I see your presentation, the enterprise business is just about 13% of total sales, the retail business is 87%. And in a retail product, which is priced as low as, say, INR 500 or sub INR 1,000, if the shift really happens online through your own website, the downloading happens, then I don't know where is this big issue of debtors really coming from? So I don't know why shouldn't the company increase the reliance on online sales instead of doing it through distribution channel? It's very simple, right? Someone who uses an antivirus software is obviously very familiar with the simple act of downloading, which is cash-flow-wise, extremely efficient, especially since 87% of sales is retail sales. So this is the first question. And the second question is on the competition. Now obviously, there are all the global major brands are in India. You are competing against McAfee, Norton, Kaspersky, everybody. How do you see the competitive landscape, especially when most new laptops and desktops now come with company built -- I mean, prebuilt or preinstalled antivirus software. They have the Dells of the world and then Lenovos over of the world have 30-day tie-ups with McAfee, et cetera, you could get a free trial, which is very easy to convert into an actual license after the end of the trial period? So plus Windows has their own antivirus software, now Windows Defender is there. So how do you see the competition? It is very strong to my mind, but I wanted to know your views on the competition part? And are you looking at such similar tie-ups with the vendors to actually have Quick Heal as one of the installed software on a trial basis, so that it's easier to expand your customer base, just like McAfee. So these are the 2 questions.

Yes. So this is Nitin. So your first question on 87% revenue for retail. So this is right for this quarter. Definitely, the spillover was entirely for retail. That's why for the current quarter, retail number is higher. If you see it on an annual basis, retail is about 80% and enterprise is about 20%. So this is the first point. On second point where which you talked about online sales. So online sales is just about 15% of our total sales for retail. So you have to understand that we have a very strong network, and still, majority of our sale happens through our channel partners. And this is retail is more of a stock-and-sell model, where we have to sell the material. And then based on the liquidation, the payment comes. So this -- and the strong network and strong distribution system, which we have built in will definitely -- is giving us revenue so far. So your point is right that online sales going forward will increase, but still a distribution channel is going to be still an important factor. And that is -- that is where the money is stuck up. And that's the reason for higher amounts of debtors. I think on other point, competitive landscape, maybe I will request Sanjay to add his views.

Yes. So as Nitin rightly said, the thing is, see, if you compare our presence on the online sales, we are, again, having more than 30% of the share on our online retail product sale, actually. So even among there, if you compare all the big e-commerce, like Flipkart, Amazon, we are present heavily on those online platforms. But at the same time, India is a different country where it likes offline sale is also a big market, and that is where we have a good presence across India and that we cannot avoid, actually. So it's not like we don't want to go online. We are present online, and we are making sure that we get the maximum share out of online sale that happens in India. And that we are doing and that we are seeing that because of lockdown, there's quite a good jump in our online sales even on Amazon as well as on our own website. But at the same time, India has a large offline market, which needs to be tapped, and we really have to be present there and that presence is through partners, and that is where all this debtors and all these institutions…

And sir, on the…

Gradually comes down, actually.

On the competition aspect, if you can elaborate, how do you see -- it's very strictly competed market. Unit prices are obviously reasonable. Enterprise is a different segment altogether, right? There, in fact, I'm sure it's not very easy to compete with Nortons and McAfees, et cetera. Plus the inbuilt software is making it very easy to avoid buying a Quick Heal product. So how do you tackle these issues from a competition perspective?

See, these challenges have been there since more than 2 decades. I don't consider that as a challenge because, see, if you see there are users who don't want to buy or want to use free or a trial version, there's only -- there's a set of users who will only go for those products. But then the market that we are addressing is those users who are seriously buying security and paying for a security. And that's where the market and our presence has been actually. So if you compare even if people who are having trial versions on the laptop that they buy new leads till 30 days. After that, whatever security it comes, it's very basic security, even Windows Defender is by default on in Windows that comes along with the OS, but those -- that security is very minimum, bare minimum security. But if you compare the threats that are coming today, if you see the ransomwares and the attacks that are happening, they are being designed by studying this basic security. And they still enter your PC or laptop and make sure that whatever attack they want to do. So one has to go for paid security to have the best of the security. And that is the market that we are targeting. And so I don't feel there's going to be a change. It's like there will always be a free market, and there will always be a market for paid versions actually. And serious buyers will go for paid security, which is where we are addressing it.

[Operator Instructions] Next question is from the line of Mithun Aswath from Kivah Advisors.

Yes. I think most of my questions were answered, but just a follow-up on the previous speaker. A lot of the computers that we buy already have a preloaded antivirus, which we can upgrade for paid version. Why don't we actually tie up with the branded computer or laptop companies so that even our antivirus is present there, which has a free version for a month? And I'm quite sure a lot of people would upgrade to a paid version once that gets over. So that would be a good way to tap the retail market rather than going through this whole channel partner route, which seems to be a little outdated. So just wanted your thoughts on that.

Yes. So as you rightly said, laptops and PCs come with preinstalled products, but that market -- see, most of the laptops and PCs are branded actually. And they come from more multiple MNCs like Dell, HP and these tie-ups happen in U.S. actually. So there, it's not easy to enter this market. We have done and we have tried. But at the same time, what we have observed is OEM products, it's not like they pay, it's like we have to pay them for each sell that they do, laptop or PC actually. It's like pay for the customers that they acquire. But at the same time, renewal rate for these is very less, actually. Because people like -- after expiry, they either talk to the partners or they look for something online. And okay, of course, there is a renewal for -- whichever comes along with the thing, but at the same time, what has happened is Windows OS that has come along with, like, few Windows sale, most of the trial versions are removed the next day they are expired by the Microsoft and default Windows Defender is installed. That's the policy that Microsoft has followed. And so OEM things doesn't work nowadays. It's much -- it works, but it doesn't give that much result. And country like India, like, we have observed doing OEM is more of a losses business than doing something like selling to channel partners, actually. Because mostly, these OEMs take money for bundling, at the same time conversion to the paid version is very less actually. So if you compare convergence of the premium products, the conversion rates are 2% to 3%, actually, if you compare, they are 2% to 3% range. If we have to sell -- I mean, if somebody gives 3 -- I mean, 100 PCs as bundled, only 2 or 3 persons will go paid version after that expiry.

And just a follow-up on this. What is your market share in the retail category compared to the other competitors, the larger MNCs? Would you have some number?

Yes. So it is about 30% plus today.

Your market share is 30%, right?

Yes, 30% plus.

Okay. So you would be the #1 in India or…

Yes. No -- we are #1 in India. You are right.

The next question is from the line of Deepesh Parwal from Futures First.

So my question is, on lines of retail sales only through our channel partners and online discussion, which is currently going on, I just want to know what is that is stopping us to go into online aggressively? Just to add on to that, after COVID, a lot of industries, where field is required, like automobile, homes, all of them are getting sold online nowadays or they are trying online nowadays. But somehow if I look through our presentations and if I go through this concall also, somehow I feel there -- we are just taking online sales as in on when they are coming. We are not trying very hard to convert those or go aggressively or increase our market share through online. So how do we like see that?

So I'm Kailash here. Let me answer your question this. Just now, Nitin has already told you that our online sale in this COVID-19 situation has grown by more than 20%. So that itself shows that we have done our aggressive activities on the online part of it. Because in this COVID-19 situation, we were very less present when it comes to the marketing activity for ATL part of it, but we had done more on Internet marketing part of it. And that's the reason the online sales has increased by 20% in this last COVID-19 situation, 3 months, 3 to 4 months' time. And again, I wanted to tell you that we are not at all against online sales. See, if I have to tell you that 4 years back, out of total revenue, our online sales was close to 4%. Now it has reached to 15% to 17%. That itself shows that we are putting efforts to -- for the online sale. And we knew that in future, online sales is going to increase. And based on that, we are putting all those efforts to make sure that online sale is on. But we cannot neglect the partners sale. If you want we to do only online sale and not into this thing, then it will be very difficult to achieve this numbers. We just can't neglect those partners. What I want to say, if you see the total antivirus sale that happens in India through Amazon, we are capturing more than 30% out of that sale as well. So our presence on most of the Amazon as well as Flipkart, which are the top 2 e-commerce websites, our presence is very aggressive on both the online platforms, including our website. So if you see last quarter, all the promotional budget was on online sales activities, actually.

Okay, sir. That's nice to know. And one more question regarding SME segment. I've heard that last 2 years were very tough, but let's keep aside that. And what would be our target for, let's say, 3 years down the line or 2 years down the line in terms of revenue from that segment alone? Any expectations?

So see, this year, definitely because of COVID-19 situation and overall economic situation, SME, SMB is not really going to pick up to a great level. But as I said earlier, that we are working on new products, innovative products, which are going to capture to mid- and large enterprises, we are -- and since you are talking about a horizon of 3 years, we are very bullish on enterprise segment over a 3- year window.

Yes. And even as market activities improve after the lockdown, the SMB definitely will see some uptick after that. But SMB only works when we -- what our experience is that when there's good enough activities in market and everything is going good, then SMB will start peaking. That's what we have observed, actually.

[Operator Instructions] Next question is from the line of [ Nikita Mehta ], individual investor.

I had a couple of questions. First of all, I wanted to understand in terms of, like, receivables, there is an increase in the balance sheet in terms of receivables. Can you just throw some light on, like, how many dealers have not paid and haven't made any interim payments, sir? What kind of dues are pending?

So on receivables -- so I think if I have to again repeat, so because of this COVID-19 situation, there is a huge liquidity crunch with our dealers and that is the main reason for increase in receivables. Generally, quarter 1 is where we get a substantial collection from our debtors. But because of this COVID-19 situation and overall liquidity problem, the collection for the quarter has substantially gone down. I think that is the reason, main reason, for increase in receivables. And we expect this situation to continue in Q2 as well. And from Q3 onwards, we feel that things will come back on track. As far as receivables are concerned, I also mentioned in my opening commentary that these receivables are being tracked on a very -- on a weak -- we track them on a very close basis. We have calls with all vertical heads and these dealers on a fortnightly basis. And on a conservative basis, we had made a provision of INR 5 crore in the last quarter. So whatever receivables we have, they are -- so they are -- I would say that they are being tracked on a regular basis, and we are quite hopeful of collecting that money. So we don't expect significant amount of bad debt from them.

Okay. And the other one, I wanted to know the current pricing trend in the retail market. And are we able to charge any premium now, given that there was pent-up demand due to COVID?

So in fact, pricing is under serious pressure nowadays, definitely due to COVID and overall the cost consciousness in the entire ecosystem, whether it is partner, the direct customers or even an enterprise side. So pricing is definitely under pressure. And charging premiums, at this point of time, would be very difficult for everybody.

We take the next question from the line of Keshav Garg from Counter Cyclical Investment.

Sir, I wanted to understand what does our subsidiary do? I think it doesn't do anything except make a small loss?

So see, subsidiaries, definitely -- so subsidiaries, they are definitely plans for increasing the -- so [indiscernible] subsidiary in the near future. And we have been saying that these new products, we will first consolidate them in India, and then we will monetize them in these international subsidiaries. So subsidiaries basically purely due to lower sales realization. These subsidiaries have been making losses so far. But we have been working on expansion plans for the subsidiaries, and this new product launch will definitely help monetizing this into our international market, and we expect these subsidiaries to turn up profitable in years to come.

Okay, sir. And also, sir, you mentioned that you have around 30% of market share in retail segment. So how has this moved in the last 5 years, like, what was your market share 5 years back, approximately?

So mostly for last 3, 4 years, it has been the same. I mean to say, we are able to maintain the market share. But earlier, it was lesser around 27% to 28%, and much lesser before that. So 30% share has been maintained. It's like we are trying to increase, but it's stagnant for at least 3 years, the market share is stagnant.

Okay, sir. Great, sir. And sir, also, sir, I missed that earlier question, some participant asked about your -- basically, are you present in the cellular mobile market?

Yes, we are present, direct. Yes.

Sir, so basically, how much turnover is coming from that segment? I mean, out of our total revenue, what percentage comes from?

As Sanjay mentioned in his comment earlier, at this point of time, mobile revenue is very insignificant. But we are definitely confident that as the threat landscape builds up, mobile business will grow.

Sir, but basically, in the past 5 years, there's a huge revolution. I mean, in the penetration of smartphones, so this market should have grown basically many folds in the past 5 years due to penetration of smartphones?

Yes. See, the thing is mobile -- number of mobile users have grown, the download for free trial has gone up, but the paid users is not growing much, actually. In the sense, people are not paying for security on mobile. But definitely, if you look at the percentage, it's like -- we talk about paid users. So paid users, around 1% is our revenue coming from mobiles, actually. But definitely, what we are seeing is, the number of paid users are growing, but the base is very small for now actually. Yes. So as the digital transactions are growing, people are becoming more serious about securing. But compared to the user base, it's quite small, actually.

And sir, also, so you mentioned that you are investing a lot in new product development. So basically, are you charging the top to the P&L? Or are you basically capitalizing the R&D for new product development?

So the entire R&D cost, on a conservative basis, is charged to P&L.

Okay, sir. And sir, lastly, sir, you mentioned that pricing is under pressure. So approximately, the prices are following by what percentage per year?

No, it is very difficult. It is, again, case-to-case basis. We have a variety of products, then there is a competition also, then the overall ecosystem of partners. So commenting on this pricing trend on a year-on-year basis will be very difficult.

We take the next question from the line of [ Ashish Kapadia ], individual investor

I wanted to ask a couple of questions in terms of your price point…

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

Okay. So I just wanted to ask you regarding the pricing points between your channel partners and your online platform? Are your products sold at the same price point across the 2 channels?

Yes. So they are sold at the same price.

Okay. And the second question is, there's a 50% drop in your other expenses compared to the previous quarter. Can you give me a bit more flavor on what that is?

Yes. So if you look at the previous quarter, so in previous quarter, as I said, we had made a doubtful date provision for a few of our dealers in retail vertical. That was about our INR 5 crores. Then we also had dealer meet, and on that expenditure was spent, plus there was additional expenditure on CSR-related activities also. These are not there in June. So that is the main reason for reduction in costs.

Okay. And do you expect this trend to continue in the coming quarters?

So trending will be very difficult to really comment, but then it will be sent -- see, during this quarter, due to COVID-19, a lot of offices were closed. So we had lot of saving on the office establishment costs also. So whether this trend will continue to remain, looks -- I don't think it will remain. The cost will go up in to some extent, but more or less, it will be in this range.

Okay. And one final question. In the previous quarter conference call, there was a comment about new management appointments to shore up your senior management team. Is there any update on that?

So see, basically, as I said earlier, Kailash mentioned in the last call that we are doing leadership hiring. So it is more of a continuous process. We are strengthening our team, leadership team, and this will happen over the next 2 quarters. So definitely, because of the current COVID-19 situation, we have also postponed the plans, and then we will take a call depending on how things go up.

Well, ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Nitin Kulkarni for closing comments.

I thank everyone for joining the call. I hope we have been able to address all your queries. For any further information or any kind of additional questions, you can kindly get in touch with our IR advisers. Thank you very much, stay healthy and stay safe.

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