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

Ladies and gentlemen, good day, and welcome to the Quick Heal Technologies Limited Q1 FY 2022 Earnings Conference Call. We have with us from the management, Mr. Kailash Katkar, Managing Director and CEO; Mr. Sanjay Katkar, Joint Managing Director and CTO; and Mr. Nitin Kulkarni, Chief Financial Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nitin Kulkarni from Quick Heal Technologies Limited. Thank you, and over to you, sir.

Thank you, Aman. Hello, and good evening, everyone. Hope all of you and your families are safe during this pandemic times. I am pleased to welcome you on to our earnings call to discuss our Q1 financial year results, 2022 results. Now please note a copy of all our disclosures are available on the Investors section of our website as well as on 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 risk 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 evening, everyone. Thank you for joining us today. This quarter was severely disrupted by the second wave of COVID-19, most deadly infection, and situations were really out of control across India. Every family was affected actually. In this situation, dealing with business partner was very, very difficult. And still, we have delivered a good performance in this quarter. We are confident that we will fulfill our commitment by the end of this year. Share buyback was successfully completed during the quarter. The main highlight of this quarter has been the revenue growth from the enterprise segment. This positions us well for the coming quarters and is in line with our strategy to boost our market share in this segment. Additionally, we are making a lot of investment into next-generation solutions under the Seqrite Hawkk umbrella. Sanjay will be sharing more insight on this part, actually. While we have not been able to conduct our regular CSR activities due to the pandemic, we have diversified into new areas like COVID-19 relief and health care. Under health care, we have donated 3 Arogya vans, which aim to boost health care services in rural areas. Now I would like to hand over the floor to Mr. Sanjay Katkar, Joint Managing Director and CTO. Over to you, Sanjay.

Thanks, Kailash. Thanks, and good evening, everyone. As Kailash mentioned, we have recently introduced the Seqrite Hawkk. It is a family of next-generation solutions aimed at empowering enterprises to secure their digital transformation journey. Threat actors have been constantly banking on new technologies to device innovating attack strategy and target organizations across geographies. Data breaches and their impact on firms' reputation have only increased in scale over the years. It is therefore crucial for leaders to up their cybersecurity posture and prevent compromises of sensitive enterprise data. Sensing the criticality of the current cybersecurity landscape, we have introduced Seqrite Hawkk to help enterprises boost their defense against malicious actors. With this launch, we are aiming to redefine enterprise security with comprehensive solutions to secure their digital transformation journey. We will continue to gradually invest and add more products under the Hawkk umbrella that will mark our foray into endpoint detection and response, EDR, as we call it, zero trust, data privacy and cloud-based network security products. I'm excited to share that with you -- share with you all that during the last financial year, our team of threat researchers were first to expose true identity of the threat actor behind a sophisticated APT attack on Indian critical sectors. Advanced persistent threat, or APT, is a prolonged and targeted cyberattack that remains undetected for an extended period of time. One such APT campaign was uncovered by our team of researchers at Seqrite labs, dubbed as Operation SideCopy. The campaign was detected for the first time by our researchers in October last year. And in July 2021, we uncovered the second wave of the APT, expanding its target list from Indian defense units to the critical infrastructure. After thorough investigation, we have discovered potential links between SideCopy and its operators to Pakistan. Upon discovery, we proactively alerted the government authorities and are working with them to keep potential targets safe. This is a breakthrough discovery, making us the first vendor to expose the 2 identity of the actors behind the attack. With sophisticated attacks like Operation SideCopy, the emergence of ransomware economy and rise in the number of data breaches, the demand for cybersecurity will be continued to remain strong. With our dedicated efforts into new product development and quality threat research, we are looking forward to explore further growth opportunities. I would like to request Nitin Kulkarni to take you through the financials.

Thank you, Sanjay, and again, good evening to all of you. Let me take you through the financial highlights for the quarter ended 30th June 2021. As informed by Kailash in his opening commentary, I also would like to brief you on the share buyback program, which was completed during the quarter. The company has bought back 6,326,530 equity shares at a price of INR 245 per share, in which a total amount of INR 1,930 million was utilized for the entire program. Payment has been made to eligible shareholders whose shares were accepted under the buyback program. After the buyback post extinguishment of these shares, total number of equity shares was reduced from 64.2 million to 57.8 million. Promoter shareholding went up slightly by 0.19% to 73.02% compared to 72.8% pre buyback. I also would like to update you on our AGM, which was conducted on 6th of August 2021. Shareholders approved distribution of dividend of INR 4 per share in AGM, which was held on 6th August through videoconferencing. Now let me take you through the financial highlights for the first quarter ended June 30, 2021. As Kailash mentioned earlier, we were able to deliver good performance in a very challenging quarter. I also would like to highlight one fact here that the results are not comparable on Y-o-Y basis, as the financial numbers of Q1 '21 includes revenue spillover of INR 280 million from Q4 due to nonability of transport facilities as a result of the lockdown imposed by the government. Again, moreover results are also not comparable sequentially as Q1 has been traditionally and seasonally weak quarter as compared to other quarters. In Q1, our consolidated revenue from operations stood at INR 548 million compared to INR 734 million in Q1 of last year. After adjusting for the impact of spillover revenue, revenue is up by 20% on a Y-o-Y basis. 75% of our revenue came from retail segment and balance 25% came from enterprise and government. Average realization increased for both retail segment as well as enterprise segment. On the retail side, as mentioned earlier, our yearly numbers are not comparable due to a high base in Q1 last year with revenue spillover. If we adjust for the impact of spillover in Q1, retail segment revenue has grown by double digit on a Y-o-Y basis. Enterprise business grew by 39% due to good growth in SME segment. EBITDA for the quarter stood at INR 52 million with a margin of 9.5%. In line with our continuous focus on R&D and innovation, we increased our investment in R&D by about 29% on a Y-o-Y basis at INR 194 million compared to INR 150 million in Q1 of last year. While employee benefit cost was up due to mix of increased headcount, change in pyramid structure of organization and high outsourcing costs coupled with annual increments. Last year for the entire organization, increments were effective from October 1, 2020. And this year, it was effective from April 1, 2021. Hence, the employee cost of current quarter of 2022 had an impact of 2 increments then during the last 12 years, resulting in higher overall employee costs in Q1 '22 compared to same period last year. Now coming to sales and marketing expenses. Sales and marketing expenses increased by 27% to INR 161 million from INR 127 million in Q1 of last year. This is mainly on account of higher advertisement branding done in the current quarter of the year. With lockdown restrictions getting relaxed in the later part of the quarter, we have started our marketing initiatives and expect the momentum to continue in the coming quarters. We have made a doubtful debt provision for a few of our customers, more on a conservative basis in the current quarter where collections have slowed down. However, we are hopeful of collecting these amounts subsequently. This has impacted our G&A cost in the current quarter. With this, profit after tax for the quarter stood at INR 62 million with a margin of about 11.3%. Our effective corporate tax rate for the quarter was at 25.92% for stand-alone and 15.93% for consolidated financials. Lower effective tax rate for consolidated financial is mainly on account of impairment cost elimination for our Japan subsidiary, not impacting profit for the quarter in consolidated financials. In line with our overall strategy to make corporate structure more simple and consolidation of few of our overseas operations, the Board has approved for continuous operations for our wholly owned Japan subsidiary. The exceptional item of INR 21 million in stand-alone financial statement is towards the impairment charge considered during the quarter for this subsidiary. Now coming to balance sheet items. Overall, net working capital days increased to 152 days versus 124 days in June 2020. The increase in working capital days was a result of the increase in receivable days from 169 days to 220 days. The rise in receivable days was due to difficulty in collections due to lockdown restrictions during the quarter and the liquidity issues with many medium-sized enterprises and our retail partners as more than 2 months of lockdown in the current quarter has severely impacted their businesses. I would like to highlight that almost half of the total receivables are with our top 20 distributors, with whom we have been doing business for the last many years, and we are keeping a close watch on these receivables and are confident of their collection. We will continue to maintain our financial discipline and expect the debtor days to remain higher over the next 2 quarters. Coming back to cash and cash equivalents. On cash and cash equivalents, our current cash and cash equivalents is at INR 297 crores, INR 2,968 million, compared to INR 4,809 million in March 2021. This is including investment in mutual fund and fixed deposits as well as tax-free bonds. The decrease in cash and cash equivalents is due to deployment of INR 1,930 million towards the share buyback program. I would again like to highlight that we are cautiously looking for opportunity to better utilize the cash on our balance sheet. On M&A, we again remain very cautious and calibrated in our investments, and we are looking at smaller and medium-sized investments. Our current investment in L7 is a testament of the same. We continue to monitor the progress of our investing companies so far and are quite satisfied with their progress so far. I also would like to give you the last update on our service tax matter. The Commissioner of Service Tax Delhi has preferred an appeal against the favorable order passed by CESTAT amounting to INR 561 million, rolling a period from 2011 to 2014. Hearing for condonation of delay as well as of admission of appeal on merit process is still awaited. Overall, to sum up the performance of the quarter, the last quarter was very challenging due to second wave of COVID-19 situation. Lockdown restrictions are getting gradually lifted. And with vaccination gaining pace, we expect business to regain momentum in due course of time. With this, now we will open the floor for questions. Thank you, and back to you, moderator.

[Operator Instructions] Our first question is from the line of Ashok Shah from Labdhi.

Sir, we have stated that there is a provision of -- bad debt provisions from our regular customers and distributors and everything. Sir, what's the likelihood of this getting back in next quarter? What's the size of that recovery possible? Or what's the provision made?

Okay. So yes, this is Nitin. So in the current quarter, we have made a provision of about INR 1 crore for these doubtful debts. These are our regular parties. But since collections are stuck for a longer period, they have been provided for. However, we have been following up with these parties, and we definitely expect substantial part from this will be collected over the next 2 to 3 quarters.

My second question is regarding the -- our profit has gone down. Is it due to the corona disease or it's any other reason? Because in this period of April, May, many of the business was closed and many things was not working, so.

So can you please repeat your question?

Our profit has gone down. So what's the specific reason? Is it attributed to the epidemic?

So there are -- so as I said in my opening commentary, basically, Q1 is -- if you look at seasonally for the last few years, Q1 is a seasonally weak quarter for us. And EBITDA tends to remain in the lower range in the first quarter. And as I explained in my opening commentary, some of the costs, which -- so we are making a lot of investment into R&D as well as overall business for development of new products. So that is definitely impacting the margin. So to answer your question, since historically Q1 is a lower quarter, and EBITDA tends to be in this range only.

So last quarter -- last year, Y-o-Y basis, our margins and the profit was very high compared to this quarter.

So yes, so as I mentioned last -- if you look at Q1 of last year, we had a revenue spillover of INR 28 crores, which I mentioned in my opening commentary, which came from Q4 of last year to Q1 of 2021. Yes, that is the main reason for increase in EBITDA for Q1 of '19, '20.

Our next question is from the line of Vivek Ganguly from Nine Rivers Capital.

My question is regarding your retail business. Can you all shed some light on your presence in the mobile space? How you all do your sales in that particular subsegment? Is there a revenue that is coming in from there? Or if there is a monetization strategy there? That is one. The second is you all have had hires in the enterprise space about a year ago, Mr. Raina came in. So if you all can shed some more light on the way ahead? And what is it that you all are doing? Or what is it from a product and a sales perspective that's changing to make this a more -- a significant portion of your revenue line? Those are the 2 questions.

Yes. So on the mobile side, yes, there is a revenue traction. But at this point of time, the revenue pie is very insignificant. And yes, we are working on it, but then it will take really time to pick up on mobile side. On your question on enterprise side, yes, I mean if you look at enterprise segment revenue and if you compare current year Q1 revenue with last year Q1, we are showing a decent growth of 40-odd percent. And we have been saying on last 2 calls that we are working on products for our larger enterprises, which will get rolled out during the year. So yes, there is definitely a clear road map for our enterprise business. And we expect enterprise business to ramp up as we start launching these products.

Our next question is from the line of Kranthi Bathini from WealthMills Securities.

I just want to know about your product domain expertise is concerned. As we all know, Quick Heal Technologies, basically, your experts in terms of the cybersecurity domain is concerned. But of late, there is a lot of emphasis is given towards the Internet of Things, digitalization, automation and with respect to cloud computing. But what's your plans, okay? There is a humongous opportunity visible in these areas. You guys are right now in cybersecurity space, are you have any plans to go into this areas to explore the opportunities there? And these businesses are pretty much high-margin business comparatively.

Yes. So as you said, we are keeping a track of a lot of changes that are happening in cybersecurity market. And so our product management team is selectively approaching products that we plan to introduce in coming years. So our focus is more towards large enterprises, which is a quite steady market in terms of cybersecurity. And so as you know, we had been traditionally from antivirus and SMB business, but we have scaled up our products for large enterprises. And in this quarter, we also launched Hawkeye, which is a large enterprise-related offering, which focuses on threat exposure and threat posture for large enterprises for their infrastructure. And our focus is about introducing more products under the Hawkk umbrella, where we'll be introducing and entering the markets like EDR, zero trust, privacy, which is again very fast-moving vertical where in a lot of new data privacy laws have been introduced, not only -- globally. Introduced Globally, in Europe, U.S. and very soon in India as well. So these laws are going to create an opportunity for certain kinds of products, and we are focusing our efforts towards developing those well in advance. So these are the areas where we are focused. But these are the products, and it takes certain quarters to get launched. And at the same time, we are also scaling up our sales machinery, trying to streamline sales and bifurcate sales among SMBs and large enterprises and government verticals. All these activities are currently underway and which will definitely bear some good results as the product gets launched in the future quarters.

So what is -- because you are sitting on a quite a good amount of cash, okay, which you can take the advantages in the low-hanging companies in your domain. Do you have a road map or -- you have a road map to utilize this cash for a better purpose use? Or how you are planning, okay, in the next few quarters? I know you have been traditionally very conservative place in terms of the M&A is concerned. But what is your road map?

Yes. So see, we are always looking for opportunities. And in fact, we have an M&A team where we are evaluating a lot of start-ups and the product offerings, which are in line with our growth strategy, in the sense the areas that we have selected to be presenting or address the market. And so as the opportunities arise, we will definitely -- we are open for inorganic growth. We have accordingly decided to like add products based on the geographical presence as well as the technology that they are into. So that's one thing for sure. So that is the end use of the results that we have, one of the engines that we have planned, and at the same time, invest into acquiring technologies. If there is no option of investment or acquisition, complete acquisition, then we can also use these points to acquire technologies, which can fast -- which can ramp up our development efforts into those product sites.

This is my final question. I just want to know, are you incubating something in terms of the new technologies in-house already because you have a strong base, you have a strong expertise? Are you incubating something, which is going to change the space of cybersecurity in coming quarters or coming years?

Yes. In fact, we have always invested into R&D on those lines as well wherein there is a certain teams, which keep on working on other verticals wherein cybersecurity can be a key investment. Examples like industrial IoT or even connected cars, those are the verticals where we are constantly seeing what are something that can really bring in some disruptive technology that can help. But at the same time, these technologies are evolving quite fast, and we have to really understand the market dynamics to really ramp up the investments. But yes, we are focusing on those areas. Apart from that, especially what we have seen is enterprise level spending on cybersecurity is at a quite steady pace than any other verticals like consumer or government. So enterprise-related investments are more focused in the current situation, actually. So we are focused on -- as we said, we are launching new products. Among them, we'll be really looking forward for some disruptive features and platforms that will really differentiate among our products. That's the focus for now.

[Operator Instructions] The next question is from the line of Nikhil from Galaxy International.

I just wanted to understand what is the outlook that the management has for this year. So despite the first quarter being, let's say, very low quarter due to COVID, so did you anticipate a significant growth as compared to what you did in last year, especially quarter 3, quarter 2?

Yes. So this is Nitin. So yes, Q1 is seasonally weak quarter for us. That's -- and secondly -- so it all depends on how things pan out in -- as far as pandemic is concerned. So we expect that with the way things are, the lockdown is getting lifted, things are getting relaxed slowly, and we definitely feel that there is a momentum, and we should be able to pick up that momentum and do better in Q2 and subsequent quarters. So we already said earlier that whatever -- as Kailash also mentioned -- alluded to this in his opening comments, whatever we have promised initially as far as the yearly performance is concerned, we should be able to do that in subsequent quarters.

[Operator Instructions] The next question is from the line of Monica Arora from Wealth Gaint Advisors.

I wanted to ask that if I see in your books, there is a huge cash and cash equivalent. So what is the kind of average yield you get on these cash and cash equivalents?

So this cash and cash equivalents, they are parked into fixed deposits and mutual funds. And as for our Board mandate, safety -- so it is basically SLR, safety first, then liquidity and then return. So looking at the current scenario, we give top priority for a credit exposure, and that's why they are invested into all debt-based mutual funds. So we got about 4%, 4.5% return on our mutual fund. This is a pretax return in the last 1 year.

Okay. And I also wanted to ask that what is your view on the antivirus industry from the retail space? Like how is it growing? And what is your view how it will pan out in the future?

So in retail space, what we have seen -- since pandemic, we have seen the growth in PC sales and laptop sales, which actually is something that really helps us in the retail segment. So accordingly, we feel that retail segment, we see a growth of at least single digit to early double-digit, in the sense, 10% to 12% should be there actually, but that's what our expectations are. But what is happening, apart from the PC sales, the ecosystem also depends on the markets availability [indiscernible] the dealer network ability to sell, which is highly impacted because of the lockdown. But if you keep that aside, accordingly, I feel there is definitely a growth that you estimated in retail segment.

And if I could ask the same question for the large enterprises, like how are they panning out? Or what are your plans to specifically reach out to these large enterprises?

Yes. On the large enterprise front, see, we -- I'll divide our market into SMB and then large enterprises and then government verticals. So if you see SMBs, again are very much impacted by the pandemic, and the spending on the SMBs, we do see that it has impacted -- as we see the sales of server-related products or small, like 20 to 100 endpoints, related products were impacted a lot during pandemic. But again, as the lockdowns are opening, we are seeing good traction in them. But whatever growth we have seen in our first quarter where we are seeing in enterprise segment, it's purely a large enterprise segment because as we have been focusing, scaling up our product for large advertisers and some of them are already launched in last couple of quarters. We have started seeing some good results in large enterprises. And there, I feel we'll be able to grab more market in large enterprises. And our enterprise will also cover government vertical, wherein we have seen last year, there was a very less focus by government on cybersecurity spending, which has started changing gradually in this quarter end actually. And we have seen some good -- enough inquiries and orders coming from government vertical as well for cybersecurity products. So accordingly, for me, enterprise vertical of our -- pie of our sales will grow and will keep growing, and there's a huge potential because we are increasing our market segment by adding more products into large enterprise. At the same time, as the lockdown opens, SMBs will also start reflecting into traction actually, and the government. So accordingly, it should give a good result for us in coming quarters.

Our next question is from the line of Namit Mehta from KC Capital.

Just a couple of questions from my side. So first, I was wondering if you can just talk to us a little bit about the talent recruitment and retention landscape right now? Our understanding is that there's been significant pressure on that across the industry. So if you can just talk a little bit about attrition and hiring and how that's panning out?

Sure. So you rightly pointed, we are -- actually, we have been facing a lot of challenge in retaining the talent as well as hiring the right talent into -- especially into R&D and tech support. But at the same time, as we have seen, it's quite alarming. Our HR has been really quite [indiscernible] planning a lot of activity for employees as well as hiring drives in particular vertical. And we are trying to mitigate the same by creating a lot of packages for -- in the R&D as well as other verticals. And as Nitin said in his speech, last year after pandemic, we have done increments twice as soon as we start seeing some transaction into the things. And so that has really helped teams quite well as well as we do see that we are now able to at least get some talent on board as things are getting underway.

That's helpful. Just out of curiosity, how specialized is the software engineers working for you? Is that employee -- can that employee work at any IT services company? Or is the skill set very specialized for cybersecurity?

No. Yes. So cybersecurity is a very highly skilled people that we need and particularly focus towards system developers. And as you rightly pointed, IT services curated developers really don't help us in much apart from certain accessory development like website or front end, but the most of our core, we'll need engineers and architects where they are thorough into their core technology, like [indiscernible] and all. So yes, it's highly niche. And so many times, we also have to outsource work if on time onboarding is not happening and we have to outsource as well a lot of development work as the deadline [indiscernible] are there.

Understood. And just one other question. So obviously, the cybersecurity industry is a very global industry with a lot of large players involved and spending a lot of money on R&D. I know we are doing that as well. But just given the difference in order of magnitude between our spend and some of the large global players, how do we think about the sustainability of the enterprise business over the longer term given the spends health?

So you rightly said -- so the competition of the large MNCs really have a large R&D budget based on their revenue. So even if you compare us, we are spending quite a big percentage of our revenues into R&D. But at the same time, looking at our size and potential, what we do is, we focus on certain -- particular areas and not try and do a lot of things so that we don't, I mean to say, diversify too much of fund. So our focus is like where we have the strength and wherein we have the right sales machinery, wherein we have right partner network, we focus on those products, which can give us results actually. So that's how we have been trying to maintain the investment.

Our next question is from the line of Imran Khan from Ratnatraya Capital.

Sir, I have 2 questions. One is on the retail side. Am I, first of all, audible to you? Am I clear and loud?

Yes. Yes. Yes.

Okay. Okay. So sir, first one is on the retail side. If you can tell us what kind of competition are you facing currently because in the past, we have seen a lot of price erosion. So what is the situation there? And where do you see this pricing per license, let's say, stabilizing in the retail segment?

So on the retail front, the competition in these days has actually not changed much. In a sense, it's the same competition. Most of them is MNCs. In certain pockets, there is a regional competition, but most of them is MNCs. And real challenge on the retail front is about trying to get the -- because of the liquidity crunch, trying to get the timely payments from the partners and maintain the right stock, so that we don't lose onto orders. So that's the balance we have to maintain, and that's where if there are certain teams that are -- payments are getting delayed, we have to do a lot of incentives to collect the payments, which can impact the margins. So -- but overall, I don't see much drop into the margins for at least this year, actually.

And sir, since the ROCs, are very, very high in our business, in the area specifically. So the competition to gain market share can actually reduce the prices further because even, let's say they sell it just 20%, 25% ROC, I think it would still be a very good business to gain. So what is your thought on that side?

Yes. We see cybersecurity is such a business that we have to continue to invest. So any price drop by any competition are not long-term sustainable. And that really -- and then we do see such activities by certain competitors to disturb the market, and our retail team and the ecosystem of partners is now well aware of such deals and they don't fall in such traps. We try to maintain good relations with our partners to explain them the dynamics of the investment. And also mostly these kind of activities do happen, but it doesn't impact too much. It's like we do keep such scope for, I mean to say, disruptions in pockets, but nothing more than that. I mean to say, there is a good enough market for the price points that we sell and that market is gradually growing.

Fair enough, fair enough. And sir, on the enterprise side, on the bigger accounts that you may try to gain going forward with your -- the new product, Hawkeye. So on this side, I mean, how do you approach the guys? Because I'm assuming these large guys may be MNCs, if I'm not wrong. And these MNCs already have tie-ups with bigger companies, not just in India but across the globe. So I have an understanding that these guys don't change the vendors when they are in a different country, even though, let's say, they are based in U.S., if they come to India, they prefer the same partner for security and other things. So how confident are you to maybe displace some of those big guys and gain these accounts? What is the strategy here?

Right. So see, if you look at enterprises, it's like MNCs is one certain segment of the market, but then there are a lot of good enough large enterprises, which are headquartered in India and working out of India. So we have a lot of ground to catch up. At the same time, the products that we are introducing are based on the feedback from the partners and the retail guys, who really understand the customers, what are the challenges that they are facing with the current product that they are using. And based on that, we are trying to create the differentiators and solve the pain points of the customer. Yes, it's challenging to replace the competitor in large enterprises. But gradually, we are able to capture them. And at the same time, this involves bringing on board the right system integrators for selling our products, educating them, training them for the sales. So all these activities are something that we are doing and making sure that we try to replace the competition in these places. So as we get some traction on domestic large enterprises, those are the good examples and references for us to keep on capturing the MNCs as well. And at the same time, we have operations in Middle East and other countries, like even in Japan, wherein we are able to reach out to the headquarters of certain MNCs. And in certain countries as well, we are able to start picking our large enterprise products, which have started doing some traction as well.

[Operator Instructions] Our next question is from the line of Avinash as an individual investor.

My first question is, given this first quarter, could we end up the year with a lower revenue run rate than what we did in the last FY?

So as I mentioned -- this is Nitin. So as I mentioned earlier, yes, we will definitely do a lot of catching up in Q2, Q3, Q4. And we are confident that we will be definitely able to keep up the pace, and we'll try and do definitely better than what we did in the last year. But having said that, it all depends on the pandemic situation. Again, if lockdown restrictions are imposed, the third wave, which we are talking about, so definitely, we are quite confident and optimistic about the revenue numbers in Q2, Q3, Q4 and are definitely confident that we will do better than what we did in the last year. But again, as I said, it all depends on how is going to pan out. But yes, to answer your question, we are quite optimistic, and we'll do a lot of catching up in Q2, Q3, Q4.

Sir, just one more question. In terms of how you deliver your product to the retail, it is basically through physical stores and not through -- I mean people can always download your antivirus, right? So would pandemic be so disruptive if people have the option of downloading? Why is there so much disruption because of the pandemic?

No. So basically, if you look at our product, which is sold on 2 channels. It is -- first is the physical channel, which is through our dealers, distributors; and is secondly, online. Online also, there are 2 ways possible. One is on our own Quick Heal website. And second is through e-commerce portal, which is Amazon and [indiscernible] So yes, I think to answer your question, there has been a lot of disturbances because lockdown was imposed in the first 2 months and lockdown started lifting from 1st June onwards state-wise. So yes, I think physical sale was not possible, but then online sale was -- we have been able to get good traction on online sales.

So what percent is -- no, sir, what percent is online versus physical because that's what I wanted to know.

So if I -- so if you look at current quarter, Q1, so online sale as far as retail is concerned, is about 36%.

And historically?

So historically, it has been in the range of 20% to 25%.

Got it, sir. So essentially, the higher the online growth, any disruption in the form of third wave or fourth wave shouldn't effect the company materially?

Yes. So we have -- you are right. So we have -- we definitely have good infrastructure to capture online sale also. So you are right. In a way, you are right.

No, see, I'll address 1 more section that you are forgetting to look at. One is, like, see, when we are saying 36% is our online sale, then that means there is like almost more than 60% of sales had happened off-line. And this off-line sales has been there for years for us and that ecosystem has been contributing to our revenue. And that percentage is gradually decreasing, but it's taking time. Even though after pandemic -- because of the lockdown, we were able to see the good enough growth into online sales. But changing to online sales drastically, I mean it's all about mindset and the purchasing people. It will take time. It's not like if there is a lockdown, then online sales will be able to address the situation. But most of our retail sales also goes into clearly SOHO market wherein they are like small time businessmen where they have 2 or 3 PCs. And if these businesses are affected, then the sales will get affected. And at the same time, I'm also seeing because they have to go online to keep their business alive, they are buying more PCs, laptops, which can help have a positive impact on our team. So we are keeping a track. We are making sure that we are available off-line as well as we have maximum share of the online antivirus or internet security that gets sold across India. So we are making sure that we are available on both the platforms and capture whatever is a business that is happening. So even we are keeping the track on the market segment that we are addressing. So the share that we are having for online sale that we do across India is still again 30% plus on these e-commerce platforms. So we are making sure that we are not moving on to the share of the business actually.

Understood, sir. Sir, also generally -- the last question, sir. You said that typically Q1 is your weak quarter. Just wanted to understand why is that so?

So, see, 80% -- 75% to 80% of our revenue comes from retail segment. Retail, this is basically mostly stock and sell model, where Q4 is a strongest and that has some cascading impact on Q1. And that is the reason why Q1 tends to be on lower side historically.

[Operator Instructions] The next question is from the line of Jagdish as an individual investor.

Are you able to hear me?

Yes.

Yes. So we are into product development company, and there is [indiscernible] and currently, pandemic attrition is also there, right? So but we are more focusing on these buyback, last 2 years. I'm not sure, it's some INR 300 crores on that one. Also, we are giving more dividends, and we are also utilizing cash towards buyback and dividend. And also whatever the cash you're having, you're able to [indiscernible] 4%. So why don't become aggressive and invest in the M&A acquisitions. Where in acquisition also, you're only investing INR 37 crores and also you're going with a very slow pace. This pandemic has given us a lot more opportunities where most of the business are not doing [indiscernible] So those opportunities [indiscernible] And due to this pandemic also, many of the companies are forced to go digital. So which in turn is increasing cybersecurity options for us. So why aren't we capitalizing on that one? Maybe why aren't we going aggressive on this one? Can you please explain?

So yes, Jagdish, so this is Nitin. So basically, your question have 2 points. So one is rewarding shareholders and second is using organic and inorganic opportunities for the cash, using cash for the organic, inorganic opportunities for the business. So point number one, rewarding shareholders, yes, we did buy back 2 years back, we did it now also plus we have given dividend of INR 4. This was only to reward the shareholders in the most tax-efficient manner. This is on point number one. Now coming to the second point. So yes, as Sanjay mentioned earlier, we are continuously looking for inorganic opportunities. But when it comes to M&A, there are many variables. We have to find the right candidate, which can complement to our existing product line and which can also give addition of revenue as well as addition of product bookings. So we are evaluating a lot of candidates for M&A. We did 2 M&As in last 1 year. We invested in our Israel-based L7 as well as we also invested into Ray, Singapore based. In fact, L7, we also did one round of investment a year back. So we are continuously looking for M&A opportunities, and we are also mindful of this fact that this will definitely give us inorganic growth. But again, I think it is -- we have to get the right candidate, it has to fit into our business philosophy, and it should also give some synergic advantage to us. So that's why these things take time. But we are continuously evaluating the opportunities and we will do M&As going forward, provided we get the right fit.

Yes, but [indiscernible] So our R&D expenses are almost [indiscernible] I believe. So if a dividend [indiscernible] I mean, buyback should [indiscernible] 300, right? Why don't we increase our R&D spend? Why don't we give more [indiscernible] employees so that they can be [indiscernible] the company. It's product based, it's not company, right? So we need to build a new product so that we can compete and then get more clients, because if there are -- some of IT companies are also there who will provide solution to them, right? So they're having lakhs of employees, I mean lakhs of solutions they can [indiscernible] So why don't we go in that way and aggressively use the money towards that rather than more focused on giving your shareholders like buyback, very early stage I'm asking where we have a lot of potential to grow there, right? So we're not like a coal company where we have nothing more growth where we just need to give a buyback [indiscernible] So why is the focus more towards giving more to the shareholders than focusing on growth?

Jagdish, I think we also explained this earlier, Sanjay also made this comment. So ESOPs, yes, we do have ESOP schemes. We are giving ESOPs to employees, new hires are also getting ESOPs and ESOP is definitely used as a right talent to retain the -- right measure to retain the talent. Secondly, we are also returning to employees that we gave 2 increments in last 1 year. So there are -- definitely, we are taking care of all these measures. And secondly, on R&D spend, so R&D spend 3 years back was about 17% to 18%. This year, it has gone up to 19.5%, 2021. And if you look at current year, we would end up with about 22% to 23%. We are making -- as I said earlier, we are making a lot of investment in new products, and this is going to increase our R&D cost. So all these measures are being taken. So we also want company to grow at a rapid pace. And all these measures are being taken, and we are on right track.

Okay. Just 1 more question. So you hired employees [indiscernible] some product development, I believe. So any update on that one, what they're focusing on that one? Any [indiscernible] Already you have mentioned, but still what the new management is trying to do under the verticals we are currently working on, which can be potentially to growth [indiscernible] sector in the future, near future?

So the first investment was -- which Nitin talked about was L7 Defense and that is into API security which is the very fast growing domain. And currently, Quick Heal is not having products in those lines. So we really felt that that's the right investment. And so we are seeing good traction there since it's a technology that is disruptive and such technology takes several time to get acceptance into the market because it's replacing very large MNC products. And we are seeing good enough interest as we are able to give a lot of POCs and demos to very large enterprises, and there's a good enough understanding of the technology now. But yes, that's where the current situation is. And that's why we were very optimistic about the company, and we went into the second round of investments in the same company. And the other company, which is about L7 -- about the Ray. It's about addressing SMB business, particularly through the means of network devices that they are developing. And they are again disrupting the space by having an OS of their own into the router space wherein the cyber challenges are in a completely different league, which we are seeing. It's again an expanding market. It's Tier 2. I mean to say it's a new to market, which is again going to replace older technologies. And there, we are seeing some traction, but it's more towards international, Southeast Asian countries, not in India. So both the investments are doing good for now at least. And we are keeping watch on both the companies actually.

Thank you. Ladies and gentlemen, that would be our last question for today. I now hand the conference over to Mr. Nitin Kulkarni for closing comments.

So thank you, everyone, for joining the call. I hope we have been able to address all your questions and give answers to them. In case if you need any additional information, any clarification, you can get in touch with EY, who are our IR advisers. Thank you, and thanks a lot.

Thank you very much. Ladies and gentlemen, on behalf of Quick Heal Technologies Limited, that concludes this conference. Thank you all for joining us, and you may now disconnect your lines.