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

Ladies and gentlemen, good day. And welcome to Quick Heal Technologies Limited Q2 FY '22 Earnings Conference Call. 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. [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, Mr. Kulkarni.

Thank you, Nitin. Hello, and good evening, everyone. I'm pleased to welcome you to all our earnings call to discuss our Q2 and H1 Financial year '22 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, which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. Let me now hand over the floor to our MD and CEO, Mr. Kailash Katkar to talk about major developments and key initiatives. Over to you, Kailash.

Thank you, Nitin. Good evening, everyone. We had a very successful quarter Q2 with a significant growth in revenue, earnings and cash flow. Again, despite COVID challenges and considering last year still lower, H1 results are not comparable, but still we had achieved at par results. Nitin will definitely cover the financial detail in his commentary. I'm also happy to welcome Industrial veteran, Mr. Richard Stiennon of Finland to our Board actually. Richard comes with over 2 decades of experience across leading fiber security companies around the globe. Quick Heal will immensely benefit from his expertise with his guidance, actually. At product front, Quick Heal has recently launched a new version of its flagship retail products to empower consumer to experience complete digital predominance without compromising on privacy. We call it as a #freedomwithprivacy. Among the new features, the primary focus is on save guarding digital privacy for new age consumers. The main highlight of this new version is the data bridge alert, which will provide instant alert to consumers if their personal data like e-mail, password, phone number, IT address is breached online. And we will definitely assist the customers to take corrective measures. As in modern times, consumer is well more in a virtual world than in the real world, sharing personal data with companies for online transactions; however, doing so, makes them very more vulnerable to online trackers who are always on the lookout for stealing and selling personal information to third parties. Quick Heal new products are designed to enable consumers to take charge of their online privacy and thus, provide them with complete digital freedom while they surf on the Internet. Products also focus on enhancing consumers' securities such as Webcam protection, anti-tracker, anti-Ransom, phishing protection and much more. Regarding enterprise products, Seqrite development of new products, as mentioned in the past, is in a full swing under the Hawkeye series. Seqrite also received recently top-brand certificate from the prestigious institute AV-Test from Germany. Recently, CERT-In, which is from India, revealed that India witnesses a 300% rise in cyber-attacks in 2020. The trade landscape in India is continuously evolving with cybercriminals continuously chasing attack tactics. The rise in mobile and cloud application adoption for business operations has further put an organization sensitive data at risk. I would like to conclude by stating that demand will continue to remain strong for cyber security products and solutions with increase in sophisticated attacks. With our dedicated efforts into new product development and trade research, we are looking forward to explore further growth opportunities. Now I would like to hand over the floor to our CFO, Mr. Nitin Kulkarni, to discuss our financial performance with you.

Thank you, Kailash, and again, good evening to all of you. Let me take you through the financial highlights for the second quarter as well as half year ended September 30, 2021. As Kailash mentioned earlier, we were able to deliver good growth in the second quarter in a challenging environment. During Q2 of 2021-'22, our consolidated revenue from operations grew by 23% Y-o-Y and stood at INR 1,038 million compared to INR 844 million in Q2 of last year. 81% of our revenue came from retail segment and balance 19% came from enterprise and government. As things have started coming back to normalcy, the sale and demand for higher-priced products in retail segment has started picking up, which is evident from the fact that average realization increased for retail segment. The same has also gone up for our enterprise segment. Retail segment revenue has gone up by 18% on a Y-o-Y basis. Enterprise business grew by 16% due to good growth in SME segment. The half yearly results are not comparable as the financial numbers of Q1 of 2021 includes revenues spill over INR 280 million from Q4 due to non-availability of transport facilities due to lockdown. If the revenue still spill over INR 280 million in Q1 '21 is left aside, we have registered double-digit growth Y-o-Y during H1 of financial year 2022. Even after considering these revenues spill over, we have recorded marginal growth in H1 over last year of H1. EBITDA for the quarter was up by 18% Y-o-Y and stood at INR 463 million with a margin of 44.6%. PAT stood at INR 346 million, up 20% Y-o-Y. CASH PAT at $385 million, up 14% Y-o-Y. I would like to highlight one important factor on the employee costs. Last year, for the entire organization, increments were effective from October 1, 2020, and this year, it was effective from April 1, 2021 since the employee costs of Q2 as well as H1 of 2022 were an impact of 2 increments done during the last 1 year, resulting in higher overall employee costs compared to same period last year. In line with our continued focus on R&D and innovation, we increased our investment in R&D by about 19% on a Y-o-Y basis and it stood at INR 201 million compared to INR 169 million in Q2 of last year. While employee benefit cost was up due to mix of increased head count and change in pyramid structure of organization, coupled with the new increments as explained above. Now coming to sales and marketing expenses. Our sales and marketing expenses increased by 44% on Y-o-Y basis to INR 204 million from INR 142 million in Q2 of last year. Of this, INR 12 billion is due to increase in employee headcount and other [indiscernible] increments. As the economy unlocked after second wave, we also increased our spending on ATL-related activities, and this has resulted in an increase in sales and marketing costs in the current quarter. With lockdown restrictions getting relaxed during the quarter, there was additional spent of INR 5 million towards marketing travel. Now coming to general and illustrative costs. G&A cost has increased by 18% Y-o-Y to INR 125 million from INR 106 million in Q2 of last year. This is mainly due to increase in employee costs due to salary increase. We also made a doubtful debt provision for few of our customers on a conservative basis in the current quarter, where collections have slowed down. However, we are hopeful of collecting these amounts subsequently. This has also marginally impacted our G&A cost in the quarter. Other income during the quarter has gone down by 37% Y-o-Y to INR 37 million from INR 58 million in the last year. This was partly due to reduction in the treasury side. We had a buyback out cash outflow of [ INR 1,930 million ] in the last quarter and also partly due to fall in the treasuries. With this, Profit After Tax for the quarter increased by 20% Y-o-Y to INR 346 million. PAT margin for the quarter stood at 33.4%. Cash Profit After Tax during the quarter increased by 15% Y-o-Y to INR 388 million. Effective corporate tax rate for the quarter was at 24.3% for stand-alone and same range for consolidated as well. Now coming to the balance sheet records. Our overall net working capital days increased to 109 days versus 92 days in September 2020. The increase in working capital days was a result of increase in receivable days from 141 days to 159 days. As you might know, several small and medium-sized enterprises are currently impacted with lower liquidity due to lockdown restrictions imposed earlier, which has clearly impacted the businesses. We have taken adequate measures regarding collection. And it is to be noted that our receivable days have come down to 159 days as compared to 220 days in the previous quarter as of June 2021. I would also like to highlight that almost more than half of total receivables are with our top [ IT ] distributors. We have been doing business for several years, and we are keeping a close watch on these receivables, and we are confident of their collection. We will continue to maintain our financial discipline and expect the data days to reduce over the next 2 quarters. On coming back to cash and cash equivalents, our current cash and cash equivalents stand at INR 3,166 compared to INR 4,479 million in September 2020. This is including investment in mutual funds, fixed deposits as well as tax-free bonds. The decrease in cash and cash equivalents is due to deployment of INR 1,930 million over 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 [indiscernible], we again remain very cautious and calibrated in our investments, and we are looking at smaller and medium-sized investments. Our current investment [indiscernible] of the same. We continue to monitor the process of our investing companies so far and are quite satisfied with their progress so far. I also would like to give you the update on our service tax matter. The Commissioner of Service Tax Delhi has referred an appeal against the farewell order passed by sales tax, amounting service amounting INR 561 million, covering a period from 2011 to 2014. Hearing for condonation of delay as well as admission on merit basis is still awaited. Overall, to sum up, since the COVID second way of lockdown restriction were lifted, we are seeing strong recovery in the demand environment, and that has been visible in our second quarter numbers. We continue to believe the demand environment will remain strong with the vaccination getting pace, economic activities gaining further momentum and as [ deep ] for cybersecurity becomes even more evident. Overall, the first half has been good, and we are well set for the next flag of growth. With this, we now open the floor for questions. Thank you.

[Operator Instructions] The first question is from the line of Kranthi from WealthMills Securities.

Congratulations for the good set of numbers in challenging times. I just want to check, when we have to compare this performance of cyber security, okay? How in tandem with -- the PC sales are also going up -- so the sales have been going with PC sales also -- if the company has the benchmark with respect to the number of pieces sold in India?

So yes, I mean, we are seeing the trend in similar fashion. I mean to say the PC sale is in upwards. But at the same time, the operations disturbed the market activity. So that way we do see as the relaxations happened, we started seeing good demand for even consumer products on all front, you mean to say, online as well as the off-line market through the [ DSCI ] and channel partner network.

Okay. So I just want to know, suppose if I have to see, okay, Quick Heal as a cybersecurity provider in India. Okay. What is the market share of Quick Heal at present? Anything you have with respect to the numbers, just how to quantify?

Currently, I mean to say there are no report that I can back with, but what we get from our understanding, I mean to say all the figures that we receive through the channel partner network and the sales that has happened throughout the country for other competitions stands around 31% to 32% in consumer segment, which is for Quick Heal.

Okay. We can say the PC segment is concern in India?

Yes.

And just my final question. See, every -- most of the IT companies are currently -- they are facing the problem of -- one of the issue is attrition. So is this a similar case with Quick Heal or how you are foreseeing the attrition and the employee cost is concerned?

Yes, you are right. So we do are facing the similar challenge, which is especially the highly skilled side and the experience side, and the attrition is high. So we are tackling that with -- coming out with good schemes for employees. At the same time, we did increment throughout the organization last year. Nitin, can you add to that?

Yes. See, just to add to what Sanjay said, yes, you are right. This attrition is a problem across the industry, and we are no exception to that. So we are also facing that problem. But we have been taking a lot of corrective measures. And to an extent, we have been able to arrest it. But yes, there is an overall problem when it comes to attrition.

Okay. Any percentage you can give -- the percentage of attrition, if you have to quantify numbers for Quick Heal currently at present last quarter, at least?

So basically -- so attrition is there, and I won't be able to give you the exact number on the call. But yes, as I said earlier, we have been facing this problem for the last 6 months or so, and this is the problem, peculiar across the industry. I won't be able to give you any kind of number on the call.

[Operator Instructions] Next question is from the line of [ Chirag from ASSPL ].

Yes, congratulations for the good set of numbers. I'm tracking your competitions quite long. And what I've seeing is that entire IT industry is booming post lockdown, especially in terms of order booking and all? And also the selling of this laptop, tablet and competitors also increased day-by-day due to work-from-home culture and all. So where do you see ourselves going forward, I understand that the disturbances have lockdown and all impacted us a lot. But now the numbers from this quarter has started somewhat normalized -- your view on same?

So if you -- you rightly said the number of PC sales increasing and the product sale has also increased. If you look at these items, number fold, that has increased. But people are going for like -- cheaper version, like we have a range of products which starts from INR 1,000 to INR 2,500. So this year, what we have seen that the premium product sale has not increased, in fact, that has decreased, but our less cost products, number of sale has gone up. But in last quarter, this Q2, the premium product sales has again started picking it up, and the market has started coming back to the normal. Second point, what I wanted to tell you is there is cash flow challenges in the market. So a lot of sale, like some percentage happened through online and some percentage happen through retail shops. And the problem is the cash flow among these retail channel partners has hampered because of this pandemic situation. And that is creating a big hurdle to like do more stocking into the -- this retail partners. The demand is there, but the cash flow has a challenge.

So and to add to that, I can give the picture. You should look at our company as we are targeting different segments. One is the consumer. There is SMB, which is small and medium businesses. And we with the new products that we launched in the last 3, 4 quarters, we are also targeting large enterprises. And each of the segment has a different impact of pandemic actually. So if you see consumers, there's a buoyant mood, now we are seeing more of a demand from there. SMB has also started speaking. As businesses are open now, even SMB, we also consider revenue -- that are showing SBMs, there's the government sales also [ intervening ] that. So government side, demand has also started picking up. So that segment is also started seeing good results, and I'm sure that we'll be having similar results for coming quarters. And the large enterprises is something that is -- I mean, new segment for us, which we have started with our EPS product, which is scaled up for large enterprises, and gradually, we are also scaling up our other products like EMM and firewall, all those. So that market has a different -- I mean has the legal effect of pandemic as they are more getting ready for work from home culture where their IT spending has gone up. And so the cyber security spending is going up there. So we feel that, that will be the added revenue to our segment as we keep adding more products to that segment.

Okay, sir. Sir, I have one follow-up question on what you said. Like in one of the quarter, you answered to me like this SMN large enterprise, we are developing products and approval takes time. So any concrete deal, which has happened in last 2 quarters, like for developed solution under R&D department?

So if I have to tell you about the new product development, as I had mentioned that, that development is in full swing, actually. The products are yet to release to the market. But if you look at the presentation for whatever we are selling as a endpoint security, the large deal, which happened in this quarter and if you compare with the quarter 1. So in quarter 1, there were 8 deals which happened and in this quarter, there are somewhere around 14. We get to through the presentation. So the Q1 was '18. So see, Q1, if you see the investor presentation in Q1, we have added about more than 500 endpoints, which we call it as a midsize, large customers, about 10 customers on enterprise side. And in the current quarter, in spite of all the challenges, we have added about 24 customers.

Okay.

So 24 customers.

Okay. On large side?

Yes. Yes. That's correct.

[Operator Instructions] Next question is from the line of Rahul from PRP Professional age.

I want to know how do you plan to utilize your investments into mutual funds and government bonds and securities. So any plan about utilizing these funds for business or to -- for shareholders something?

So yes. So the cash whatever we have. So see, we did -- we did a buyback about a quarter back, and we returned the cash back to shareholders. But definitely, the cash, whatever we have and investments in mutual funds, they are definitely mean for organic and inorganic leads, and we are continuously looking out for inorganic opportunities. And that is -- so that is where we will be utilizing this cash. So it is mainly for organic and inorganic mix.

Okay. One more question. So can you help me with the bifurcation of your receivables that you hold? -- I mean you have into retail and for government, the percentage that is for retail and for government?

Yes. So if you look at the revenue split, it is around 80% retail and 20% enterprise. So roughly, you can take the same percentage, a little lower for enterprise side. So maybe I can say around 85% for retail and 12% to 15% for enterprise.

And bifurcation for government?

So government, anyway it is part of enterprise.

[Operator Instructions] The next question is from the line of [ Stella D'Souza from JK Investments ].

Congratulation on based set of numbers. I just wanted to know that your working capital days have gone up compared to last year. Can you throw some color on it? And could you provide an outlook for the team?

So as I said, this is Nitin, so as I said in the opening commentary. So basically, this pandemic has created a lot of pressure on the overall dealer ecosystem. And in the last call also, we mentioned debtor days -- in fact, if you look at debtor days as of June 2021, which was last quarter, debtor days were at 220 days. And we have made significant progress in this quarter. And as things have started opening up, things have eased out a little bit. So we have done a very good amount of collection. And in September 2021, debtor days have come down to [ 150 to 90s ]. Having said that, there is definitely overall liquidity pressure in the whole ecosystem and we definitely feel that debtor days will remain in this range in next 1 or 2 quarters.

Okay. One more question. Can you help us understand how you do business in the retail segment? And what kind of competition are you facing currently?

On the retail segment, I think as I've [ sectioned ] earlier, we are seeing good amount of fraction as we've started seeing shop opening and lockdown restrictions are relaxed. We have seen there's a good demand coming from off-line market, I mean to say, non-online, which is a bigger chunk in our retail segment. And we do see that this trend will continue unless we don't see any further COVID day or anything so because there's quite a lot of -- I mean PC sale that has happened and should hence impact the demand there, actually. So we are expecting to good remark from that segment and the SMB segment as well.

[Operator Instructions] The next question is from the line of [ Rahul Talwar from AB Advisors ].

So my first question revolves around the new enterprise products. So can you please elaborate on them as in which -- which are the products you're planning for -- to launch in next year in new enterprise products?

So I cannot give more details, but for recent launch that is there is about EDR, which is endpoint detection and response is something that we are going to enter that market, which is a logical extension to chain point security market. And along with that, Zero Trust products are planned for the coming future quarters actually. And something more related towards data privacy and other compliance actually for organizations.

Okay. I understand you. Okay. Sir, my next question is, so can you throw some light on the provisions that are made towards the dates?

So yes. So in this current quarter, we have made provision of about INR 6 million for doubtful debts. So basically, these are -- as far our policy as soon as data goes beyond 365 days, we do a provision. But we do a follow-up and we collect significant part out of the provision. So to answer your question, we made a provision of about INR 6 million in the current quarter.

Okay. Okay. Okay. I understood. Okay. Okay. And sir, my another question revolves around the working capital side. So if you don't mind, can you please throw some light on how the working capital cycle is for retail and enterprise business? how does it vary? And what is the outlook for both the segments?

Okay. So working capital mainly covers debtor days. So I talked about this earlier, but again, I will repeat. So for retail, so payment terms for both retail as well as enterprise customers, they are more or less similar. It is in the range of 45 to 60 days. But in case of enterprise customers, generally, we get payments on time or with a little bit of delay. But when it comes to retail segment, which is more of a stock and sale model, where we have more delays in collection. And basically, because of the pandemic in the last 1 to 1.5 years, since I said earlier also that there is a huge liquidity pressure on the entire dealer ecosystem. And because of that, in retail -- since the retail is 80% of our business and where we follow stock and sale model. So debtor days are more in case of retail. So if I have to say, from 159 days, majority of the outstanding is for retail. And in case of enterprise customers, we have been collecting -- there are a few delays, but more or less, we have been collecting money on time. Hope that answers your question.

[Operator Instructions] The next question is from the line of [ Chirag from ASSPL ].

Sir, I have a question. Like in last 1.5 year due to unavailability of raw materials and parts, the entire electronic industries has increased the prices, including laptops and computers. Do we have taken the same step for our products and services?

No.

Okay. But as you answered in my earlier question that the demand for cheaper version solution is in more on retail side, right? So why we have not taken step? Because entire IT industry has taken a price hike on the equipment side.

No, it is not that way. The strategy for product pricing and everything is well designed by this set of people like the sell-side and the regional managers, owner managers. And it is a conscious call which we take. And it is a conscious call which we take. As I told you that is in this pandemic situation, the consumer, they themselves are facing financial challenges. And in that, we cannot increase the product prices actually.

Okay. But like even in telecom also due to demand of Internet, is also kind of service, they gradually each of their average revenue per user by increasing the Internet prices slightly like, let's say, in a very small amount, but on a longer horizon of 7, 8 quarters, if you see, it almost increased like 10% to 15%, the retail tax. So same way like in cheaper version, there is a scope, if the demand is more on that side. is I'm asking this.

So I understand your point. It also depends on the competition pricing, and that's where the regional heads and the sales guys take the call. So it's more of a market-driven price, and MOP is driven by all the activity even from the other competition. And we are seeing price drop in most of the competition. In fact, Quick Heal has maintained the prices even in these situations, right?

Okay. So in future, is there any plan to cut the discounts which we offer on bulk like a 3-year or 5-year extension of service...

This is not a single person's decision. This is a very like team of --strategic decisions are being taken on a quarterly basis. So no one here will able to answer a very like correct way about the pricing part of it. And when it comes to the pricing, it is a very sensitive point where no one can take -- a single person cannot take a decision. So it's a team decision, actually.

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

Just a couple of points. First is, let's say, the new products that we are developing, when do we start to see, let's say, the launch of the first product? So that is question number one. And second is that, how many new products are we planning in total? And are they basically with a focus towards the enterprise segment only? Or do we see anything for the retail side also?

So both of our launch data plans, which is a couple of products in the last quarter of this financial year, and all our future launches are focused on enterprise segment and more particularly in large enterprises. And whenever we do a product launch, what we've seen is it takes certain time for a product to get stabilized and get to the level where distributors and partners and pre-sales guys are able to reach it to the organizations. So we are only starting with the training and education part, but...

So I understand that it takes a long time for the products to start giving you revenue. So if I take a 3-year horizon, so let's say, in 2024-2025, what percentage of our revenues, let's say, we can expect or we are targeting to get from these new products that we launched this year, next year. So any escalations or any guidance?

So in next 3 years, we are planning to have a ratio of 50:50 percent. It actually depends upon like the market acceptance of the product and the challenges which we are going to come across after product launch.

So Kailash means to say the enterprise segment, which is contributing 20% right now, our focus is to increase that to 50% in next 3 years. And the additional revenue, we are hoping for a potential new product launches, actually. And the target is definitely large enterprises, so that we will have lesser impact such pandemic related or any other business destructive impact because large enterprises, cybersecurity spending remains quite steady throughout.

All right. So just -- if you allow me a little, I will just ask one additional question. So on this -- on the margin side, let's say, right now enterprise is 20% and retail is 80%. So once the enterprise moves to 50% over the next 3 years and retail also grows, but will it come down overall to 50%. Do you expect that the margins will come down on a consolidated basis in terms of percentage I'm saying, obviously, absolutely, it should increase. And our related question becomes, let's say, that are our margins in enterprise segment and retail segments different currently or they are roughly similar?

So to answer your last question, the enterprise side, we are making a lot of investments. So yes, margins in enterprise segment are lower than retail, and retail is having a better margin compared to enterprise. And on the first question, which you said. So yes, as Sanjay also mentioned that, a lot of investment is happening on enterprise side on this new product development. So initially, there will be impact. But as gradually, we start getting monetization from these products, which will have a huge upside, and that will definitely take care of the margin what we are maintaining it to.

[Operator Instructions] The next question is from [ Stella D'Souza from JK Investment ].

I just wanted to know what is your view on the antivirus industry for retail space, like how is it growing? What are your views? How do you think it will pan out in the future?

So if you're talking about retail, when we are saying antivirus, it becomes a consumer product, which we feel that there is a -- after this event of pandemic, we have started seeing good movement in the PC market and laptop market, which has given a good life to this product, I need to say. So we do see higher single-digit or at least early to digit growth in this segment, actually. So that's the hope actually. And of course, we've been having off-line as one of the major contributor, retail also is and depends on the market's openness. I mean to say, unless there is no further lockdown and shouldn't be a big challenge.

Okay. My next question is where do you see the pricing for license stabilizing in the retail segment?

So we always play with the product mix. Actually, we have products in different ranges. So total security, which is the highest I mean selling product as well as the costliest product among us. So we do try and play the product mix game, try to make sure we get revenue out of the situation. So that's what we keep doing to maintain the product RPU at certain range. And that is what we have been able to successfully do over the last 3, 4 years, the RPU has not moved too much actually in spite of a lot of competitive price pressure from other competition. And we -- I'm both hopeful that we'll be able to maintain that even in the next couple of years.

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

Yes. Just a couple of more questions, actually. So we had this investment in the Israel company -- Israel and security company. So if the management can give some view on how the things are progressing at that end? So that is question number one. And second question is that given that our new products are being targeted towards the enterprise segment, right, and the large enterprise segments, what gives us -- and what do we believe is our right to win or let's say, the key differentiator, which will help us to win the business against the global giants in the security space -- in the cyber security space. So that is my question, yes.

So to answer your first question, the investment that we did in L 7, which is that Israel company, the investment was done at the stage where the product was still under development, and we have been following them quite well. The product has now and the real estate is coming to real soon. We have already started giving demos of the product to Indian large enterprises and started seeing good interest from these customers as well. So this is at this stage where we have started seeing the interest in the product. And as such, this product is, particularly for very large enterprises, which deal takes time for the deal cycle is bigger for below profit. So it will take some time for us to contribute on the revenue side from these products. But definitely, it has progressed, and we have started seeing some customers with these products. And to answer your second question, which talks about what is the differentiator that we have for the new products that we are coming up. We have opened up on new product management vertical where they have focused on the current products, which are there from the competition? And what are the missing points, actually? And what is it that enterprises are looking for, which are missing in even the large products. And that's where we have developed the differentiators, which I cannot explain technically here, but definitely, we are working on the differentiator as the cyber security challenge is a fast-moving thing actually. It's not the same every year. So things are changing, and we are trying to cover things which are missed by the competition, and we'll be making sure that we have a good differentiator, which will help our sales guys to pick it to the large enterprises in front of the competition. And since we have the product manager, the Chief and CTO which is [ still in the ] U.S. and project managers for these products who are well experienced coming from industry, [ getting ] from the competition, and we are quite confident about the product debt that are going to get release that.

[Operator instructions] The next question is from the line of [ Manoj Shah from Livesco Investments ].

Can you just comment on the cybersecurity market penetration in retail and the enterprise segment in India, like per 100 PC or the laptop sold in India, how many people purchase the cybersecurity or the integrated software basically? And what is your strategy to expand the market like either by keeping the price at a lower end? Or what's your strategy so that you can -- once the customers is onboard, then you expect them to renew the license as they are consulting. So what's the strategy there?

So it's a good question. I mean to say we have been tracking the cyber security market globally as well as in India, and we are also trying to expand globally. So what we are seeing is cyber security spending in India is quite low compared to any other developed countries or even certain developing countries. And that is where it helps point toward the potential that India has since in last 3, 4 years, we have improved a lot on digitization in government. And all these things have really been or brought the cyber security to the center stage, actually. And this where there is no option then for any enterprises to invest in the cyber security product. Currently, as you rightly said, we are not very much -- I mean, most of the organizations are not very much investing into cyber security. But this is -- this is the trend for SMB, I mean to say, and even on the consumer front. Very large enterprises or BSSI, among all the sectors, BFS is the only sector which is closer to the Western [indiscernible] countries spending on cybersecurity. But then it leaves with huge vacuum on the other front, like telecom or even pharma manufacturing, other verticals like even education. So we do see that there will be a scope where these kind of investments will grow as we are seeing more and more attacks as people are going digital. And the current situation of work from 1 and every organization has to work on IT or automation and digitization of their business, which we will grew in demand for cyber security product. So we are trying to increase the cyber security awareness by creating a lot of programs and holding a lot of seminars vertical-wise. In fact, I just came out from one of the segment, which was targeted towards rural or smaller banks, actually, which are very unprotected or not well predicted from the cyber-attack. So they see huge losses due to unprotected networks. So that's what we are trying to do, it looks all these verticals, tech seminar, advertise are in the reach out to these to [indiscernible] is what something to step that we are taking to the cyber security avenue.

Okay. I've got one more question. One is that like your R&D spend as a percentage of sales is roughly around 19% for this quarter. So what percentage of sales you are targeting your R&D spend over the next 2, 3 years? So what ballpark target percentage you have in mind over the next 3 years?

Yes. So as we -- as Sanjay also said that, a lot of investment is getting made. So if I have to talk on annual terms, we -- the R&D spend on an annual basis would be about 22% to 23% of our revenue.

Okay. Okay. And now coming back on this, like what category in the sense that what are you experiencing? Is it the mindset since you are more of a retail-oriented company, 18% of the sale is towards the retail rather enterprise and enterprise, you want to increase it from 20% to 50%, as you said. But currently, it is mostly retail. So what's the improvement in the retail segment and the sense that customers adopting? What it is hinging into purchase antivirus software? Is it the cost is higher? Or is it the mindset you don't want to purchase, you want to spend on a 50,000, 60,000 laptop, but you don't want to spend a few thousand on the antivirus software kind of. So what is it the mindset issue? Or is the price issue?

I think as Sanjay has also answered this point in past recent. We have a range of products. So we are catering to all customers. The customers who are more serious about their protection and security who are ready to buy premium products by spending more. We have a product for them. And for those customers who are more price conscious and they don't want to spend too much money on antivirus software. For them, also, we have a product with a different layer of protection. So we are catering all kind of customers. It is not something we have only 2 products in retail. We have a range of products in retail actually. So we are not losing any part of it. But that doesn't mean that we'll be able to pay 100% customers because there are so many products in the market. There's a competition in the market, and there are so many people who don't want to -- who don't believe that protection is required. So I'm still we have a good number of like and market share, like if you -- as Sanjay rightly said that we don't have any survey as such report, but whatever we have, we are present across India and whatever channel partners, we are dealing with, we try to get all this information that how much product they have purchased from we feel how much product they have purchased from the competitors. And based on that, what we find out is we are close to 32%, 33%. So what our observation is people think of antivirus only when they face a challenge actually. I mean they are facing challenge or something after that, they start talking about security, not at the time of buying. And on the -- as Kailash says, we see that we don't lose any of the market segment. So on lower price market segment, we have a product which enters there. And then we have a program where we keep following up with the customer to upscale with product price. So at the time of renewal or any challenge for user faces because of the product he's using, which is a lower cost product, and it is doing a lot of business activities, we pitch in the total security volume. So that's -- those programs are there. And in fact, we are regularly tracking and making sure that we move 7 part of low segment business to a higher cost product. And that's how we are able to even gain attraction on the higher side cost product as well. And those customers who are meters since her, most of them have moved to total security because they have more to premium products actually so that's the confidence that shows they have in our product and they realized importance of security. So that's the trend as well.

Can you just reconfirm, you said 32%, 33% is the penetration level for the cyber security software in India for 100 PC 32 or 33 would be buying the cyber security products?

I cannot comment on that. I just said that whatever we do our own survey with the channel partner. So there are no figures available. I mean to say, see, there are different markets. One is like there is a segment which don't even buy the product. Actually, they are go for either OS version antivirus, which complete the OS as a free version, or there download certain key available antiviruses unless an [ NPL ] virus challenge or [ randomware ] challenge, which then they realize we need a better protection or the paid protection, which is much up to date, and then there is a service attached to that. So that happens gradually. So that's what we have observed.

The next question is from the line of [ Rahul Talwar from AB Advisors ].

Sir, my first question is just a follow up on the previous participants question. So you said that the customers usually consider taking an antivirus, whenever they feel the threat and according to what was said in the initial comments the cyber-attacks has been increased since the COVID has started. So basically, has the total income increased by 460 or as compared to last quarter. Because of 10?

Yes. See, to answer your question, like if you want to see the margin part of it, you can check all the quarter results and ARPU part of it, okay, you will get to know whether the earnings per license has increased or not. And the second most important thing like we really don't compare quarter-on-quarter basis because market and the customer sentiments are totally depend upon the market economy. And if you see for last 2 years, the economy of our country because of this pandemic, the people are facing a lot of challenges. And based on that, like, as I said earlier also that in last 1.5 years, our premium product sale has gone down and our low-cost product sale has gone up. But now in last -- this quarter, Q2, our premium sales has started picking up again and [indiscernible] normal situation actually. Okay. So there's a Slide #14 into comm.

No. So basically, just to add to what Kailash said. So if you look at -- as Kailash mentioned that for the last 1, 1.5 years, the lowest price products were getting sold. And we have seen a trend in Q2 of current year. And if you look at -- see, you can easily calculate ARPU based on BAVI data for license sold as well as revenue. So ARPU for retail segment, current quarter compared with Q2 of last year has gone up, it is 523 in Q2 compared to 509. And even if you look at on a half yearly basis, it has gone up compared to half year of last year. So that is what Kailash just mentioned that we are seeing a little bit of uptake in last 3 to 6 months where higher-priced products are getting sold more.

Okay. Okay, sir, I understand. Okay. Just the last question on the same thing. So as in the initial comment itself, it was said that considering the increase in cyber-attacks since the COVID has started. I just wanted to know how often does Quick Heal provide updates for its products, if we compare it with its peers, such as Kaspersky or Norton. Also, has the probability of providing updates to such products increased since the COVID has started? Or is it still the same?

So see, the update frequency changes depending on the test that we see. But on an average, we release 3 updates per day for all our users. And sometimes we go to 5 updates depending on the situation. Quite comparable, I mean to say, much better. But update is not the comparison major, I mean to say. If you compare [indiscernible] detection and performance, there are international certifications, which keep an eye on all the products and which is being one of the products that is that monitored, and Quick Heal was listed as top product in -- against last quarter itself, the test that were published in Germany actually. So the test is about detection, how well proactively we protect our users.

Thank you very much. I now hand the conference over to Nitin Kulkarni for closing comments.

Thank you all for joining the call. I hope we have been able to answer the questions raised by you. In case if you need any clarification or any additional input, you can get into with EY, who are our Investor Relations adviser. I wish all of you and your families happy and say Diwali. Thank you, and back to you, moderator.

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