R Systems International Limited (RSYSTEMS) Earnings Call Transcript & Summary

Ladies and gentlemen, good morning, and welcome to the R Systems Q1 FY 2020 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kumar Gaurav. Thank you, and over to you, sir.

Thank you, Lisa. On behalf of R Systems, I welcome all participants to quarter 1 2020 earnings conference call. Trust everyone is safe and in good health in these challenging times. We have senior management of R Systems with us in this call. We will start the call with opening remark on the performance of the company by Mr. Rekhi followed by financial overview by Mr. Nand and business overview Mr. Avirag. Thereafter, we will have a closing statement by Mr. Rekhi. Subsequently, we will open up for a Q&A session. Before I hand over, let me read out the customary disclaimer statement on behalf of the company. Investors are cautioned that the presentation contains forward-looking statements that involve risks and uncertainties. The company undertakes no obligation publically update or revise such forward-looking statement. These statements may undertake revision because of new information, future events or otherwise. Actual results, performance, achievements could differ from those expressed or implied in such forward-looking statement. Now I'm handing over to Mr. Rekhi for his opening comments. Thank you, and over to you, sir.

Thank you, Kumar. Good morning, everybody, and thank you for being part of this investor call. I want to reiterate what Kumar said, we're all going through unprecedented times, and I hope everybody is staying safe and healthy. The company has implemented the required work-from-home guidelines to ensure the safety and health of our associates while we continue to provide seamless services to our customers. We are working closely with our customers and our vendors as a long-term partner to handle these challenges together. There is still uncertainty in the global economy. However, R Systems with its strong balance sheet and deep product engineering and digital services offering, is well positioned to tackle these near-term challenges and to emerge even stronger as an agile and dynamic organization. Our systems will continue to closely monitor any material changes to future economic conditions. During the first quarter of 2020, we have reported revenues of INR 209 crores, that is USD 28.9 million. We had a reasonable growth of 7% against the same quarter last year. Revenue grew on the back of good traction towards the product engineering and digital practices. The EBITDA for the year was INR 20 crores, which is 9.6% as against 9% in same quarter last year and 10.2% in previous quarter. The margins are impacted by yearly salary raises and conservative AR provisions as offset by rupee depreciation. Profit after tax was INR 9.5 crores as against INR 12.38 crores same quarter last year and INR 23.23 crores in previous quarter. Net profit after taxes was impacted by a mark-to-market loss of INR 6.85 crores on restatement of forward covers. We served $25 million-plus customers during the quarter, including 5 customers contributing USD 3 million-plus revenues. Also, we added 5 key customers. Digital continues to contribute over 40% of our revenues. We have, however, started witnessing softness in the demand towards the end of quarter 1 2020 due to the global lockdown. But as I mentioned, we have implemented the required work-from-home guidelines to ensure that we are able to provide seamless services to our customers and, at the same time, ensure the health and safety of our associates. We have a strong balance sheet with shareholder funds of INR 350 crores and cash and bank balances of INR 218 crores to support our liquidity and growth. I will now hand over to Nand, our CFO, to provide a detailed financial analysis.

Thank you, Mr. Rekhi. Good morning to all. Thank you, everybody, for attending this call. I do hope that everybody is staying safe and adapted to this new normal. Let me go into detail of each line item of profitability statement. Revenue for the quarter was INR 209.3 crores or $28.9 million, quarter-on-quarter decrease of 1.7% and year-on-year increase of 6.6% in rupee terms. Traditionally, Q1 is a weak quarter as clients are still in the process of releasing their IT budgets, but we started reasonably well in 2020, with 6.6% year-on-year growth. We have added 5 key wins during the quarter and around 75 associates in this quarter. Our digital practice is doing well, as Mr. Rekhi said, contributing 40% of our revenues. We started feeling softness in demand due to COVID-19 towards the end of first quarter when several economies announced lockdown. We started with delay in start of new assignment that is further impacted as certain existing customers have also approached us with discounts or credit for certain periods, few cancellations and longer time for payments. It seems that it will impact our Q2 and Q3 to some extent. And as the business gets tuned to this new normal, we can see a regular Q4. Getting down to gross margin, it was 35.04% in this quarter compared to 36.04% in last quarter and 33.66% in the same quarter last year. The reduction of 100 basis points quarter-on-quarter is mainly due to impact of increase in salary, decreased utilization as offset by rupees depreciation. Getting now to SG&A expense line. Again, expenses decreased quarter-on-quarter by INR 1.79 crores. It was INR 53.17 crores in this quarter compared to INR 54.96 crores last quarter. The decrease is mainly due to adoption of Ind-AS 116 effective this quarter, which resulted into recognition of right of use assets and corresponding lease liabilities for long-term leases arrangement. Now we have to classify lease rental as depreciation and interest expense as against rental expenses, which we have to present earlier in SG&A. However, it does not have any significant impact at net profit level. EBITDA in this quarter was INR 20.14 crores or $2.78 million compared to INR 21.75 crores or $3.08 last quarter and INR 17.63 crores or $2.51 million in the same quarter last year. As a percentage of revenue, EBITDA was 9.63% in this quarter compared to 10.2% last quarter and 9% in same quarter last year. Comparative EBITDA is less as compared to last quarter due to salary raises and conservative AR provision as offset by rupee depreciation. Also, it gets benefited from new lease accounting standard. COVID-19 challenges will have impact on our revenue, thus, respondingly, it will impact the margins. However, we have taken certain cost and levers to protect our margins. Also, rupee at present level is supporting this. Getting down to depreciation, the total expense was INR 6.57 crores compared to INR 1.61 crores last quarter and INR 4.31 crores same quarter last year. Increase in depreciation is the consequent impact of adoption of Ind-AS 116 as I explained earlier. Interest expense is INR 1.26 crores in this quarter compared to INR 34 lakhs last quarter. Increase in interest expense is due to adoption of Ind-AS 116 again. Other income in this quarter was negative INR 1.21 crores compared to positive INR 3.09 crores last quarter. Other income mainly consist of interest income and exchange gains or losses. Interest income for the quarter was INR 1.72 crores. The exchange losses during this quarter is INR 3.28 crores compared to exchange gain of INR 61 lakhs in the last quarter. The high exchange loss is mainly due to mark-to-market loss on restatement of outstanding forward cover. As at the end of quarter, we had total forward cover of $22.95 million with average rate of 74.12 and euro cover of 3.9 million with average rate of 83.73. We have already gained mark-to-market at closing date of 31st March. We have consistently followed this conservative accounting instead of parking such noncash loss in balance sheet through head accounting. Our tax expense was INR 15.57 crores (sic) [ INR 15.67 ] in this quarter as against negative INR 34 lakhs quarter. The negative tax expense last quarter was due to a reversal of conservative tax provision after closure of respective adjustment. Net profit after tax was INR 9.5 crores or $1.32 million compared to INR 23.2 crores or $3.29 million quarter last quarter. Reduction of profit after tax is due to reduced operating income and noncash mark-to-market loss during the quarter. Results and EPS for the quarter is [ 80s ], getting down to asset side in the balance sheet. Total receivable at the end of the quarter were INR 142.9 crores compared to INR 132.4 crores at the end of last quarter. The receivable in terms of DSO was 57 days at the end of this quarter compared to 53 days at the end of last quarter. Cash balances were INR 217.8 crores at the end of this quarter compared to INR 200 crores at the end of last quarter. We have been constantly generating cash from business. R Systems shareholder funds were INR 349.7 crores at the end of this quarter compared to INR 338.2 crores at the end of last quarter. We have a strong balance sheet to support liquidity and growth in these challenging times. With that, let me hand over to Avirag-Ji for a review of operations.

Thank you, Nand. Thanks, everybody, for being on the call. I hope everybody is safe and healthy at home in this COVID times. Will give you a brief flavor of our global operations. Digital transformation is the focus for us, and we are serving the key verticals like telecom, technology, finance, insurance, health care, life science and retail. Our digital transformation offering includes cloud, CRM sales force, analytics that cover machine learning, AI data and speech analytics and RPA, robotics process automation. All these offerings are growing in the substantial opportunity in the market. In the cloud, we work on a leading platform, which include Amazon, Microsoft and Google. We are advanced partners with Amazon and we are also a good partner with Salesforce. We see major transition in this cloud business with our existing as well as new clients. Data and speech analytics remains a focus for us. We continue to expand our base in ML/AI, data with speech analytics currently serving many key clients in this space. Traction is also very good in this space. We have 5 key wins and recognition in this quarter. On the product life cycle management, a U.S.-based life science company supporting drug discovery and development has engaged R Systems to digitize product to provide operational efficiency, and also we are doing automation testing for them. Another customer, which is we are working with a U.S.-based insurance player for digital transformation for its existing IT, infrastructure and taking it to cloud, also supporting their data analytics practice. Computaris has started working with one of the leading mobile commerce company in Europe to build a digital interface to enhance its user experience. In Southeast Asia, IBIZ is implementing Microsoft Dynamics With business central for a Singapore-based program food processer company. System will improve financial visibility and operational excellence for [indiscernible]. One of the -- another customer in Southeast Asia is a leading Japanese printer electronic component and system device company has engaged ECnet to implement product -- a product certificate tracking system in APAC region. Because of COVID, we see softness and demand towards the end of Q1, and our customers are dealing new initiatives However, we feel it is a short term, and we will get stabilized in the quarter or 2 with the long-term OpEx, and business will adopt to the new normal. It will impact our revenue in 1 or 2 quarters, and we see growth towards the Q4. In terms of our technical headcount, we have added 70 resources during Q1 and has grown to 2,453 in Q1. Utilization has decreased from 81% to 77.6% in this quarter by -- on quarterly by geography, North America and continued to be the largest 68.5%; Europe 15.9%; Southeast Asia, 12.9%; and rest of the world, 2.7%. On client concentration, top 10 clients give us 29.1%, with the largest client, 6.6%. With that brief overview, I will hand over to Mr. Rekhi for his closing comments. Over to you, sir.

Thank you, Avirag. Let me sum up. We still face uncertainty in the global economy. The present softness in demand will impact the year revenue and margins. Our product engineering and digital offerings will navigate us to handle these challenges. Further, the financial stimulus by various governments like U.S.A. and Singapore is providing with us with some needed liquidity. The present focus on the year 2020 is to ensure safe and reliable operations for all the stakeholders. We are working closely with our customers to challenge -- to tackle these challenges together. We're also working to protect our margins by discipline in execution and other cost-saving measures. Rupee at present level is also helping our margins. We believe we are very equipped to handle these near-term challenges with niche product engineering and digital offerings and a strong balance sheet. This will help us to emerge resilient and agile in these uncertain times. That brings us to the end of our presentation today. I will hand you back to the organizers for your questions. Thank you.

[Operator Instructions] The first question is from line of [indiscernible] from [ Plutos Capital ]. The line of the current participant has dropped off. We will move on to the next. That is from the line of Rajesh Gupta from SBI Capital Markets.

I have 1 or 2 questions. So one, you said about the client concentration is a top 10 client, constitute 29% of the business. I want to know, among the activities that you cater to, whether BFSI, telecom or other areas, which is the best growing segment among all? And what are the challenges that you're willing to face or you foresee in the near term?

Mr. Rajesh, this is Nand. Yes, as you know that in this pandemic, the travel and hospitality sector also to some extent, and retail to some extent, has been impacted. R Systems exposure is not more than 5% in these sectors. In fact, more than 30% of revenue comes from telecom sector, which has been a beneficiary. So our telecom sector and most of the Computaris part of business, which is mainly into telecom, has kind of performed well in this quarter, and we are hopeful that it will perform better in quarters to come. And about this BFSI, we have some exposure, but I think there are some clients in BFSI. But there are small ramp downs may have happened. But I think more or less, it is -- we are not majorly impacted. Coming on to the challenges. I think most of the customers, like we at R Systems is kind of an extended arm for our customers. And most of our customers who are ISV, we -- they are -- a lot have depended on us for their software deliveries. So -- but it is a difficult time for them. But I tell you, as you know, that 65% of business comes from U.S. U.S. government is giving a lot of stimulus. So as of now, yes, to some extent, there is an impact. But we feel that as the lockdown kind of ease and things start moving, maybe from start of July, I think you'll start moving normal. And as of now, I feel Q4 will be a normal quarter. So yes, challenges are there, but I think we feel that we are more or less covered in that. Does that answer your question?

Yes, yes. And sir, I just wanted to ask you on the digital front. Now with this current lockdown, work-from-home mobility that people are clearly restricted, so do you foresee a quantum jump in the digital business going ahead? Now it is particular sector that you cater to. What's your outlook on digital front? That's one. And second, do you also service any telecom player in India or it's basically mainly the U.S. country?

Avirag-Ji?

I can answer. I think, Rajesh, it is a good question. I think you're right. The cloud -- presence of cloud will grow around the world because once you are working from home or remotely, if you are in the cloud, then you are not worried about the security of your own data out of it. So we see a lot of movement of existing customer and new businesses that people are opting for cloud. I think in the next 2 years, there will be a lot of business will shift to cloud. So that is a good opportunity for us. So that means there is a potential for the facility. And in telecom, we actually work for Nokia Siemens and they do a lot of -- they have a lot of telecom customers in India. So there, we work for Indian companies in telecom. But directly, we don't do. We work through Nokia Siemens as a solution now.

Okay, okay. And sir, my final question is regarding your employee costs. With this current environment, have you seen the attrition level going down or it is quite intact in recent time?

As of now, Rajesh, there is no major change in that. Actually, people -- as soon as the lockdown started, in fact almost a week before, most of the companies, including us, had kind of shifted all the people to work from home. And we see -- and we are working, I would say, at least at more than 95% as we can see, more than that in working from home. So some ramp downs have happened, as I said, some small ramp downs have happened. I think normal attrition will happen, but there is no major change in attrition as of now.

[Operator Instructions] The next question is from the line of [ Mohan Swami ], an investor.

I just wanted to ask a couple of things. One is, I believe, we have taken our yearly salary hikes in the previous quarter before the real impact of the lockdown and all started. So a lot of companies are going through cost cutting in the employee front. So is there any plans to cut the hikes or absolute levels and especially the senior management salaries also in this period of uncertainty?

Mr. Mohan, as you know, we are a December-ending company. So our -- the increment cycle starts from January, and most of the increment -- actually, I tell you, this COVID problem started only after mid-March or towards the third week of March. So the increment cycle all happens in January, and we had -- and the last year was good. And as a company, we have expanded in exactly that. So wanted -- so we continued with our increment policy without any change in that. Now you see, normal attrition or normal, these things happen. So -- but what we have done is that since 1st April, since this lockdown started, we have kept the increment on hold until the situation normalize. So like for this quarter, like from April to June, we are not giving increments. And what we have said to the employees is that once the thing normalize, that increment cycle will happen. You see, what happens is that increment falls due on a monthly basis, like the general cycle is done. So the next cycle whenever it happens, we are not giving increments, and we'll do it only after the situation normalize. Coming on to the cost cut on the senior employees, I tell you, our senior employees have a lot of variable component. So most of the senior employees will have fixed and variable component. As of now, to some extent, yes, business is impacted, but it's not overly impacted. And whatever impact will come, that will reflect in their variable component. As of now, we feel that we don't need to be any aggressive on kind of salaries cuts at the senior level. But if the time demand, we'll do it. But as of now, you see, we are getting some ramp down, but we are getting new projects also. I mean Avirag -- I'll ask Avirag-Ji to add on this. In last 1 month, at least 3 or 4 new budget, we have started. Avirag, why don't you touch upon that, please? Avirag-Ji?

Yes, Nand-Ji. [ Mohan Swami ], I think what Nand mentioned is right. There are customers who have ramped down and there are customers who have ramped up as well as well, as well as we have signed at least 4 customers in last few 6 weeks. So -- and a lot of potential proposal that we are talking, a little bit delayed by 4, 6 weeks, but we are sure that I think we are going to find many of them. It is a pain for next 1 quarter or 2 quarters, and I definitely see industry will -- the demand will start in Q4. So we are confident of what we are doing and the new customers that we have signed. So there is -- right now, there is a challenge, but I think we are all set to handle it. So we will kind of tune to and we'll kind of adjust ourselves as the situation demand. As of now, I think we have done what is required to be done.

And secondly, you did mention that the American government is giving a lot of stimulus. Now has there been any direct stimulus to companies like us to retain people? And if so, how will that be accounted? Will it go to improve our profitability?

Well, yes, the government has given stimulus, and we have also entitled for that. And -- So the -- I mean accounting-wise, I don't know what will happen. But I think the -- whatever impact is happening, so some -- to some extent, it will be kind of read by that stimulus And we will do -- so that is helpful, and that is helping us very well.

Okay. And similar things are there in Europe also, I believe.

Europe, actually, to be honest with you, we have operation in Romania, Poland and Moldova. To be honest with you, there's not much more rent or something is there. But I am, to be -- one that our business is not impacted, the Europe east. But we have 15% of our business that is mainly into telecom, and that is going very well. So that is not impacted. And secondly, I've not seen, to be honest with you, I mean, any reasonable -- I have not seen that, to be honest.

[Operator Instructions] The next question from line of [indiscernible] , an investor.

This is [ Babook ]. So I was looking at what you were saying. And I think, yes, it's certainly very interesting that you're talking about the challenging times. So did we -- when people are -- so I needed to understand as a company that when a lot of the companies are working from home, so people start saying that 5G will be very crucial. And obviously, Avirag mentioned something about cloud. And right now, a lot of people are trying to do this. Businesses are moving to -- shifting to a mode of online transactions. So what is the specific impact? Generally, they're saying IT infrastructure needs to be upgraded at every level at homes, in businesses and institutions and across the board. So one is 5G, then you mentioned a lot about Nokia Siemens or obviously the same companies like Nokia Siemens or Ericsson, and the 5G stocks are quite hard at this point. You said 30% of your business is in telecom, and all of telecom is related to this kind of Nokia Siemens or Nokia Systems or whatever that is called now, and so that impact. So please clarify a little more on what exactly is going on there and how you see the ramp up and how that will impact us. And are we seeing more business from, let's say, competitors like Ericsson and others? Or do we have restrictions of leading with others because we deal with Nokia Siemens so much? And for the -- in general for companies transitioning to this work from home or these special online deliveries and -- of product, how exactly is that impacting us? And how can we benefit from that? So what is -- so give me some examples on what's going on there. So where will -- maybe Avirag can talk about that or...

Sure. I can give some input. And then, Nand, you can jump in later, I think. [ Babook ], you asked about on the telecom, are we restrictive not to work with Ericsson ever? We are not actually. So we can work with anyone directly. There is no compete with Nokia Siemens. We work for Reliance actually for them. We were with Bharti for them and whichever they work. In North America, there are a lot of projects that Nokia is doing, we work through them, and that is we can work directly as well. AT&T is also our client directly. So there is no restriction on us, not to anywhere. We are free to go anywhere. That is one. Second, [ Babook ], obviously...

One, then if that is the case, then why are we so heavily -- because if we have a team and expertise in that area, then why are we not with any of -- because I think that Reliance is a little dangerous. I don't mean Reliance as a company. I think Reliance on Nokia so much is a little bit dangerous also, right? So why are we not managed to get other mandates from other customers because we have expertise in this domain?

We have close to 16, 17 customers in telecom. It's not only Nokia, but I think we don't declare that. So I think we have a lot of telecom customers in...

Like what? Like which ones?

[ Babook ], we want to avoid the name of the customer if you -- we don't. This is mandate.

Okay, okay. So fair enough. Then if you're saying in 5G rollout, in the hardware of the 5G rollout, so Nokia is very actively involved and benefiting from this whole Huawei issue globally. And obviously, Ericsson is benefiting a lot also. There's a lot of consumption of those. So I'm just saying that among these 5G major players of that, the hardware side of that, the rollout, that I'm a little -- my suggestion would be that can we concentrate on -- I'm sure you people have a strategy for how do we target to benefit. One is obviously the growth with Nokia. But then can we try and specifically target? And if we can, then what is -- do we have a strategy around that? And what are the negatives that are like? Can we make more progress with those banner customers at the level of the top 4 or 5 5G players ? That I'm sure we don't have those as customers when we're talking in terms of -- you realize that AT&T and Reliance and all these are customers of Nokia because Nokia is the one implementing their thing for them. I'm talking in terms of the hardware players in 5G. Are we targeting any other customers?

Avirag-Ji?

Yes, I can answer. Typically, I think you know it already, most of the telco work goes to larger system integrator. And we can -- generally, the order goes to larger system integrator, which can be Nokia Siemens or Tech Mahindra or like to that. And we work through them. The company of us going directly to telco operator for a large project chances are not bright for them, but we work through the larger system integrator. Nokia Siemens is one of them. And directly also, we are working with the various telco companies in U.S., a couple of them. We have increased actually our sales team in Europe, a few headcount, and there is an effort to penetrate the telco market in that space. So we are doing that also with 5G rollout with Nokia. But for the cloud, it is mainly 5G for mobile. But for the broadband, the optical fiber or the broadband to home network, we need -- 5G will not help. What you will need is a broadband or a fiber. So that is a hardware piece of it because we are not into that, but there is effort to penetrate many clients. And we have -- actually, we have identified some named customer now or prospects that our sales team is focusing. We are also developing certain framework which might help us to penetrate it at a very broad level.

Okay. So Avirag, I think my question was, but maybe you should correct my understanding, that when we have somebody like the direct competitors of Nokia, would it not be people like Huawei and Ericsson? So when they are running for a job, wouldn't be these some of the current customers who are competitors of Nokia?

[ Babook ], can you repeat? I lost your question again. Can you that please?

Yes. What I meant was that the direct competition of Nokia, when there is a project being awarded for Nokia, let's say. So the major customer, the competitors for them, would it be companies like Ericsson and Huawei and these other large players in the 5G equipment market?

Huawei and Ericsson, definitely, they compete and there is the opportunity. Actually, we did work for Huawei by the way. I don't know I mentioned the name. No, but we did work with Huawei. We still, I think, we do some work for them. Ericsson, again, we are trying to do some tie-up with them. Ericsson is again a potential. But Ericsson is a large company. We are still trying to talk to them actually.

So as long as you have -- I get what you were saying that cloud is one side where the opportunity is right now on the broadband and all the other -- the stuff that you're talking about. But I'm saying on the 5G side, on the telecom rollout of the 5G side on the mobile side, that there is also a lot of opportunity. So I was just trying to understand that there is right now a lot of focus globally on that side of the market also that there are opportunities there. So as long as you are trying to tap and grow because if we have expertise, my -- maybe my understanding of the technology is not that good. But what I realize is once you have a team that has developed expertise in one area, then it is always good to try and find other customers who can benefit from the expertise of the team. So the team that you have that focuses on Nokia, so I think my question can be put in another way, the teams you have for Nokia, who are some of the other customers with which that team can go to?

You're right with Ericsson. Ericsson can be another one. So we will -- with Accenture, we were trying to get into one of the telco companies. Actually, Accenture, also do a lot of system integrator work. So through them also, we will try. So we are exploring options.

So where is this marketing team which is exploring these? Is that located out of Noida? Or is that in Europe? Or is that in North America? So where does this focus for getting those customers? Which team would be working on? So do we have a team leader within our company that is focusing on that? Or how is that being identified? And how do we get to those other customers? Whose responsibility is that?

Larger marketing team is based in Noida. But every location, we have a small subset of that team. For telco, let's say, in Europe, definitely, we have a marketing and sales team. But a larger team operating all the funnel, collateral, supporting and all that, we do from Noida. For every location, we have a subset of that team.

I guess my question can be worded again. What I'm asking is that, have we identified an individual within our company? So to whom we say that if this is our team of -- if telecom is the largest -- one of the largest verticals, I say, and who will look at -- because in the foreseeable future of the next 1 year or 2 years, that, let's say, telecom and digitization and cloud are -- and artificial intelligence because that is become huge in manufacturing right now for companies to come back from the lockdown, then artificial intelligence, telecom and the infrastructure of the cloud and digitization. So these are obviously the focus areas. So I am trying to understand that as a company, have we now created -- and because that should be, then how do we increase market share and in these growing businesses? And so in that, let's say, we have a very good team in telecom. Now I'm just -- or maybe that's just a suggestion is that we can have some team from and with one identified person that focuses that how do we capture more and more business in these growing verticals. So one is obviously the telecom sector of that, which will go in -- within telecom, the 5G is growing rapidly globally and will continue. And then obviously, my question would be across these verticals, whether it is the artificial intelligence-based manufacturing or artificial intelligence in business in general and across the board, and then digitization and cloud because all these are benefiting from the current situation, and that's a trend which is getting reinforced more now through those. So I guess what I'm trying to understand is that I understand you have teams everywhere. But this should -- this probably -- maybe, Rekhi, the question would be for you is that as a company, do we want to create a team and then individuals who are tasked with the fact that we need to get targeted business share in these verticals and grow -- not just grow but even as a percentage and market share in business here? So I'm just trying to understand your mind on how we are approaching these sectors.

[ Babook ], I understand what you're saying. The telecom market is a big market. And today, it is definitely a market to go after. But also, it's not an easy segment to penetrate in -- from Noida as well as from Europe. We have teams who are working on this segment and trying their best to get more customers and also get a more market share. What I'd probably try here, you say is that we need to give a little more attention and focus on this area, and that is a good suggestion, and I will review it a little more because that is a lucrative segment. And our folks in Europe are following that, and something more can be done. We're sure.

What I understood is that your main marketing people or the highest paid marketing people are sitting in the U.S. So I was trying to figure out whether that team, which is sitting in the U.S. and which is supposed to be our direct marketing team, that if we are seeing them with the responsibility of the growth in these segments because I see it's not -- because the reality which has hit home to a lot of people, I mean I'm not talking to a bunch of experts in this, but I don't mean need to sermonize. But what I feel is that at this point, obviously, we are seeing this tremendous shift, which is almost like a seismic shift in this business, where people are realizing that working from home is actually become a reality and a lot of people who will not go back to going to this thing. So I guess all these areas that will be a focus. And if our major customer is sitting in Europe in that and if some of the other players in that are also, let's say, in Europe and Asia who are the major players there, I don't know because with Lucent and all that or what happened with out of Motorola and U.S. because Motorola doesn't figure as one of our top customers, I don't even know what's the status of the business anymore. But if that is the case, so yes, my -- at least as a layman, my understanding there would be that if we can form within the company a team that can go after these customers, and if Europe is a thing and within Europe, who is the person who will be tasked. So I guess, yes, my suggestion there would be that there could be a more sharper focus with certain targets in terms of market share. And then why -- at least we find in a lot of other businesses that if you have a team that develops expertise in one area, then we have to market that team. So my understanding is that Noida has developed amazing expertise in this kind of telecom sector. And how can we market that better by having the best marketing talent in the company focused on that? So I think that is what I was trying to suggest there. So I guess you've already said that some things and looking to. So Avirag, maybe we can finish up on the -- I interrupted you while you were answering me in those. If we can talk similarly about those other verticals that from telecom, then if you can tell me a little about the digitization cloud and the specific areas in which we can benefit right now and even on artificial intelligence, that as companies come back out of this lockdown, that there will be a lot of focus there. So do you see that? Or can you highlight that a little bit that how that could help us over the next couple of quarters?

[ Babook ], just to tell you, for every vertical that we operate in, telecom, banking, health care or any or we call them cloud, RP analytics, for each one of the horizontal and vertical, we have a practice team who help sales and marketing as well as the delivery team. Each one of them, we are invested in one, which is the marketing delivery. Does it answer or is it different answer?

Yes. No. So I'm only asking that to non-technical people like myself if you were to explain the changes that are taking place right now in the -- let's say, starting from when the craziness started of mid-March of these kind of forced lockdowns all over the world, that in those things that how is the opportunity for us to grow from that. In -- so if you were to try and explain to a layman, that why does the opportunity in digitization or cloud increase because of what's going on right now in the world and then same thing on the artificial intelligence side. Are there any specific examples that you can give us or tell us about how that is? Even if the names of customers, I realize that. But I'm saying that how is that actually benefiting our practice because of these changes that are happening in the way we work right now?

Hello?

Yes. Can you hear me?

Yes, I can hear you. I can hear you. So what I can say, let's take one example of -- with this COVID situation if we still want to be left in the office or in the factory. So robotics process automation is one area where people will expand their base. Because if you want to have people not involved, we do remote or reduce. And then on manpower, RPA is one thing which we'll have. Cloud is another area, all the infrastructure, which is [indiscernible], lot of people want to move to cloud for the simple reason, security, availability, and all the essential which are there on prem will be over. So many, many customers are already moving or simply were moved. A few years down the line, 3 years, 4 years down the line, we will see very, very less, I think, enterprise application on-premises. Most of it will be on the cloud. So there are amazing opportunities in all these spaces right now, be it RPA, be it on the cloud. And ML/AI, you mentioned one of the things, all the analytics work. One thing were remote. Clearly, a lot of data gets generated. And from there, you can do a lot of the insights from the data. And all the ML/AI, the needs are growing, and they will see further grow down the line. The more data will get generated. So it is -- in the next few years, there's a lot of opportunities, and industry will reshape in a very different way, and it will throw a lot of opportunity to all of us. I see in the next 2 quarters, maybe there is a slowdown. But once it just open up, I think we will have a resource issue. We may have to hire more people.

So in fact, Avirag, when I'm talking to companies right now, even in U.S., the general feeling is that out of this $4 trillion or $5 trillion of stimulus, the total -- or just some people, they way how you look at it, $6 trillion, $7 trillion or $2 trillion or $4 trillion, whatever is that amount of the stimulus that is being put into the system, almost every company or organization I speak with right now, they're saying 50% to 60% of that money, ultimately, the first priority for every company is IT, infrastructure, digitization and artificial intelligence, that they want to be less manpower-dependent, people work flexibly from home. So when I think about it, so let's say, if there is $4 trillion or $5 trillion of money that is going to get poured into these areas just in the U.S. alone. So I think that obviously means that companies such as R Systems, if they are smart, they, in fact, tend to benefit. So not -- forget about 2 quarters down the line. As people come back to work, let's say I was talking to a real estate major player in Chicago and when we started discussing some business, the first thing they said is that we are right now upgrading our -- all our IT infrastructure and the entire whatever is our -- basically the infrastructure that supports so that we are prepared for anything if there are multiple lockdowns. And if we have to go back into a lockdown, we are better prepared if there is multiple cycles of this virus or any new virus. So what I -- it was just a thought process. So I wanted to ask you as a technical guy, that does -- when companies tell me that. Let's say, a company which is doing $100 million worth of business or $200 million or $500 million, not mega companies, even the midsized companies, if they say that we are working on our digitization or on our infrastructure budget or manufacturing companies are saying that we'll not hire the people back, we want to focus on robotics and AI and all that and automation, does that create opportunities for our company, for R Systems in specific? And that is, I think, probably my question to you.

Definitely, yes. We are already in a phone with a customer that I mentioned. We started last quarter. Actually 2 of them, we are moving their infrastructure to cloud. So it will definitely throw opportunities, and there is ample opportunity. And for us, we are rightly positioned, and we are seeing all the leading technology right now.

Okay. I think then that probably -- what that leads me to believe is that, let's say, there has been stimulus by what you people mentioned, what I heard them mention was U.S. and Singapore has been the primary 2 geographies that the company has benefited from some kind of stimulus. But if -- and that probably will help us in terms of this quarter performance and maybe spillover effect into the next quarter, the third quarter. But by itself, the third and fourth quarter may actually get transformed because of this, the demand for a lot of IT demand actually coming, especially in U.S. And even Europe is putting a lot of stimulus now, that's the talk that's going on, or maybe a EUR 1 trillion stimulus in the euro region. So a lot of that is going to go towards these areas, and so I was looking at it from the flip side. And I think my question to you, Nand, could be that we've already seen our performance in the first quarter. And if there is -- I mean it will be interesting to watch the cash at the end of the second quarter because irrespective of how you treat it in accounting terms, the stimulus is going to go into the balance sheet. Whatever we receive as part of this package is going to go into the balance sheet as cash. So the cash at the end of second quarter will reflect -- it may not be part of your income statement, but we will interestingly watch your cash. And then obviously, the cash that you have in your balance sheet will be a major weapon because there'll be a lot of companies that will come out of this in the next 6 months or 1 year that will be quite vulnerable for acquisitions or merger opportunities. So I feel that, in fact, this year could be one of your -- and Nand, I would like to comment on that from a finance side. But let's say, even if sales is impacted, like you said, maybe some amount of, say, not very much, but a little bit. But in terms of cash, this year, you end up being better than what you were anticipating just because of the stimulus event, obviously, the company benefiting directly from that. And the second part is then all the work, let me come out of that. So I guess the company should be looking forward to seizing those opportunities. So Nand, would you have a comment that actually, we may end up this year with a higher cash than we would have under normal circumstances because of this stimulus all around?

Sure. [ Babook ], our cash as on 31st December was INR 200 crores. Today, it is INR 218 crores. And so we're already plus INR 18 crores, more or less EBITDA with some taxes and CapEx that we pay and movement in working capital. This stimulus will help us. And as I said, Q2 is a bit impacted. I mean we don't want to quantify, but some of the customer has ramped down. And -- but there are some positives also. As of now, I think Q3 will also be impacted if the lockdown starts opening by end of June or early July. Q3 will also be impacted. Personally, I feel that Q4 would be normal. And if so, the stimulus is an add-on. And you know our number, you know our EBITDA and all that. So I think I personally feel that we are going to -- if the things get stabilized in Q3, we are going to have a good year even this 2020 as well.

So I'll sign off. I'll finish off by saying this, is that is right now the employees can be made to -- and I'm sure, and Mr. Rekhi is a great leader, so I'm sure he's already doing that. So I'm saying if we can make sure that the employees feel empowered and as partners right now with us, that means in these very difficult times, so if they can be flexible a little bit about how we utilize them and their compensation because I see this is one of the trends all over, that everyone's cost of living has gone down right now. If you look at -- people are commuting less, people are consuming less overall. So obviously, there is -- the cost of living from everybody almost globally, everyone's realizing that they're not spending as much right now. So I guess there is a certain amount of flexibility that the company has. As long as we communicate with the employees and we lead it by example, this could be a good time. And given the high unemployment rate, globally everywhere including India, we'll not be directly in the IT sector in here but globally. So I think the attrition is going to be lower. And I see a very sweet spot developing for companies such as us in which the markets and everybody will realize that suddenly that this is one of the most flexible and probably the backbone of India, the software export is the sweet spot for us, where we don't need physical infrastructure to export. It is all digital infrastructure. And I think that is why if we can play our cards right, ensure that our team is really very understanding, that employees are motivated, I think attrition is going to be less. So I personally feel that this could be a real turning point for the company in the sweet spot that the future, in fact, could be very bright. So I congratulate the team under the leadership of Mr. Rekhi and Avirag and [ Denuv ] and Nand. You guys have done a great job. But I think this is the time to pivot and focus on these opportunities that are in front of us, and then I see that the next couple of years could be banner years for the company. That's my feeling. And everybody, all stakeholders will realize many that the robustness of -- and with the kind of cash you have on your balance sheet that grows through this year, so I congratulate the team and I just -- I wish you all the best because I see some really good times ahead for companies such as your and we can focus. So all the best, and I hope to talk to these guys in the next quarter with much better circumstances.

Thank you, [ Babook ]. I hope you're keeping safe.

Anyway, my views on the this whole COVID, of course, I don't believe. But thank you, Rekhi, for asking. But yes, I just don't believe that this problem really is that health problem. It is more now an economic problem that we were. But thank you very much for asking also. Thank you very much.

Thank you, [ Babook ]. Any other questions?

[Operator Instructions] Sir, we don't have any more questions from the participants.

Let's close them.

Thank you. So would you like to add any closing remarks?

Mr. Rekhi, I want to thank everybody for attending this conference and for all the suggestions. And I am hoping that everybody will keep safe, and we look forward to our next meeting. Thank you very much.

Thank you. Thank you.

Thank you, Nand.

Thank you, sir. Thank you, everybody.

Thank you. Thank you. Thanks, everyone.

Thanks, everybody.

Thank you.

Thank you, ladies and gentlemen. On behalf of R Systems, that concludes this conference call. Thanks for joining us, and you may now disconnect your lines. Thank you.