ROX Hi-Tech Limited (ROXHITECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the ROX Hi-Tech Limited H1 FY '25 Earnings Conference Call hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vaishnavi Ambokar from Kirin Advisors. Please go ahead.

Thank you, Ryan. On behalf of Kirin Advisors, I welcome you all to the ROX Hi-Tech Limited H1 FY '25 conference call. From the management team, we have Mr. Jim Rakesh, Managing Director; Ms. Sukanya Rakesh, Whole-Time Director; Ms. Agna Daicy, Leader Intelligent Enterprises; and Ms. Thenmozhi, Company Secretary. Now I hand over the call to Ms. Agna. Over to you, ma'am.

Thank you, Vaishnavi. Ladies and gentlemen, good afternoon, and a heartfelt welcome and thank you for joining the conference call of ROX Hi-Tech Limited. We're delighted to have each one of you here as we explore and discuss the financial performance of H1 FY '25. Before we dive into the details of this half year, let me offer a brief overview of our company and its robust business model. ROX Hi-Tech Limited, headquartered in Chennai, stands as a beacon of centricity and unwavering commitment to excellence in IT solutions. With over 2 decades of industry experience, we have transformed from an IBM business partner into a prominent IT player. Specializing in system integration, ROX is dedicated to delivering a diverse array of IT solutions, demonstrating agility in adapting to industry changes and offering a forward-thinking services to a broad clientele. On the operational side, we have made good progress by strengthening our relationship with many clients. These initiated new clients showing that we are committed to growing steadily. This half year, we secured a notable project with Everrenew, a renewable energy company to implement Grow with SAP, advancing our role into driving digital transformation within the renewable sector. In addition, we expanded our global presence with the establishment of ROX Hi-Tech PTE Limited, a subsidiary dedicated to wholesale of computer hardware and peripheral equipment. This move enables us to meet a wider range of technology needs and strengthens our partnership, our market position. Our recent induction as founding member of the Indian Green Building Council further highlights our dedication to sustainability. This prestigious membership, symbolized by IGBC founding membership certificate, reinforces our reputation as a trusted advocate of green building practices. Finally, our certification to provide comprehensive infrastructure services, including enterprise networking, product solutions, consultation and customer support positions us better serve our clients' evolving needs with reliability and expertise. These accomplishments reflect our strategic growth path and our focus on creating lasting value for our stakeholders. We look forward to building on this momentum in the second half of the year. Now let me take you through the financial performance of the company during H1 FY '25. In H1 FY '25, the company achieved a total income of INR 84.80 crores, reflecting a 9.62 percentage increase, while EBITDA grew by 18.78% to INR 18.57 crores, underscoring enhanced operational efficiency. Profit before tax rose by 4.71% to INR 14.67 crores with net profit reaching INR 10.21 crores. These results highlight the company's solid performance driven by effective management and strategic positioning in the market, setting a strong foundation for the fiscal years conclusion. The noteworthy performance is a reward to our hard work, our effective growth strategy, operational efficiency and nonetheless, lucrative market opportunities, which we capitalized during the reported period. At this point, we'd like to assure you the future is lucrative and our company will do every effort to optimize profit from it. We are grateful to you and your faith in the company and being an integral part of our journey. With this brief update, I'd like to hand over the call to Mr. Jim Rakesh, Managing Director; and Mrs. Sukanya Rakesh, Director of ROX Hi-Tech Limited, for question-and-answer session. Now I request the operator to kindly open the floor.

[Operator Instructions] The first question comes from the line of Niraj Chhajer from Pransh Capital Partners.

Firstly, why has the debt got significantly increased in your company from March 2024 level to September?

So I will take this. Fundamentally, if you look at that is more on the non-fund-based limits, because we have to give those guarantees to various suppliers and customers. So those are basically bank guarantees and import LCs and [indiscernible] and et cetera. So that's what...

Non-fund base don't come on the financial statement, it is off balance sheet items. These are short-term loans, either you have taken a CC limit or an OD limit and this thing. Non-fund based typically don't comes onto the balance sheet stuff.

I think I have to revert back on this because that's what my understanding is. So let me check with my auditors and come back.

Sure. Sure. Secondly, sir, what would be the idle inventory levels? I see a significant increase in the inventory level from INR 42 crores to INR 60 crores, what's the reason for that?

There are a lot of work in progress, which is going on, right? Because there were some latency, the H1 in project completion because of various Indian elections and those kind of activities. So work in progress is going on. They all will convert into billable goods in the Q3 and Q4. So that is the reason they have a cascading effect of inventory.

Okay. And what's our typical average inventory levels that we are looking going forward? Because [indiscernible] are on hardware. So what is the typical inventory level that we are looking for?

So we should be having around 2 to 3 months sales, sort of 90 days worth of sales of a -- quarterly sales kind of inventory.

Quarterly sales. Are you giving a full year guidance by any chance for full year take for FY '25?

Guidance of for this year?

For the current financial year?

I think this is a similar pattern you can expect. I think the global stability coming in, IT consumption coming back to normalcy. I think we have a -- we're looking forward to have a strong H2 similar to what we have promised in the [indiscernible].

The next question comes from the line of Priya Jain from Green Capital.

So my question is your top 10 clients contributed 45% of revenue in FY '24. So what is our strategy for diversifying the client base?

No, we are -- this year, if you see, we have added 5 new clients in the H1. So that way, we are mitigating risks. We are also having acquisition clients, which are coming in. And that way, our dependency on marquee accounts will not remain in the H2. We want to be focusing more on public sector, because that's where spending is kicking projects in the RFQ stage are there. So we expect a couple of important digital transformation adoption in public sector and all. And H2 we can see those new clients coming in onboard, yes.

And how do you ensure high customer retention and satisfaction in a competitive IT service market?

Yes, see. That's the reason we are robust in the last 23 years in the market place. So we have an edge to AI strong end customer experience team, which is technically qualified, which can convert vision to value to a customer in faster tenure of time. So these are all, I think, is an indigenous capability of ROX. So that is the reason we have a sticky customer base. And we continue to do so. We keep improving our capabilities. If you look at our AI capabilities, we're building now, which is futuristic by nature. Most of the enterprise clients who are looking at us for long-term IT service are also talking to us on AI POCs, consulting on the AI adoption. So these are parallelly we need to build in this business capability, which we are building and which we are ready to showcase right now. And that's why we are also adding services like invoice processing as a service. So we're taking to large customers, talking to them that we can handle their complete vendor invoice processing through automation. So these are all additional areas where we are adding value to customers. So that is the reason they don't us a cliche IT system integrator. They see us a futuristic partner who is relevant to their IT growth story, plus also support their business growth. That is what is keeping us up and running in the market, keeping us busy. And I am seeing a very positive future, because according to me, the long term and the top days are over. Going forward with the stability coming in, in the U.S., I think we should be in a very good position going forward.

Sir, one more question. Are there any specific industries or sectors where you foresee significant client acquisition in next 2, 3 years?

We are seeing it in alternate energy in India, because that is where sustainability comes in place, because there's a huge focus on the PMO office that Indian energy dependency on fossil fuel has to come down. So that there's a lot of investment going on in alternate energy like solar, wind and those kind of areas where we see significant growth coming in. Plus also we are seeing factories getting automated. Now I think the Indian manufacturers have understood if they have to globally compete, they need to automate their factories. They can't be sitting on energy systems and expecting global competencies. So we are seeing customers talking to us on modernization of manufacturing line, IT, OT network integration and robotic process automation. These kind of areas, yes, which we'll see which we'll have some traction now.

[Operator Instructions] The next question comes from the line of Mahesh, an individual investor.

Sir, my first question is the IT industry is evolving rapidly. So how is ROX adapting to the growing demand for cloud-based services and AI powered solutions?

Actually, what the way we are seeing is going to go in the hybrid mode, because the cloud today is a more consolidated offering from the various suppliers. So customers today want to have their critical enterprise data in a hybrid fashion. When I mean the hybrid, they also want to have on-prem plus also the cloud. Both will be the strategy. As I said, the AI, ROX is well placed. We have already done some 4 use cases, vision to value, success to the customer base, like invoice process automation, vendor onboarding, employee performance management. These are all areas where we have already started having our AI capabilities showcased in the marketplace where we already have successful use cases. So we are ready with the AI journey. And we are waiting for the market also to come to the point of converting their exuberance into revenues. So that is where we will see a lot of our POCs converting into gains. So that's happening. And parallelly, ROX is well placed. If you look at edge to AI go-to-market strategy, what we have, we have got all the pillars in place, partnerships in place, capabilities in place, plus also, our expertise, our growing day in, day out. That's what it is.

Okay. And my next question is what's the new product or services like innovations can we expect as a part of your expansion strategy into AI robotics?

So we are -- I think I will be able to take it one-on-one, because these are our tactical information, which I can't be disclosing in a open forum. Maybe you can set up a one-on-one meeting through Kirin. I think I'll be able to discuss on the unique value propositions, what we're trying to build in our arsenal.

Got it. And my last question is, are there any plans to upscale your employee training programs to support the evolving needs of your business vertical?

So if you look at the culture in this company is, we are training this mandate, and a person who joins from college or when we do campus recruitment, they undergo 6 months intensive training. They need to get certified in technology, which is a very, very competitive certification. Once they get certified only, we actually give them a confirmation employment letter in the company for them to onboard at the company. So that way, we screen the talent and make them project-ready. Parallelly for all the senior staff, we have a continuous training program, which they need to undergo and keep upskilling on a year-on-year basis. So that's the ongoing process, because in IT industry, if we don't lead the knowledge curve, I think we will be left nowhere in the ever-evolving marketplace.

[Operator Instructions] The next question comes from the line of Manish Shah, an individual investor.

My question is, I heard about some medical automation product to be released in this year from your company. Is it true or not?

See, there is a medical automation software which we are building, that is part of our plans. So it is on progress. I think you'll hear from us very soon.

The next question is from the line of Abhay Sharma from JC Capital.

Am I audible?

Yes, you are.

So my first question is, how are you planning to further strengthen your partnership with global tech leaders like IBM, Cisco and Lenovo?

If you look at currently, we are in the topmost tier of partnership with IBM. Cisco, I think we are in the verge of becoming the top tier very soon. Our team is working on it. Skill sets are getting built. I think our in-house knock socket is getting ready to showcase our capability. So this is an ongoing journey, and we have a, I would say, a road map for every, let's say, technology vendor where we can see a choice of -- preferred choice for them. So we need to have a real-time time line, and we keep equipping ourselves, but these are very cost intensive exercise, because the talent in IT, retaining talent in IT is a challenge. So we selectively do it keeping the what you call, iteration in mind as well. So that's an ongoing process. I think we are placed well right now. And I'm sure I think that aspect of enabling ourselves to upgrade to our next level of partnership also is in up and running the company. So that way, I think we will keep up the partnership levels to be on the preferred partner for these IT giants.

Okay, sir. Sir, my next question is what are the key risks you foresee in maintaining your growth trajectory? And how is the management mitigating these risks?

See, that's what I said, see, the worst is over. After the election results in the U.S., the anxiety, the or maybe the ambiguity in the global economy is over. Now with capitalistic leaders at the helm of affairs. I think only going forward, things have to be better. So that's what it is. So correction and all the things are over now. So, yes, the only way any organization can compete globally is to have technology adoption in place. So we are in a sweet spot in that way. So I'm only seeing a positive future for all of us.

[Operator Instructions] The next question is from the line of [ Naina Jain ] from MK Capital.

My question is, could you elaborate on the strategic benefits of your recent partnership with the Everrenew and expected revenue contribution from the Grow with SAP project?

See, it is a -- this customer is on the wind energy sector is one of the most promising organization right now. So they have chose us as a partner of choice to implement their enterprise business application, which will Grow with SAP. So that's a very marquee, I would say, project for us plus also, we see a huge growth runway with them. So they are going to grow. As a partner, we're also going to grow with them. So I will not be able to disclose the revenue contribution, because that maybe I can take it one-on-one with you separately in this call. But it's a formidable, I would say, story.

My next question is about specific markets or regions are you targeting with your international operations? I mean, what challenges do you anticipate?

See, of course, international markets will be very competitive, will be what we call very, very asking in terms of service and promise of value in these kind of areas where we need to build our skills over a period of time. But potential is there in the market because IT is going to be one of the major growth drivers for economy. So we are seeing that the good conversations we are having with our customers globally as well. So there are a couple of large projects, which we are talking to them. So we will see that also coming to a positive outcome very soon. We are bullish. I think going forward, things can be only better from here, yes.

Okay, sir. My next and last question is how does the formation of ROX Hi-Tech Limited in Singapore align with your broader expansion strategy?

Of course, see, because most of our suppliers if you look at are based out of China, because the manufacturing efficiency is there. So that way, it will be easy for us to source in Singapore and bring it here. So that's going to help our supply side, I would say, sustainability. So we will be more confident in terms of our supply side as well, because that way we will be able to do projects on timely basis. We can give commitments to customer, which is realistic because we'll have the supply side control as well.

The next question is from the line of [ Aditi Roy from Patel Advisors Private Limited ].

Congratulations sir. My question is, can you share more details about your competitive edge in securing high-profile partnerships like SAP [indiscernible] primary certification?

Can you be a little louder? I'm not able to get your question. Can you be a little louder, please?

Can you share more details about your competitive edge in securing high profile partnerships like [indiscernible] and Cisco Premier certification?

Yes, sure. See, that's what I'm saying, right? See ROX is a 23-year-old company with the IT [ H2 AI ] market. So if you look at we have the consultants who are certified. We recruit from best colleges in the country, in the campus. We take computer science engineers and MBA from good institute. So they are all put under 6 months, I would say, training program, where they need to learn these technologies, they need to get certified. We have in-house talent with senior management, leadership team, who keeps guiding them on a daily basis. So that is a continuous process. So if you look at it right now, we have around 60 consultants who are certified in various SAP technologies. And the same thing in Cisco as well. So learning is not an option anymore in IT. It's mandatory for us. So internally, in the culture of ROX, if you're not certified, you're not eligible for any growth or appraisal in the organization. So that's the way it is. So we invest a lot in training people and keeping them up, so that we can add value to a customer's experience.

Okay, sir. And I have last one question. How do you plan to leverage your position as a founding member of the Indian Green Building Council for business growth?

See, that's a very important milestone what organizations achieved. So being sustainable, because the world is going towards sustainability. And being a founding member in the sustainability with the CII, that adds a lot of value. We'll be able to talk to various new projects which are coming up. We can guide them on sustainability. We can put them to the right people, who can consult them as well. So we're looking at new areas of conversations, new areas of possibilities with this achievement.

The next question comes from the line of [ Rachna Sharma from HNI ].

My question is, there was a slight decline in PAT and PAT margin in H1 FY '25. Could you explain the factors behind this trend?

So honestly, you will see the correction happening in H2, because there were some deals which we were not able to book in H1, which got slipped to October from September. So that is the reason this impact is. But otherwise, you will see things regularizing over a period of time.

Okay. Okay, sir. And my next question is, employee cost has increased significantly year-on-year. How are you balancing this with profitability?

Yes, because which we have to grow, we need to have invest in high-quality people, because that's where the growth comes from, a lot of engagements are happening. So if we have to see sustainable growth in the year from now, 2 years from now, you should start preparing from today. So that is the reason we have invested in high-quality resources. And that is where our engagements are with the customers in the marketplace. Yes, I think that should be able to get those businesses what we are getting.

[Operator Instructions] The next question is from the line of [ Ananya Swaminathan ] from [ C-Square ].

Sir, I wanted to know what is the status of your NOC and SOC initiatives currently?

Yes, they are already implemented, and we have already onboarded some customers. Yes, it's up and running. NOC and SOC is up and running.

Okay. Great, sir. And I want to know how do they enhance your service offerings? Could you explain briefly on it?

Of course, now we are able to see a 360-degree engagement with the customers, because with NOC and SOC coming in our arsenal, we are able to have this multiyear contracts with customers on the security aspect. Yes, we are able to engage effectively the SMEs in this country. That only adds value to a customer, because the customer sees that ROX not only adds -- implements and projects are maintained, but also they monitor our infrastructure on a 360 degree basis. So that's an additional value add, yes.

Okay. Sir. And any update -- could you provide updates on any upcoming greenfield or brownfield projects in the pipeline?

See, order book seems to be okay because I don't want to commit now because we have around INR 35 crores of order book already for H2. So yes, we are also working on a couple of large deals. So yes, if one deal -- or even one deal converts, I think we should reach the finishing line I would say, comfortably.

Okay. And sir, what would be the timeline of completing that order book of INR 35 crores you mentioned?

H2.

[Operator Instructions] As there are no further questions, I would now hand the conference over to Ms. Vaishnavi Ambokar for closing comments. Vaishnavi, please go ahead.

Thank you, Ryan. Thank you, everyone, for joining us for the conference call of ROX Hi-Tech Limited H1 FY '25. If you have any queries, you can write us at [email protected]. And thank you, once again, management and everyone, for joining the conference call. Thank you.

Thanks, Kirin, for you setting this up. It was exciting meeting with investors. Look forward to connect with very soon. Thank you.

Thank you, for sure.

On behalf of Kirin Advisors, that concludes this conference. Thank you for joining us. You may now disconnect your lines.