Saksoft Limited (SAKSOFT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q2 FY '24 Conference Call of Saksoft Limited. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Saksoft Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the second quarter and first half of the financial year 2024. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We firstly have with us Mr. Aditya Krishna, Chairman and Managing Director; and Mr. Niraj Ganeriwala, Chief Operating Officer and Group CFO. Without any further delay, I request Mr. Aditya Krishna to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Hello, and good afternoon, everyone. Welcome, and thank you for joining our Q2 and first half FY '24 earnings call today. Let me first give a brief introduction to Saksoft for the sake of some of the participants who may be new to the company. Saksoft is a digital transformation partner that assists customers to automate, modernize and manage IT systems through a combination of domain-specific technology solutions and solution accelerators from consulting to support. We have been in business for almost 2 decades now with offices across 17 locations, covering U.S.A., Asia Pacific, U.K. and Europe. We have an associate strength of 2,000-plus. The key verticals that we operate in are FinTech, telecom and utilities, transportation, logistics, public sector, retail and health tech. The interconnected nature of the verticals mentioned address a huge market, which also facilitates us to cross-sell and upsell service offerings to our clients. These verticals are supported by horizontal service offerings, spanning analytics, cloud solutions, legacy modernization, intelligent automation, application development and testing. As a company, we offer a comprehensive suite of digital transformation services. Now moving on to the quarter under review. We are happy to report another quarter of consistent and steady growth. In the current quarter, we continued our growth performance with 16% year-on-year growth in revenue and 31% growth in profit after tax. In the face of the evident slowdown in the IT sector, Saksoft's long-standing track record of differentiation remains prominently evident. We continue to reward our shareholders with the Board announcing a 40% interim dividend for this financial year 2023-'24. We take pride in stating that as part of our sustainability efforts, we have achieved carbon-neutral status for the current year for the Saksoft Group and are setting targets for reducing our carbon footprint year-on-year. We understand the value of making a positive impact on the environment. And in pursuit of this goal, we are making sustainability one of our primary objectives. Now I would request Niraj, my senior colleague, to give you the financial highlights for the quarter under review.

Thank you, Aditya, and thank you, everyone, for taking time and joining us for our earnings call today to discuss the results of the second quarter and first half year of the financial year 2024 under review. For the second quarter of financial year '24, revenues were reported at around INR 190.41 crores, representing a growth of around 3.8% as compared to the first quarter of FY '23-'24 and 16.21% year-on-year as compared to the second quarter of the previous financial year. The EBITDA reported is INR 35.81 crores. EBITDA grew by 3.7% as compared to the first quarter of FY '23-'24 and 39% year-on-year as compared to the second quarter of previous financial year. EBITDA margins reported are at 18.8%, and the net profit for the quarter was INR 25.28 crores, and the profit after tax margins stood at 13.3 percentage. For the first half of financial year '24, revenues were reported at around INR 373.88 crores, representing a growth of nearly 20% year-on-year. The EBITDA reported for the half year was INR 70.35 crores, which grew by 45.9% as compared to the half year of the previous financial year. The EBITDA margins for the current half year stood at 18.8%. Net profit for the first half of the current year is INR 50.43 crores, which grew by around 35.8% as compared to the half year of the previous financial year. The profit after tax margin for the current half year stands at 13.5%. Now coming to the revenue split by geography for the first half of the current year, U.S.A. contributed to about 43% of our revenues. Europe contributed to 22%, while the remaining 35% has come from Asia Pacific and other regions. The on-site revenue was 45% and offshore at 55%. The revenue split across verticals for the first half of the current year is as follows: FinTech contributed to 36%, Telecom and Utilities around 19%, Transportation and Logistics contributed 12%, Public Sector 4%, and Healthcare and Retail e-commerce contributed around 6%, respectively. The debtor days for the first half year of FY '24 is around 68 days. We now come to some of our customer metrics. Saksoft has around 15 customers of USD 1 million plus revenue, and we've moved 1 customer in this current quarter from $0.5 million to $1 million client profile. The total employee count at the end of the quarter stands at 2,152, out of which 1,940 were technical with the utilization level of the employees, excluding training -- excluding trainees being at 83%. To achieve the USD 500 million revenue target, the company is strengthening its sales interns by adding more and more salespeople on the ground. Moving to the balance sheet as of 30th September 2024, the cash in hand is at INR 131.71 crores. That concludes the updates for the quarter and half year and we would now like to open the floor for Q&A.

[Operator Instructions] The first question is from the line of Saurabh Shah from AUM Fund Advisors.

Can you hear me?

Yes, Saurabh.

Yes. [Indiscernible] to the company and if it's okay, maybe now or could give us some...

Sorry to interrupt. Mr. Saurabh, your audio is sounding very muffled.

No problem. Is this better?

Slightly better. Please proceed.

If you could just give us some sense on what strengths Saksoft has, your geographic revenues, [Indiscernible] interest from many other companies, and which kind of suits of strength you bring to the table when you look at your business going forward? And based on that opportunity that you see for Saksoft, especially the acquisition, how do you see the next 3 to 5 years, your growth, what investments you're likely to make? Could you just talk a broad level of what you expect to do for the next 3 years? And what kind of metrics are you currently targeting?

Saurabh, I hope I've understood your question correctly because the line is quite bad. If I understand you correctly, you're asking what are our strengths, which will enable us to grow in the future. Is that correct?

Yes. And given your current environment, the industries that you're looking to service, both BFSI and the acquisition of others as well, how do you see your own internal targets, again, no guidance or anything, but how do you see your opportunity for the next 3 years?

Okay. So one thing I just want to highlight is that we are not in the BFSI segment. We are in the FinTech segment. That's quite a difference, because we don't work for the large banks or financial institutions or insurance companies. We work for a lot of disruptors in the financial services, which are more classified under the fintech target market. So coming to our strengths, the whole growth of our business and the way we are growing in the last many years as well as how we plan to build the business going forward is based on market niches. It's about identifying a market niche, protecting that niche and growing in that niche. So what are these niches? These niches are fintech, transportation-logistics, health tech and what we call high-tech/media, telecom utilities. So in these 4 niches, our value proposition is very strong. We're able to compete with almost the Tier 1 companies and also companies larger than ours when we are competing in this space. And we stay in this space. Now these spaces are large enough for us to meet our growth objectives in the coming years. And -- so we operate in these niches, we have identified these niches, and we protect ourselves in these niches by having accelerators. So we have solution accelerators, frameworks, so that when we talk to a prospect in this niche, they prefer us over somebody else because we already have accelerators, which other companies do not have because these are our specialized niches. And because of that, we are able to shorten the time for development or taking something to market which eventually results in lower cost. So just to summarize, the whole strength and the whole growth engine is determined on identifying market niches, protecting these niches and growing in these niches.

Okay. Is it possible to identify 2 of the niches where you see your largest opportunity going forward? How have you defined them and what -- as you said, unique strength you bring where you are able to compete and kind of fend off much larger players given your specialized skills?

So one of these niches or areas of our strength and which we find is a tremendous growth opportunity is fintech. We have a lot of traction in that space. We have a lot of reference customers. We have a lot of accelerators in that space, and we plan to invest more and more to grow in that space. So fintech is definitely one of those. The second is transportation-logistics. With the advent of e-commerce and online, transportation-logistics is seeing a tremendous boost in technology spend. The business is growing and these companies traditionally have not invested in the past in technology. So now to keep pace with what is expected from their customers, they're investing in technology. So I think transportation-logistics and fintech are the 2 sectors where we will see more growth as we grow our business.

Aditya, obviously, they are your 2 large verticals. I just meant is it possible to be a bit more specific maybe about a specific client or you expect to grow much more or something which just gives us a sense of what kind of skills within fintech, is it on the side of kind of -- again, I'm just throwing these -- real-time transactions, is it -- what the new requirements or security, what specific areas are you looking to build this thing within fintech?

Okay. So within fintech, our specialization is in regtech and payment tech. So regtech is a big space now because more and more compliance, more and more regulations are coming, which companies have to follow. So that's one big space. And the other is payment tech: online payments, payment protection, et cetera. So those are the 2 subverticals within the vertical of fintech that we specialize in. Now what do we offer these guys? What do we offer these prospects? It's the full suite of digital transformation services. It's from product engineering, automated testing, everything around data and analytics, cloud, migration to cloud, infrastructure, security operations, network operations. So the entire suite of digital services is what we offer. But the strength of our company is the focus. We are very, very focused. We're very specialized. And we work only in the niches where we have protection and where we can grow.

Okay. So sir, just taking regtech, as you mentioned, 1 of the 2 niches. So is that a situation where you would work with certain central banks, their reporting systems for certain regions and something like that? Or is it more broad across regulators? And how would you kind of define? And also a little bit about what is your solution? Is it defining on creating specific projects for clients, and then again, kind of testing out the services and reporting systems and then stopping? Or is it more platform driven? Are you looking to change any of that? Some more color?

Yes. So it's framework dependent. So for example, when I say regtech, I'm talking about regulations. Let's take the case of U.S. In the U.S., SEC is a big regulator, right? Now they now regulate hedge funds, they regulate asset management companies, they regulate financial companies, not necessarily large banks. Because remember, large banks are not our customers. So our customers are companies which are in the regtech space. So companies which are helping their customers manage the compliance to SEC guidelines. And SEC is issuing at least, I would say, on average, 2 or 3 new guidelines every week. So -- and compliance is becoming more and more difficult, more and more cumbersome for players in the financial services industry. So we work for the organizations that support larger banks, financial companies to manage these compliances. So we are not suppliers to the banks. We are suppliers to the organization, the regtech companies that are putting -- that are putting products together to be able to supply to banks.

Understand. Any names you can throw out to what kind of companies these are without sharing what revenue, et cetera, something just to give us a sense of how large these companies are and how they are going?

I can't give you names of our customers. But what I can do is our typical size of these organizations is anywhere between $100 million to $2 billion in terms of top line, $2 billion to $3 billion. And their technology spend is typically 8% to 10% of their revenue. So we have a fair amount of runway to be able to grow our business in these customers.

So your share of wallet you think can grow quite large and that's what you meant , and...

We can definitely grow in these accounts. Now obviously, that's a generic statement. Every customer won't grow. But by and large, before we take on a customer, we try and analyze and assess that they have a reasonable amount of technology spend for us to be able to grow our share of wallet.

In capital markets reg is a large part of your whole regtech kind of offering, is that right?

Say that again, Saurabh?

Capital markets supporting in a large part, it sounds like of your regtech. Is that fair?

Yes, for example, hedge funds, are -- there's a lot of focus on compliance of hedge funds. So yes, capital markets would be one part, yes.

Fair enough. And in payment tech, what would be your kind of profile of customers?

Companies -- I'll give you an example, a company that has developed cardless cash withdrawal. Now it's pretty much standard in the industry, but we were the first -- we worked with the first company that developed cardless cash withdrawal. So go to an ATM and without a card, you can withdraw cash. So the entire product development, product engineering, testing was done by us.

And here the customers are -- what kind of customers are again independent networks who provide services to the large banks and other people? Or is it banks? Or is it -- who are the customers?

It could be software suppliers or people -- companies building products to supply the banks. So in this case, it was a product -- it was a product company which sold the product to Mastercard. We developed the product.

Okay. Okay. All right. So it sounds like you're kind of working with the solution providers where there is a lot of technology change and digital change happening at the end customer level. And that sounds like that's a large constituent of your customers, right? I mean across the end customer would be in different industries, so the drivers could be different. But as far as your solutions are concerned, you are at the back helping these software guys kind of delivery to their clients.

Yes. I mean that is one segment of it. I mean the independent software vendors and software providers, but we also work with enterprises. So for example, in the fintech space, we work with credit management companies, companies that are actually operating and running credit bureaus. So that's, again, fintech for us. So it's not only product suppliers, it's also enterprise.

Understand. What percent do you did this -- would you be able to disclose how much would be the software kinds of companies as your customers versus the end enterprise who are using it on their own platforms?

I don't have the number off hand.

Okay. Fair enough. And the model, I mean, as it exists and as it continues, you expect it to be kind of, again, custom app and billing for a project? Or do you anticipate -- I mean, I'm sure your customers might be charging the end customer on a per use or on a different model. But do you have a variable model or a fixed per transaction or per unit kind of thing at all? Or do you expect to get there?

No, we don't. We don't, and that's not our engagement model. Our engagement model is predominantly time and materials. So 95% of our work is time and material.

Got it. Got it. And how do you see the -- over a period of time, you're building out more strengths. Do you expect any time to go and acquire any customer or be able to deal directly? Or do you think that would be -- in the software customer space I'm talking about or do you think that you're comfortable with the current business model?

What do mean by acquiring customers?

Say, for example, just now we are providing services to people who are building out solutions for hedge funds. Would you like at some point to acquire somebody who's directly providing these services to the hedge funds and be engaged instead of going through another company of providing the back end to another company, like case directly at all?

No, that is not in the plan, and I don't think that is something that we will venture into because that will mean that we'll become a product company. And we're not a product company. We're a technology services company, and we plan to stay like that. p id="A11" name="Shah Saurabh" type="A" /> Sure, sure. Understand. And how do you see the market in terms of pricing and other things? You see continued large kind of blue sky available to you for both your enterprise and your software customers?

I -- no pushback on pricing as of now. The only thing that we see push back is really a little bit of delayed decision-making because of the fragility of the economy -- of the world economy, but no pushback on pricing.

The contribution from Asia Pac seems quite large. If you have some context as to what's solutions you're offering there? And how is that growth? And are you seeing less kind of delays over there? Or is that comparable to rest of the world?

So that's a good point. And the reason for that really is that we are following the customer. So some of our customers for whom we were working, let's say, in the U.S., they have built their own GCCs, the global capability centers in India. And now we are supplying services to them in India. So that's really -- it's really one pocket to the other. So some of our business has moved from the U.S. to Asia Pacific for that reason.

Got it. So the end customer nationality could probably be, again, in the developed market, but this is where GCC, the customer entity [Indiscernible].

Correct. That's right.

GCC are scaled large. So okay. Okay. Any other business or -- any other place that you expect to grow the most, Aditya, in the next 2, 3 years, apart from these 2 segments? Because it sounded like very strong niches, as you said the credit bureaus and this kind of capital markets, software solutions providers.

No, I think fintech, transportation logistics, U.S. geography, I think most of our growth is going to come definitely from the U.S. geography. That is the epicenter of technology spend in the world economy. I don't think that's changing any time in the near future. So really, the focus and the growth will come from the U.S. And I think these 2 segments are strong enough, large enough for us to get to our goals, revenue goals. Saurabh, we need to give somebody else a chance too.

The next question is from the line of Rahil Shah from Crown Capital.

So in the niche areas you mentioned, right? And then you said there's 2 in particular where you excel and you see most growth. From an overall sense, I wanted to ask what makes you unique because I'm pretty sure there are other competitors in this space, very similar to you. So are there any -- how many are there? And yes, so that's the main question, what mix does choose you to over -- that will be my first.

Okay. Rahil, let me answer it in a little different way. Let me ask you, when you go to -- let's say you have a problem. You go to a specialist, right? Now for that specialist, you will do some reference checks. You will talk to some customers of that specialist. Now that's really our value proposition. So when we go to a prospect, let's say, in fintech, we are able to showcase the work we have done in the space. We are able to showcase our reference customers. We're able to get the prospect to talk to our reference customers. We are able to show accelerators and frameworks in that space. And it's not that the larger players don't have similar frameworks, but they don't have the similar level of specialization like we do because they're generalists. For their size, they have to do everything and everything. We don't do everything. We do only specialized work, and those are the niches I was talking about. So it's really a comparison when you chase a customer or you try and win business from a customer, you want to deal with a specialist who understands your space or you want to deal with the generalist who does everything. And normally, customers prefer specialists, especially if they are mature in their software development life cycle. I'll answer it in another way. The Tier 1 players like big deals. They like deals where they can do a little bit of everything. They respond to large RFPs. They do multi-million multiyear contracts. We don't do that because we are #1 catering to smaller organizations who are not that sophisticated in their buying process, but they are very mature in their development side -- software development cycle. And that's really our strength. And also specialization over a general player.

Got it. Okay. Secondly, given this vision statement of yours, right? You want to achieve a certain target by. So how will this be spread out over the years? Is it going to be gradual -- the growth we will see will be gradual? Or is there a certain pace like in certain niches, like have investments going on right now, so that will be scaling up way more than later? How is it going to work? Just a general sense from a demand scenario perspective and how the environment is for all the business verticals?

I don't have a crystal ball. So I can't tell you what's going to happen this year, next year and the following year in terms of specifics. But what I know is if we grow 25% year-on-year, we'll get to $500 million by 2030.

So the point I was trying to make is, the reason -- in the near term, right, in the medium term at least, so is it going to be a heavy kind of a growth or this will be, like you said, 25% is something you target? And then you will work on that.

So we have to do minimum 20% to 25% to get to $500 million, okay? And that's our goal. Now that will happen organic, inorganic, it all depends on what opportunities open up. It's difficult to really say that all of it will come from inorganic or organic. At any point in time, we have multiple balls in the air which we are trying to land. So it's really difficult for me to say that, okay, this year will be a mix. It will be predominantly inorganic or next year will be purely organic. It's a difficult statement for me to make.

No, no, of course. But -- so do you have any inorganic plans at the moment, which you would like to share? Or it's still under like process?

I can't share with you. But yes, we are always talking to companies. If you see our track record, in May, we announced an acquisition of a digital commerce company. Sorry, in August, we announced the acquisition of a digital commerce company called Solveda. So at any point in time, we -- like I said, we have -- we are talking to multiple targets, and hopefully, something will mature. But leave that aside, the goal is 20% to 25% growth organically and inorganically, a combination. And if we can do that, we can get to our goal.

Okay, and to support that growth like -- not to support that growth, but like from that growth, these margins are quite sustainable as well?

I mean, if you see the last 3 years -- last 4 years, margins have been pretty much consistent, increasing, okay? A couple of -- maybe 1 quarter, there's a slight dip because of salary increases, et cetera. See, a lot of Tier 1 companies didn't give salary increases this year. We give salary increases in April. So that will result in some drop in EBITDA margins in the first quarter, but it catches up.

The next question is from the line of Hasmukh Visaria from SUD Life.

I have a couple of questions. So firstly, on service mix, so you called out, let's say, exposure through digital engineering, your cloud and infra, et cetera. But will it be possible to quantify how much, let's say, revenue comes from all these services? Or what would just service mix as such?

Okay. How much is coming from product engineering and how much from testing? We can send that to you.

Okay. Okay, fine. And in terms of, let's say, deal wins, will it be possible to give a color how the current deal wins are for you vis-a-vis last quarter or 1 year back or any insights around it?

When we forecast anything, when we look at our numbers, we look at approximately 90% to 95% of our growth coming from existing customers and the balance only coming from new customers. So for us, the -- we don't really have a deal pipeline. We have what we call a prospect pipeline. New customers being added to our mix and then how fast can we grow these new customers to $0.5 million and then $1 million-plus customers. So that's typically how we look at it. Because unlike the Tier 1s, we don't really respond to RFPs and large contracts because we're not in that game. Like I explained earlier, we are operating in niches. We are operating in a company with prospects who are specialized players. We are a specialized player. So typically, they don't have -- they're not very mature in their buying process. They're mature in their product, in their software development life cycle, but not in their buying. So it's difficult to give you a deal pipeline, but we have a very strong prospect pipeline, which we are constantly maturing and taking forward.

Understood. Understood. And lastly, so considering your, let's say, niche -- you as a niche player who would be, let's say, our competitors? And how would pricing for a particular deal would be for us vis-a-vis let's say peers?

In most cases, when we are operating initial prospects don't really worry so much about price. They are looking for a supplier or a partner who understands what has to be done because the cost of failure is very high. Remember, these are mission-critical applications. This is mission-critical to the business of our customer. If this fails, the business of our customer and -- or prospect will be impacted. So they're now going to worry about pricing so much. They are more worried about capabilities. So if we can demonstrate strong capability, if we can demonstrate strong case studies, reference customers, similar work that we have done. It's pricing -- in 90% of the case, it doesn't matter. And where it does matter, the 10% and all, we normally stick to our rate card. We have a rate card in which we work. Give or take 5% here and there to win a deal will do. Otherwise, we'll stick to it.

Understood. And as far as peers are concerned, who would be let's say major competitors, if you can highlight some of the names?

In most cases, there will be a local player. There will be -- for example, if we have a -- we're talking to a prospects in fintech, they'll have a local partner who they're working with, who will not have really an offshore presence. They would be a pure consulting company. That would be a typical partner. And there are a lot of these small companies in the U.S. Then in terms of the larger players, we come across CapGemini quite often. We come across Accenture quite often. We come across Persistent quite often. Those are some of the names.

[Operator Instructions] The next question is from the line of Drashti Shah, an Individual Investor.

Am I audible?

Yes.

I only have one question. So we've seen most of the IT industry facing headwinds in Q2, but we've grown well both in terms of top line and bottom line. So just wanted to understand our differentiator that is helping us grow?

The answer is the same, Ms. Shah. It is the fact that we are operating in niches. Now when you're a specialist player, you'll always have business. When you're a general player, you will have to struggle a little bit when there's a slowdown or there is a headwind. And that's really -- I mean, and also because of our size being smaller than the Tier 1, it's easier to also show or grow better than the larger players. So whenever you're a market leader, a down -- a headwind in the market affects the market leader more than anybody else. So I think that's one of the benefits of not being a market leader.

Sure. That was helpful. And just to confirm, we are seeing 18% to 19% EBITDA margins on a sustainable basis, right?

That's correct. Yes.

The next question is from the line of Amit Jain from Monarch Networth Capital Limited.

Congratulations on very strong set of numbers. Aditya, just 2 questions. One thing on this, you mentioned about that 90%, 95% of the business coming from the existing customers. So our growth is basically dependent on those customers, as they grow, we grow. And secondly, they're rising the wallet share. So somehow -- I'm just remembering that you were -- a year back you're mentioning about the problems on the sales side. So acquiring the acquisition of new clients, is it still a pain point for the company?

Yes, it is. And the challenge for us, and this is sort of a tight rope that we had to walk, Amit. We have to keep investing in salespeople. The good part is, vis-a-vis the last time, we probably had this conversation is that -- because we are a little larger company now, we are able to attract better talent. So for example, we have a new salesperson who has joined us on the West Coast of the U.S. about a month ago. And every 6 months, we will hire another salesperson in the U.S., every 6 months because that's the only way we can organically increase our growth rate of acquiring new customers. We need more feet on the street, and we will do that. Now -- why can't we do more? The reason we can't do more is you've seen the question that come on EBITDA margin, right? So we have to pace ourselves. If we were not a listed entity, if we were a private equity owned, it doesn't matter. You can let margins go to the dogs and keep investing in sales people. But here, we can't take that chance. We have to walk the tight rope.

Understood. Aditya, the second on this, you mentioned about one of your competitor, Persistent and this space is really doing well, this whole ERD space for engineering and R&D services. And just if you could just give some color on this, maybe how the position, how Saksoft is positioned in this area. And what's your view on the growth in this particularly because everybody is now optimistic on this space among all the IT company -- in the IT sector.

See, number one, Persistent is a large company. It's a billion-plus company, right? Now our customers or prospects are companies which are $100 million to $2 billion or $3 billion in sales. The product companies are smaller. They are typically $100 million, maximum $250 million, $300 million. You don't see billion product companies in our customer base. Now those companies are not going to be with Persistent because they're not going to deal with the supplier who is 10x or 20x bigger than they are. They want more attention, which a company like ours can give them. So I don't think we need to worry so much about Persistent. The good thing about Persistent is that they are growing on their own. Secondly, they have developed the market to a great extent. So product engineering is now something which is widely accepted, and it's easier for us to sell. But again, when we talk about product engineering, we're talking about that only in the niches that we operate in, fintech, transportation logistics, health tech and high tech. So really, we are working in a much smaller subset of the target market that Persistent operates.

No Aditya, I was not worried about that. What I was asking about the overall business space, how this space you see if you can just give some idea to how much revenue we are getting from this space, the product engineering side, just some sense of it. And how you see that if Saksoft is positioned in this particular space? I'm not comparing it with Persistent. I completely understand it. I appreciate that, that you're not in that genre, and direct confrontation with Persistent, that's completely different league. So my question was on this particular space and how the company is positioned in this space? How much revenue -- if you can just show something, how much revenue we are getting from this particular service?

So how much revenue do we get from application services -- more than 50% of our revenues are coming from application services, and product engineering would be a subset of that, okay? So that's in terms of numbers. Now this is a hot space for sure because more and more SaaS, more and more products are getting developed in the U.S. and world over. And outsourcing of or offshoring of product engineering is becoming very, very common. So definitely, this is a hot space. Now where our strengths are and where we are different is, again, we are operating only in those niches I spoke about.

The next question is from the line of Hemant, a retail investor.

So this -- just to understand, this revenue is all a onetime revenue is it? Or do you also have support services wherein you get recurring revenue?

95% of our engagements are time and material. So these are ongoing. And ongoing means not only development, but also testing, also infrastructure, also support. So to answer your question, this is a sticky revenue. It is ongoing revenue, which is what is important for us and which is what we focus on when we look at new prospects and new customers.

Right. But for a customer, it would come down at some point, right? It would be higher initially and then probably come down when it's just the support once you finish all the development. Is that how it works?

I mean, one would normally think that, that will happen, but life is not like that. You build a product, as I'm talking, let's take a company which is into product development, is building a software product. They will build a product. Once the product is over, there'll be enhancements, there will be a next generation of product. So it never ends. It might taper off a little bit, up and down, but it's pretty much never going to go away. It's a drug. Once you're hooked on the drug, you can't let go of it.

Another question is, the third-party support expenses that I see on the P&L, is that your consultant for development activity? Or can you just explain what that is?

Niraj, please take.

Hemant, this is Niraj here. The third-party support is basically the cost of the freelancers and the contract market, which we go to, to manage our utilization. So it's basically when we don't want to hire full-time employees or there are some certain projects which require certain people to join. It's in relation to that. So -- it's all related to development, and it's all related to the delivery costs.

The next question is from the line of Soham Gupta, an individual investor.

Am I audible?

Yes, yes, absolutely.

Congratulations on a good set of numbers. I had a couple of questions, Aditya. So you had given a guidance of $100 million in revenue for FY '25, but you are confident, obviously, I mean, of achieving the objective this year itself. So if you see the first 2 quarters of this year, I think we clocked around INR 376 crores of revenue. So that's another we need to clock like 200 -- around INR 210 crores in the next 2 quarters. So are you confident of getting that run rate for the second half of this financial year? And my second question was regarding Solveda. I believe we acquired this company in August of this year. So is the impact of the revenues of Solveda already in quarter 2? Or we will see that from quarter 3 onwards?

So the answer to your first question is, yes, we're confident of hitting $100 million in this financial year, which is 1 year ahead of what we had originally targeted. Yes, and Solveda, there is a portion of this year's -- this quarter's numbers, a small portion this quarter, and the full impact will be in quarter 3.

Okay. So then we should see the revenue jumping into the 200 club from Q3 onwards then. Is that right? Is my understanding right?

Yes, absolutely.

And hopefully, the $500 million target can be achieved earlier than 2030.

The next from the line of Arvind, an individual investor.

In the whole IT industry, it is getting slowdown, but Saksoft has done well, Q1 and Q2 of FY '24, the revenues are getting flat and net profit is getting flat...

Arvind, I'm not able to hear you.

Hello, am I audible, sir?

Yes, it's not very clear, go ahead.

Arvind, may we request that you use the handset mode while speaking and not the speaker phone?

Hello, am I audible sir?

Arvind, please go ahead.

There is no response from the line of Arvind. And that was the last question. I now hand the conference over to the management for their closing comments.

We thank, everyone, for taking out time to participate in this call and for their interest in Saksoft. I hope we've been able to answer your queries. In case of any other queries, please reach out to us or our Investor Relations advisors, Valorem Advisors. Thank you, everyone, for joining us.

Thank you.

Thank you, members of the management team. Ladies and gentlemen, on behalf of Saksoft Limited, that concludes this conference. We thank you for joining us and you may now disconnect your lines. Thank you.