Saksoft Limited (SAKSOFT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Saksoft Limited Q4 and FY '24 Earnings Conference Call hosted by Ventura Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Tushar from Ventura Securities Ltd. Thank you, and over to you, Tushar.

Thank you. Good day, ladies and gentlemen. On behalf of Ventura Securities Ltd., I welcome you all to Saksoft Limited's Q4 and FY '24 Earnings Conference Call. The company is, today, represented by Mr. Aditya Krishna, Chairman and MD; and Mr. Niraj Kumar Ganeriwala, COO and CFO. I would now like to hand over the call to the Managing Director of the company, Mr. Aditya Krishna, for his opening remarks. Thank you, and over to you, sir.

Hello, and good afternoon, everyone. Welcome, and thank you for joining our Q4 and FY '24 earnings call today. Let me first give you a brief introduction of Saksoft for the sake of some of the participants who may be new to the company. Saksoft is a digital transformation partner that assists its 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 16 locations, covering U.S.A., Asia Pacific, U.K. and Europe. We have an associate strength of 2,000 plus. In the recent reorganization of our business, we have restructured our business into 4 business units, namely: Fintech; Hitech, Media and Utilities; Transportation & Logistics; and Retail eCommerce. This will help us become more market-facing and more responsive to the demand of our existing customers and new logos. 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, planning analytics, cloud solutions, legacy modernization, intelligent automation, application engineering and quality assurance. As a company, we offer a comprehensive suite of digital transformation services. Now moving on to the quarter under review. Despite facing headwinds in the U.S. market, I'm pleased to report that we managed to grow our revenues on a year-on-year basis. Our EBITDA margins remained stable for the quarter as we chose to invest more in strengthening our sales engines. For the full financial year ending 2024, we had a healthy revenue growth of 14% year-on-year with a strong EBITDA and bottom line growth. As far as the go-to-market strategy, the company is further investing in frameworks across verticals. Now I would request our Group CFO and COO, Niraj, to give you the financial highlights for the quarter under review.

Thank you, Aditya, and good afternoon, everyone. Let me start off by giving you the financial highlights followed by the operational highlights. For the fourth quarter of the financial year 2024, the revenues were reported at around INR 195 crores, representing a growth of 7% year-on-year. The EBITDA stood at INR 33 crores, which grew about 3% year-on-year, with a reported EBITDA margins of around 17.14%. The net profit for the quarter was around INR 23 crores, which declined 7% year-on-year, with PAT margins at 11.9%. The decline in PAT is only on account of the increased tax outflow in certain of our geographies. For the financial year 2024, revenues were reported at around INR 762 crores, representing a growth of about 14% year-on-year. The EBITDA was almost INR 137 crores, which grew by around 26% year-on-year, with the EBITDA margins being at 17.95%. The net profit stood at INR 96 crores, which grew by 17% year-on-year, with the PAT margins reported at 12.63%. During the year 2024, the Americas contributed 42% of our revenues, Europe contributed 24%, while the remaining 34% came from Asia Pacific and other regions. A few of our top customers having a global MSA have started global capacity centers in India, and this has triggered the movement in revenue between Americas to Asia Pacific and other regions. The on-site revenue mix was 45% and offshore is at 55%. The revenue split across business verticals for the financial year 2024 is as follows: Fintech contributed 34%; Hitech, Media and Utilities, 30%; Transportation & Logistics contributed to 13%, with health care and digital commerce contributing 10%; and the balance, 14%, from the others. The reporting of the revenue contribution by the reorganized verticals will be commenced from the next earnings call update. Now coming to some customer metrics. We have 15 customers of over USD 1 million revenue and 9 customers of USD 500 million to USD 1 million. Our total employee count at the end of the quarter stood at 2,053, out of which 1,838 were technical, with the utilization level of the employees, excluding trainees, being at 83% for the financial year 2024. The bank balance as at 31st March 2024, stood at INR 207 crores. This concludes the updates for the quarter and for the financial year, and we can now open the floor for the Q&A questions.

[Operator Instructions] Our first question comes from the line of [ Vikas Srivastava ] from RBC Financial.

My first question is, we haven't -- unless I missed something, you still haven't got the investor's presentation, which I was hoping to get along with the results. So what is the practice? Are we getting it? Are we not getting it? And it's not on the company's website, still about 10 minutes back.

Vikas, it just got sent out probably 30 minutes back, and the update would have been a little late, which is why you've not received it. We'll ensure that next time onwards it's given much earlier. But it's already been released and should be in your mailbox and on the company's website by now.

Very well. That was the first question. The second question was, are we -- because I haven't -- many of us on this call today may not have the privilege of going through this thing. So let us for a minute assume that we haven't seen it, and many others may not have seen it. What are our -- how is the coming year looking? We had a $500 million goal for 2030. Just a back of envelope calculation means that we need to grow at a CAGR of about 30% per annum going forward. Like many other companies do, are we -- do we get some kind of guidance on EBITDA and the current year going forward? And some light on the order book, client acquisitions, pipeline. I'm assuming some of it maybe there, may not be there, in the investor presentation, but any information on these areas on this call will be very helpful.

Sure. Vikas, this is Aditya. We have finished at INR 761 crores. This is March of last year. This year, we are aiming for INR 1,000 crores. Now we normally don't give guidance, but since you asked, this is what we are. This is our plan to move the business to INR 1,000 crores at the end of '24, '25. It's a difficult task because there are a lot of headwinds in the U.S. Secondly, we are investing a lot in people and infrastructure so that we can scale to the $500 million or INR 4,000 crores target by 2030. You are a very seasoned person so you know that everything takes time. And unless we put the building blocks in place, growth will always be a challenge. So we're making those investments, number one. Number two, the expense always comes before the revenue. So we have to be careful because we have to live quarter by quarter. So keeping everything in mind, we are very bullish that we will get to our goal of $500 million. I've always maintained that it won't be a straight-line growth. It won't be a linear growth. There will be bumps along the way. There will be air pockets. But very clearly, the ambition is there. We are putting the building blocks in place. We have reorganized the business into 4 business verticals. So now instead of having a geography structure, we are going to be reorganized business vertical-wise. So each business vertical of Fintech; Transportation & Logistics; Hitech, Media and Utilities; and Retail eCommerce will have its own sort of CEO or business leader who will make sure that not only existing customers' business grows, but also new logos are prospected in these spaces. Now you mentioned about pipeline. The investor presentation doesn't have pipeline, but what I can share with you is that approximately 90% of our INR 1,000 crores is targeted to come from existing customers, existing projects and existing customers' new projects; and 10% from new customers, new projects. So the targets are in place. The targets are account-wise, each account has an account manager and a delivery manager depending on the size of the account. And we are moving the company forward. So rest assured, we are on the job, number one, and motivated and driven towards our goal.

Just 2 or 3 comments here and a few more follow-up questions. One, of course, was -- I mean, why do we live quarter-on-quarter? That's not the message -- at least as a shareholder, that's not what I want. So I think when shareholders invested, they invested for the long term. My issue was more on -- was not on the EBITDA margin, you said it is about 17-point-something here. So there will be economies of scale as you move from INR 761 crores to INR 1,000 crores, which is an ambitious target. It is almost a 30% growth in a year and all, which is very encouraging and ambitious. But what I'm saying is that you will make more investments, but there has to be a time where we -- or you should be expecting a time where we at least gone even 17%. I'm not saying it will jump to 20%, but is there a range, is there a guidance on where are we looking at the EBITDA going forward are you looking at? Surely, with that kind of growth on the top line, even if we invest, we are not looking at the dip in EBITDA is what I would presume. But just common mental calculation tells me that one shouldn't be looking at a dip. So is there a range? And why doesn't the company consider, going forward for the benefit of its shareholders, to give a range? To give a range of what you feel is growth, a range of EBITDA, and it could be conservative, it could be cautious. But is it something which you would like to consider going -- that was question number one. B, would you throw some light on your plans? I can -- what I can see is that we are growing massively all from existing clients and 10%. How -- what is your outlook on client concentration risk? So two questions there.

Yes. So on EBITDA margin, Vikas, the current EBITDA margin is around 18%, 17.9% to be precise. And for this year, we are aiming to keep it around the same level. There will be a dip of -- maybe dip or increase by maybe 25 basis points up in there, but -- I mean, down or up, but I can't see us beating this 18% significantly, okay? Because a few things. One, salary increments are there. We make a lot every year from rupee depreciation. I think that's a little bit -- there's a lot of uncertainty around that. So the headwinds are there in the U.S., which prevent us from increasing pricing significantly. And as we grow, and I know a lot of investors don't like this, but as we grow, we might have to accept business at lower margins in the hope that we will improve margins over time with that customer. So all this acceleration towards growth, we want to make sure that we are not so much margin-driven as we are growth-driven. So all these factors will probably keep us in this 18% range. Now coming to your second question on client concentration. We have roughly 80% of our revenue coming from our top 25 accounts. So there is client concentration to that extent. I'm not concerned about it because no one client is more than 25% or 20%. So there's no huge customer which will impact us if we lose that customer. But yes, there is the 80-20 rule for sure. The only way to beat that is to get out of this -- to become a significantly larger player, which is the goal. And you mentioned about quarter-to-quarter. See, Vikas, everybody is not as -- I mean, as an evolved investor as you are, most of the market doesn't understand that you have to invest to grow. So it's a tightrope which we have to always live with. And believe it, it really keeps me up, how do we invest and what we have to do to grow the business and still have decent results. Which is why you've seen in the last 3, 4 quarters, we've been very tepid growth because we are trying to write that balance.

Well, Aditya, we would agree to disagree there. At the end of the day, living quarter-by-quarter puts a new pressure on the management. And you also compromise on long-term growth sometimes and you miss opportunities. So I guess that's a call management needs to take. That's your call and the management needs to take that. Is it pressure which is to the detriment of the long-term investor? If that is not the case, it is okay. But if you're compromising long-term goals for short-term higher 1% margin, then I, at least, principally would not agree with that. But anyway, that's a call you need to take. I understand you have a larger audience to look after. I'll come back in the queue.

Thanks, Vikas.

Our next question comes from the line of Hiloni Gandhi from Pi Square Investments.

Sir, I saw that we are -- our interest costs have gone up significantly in the last 2 quarters. So just wanted to know what's the specific reason behind it.

Hiloni, there's an interest component, which is in relation to some of the leases which get accounted under the IndAS. We had a couple of new lease renewals, which had happened and it's more of an accounting and less of an actual interest outflow, because those are -- we don't have any borrowing or interest...

We don't have any loans and we have a lot of cash also on hand, yes. Got it. Got it.

[Operator Instructions] Our next question comes from the line of Sunil Gupta, an individual investor. There is no response from Sunil's line. We have a follow-up question from [ Vikas Srivastava ] from RBC Financial.

Aditya, how has been our experience on the new hiring on the sales front? Have we lost some people who we hired in the last 2 years? Has there been any attrition there? How has been our experience on the new sales team, which we have hired in the last 2, 3 years? That was one. B, I was wanting a little bit of a flavor to what level are you giving stock options to employees in India and abroad? And what is the value? I'm assuming for the last 1.5, 2 years, the stock has been in this range. Does that -- is the value of stock option, then, therefore, as a consideration compensation, is it losing it charm? Are you facing any resistance or frustration there?

Sure, Vikas. As far as the sales team is concerned, we haven't lost anybody. Whoever we have hired has stayed so far with us. We have one new salesperson joining in California on the 6th of June, and we have another one joining in the New York area on the 17th of June. So we continue to build the sales team. We have one salesperson relocating from our Singapore office to New York. We have a new sales guy joining our London office on the 3rd of June. So lots of action on the sales team. And so far, nobody has left us. And honestly, Vikas, my biggest job is to make these guys successful. Because if I can get the sales guys to be successful, one, the company will grow; and second, they won't leave us. So I spend a lot of my time on that. And it's challenging because new people have high expectations. They want everything to be there. And patience with younger people is also missing. So it's a nice challenge to have. So it's really keeping me busy. On the second question on the stock option, what has become pretty much standard is the salespeople to attract them, especially senior sales talent, we have to offer them options as part of their joining. So they will get options anywhere from 50,000 to 100,000 options when they join. There is still a lot of merit and value in that because they will get it at market price. And obviously, if they do their job and the company grows, those options will be worth a lot of money. And that's how we sell it. And that aligns with the goals of growing the business, and they have to also align with that. So I don't think the option thing, the charm has gone away. In fact, I would say it's probably more favorable now. We have never shared this on earnings calls, but since you asked, our option plan is 25% of the options that is allotted to an individual vest every year and they have 10-year window to exercise it. So it's an attractive option. From an accounting perspective, we use Black-Scholes to account for it. And currently, the last allotment, the price that hit our P&L was INR 160 per option. So bottom line, I think there's still a lot of value in these options.

Our next question comes from the line of [ Vimal ], an individual investor.

I'm pretty happy to hear that on the sales front, you haven't lost anyone. But just to give me a number on the attrition on the overall company level?

Attrition is down considerably. We are currently running at 14%.

14%. That is considerably down from the 22%, I believe, in one of your previous calls, which I was attending. So, yes.

Yes. Correct.

All right. And so going forward, with the INR 1,000 crores that you mentioned for the next -- for the current financial, which there you mentioned INR 900 crores would be from the existing clients, which is very, very optimistic. So I'm pretty sure that your retentions are very high. So which front do you see on the different segments that the revenue is going to be contributed from?

A lot of growth will come from Hitech, Media & Utilities and Fintech, those are the big 2 segments. Transportation & Logistics is struggling a bit because there's a lot of consolidation post-COVID in the U.S. geography. So because of that, there's uncertainty. Customers are deferring spending. But it's temporary. Because, by and large, Transportation & Logistics has under-invested in technology over the past years and has to catch up. So there's a temporary blip in terms of slowdown. Our fourth segment of Retail eCommerce, that's a hot segment. Unfortunately, deals they take longer because they're larger deals, and the buying cycle is probably the longest compared to Hitech, Media & Utilities and Fintech. But to answer your question, majority of the growth will come from the first 2 Fintech and Hitech, Media & Utilities.

Got it. And one more question, sir. Since you recently hired a couple of new sales people abroad, I'm pretty much assuming that your revenue contribution from overseas would be a larger chunk, even more so than 60%. Would it be fair to assume that?

Yes, yes. So 45% is from the U.S., 35% is from Europe and the rest is from Asia Pacific, which is predominantly Singapore and India.

Our next question comes from the line of Amit Jain from Monarch.

So Aditya, first question. One, on the outlook for the current year FY '25. So other companies have given a very tepid growth outlook and are very muted. And even the campus hirings, the data that we are seeing placement in terms of from the campuses, that also suggests that things are not so good. So in that backdrop, the growth outlook, the growth guidance of 30% -- and I assume that's the aspiration. But given that, that's a very audacious one. So what makes you so convinced or, I would say, to give this kind of outlook? Secondly, on the capabilities front, you mentioned about the investing in the building blocks. So I can understand the one on the sales personnel. Besides that, what other things we are doing in terms of building -- investing in those capabilities? So I just want to get some sense about that. There are a couple -- 1 or 2 questions, but maybe we can -- I can come again. But if you can just throw some light on this.

Good questions, Amit. INR 1,000 crores is an ambitious target. But if we don't aim high, we are not going to get to where we need to go. There is -- being a 20-year-old company, there is an element of lethargy in the organization, which has to go away. We all have to sell. And today, one of my big challenges is to change the culture to a growth-oriented culture, where not only 1 downs to me, but 2 downs and 3 downs to me sell. Everybody should be part of the selling community. So what we have done is we have broken our targets by delivery managers, by account managers, by salespeople within each account. And this mindset has to change. And the mindset will not change if numbers are not ambitious and aggressive. But that doesn't mean that we are ruthless in terms of hiring people and all that. We can still be a good work culture, a respectful work culture, but also expect a lot from our people, and that's the goal. So it's not even the end of first quarter. It's going to be a tough year, yes, but we're going to aim high. That's our plan. That's why the INR 1,000 crores. I was not wanting to share it actually, but since Vikas asked, and Vikas has always been a long-term investor and a well-wisher, I felt I should -- I owe to him to share it and also with you in, Amit. So coming to the next question, which is a very good question from a capability perspective, because technology is changing so rapidly that unless we invest in capability. So it's not only sales. The sales guys can only do so much. Finally, you have to have something to sell, okay? Something to identify -- they can identify a business need as a customer or a prospect. But then you need the team and the people to be able to translate that business need to a technology solution. And that is where capability comes in. So we are investing in subject matter experts in these 4 verticals of Fintech, Hitech, Media & Utilities, Retail eCommerce and Transportation & Logistics. So subject matter experts is a big investment. That's number one. Number two, we're investing a lot in cybersecurity and infrastructure, in CloudOps, in FinOps. As you would have seen, cloud consumption is increasing. The business model of Azure and AWS is to make sure customers -- it's like a drug, once you get hooked on it, you have to consume it. So they want customers to consume more and more of cloud. Now we have to come in and say how can you rationalize that consumption, so that's where FinOps and CloudOps comes in. So a lot of new things we are doing in the infrastructure space, a lot of new things we're doing in the cybersecurity space, which we feel are necessary today to address the business needs of our existing customers as well as new prospects.

Understood. Aditya. If I listened correctly, you mentioned that about the revenue breakup. So 90% business comes from the existing customers, 10% from the [ nascent ] customers. Am I right on that? Is that it?

That's correct, yes.

So is that the -- I mean, this sharing or this proportion, are you satisfied or you want this new customer -- share of new customer to grow? What is the ideal scenario for you?

This 90-10 is pretty much standard across the industry. So if you ask the TCS or an Infosys, 90 might be 85-15 or 90-10. It will be approximately the same. The reason why that is, Amit, is that when you acquire a new customer, he will not spend a lot of money in the first 12 months. First of all, if you acquire a customer, let's say we acquire a customer in quarter 1, by the time paperwork finishes, project starts, you're already talking -- you've got 9 months left. Now in 9 months, how much business will you keep, you will try and check you out first. Is your quality good? Are we meeting the expectations? Do we understand his business? Do we understand his business challenges? So that relationship building will take some time. So it's normally, at least, I would say, 18 months to 24 months before a customer starts to scale up, a new customer. So it's pretty much standard to have a 90-10 ratio.

Higher client concentration. So in that context, I was asking, maybe to improve that part, maybe to reduce our dependence on top 20 to 25. In this context, I was asking that are we aiming for a higher share from our new customers, but that's understood, what ably told. Another thing on the -- just a confirmation. Just as we grow, as we are targeting the $500 million by 2030, so are we going to -- are we also keep -- well we maintain this ROE ROIC? Because I'm just slightly concerned maybe in that pursuit achieving that, maybe we may compromise on those metrics. So just want your just an affirmation that we will be maintaining the same profile going forward as well.

Over time, medium to long term, Amit, EBITDA margins and margins should improve because of scale. We are not going to take business at a loss or do things which are going to be detrimental to the bottom line. Yes, what I mentioned earlier, we have to be careful about our EBITDA margins, live quarter-on-quarter. But we are very hopeful that we will not go below the 18% EBITDA margin, which is there today.

[Operator Instructions] We have a follow-up question from [ Vikas Srivastava ] from RBC Financial.

Just give me your view on the challenges and opportunities which the general AI frenzy would show up for the company? And are there any opportunities there? How do you look at it? Or are you -- or it doesn't touch you in your business?

Vikas, AI is everywhere. Every customer, every prospect wants to talk about AI. How many use cases actually are there, it's a handful. And the use cases, are they really AI or are there machine learning or a combination, it's a big question mark. So to answer your question straight off, is whenever we are talking to a prospect today, he says, can AI help me in this journey, can AI help me in solving this business problem. And we always say that, yes, we can explore that option. For example, can AI help in automation of testing, in writing test scripts? It sure can, but it also means that some human being has to write that test script, that test case. So the AI can do a lot of the ground work, but then human beings are required to definitely vet it for accuracy. So AI is definitely contributing to interesting conversations. For us, it has no -- I mean, except for a very -- maybe a couple of cases, it's not translated to revenue yet, Vikas.

Any challenges you see?

On the AI front or generally?

No, no. AI front. Anything you should worry about?

No, I don't think we need to worry about it because there's too much unknown, okay? And AI is just a new name, in my opinion, right now for machine learning because the intelligence has still not come in. One day intelligence will come in. When it does, we'll have to figure out how it affects our industry. But at this point, I don't see AI has a huge revenue challenge. I find it as probably a demand generator. Companies that probably were not wanting to talk are now interested to talk or have a conversation around AI. And that's the start, because if you can start these conversations with customers, eventually, it translates into business.

And any productivity improvements or cost savings we internally -- is there something you could see or sense on that?

Yes. We can definitely use AI to write certain basic code. We can try to help us in recruitment. We can use AI in our knowledge and training modules, in document management. So there is a lot of productivity improvement that we can derive from AI for sure, and we are doing that.

And therefore, some of it, in the coming years, it could have a material impact on our margins?

Yes. It should. Over time, we should see some improvement in margins. But like I said, it's not going to be like 1% or 2%. It will be basis points, Vikas, and it probably gets offset by something else, either rupee appreciation or some other headwind, who knows? I don't see it being a radical move-up of the EBITDA margin.

[Operator Instructions] There are no further questions. Now I hand over the floor to the management for closing comments.

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

Thank you, members of the management. Ladies and gentlemen, on behalf of Ventura Securities, that concludes this conference. Thank you for joining us, and you may all disconnect your lines now.