Saksoft Limited (SAKSOFT) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Saksoft Limited Q1 FY '25 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 Limited. Thank you, and over to you, Tushar.

Thank you. Good evening, ladies and gentlemen. On behalf of Ventura Securities Limited, I welcome you all to Saksoft Limited's Q1 FY '25 Earnings Conference Call. The company today represented by Mr. Aditya Krishna, Chairman and Managing Director; and Mr. Niraj Kumar Ganeriwala, Chief Operating Officer and Chief Financial Officer of the company. 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.

Thank you, Tushar. Hello, and good afternoon, everyone. Welcome to our earnings call to discuss the performance of the first quarter of financial year 2025. Let me start off by briefing you on the key business highlights for the first quarter, after which my colleague and CFO, Mr. Niraj Ganeriwala, will brief you on the financials. As you are all -- as you all might be aware, the IT sector has been facing several headwinds globally. Despite this, I'm pleased to report that we managed to report modest growth during the quarter. We have reorganized our business into 4 high-growth business units, making us more market facing and customer focused. These business units are Fintech, Hitech Media and Utilities, Transport and Logistics and Retail e-commerce. Each business unit will be headed by a leader responsible for ensuring that the company stayed abreast of market trends and disruptions as well as revenue and margin growth. In addition, this change will help us differentiate our offerings as a digital specialist based on domain in a fast commoditizing industry. Realignment of business into focus verticals is on the back of our strategy and results obtained in the past thereof. We believe that the more we focus on verticals the more we grow as a business as we become more market-facing. These verticals are continued to be supported by horizontal service offerings, spanning analytics, data, cloud solutions, legacy modernization, intelligent automation, product application engineering and quality assurance. As a company, we offer a comprehensive suite of digital transformation services. During the quarter, the company acquired Augmento Labs in June 2024, which is a digital engineering company with focus on high tech, media and utility verticals. [ Asking ], I'm pleased to inform you that to commemorate our company's 25th anniversary. The Board of Directors have proposed issuance of bonus shares in the ratio of 1:4 to all shareholders. Now I would request my colleague, Niraj, to give you the financial highlights for the quarter and the review.

Thank you, Aditya, and good afternoon, everyone. The first quarter of financial year 2025, revenues were reported at around INR 201 crores, representing a growth of around 10% year-on-year and 3% quarter-on-quarter. EBITDA stood at INR 35 crores, which grew by around 1% year-on-year and 5% quarter-on-quarter with the EBITDA margins being at 17.43%. Net profit for the quarter was around INR [ 26 ] crores, which grew by around 2% year-on-year and 10.3% quarter-on-quarter with the profit after tax margins reported at 12.73%. Revenue split by geography in the current quarter of FY '25, Americas contributed 42% of our total revenues. Europe contributed 24%, while the remaining 34% came from Asia Pacific and other regions. On-site revenue mix was 45% and the offshore was 55%. The revenue split across some verticals for Q1 FY '25 is as follows: Fintech contributed about 31%, Hitech Media and Utilities around 42%, Transport and Logistics contributed 16% and Retail e-commerce contributed 11%. Now coming to some of our customer metrics, 15 customers contributed to $1 million plus revenue while 9 were between USD 500,000 to USD 1 million. Total employee count at the end of the quarter stood at 2,215 out of which 1,987 were technical with the utilization level of the employees, excluding training being 85% for the current quarter. With that, we can now open the floor for a Q&A session.

[Operator Instructions] Our first question comes from Pratik from AARP Ventures.

Just wanted to get a sense, as you mentioned that you shall be aiming to achieve INR 1,000 crores top line by FY '25, maintaining the margins of 18%. Are you still on that please?

As the objective, Pratik. First quarter, we have been a little behind. We are hopeful, we can make it up. The whole idea is if you aim big, you'll get close to the target. So it's an expected goal but as of now, at the end of first quarter, we are confident that we'll get close to it [indiscernible].

Okay. So I just wanted to understand if we did a top line of INR 762-odd crores in last year -- last financial year. So from there, we are aiming for a INR 1,000 crore top line that indicates upside of almost 27%, 28% in terms of revenue growth. So where the industry on the other side is growing hardly by 5% to 8%, IT companies. So what is the confidence and what we are exclusively doing or doing differently compared to our peers, that is giving us so much of confidence that we'll be able to achieve [ 50% ] revenue growth.

A few things Pratik to keep in mind. We are -- I would classify ourselves as a Tier 3 technology services company, not a Tier 1 for sure and neither a Tier 2. Our aspirations are to get to a Tier 2 by 2030.

Pardon, can you pleas repeat?

Pratik, what I said was that we are -- we classify ourselves as a Tier 3 technology services company. okay? Not a Tier 1 like the TCS, Infosys, Wipro, neither a Tier 2 like the Cyient or the Birlasoft or the KPIT. But our aspiration is to get from Tier 3 from where we are into the category of Tier 2. What that does is it allows us to make some calculated bets towards high growth and hotspots for technology spending like Fintech, like Hitech. And if you notice, the verticals that we are spending on or focusing on 2 of the 4 verticals of that. The third one being e-commerce, again, very hot. Technology spend today globally is moving -- I mean, is increasing in these business verticals in these verticals. So the ability for us to grow becomes better because we have targeted high growth area. So that's number one. Number two, because we are smaller and we are more nimble, we're more agile. We can also take some bets on emerging technologies like cybersecurity, like cloud, like data and partner with emerging organizations, which are still not as established as market leaders and a lot of our business supporting will come from this partner ecosystem. So these 2 pillars will help us grow faster in the industry. That's what, yes...

Basically, you mentioned the 3 verticals. One was Fintech, the other was e-commerce and which was the third one?

Third one was e-commerce, retail e-commerce and the fourth is Transportation and Logistics. But the high growth, where we're seeing a lot of technology spend is the first three. Transportation and Logistics has seen a lot of consolidation in the U.S.

So FinTech, e-Commerce and the third one?

Hitech.

Hitech. Okay. So will you mean to say that the companies which are largely operating in Tier 1 and Tier 2 do have the presence in these particular verticals or the presence is slightly low?

It's a [indiscernible], but Pratik, you also have to keep in mind, growth from what base, I mean these are -- the Tier 1s are billion dollar organizations and growing by 2%, 3% is huge in absolute numbers. Now whenever there is a headwind, the market leader struggled the most. We are definitely not market leaders. Okay. We are better positioned being a smaller, more nimble player, we are better positioned to beat the average growth rate of the market. That's really what I'm saying.

Next question comes from Vinay Menon from Monarch.

So utilization levels are near 85%, so can we expect it to remain here? Or do we have some kind of reason to go higher?

I think this is pretty much matched out maybe 100 to 200 basis points in either direction is probably what you will see, but 85% is pretty much where we will remain.

Okay. Okay. So then, sir, like is there any space in terms of billing rate or anywhere that we can see some kind of improvements in the [indiscernible] because as we have a [indiscernible] utilization, so I'm just trying to answer where the improvement can come from?

A big area that I can confirm on our financials is the rupee dollar benefit.

Obviously, that is going to be a good factor. And just a couple of more questions on. We have taken a shift towards Hitech, Media and Utilities as an area of where we see the growth is higher and Fintech space has been used -- which used to be our main focus, that has come down to 31%. But what is the [ currently ] current Fintech because a lot of Fintech based IT companies, are saying that there is a little improvement seen, especially in U.S. or also what would you say on that, sir?

Fintech should not be confused with BFSI. The trend in BFSI is an improvement. Fintech has always been hot because that -- those are the disruptors in the BFSI industry. These are organizations which are focused on credit tech, these are organizations that are focused on payment tech as well as regulatory tech. Our focus is there.

Okay. okay. And they are still doing direct or [indiscernible]

Yes. I mean, if you look at the economic times, you look at the second last page, you'll see the funding that's coming towards Fintech organizations, it's tremendous. So I mean Indian is not far behind in terms of new organization, new companies, new startups in that space. What we have to be careful about is, and this is a fine line that we have to guide is since a lot of these are start-ups, we have to be careful that we don't get stuck with them. When we provide technology services to them --the payments, we've got to stay on top of payments as well as their funding because they are based on -- their spending is based on their funding patterns -- that's the risk there.

Okay. And could that be the reason why our DSO days have also increased slightly because any delays from there in terms of payments?

It could be. I'll just check one minute. Niraj is saying, it's a marginal increase.

Yes. Under 65 days. So you want to receive a...

I think -- I don't think, there's any -- nothing significant.

Okay. Okay. And sir, one last question, like what kind of revenue can we expect from Augmento in FY '25, so like any amount which you can say?

Approximately INR 50 crores.

INR 50 crores. And margins will be similar at 20%, which you have mentioned earlier, so 20% margins from there?

Yes, 20% at least.

Our next question comes from Miloni Mehta from Monarch Networth Capital.

I have two questions, actually. One is related to how has the attrition during the quarter been? And how do we anticipate it to be moving ahead and the second is related to also in one of the -- like a one of a major -- like company intends to increase the U.S. revenue mix to around 75%, which is currently at 42%, it's what was guided earlier. So do we have any particular road map that you can put some light on?

Are there 2 questions? You said 4 questions.

Sir I said 2 questions.

Sorry, I misunderstood. Attrition has been 12% last quarter. And we think it will stay around that number for the remaining year. In terms of U.S. revenue, all our focus, all our investment is happening in the U.S. market towards the objective of getting 45% to 75% because that's our biggest market, that's the most lucrative market, and that's the most forgiving rewarding market, call it in any way. And the deepest market. We have hired two new sales guys there. They've hit the ground running. One of them has already bagged Fortune 500 client. We started work on that this week. So things are looking good, fingers crossed. And just to reassure you that, that's where the focus is. That's the market where our focus is.

Okay. So will this be particularly skewed towards the Transportation and Logistics as such or other verticals as well for U.S.?

Right now, the action we are seeing is predominantly Hitech and then Transportation Logistics.

Our next question comes from Vikas Shrivastav from RBC Financial Services Private Limited.

Aditya, congratulations on a good set of numbers. I have many questions, so I haven't counted them. Start with one of the previous participant asked, Augmento you said, INR 50 crores. My question on Augmento, Aditya was, is this for 12 months and from which month of -- you acquired this in June, right? So are you saying INR 50 crores in this year starting June? Or is it -- are you -- do we account for the entire year revenue? What is the INR 50 crores, we are talking about?

So INR 50 crores divided by 12, multiplied by 10. Approximately.

So if I extrapolate it, yes, if I extrapolate it, it will be slightly larger. And is my understanding right, Augmento did about INR 45 crores as an independent company last year.

Correct.

You're looking at a 33% growth in Augmento year-on-year?

Yes.

Would you throw some light on Augmento, it's synergy with what you're doing? And obviously, it's an early time for your integration and synergies to come in play, but just a little bit of flavor on what's happening in [ Augmento ]?

Yes. We have begun the integration. It's not such a big company, which will require us to spend a lot of time on integration. So the support functions are slowly getting integrated. The delivery teams, the good thing is all their customers barring 1 belong to the Hitech, Media and Utilities vertical. So they are already starting to fold into that business vertical from a delivery perspective. Account management of their customers is managed by the founders of Augmento but now reporting to the business head of Hitech, Media and Utilities, and that's becoming actively managed. So I would say so far, no surprises, it's a painless integration.

That's good to hear. So what are the synergies which come Aditya from -- sorry, my apologies. What are the synergies in terms of [indiscernible] cross-sell to the clients. Is there a scale in the client there? Do they have a good sales team. But what are you looking at in terms of what -- obviously, we have -- it's a INR 45 crore, INR 50 crore turnover company. But what do you see the long-term benefit coming out of Augmento in terms of numbers and ADS.

Augmento has two fairly large customers. One is a Fortune 100 company, and the other is a Fortune 5000 company and which are both high-tech, lots of technology spend. And we are very confident that we can increase the -- our share of wallet in both these accounts. But one big reason for this acquisition has been these 2 clients. The second -- The second is the capability play. They are very strong in the product -- in the digital product engineering space. So this will strengthen our technology of horizontal offering across the 4 verticals that we have in product engineering. Those are the true synergies.

So would it be safe to assume, I was looking at the Augmento balance sheet, that very easily, we could be growing at about 40% per annum from Augmento plus. Augmento itself has the benefits which go from there or more? Obviously, there's something substantial which could come out of Augmento?

Vikas, the future is always bright. So we are very hopeful. I mean, I don't see any warning signs as we speak. But it's early.

I understand. Okay. That was as far as Augmento was concerned. My next question was, it's good to hear that we are still targeting a INR 1,000 crore target, which you mentioned on last call. You've done INR 200 crores and we are talking about INR 800 crores this year -- in terms of year-on-year in the last 3 quarters, but you [indiscernible] of course, we've included the Augmento growth in this. What are we -- is there -- is that what -- and I know it's a tough question, you may not have an idea, but if I told you, in terms of what you've already acquired and I include that as organic have any acquisition during the year and if something happens closely, it will only be 3 months or 6 months. So are we talking of INR 800 crores organically in this entire year? Or some of this is good for an acquisition?

If I look at our pipeline today, Vikas and our order book, we have -- from INR 1,000 crores, we have a gap of INR 150 crores. This is including Augmento.

No. So INR 850 crores includes Augmento.

Correct. Correct. So we have a gap of INR 150 crores. And for this INR 150 crores, we have a pipeline. So there is a pipeline of -- a weighted pipeline as well as a non-weighted pipeline of, I would say, approximately the same amount. So the unweighted pipeline would be INR 150 crores. But the weighted pipeline would be in the range of INR 50 crores. What I mean by weighted is the probability depending on which stage the opportunity is at. So it's not that it's a figure in the sky. The whole team is working towards that objective. Some things have to align. We have to have a couple of lucky breaks. I'm happy to inform that we have backed a high-tech company in California as our customer, a Fortune 100 company and also a Fintech customer in the credit tech space, which we have been targeting for the last 15 years has finally opened up. I'm not going to give you the name because the paperwork is going on, Vikas.

No, no, even after that, I wouldn't ask for the name [indiscernible] and ask for it, that's fine. This is very encouraging and very, very good to hear. As an investor, I feel good about what I get.

And the high-tech log came from a sales guy we hired in California, almost, what, 6, 7 months ago. So this is his first deal after 7 months. So it takes time for these guys to bring something in but we have to be patient. We have to keep them motivated. We have to put all our efforts behind making them successful, which is starting to pay off.

Great. So one more question on the sales guys, sales engineers or the sales guys. What was the last you hired a salesperson. And what's the plan for hiring more salespeople with the coming financial year?

We have hired 3 new sales guys in the U.S. One is the guy who brought this high-tech company and this was 7 months ago. And 2 have joined in the month of June, they have joined in the month of June, so very recent hires, one in California, one in New York. And then we've got one guy who joined us, another senior person who joined us in the U.K. He comes to us from Sweden. He was with Accenture there, and he has relocated and joined our London team, our U.K. team.

So what do you -- the U.K. team, this new gentleman who's joined in July or did you join in the last quarter?

We also joined in June. He also joined, Vikas, in June.

So these 3 large investments are -- which will pay off in future years. What I'm hearing and what I'm taking away here is that in spite of the 3 new investments in Europe, you'll probably start paying in September, October at the earliest. You still are targeting 18% EBITDA for the year? And that -- am I looking at it correctly?

Yes. You look at it correctly because we are hopeful Augmento will give us a better EBITDA then the company-wide.

Got it. You mentioned at the previous -- okay, just going back. So what you're telling me is that this INR 1,000 crores we are talking about, the contribution, if any -- from the contribution from inorganic acquisition has not been factored in, can I say that?

New inorganic, correct.

Okay. Great. That's even better to hear. Now you said something about partner ecosystem. Could you explain that a little bit?

Yes. If you look at some of the success stories of Tier 3s becoming Tier 2s like take the case of KPIT or take the case of Birlasoft. They have partnered in the early days with a hyperscaler like an AWS or a Salesforce or a ServiceNow. And [indiscernible] that growth has been driven by that partnership. In other words, a lot of leads, a lot of opportunities, sort of revenue has come through the partnered system of the hyperscaler. And that -- what I mean by that is, if we can identify a challenger or a future star in the technology space that we operate in, which is predominantly digital. For example, if you can identify a company that is going to be a future star in the data and analytics space or in the cloud space, like what that company that does database on the cloud, not Data Bricks, the other one. Snowflake. Snowflake was a couple of years ago -- if you can identify a future star in this -- in the digital space, either cloud or data and analytics and partner with them, a lot of revenue growth and momentum can come through that channel because every time their sales team sells that product, we will be the implementation partners or the SI, system integrator for that product.

So have we not already identified the star partners? And I assume that your growth was to come from the partner ecosystem, which you've already established?

We have a partner ecosystem, which we are -- which we currently have, but it's like me too, for example, we have partners to Salesforce, we have partners to ServiceNow. We're building capability in that and a lot of investment is moving into that. But since we have laid in the team, no deals come from these organizations to us. They go to their old partners. What we are seeing is a new star, partnering with them only so that we can ride on to -- hang on to that [indiscernible].

Got it. Got it, this is very, very indulging. thanks for that Aditya. Actually, things are looking good.

Thanks, Vikas. Thank you for all the confidence of the guidance as well as the support. Really appreciate it.

Next question comes from Hiloni G from Hexagon Wealth.

Congratulations on the great set of numbers. My first question is that are you seeing any visibility in terms of health tech projects, MedTech, Healthtech?

No, not because with the focus on the other 4 verticals, this has sort of got.

No, I think we've spoken like a couple of quarters back when we were trying to see something in the Healthtech space, if I'm not wrong.

Correct. That didn't work out. And I think this is a sector which we are sort of not going to focus on it excessively for now.

Any other acquisitions that they're looking at, I think we were -- in the Q3, we decided like that we'll do two or three acquisitions every quarter. So forward looking, where are you planning to do the acquisitions in what segment?

We're always talking to a potential target hopefully, something will come out, but we don't have that much money with us now to make a big play. So it will be -- whatever we do will be a small capability player, nothing else.

We have a follow-up question from Vikas Shrivastav from RBC Financial Services Private Limited.

What are we doing? What is the trend in terms of quality of investors, institutional interest in the company. What is the -- how is the trend going there? And what is the company doing in terms of dissemination of information, engaging with investors. Is there a strategy going forward? Because at the end of the day, the company's exposure to the stock, the stock options are all intertwined in our growth plans.

I'm glad you asked that, Vikas. I'm going to push that question to Valorem advisers who are on this call. What are they doing for us to get now visibility for our stock. Anuj are you there? May not be there, currently on the call. Okay. So Vikas, not much interest from institutional investors. The only thing that we see is a lot of calls. We have a call scheduled in September with HDFC Securities. They have shown some interest. Last month, we had a call with Kotak Securities they had got a lot of interest and a lot of their clients, especially PMS clients were on the call. As of today, we have over 100,000 shareholders. But are there any mutual funds, FIIs, I think there are a FIIs, 4% -- which FIIs are there?

Multiple, major, not more than 2% anymore.

No big blue chip, Vikas.

That's good. That's the way the process is. Aditya, I think it's part for the course. Do we -- is there an outreach, is there a management team, for example, if it is interest from HDFC or the other PMS, do we -- does the team travel to Mumbai, I'm assuming most of these people -- at the end of the day, face-to-face meetings, presentation, maybe your team sitting in Chennai, I was just thinking that something a little more structured in Mumbai, maybe because as far as -- I think this is a normal procedure, the phase. I think, if anything we change, critical mass develops and people get very excited and the -- where the company is today and what we are heading for. I think it may help -- or I'm sorry, it's the investors call, I shouldn't be giving advise here. But is there an investor or do we have conferences pay arrange conferences in Mumbai? Is there a plan? All I'm saying is there a plan -- and of course, you have 1 adviser who is on the call today, but is there a more structured focused plan for this?

There is a structured focused plan. In fact, the team, including myself, we travel to Mumbai, I won't say every quarter. We travel at least twice a year to meet potential investors and people who are interested in the company. We do that. I think it would be right to say the Vikas that we need to do more of this and the action is really in Mumbai. We have to be -- we have to meet more people there.

Yes. Just I would just conclude by saying end of the day, the stock, the stock option, the value of the stock option, all that completely intertwined with -- and here I think we are doing great here and I'm not saying it's a slope. It's something which will happen overnight. But over the next 2 years, this could be a game changer. In terms of our interest in our stocks have better hiring better quality people. I think the whole thing then percolates to a very different level. So I -- that's the limited point I was making here in terms of the Mumbai and structure and how -- and at the time is right, I'm not disappointed at what's happening. I'm saying that it should happen now in the next year or 2? No further questions, yes. It's great, and it's very positive, look forward.

[Operator Instructions] Our next question comes from Amit Jain from Monarch.

Aditya, am I audible.

We can hear you, Amit.

Aditya, just -- I guess most of the questions have been answered. More on the industry -- how the industry is doing -- so Aditya, just on that one, we have a lot of service offerings. So we are in -- we have talked about cloud, cybersecurity, testing, legacy modernization and all data analytics. So just want to understand, can we just get -- just a concern that this service offering gives us in some kind of revenue breakup or it will be difficult, where there could be some overlapping, while you answered -- because you have mentioned about the product engineering side also. So just want to understand about the revenue price on the service offering? And are there any gaps which we are trying to fill up?

Yes. We have the 4 verticals, business verticals which I told you, which are Fintech, Transportation Logistics, Hitech, Media Utilities and E-commerce. Across these 4 verticals are the horizontals of data and analytics, testing, digital product engineering or digital engineering and infrastructure. infrastructure is an area where we have a few white spaces, especially around cybersecurity. The other place we have some white space is in the digital product engineering, which has been over to some extent by the Augmento acquisition. There are also some white spaces in the data analytics space. So we are trying to see how we can cover these gaps. And we're quite hopeful that with internal investment, a few capability acquisitions, we will be able to keep making these offerings more robust.

Aditya, is it possible if you can just say which one contributes the most in terms of -- it will be difficult to say like how much digital product engineering is contributing to our overall revenue?

Niraj will give you some numbers, yes. We have those numbers.

So Amit, digital engineering, which is the [indiscernible] capability, that gives almost 45% of our revenues. The QA and the testing, that's about 15%, and the balance comes between data and infrastructure.

Aditya, is there any plan because there's a lot of buzzwords about this product engineering side. So are we aiming to increase the share of debt to vertical of this service offering?

Honestly, the focus is not that so much the focus here. How can we -- Amit, the way we sell is not technology focus, we sell business focus. In other words, take the case of Fintech. We go to potential customers of [ prospects ] and Fintech and the way we approach them is we said, look, in the last 3 years or 4 years, we have solved these business challenge system. We have sold x number of business challenges for our customers in this space. And typically, what happens is with that approach, it sounds with the prospect because the prospect is also suffering. If it's a similar problem or exactly the same problem and been able to open a conversation. So the approach is a business approach. At the end of it, we always believe that technology is only an enabler. It is an enabler to solve a business problem. So you have to lead with the business problem. And today, customers want to deal with the technology supplier who understands their business challenges and it's not just selling them a technology solution because at the end of it, we are a service company, not a product company.

Aditya, you mentioned about the fintech company. So let's say you go to [indiscernible] company like a business -- so are we in a position we can say to the company that, yes, we can provide all the solutions to all the problems that you have -- we are a complete solution provider to all the business challenges here, can we -- are we in a position to say, let's say, in the tech space, and can say we can provide all the solutions for this space?

Fintech is a very large pit. So we operate in 3 sub verticals in fintech, payment tech, regulatory tech and credit tech. In those 3 sub-verticals, we can make that statement.

That was the last question. 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 your 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 Adviser, Valorme 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. You may all disconnect your lines now.