Seshaasai Technologies Limited (STYL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Seshaasai Technologies Limited Q2 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Pat Jan from E&Y Investor Relations team. Thank you, and over to you, sir.

Thank you, Sara. Welcome, everyone, and thanks for joining Seshaasai Technologies Limited Q2 FY '27 Earnings Call. The results and presentation have already been mailed to you, and you can also view them on our website at www.seshaasai.com. In case anyone does not have a copy of investor presentation or press release, please do write to us, and we will be happy to share them with you. To take us through the results today we have the management of the company represented by Pragnyat Lalwani, Chairman and Managing Director; Gautam Jain, Whole Time Director; and Pawan Kumar, Chief Financial Officer. Pragnyat will start the call with a brief overview of the company and business update, which will be then followed by Pawan, who will take us through the financial performance for the quarter, and then we will open the floor for Q&A session. As usual, I would like to remind you that anything that is mentioned in this call, which reflects any outlook for the future or which can be construed as a forward-looking statements must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual reports that you can find on our website. Having said that, I will now hand over the call to Pragnyatji. Over to you, sir.

Thank you, Pratik. Good day, everyone, and thank you for joining us for our Q2 and H1 FY '27 Earnings Call. I hope you have had the opportunity to review our financial results and presentation. Let me first take you through the key business highlights, after which Pawan will discuss the financial performance. We are pleased to report another quarter of healthy growth. Revenue from operations increased 15% year-on-year and 7.7% sequentially to INR 4053.1 million. For the first half, revenue increased 17.9% year-on-year to INR 7,817.8 million. The quarter combined broad customer engagement with a meaningful sequential recovery and profitability. Payment Solutions was the principal growth driver in Q2 revenue reached INR 2,182.6 million, up 21.7% year-on-year and 38% sequentially. Revenue growth was broad-based, but led by Payment Solutions, supported by higher volumes of payment cards across banks, metal cards growth, mass transit programs and payment card exports. We retained wallet share with our largest customers and won on multiyear tender during this quarter. Communication & Fulfillment Solutions revenue was INR 1,290.1 million. It remained broadly stable year-on-year, but moderated sequentially because Q1 and Q4 carried larger volumes and certain yearly recurring onetime projects that tend to execute in those periods. We continue to retain wallet shares with our top customers. We added 1 new enterprise account in the quarter and renewed a 3-year contract with a leading PSU bank for fulfillment solutions offering. We also renewed a 3-year contract with leading Pro Life Insurer, securing a significant share of the business. IT Solutions revenue grew 45.6% year-on-year to INR 551.9 million. Sequentially, revenue moderated from a high Q1 base, reflecting retail sector seasonality and the normalization of volumes following our large retail customer migration, which happened in Q1. RFID continues to present significant long-term growth opportunities across retail, logistics, pharmaceuticals and manufacturing driven by increasing adoption of traceability and automation solutions. We are strengthening system-integrated partnerships to develop differentiated end-to-end solutions integrating hardware, software and data intelligence. In parallel, product qualification is underway for SIM card supplies to 1 of the large telecom operator. We remain optimistic about the long-term growth potential across RFID, IoT and BLE-based flexibility, SIM and eSIM solutions. The external environment continues to be challenging with the USD-INR remaining elevated, higher fuel prices having its impact on logistics and input material costs. Cost of materials, therefore, increased faster than revenue on a year-on-year basis. Sequential revenue growth with a better product mix, outpaced increase in material costs driving an 89 bps improvement in gross margin to 42.5%. We remain focused on diversified sourcing, calibrated inventory planning, localization and procurement discipline. The contribution from our top 10 customers was 57%, reflecting a well-diversified portfolio while retaining deep relationship with large clients. Our sustained focus on R&D, product innovation and technological advancement is deeply embedded in our organizational culture. This commitment is reflected in our growing intellectual property portfolio. During the quarter, we filed 2 new patent applications taking a cumulative filings across products and solutions to 21, of which 5 have been granted. Our subsidiary, Solution also filed for 4 new patent applications this quarter, bringing its cumulative filings to 7, out of which 2 have been granted. These milestones reflect our ongoing efforts to develop differentiated solutions and strengthen our technology-led competitive advantage. As we look ahead, our focus remains on strengthening our core business while building new avenues for sustainable growth. Our diversified portfolio, long-standing customer relationships, strong execution capabilities and continued investments in technology position us well to navigate evolving market conditions and capitalize on emerging opportunities. Our priorities remain clear: deepen our wallet share with existing customers, scale our premium and metal card offerings, strengthen our IoT portfolio across RFID, SIM and eSIM solutions and expand our export business. We will continue to invest in R&D innovation, manufacturing capabilities and strategic partnerships to develop differentiated higher value-added solutions for our customers. Alongside these initiatives, we remain committed to operational excellence, improving efficiencies and disciplined execution with a clear focus on long-term value creation. Thank you for your continued trust and support. We look forward to updating you on our progress in the coming quarters. With that, I will now request Pawan to take you through the financial and operational highlights for the quarter. Over to you, Pawan.

Thank you, Pragnyat, sir. Good day, everyone, and thank you for joining our Q2 and H1 FY '27 Earnings Call. Let me begin with a summary of our consolidated financial performance. In Q2 FY '27, Revenue from operations increased to INR 4,053.1 million, representing a growth of 15% year-on-year and 7.7% sequentially. Total income was INR 4,112.5 million, up 16.4% year-on-year and 7.2% sequentially. Gross profit was INR 1,724.4 million with a gross margin at 42.5%. Gross margin improved by 89 bps sequentially due to operating leverage and a favorable product mix. It remains 331 basis points lower year-on-year, primarily due to the elevated USD-INR and the geopolitical situation and its related impact on input costs. EBITDA increased 12% year-on-year and 12.9% sequentially to INR 1,065.6 million. EBITDA margin was 26.3%, an improvement of 123 bps over Q1 FY '27. Operating EBITDA that is excluding other income, was INR 1,006.2 million with a margin of 24.8%. The Operating EBITDA grew by 7% year-on-year and 15.2% sequentially, demonstrating improved operating leverage during the quarter. Finance costs declined by 74.9% year-on-year, reflecting the benefit of debt repayments. Profit after tax increased by 21% year-on-year and 15.6% sequentially to INR 697.3 million. PAT margin improved to 17.2%. For H1 FY '27, revenue from operations was INR 7,817.8 million, EBITDA was INR 2009.7 million and profit after tax was INR 1300.7 million. EBITDA margin for the half year was 25.7% while PAT margin was 16.6%. Our balance sheet remains strong. Cash and liquid investments were INR 3,144 million. As of the end of Q2, unutilized IPO proceeds were INR 1,196.1 million. Cumulative utilization was INR 4,803.9 million, including INR 849.2 million towards capital expenditure, INR 3,000 million towards repayment of borrowings, INR 343.7 million towards issue expenses and INR 611 million towards general corporate purposes. Overall, Q2 FY '27 delivered a healthy growth of sequential recovery in margins and a stronger cash conversion outcome. We will continue to invest for growth while maintaining financial discipline. Thank you once again for joining us. With this, I hand it back to the moderator to open the floor for the Q&A session.

[Operator Instructions] Your first question comes from Aditya with Avendus Park.

First of all, congratulations on your excellent set of numbers. My first question is on the Payment Solutions segment. We have shown a tremendous growth in our Payment Solutions business quarterly and also year-on-year. Could you throw some light on where directionally has the growth came from, whether on the debit card segment or the credit card segment? And also, could you elaborate more on our export business, like give us some insights because we specifically mentioned that also has contributed to our revenue growth. Could you give us a broad overview on that, too?

Yes, Aditya. See, the revenue competition on the Payment Solutions in this quarter had some project volumes where we had done some projects for the mass transit programs. As also, I think we had some good volumes on the debit card side. On the credit card side, we've kind of -- in that quarter, if you see, we've had a couple of customers where the volumes have done well, but overall, I would say the major contributors would have been the mass transit program and the debit card. On the export side, we've done exports to Europe and Africa. So it began in the first quarter, and it picked up in the second quarter. Also in this quarter, we were happy to note that our metal card volumes picked up. So we had done some very good volumes of metal card compared to the previous quarter. So net of that, I would say, 3 or 4 factors. One is the general uptake in the debit and credit card from the customers. Secondly, this one-off programs that we are doing, which again, is going to be sustained over quite some time in the foreseeable future for mass transit programs. Third is in the middle card uptake. And fourth is the export of cars that we're doing. To answer your question specifically on export, what we've been doing is we've been building channel partners and especially for bureaus and other geographies who would want the cars to be taken from us. And typically, these are premium cards and metal cards that customers want and probably we put visibility of things to sustain over some time in export mix business.

My next question is on the IoT segment. We have shown a tremendous year-on-year growth on IoT segment. I mean, that's like moderation in our quarter-on-quarter. I would like to know how we can track the segment assets, considering we have entered this business recently, and we are showing tremendous growth on this? Could you give me some insights on whether we have to track this segment on a quarter-on-quarter basis or a year-on-year basis? Like as a whole, how to track this particular segment I would like to know?

That's a very good question. So in fact, what happens is on the IoT business. If you look at the construct right now, the major contributor in the evitibusiness is coming from the RFID tag business and the SIM business is just beginning to contribute towards it, right? So if you look at it from a year-on-year basis, if you look at it on H1 '26 to H1 27, we've still grown at about 45% year-on-year, okay? Especially the retail business, if you see retail business has its own demands because they prepare for the festive seasons. So typically, the Q1 seasonality pattern is such that maybe the preparation for the specific season is that the Q1 volumes are slightly higher than Q2. And then again, they pick up in Q3, Q4. And also, I think when our SIM business will pick up, it also depends on how we can onboard with the customers and start building up volumes with them. So I think if business will seasonality on the retail business is something which is common to the market, which will, I think, repeat year-on-year. So maybe at the end of the year, we again expect ourselves to grow with the outlook and target set for ourselves that I think which should be, again, growing over on a year-on-year basis at 45% of the IoT revenue of FY '26.

Again, congratulations on your awesome set of numbers.

Your next question comes from the line of Zaki Nasir, and Individual Investor.

Congratulations on a very steady set of numbers in a difficult kind of a market. Sir, generally for Seshaasai, the H2 has been better than the H1. Do you foresee that trend continuing in the current year also, sir?

Yes. So see, basically, as we normally expect a better traction in H2, which is a pattern of our business. However, we just keep 1 thing in mind that last year, our Q1 numbers were slightly on the lower side. And hence, the H1, H2 difference was slightly more amplified, right? So -- I mean if you look at the current business pipeline, we have support for the customers in terms of the card volumes. We also are having good visibility on the premium and metal cards that we are executing for customers. The transit program that we are doing continue to be executed through H2. And we're also having some engagements and expect some volume ramp-up in our IoT business to the SIM business, right? So I would say that we will continue to maintain the expectation that H2 would be better than H1. It has been seen how it plays out once all these variables are in place. But as a pattern 1 would expect that to continue.

Sir, take on the input prices. I think there is input price pressure. So are you able to pass it on? Or do you see it easing in the next few quarters, sir?

So essentially here, I would say, the dollar impact is something which is very important for us. We also have related input cost hikes on account of logistics and the input related to petrochemicals. So in certain customer cases, we have been able to pass on the price hikes to them, in certain other customer contracts which are coming up for renewal, we are factoring that in our revised proposal being new to the customers. So I would say -- I mean, if you look at the -- in Pawan, sir, opening segment, if you look at the reduction in our gross margins, right? It's reflecting there -- so what we're also trying to do is see how is that we can improve our product mix plan more products which have higher margin contributors keep our ship very tight and lean so that we are able to have more operating efficiencies. So I would say, in all fairness, this is a factor which is not in our control. So while we are trying to minimize and mitigate the impact of that by handling our inventory and our supply chains more tightly, we're trying to look at it more from what factors are in our control, such as our product mix and also seeing how is that we can go back to customers where possible for price of factoring it in our revision of contracts with customers.

And sir, slightly on our macro level, the changes in MDR, does it effect or touch Seshaasai at all or we are unaffected by it?

It's a very good question. See, I hope it comes through. Okay. You talk MDI related to UPI, right?

Yes, sir.

Okay. Okay. So I think right now, UPI, obviously is a very convenient mode of payment, but I think a very big attraction towards such a large usage has obviously been through MDR, right? And if the kind of fees for the high-value transactions or certain chargeable transactions comes in, as and when it comes in, people expect that the delta differential incentive between using a card and a PhonePe will get a little branded. So it's a factor where consumer behavior is going to be leaning more towards convenience or more towards the -- I would say, the financial implication is to be seen. But -- I mean, net-net, that factor is a factor, which obviously has a bias in our favor if MDR comes in, in terms of...

It is favorable project for you, sir.

Yes, yes, yes.

And sir, any plans for the cash on books, what would be the cash on books and what is the near-term plan for it, sir?

Zakir, sir. This is Pawan here. So we have a cash and cash equivalent of close to about INR 3,144 million and a net cash of about INR 2,407 million. So right now, it's in a mix of bank deposits, et cetera, which is including our unutilized IPO funds of close to INR 120 crores. What we are doing is through the years, there have been consistent investments in infrastructure as well as equipments, which we have done, and we are continuing to do that through the year across our business verticals. So we see that continuing, while ensuring that we are able to manage our overall cash flows and working capital as well.

[Operator Instructions] Your next question comes from the line of Davish Agarwal with IIFL Capital.

Congratulations on a good set of numbers. Sir, my first question would be on the Payment Solutions business. If you can give us a broad idea in terms of how much of your revenues were from the -- I would say, the traditional business or the core business? How much was from this onetime mass transit program that you mentioned? And how much is from your new initiative, which is exports and basically the metal cards?

Davish, I think -- I mean, we would probably -- the export revenue here of the overall revenue in H1 is close to about 5% of the total payment card business, right? On the metal cards and the mass transit, I would probably refrain from giving the details on the mass transit, but the milestone is a volume segment, which is going up. We've got 3 programs running right now on that. But that's a program which is showing good promise for the future.