Sonata Software Limited (SONATSOFTW) Earnings Call Transcript & Summary

Welcome to the Q4 FY '20 Results Conference Call of Sonata Software Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Srikar Reddy, Managing Director and Chief Executive Officer, Sonata Software Limited. Thank you, and over to you, sir.

Yes. Thank you, Margaret, and good morning, everybody, and welcome to the analyst call for the announcement of our financial results FY '20 yesterday. So we have our CFO, Jagan Chakravarthi; Head of Finance, Sathya; Head of Strategic Risk Management, Premnath Murthy; Chief Growth Officer, Ranganath Puranik; and our Chief Delivery Officer; P. V. S. N. Raju; and Sujit Mohanty, the Head of our India and Asia business on the call. We announced the results yesterday and quite late at the evening, and they are out there on the website, and we sent out the press release too, to all of you. But before, yes, I get started, obviously, the last 2 months or so have been quite dramatic in terms of what has transpired, I mean I'm sure that all of you have also been observing it, experiencing it, et cetera. First and foremost, it's been obviously a huge, a humanitarian crisis and then it had a huge business impact. And when you hear the various experts talk about it, it's a health crisis, combined with a -- both a supply-side crisis and a demand-side crisis and on top of it, a whole lot of dynamic of government-imposed regulations on what can be done or not done. So it's been quite unprecedented in terms of the speed and evolution of these events and its impact it has had on ourselves and our ability to do business. And our customers' ability and their own issues, as I said, both demand-side, supply-side and government-imposed restrictions kind of stuff. So obviously, we had to act early and we had to act quickly. The first and foremost issue was completely the safety of our people, wherever they were in the world and ensuring we put the right work environment and right rules and guidelines and all the other things which needed to be done to ensure that people did not take any risk in trying to do their work and get exposed to anything, which they should not be kind of stuff. So that was priority really number one, and we dealt with that, I should say, very actively, happy to inform that there's nobody from the Sonata family who have been affected by this virus. The second was this whole thing, which was driven by both from our customers and work regulations, lockdowns et cetera, to be able to move work and do it from our respective homes and the speed at which these regulations were brought in. Very happy to inform that in over a matter of 2 or 3 days, the whole -- the Sonata team all over in India, it was easier to do in other parts of the world because the regulations were less severe. But at least in India, to do -- move this thing and implement work-from-home, very happy to inform that today, we have 100% of Sonata people, whatever function they are in, working from home, connected to the Sonata networks and able to deliver work. Also happy to inform that these people have been productive and been able to do different kinds of work either it is sustenance work, project work, Agile development work, ERP implementation work, a whole lot of different services have been delivered now over the last about 45 days by these teams. People have been able to put in different systems, processes, tools, method to both collaborate with client and collaborate internally to be able to deliver this work very effectively over the last 45 days. I'm very happy to report that and say that it's kudos to the whole Sonatian team who have been able to rise to the cause and been able to do this very effectively. Obviously, the -- we had to form an emergency response team and to looking at various aspects of our business and what do we need to do given the situation, which was unfolding and obviously, without any clarity on how it was unfolding and where it's going to unfold to kind of stuff. So step #1 was to really, as I said, protect our existing business, that is a business which what's going to continue, given the circumstances, depending upon the industry in which the client was in the major work and so on and so forth. And so the whole initiative around reaching out to clients, ensuring communication was well done, ensuring communication about what we are doing to support the work was done. And is there any other things which needs to be done in the short-term to help and support them, offer those kind of facilities, so that could be done. So that was really step #1. Step #2 was to do a serious analysis of the different businesses, the industries we are working on and the kind of different projects we were doing, what is the impact, likely impact and what's going to happen and then prepare plans and act accordingly. As you know, I mean I think from our experience, there have been different industries which have been affected very differently. Obviously, the worst hit is the travel and hospitality industry to which we have a fairly large exposure to. The second was the nonessential retail industry, whether people who are in fashion, jewelry and so on and so forth. So the first -- and it's depending upon where they were and there almost the business was coming down to 0. They're just at cost and no revenue, that is the travel industry. So they would act a lot more severely and instantaneously to retail who still were thinking -- waiting for the things to open up and still kept some very minimum essential services going so that they could still continue. Third were really manufacturing, who are obviously, hit by either supply-side or demand-side issues. The other industries where we're operating was the tech industry, which is, I think, at least some of the companies we're working with were less affected. And then there is the utilities industry, which we had with the acquisition of Sopris, not so much affected. And the industry, which we got access to by the acquisition of Scalable, which is the agribusiness commodity, this thing, again, not affected. And there were some other companies more in mortgage processing and so on and so forth, not affected. So really, 2, 3 spikes of industries and obviously, within some of these industries and, of course, the oil and gas sector. And within these, there were obviously companies of different scale and size, people who's instant reaction was to protect and reduce their cost to as much as possible, depending upon the industry they were in. And obviously, there were some who have -- who had deep pockets, who were still looking at this as an opportunity to continue to do some things. Although the belief is that their industry was -- in the short-term was negatively affected, but continue to at least invest in some of the strategic initiatives so that when they -- when the whole thing ends, they come out being competitive. So that's -- obviously, there are some different types of customers with different types of responses to this situation. And the others were really how do we -- obviously, cash preservation, predominant preservation of cash, ensuring some of the costs were automatically are reduced like travel and the other related costs, and then there are some other costs related to the work-from-home. And obviously, if you look at also internally in terms of what are the kind of costs we don't need to incur as an organization, so there a whole lot of analysis and implementation of that kind of stuff. So what are we seeing in the market? Obviously, now, I mean after the initial thing and the reaction to it. There are now people waking up and looking at it differently. Most people are obviously still looking at what there can be done immediately, with immediate ROI kind of investments rather than very long-term investment, which have an ROI period of 2 years, 3 years kind of stuff, so that's definitely something which we are seeing. So obviously, you may be all keen in terms of what is the whole impact will be going forward and we had made an announcement to the market, I think, towards the end of March because I think we had this 1 single large client in the travel sector, who was contributing between 15% to 20% of the revenues of the company, and they had to more or less suspend the majority of their operations. So we had to make the announcement to the market, which we did. And as I said, we have had some negatives and some positives depending upon the industry. And I think -- so we are seeing -- and as far as we can state about it that some stability is emerging in terms of at least we believe that most of the bad news is behind us. But as I said, everybody's guess is just good as everybody else's, but this is what we are seeing. If you see that and then based on what we have said that -- I mean, we are looking at a revenue reduction of about 15% to 18% in the first 2 quarters. And we're still looking at the various cost implications, there are still some of our people are stuck in different parts of the world and unable to come back because of the government regulation. So that's had an impact on the cost structure. So I think we should have a much better visibility on the cost structure. I think my feeling is our cost structure will be a little bit more than what was anticipated in this quarter. And we'll have a much better visibility and stability towards the end of quarter 1 in terms of a more realistic cost structure. In between the top management and senior management, the company has taken a voluntary pay reduction. And I mean, we really appreciate it as well, all these people. So we're putting all this together. And as I said, yes, so based on this, in the first 1 or 2 quarters, at least definitely in the first quarter, the cost structure would be a little bit higher because of these issues of people being stranded in different parts of the world. We're still paying them local salaries, unable to come back and so and so forth. So that's what the outlook looks like. Starting from the second half, I mean, as everybody says, I think whatever it is the kind of recovery whether it's we or you, we are rather estimating it to be more of a you than a we. So are -- and I'll say another alphabet like a w, I don't know. But yes, if we have to model, and we think that things come back to some reasonable normalcy. And we are modeling that at least 30% to 40% of the business we have lost should come back over the -- by quarter 4, and then we could look at about overall a 5% to 10% impact on our revenue and profit by then. But that's -- as I said, it's everybody's guess as good as mine, but that's the expectation then what we are seeing as we sit today, in terms of where we are. Similarly, we've had the same challenges with our domestic business. Although the business is more stable because these are licenses which people need, they need to buy. Obviously, they're looking for more deferment but a little bit less reduction in the amount of licenses they want to consume and so on and so forth. So the stability of the business is a lot better, obviously. Although it will, as I said, shrink kind of stuff by and it's not a business where people can do away with kind of thing. So that's, I think the way we are seeing the domestic business quite well covered for credit exposure, either both reinsurance and kind of companies we are dealing with and the arrangements we are having with our principles to ensure that if there is pain, we both share it together rather than a loan kind of stuff. So that's, I think, on the domestic business. In between, I think we had started this acquisition of GBW, and we had announced it sometime in February. So we completed that acquisition last week or about 2, 3 weeks ago, and so that we are integrating. Obviously, their business is also affected by this crisis as the -- a lot of their customers are in the retail quick-service restaurants and so on and so forth. But the space they are in, customer experience, I think, is still really fast-growing based on whatever little we have spoken about since the acquisition to different clients. There's a lot of interest when strategically we can translate that into opportunity and business. And because of, I think, some people like GBW, we have a now fairly reasonable visibility of the world. I mean we are definitely seeing where GBW had business like China, Japan, Australia, where we do have. So to that extent, I think their geographically reasonably distributed, and we are seeing business coming easily and so on and so forth. Business coming back to a little bit more normal than where we are. And of course, the western part of the world, it's a little bit slower including India's. So that, I guess, is a very high qualitative view and a view of where we think we will be for the first 2 quarters. And following that, I'll hand it over to Jagan to take you through the financials for the quarter which went by. And then, at this stage, I think, a very detailed analysis of the thing you need to still do to get everything correct and because of the dynamic nature of various things which are happening, but allow him to share that with you. And we'll take questions after that, yes. Thank you.

Thank you, Srikar. Good morning all. I will now give an update on the financial numbers for the quarter and for the whole year. For quarter -- the consolidated numbers Q4 financial year '19/'20, revenue stood at INR 928.7 crores. Sequentially, there was a degrowth of 24.9%. This is basically because of our India business, that revenue will be up and down in that business. The growth -- there is a growth of around 11.1% on year-on-year basis. EBITDA for the year at consolidated level is 95 -- for the quarter is INR 95.2 crores. Sequentially, this had a degrowth of about 19.5% and year-on-year, there was a growth of -- degrowth of about 1.7%. The PAT for the quarter is INR 61.8 crores. Sequentially, there was a degrowth of 18.6% and year-on-year, there was a degrowth of 5.5%. Consolidated headcount is 4,211 as on March 31, 2020. The return on capital employed at consolidated level is 33%, and return on net worth is about 33%. The consolidated DSO, there was a little increase to 50 days in this quarter. The -- so for the whole year, the revenue stood at INR 3,743.3 crores. There is a sequential growth of 26.4%. EBITDA for the whole year is INR 431.2 crores. There's a sequential growth of -- year-on-year growth of about 17.9%. The PAT is about INR 276.9 crores and the year-on-year growth totaling [ 11% ]. The international IT services, the breakup for quarter 4 has been INR 325.5 crores, there is a degrowth of -- sequential degrowth of 1.3% and year-on-year, 7% growth. This contributed about 35% of our consolidated revenue. Revenue in USD is $44.4 million for the quarter. There is a degrowth of 5.1%, and on constant currency, it is minus 3.9%. Again, our degrowth is 1.3% quarter-on-quarter. Revenue from digital stands at 38%, IP-led revenue have increased to 24.4% of the services revenue. EBITDA for the quarter is INR 72.3 crores. There is a sequential degrowth of 21.1% and year-on-year, degrowth is about 4.6%. Rupee realization rates are USD at INR 73.9, EUR is INR 86.6, and GBP is INR 99.4. PAT for the quarter is INR 45.2 crores, sequential degrowth of 21.8% and year-on-year degrowth of 13.9%. This contributed to 73.2% of consolidated PAT. We have added 6 customers during the quarter. International head count is at 4,066 as on March 31, 2020. The return on capital employed is 35% and return on net worth is 35%. The DSO has changed a little bit to 47 days. And for the year, financial year, the revenue was a INR 1,272.6 crores. There is a sequential growth of 13.6%. And this contributed -- year-on-year contributed 34% of consolidated revenue. Revenue in USD is $180.8 million for the year. EBITDA for the year is INR 337.8 crores, which is a year-on-year growth of 15.7%. The PAT for the year is INR 212.5 crores. There's a year-on-year growth of 4.7%. The domestic business revenue for the quarter is INR 607 crores. This -- compared to last quarter, there is a degrowth of 33.4%. EBITDA for the quarter is INR 23.2 crores quarter-on-quarter, there is a degrowth of 7.9%. Year-on-year, there is a growth of 9.3%. PAT, INR 16.6 crores, there is a quarter-on-quarter degrowth of 8.2% and year-on-year growth of 28.9%. The domestic business headcount is 145 people as on March 31, 2020. Return on capital employed is 30% and return on net worth is 29%. The domestic DSO increased to 52 days. For the whole year, the revenue from domestic business is INR 2,492.2 crores. There is a year-on-year growth of 33.8%. This contributed to 66.6% of the consolidated revenue. EBITDA for the year is INR 95.1 crore. The year-on-year growth is 26.6%. PAT is INR 64.4 crores. The year-on-year growth is about 39.2%. This contributed PAT -- to the overall PAT of 23.3%. With this, I conclude my financial update. I hand it over back for the questions.

[Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital.

A couple of questions. Over the last 40, 45 days, we've seen how governments, especially in Western Europe have come and stood behind their local industries, especially with travel, tourism and airline market. Putting that in context, over the last 40, 45 days, is there any change in your outlook as to how your clients might have ramped up? Or can you give some visibility of ramp-up in the times to come in the travel vertical?

Members of the management, can you please confirm?

This is Baidik. Was that question clear?

No, can you repeat the question? Can you hear me?

Yes. I can hear you. Let me repeat the question. My question is to Srikar here, over the last 45 days, we've seen how governments in Europe, especially Western Europe, have really come out in support of their domestic travel and tourism and their airlines business, right? TUI, Lufthansa, all the large travel and airline groups in Europe have got a lot of government DOLS and support. Keeping that in perspective over the last 45 days, have you seen any change in outlook from your clients? And would you reckon that would reflect on the ramp-up in the times to come?

No, I think it's a good question. See what the governments have done has really supported them to keep the employment on so that these companies don't do anything drastic with their employees. So obviously, to start operations, you need 3 things. I mean, I don't know, and I'm not an expert, but one is the lockdowns by the respective governments have to be lifted. Today, there's nobody allowing flights to come from any other place to any other place. If you want to send people from Germany to Spain, you can't send them. Secondly, obviously, it's the whole thing about consumer confidence, about wanting to travel, will it be safe and so on and so forth. So I guess, this whole thing is actually just keeping them going. I mean, they're not -- when I'm saying keeping them going and keeping their employees going, not their operations going because for 2 reasons, I mean, the business is 0. Absolute 0. I mean, so for the business to come back, it's about these 3 things, one is governments have to open up lockdowns. Second is consumer confidence has to go up a little bit. And yes, I mean, and hopefully, somebody finds a cure or a vaccine or whatever it is to increase your consumer confidence. So these 3 will define how quickly these businesses will come back and to what scale and size and so on and so forth. But right now, it is like they are all being funded to just keep the employment on. I mean, that's where it is.

Sure. Sure, that's helpful. In your nontravel vertical, especially OPD, and in retail, you did touch upon OPD and others, are you seeing things being neutral? Or is there weakness there as well?

In OPD...

Many people [indiscernible] given the times.

Yes. Depending upon the kind of nature of the business. If you're in a purely application software kind of stuff, obviously, that will slow down because most people are just keeping the lights on and rather not going and buying brand new application software licenses kind of stuff. But if you're in the infrastructure space, collaboration space, cloud space, that business is obviously going through the roof. So it's doing extremely well. So yes, so we are seeing both. We are seeing -- but the impact is not significantly negative at best, it's neutral to minutely negative to -- with some of the companies we are working with supremely positive in terms of the business. So retail, as I said, essential retail, fashion, jewelry these are some of the companies we have had who are obviously both in Europe, Australia and the U.S. have scaled down some of their work. There are people who are clients of ours who manufacture luxury boats, headphones, hearing aids, they have scaled down a little bit kind of stuff. But we have people in the mortgage industry, utilities industry, who are actually starting new projects. And there are some who are, okay, and actually investing into new projects kind of stuff. We have actually have an exception of a retailer who, for whatever reasons, have had a change in management who want to use this opportunity to put in a brand-new system before it opens but that's more of an exception than a rule I guess.

Sure. Last question before I get back. Would you quantify the fixed cost levers that you've touched upon in opening remarks, what kind of levers we might see in H1? And on the dividend basis, I understand it's early days, but would you reckon the Board will still maintain 60% dividend payout? Or would you be looking at maintaining the dividend per share at an absolute basis?

I think dividend, we have to look at it from the new rules on dividends. So we must have to find some other means to compensate our shareholders. So at this stage, yes, we're not looking at that at least in this midyear. Good -- right now, as I said, cash conservation, we want to keep the cash. We don't know where it is all heading. So we'd rather keep the cash and see what to do with it once we see a reasonable stability outlook to the world economy and where -- and how the world -- I mean, as we see the highest rate of unemployment in the U.S. since the great depression. So we don't know what the implications of these are on the economy. So it's -- I think at this stage, we are saying keep the cash and then look at what we want to do with it when we see some stability.

And on the fixed cost part, could you hazard a guess on how much of a reduction one can expect in, say, H1?

We are working on it. As I said, some is directly on-site cost that we have with offshore. We have done some changes to compensation, as I said, some restructuring. We haven't laid off anybody apart from performance reasons, like that's about 1% or 2% of the company. Hopefully, we would like to keep it that way, unless we need to take some other actions. And of course, as I said, the cost on account to work from home and travel and so many other things. We're just getting handed up all this right. So as I said, at the end of first quarter, I think we'll have a far better handle on how the cost structure is. Tactically, I think one should get to a place where one should be able to make the same margin on the revenues you make kind of stuff that should be the intent ideally. And hopefully, we'll have a better view of it by the end of Q1.

Sir, if I can just squeeze in one last one. I understand...

I'm sorry to interrupt you Mr. Sarkar. I would request you to rejoin the queue for follow-up questions. [Operator Instructions] The next question is from the line of Vimal Gohil from Union Asset Management.

Sir, I joined the call a bit late. I'm not sure if you've touched upon this. But this -- my first question was on the domestic business. If you could just highlight how are you managing your working capital in times of stress and how that business would get impacted? The second portion of your business is something that you've touched upon in the previous question about your OPD business. How much of the OPD business is coming from the new application-based discretionary project? And how much is coming from cloud, collaboration, et cetera? If you could just answer these 2 questions, please. That's all from my side.

All right. Okay. I think the first question I addressed in my this thing, saying that the India business is obviously stable because it's licensed business, and people have to pay for licenses they have bought, they can't stop it kind of stuff. We said, obviously, they're all talking about better payment terms and some discounts and so on and so forth. So we are working with our principles and -- to ensure that we deal with this. So we are working with them collaboratively, and that's why we would see that. And then as I said, we have had this insurance-based credit. So a reasonable proportion of our receivables are insured. So given all this, and as I said, working very closely with our front partners and principles, we don't see a challenge on working capital or negative debt that's going bad. Obviously, we'll see a shrinkage in business to some extent and its impact on profits, but we don't see any risk as we speak today to the accounts receivable and credit.

Sir, and the second question on OPD?

Sorry, yes, I think most of our OPD is really on the -- either on the sustenance side, management side of operations and also in the collaboration and cloud side. So it's all -- you can talk either essential or lights on work basically.

The next question is from the line of Anubhav Mukherjee from Prescient Capital.

Sir, apart from the large travel client, are you seeing any issue with any of the other top 10 clients?

Not really. As I said, we have seen that some clients in retail and manufacturing and all that, they're not in the top this thing. But yes, we haven't seen any issues. Actually, we have seen some positive movement with some of these clients.

Okay, sir. And in the domestic business, in the past 1.5 months of lockdown, have we seen any spike of like bad -- like percentage of receivables that are going bad or something like that?

Right. As I just mentioned, we have insurance on our receivables. And we are working with our principles to deal with this in a collaborative fashion that we don't take all the burden that if we are doing work with them on their behalf. So if there something happens, then we share it mutually or we deal with the problem mutually together kind of stuff. So to answer your question, we haven't seen anything. Our collections are good, our cash flows, as we speak today, are better than at the end of the quarter. So I don't see any risk to that. Neither have we seen it in the last 45 days, nor we see it today.

And sir, last question, if I could. Sir, on the large travel client, as of now, do you have any visibility of the recovery that you can see post like the quarter 2 of this year?

That's what I just answered the person previous. So it's all dependent upon 3 things: one is the lockdowns, et cetera, being lifted by the respective governments to allow free movement of people; two is the consumer confidence that, I want to travel; and the three, is that these companies have an operating capability to operate. So on the third one, there is no problem because as I said, they have been funded by the governments and so on and so forth. So they could do that. The first is, I mean, your guess is as good as mine when they will allow free travel of people. And second is consumer confidence saying, I really want to do this and take a holiday and do all this kind of stuff. So obviously, there will be some amount. It will -- for it to get back to 100% of what they were doing would take at least a year, I guess. But even if they come to 30%, 40%, then there is some amount of work back to be done, which could be, as I said, our assumption is that it would be 30%, 40% of the work, which has been reduced, we'll at least get 30% of that back when all this happens. But as I said, I mean, there are many variables. So -- and even these companies themselves are unclear about what's going to -- when is it all going to change because most of the decisions are not in their hands.

The next question is from the line of Mohit Jain from Anand Rathi.

First is on this -- now this is the repetition of the earlier one, but people are talking about this new application development for automatic check-in and things like that, which may start in 2Q if you are planning for a reopening in 3Q, so is there a possibility of you guys getting some new work in second quarter, given that 1Q will be a steep fall? And second, anything on the order book, order backlog, anything that you could share, which gives you some visibility on second half revenue? Or any talk to the [indiscernible] incentive a little.

Yes. I mean, that's what I said, that whatever we have, we are seeing a visibility but very difficult to predict how people are going to behave because everybody is taking with almost a day at a time kind of stuff. So I think one needs to see what the -- what's the thing -- how the situation evolves. If you see, yes, that is on the future. If you see our interest, I mean, we are having more conversations today than before, but we don't know when it will materialize into anything meaningful or reasonable as far as telling our team that I've seen more conversations opened up in the last 2 or 3 weeks than before. But these are all about conversations, they are not about saying, I want to start tomorrow morning. I mean it's all about, I want to do this kind of stuff. So that's -- I mean, if some -- if -- as things move for the better and everybody's view of the future is better, then I guess, one can see a lot more action in this, but it's all about, as I said, business confidence, consumer confidence, ability to invest and so on and so forth.

And sir, as a follow-up now, your -- our client, Microsoft and related technologies are seeing significant growth as per your PPT also for Sonata. So is there a possibility of, for example, travel stays, let's say, 15% lower from 1Q? Is there a possibility of deploying people and hence, margins to return back to some level in second half even if travel continues to reduce?

Yes, if you deploy the people, obviously, people are not fungible. I think we need to know that. You can't just take a travel person and put him on to a OPD project kind of stuff. So there are plans to do that and deploy these people into opportunities, which will come up through retaining and rescaling people that's going on as we speak. And yes, I mean, if -- as I said that there is significant growth in nontravel, nonretail businesses, these people can be deployed.

But OPD, you don't sound that optimistic in the previous question because I thought, given that our alignment is towards Microsoft. Our growth rate in OPD should significantly offset or at least partly offset decline in travel?

Yes, but it can't offset 20%...

Okay. And anything...

Of the company's revenues. That means my OPD business has to go up 100% from one customer.

Not even 100%, definitely it will be like 15-odd percent.

It can go up to 20%, so that will make up 1/4 of the business lost. So that's why we are -- otherwise, we should be in a much different situation if these growth were not there kind of stuff.

Okay. And one for Jagan...

There would be 100% growth is all I'm trying to say.

No. No. Understood. One for Jagan, sir, what margin levels you're looking at after these pay cuts and all the corrective measures that you have announced, like are you -- is it likely that you will go back to, let's say, 8%, 9% consol margin in second half? Or do you think it will remain low for most of FY '21?

Yes. We are taking...

That's what I said that, Mohit, we are trying to do this analysis, and I will have a better visibility on this at the end of Q1.

Okay.

Yes, we are doing all this analysis. We'll have a much better view of this on Q1. A little premature right now to say what will it be in Q4.

So your guidance of up to 40% drop stays for first half?

Yes, actually a little bit more because of this whole -- we thought that some cost structures could be rationalized by people coming back. That's got delayed. So in the first quarter, it could be a little bit more, and then second quarter, that one figure looks reasonable. Yes.

Thank you. I would request Mr. Jain to rejoin the queue for follow-up questions. [Operator Instructions] The next question is from the line of Vipul Shah from Sumangal Investments.

Can you give more details about that ILFS write-off? I think I have read it first time. Was it my -- I don't think it was mentioned in any earlier quarter. So can you give more information?

Yes. Yes. Yes. It's in our provident fund account. There was an exposure to ILFS. And obviously, based on the advice which was being given by our advisers and consultants and the evolution of before ILFS era with the government-appointed Board, liquidation of assets, distribution of the proceeds and then there were this whole thing that government may say that the PF people should be trade first and all that. So we were prudently and conservatively taking small bites and providing for it. And that's why because it was not material, we didn't disclose it and still waiting for proper resolution of it. So we were providing maybe INR 2 crores, INR 3 INR a quarter or whatever it was. So it wasn't material, it didn't affect anything. So we said -- so we were told that we don't have to explicitly disclose it, so we didn't. But now given the current situation and all that, we have been told it's a lot more prudent in the current situation, however, the evolution of this kind of a thing, obviously it's going to be reimbursed, so we provided for it and obviously, we have now the freedom that we can put separately in our financials. So that's the only reason you didn't see it, because we thought of providing small bites of it, these things that we thought that it may come back and so that kind of stuff. But now, I think given this, I think we have taken a decision to provide for it totally. And as I said -- and it's a lot more material we disclose it.

So what is the total figure for FY '20?

Totally, I think I don't know, somebody from finance can answer that question.

Yes. For this...

Sorry?

Yes. No, for this quarter, we have provided around INR 12.1 crores.

No, the total amount so far is provided to the question, Jagan.

Yes, it is somewhere around INR 26 crores.

So will it come again in current year also? Or this is oneoff?

No, it's done. It's a one-time.

Done, done, done. Dusted. Done and dusted.

And sir, lastly, Srikar, sir, can you comment on ramp-down and cancellation of the projects by clients due to COVID?

I commented on it, saying that depending upon what industry -- yes. I did comment on it. Saying depending upon what industry, what kind of projects, there have been ramp downs, there have been ramp-ups. So -- and I talked about one of our large clients having ramping down very significantly. And depending on kind of work and industry you're in, there have been ramp downs. And that I touched upon it and the impact on revenues also, I did do that.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

So on your travel space. If you can give some more color, operationally, what are we doing right now compared to what we were doing pre-COVID? How are we billing the clients? Are we getting the payments? To what extent the ramp down has been? So if you can throw some more color on what work is being done on that side.

So as I said, our largest clients, we've had, I think, almost had about 15%, 18%, 20% of our revenues. They ramped down by about 85%. And continuing with 15% lights on kind of work, keeping the systems on so that they can take cancellations and refunds and still keep the bookings open, hoping that somebody will book holidays and so on. And so our visibility websites, analytics and so on and so forth. So basically, really essential work and then we have another airline client similarly have a ramp down on new projects and continuing with maintenance of their existing financial systems, retail systems and so on and so forth. We have a couple of other clients in the travel who are using our IP, they obviously are using it because they are in the rail reservation space, and they continue to use it and pay us. And being it even a 1% travel, they need the system to be operational. So we are seeing that. So yes, so that's there. We don't -- we are not seeing any payment problems with any of these clients as we speak.

Understood. And on the domestic side, now there are certain -- all these movement towards digitalization and work-from-home. Should possibly mean higher spends on IT as well as enterprise software side, even for Microsoft, for example, I think Teams is sort of becoming very popular amongst many corporates. I was seeing the chat about how they are growing versus Slack. So are we also participating in this sort of a journey wherein a lot of software is being sold, which will enable people to work-from-home and other things, a push towards digital, et cetera?

Yes. I mean, it's a valid question. I think we are participating. We are the largest partner for Microsoft in India by a huge margin. So these clients have already have bought these licenses. It's not that they never had these. And the only thing is that they're using it a lot more, so probably lead to more consumption and consumption related revenues, but everybody had a license. It's just that people are using it. And those people, I mean, I don't want to comment. People who are using it are not using it by paying for it. So I guess, somehow we need to find out how to get them to pay for it. But otherwise, the large majority of the large corporates have already signed on to these things and are using these tools kind of stuff. So as I said, counter also is that they may say, reduce my bill of material for some other tool and move it to Teams and so on and so forth. These are the discussions and negotiations which are going on.

Thank you. I would request Mr. Gupta to rejoin the queue for follow-up questions. The next question is from the line of Amit Chandra from HDFC Securities.

Sir my question is related to travel vertical. So as you said that the impact on the travel vertical is mostly from a large client. So if I do my calculations, then the impact on the revenue from this large client is to the extent of around 60% to 70%. So is it correct on the calculation? And also, as the impact is pretty significant. So what proportion of the revenue would you expect to come back in the second half?

That's what I said, Amit, that when -- if things come back to normal, we have modeled about 30% to 40% to come back.

Okay.

If things are okay. To fully to come back, I would see more like 12 to 18 months.

Okay. And sir, my -- and the second question is on the total number of clients. So we have seen sharp fall in the total number of clients in this quarter, largely in the ANZ region. So can you please explain what was the reason for the fall in the total number?

Yes. I think maybe the team didn't disclose it. So what I've told them is to remove the clients who are doing less than like $50,000 a year kind of stuff out of the list of client because it just was giving an unnecessarily bloated list. And so these could be people who are paying some maintenance and license fee for -- in ANZ, for Microsoft licenses and so on and so forth. So we said take them all out and at least let's give a correct picture of what the active clients meet. Those clients are still there. They're not gone.

Okay. Okay. So in terms of the revenue, there is no impact from the fall in the number?

They are extremely small. And they're there, the revenue is also there. But they're like, really, as I said, less than $50,000 a year.

Okay. And sir -- and the last question. In terms of the FTEs, of the total number of FTEs that we have, what would be the exposure of FTEs towards the travel client? If you can give some number to?

Yes, the FTEs was about 500 people, I think.

The next question is from the line of Sriram Srinivasan from Ksema Management.

Sir, actually, we have been considerate on wherever the opportunities are finding and over the period, we have been grown very well in inorganic by grow the addition. And even as an example, sir, our Scalable and Hybris are now being productive in the own scenario. If is there any way that -- we are almost holding INR 315 crores of cash, if is there any way that we are finding any opportunities in any other sector like in this COVID-19 scenarios, for example. Diversifying for a client base even in ag tech or pharma or cloud-based services because I hope to -- Sonata has been done very well in the last 2 to 2.5 years, they have been -- they have done lots of mergers and acquisitions, and we have been focused on doing wherever we are finding the best opportunity that's what I'm asking.

Yes, good question. I think there will be a lot of opportunity at the end of it. So we're not going to rush into it in this current situation because we don't know what the visibility will be like. But I think there'll be a lot of opportunity for the good strategic actions when things settle down. And we are looking at it very closely in terms of what are the opportunities which will come our way, and we are looking at it. Yes. Thank you. So quickly on time check. I think we have past the time. Maybe I don't know, last 3 questions, and then we hopefully can wind down, if it's okay with everybody?

Yes. And one last question, sir. Sir, if there is any contraction that we are looking so far in the domestic side in terms of your headcounts? Because I know that it is in a very uncertain period and it is very tough to comment on this. But over the period in terms of retaining the margins, even I hear that earlier that you have stated that in the top management, there will be a reduction in the salaries and kind of things. Is there if any contraction that we can expect in coming quarters in your headcounts?

No. Sorry, I didn't understand. What was the question?

If there is any contraction in headcounts over the period of time?

No, I said we didn't -- we are not looking at it right now. We're going to do a restructuring of compensation and really are not looking any drastic headcount reduction not at least at this stage, no.

Over a period, if there is -- we have been looking for any hikes over the period or we are missing the increment to the employees?

No, no, no, we are not looking at any increment at this stage. We might have some very creative variable structures incentive wise to drive growth, but definitely not looking at any compensation right now.

Thank you. I would request Mr. Srinivasan to rejoin the queue. And we will take one last question.

So as I said, last 3 questions, is that okay with everybody because we're beyond time.

Sure, sir. We'll take one last question from the line of [ Vinod Makaria ], an individual investor.

Yes. So my question is, Mr.Trump has been hitting the headlines with all the proposed restrictions on H1b renewals and all. So how many people do we have on H1b working in U.S.?

As I've told many times, we are not a very heavily H1b-dependent company because of our acquisitions and other things we've had a fair amount of local people. So this is something which is not going to effect us.

Thank you. Ladies and gentlemen, due to time constrain, that was the last question. I now hand the conference over to the management for closing comments.

All right. Yes, thank you, everybody. Thank you for joining us. And obviously, we wish we could have had this call in better times, but I think we all have to go through this. And at least myself and the team at Sonata are really confident that I think we have a good model, and we have taken all appropriate actions to come out of this more strongly than before. So thank you all for all your time today.

Thank you. On behalf of Sonata Software Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.