TNQ Tech Private Limited (DATAMATICS) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Datamatics Global Services Limited discussion on acquisition of TNQ Tech Private Limited, done by Lumina Datamatics. [Operator Instructions] Please note that this conference is being recorded. I will now hand the conference over to Mr. Pratik Jagtap from E&Y Investor Relations. Thank you, and over to you, sir.

Thank you, Ryan. Good afternoon to all the participants, and thank you for joining us in this call. This call is to discuss Lumina Datamatics acquisition of TNQ Tech Private Limited. The press release have been already mailed to you, and you can also give it on our website, www.datamatics.com. It is also uploaded on stock exchanges. We would recommend speaking to the questions only related to the acquisition, that is the request. To take us through the conference and to answer your questions, we have with us the top management of the company, Mr. Rahul Kanodia, Vice Chairman and CEO of Datamatics; Mr. Sameer Kanodia, Management -- Managing Director and CEO of Lumina Datamatics; Mr. Ashish Jain, CFO of Lumina Datamatics. Rahul will start the call with opening remarks, which will be then followed by Sameer, who will give a brief update on transaction, and then Ashish will share the financial details, after which, we will open the floor for Q&A session. As usual, I would like to remind you that anything that is said on this call, which gives any outlook for the future or which can constitute as a forward-looking statement 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, which you can find on our website. With that said, I'll now hand over the call to Mr. Rahul. Over to you, sir.

Thank you very much, Pratik, and good afternoon to all of you attending this call. The agenda for today's discussion is focused solely on the acquisition of the TNQ Tech. I'm delighted to share that this significant milestone in our digital content business under Lumina Datamatics, a subsidiary of Datamatics Global Services. This acquisition aligns perfectly with our growth strategy, bolstering our position in the digital content services ecosystem and paving the way for an expanded opportunities and growth. Global data is, following the Moore's law, which is doubling every 2 years. 90% of the world's content has been created in the last 2 years. And by the next year, which is 2025, we will be generating about 175 zetabytes of data per annum, and that is 1 zetabyte is 1 billion terabytes. It gives you an idea of the magnitude of the explosion of data. Therefore, it becomes important for us to consolidate our position and take advantage of this growth opportunity. To provide further details about this acquisition, I will invite Mr. Sameer Kanodia, Managing Director and CEO of Lumina Datamatics.

Thank you, Rahul. Good afternoon, everyone, and thank you for joining us today. I am pleased to announce a significant milestone for Lumina Datamatics, the acquisition of TNQ Tech, a leading player in the digital publishing industry with a strong track record of delivering value to blue-chip clients. TNQ Tech operates in the high-value niche market of scientific journals, an area known for us resilience, consistent demand and growth potential. Over the past 5 years, TNQ Tech has delivered a growth of a CAGR of 10.2% demonstrating its operational strength and market relevance. In financial year '23, '24, the company achieved revenues of INR 281 crores and in H1 of '24, '25, revenues already stand at INR 147 crores, a solid indicator of sustained momentum. What makes this acquisition particularly compelling are TNQ's multiple patents across India, the U.S. and Europe. This is innovative approach to content enrichment and technology-driven solutions. With this acquisition, Lumina Datamatics is strategically positioned to achieve global leadership in the content services space with the following key advantages for our investors: Strengthened market leadership. We will now serve 9 of the 10 largest publishers worldwide, reinforcing our market dominance. Geographical expansion. This acquisition expands our presence in Europe and the U.K. from 18% to 33% providing a more balanced geographical portfolio and access to new revenue streams and untapped opportunities. Cross-selling synergies. TNQ Tech's expertise in journals complements Lumina Datamatics in leadership in books and unlocking significant cross-selling opportunities and revenue diversification. Enhanced product and technology portfolio. Together, we will broaden our offerings, driving greater value for our global client base. Increased scale and capabilities. Our combined headcount of 6,500 employees positions us for operational excellence and delivering at scale. Strategically, this acquisition will accelerate growth, enhance profitability and solidify our dominance in the market as a global content service provider. The integration of TNQ Tech will follow a phased approach to ensure seamless alignment across operations, technology and sales. Our immediate focus is on realizing cross-selling opportunities, streamlining technological capabilities and building a unified growth roadmap to drive value for our shareholders. In today's past evolving digital content ecosystem, this acquisition sets Lumina Datamatics on a clear path to deliver sustainable growth and long-term value. I want to thank the Lumina Datamatics team for their unwavering dedication, which has enabled us to achieve this important milestone. With that, I'll now hand over to Ashish Jain, CFO of Lumina Datamatics, who will take you through the financial details and expected impact on this acquisition. Over to you, Ashish.

Thanks, Sameer, and good afternoon, everyone. TNQ Tech has demonstrated a track record of strong financial performance and operational excellence. For '23, '24 financial year, TNQ Tech reported a revenue of INR 281 crores. And in the current financial year, which is '24-'25, ending 30th September '24, first half, TNQ Tech achieved INR 148 crores in revenue with an impressive EBITDA margin range of 25% and EBIT margin range of 23%. Just talking on the revenue mix, 53% of the revenues of TNQ Tech comes from U.S. market and 47% comes from Europe and U.K., ensuring a well-diversified global presence. I'm just sharing some of the acquisition details. So Lumina Datamatics will acquire 80% of TNQ Tech by 31st December, 2024, for a total consideration of INR 336 crores. The remaining 20% will be acquired by 31st July, 2026, contingent upon performance-linked metrics ensuring alignment of growth and value creation. This acquisition enhances our scale, profitability and market reach, driving greater value for our investors. With that, I will now hand over to the moderator for the Q&A session. Thank you.

[Operator Instructions] The first question comes from the line of NGN Puranik from Enam AMC.

Can you talk a little more about objective that this acquisition will achieve, especially in terms at reaching and enhancing your current portfolio?

Puranikji, your voice is a little muffled. It's kind of breaking, but if you could repeat.

What this acquisition will achieve? What at this stage this acquisition will achieve in terms of capability, buildup, new capability that is going to be build up from expansion?

Okay. So very quickly, our geographic expansion will increase our footprint in Europe, in particular. Our European footprint today is about 21 -- is about 12%, it will go up to 17.5%. U.S. will remain where it is. India will shrink proportionately from 21% to 18%. That's from a geography point of view. From technology point of view, this company has a very robust platform on which they provide services, and that enhances our capability to provide better technology-based services to the customers that we have. EBITDA is accretive, as Ashish mentioned. We had a 25% EBITDA for this company. So, therefore, there is a net impact on the company. Overall, we will see 150 basis points to 200 points impact on overall Datamatics numbers and revenue will be about 18% roughly if you look at the current year and analyze this. So the real reason to acquire was that it consolidates our position in the digital content space. And as Sameer mentioned, that we will be servicing 9 out of the top 10 customers. So that puts us in a very strong position in this space. And in every market segment that we choose to operate, the agenda is how do we start dominating that space. So this is part of that strategy. Puranikji, I hope I could hear you and answered your questions correctly.

The next question comes from the line of [indiscernible] Limited.

I just want to ask that this acquisition, how did plan to fund this.

We will -- Ashish, maybe you can talk a little bit about it.

So we will fund it with a combination of internal accruals and the -- some borrowings.

Okay, internal acquisitions. Any specifics on the numbers possible?

The borrowings would be roughly in the range of INR 100 crores, INR 150 crores. So, therefore, debt-equity ratio is insignificant in our books.

Okay. And the rest two accruals?

Yes, it is right.

Okay. Okay. And any idea on the repayment as over a period of how many years will the repayment run through?

It will be over a period of 4 years.

[Operator Instructions] The next question comes from the line of Pratap Maliwal from Mount Intra Finance.

Am I audible?

Yes.

I just wanted to understand our acquisition a little bit better. You said that the company that we've acquired kind of operates in the high-value niche market. So can you throw some more light on this? And what the expected growth in this area is for the CAGR over the past 5 years? I think it's been about 10%. So where do we see this going ahead?

Yes. The world of content is growing, is growing at about 10%, which is a very healthy growth from the industry standpoint. We cater to some of the largest publishers. As I said, we have 9 of the 10 largest publishers as our customers. So -- and the business is also very sticky in that sense. So I don't think there will be issues to us from a growth standpoint.

Okay. And you said that their expertise complements ours. So can you help me understand those synergies a little bit better?

So we've got multiple divisions, and they are, in some sense, complementary skills and complementary services that we provide. They also have a good, strong technology front, similar to us, and we will be able to cross utilize the technologies to increase efficiencies and perhaps even increase revenues.

In the publishing space, if you go into details, there are multiple subsegments. The -- TNQ focuses more on the journal side. Datamatics Lumina focuses more on the book side. And, therefore, the combination of them is really complementary, and we don't encore on each other. In fact, it augments...

They complement each other.

Okay. Now just one thing like we gave the breakup, right? Revenue and EBITDA breakup by FY '24 for our acquired company. What is the breakup, for example, for Lumina Datamatics, what are those corresponding numbers?

So Lumina Datamatics margin is also in the range of 25%. And the revenue of Lumina Datamatics for '23, '24 was INR 406 crores. And for the H1 revenue of Lumina Datamatics is INR 215 crores, for H1 of this financial year. And EBITDA is in the range of 25%.

And just one last question. Could you please repeat -- the line was a bit muffled for the previous participant, I couldn't actually get it, the expected benefit on our EBITDA margin and the change -- how it changes the geography mix, could you please repeat? That's my last question.

So on an overall basis, the U.S. will remain at 55%. Our European footprint will grow from 12% to 17.5%, and India will shrink from 21.5% to 18.2%, and this is in line with our focus towards -- focusing on America and Europe. And in terms of an overall impact on revenue, it's roughly about 18% of top line and an EBIT impact of 150 basis points to 200 basis points.

Okay. EBIT impact of 150 basis points, right?

Yes, yes. That's yes, that's on an overall consolidated basis.

[Operator Instructions] The next question comes from the line of Neil Shah, an individual investor.

Just a quick question. Would it be fair to consider MPS Limited as a peer here?

That is correct.

MPS is a competitor.

The next question comes from the line of Manan Shah from Moneybee.

Can you throw some light on how or whether we will be integrating the teams of Datamatics Lumina as well as the acquisition -- acquired company? And would there be any sort of synergies or cost savings that can happen once the synergies and both the companies are aligned?

So in terms of the integration is concerned, this will happen slowly and steadily. We will integrate our operations team, our support teams, our sales team, marketing team, technology team. So there will certainly be synergies, but this has happened over a period of time. These things won't happen overnight. As far as the Datamatics Group is concerned, we've had several acquisitions in the past. And even for Lumina Datamatics, we've had a couple of acquisitions, and we've done this very seamlessly without losing customers or for the matter, the leadership team in either of the organizations.

Right. And would there be any cross-selling opportunities?

Yes, there will be cross-selling opportunities as well across customers, across geographies, across divisions. Yes, there will certainly be cross-selling opportunities.

Okay. So was there any high customer overlap over here? Or it's totally new customers that we will be getting into this acquisition?

Well, the bulk of your customers will be new, there won't be much of an overlap.

[Operator Instructions] The next question comes from the line of Neil Shah, an individual investor.

Sir, slightly unrelated, but you have spoken about a tie-up with Google on the last con call. Any updates on that?

That's -- yes, nothing to do with this. I'll just mention it very briefly, that's going well. We are now in active dialogue in the U.S. with them as well. But since this call is focused on this acquisition, I would come back to this and we can certainly talk offline on that.

[Operator Instructions] We have a follow-up question from the line of Pratap Maliwal from Mount Intra Finance.

I'm just trying to understand how do we actually -- when I'm reading at -- looking at the press release like so that we work with publishers so what is the service that we keep provider? And how kind of our acquisition -- what is the actual offering that we give to our publisher? How do we -- what is the service that we provided? That's what I'm trying to understand.

We provide digital content services to different verticals. We catered to the world of journals with the world of books, the world of education, the world of content on the web and so on and so forth. So we're providing digital content services across the globe. Some of our customers include 9 of the 10 largest publishers worldwide and 3 of the 5 largest e-commerce companies worldwide. So we get into the creation of the content and then the -- so you've got a web enabled, you got of technology behind this that is available on the net. And a lot of that type of technology that goes behind for online publishing as well as offline publishing.

So when it comes to areas like generation of content and things like that, then what is the possible impact is either positive or negative from new age, technological disruption from Gen AI and maybe could you shed some light on that?

Yes. So Gen AI, certainly is going to be generating a lot of content. We are using some of it ourselves to improve our productivity and also to enhance it. We do have to be a little careful about IP protection and those kinds of issues because Gen AI is fraught with those risks. But yes, the bottom line is we are using technology ourselves to deliver to our customers, including Gen AI, but we have to be a little cautious in terms of any IP violations. But it has been helping us a lot in productivity right now.

The next question comes from the line of [indiscernible] from Pune E Stock Broking Limited.

Most of my questions have been answered. However, I wanted to understand if our clients would include universities or educational institutions, I mean if in case that it would be the case, then how sticky would the clients be?

So some of our customers do include the world of academics. They do -- we do cater to the world of university as well. By and large, the business is sticky in nature. I unfortunately can't mention customer names on this call, keeping confidentiality in mind.

So for the company that you acquired, which sector would the client base be the highest point?

So they cater to the world of scientific journals and that's where the bulk of the revenue comes from. And that is, in some sense, complementary to Lumina Datamatics' capabilities. We cater to the world of journals as well, but our portfolio in the journals space is a lot smaller relative to TNQ.

[Operator Instructions] As there are no further questions, I would now hand the conference over to the management for the closing comments.

Thank you, everyone, for being on the call. We are very optimistic and bullish about this acquisition, and I'm sure it will all go well for Datamatics. I'm looking forward to speaking with you again at the end of next quarter. Once again, thanks for being on the call and wish you a Happy New Year in advance. Thank you very much.

Thank you, sir. On behalf of Datamatics Global Services Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.