Xelpmoc Design and Tech Limited (XELPMOC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q1 FY '23 Earnings Conference Call of Xelpmoc Design and Tech Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ravi Udeshi. Thank you, and over to you, sir.

Thank you, Rutuja. Good evening to all of you. Welcome to the Q1 FY '23 Earnings Conference Call of Xelpmoc Design and Tech Limited. We have sent you the press release and the investor presentation, and the same has also been uploaded on the website as well as on the stock exchanges. In case anyone does not have a copy of the same, please do write to us. To discuss the results and the outlook for the future going forward, we have with us today the top management of Xelpmoc, represented by Mr. Sandipan Chattopadhyay, Managing Director and CEO; Mr. Srinivas Koora, CFO; Mr. Madhu Poomalil, Group President, Strategic Initiatives; and Mr. Srinivas Kollipara, Group President, Start-up Ventures. Before we start the call, I would just like to remind you that the safe harbor clause applies. With that said, I would now like to hand over the call to Mr. Srinivas Koora. Over to you, sir.

Thank you, Ravi. Good evening, everyone, and welcome to Xelpmoc Earnings Call for Q1 FY '23. I hope you and your family are doing well. I'm pleased to inform that we have maintained our business momentum while focusing on sustainability of operations. We continue to move ahead with our execution plan, which is centered on identifying the target success that corresponds to our field approach. Operating revenue for the quarter was INR 32.1 million as compared to INR 32.5 million in Q1 FY '22, and INR 18.6 million in Q4 FY '22. We saw a renewed interest from our clients, which lead to sequential revenue increase of about 72.8%. Operating EBITDA adjusted for ESOP for the quarter was INR negative 20.1 million as compared to a INR 5.3 million in Q1 FY '22, and INR negative 44.2 million in Q4 of FY '22. I would like to give a context to said EBITDA loss compared to Q1 FY '22. We have seen the demand for onboarding and manpower talent, especially in the new technology space have increased drastically across the IT sector, resulting in dramatic increase in manpower onboarding and retention costs. Also, we incurred certain other trial and project-based expenses, in line with our business expansion plan, which is expected to recover in future through increased growth volumes. Net loss for the quarter was INR 39.4 million, partially due to INR 20.1 million of ESOP expenditure. This is in compared with the net gross of INR 48.5 million in Q4 FY '22 and a net loss of INR 15.3 million in Q1 FY '22. Regarding the change in revenue, we would like to say that our revenue streams are diversified with corporates, government and start-ups, spanning 40%, 31% and 29% respectively for the Q1 FY '23 revenues. We have said that our deep focus on corporate, government and startups will enable us to a sustained improvement in the renew momentum in future volumes. Our team size is 105, including employees, interns and consultants as compared to 91 in Q4 FY '22. Till date, we have served 55 clients and our sustained interaction with client is a foundation for our good performance. The fair value of over investment in portfolio companies stood at approximately INR 630.9 million as on 30 June 2020, as compared to INR 475.3 million on 30 June 2021. Our portfolio companies did well by investing in new opportunities. We have virtual interactive analyst, VIA, and recently added a performance management model, thereby becoming a fully serviced product for all the stakeholders. It has also added capabilities, including real-time analysis and real-time instant messages, enabling a prompt customer assistance. Woovly. Woovly is a video conference platform in Tier 2, 3, 4 and towns, driven by creator communities. Users actively discover and shop lifestyle product instantly via short media content created by micro and nano influencers. Woovly has 7 million registered users, which has grown more than 400% in quarter-on-quarter basis. It has more than 30,000 influencers, who have created 1.2 million short video content around brands and products, which works as a video catalog for the audience. It has a GMV ARR of USD 10.3 million, which is growing at 25% on a monthly basis. A substantial portion of this has translated into revenue and we've seen a good traction in the coming quarters. The other portfolio company we star is PSM, is a global carrier advancement platform for women and a diversity partner for automization. PSM is one of the 75 start-ups to be recognized by Department of Science and Technology during the 75th year of Indian independents. It continues to witness and increase in adoption rates and has signed a large global corporate, as explained. Slate. Slate has successfully tested few news cases for our higher-volume business. Its products have seen increased market access and is now on track for a greater revenue trajectory. Snap-on. Snap-on is a Singapore-based venture that focuses on Southeast Asian talent market with the proprietary matching algorithm and matches candidates to prospective employers by leveraging over 20 years of human resource experience. Snap-on aims to provide an enterprise class recruiting solution that enables the candidates to excel. Snap-on has onboarded 10,000-plus employees through LinkedIn job posting across over 50 countries. It is looking to expand organically over the next few quarters. The Board has approved investment in securities of Firstsense Technologies Private Limited. Firstsense is into video analytics. Xelpmoc will subscribe to compulsorily convertible preference shares in Firstsense by September '23. Xelpmoc has been recently awarded a contract by Madhya Pradesh State Tourism Development Corporation Limited, MPSTDC, wherein as per the terms of the agreement entered with MPSTDC, the company will provide design, development and maintenance of online travel aggregated services under the SPV structure for MPSTDC. The Board has approved formation of the proposed SPV to be engaged in the business of tourism with the help of technology to be developed to relating to the travel and tourism sector. The proposed SPV, Xperience India Private Limited, which will be incorporated by September 2022. And Xelpmoc will hold 43% of the proposed SPV post subscription shares. Coming to our subsidiary, Signal Analytics Private Limited, a majority owned subsidiary of the company has invested in Soultrax Studios Private Limited, which is engaged in content creation. Signal now holds 54.57% in Soultrax. Both our businesses are expected to work together and develop synergies. Our Board has approved investment into Accelerated Learning Edutech Private Limited to the extent of 14% on a fully diluted basis. Xelpmoc has issued cash concentration and the balance is for the acquired services. ALEPL runs School of Accelerated Learning, with brand name SOAL, an upcoming start-up that designs and runs cohort-based courses which help students kickstart their career in engineering and design irrespective of their background. SOAL has started a mentorship program for learners in job sites whereas students representative find and share more job opportunities with the SOAL [indiscernible]. SOAL platform built up enables learners to track their learning and content learning with the mentor and prospective recruiters. It has signed up with leading government institutes to launch and promote program to build the tech talent ecosystem within the institute. It's our plan to launch user-friendly platforms and the program, which will enable greater traction in the revenues going forward. Xelpmoc Limited. We have identified the senior management to lead the U.K. operations. Once Xelpmoc has existing employment sponsor license in place, then we expect to onboard key personnel with relevant skills and experience. Xelpmoc USA. The Board has approved investment in Xelpmoc Design and Tech [ INTD ]. Xelpmoc has proposed to acquire 60% of Xelpmoc USA's capital, the main object of the said acquisition is to enter into the U.S. market to provide technology solutions to start-ups and corporates. Now let me come to the outlook for the fiscal 2023. We see this year promising growth in our portfolio companies, given that they are focusing on untouched areas of the economy. We expect our investments in Mihup, Woovly, and Signal to expand their access and reach their -- reach and enter the next generation business. Our real focus are on our startups as well as our services segment make us fairly confident of adjusted EBITDA level profitable by Q4 FY '23. Before we open the floor for question-and-answers, we would like to respond to one query which couple of analysts have raised in our previous calls, with respect to reporting of the number interest. We have revisited this particular request, and we had discussed with our advisers, but extract of Schedule C of the company's act has described the roundings of guidance and accordingly and consistently we are doing that. I request Ravi to open the floor for questions and answers.

[Operator Instructions] The first question is from the line of Niraj Thacker from Profit Tantra Financial Services.

My basic question is this, sir. Since you are investing in so many start-ups and so many companies and we give our services to them, I just want to understand like, once they mature, all these companies, and what we plan, like how do we exit in part or when we, say, offload our stake. So still we provide them services and then whatever amount of consideration we receive, we intend to invest in some other startups. What is our thought process, sir, in this?

Yes, we have often answered this question. I can probably relate this to the past times I've answered it. The main thing is that most of these are not at a vantage where we are thinking of exits. Some of them are coming there. We had thought that it'd take a 5 to 7-year time frame for each of them. We are lifting those thresholds and now we'll start thinking. One thing clear is that any proceeds that come from these things will obviously go through a Board deliberation. But prima facie, since we are for growth at least at this stage and we are looking at kind of formation parts of getting our legacy on, I think for the coming viewable and immediate future, we would think of reinvesting more proactively than for doing any other means for [indiscernible].

I have one more question, sir. I see this when we invest in, like, for example, U.S. company, we have invested in Xelpmoc Design and Tech. So we get some portion of share. Who will be holding the balance this one? Because it's a subsidiary, correct? So 60% is held by us. Balance 40%, who will be holding?

Correct. Balance 40% in the case of U.S. subsidiary is with one of the partners who has the ability of attracting the start-up ecosystem and the services industry. We are working with them and getting some U.S. projects. So we are exploiting that and trying to expand the relationship.

The next question is from the line of Ishit Desai, an individual investor.

Yes. I wanted to understand since we have subscribed to more CCPS from the Firstsense Technology, was this part of the earlier arrangement which is time bomb or it's a fresh acquisition call we have taken?

So as far as this is concerned, this investment is close to what we recollect, which is a fresh acquisition which we have taken in the form of [indiscernible]

So any specific rationale for increasing our holding into this? Are we seeing some positive developments on the basis of which we are looking to increase our shareholding?

Yes, we are seeing some positive traction. That's the reason why we are investing. And there is a high likelihood, high possibility that with us, there are couple of co-investors who will also be participating in this particular round.

But not an institutional round, right? This is still the Indian investors sort of round?

It's not an institutional or we can say, a family office or an institution.

And if you could help us with the services contract you've got with MP government and the SPV. So what's the revenue model? It's a retailer-based services fee or completion-based tenure? What's the contract in nature?

So let me take that. So it's a structure by which 2 arrangements have been made. We are equity holders in SPV, which will mushroom like a startup. But instead of a normal start-up, it is being seeded with the backing of a tourism department of a state, which is held in higher state. As part of that arrangement, we are essentially doing the sole technology suppliers for running all the properties of Madhya Pradesh tourism. But it's a deliverable of the project, right? Now extending that to any other person as a SaaS service for the tourism industry in that state or anywhere in India is going to be the natural mix shift.

So from a monetization perspective, there will be a service revenue, but we'll still be able to monetize our equity or participation at later date if needed?

There will be several revenue streams which we are looking at. And as the plan gets cemented, we'll keep you apprised on that part. But remember, this is not just about servicing MPs captive properties only. It's also creating a tourism ecosystem and getting into a kind of an online aggregator with a different perspective of how travel has changed in the new perspective of the world.

And sir, in terms of -- the last question from my side. In terms of our U.S. subsidiary, right, because while it's a very different at market, any specific areas we have identified we want to focus on, or it will be very similar to what we are doing in India?

No, no. See, in U.S., obviously, our team and all will be not very applicable. But the kind of things we have been doing already in the U.S. and U.K. markets are essentially based on our data science capabilities and modern tech, which obviously happens a bit earlier in U.S. and U.K. markets, for example, working on block chain, not necessarily crypto, or working on processes and all. We have already been working with some of these parts. We think there's a huge amount of talent shortfall and our core skills and matching, and that's the reason it's an opportunity. We have thought of first fostering the U.K. thing, steadfastly growing it and then looking at other markets, but U.S. presented itself as something which is getting serious traction, and we thought it's best to instrumentalize it with the partners there. We cannot obviously have the bandwidth to manage both the geographies at this point of time. The partner being there, we thought might as well get to this structure.

And it is in a combination of startup investment plus services, right? Very similar to what is told?

Yes. Yes. Essentially, whatever we do in U.S., we will grow through that vehicle. Lot of it is services, but many of the services were at start-ups without an equity part to it. We may try to get the equity part also to it, right? So the services have been done both to corporates and to start-ups there and actually 3, 4 start-ups were already done there. But we were not taking equity in those. We may look at equity from now on as a little subsidized rate for profitability.

The next question is from the line of Rudresh, an individual investor.

I've got 3 questions. Recently, FB or Meta has shut down its video commerce business. With that background, how do we see Woovly business evolve?

I guess the main thing that you have to understand is each business is unique and has its own sweet spot. Woovly is mainly doing created economy for kind of an influencer marketing, and this is for Class B, Class C target audiences and exposures to brands which are not exactly well proliferated. So I think it's a win-win situation for their target audience perspective and it seems to be working for now. Now a particular sectoral trend may not always be applicable to all players in the sector. We do believe that Woovly is hugely differentiated from the others who have tried something which was mostly on video content and without any end monetizability, whereas here we started with the monetizability and then looked at video as a media. So the approach was very different.

And my second question is London as well as U.S. are crowded when it comes to VC and angel investment. So do you think we'll be able to stamp our mark in that region?

I always believe that if your business is doing the right things, fundings will always come. So yes, from the initial proliferation and all, there will be a lot of noise all around and all. But what really matters is how the business is shaping up. And from that perspective, we always have gone for things we believed in from a business, not just on the high cycle. And hence, we have additional comfort and confidence that yes, we would never have that part. But again, the idea is not to rely on funding as the only source for startup. Start-up at the end is a business. So we look at what is going to be profitable elements and what will be there. Yes, for growth and for initial pickup we look at funding. But the idea is not to just see what is the next funding cycle.

And my next question is, see, most of the startup based out of India make products for us, for India and not for the world, which reduces our TAM as well as SAM. So what's your thought on that? When we fund any of the start-up, do we say that -- do we guide them to make products for the world or how is it?

What you define in the world is a perspective factor. We have always very clearly said that we think of next 500 million Indians, which translates to about another 3.2 billion world citizens. So solutions that work in India, I'm not thinking of cash-rich places like U.S.A. and Europe to go to. Maybe some of them will still find its way. But surely, opportunities in Africa, Indonesia and other places are not something we are overlooking either. So we do hope that it is going to be internationalized, but not necessarily in the geographies you can commonly think with international majors.

The next question is from the line of RamKumar Ranken, individual investor.

I have observed that the working capital retirement is increasing after each quarter is passing right. Though we achieved the EBITDA positive in a couple of years back. And we will -- given a guidance of double-digit EBITDA in the coming years, but probably due to the COVID and we can understand -- as mathematicians, we can understand the certain issues we face. However, I just wanted to bring to your highlight that we only have INR 3.1 crores left from the IPO money that we seeded. In this quarter alone, we spent INR 3.38 crores, out of which is money for working capital requirement. And the sales growth is also stagnant on a year-on-year basis for the last couple of years. Though it is not a concern, I wanted to see that during this today's conference call, there was a guidance given that we will see sequential growth going forward as well. So can we expect this 73%, 70% plus sequential growth from now on? You said something, that's realistically can we expect?

So basically, just to answer your query. As far as the IPO money is concerned, INR 3.1 crores, yes, you're right, the proceeds -- the working capital which is available from the proceeds, what is available from IPO is about INR 3.1 crores. But subsequently, we also raised a follow-on round of funding through a differential mix. So in case, if you look at cash and cash equivalent as of the 30 June, it is around INR 3.53 crores. And as we said in our previous calls that with effect from Q1, we would be focusing on services which we have started. In case if you look at last 3 to 4 quarters, what we were doing, we were focusing on, again, start-up. That's the reason why we are you have seen like we have started Signal and also Soultrax, which has become part of Signal. And Soultrax already started generating revenue. We are very happy that in the first quarter, they have generated INR 14 lakhs of revenue in the span of about 45 days, and we see that at least growing in double digit. Now as far as coming to Xelpmoc, we are very sure that the revenue would be on the upward trend going forward for these next 3 quarters, and we are looking at adjusted EBITDA to be breakeven by Q4 of this financial year.

And I have one request. This corporate government start-up split of 40, 31 and 29, if you could from the coming quarter onwards, if you could also give us the bottom line of these 3 segments, like bottom lie as well? Like how much percentage it is, so that we can to know performance of each corporate, government, and start-up EBITDA separately, so we get an idea about how top line as much bottom line is performing. Would that be possible? I would appreciate if you can consider that.

No, we will [Technical Difficulty] something that we would look at, but probably not immediately because a lot of it is common components and all, and then segregating those and having it attributed properly may be a difficult thing, especially with products coming in very soon. So for some time, we may go with it. But broadly, the sectors of business and all the way we talked about today, we will do it, maybe not in detail.

And does DocuX and xERP are the 2 main products, I can understand that we are trying to sell to clients going forward.

There are a couple, but we have been using them and on. And as I have said that from the third quarter of this financial year, which is from that, we will be revisiting how to take a government strategy and which products we focus on. For the moment, we are focused on the services part and setting up those pipelines, like Srini explained. I want to reassert and sort of at the cost of being repeated -- please understand that depending on the situation and the market hunger and the kind of availability of resources, we do will recollect that strategy. So yes, we were on a TikTok track for getting into profitability and all. But then we realized the real value of ours comes from the kind of start-ups that we are getting on to our portfolio, focusing on that and starting the overseas operation seems to be important. So the fund was specifically with that intent. So we took a breather from going ahead with those numbers and trying to build our foundation for value creation and wealth creation. And then we will look at the margin creation, which we are focusing on right now.

The next question is from the line of [ Neeraj Kumar from Chevron Shipping ].

Actually, I got the answer on the last question, I wanted to ask when you think like you will be breakeven, like at least you are not losing money every time in the bottom line.

And we hope to be [indiscernible] but yes, we have our strategy for getting to that level pretty soon.

The next question is from the line of Abhishek Madhu, an individual investor.

Sir, question regarding the U.K. subsidiary. Last con call, you did mention that the -- you're already executing projects for U.K. clients. So can you provide insights on the contracts in terms of what is the aggregate value of the contracts and what sort of the payment milestones like? Is it you're going to get paid at the end of the project or you're going to get the payment milestones spread across the life cycle of the project? And the duration of these projects, is it 6 months, 1 year, 2 years? Could you please provide more insights on the U.K. subsidiary and what's happening there?

So just to answer your query, commercials I'll be getting and the tech part Sandipan would be answering. So as far as these contracts are concerned, we are right now thinking directly in the region of Xelpmoc should be in that industry. And out of the revenue, whatever we have generated close to the 42% of our revenues were from the overseas, and 57% to 58% of the revenue coming from India. As far as these payment terms are concerned, the payments terms are pretty standard, like whatever we do for India. On sign up you have X percentage, on reaching the milestones you have Y percentage. So we follow the same standards for U.S. and U.K.

Madhu, you wanted to touch on what is happening on the U.K. as a strategy?

I think Madhu is not audible.

Okay. So let me just quickly add to what Srini has said. So there are different stages of maturity relationships have been formed with some of our customers, right? So in some projects, and I'm not going to differentiate the U.S. and U.K., we have delivered the first version. Some of them have gone into kind of a BAU state, business as usual stage. And there a kind of a fixed fee model has been worked on a monthly basis. And there is no end there to the contract as such it can be closed on the mutual part. Most of the contracts do start up with a particular solution in mind. But what has been interesting is that our quality of work and the delivery that we have delivered has helped us foster long-term relationships. Maybe there has been a gap of 7, 8 months, but those -- many of those customers have come back for repeat businesses. And in the second business and all the value has actually been higher than the first business in many cases. So we are still formulating a strategy which is particular to suit that demographic. Like in India, we have cracked, and we know some of the projects are going to be short term. Some of the projects are looking for kind of a multiyear contract. We have a portfolio in mind and we are now gunning for getting those projects. U.K. and all, we are still feeling our way around, understanding and maturing as we go and letting it evolve into natural part.

And sir, I have a question regarding the value of the contract itself. So Srini just mentioned that 42% of this quarter's revenue is from overseas, right? So -- which is round about INR 1.5 crores. Don't you think that this INR 1.5 crores or GBP 115,000 is relatively less for the company of our size?

Well, GBP 115,000 with the initial startup and with no real focus, I still -- and monthly, I would not say it's completely there. And that also is major base. But the whole idea is that obviously it has to be much more and there is monetizability there which has to work. But I by no means think that GBP 115,000 at this page of our propagation is insignificant.

So is it going to stay in that range for this year or what other plans? Because we intend to invest around INR 28 crores if needed, for the U.K. subsidiary, right?

Sorry?

So what I'm trying to ask is, we intend to invest INR 28 crores around, if needed for a U.K. subsidiary for scaling up, right? So is this revenue run rate from U.K. subsidiary is what we envisage for this year?

Just to correct, like INR 28 crores or INR 27 crores, whatever we have raised, the 100% amount is not for the U.K. investment. U.K. investment, we would be contributing initially, and then we will be following the same strategy what we are doing here in India. And as far as U.K. or U.S. is concerned, still, we are pursuing start-ups. We are not pursuing corporates. That's the reason why you are seeing the revenues from the lower side. And here, we are working more on the solutions.

Okay, but I just -- you have plans to ramp these revenue figures up over the coming quarters, right?

Yes, that we will be doing it going forward. So basically…

But let me tell you one thing. Categorically, we have said this that we will not be looking at services the way a normal services company does. We'll be only looking at end-to-end solutions being part of what we want to deliver. At no point of time, we want to have manpower supply being done to U.S. or U.K. It's when the whole project is coming to us with all the elements that we are good at, which is end-to-end, then only we are taking up those projects. So it is not that -- but we do hope the value will increase, but you have to first set your credentials to get those projects. Ramping up and getting projects which are still selling kind of a thing is easy. But when you're in the solutions space, we have to set up your credentials and credibility, prove yourself in the market and then do it and it's not going to be the exact same process. It will grow, that's for sure, but not probably that why if ABC company is doing this and they are doing manpower supply, why are we not at that level? That will never be a comparable metric.

The next question is from the line of Ashutosh Ajura, individual investor. [Technical Difficulty] As there is no response from line, we'll move to the next question, which is from the line of Rashid Desai, an individual investor.

Yes. Sir, a few follow-up questions from my side. You have mentioned the 40% in your U.S. subsidiary will be held by a partner. So that name is finalized or we're still kind of scouting for someone?

We have.

You would like to keep it confidential, right? You don't want to disclose the name for now?