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

Ladies and gentlemen, good day, and welcome to the Xelpmoc Design and Tech Limited Q4 FY '23 Earnings Conference Call. [Operator Instructions] Please note this conference call is being recorded. I now hand the conference over to Mr. Ravi Udeshi from EY. Thank you, and over to you, sir.

Thank you, [ Vikram ]. Good evening to all of you. Welcome you to the Q4 and FY '23 Earnings Conference Call of Xelpmoc Design and Tech Limited. We have sent you in the press release and the investor presentation and the same has also been uploaded on the Xelpmoc website as well as on the stock exchange. In case anyone does not have a copy of the same, please do write to us. To discuss the results and outlook for the future going forward, we now 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, Startup Ventures. Before we start the call, I would just like to remind you that the safe harbor clause applies. With that said, I now hand over the call to Mr. Srinivas Koora. Over to you, sir.

Thank you, Ravi. Good evening, everyone, and welcome to Xelpmoc's earnings call for Q4 and FY '23. I hope you and your family are doing well. We saw a headwind in the startup space on account of funding around witness in the emerging technologies. However, we foresee and started to diversify in the corporates. I will touch upon the strategy in the later part of my speech. Our operating revenue for the quarter was recorded INR 33.2 million as compared to INR 18.6 million in Q4 FY '22 and INR 39.1 million in Q3 FY '23. We saw a revenue interest from our clients, which lead to this year-on-year growth of about 79.1%. We continue -- saw a revenue decrease of about 15.1% as stated earlier due to the ongoing [indiscernible] and operating EBITDA are for the quarter was INR minus 23.5 million as compared to INR minus 44.2 million in Q4 FY '22 and INR minus 24.8 million in Q3 FY '22. I would like to give some context to the decreasing EBITDA loss in Q4 FY '23 as compared to Q4 FY '22 have seen a reduced attritional [ IT ] sector on account of ongoing slowdown. Further we were in an expansion mode earlier and now that expansion has completed due to which we saw our investment in staff cost and operating activity [indiscernible] in the form of increased operator. We had highlighted this decrease in operating costs in our last call and going forward, we expect our operating costs to be stable. Net loss for the quarter was INR 32.6 million, partially due to INR 8.2 million of ESOP expenditure and increased depreciation and amortization. The depreciation and amortization increase was due to increasing fixed assets and right of use opposites. This in comparison to a net loss of about INR 49.5 million in Q4 FY '22 and net loss of INR 47.9 million in Q3 FY '22. FY '23, our revenue from operations was INR 147.4 million, an increase of 83%. Our EBITDA loss was of INR 85.3 million compared to the loss of to the INR 63 million in FY '22. And our net loss were decreased INR 116.4 million compared to INR 128.3 million in FY '22. Regarding the change in revenue, we would like to state that our revenue strictly was diversified with start-ups, contracts and governments forming 34%, 39% and 27% respectively of our FY '23 revenues. We expect focus on corporate going forward, more focus on data science will enable us to sustain a recent increase in the revenue inventory [indiscernible]. Our team size is about 115, including employee in terms consultants as compared to 117 in Q3 FY '23. In date, we have served 59 clients and our sustained interaction with the clients is the foundation for our performance. The fair value of our investments in portfolio companies stood at approximately INR 404.2 million as on 31st March 2023 as compared to INR 623.6 million on 31st March 2022. I would like to give some context to the decreasing the value of portfolio investment as stated in the start of the speech, there has been an overall slowdown in fundraising activity in the [indiscernible] segment. Some of our portfolio companies were in fundraising stage for their growth plan, the slowdown affected them leading them to curtail their plans. Hence now are operating at a significant reduced scale or exploring other options, including the strategic sale. I'll discuss some of this in detail now. Now Fortigo has finalized an agreement to be acquired by the strategic partner. The transaction is expected to be consumed by end of June. It is largely, the stocks are arrangement there in CTPS holders who also have LP rights would get swapped into acquiring. The common shareholders will be part of buyback after factoring LP side of the CPTS. Therefore, we expect to get a share concentration of INR 11.1 million as compared to our original equation the cost of INR 0.01 million. The total amount of investment by all investors in Fortigo was roughly approximately around INR 120 crores. Rype Fintech which is owned by the brand Slate.ap into an advanced stage of sale of product to another entity. All investors currently invested more than INR 15 crores. Currently, time right to take not sure of total amount which can raise through this product sales, and we are unable to give any further update at this point of time. Our cost of operation in Rype Fintech is INR 5.8 million. Snaphunt revenues have decreased 35% year-on-year in the quarter ended March 2023. The total number of employees on its website has grown by about 62% year-on-year. The total number of job seekers have grown by about 125% in the same period. We did face some headwinds due to layoffs in the tech and related sectors. However, it has still around 6 months of cash, considering the current cash burn and its management expects it to turn profitable within the said time. These are new revenue in bearings the triple digit mark in INR [indiscernible] revenue has grown by around 160% year-on-year as compared to the last year. Their annual recurring revenue has grown around 50% over the past year. They have 11 customers, including 1 in auto and another 10 in contact center. We are slightly [indiscernible] conservative basis, looking at the current market scenario. New founders expect [indiscernible] which breakeven by this year end. Woovly. Woovly, is backed by AI-driven brand tech user generated syntax. As its AI technology recognizes both products and brands. It adds 40,000 plus influencers, which are followed by 150 million plus followers. It has more than 8 million users who are relating 319 million videos view from us. Woovly have recently raised about INR 10 cores from some of its existing investment. [indiscernible] both are [indiscernible] only organic growth will be in a self-sustaining mode for the next couple of years. Pencil. Pencil, known as 1.6 technologies [indiscernible] on April 20, 2023 more than [ 36,000 ] sign-ups. 800 plus [indiscernible] were published more than 1,400. They are still burning marginal cash [indiscernible] process of merger process cost, they will do a fundraise, even excluding the proposed merger, the founders are confident of self sustainability by end of this financial year. There is more interest status mostly at the Incorporation stage. Or pre-seed funding or pre-revenue changes. Majority of our startups have just started revenue generation. [indiscernible] money cash. So unless there is cash, it will be difficult for them to sustain their current level of operations. As of now [indiscernible] significant pace and we are looking at scaling up on products in services. We will be focusing more -- we will be focusing on more revenue generation on corporates, focusing on data science, artificial intelligence and machine learning. We will be looking at only onboarding startup and selective [indiscernible] it develops very effective work. With this, now I request Ravi to open the floor for question and answers.

[Operator Instructions] We'll take your first question from the line of Rishit Desai, an investor.

Sir...

I'm sorry to interrupt. Sir, your audio is not very clear. Please speak close to your mic, sir.

Is it better now?

Yes, please go ahead.

Sir, this is regarding the Fortigo acquisition, which you have mentioned. So the valuation since they're holding [ 4.9 ], the acquisition is happening at a valuation of close to INR 20 crores. Is that correct? Or is there a different structure to it?

So basically, there is a different structure because it's in the advanced stage, the company has not yet signed a definitive agreement. So that's the reason why we are not in a position to share anything whatever information that we have shared from the Fortigo, please understand that [indiscernible] holders have invested close to INR 120 crores and whereas Xelpmoc investment in form of equity close to over INR 0.01 million. Again is at INR 0.01 million, we are expecting that a buyback will happen there, Xelpmoc would be able to get close to about INR 1.1 million. As you know that any of the shareholder segment, the first right of the liquidation preference will be given to the financial investors at least to cover the cost. So definitely the first priority will be for the [indiscernible]. As and when we have a definite -- definitive agreement in place where we have a clear visibility with respect to how this has happened, et cetera, there, we would be a more comfortable position to share with you, we will definitely do that.

Fair enough, sir. Understood. And sir, apart from Slate, there are 3 more investments, which are not appearing in the current portfolio, which is PHI Robotics, Learning Hats and Graposs. So all these are also return off as of now?

As far as the Graposs is concerned, Graposs is OCPS optionally convertible. So that has been redeemed. And as far as the Robotics is concerned, it was a very small investment, the company is not doing really well. So in fact, that has been written up. And as far as the Learning Hats is also concerned, Learning is also, we are exiting at the caution.

Understood, sir. Also, sir, any update on Signal Analytics and it's been last 3 or 4 quarters since we have started working on that. So -- and we are looking at different modules to begin with. And probably by this time, we're looking to start monetizing on that. Sir, any significant updates on that part?

[ Srinivas ], should I take that question?

Yes.

See, yes, that's in progress. And there is also a little bit of a I would say, sluggishness in the overall market now, which is basically our target customers. The deliberation time is more than we had anticipated in terms of projects in terms of getting POC opportunity or even after the POC, the decision taking time is longer. But one of the products, especially we have more or less productized and it's now in a format which is takeable in a kind of mostly as is format to integrate to the database on will still be custom. But the overall UI/UX, the overall query patterns and all those are desired. And that's the first product that which we are slowly trying to get into the market. So that's in progress as we speak.

And this will be working in sync with the Soultrax acquisition and 1 or 2 the synergies we are building. So all of them are working together on this piece.

Soultrax belongs to the signal part of it, which is on edutech. I'm talking about the generic other products, which are Xelpmoc part. So it's all of these things are going together, yes.

We take the next question from the line of Sudheer Dugad, an investor.

Am I audible?

Yes, you are. And you may speak a little close to your mic, sir.

Okay. One second. Am I audible now?

Yes, you are. Please go ahead.

Yes. I wanted to check on what went wrong with Fortigo with regards to the reduction in valuation? That is my first question. And second question would be we were looking to ramp up our product side of the revenue. So what is the status on that? And thirdly, in terms of monetizing our other start-up investments, where do we stand in terms of our portfolio value and the valuation which we are hoping we would recover?

So Sandi, I'll take the first one, maybe second and third one, you can take it. Again, as far as Fortigo is concerned, I have covered it in my opening remarks. Fortigo was planning to raise fund. They tried their level best. They are also looking at some sort of merger and acquisition, et cetera. But finally, as I said, Fortigo has finalized an agreement to be acquired by a strategic partner. The transaction is expected to be completed by June. And as the financial investors or CPTS holders, they have invested close to about INR 120 crores. So they have liquidation footprints, right? So the existing CPT as holders would be doing the shares. But whereas the equity shareholders, they are intending to buy back from the equity shareholders. So we have invested INR 0.01 million in Fortigo. Against that, we are expecting that through share buyback, we will be getting somewhere around INR 1.1 crores. I hope that answers first question.

Yes.

Can you just repeat your second and third question, just to refresh it and...

Yes. So the second question was with regards to our product revenue, which you are planning to ramp up to basically get some support, which we are not getting from the start-up side?

Correct. Actually I had covered it just to the previous question person. I had told that we have ramped up, but there is some sluggishness in the overall market, which is our target audience for the customers. And we have productized one of the components, which was expand and that's the first one we're going to market with. That has more or less been improved and made into a kind of as is, off-the-shelf kind of a thing for most of the part. Integration to their databases on will set the custom made. But the front end, the query parts of it, those have been standardized, and that's the first product we're going to market with.

And please understand that still we have just -- please go ahead.

Please go ahead.

So please understand that we have just developed that particular product. We are here to take to the market as and when we get a traction, we will be...

Okay. And one question was that any time line with regards to our losses getting reduced and we get into breakeven?

So as far as that thing is concerned, right now, we will not be able to give any visibility. The company is working on it and to ensure how to improve our top line on revenues, maybe corporate services, working more on data science, AI/ML and product timing couple of them, which we have been doing it for the last 6, 8 months, and that's the way we are approaching right now. But still, we are not sure with respect to like what would be the success rate of the products.

[Operator Instructions] We'll take a next question from the line of Shantikam Sowjanya, an investor.

Hello.

Please go ahead, sir. We can hear you.

Hello?

Yes, please go ahead. Please go ahead. We can hear you.

Nowadays valuations of a lot of new tech generation companies, including the was melted down, sir. Market is expecting only profit. What is your future prospects, sir, to get profit?

As I think Srini just covered it last time, we have said that in the opening remarks also announced that we have decided that, yes, the market situations are different than what would have wanted it to be. We are cognizant of that. For the moment, we are reducing our focus on to start-ups on a big time basis like we were doing it. As I said, we always focusing more on the value creation more than profit creation. We are focusing more on the services part of it and trying to keep on the profitability because we have to sustain. We have to make sure we're profitable. So those are there, but that tend to happen as you can see, the upliftment of revenue is one indicator of the focus there. But also detaching ourselves from the start-up and reducing those parts and making sure we go to part of profitability is there. But even in services and all, there are headwinds, and I think that will stabilize over time, and we will be looking at that part. But we are working on profitability. But to be very frank, as of now, we are completely focusing on making it as efficient as possible and making sure we'll do the best possible. As clearly, when with the profitability and all will be, we don't have a kind of a clear path as it as right now, whatever we have thought before and all, unfortunately, has not worked out the way we thought. There are things that we could not anticipate and we didn't do the right predictions. So from now on, we want to actually work it out and see also that part that make assumptions, which don't work up.

We take the next question from the line of Karan Sharma, an Investor.

Hello, am I audible?

Yes, you are. Please go ahead.

My name is Karan. So I had 2 questions. One -- okay. One was, it was mentioned in the call, Google has raised INR 10 crores, right? So could you please tell at what valuation was this raised? Second, yes, I know you have answered it, but like all that Xelpmoc would reach at breakeven by Q4, then it was revised to Q1. Like can you give us some idea like when will be reaching to breakeven because it is difficult for us also. Yes.

No, I completely understand that. But to be very frank, we have tried to navigate the kind of utmost where we are in. And as of now, we are not very clear. We are just trying to make sure that the profitability on a unique part is what we focus on retaining the team, making sure that all the good work we have done doesn't get lost in this storm. That's a focus on that part. As we get clarity, we'll give you when we have a clear objective. It's no point giving our goal just for the sake of giving and not being able to meet it.

Okay, sir. One more specific questions. Are we planning more ESOPs in the near future quarters?

So whatever ESOPs grant that we have given, we have already informed to the exchange. And basically, in case we are in the process of hiring one of the senior person especially CRO, maybe in that case, it has to give -- maybe we will take NRC approval, Board approval, accordingly we'll intimate to you. But as of now, we are not looking at any fresh ESOP to be issued. But yes, if you are recruiting senior people and to motivate them because even the earlier ESOPs we are doing there given the higher value. So...

Okay. So whatever is committed to...

Yes, yes. And apart from that, just to cover your earlier question is if you look at it, as I covered in my opening remarks, 34% was the revenue that we generated from start-up from the previous year and we all know that the startups companies and an existing startup, especially people who are the PC earning stage, they are not able to raise funds, even though the investors do have funds, but they want to wait and watch how it turns up and then they want to acquire and invest. As far as Woovly is concerned, Woovly was also planning to raise some different, different investors, but apparently, they were not able to raise funds. Then one of the existing investors who reached out and we said that he is going to invest INR 10 crores the previous and of funding, that's how they have done right. Hope that answers my question.

Right issue, but at what valuation?

So I think it was close to INR 4 million INR 4.1 million - INR 4 million.

We'll take your next question from the line of Aman Nayar, an investor.

This is the first time that I'm hearing now that the management is focusing or going to put its resources on product and services aspect of it. So my question is whether -- this is just a force change or is it going to be a long-term sustaining strategy of putting in more resources in terms of manpower and finances in terms of our own products and services? So this is the question. And connected to that is whether we are going to chart whatever resources we are putting into our startups in a trend way. So this is question number one. Question number 2 in terms of the drastic write-down in terms of the valuation of Fortigo only always heard that conservative in terms of valuing it investments. So wouldn't it have been prudent that this could have been reviewed more closely every quarter other than kind of doing it at one shot, where you even client hit.

I will take the first question and the next, Srini if that's okay with you.

Yes.

Okay. So it is a force change. That's for sure. But it is not a force and in terms of direction. It's a force change in terms of the timing of when we wanted to do it. We surely wanted to make sure that we go for more for value growth than profit growth at least for the first 7, 8 years of our existence in the public market. But given the dire situation and all those things, we think it's prudent to bring forward our plans of getting focused on the products and services. If you have been a follower in the sense of following what we have been talking about, we had already started the shift slowly towards the services and the product thing from last financial year, third, fourth quarter. And we had said that it would be a transition over time and the next financial, we'll do a mix and match of both. As of now, we have put that other part on steroids. And we have said this is a part that need to now focus on much, much more. That said, the start-ups and all are not being ignored. We have a huge amount of learning, a huge amount of quality people and experience, but we surely would change the mechanics by which we engage with start-ups so that our exposure is minimized and sustainable for us. That hopefully answers your first question. If there is any doubt if you can ask me or to clarify right now.

Yes. Added to that was whether we are going to build them any differently. The 34% business that is coming earlier, I've heard you say that we are kind of billing them very nominally or just kind of covering our costs.

So in -- that's why I said the focus has shifted now to make sure that this is where the primary focus of bulk of the personnel and management is focused on the services now. So if that is your question, the management bandwidth yes, that is where the focus is going, but the specialized persons among us will still go on with the startup cost.

Are we going to bill them separately. This is the question. Earlier, we said we were billing them at...

With whom separately? You mean to say the startups and all.

Yes, I think.

Yes, we will look at what the start-ups are coming. Like we said in the opening comments, we are looking for much later stage start-ups now. So yes, we will be able to bill them.

[Operator Instructions]

I think there was one more question left he had asked about the prudence for Fortigo valuation and if you could have anticipated before. Is that correct?