Good afternoon, everyone. This is Swati from Investor Relations team at Nucleus Software. A very warm welcome to all of you for this Nucleus Software earnings conference call for the quarter ended June 30th, 2022. For discussion, we have here from the management team, Mr. Vishnu R. Dusad, our Managing Director. Mr. Parag Bhise, CEO and Executive Director. Mr. Anurag Mantri, CFO and Executive Director. Ms. Ritika Dusad, Executive Director and Chief Innovative Officer. Mr. Brajesh Khandelwal, Vice President, Neo Business. Mr. Ashwani Arora, Senior Vice President, Global Customer Success Team. Mr. Sanjeev Kulshreshtha, Senior Vice President, Product Build. Mr. Ashish Khanna, Business Head, Financial Inclusion, and Mr. Tapan Jayaswal, Financial Controller. As you all are aware, Nucleus Software does not provide any specific revenue earnings guidance.
Anything which is said during this call which may reflect our outlook for the future or which may be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. An audio and transcript of this call would be shortly available on the investor section of our website, www.investor.nucleussoftware.com. With this, we are now ready to begin with the opening comments on the performance of the company for the quarter ending June 30th, 2022. Post that, we would be available for the question and answer session. With this, I now pass it over to Vishnu, sir. Over to you, sir.
Thank you, Swati, and a very warm welcome to all of you for this call, first quarter call, giving you an update about our performance during the quarter. We had, I would say, another robust quarter where we've built strength all around. Most of them are internal strength building, and some of them are external strengths also, which we would talk about. We continue to build a strong organization. With those words, I would now like to invite my colleague, Parag, to give his update.
Good afternoon, everyone, and welcome you all to this investor call. As Vishnu just mentioned, we had another robust quarter. In fact, some of our implementations got completed in this quarter, few of them on cloud, one of them outside India, and we also completed one very complex multi-country implementation on our collections in this quarter. So that's on the implementation side. We had talked about price revisions, so I'm kind of preempting that question because our price revision discussions with some of our key customers have started. We had not expected to close them in this quarter, hence they are not yet reflected in the revenues.
We have consciously delayed some of our AMCs, which would have started earlier in this quarter because we wanted to take them on revised pricing. That impact is expected to come in quarter two and quarter three. On the attrition front, while it still continues to be a challenge, but we are kind of seeing some improvements in the trends. It is too early to talk about them because it's just month of July and August that we have seen some improvements. We will be watching them closely. Those are some of the few things which we wanted to update. Thank you so much. Yeah, Anurag, would you like to come in now?
Thank you, sir.
No, Parag, summarize it. After this, Tapan will be placing the financial update.
Okay. Yeah, sure.
Yeah.
Okay.
Hello.
Thanks, sir. Now I request Tapan, sir, please put some light on the financial numbers.
Hi. Hi, good afternoon, everyone.
Yeah, over to you, sir.
Yeah. Key highlights from financials are our consolidated revenue for the quarter is at INR 128.8 crore against INR 153 crore quarter-over-quarter and INR 108.4 crore year-over-year. Overall revenue in foreign currency, including Indian rupee revenue, is $17 million for the quarter against $20.6 million quarter-over-quarter and $14.8 million year-over-year. Product revenue for the quarter is at INR 108 crore against INR 129.6 crore quarter-over-quarter and INR 89.9 crore year-over-year. Revenue from project and services for the quarter is at INR 20.8 crore against INR 23.4 crore quarter-over-quarter and INR 18.6 crore year-over-year.
As for expenses, cost of delivery, including cost of product development for the quarter, is 75.6% of revenue against 71.2% of revenue quarter-on-quarter and 81.2% of revenue year-on-year. In absolute terms, this is INR 97.4 crore against INR 108.9 crore quarter-on-quarter and INR 88.1 crore year-on-year. Marketing and sales expenses for the quarter is 3.3% of revenue against 3.5% of revenue quarter-on-quarter and 5.7% year-on-year. In absolute terms, this is INR 4.2 crore against INR 5.4 crore quarter-on-quarter and INR 6.2 crore year-on-year. G&A expenses for the quarter is 9.9% of revenue against 9.2% of revenue quarter-on-quarter and 11.8% year-on-year.
In absolute terms, this is INR 12.7 crore against INR 14 crore quarter-on-quarter and INR 12.8 crore year-on-year. EBITDA for the quarter is at INR 14.5 crore against INR 24.7 crore quarter-on-quarter and INR 1.4 crore year-on-year. Other income from investments and deposit is at INR 3.9 crore against INR 5.7 crore quarter-on-quarter and INR 8.8 crore year-on-year. Total taxes are at INR 4.7 crore against INR 7.7 crore quarter-on-quarter and INR 3.1 crore year-on-year. Net profit is at INR 10.8 crore for the quarter, 8.4% of revenue against 18.3 crore for the quarter, which is 12% of revenue quarter-on-quarter, and INR 6 crore, which is 5.5% of total revenue year-on-year.
Other comprehensive income is at INR 0.2 crore for the quarter against -INR 5.7 crore quarter-over-quarter and -INR 3.2 crore year-over-year. Total comprehensive income, which includes net profit and other comprehensive income, is at INR 11 crore for the quarter against INR 12.6 crore quarter-over-quarter and INR 2.8 crore year-over-year. EPS for the quarter is at INR 4.02 as against INR 6.67 in the previous quarter and INR 2.07 in June thirtieth, 2021 quarter. In terms of foreign currency hedges on June thirtieth, 2022, we had $3 million of forward contracts at an average rate of 77.8. There is a mark-to-market loss of INR 52.9 lakhs, which is taken to the hedging reserve in balance sheet.
Revenue contribution from the top five client for the quarter is 26% against 29% in the previous quarter. The order book position is INR 562.5 crore, including 527.7 crore of product businesses and INR 34.8 crore of project and services businesses. In March 31, 2022, the order book position was INR 562.1 crore, including 515.3 crore of product business and INR 46.8 crore of project and services business. Total cash and cash equivalent as on June 30, 2022 are INR 551.1 crore against INR 542.9 crore as on March 31st, 2022.
This includes balances in current accounts of INR 39.5 crore, various schemes of mutual fund INR 398.5 crore, fixed deposits of INR 30.4 crore, investments in tax-free bonds of INR 77.5 crore, INR 5.1 crore in preference shares. With regards to receivables, we are at INR 68.2 crore against INR 83.2 crore previous quarter. During the quarter, there is a gross addition of fixed assets of INR 0.53 crore, consisting primarily of INR 0.18 crore on computers, 0.25 crore on vehicle, 0.09 crore on software, and 0.01 crore on plant and equipment. Now I'll hand it over to Swati.
Thank you, sir. With this, we are now ready to open the question and answer session. I will now hand it over to Ganesh. Over to Ganesh.
Thank you, Swati. Now I request all the participants, if you have any question related to the topic, you may please press zero one from your telephone keypad and wait for your name to be announced. We have the first question from Mr. Vaibhav Badjatya from Honesty and Integrity Investment.
Yeah. Hi, sir. Thanks. Thanks a lot for providing the opportunity. Just wanted to know what is the number of employees for the June ending year. Is there a substantial change compared to last quarter?
Vaibhav, thanks for asking this question. On the right side, the associates count as of the 30th of June, it stands at 1,756.
1756?
One, uh, 1756 . One seven five six.
Okay, got it. Understand. If I compare your employee cost, you know, what was there in June 2020, the same quarter last year and this quarter. On a per employee basis, if I take the kind of, you know, average employees, and then, the cost has gone up just by 7% while we always keep highlighting about the, you know, bold steps that we're taking. Just wanted to understand what employee cost does not seem to have risen or increased a lot on a per employee basis. If you can explain that would be helpful.
Sure. As we have updated in few last calls, we have taken significant and very significant measures with respect to taking good care of our human assets. Those increments have been quite high. The percentage overall you are referring to, that is coming out because in this year we have also onboarded a very, very high number of young talents, young minds, the freshers.
Mm-hmm.
On one side we are taking those calls to take care of our talents. On the other side, we are also inducting a good number of freshers with both the objectives to actually increase our delivery capacity and also to keep the balancing act with respect to our personal costs. That's why. I hope this answers.
Yeah, I mean that was expected. You know, 25% salary increase going down to 7% is quite a huge change, so I was just wondering if something else can explain that.
Yeah, sorry. Please go ahead.
Yeah, yeah. Please go ahead. Yeah.
Yeah. Induction of the freshers and actually and that too in a good number or in totality we have onboarded close to 400 associates, and that's a big percentage. That has helped us to keep the overall percentage increase in check while we could still offer or increase the personnel cost for our experienced professionals. That's been balanced out, [Vaibhav].
Mm-hmm. Mm-hmm. You got it. Understood. I missed out on the introductory comment on AMC that you mentioned because my network was a bit weird. If you can just explain that in detail. I mean, you said that you've delayed some of the AMC contracts which will get reflected going ahead. Just wanted to understand what was that.
Yeah.
This is Parag here, [Vaibhav]. What I mentioned is that we've been talking about it, I think at least last two quarters that we would be working on AMC revisions with many of our customers. What I was saying is that those discussions.
Mm-hmm.
They are going on, but since these are like significant revisions, they are taking time. We did not expect them to materialize in Q1, many of them. Had we taken these AMCs on the existing run rates, maybe we would have, we could have seen some more revenue in this quarter. Since we have consciously not accepted those AMCs on the current rates, we expect them to materialize in Q2 and Q3. That's what I would say.
Got it. This rate thing is only related to AMC or on the kind of, you know, sale that we do on the product sale, license sale and an implementation revenue. Are we changing rates there as well?
Yeah, yeah. Everything actually. The impact because since we have a large customer base already, the impact we are expecting, the positive impact we are expecting is primarily because of AMCs. Because rest is all, your question is right, so we are revising everywhere. The impact primarily we expect from AMC this year.
Okay. Got it. Understood. Yeah. Yeah, that's it from my side. Thank you.
Next we have [Mr. Amit Chokre] from [PS World Capital].
Yeah. Hello. Is it possible to segregate or quantify the AMC revenue as a percentage of total sales, a rough figure?
AMC revenue as percentage of
Hello? Hello, am I audible?
Yeah. Yeah. Yeah.
Yes, sir.
Yeah. Amit, no, that kind of segregation we don't provide. Sorry for that level of segregation.
Okay. Another question that I had was related to, you know, the IT product business per se. Nucleus Software has this product which is quite aged, a matured product and has been selling this product for a long time. You know, generally how it works is, as I've seen that for most of the IT products companies, as product matures the margins do expand considerably, you know, maybe to 30%-40% of the revenues. But that kind of expansion has never been seen for our company. Is it fair to say that, you know, it depends probably on the clients?
I mean, we majorly serve within Asia and maybe I think 40% of the revenues come from India. Is it something because of the geographical you know presence or is it something that you haven't gained scale as yet? Can you put some color on that?
Yeah. Thank you. Thank you so much. This is Vishnu. Thank you for raising this very meaningful question. In Asia there seem to be, I have to say this unfortunately, some bias against Asian products. What happens is if it is a product from, you know, part of the world, it can end up getting 10 times, at least 10 times more, I think. This is a challenge which we are attempting to address and hopefully with the quality of the product, with the quality of the value delivery that our products do, our customers would be able to get over this centuries-old bias also. We will. One of our core objectives of the company is to create these products from this very soil. Hopefully, we'll be able to fulfill this objective of ours over in the near future.
Okay. Thank you, sir. That's all from my side.
Thank you. Next we have Mr. Vaibhav Badjatya from Honesty and Integrity Investment.
Yeah. Thanks for the follow-up. Just on the AMC front again. We have not renewed the contract. What does it mean? How the customers are currently being serviced? Because if you have not renewed the contract, then the old contract is no longer in force. Have the customers been losing enough deals or they have contacted you from
Thanks for asking that. Thanks for asking that question. There is no absolutely no impact on the service level. We continue to support them. We've given them those renewed proposals with extended date because the rates revisions are significant. It's like an extension given. On one side there's no impact on our support. It is just that we've given them the extension date and. There is a date, we will revise them by that date. I hope that answers your question.
Right. Just to understand this better, so we continue to provide support services which is already in our cost, right? On the revenue front, are we recognizing revenue at the old rate or we are not recognizing at all?
No, no, we are not. That's why, that's why you'll kind of see that reflecting in that, in our Q1 revenues. Our Q1 revenues could have been better, would have been better had we recognized them at the old rates. That was the purpose of my.
Okay. We are not recognizing it at all. Okay.
At all.
Okay, got it. The cost, but the costs are already there.
Yeah, that's okay. We've taken that call because.
Mm.
Correct.
Mm.
We've taken that temporary call.
Okay.
Yeah.
Okay. Got it. Understand. Sorry to just keep repeating this point on every conference call, but this cash accumulation is something that the board has to think seriously about. You know, I think there has to be some mechanism as cash moves out from the company, otherwise all the cash generated just becomes, you know, 4%-6% yield for shareholders as well. For company also and for shareholders as well. So practically, you know, everything is getting reinvested at 4%-6%. Eventually our company will become a 4%-6% yield company, which is not a good outcome. There has to be some way to kind of, you know, that the cash has to regularly go out from the company.
Given the fact that promoters are already close to 75%, there's no other way but dividend. I would request again to think about the dividend payout policy as a percentage of profit. Just pay out regularly. That's again a request. That's it from my end. Thank you.
Thank you very much. I think we have answered this question. Unless you have anything additional to say, we have answered this question earlier as you know, we have mentioned already. Unless you have anything additional to ask, we'll just restate what we have said. That's all.
I just wanted to bring that point again that there's no question here involved, so you can move on to the next.
Okay. Maybe I can just add additionally, because we've talked about it during this call. Apart from the financial returns that an investor does look for, you know, there is a concept of where it is that you are investing. That is how there is a concept of green investment, right? We would also request you to look at this investment from apart from the financial returns, this investment as investment in intellectual property, in creation of intellectual property from this soil. If that appeals your investment philosophy, then it is good. Otherwise, you know, the buybacks have been happening.
Got it. Yeah, I understand, Vishnu, this point, and in fact, I would like to see investment into intellectual property. It should come into P&L, it should come into balance sheet, but as of now, it's all cash. If you invest in sales, if you invest in form of expenses on intellectual property, it will come in the P&L, and I would really appreciate it. There's no doubt about it. I'm a very strong believer in your company and the honesty and transparency of your whole team at all. That's why I'm continuously on the con call. I don't have any issue if you invest there, either in sales or in intellectual property.
The issue is that it is sitting on the balance sheet, and it is sitting in form of cash only, and it keeps increasing. It has been more than 10 years now. 10 years earlier, we had INR 250 crore of cash. Now, even after doing all these buybacks and everything, it has now increased to INR 550 crore. It just keeps accumulating, and that's where the my problem is. If you invest in intellectual property, I will be the first one to praise you or if you invest in sales. That was the small point. I think that's it from my side.
No, thank you. Thank you.
I will not raise this again from the next quarter.
Thank you very much for those very kind words, which we really appreciate, your recognizing. Only additional point I would like to say is, you know, certain things they really take time. Like this, you know, intellectual property, it takes really long time. Thanks for bearing the pressure. Bearing with us. Thanks for your patience. As I mentioned, we are, you know, fighting some slightly different kind of battle here, you know, in terms of, as has been mentioned, branding of, you know, intellectual property coming from one geography versus branding of intellectual property coming from another geography and so on. Yeah, you hopefully you'll get to see the results soon enough.
Sure. That's it from my side.
Thank you. Thank you.
Thank you. I request all the participants, if you have any question related to the topic, you may please press zero one from your telephone keypad. Next we have Mr. Samarth Singh from TPF Capital.
Good afternoon. Thank you for taking my question. It is, first question is regarding the pricing. You know, glad that we are finally having these pricing discussions with our clients. Historically, our AMCs, do they have an inbuilt price escalation, like year-on-year price escalation in them or do they not?
Yeah. Both our AMCs have that inbuilt clause, but that's primarily to cover the inflationary costs. We are now essentially talking about a repositioning because of the value that we deliver and also because of the significant increases in the expenses that have happened. It's essentially repositioning. That's why it is significant. Yeah.
Okay. These, the AMC, the price escalation, is this only for our new product? Is this FinnOne Neo or is this for the old legacy FinnOne product as well?
No. Old as well.
Old as well. Okay. Will you be able to give a breakup of, you know, what percentage of our revenues today come from FinnOne Neo versus the legacy product?
Tapan, do we provide that breakup or we don't? I don't think we provide that.
No, we don't provide those type of breakups.
Okay, let me ask. I guess I'll ask the question a different way. The opportunity of converting clients from legacy to FinnOne Neo. Is that opportunity still there or have most of our old clients already converted?
No, no. We have a large client base, most of our clients have not got converted yet. It's a core part of our strategy this year and the next year to migrate clients from old product to new product.
Okay. That would automatically see an increase in pricing, if I'm not mistaken. Is that right?
That would also see an increase in pricing, for sure. Yes.
Okay. If you could just explain it to me. I mean, we launched FinnOne Neo quite a while back and, you know, sitting on the outside, I can't tell, but I'm assuming it was a much superior product. Why is it that there has been a sort of lethargy in terms of our clients moving from the legacy product to FinnOne Neo, especially during the last two years where a lot of investments have been made into digitalization, et cetera?
Okay. I'll have to go back a little, and we would have talked about it in our calls maybe a few quarters back. Our earlier model of product was that we would encourage and end up doing a lot of customizations. While the product, new product is superior, there's no doubt about it, but especially the old customers who have that mindset that they will get things done exactly the way they want is where we sometimes face challenges. There are customers who got a huge amount of customization done in the last many years. For them to expect everything to come in on the new product exactly the way they got it done in the old one is something which we don't encourage and agree to.
That is one place where we face some challenges. Otherwise, conceptually, I would say most of our customers would want to move to the new product.
I see. Okay. That's very helpful. One last question for Vishnu. You talked about the issue of being able to sell a product coming from, you know, basically our geography. But you know, one of your ex-colleagues, his business has been able to break that barrier. What do you think they have done that has been successful that perhaps Nucleus can learn from and apply in our case?
I'm not very sure. Thanks for raising this point, but I'm not very sure whom are you referring to. In any case, we keep a close eye on the market and that is how we are learning. Yeah. Thank you. Thank you for highlighting these developments.
Okay. That's it. Thank you.
Thank you. For any question, you may please press zero-one from your telephone keypad. That does conclude the conference for today. Thanks to all the participants and the speakers for joining this session. On behalf of Nucleus Software, we wish you all a great day ahead. Thank you. You all may disconnect now.