Ladies and gentlemen, good day, and welcome to the eMudhra Q2 FY 2024 Earnings Conference Call, hosted by IIFL Institutional Equities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that the conference is being recorded. I now hand the conference over to Mr. Saurabh Thadani from IIFL Institutional Equities. Sir, please go ahead.
Thank you, Akshay. Good evening, everyone. Apologies for the slight delay, and thanks for joining us today on the Q2 FY 2024 earnings conference call of eMudhra Limited. On behalf of IIFL Institutional Equities, I would like to thank the management of eMudhra for giving us the opportunity to host this call. Today, we have with us on the call Mr. Venkatraman Srinivasan, Executive Chairman, and Mr. Saji K. Louiz, Chief Financial Officer. I will hand it over to Mr. Srinivasan to give the opening remarks and take the proceedings forward. Thank you, and over to you, sir.
Yeah. Thank you, Saurabh. Thank you very much. A warm welcome to our Q2 FY 2024 earnings conference call. I'm delighted to address you today and share our first quarter results. I'm delighted to announce that we have delivered outstanding performance, marked by substantial growth in all pivotal metrics. Our revenue surged by an impressive 61.5% on a year-on-year basis, accompanied by remarkable growth in EBITDA and PAT, registering 23.9% and 13.9% respectively. In the second quarter, our broad range of successful deal acquisitions in numerous markets, including both developed and emerging ones, has resulted in our continued growth in international markets. To sustain this growth, we have further strengthened our local support team to cater to the U.S. market, and also in the Middle East and other markets.
Our business in India continues to experience sustained momentum, largely driven by the government's Digital India initiative, resulting in eMudhra securing significant successes in various sectors, including e-government, eSign, and eStamping use cases within the banking and financial services industry. We also have secured notable deals across the healthcare, manufacturing, automotive, and other industries. Our integrated certificate lifecycle management solution is gaining significant traction with successful implementation in the banking and stock exchange sectors. In the trust service domain, our direct-to-consumer business is on a growth trajectory with pricing, with stable pricing. Then we continued investment in R&D across our diverse range of product offerings, notably in our Zero Trust and Paperless Transformation Solutions. In the realm of Certificate Lifecycle Management, we are actively expanding our repertoire of connectors to facilitate seamless automated certificate provisioning. We have also introduced advanced key management capabilities to bolster data encryption applications.
Our Identity and Access Management solution, IAM, is currently undergoing substantial enhancements to bolster its support for governance and authorization functions, business process model and notation-based workflow approvals, and connectors to facilitate seamless integration with leading platforms, further streamlining centralized access management. We are upgrading our emSigner product to address localization needs of the emerging markets, like e-stamping, integrations for digital lending, and connectors to seamlessly integrate with multiple ERP, HRMS, and other platforms. In summary, we remain optimistic about growth prospects in the global markets, and also in Indian market for both our cybersecurity and paperless transformation business segments. We are committed to judiciously investing in R&D and also in our sales teams to actively pursue these opportunities.
Our key project wins during the quarter: implementation of our MCA suite of product for a large government customer focused on delivery of citizen services, rollout of integrated access management and authentication platform for a large bank in India, continued deal wins in India across BFSI for emSigner, eSign, and eStamping for process automation and paperless transformation in lending, onboarding, and other workflows. This also includes a first of its kind rollout of integrated customer onboarding in capital markets using DDP instructions. Consulting engagement for establishment of digital signature infrastructure in a progressive country in Africa. Other business highlights: certification of emSigner for S/4HANA as a co-innovation partner with options for easy signing of documents such as invoices, offer letters, et cetera, originating in SAP systems. Preliminary R&D in the areas of post-quantum cryptography, mobile PKI, and associated integration mechanisms as it relates to eMudhra suite of offerings.
Revamp of our corporate website, focusing on positioning Zero Trust using infrastructure. So these are the various developments. Now, I request Mr. Saji K. Louiz to take us through the financial performance of the company during the quarter.
Thank you, Chairman. Good afternoon, everyone. I hope you are all doing well. Let me begin by sharing the headline numbers for Q2 FY 2024. Continuing with our growth momentum of Q1 FY 2024, we are happy to report revenue from operations of INR 963 million, a year-over-year growth of 64.6%.
The increase was majorly led by the Enterprise Solutions segment, which registered a revenue of INR 645 million, a year-over-year growth of 67.6%. The trust services registered a revenue of INR 318 million, a growth of 9% year-over-year, but a sequential growth of 14%. Our H1 FY 2023 operational revenue was INR 1,760 million, a year-over-year growth of 59%. Our EBITDA for the quarter was INR 287 million, up 23.9% year-over-year, and the margin was 29.6%. The growth and margin improvement were driven by a higher contribution from the Enterprise Solution business and internal operational efficiencies. We registered a net profit of INR 188 million, up 13.9% YoY, with margins of 19.4%.
Our H1 FY 2023 EBITDA and net profit were at INR 531 million, with a margin of 30.1%, and INR 351 million, with a margin of 19.8%, respectively. As part of our overarching strategy, we remain dedicated to delivering added value to our stakeholders. Our primary emphasis is on establishing new strategic milestones and broadening our client base, consequently enhancing our market presence. We extend our gratitude and look forward to addressing any inquiries you may have regarding our recent company performance. Please feel free to ask any questions you may have. Yeah, now we can go to question and answer.
Thank you very much. We'll now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handset while asking a question. Ladies and gentlemen, we'll wait for a moment while the question queue assembles. Ladies and gentlemen, you may press star and one to ask a question. The first question is from the line of Parikshit Kabra from Pkeday Advisors. Please go ahead.
Hi, Mr. Srinivasan. Congratulations on your revenue results. I just wanted to understand a little bit on the numbers on the profit, on the expense side. There is also a line, unallocated corporate expense, which is around INR 30 crore this quarter, as opposed to the same quarter last year, which was about INR 15 crore. This is, I understand, on top of probably the sales expense that you're building up for your international business. So just trying to understand why this number has increased.
You are referring to the segmented result, is it?
Yes, that's right.
Unallocated corporate. No, generally, what happens, we have two-
Where it has increased? 312.
No, last year was,
Recently?
No, no, what you said, compared last year, how much, and this year, how much you said?
Sorry, have I got the numbers wrong?
I think so.
Because roughly INR 571 million is there for the last full year.
Here, unallocated corporate expense is INR 312 million.
This is for six months, actually.
This is six months. The heading quarter is wrong.
Correct.
Actually, this is for the whole year. The last year, for the whole year, this is for six months.
Six months, yeah.
So no, the heading is wrong. It is not for quarter ended March. This is for the half year. So that way it is almost in proportion only.
Got it. Fair enough. So then the enterprise business, the international enterprise business, that has dropped in margin, that has been purely because of the investments you're making in your BD capabilities abroad, or is there any other reason why that margin has dropped?
Mainly, number of people are recruited. For example, if you take the employee cost and benefit expenses, the employee cost almost for the first half year of last year was INR 29 crore. From there, this year, first half year is INR 41 crore. So similarly, if you see the September 2022 quarter last year, it was INR 14.7 crore, now it is INR 21 crore. So almost INR 7 crore quarterly increase in employee cost, which is predominantly attributed to international-
Got it.
Because we have recruited number of people in U.S.A, then number of people in Qatar, then Saudi Arabia, then Kenya, everywhere.
Got it.
These are all started producing results, but over another one or two years, it will produce better result.
Yeah. So I just wanted to understand that, in fact, because we ramped up to a this kind of revenue. Now, for last four quarters, we have been around this kind of revenue. So now with this major investments in the BD team abroad.
Yes.
Are we expecting to see results from next quarter, or are we saying that, you know, the ramp-up will take two, three more quarters? Is there any guidance you can give along those lines?
So it will take two, three more quarters. It may not be in the next quarter itself, because the next quarter, if you see this quarter, so last quarter we were around INR 80 crore, this quarter we were INR 96 crore. In this INR 96 crore, again, generally, July to September is the season for the Indian digital signature business.
Yes.
So that way it will be slightly more also. So that may a little bit come down in the next quarter, which can be compensated by the enterprise business and all that. So beyond that, the further growth in the results may happen. It may take two, three quarters for the international business. Now, only we are holding number of event, conferences, meeting lot of people, then we have created a separate inside sales team for the U.S., so this will all take time. It may not immediately happen in the next quarter.
Okay. So basically, if I understood correctly, sir, you said that right now it's the peak season for your trust services, India's DSC services. So when-
No, quarter two was the peak season. Quarter two.
Correct, quarter two.
Yes.
Now that that will come down somewhat, that will be compensated by enterprise sales, but beyond that, growth is not expected as of yet?
Immediately in the next quarter itself may not happen, may take one or two more quarter. Yeah.
Got it. All right, I'll come back in the queue, sir. Thank you.
Okay, thank you.
Thank you.
Yes.
Ladies and gentlemen, you may press star and one to ask a question. The next question is from the line of Rajvi Poladia from Sohum Asset Managers. Please go ahead.
Hello. Can you hear me, sir?
Yes, ma'am.
Yes.
Go ahead.
Yeah, so I basically wanted to ask you, why is there a decline in your international business?
No, it did not decline. If you see last quarter, almost it increased substantially from some INR 28 crore or something, it went to INR 43 crore. So that kind of... Compared to that increase, it remained almost-
Flat
Flat. It is not a decline, so and that kind of momentum will continue.
Okay, you know, sir-
Because the increase in last quarter-
Can I compare it to quarter-on-quarter?
Last quarter, if increase was only few 5%, 10%, it would have comparatively, it would have further increased, because it also depends on certain large deals coming, no?
Okay. And sir, what is the contribution of Ikon to the total revenue this quarter?
The incremental revenue due to Ikon in this quarter is around INR 10 crore.
Okay, sir.
Mm-hmm.
Okay, thank you.
Thank you.
Thank you. The next question is from the line of Saurabh Thadani from IIFL Institutional Equities. Please go ahead.
Hi, sir. Thanks for the opportunity, and congrats on a good set of numbers. My first question is on Digital Trust Services. This quarter, we've seen a pretty strong sequential growth in the Digital Trust Services. Could you just let us know what this is being driven by?
So Digital Trust Service, as I said, if you see mainly this Indian digital signature business, this Aug- July, August, September, second quarter is the peak season for them. Because by September end, lot of companies have to file their tax audit report, and some of the companies need to file the income tax returns also. And also number of company law returns have to be filed in that period. So because of that, we generally, the volume in the second quarter, comparatively, if you see the volumes of the digital signature, the token-based digital signature business, not the e-sign, token-based digital signature business, out of the yearly volume, almost some 35%-40% happens in the second quarter. So that is one driver. Then the second driver is in the end of September, around 24th or 25th, we increase the price also.
So both these resulted in the increase in the domestic Digital Trust Service business.
Got it. Thank you. My next question is, in terms of the order book since we last declared it six months back, could you give us an idea about how that has trended over the last six months?
No, last six months it has improved considerably. So in line with the previously, from almost INR 70 crore, it increased to some INR 120 or INR 130 crore. In that proportion, it is increasing. The pipeline, what we are negotiating with the customers, everything is also increasing. So that's why, based on those things, we gave last time, around the INR 350 crore-INR 360 crore we can definitely achieve in this year. So which we continue to be bullish, we should be able to achieve it.
Got it. Thank you. I'll fall back in the queue.
Thank you. The next question is from the line of Rahul from AKSA Capital. Please go ahead.
Hi, this is Rishi Maheshwari. Thank you so much for taking my question. Sir, you've had a very splendid quarter this quarter. I think it's a confluence of several factors that has come through, one of which is obviously the growth in the international business, and you positioned yourself over several last few quarters to, you know, do marketing activities. At the same point in time, you'd mentioned in the last few quarters that there is receding competition in the trust services that had, you know, that had challenged the pricing environment.
So having taken note of both these factors in both your industries, is it possible if you can give some qualitative as well as quantitative outline of the next two years in terms of how the growth will be for the ERP Solution business and the Cash Flow Trust business? Thank you.
the trust business, we had earlier told we may be able to achieve a growth of 15% over the last year. Last year, compared to previous year, previous year was around INR 85 crore, last year also was around INR 85 crore. So then we said 15% growth is possible. Now, based on this, if you see the first two quarter number, first two quarter number itself is almost a little over INR 50 crore, between INR 52 crore. So based on that, we are still confident that we can achieve this 15% growth over the last years, if we just double it or little lower than double also. So that way, there is no problem on that. Whatever we told earlier, we still stick to it. Then the Enterprise Solution business, because the, the pipe, the pipeline, what we are chasing and the order book is continuously increasing.
So that is what is giving us the confidence of achieving this, whatever number we had with the last time and all what we had told around this, INR 360 crore kind of number for the whole year. That also we are confident. And next year we are still working towards the further enhancement in the pipeline and further enhancement in the pending order book position. So based on that and the other market research agencies and all of them are projecting for our industry around 30% growth rate. Maybe if not 30%, at least little over 20% or something should be possible, but it is too early to say, because still we don't have the, what will be the pipeline at the end of March and what will be the order book at the end of March and all that.
Sure, sir. Sir, if you can give us some qualitative insight also in terms of the number of new logos that you've added, and any specific geography. You last time mentioned in your call that you were looking at U.S. as a favorable geography, where you have beefed up your the relationship management strength, the sales and marketing team strength. So if you can help us explain, you know, any specific geographies, any specific industry verticals that you are that you are more integrated more actively looking at?
In Africa, Africa is picking up. In Africa, we have won some two large orders, and then now several countries are looking up, setting the roots between authority and digital transformation and all that. So, so that is one area which can give good revenue. In the Middle East, all the banks, if you see UAE, all major banks we are working, and every bank is going for additional orders. So that's why if you see the number of today, because we already have 900 customers, the number of additional customer is less, but the revenues from the existing customer, additional revenue from existing customer is good. So that is one thing which is improving. Then in the U.S. geography, we have put the senior people. Now we have started getting the contract of several companies and all that.
The U.S. expansion, it may take some one or two years to really get to some position, but still we are doing a good business. Almost, we may do some INR 60 crore-INR 70 crore business in the U.S., so which will be possible because our acquisition is also there and all that. But to deeply penetrate, it may take little more time.
Sure, sir, I get that. And from a pricing perspective, is there any, given the kind of, you know, we've seen the other IT companies, though they're not in the same nature of the business that you're doing. However, since we've seen a lot of slowdown issues, there has been issues related to pricing as well. Volumes being has been cut for all of them. Have you also seen similar nature of slowdown in conversations that you're having with your existing clients or with the future clients?
No, our product pricing, there is no standard pricing. It all depends on what customer want, how large the customer organization, and those kind of things. Our industry, number of players are also not there. They are very limited in the particularly in this, Certifying Authority Solution and also this, Cybersecurity Solution and the CLM, Certificate Lifecycle Management solution and all that. Purely, they are all U.S. vendors. They're having commanding very good price. So that way, we are not seeing that kind of a big pricing pressure. In Indian trust service business, we saw pricing pressure. That's what last two, three quarters I explained, because the new competitors had come, and then that's why the prices were low. Now, gradually, we are again trying to increase the price. So others are also a little bit following and increasing.
I feel over time, the increased price could sustain.
Sure, sir. Thank you so much for your help.
Thank you. Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask a question. The next question is from the line of Palak Shah from ITI Alternate Funds. Please go ahead.
Hi, sir. Thank you so much. I hope I'm audible?
Yes.
Yeah. Just a couple of questions. Firstly, given our size and the operating cost base that you're sitting on, what will be the incremental conversion from revenue to EBITDA, and what has this been historically?
This year, because our EBITDA is around 30%. So this year, the earlier EBITDA was much higher because our foreign geography costs and sales costs were lower. Now, to drive the revenue in a big way, we have appointed a number of people abroad, number of consultants abroad and all that, so which is where the cost is increasing. So now it is a balance we are striking. So if we put too many people, the EBITDA can further go down compared to revenue, but revenue expansion could be better. But so we try to strive to maintain at this level by balancing the growth with the balancing in the increasing cost. So for this year, I feel we will be able to maintain the EBITDA at the current level of around 30%.
Apologies, sir. I meant what will be the incremental revenue conversion to EBITDA level? Would it be like 50%-60% going forward?
That is very difficult to measure because, that way, we are not operating in a constant environment. We need to put. Once you grow further, you have to put further people. So, that way, it cannot. What will be the incremental revenue EBITDA to cost? That way, we do not measure, and it is impossible to measure also in our industry.
Sure. So on the margin front, as you look at, most of the operating leverage is actually getting negated by a faster jump in your other operating expenses. Can you please share what forms are part of these expenses? Can we see some way of operating leverage going forward, given that you have completed most of your international expansion?
No, no, no, we have not completed. We are at the beginning. For example, when I say in America, we are at what level? Some $8 million-$10 million, not even $10 million revenue, $8 million. If you see a DigiCert, which is purely issuing a digital signature, they are at $850 million revenue. Then our end, this is, this, workflow transformation solution. What are, what is our revenue? Some $5 million-$7 million. What is the DocuSign? $2 billion. So we are in the beginning. So in the beginning, I am trying to expand. So when I'm trying to expand, I have to put the people also to expand. So that's why I don't think it will immediately result in any operating leverage by which EBITDA can go beyond 30%.
If they are able to maintain the EBITDA 30%, I think it is good with the growth.
All right. So just, just some clarification on this. When you, when I say the operating expense, I mean, the cost of employee and the other operating expense, which include rents, which is a majority of part of the fixed cost that you're bearing right now.
Yeah.
My assumption was operating expense is more variable, but it still would have seen some operating leverage, given that you have seen almost 60%-
That is the, if you are saying direct cost, which is attributable to revenue, that mix also, the gross margin is reducing because there is a service mix also. Purely when you supply product and don't take up any service business, that is different. But today we are also, because Ikon is a service business, then we are also bidding for a lot of service business. And also earlier we were bidding only for software product, but now a lot of government projects, where some portion of hardware is also there, that's also we are bidding. So hardware, we may not get more than 15% margin or 10% margin sometime. So that way, the gross profit, the, direct operating cost also is increasing. That's why with the growth, gross margin is becoming lower.
Then we have to put a lot of people for the foreign geography expansion. So, but with all this, we are doing in a balanced way, so that on an increased revenue, we are still able to get the 30% margin.
All right. So just lastly, one question. Is there a better way to understand our quarterly volatility in the segmental margins? Given the couple of segments this quarter saw material contraction on a sequential basis, while the others saw material improvement, both on YoY and quarterly.
It is very due because the number of government contracts are turnkey contracts. Sometimes software component is 80%, hardware component is 20%. Sometimes software, but they want us to take a turnkey contract only. Software component is less and hardware component is more. So, and some hardware profitability is higher, some hardware profitability is lower. So that way, segment-wise, because each contract-wise and each bill-wise, the margins are different. So grouping it together in certain way is becoming very difficult. And in trust service, again, suddenly price increase, so margin will be higher. Again, price fall down, margin will be lower.
So, is trust services has such a volatile pricing environment?
Trust service, the price is several times. From four years back it was INR 125. From INR 125, it went all the way to INR 400. From INR 400, it fell down to INR 80, and then again, it went to INR 120. Now, again, we have increased the price to INR 240-INR 300. So like that.
But so given that you are mixing, changing our mix from channel and partner to direct retail,
Yeah.
I would have imagined that-
Not much, direct retail, not much of change, but in the channel, these kind of change happen depending on the competitors in the channel.
Sure, sir. Thank you for taking my question. Just one request. If you can maintain the disclosure levels versus the last 4-5 quarters, it becomes much easier for us to understand what has transpired in the quarter, in the last 12 months at least. It will be really helpful.
What, what is it?
Sir, disclosure levels. We have, based on this time around, we have not given the split in terms of the-
Yearly, yearly thing, we are giving yearly. Some of this we are giving quarterly. So quarterly, whatever we have given, we have given, I think, because something, if you give quarterly, it may not reveal the right trend, you know?
Got it. Sure, sir. Thank you so much for taking my questions, and wish you a very happy Diwali.
Right. Right. Right. Thank you. Thank you.
Thank you. Thank you. The next question is from the line of Saurabh Thadani from IIFL Institutional Equities. Please go ahead.
Thank you for the follow-up opportunity. Sir, can you talk about how integration with Ikon Tech Services has progressed? Any initial success that we have seen in terms of cross-selling our services to Ikon Tech Services clients or vice versa?
Yes, some first order is yet to come, but it is in an advanced stage of negotiation. So mostly in this quarter it will come, but another four or five discussions are happening. But in this Europe and U.S. geography, things take a lot of time. So that's why within one month, two months, no decision is taken. At all, any software decision takes some six months time to take. So that's why we expect something could happen in the next quarter.
Got it. And one bookkeeping question: so the Ikon Tech Services revenue from a segment perspective, have been accounted in the enterprise outside India, right?
Yes. Correct, correct, correct. Yes.
Got it. That's it from my side. Thank you.
Thank you.
Thank you. Ladies and gentlemen, you may press star and one to ask a question. A reminder to all the participants, you may press star and one to ask a question. Ladies and gentlemen, you may press star and one to ask a question.
If there are no questions, then we can conclude also.
Okay. As there are no further questions for the participants, I now hand the conference over to management for closing comments.
Thank you. I would like to thank everybody for joining the call. I hope we have been able to address all your questions. For any further information, kindly get in touch with our investor relation advisors. Thank you once again, and have a great day. Thank you.
Thank you. On behalf of IIFL Institutional Equities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.