Ladies and gentlemen, good day and welcome to eMudhra Limited's Q1 FY 2023 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 this conference is being recorded. I now hand the conference over to Mr. Rishi Jhunjhunwala from IIFL Institutional Equities. Over to you, sir.
Yes, thank you. Good afternoon, ladies and gentlemen. Thanks for joining us today on Q1 FY 2023 Earnings 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 hold this call. Today, we have with us on the call Mr. Venkatraman Srinivasan, Founder and Executive Chairman, Mr. Saji K. Louiz, Chief Financial Officer, and Mr. Kaushik Srinivasan, Senior Vice President, Product Development. 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.
Thank you, Rishi, and thanks to all of you for joining this call and welcome all of you to this call. Good afternoon to everyone and welcome to eMudhra Limited's Q1 FY 2023 Earnings Conference Call. First, all are staying safe and healthy. We had the direct listing on BSE and NSE in June 2022. During our previous earnings call, we had presented a detailed overview of our business model and underlying strengths, our business segments and product portfolio, and the financial performance for FY 2022. Our Q1 FY 2023 investor presentation has already been shared and copy of which is available on our website and on the stock exchanges. I hope all of you had the opportunity to go through the presentation.
Company overview. For all the new participants to our conference call, I would like to briefly summarize the company overview. EMudhra started its business in 2008 with a mission to accelerate the transition to secure an integrated digital ecosystem with digital identity and Enterprise Solutions at its core, for individuals and organizations. Over the past decade, we made great focus on product development, enterprise solutions, cost management, while also laying stress on security, compliance, governance, and client support. As of now, we have around 1.6 lakh retail customers and about 1 lakh channel partners in our Digital Trust Services segment. In the Enterprise Solutions, our client base is 614, and we have 277 partners in India and 288 partners in 21 countries.
Our client base consists of a diversified mix of government, BFSI, and private sector. Now, moving on to quarterly performance. I am pleased to report that we have registered a strong quarterly number in Q1 FY 2023, and continue to maintain our growth momentum. During the year, we have delivered strong growth. During the quarter, we have delivered strong growth of INR 522 million, with growth of 21.7% year-on-year and 15% on quarter-on-quarter basis, with a strong margin profile with EBITDA margins at 40.1% and PAT margins at 26%. The quarter-on-quarter PAT growth was 27% and year-on-year PAT growth was 44.4%. This was aided by growth in our Enterprise Solutions business, especially in international markets.
This is also a reflection of enterprises globally adopting data security and paperless transformation solutions as part of enterprise digital initiatives. We have also registered key project wins during the quarter, such as one implemented emCA Certificate Lifecycle Management for a large telecom company in Asia Pacific to help them issue digital signature certificates for various B2G and B2B use cases. Completed rollout of emSigner for end-to-end paperless transformation for a large bank in West Africa for various use cases across retail and corporate banking customers. Implementing e-passport rollouts for a country in Middle East using emCA and allied solutions to comply with e-passport issuances as per International Civil Aviation Organization.
An implementation of solution for usage and integration of identity backed digital signatures for a blockchain platform in USA for secure exchange of documents. Won deals from smart cities in India for digital signature-based authentication for secure user and device access. We look forward to maintaining this growth momentum in our Enterprise Solution business, backed by our competitive advantage, established presence in key markets, and diverse product portfolio in the area of digital security and paperless transformation. Again, coming to the near-term strategic focus areas. Globally, pandemic has resulted in businesses moving towards contactless touchpoints, processes to products, and thus helping them moving towards digital ecosystem backed by a strong focus on data security and compliance.
This niche requirement has forced enterprises adopt completely digital ways of doing business, creating new business opportunities for companies like ours. eMudhra is glad to be part of this digital transformation ecosystem, and our emphasis is on, one, creating market leadership through innovation, product superiority, and growing market presence across our identity, authentication and e-signature workflow suite of offerings. Market expansion. We see opportunity in expanding the market through growth in some of the geographies where we have already been operating, and penetration into newer markets through partnerships. Developing sector-specific new products. We have already been verticalizing our product emSigner for banking industry, which has yielded good results.
Similarly, we aim to focus on other industries such as insurance, pharma, where there is need for identity-based digital workflows. This will strengthen our positioning in such industries which present significant growth potential. Tapping into new age industries. There are a number of developments in the blockchain, IoT and electric vehicle ecosystem, where security and identities are becoming critical. We will continue to position our digital trust offering to these new and emerging industries. With the above strategic imperatives, we intend to grow from strength to strength, clearly supported by our commitment to deliver solutions for secure digital transformation.
Our more than a decade-long experience and presence in this niche space positions us uniquely as a top player and continues to enable us maintain our leadership and expand our presence in Enterprise Solutions both in India and internationally. I now request Mr. Saji Louiz to take us through the overall performance of the company for this quarter.
Thank you, Mr. Srinivasan. A very good afternoon to all the attendees. I will present the recent financial performance of the company. In Q1 FY 2023, I am pleased to report that our revenue from operations grew by 22% year-on-year to INR 522 million. The revenue growth was led by Enterprise Solution segment, which registered revenues of INR 331 million, a strong growth of 52% year-on-year. The Enterprise Solution business in international markets grew by 1.8% on a year-on-year basis. The Trust Service registered revenue of INR 191 million with a de-growth of 9% year-on-year. However, it registered a sequential growth of 6%.
Our EBITDA for that quarter was INR 212 million, up by 37% year-on-year basis, and the margins also improved from 35.2% in Q1 FY 2022 to 40.1% in Q1 FY 2023. We reported a strong net profit of INR 137 million, up by 44% year-on-year basis with margins of 26%. EBITDA growth and margin improvement was driven by higher contribution from Enterprise Solutions business and operational efficiencies. The company has become debt-free at the end of June 2022. We will continue to set the new strategic benchmarks across all our business categories, diversify our client base to increase our wallet share. In addition, we are working to put new growth strategies into place while optimizing and enhancing overall operational efficiencies.
The combination of these factors will allow us to deliver sustainable growth and improve our profitability in the coming quarters. Thank you very much, and now we'll be happy to answer any questions you have on the company's recent performance or business model.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone phone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hands-free while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Amit Jeswani from Stallion Asset. Please go ahead.
Hi, Srinivasan. Good afternoon. I've got a few questions trying to understand your business model. The first question is on the enterprise side. Out of the INR 33 crore revenues, how much would be implementation revenue and how much would be like a recurring revenue kind of model?
As earlier indicated, because we sell both on-premise and also the cloud model. The predominant sale is the on-premise model and some amount of sale is the cloud model, particularly in emSigner. On the on-premise model, mainly license revenue, then some implementation customization revenue. On the license revenue, around 20% AMC comes. That share within our Enterprise Solutions, around 20%, revenue is a recurring revenue. Balance revenue is a one-time revenue, but the one-time revenue again, it depends on the number of users, number of instances and all that. When that increases, there is a further potential to increase. The second aspect is we generally sell every four, five years we do a tech upgrade.
That upgrade, the people buy a newer version instead of the older version, so that also give the opportunity to get the new license revenue. This is how our enterprise business model works. Quite a lot of revenue now will be predominantly the new license revenue and also the professional services revenue to implement and customize it.
Got it. In the last phone call, you said that your order book had doubled from last year. What are the trends and what's the order book as of today? Can you say like what total contract, executable contract that we have in the next, like three months, six months, and nine months?
Order book is improving in the same trend, but the number on what is the order book we have not revealed. That's where we have not decided. The trend is quite good and trend is improving.
Got it. As on the trust services that you get, Aadhaar-based revenue also or you get primarily from DSC-based selling, is where you get the revenue. Every two years, the person will have to renew their DSC. Am I right?
Correct. Yes. Generally, though, technically some DSC can be valid up to three years, but in India, somehow the practice of doing a two-year DSC is there. That's why every year predominantly 90% people go for only two-year DSC. Every two years that will renew.
Do you get some money from the Aadhaar-based OTP also?
No. Aadhaar-based, there is Aadhaar-based e-sign and DSC can be issued on Aadhaar-based, both Aadhaar fingerprint and Aadhaar OTP. Those are only mechanism to ensure the KYC, and after that we issue the DSC. Upon issuance of DSC, if it is a crypto token-based DSC, then for that we are selling the DSC which we get. If it is an e-sign, then on e-sign sale we get. Both are issued based on Aadhaar also. The other method also CCA officer prescribed, which is a PAN card and other address proof and all that. On any basis which is prescribed by the Ministry of IT, we can issue. One of the basis prescribed is the Aadhaar OTP and Aadhaar fingerprint.
Right. Now, sir, trying to understand your business model little better on the growth side. What kind of growth rate you expect? Like today, let's say enterprise is 60% of our business, right? Our total INR 52 crore revenue, INR 19 crore is Trust Service and the rest is Enterprise. Just trying to understand where are you seeing the traction and what growth do you think. Like, what are aspiration? Do you wanna move from, let's say, a INR 200 crore revenue company today to a INR 300 crore-INR 400 crore company? What are the things that we have to do to get there?
No, aspiration is really big. Everybody has to aspire big. Only one can succeed in life. That aspiration is really big. The thing is, as earlier, even in the earlier meeting, we have told that the enterprise business is likely to grow better than the Trust Service business. Because the enterprise business, it is not only limited to India, there is a global growth possibilities are there. Even the market research reports and all had predicted almost a 30%-35% growth rate globally on this various Enterprise Solutions, what we are having. That's where we are more and more enriching those Enterprise Solutions.
One is, as part of this project for which we raised money, three new product we are doing which are complementary to our product like remote signing, discovery, and IoT certificate and all that. Apart from that also, we are evaluating more on how when the quantum computing comes, what is to be done with the cryptography. Even today, if you see for this cryptography, one of the thing is the storage happens in a machine called HSM, and all these HSM machines are imported. Whether anything can be done on the HSM, research can be done. Like that, many areas, allied areas we are working on, and then see how to grow in those areas, not only domestically but globally.
My last question on the trust business side. Why did you see a 9% revenue drop in the trust business? Because, in a YoY basis, because assuming it's not a return filing season but, this quarter. That was the same thing last quarter as well. Do you see detail. Of course, I was seeing that Frost & Sullivan report. It was showing 18%-20% growth. Do you expect 18%-20%? Because I understand your enterprise business is where the hyper scale will happen for you, right? That is a very large opportunity. Just trying to understand, do you think you can, your, the DSC model way of working can get disrupted?
Yes. No, the 18%-20% growth has to happen not only in the DSC business but also including SSL business. We have got the SSL , because SSL also will get captured under the Trust Service. That full ability to do SSL we got only in December. Now we are perfecting the SSL issuance and already some orders have come, so that is one area of growth which has to happen. The second thing is the more and more issuance is to IoT devices. That also has to happen. To your question, why the last year first quarter to this year first quarter, why there is a drop? Because there is also a pricing pressure compared to the last year first quarter.
Because of the pricing pressure also it happened. Sequential quarter we have grown and generally also the Trust Service, Indian DSC business is the weakest during the first quarter of every year. Then once the signing season and filing season pick up, it will improve. In the fourth quarter also because of the lot of government tender and all, it will improve. The first quarter is generally weakest quarter. That's where we feel definitely it will pick up in the coming quarter. Also with the SSL and IoT also is picking up. Including all that, this is what the Frost & Sullivan report will come out.
Sir, I was just going through your retail market, which is 24% market share. Okay? Like, out of your Trust Service, 24% is retail. There the realization is INR 1,300-INR 1,400 per DSC, right?
Yes.
Your distribution business, which is 75% of the business, their realization is INR 300. Basically, your margins are way higher in the retail part, right? Why are you not scaling up the retail part aggressively? Why are you not? Because your realizations are basically amazing, right? Your gross margins are like 95%+ in that side. Why are you not scaling up the retail part?
No, we are scaling up. If you see last three years, retail business has grown 3 x. Now we are putting more aggressive. Our aim is even now we are, in terms of volume, we are only 4%-5% of volume in retail business. Our aim is to grow it to 10% over the years. For that, again, earlier lot of impediments were there. I had explained in an earlier call also, because two years back everything was not fully digital, so we needed the RAs, sub RAs to do document verification and all that. That's why at that time, direct retail business was not viable. Now it is viable, and we have started two years back. Now we have come to considerable position.
This is where we are putting more focus and then improving the direct sales. It takes a lot of time. Another thing is the people are also aligned with their chartered accountant, their company secretary, and they are aligned with some wholesale distributors. These are all breaking all these and approaching that it will take some time, which. It is happening. It is not that last two to three years retail has not grown. In last two to three years almost, it has grown 3 x. We expect that is where the growth will come, because in the partner-led model continuously it will come under more pricing pressure. This retail model is where we feel the growth can really happen in terms of the value. We are definitely working towards this.
I wish you all the luck. Sir, I've got more questions, but we probably catch up soon. Thank you. Thank you, everyone. Thank you, sir.
Thank you. Thank you. Thank you.
Thank you. The next question is from the line of Vimal Gohil from Alchemy Capital. Please go ahead.
Yes, sir. Thank you for the opportunity. Sir, just wanted to check on again on Trust Services. The performance of a 9% Y-o-Y growth or decline, sorry, despite the fact that we do have an inflation-led adjustments with, you know, every year we would have some kind of inflation that we have with our clients, especially the retail clients. So when the renewal happens at a certain inflation rate, firstly, what is that inflation rate? Despite having that clause, what really this fall of 9% seems to be if you just help us match the numbers there.
Yeah. No, the main thing is, as I said, compared to last year first quarter, you see the prices were higher and comparatively with more and more competition, price in the channel. No, I'm not talking about the price in the retail. Almost compared to that some 10%-15% prices have reduced over the next one or two quarters. And we are currently working even at the time of public issue, we worked with the revised prices only, which is currently also continuing. That's why compared to the first quarter, there is a decline.
Compared to the last quarter, there is a growth because in spite of the, generally , the growth happens in the DSC business, in the more in the filing season and also in the last quarter where lot of tender filing seasons are happening in the government. Both are very important driver. Generally, it is less in the first quarter. In spite of it, compared to the Q4 of last year, it has grown almost 6% in spite of the price decline compared to the previous year first quarter. That's why it is in a increasing trend only, not in a declining trend. Mainly, because of the pricing pressure compared to one year back, it is compared to that it is rising well.
Sir, do you think that, at this given run rate, you will be able to report growth for the full year for Trust Services?
What is it? I didn't get the question clearly.
For the full year, sir, are we on track to report growth for trust services vis-à-vis FY 2022?
Yeah, yeah. Yeah, of course, the main season is in the next two quarters and third, fourth quarter are the tender filing season and all that. Another thing which is accelerating is the SSL. The SSL recently, we have started getting some orders, now that will also accelerate. That's why.
The SSL business, sorry to interrupt. The SSL business is the certificate, website certificate business, right?
WebTrust certificate. Yeah.
Okay.
The website certificate. Yes.
Okay. Got it. Yeah. You see the trend.
Yeah. That's why we feel we will be in the interim only.
Got it. Sir, last year margins, we are at a level at 40-odd right now, at almost 40%. How much more upside from here? If at all there is, there is going to be an upside, where is that going to come from? I mean, I'm sure, if you really want to sort of scale up the enterprise business, you will have to invest, probably in more manpower bandwidth, et cetera.
Right.
Where do you see the margins coming from or what are the levers to maintain margins, sir?
No, maintaining, because ours is a product business, from the additional sale, gross margin is higher. To get more and more additional sale and growth momentum, we need to employ more people in multiple geographies. That will also involve cost. I would safely assume that current EBITDA margin of 40%, if we maintain, it is very good and it is maintainable. Assuming that we may go to 45%, 50%, maybe if we go, it's very possible, but that will be the. I don't want to go into that direction.
Fair enough, sir. Congratulations on clearing this quarter and all the very best, sir. Thank you.
Thank you.
Thank you. The next question is from the line of Vivek Gedda from SBI Mutual Fund. Please go ahead.
Hi, sir. Thanks for the opportunity. Firstly, I wanted to check on the Enterprise India business. Looks like bulk of our growth came from outside India. From that context, why our Enterprise India partners grew by 8%? What happened to the revenue? Was it actually higher as well on a YOY basis?
Enterprise India, a lot of large government businesses, the sites were not fully ready and they could not go with the implementation and all that. That's where those revenues could not be booked. That's where there is a slightly that did not grow as well as how international business grew. The order book, everything is intact. The more of implementation now we are planning the second quarter. With that, I think it will come back in the second and third quarter.
Got that. Even overall, if I look at the overall India versus outside business, India business declined quite significantly on a YOY basis. Even adjusting for something like Trust Services, which was down probably INR 2 crore, where was the, I mean, that's, I think pretty much what overall business was also declining this quarter. Sorry, I think that answers my question. I only think what percentage of revenues have come from system integrators in this quarter?
No, I didn't get your question properly. Can you repeat the question?
Sorry. Just on the Enterprise business, what percentage of revenues have come from system integrators?
Out of Enterprise business, how much come from system integrators? That's what you are asking?
Yeah. Yeah, yeah.
That is the same, around 30, 28%-30%.
28%-30%
Some of the government projects now we are directly winning. Some of the government projects only come through the system integrators, so it is around the same thing.
Got that. Lastly, I in fact wanted to check on the margin part itself. 40% margin seems to be much before our expectations. Is it function of also revenue mix. You spoke about licenses being higher and because of which your gross margin was better. I also want to check if as a function of the revenue mix in this quarter, I mean, is there a difference between exports and domestic business and Trust Services and Enterprise Solutions, for example, we know that.
No. In the hardware, if you see the gross margin level, the gross margin level is almost maintained. You see the Q1 FY 2022 was 82.4%, then Q4 FY 2022 was 83%, and then Q1 FY 2023 also 83.5%. The mix of hardware to software and the enterprise rather, the mix remain the same. Still, we are not heavily focusing on the hardware business. If we put too much of hardware into that, top line can increase, but it can reduce the margin, gross margin.
Okay. Just to get this right, in the next quarter, when the Trust Services business kind of improves again, I mean, as a percentage of the overall revenue, our margins could still sustain around 40%?
Yeah, yeah. EBITDA margin, no?
Yes. Yeah, EBITDA margin.
Trust Services is also predominantly the DSC only, no?
Yeah, yeah.
That's not much, it's the token, which is hardware. As long as it's DSC that's what we are aiming, that margin can be sustained.
Okay. Lastly, I think you also called out that there are macro challenges. While your exports have done very well. I just wanted to get an outlook on this from a full year basis. Also, since you've called out the macro challenges as well, has it impacted in form of delays or deferments in any part of your order book so far?
No, not up to now. Because macro challenges are at a very big level. We are only looking at a niche segment and not such a large number to, in a way of affecting the macro challenge. That way, up to now, it has not affected up to now the pipeline, order book, everything going very well. Not that way.
We are on track for two strong exports this year compared to what you were expecting earlier?
Yeah. Definitely. Because more and more lot of projects are coming. Even in U.S., there was a very good win. Now, another one good win we are expecting in this quarter from the U.S., which could itself be a million-dollar order per year. Those kind of thing.
Perfect. Thanks for the update. Thank you.
Thank you. A reminder to all the participants to press star and one to ask a question. The next question is from the line of Amrish Kakar, an individual investor.
Thank you for the opportunity and many congratulations to everyone for a fantastic set of results. I just to follow up on the earlier question on enterprise revenue split. I understand that, you know, the AMCs will probably kick in one year after the license is installed. Would it be possible going forward to split the revenues into customization, license and AMC? What could be that split as of today, if you're able to share for this quarter, please?
No, quarter splitting is very difficult. On the whole, generally, the AMC is around 18%-22% of the AMC which we sell. In that, again, if somewhere it starts immediately upon delivery of license, also somewhere in three months, somewhere in one year. That way, exactly, in each of. It has to get into project-wise, which is very difficult to share.
The customization revenue, is that possible to understand what proportion is this, half the revenue or is it less?
No, customization will be 20% of the overall project, not more.
Okay.
Yeah.
Okay.
Because ours are quickly implementable project and we don't entertain too much customization.
Okay. Perfect. Just on that, following up on that, just to understand the cost evolution as well, is there anything to read into the increase in employee cost as a percentage of revenue? Is this a more normalized trend because of pricing in the market, or are we already starting investing in, say, the U.S. Or something like that?
Yeah. We have already started employing more people. Employing more people not only in the U.S. as well as other geographies, and also for inside sales and sales in India. That's where, in line with the sales trend, it will increase. Percentage-wise, it will still remain the EBITDA margin.
Okay. Thank you. Last question is just to understand a little the cost of goods sold. You have something called operating expenses. What is this? Is this your data center cost? What exactly, how should we read this and understand this going forward?
Operating expenses mainly, for example, in our Trust Service revenue, we are paying commission to the channel partners. Who are achieving whatever budget is correct, those commissions. Whatever is directly relatable to the revenue, that comes under the operating expenses. For example, for some companies, we do resource-based billing, monthly billing kind of thing, that will also come under operating expenses. Wherever we sell HSM or wherever we sell the token, that will be a hardware, that will come under the purchase of stock in trade and also change in stock of stock in trade. That represents the hardware, predominantly hardware only. The operating expense related to the commission revenue and the other direct expenses relating to it, specific case. Those are all coming under
This is more driven by the trust business. I mean, there will always be other customers.
Sometimes in some enterprise business also where we give commission, where we are transfer pricing, when the nets only come in the top line, but where we are billing directly to the end customer and passing on some 20% commission or 10% commission, those will come under the operating expense.
Thank you. Thank you very much for that. Wish you all the best and your team. Thank you very much.
Thank you. Thank you.
Thank you. Anyone who wishes to ask a question may press star and one. The next question is from the line of Amit Jeswani from Stallion Asset. Please go ahead.
I was just trying to understand since you spoke about the SSL business. Broadly sir, people sell SSL certificates for INR 400-INR 500, right? Is there a number of websites that we are looking to target? Like, we wanna have, let's say, 10 lakh SSL certificates. Or like what is it that we offer that the competition doesn't offer? Because this is a very competitive market.
Yeah. Kaushik will answer this question. Maybe Kaushik can answer.
Yeah. When Frost & Sullivan did the research, they estimated the India market size itself to be around INR 250 crore. The INR 400-INR 500, again, there are three types of certificates. One is a DV certificate, OV certificate, and EV certificate. The OV, EV certificates are much, much, sort of, higher in terms of their pricing, right? While there is no exact estimate from the number of websites, as you can see, the number is very large, both in India and globally. That's the market that we're looking to go after immediately in India, and then adjoining emerging markets and over time establish more base for going global.
Right. Got it. I was just thinking about the next few quarters of growth. Do you think it's a good way of modeling 35% growth or we'll do better than the industry growth in the enterprise business for the next three, four, five quarters?
No, we do not want to give any guidance.
Sir, we did well in the quarter. Industry 5%, right? We are thinking.
Yeah. That's why we don't want to do. We work hard to see what growth, whatever maximum can be possible, but we don't want to give any guidance for the future growth.
Right, sir. On one part, question I was trying to understand. In our India business, we've got 600 customers, right? Global business, we've got 50 customers. Then how do we calculate that recurring model that 90% of our clients are coming? It's only the 20% of the revenue which is recurring, that's how we count that the retention ratio is 90%.
No, no. Those same customer, if they order next year also something, for example, additional licensing they order or additional some other product they order, or for maintenance they order something or they say, "Okay, we give you a staffing assignment of five people to do some further customization." Wherever the customer again, next year also, they continue to be the customer. Apart from just using the product. Apart from using the product, everybody will use, but they give some fresh revenue to us. We are then calculating as a returning customer. It will not be like a SaaS service, you know, staffing service IT company where the same level of service, 100 people means 100 people will continue. It is not like that.
Got it. This 613 customers are largely financials, or they are across industry. Largely it is financial, am I right?
Financial and the government. Across the industry. Government is also there. The BFSI is there, the other industries also. Because our products are really industry agnostic. If you see the three products, one is the emSigner that can be used for any industry. Banking-specific product we have made, but general product is also there, which goes into any industry. Similarly, emAS authentication solution also industry agnostic and predominantly used by a lot of government organizations and also large banks. If you see the emCA solution, it is a specific solution for creating a certifying authority and then issuing the certificate itself. Which is again a separate industry. It is not a BFSI industry or a government industry.
Today , more and more of niche areas like the defense and various things, they want to issue their own certificates and encrypt everything so that the data become very confidential. They don't want to use the public Certifying Authority's digital certificate. This is another area, this niche area which is evolving. Where we are able to supply our products. It is across industries.
Got it. If our enterprise business is like a tech services business model, right? Where analysts will start looking at your business on quarter-over-quarter basis, right? Like quarter-over-quarter growth. Whereas our Trust Service business has got seasonality, right? Sir, in Trust Services, do you have this thing that typically Q1 is 20% of the revenue, Q2 is 20%, Q3 is probably 50%, something like that?
The seasonality in trust service also not very high or like what it used to be. Somewhat it is there, but in the next three quarters it may not be highly seasonal. In first quarter, generally it is slightly less.
Got it. First quarter will be like 20%, rest should be probably 27%, 27%, 27%, like that kind of thing.
Yeah.
Got it. The enterprise business should be looking like an IT services company, but quarter-over-quarter growth is what we focus on?
Yeah, quarter-over-quarter, but it is not like an IT services company. IT services business, it is based on the number of people you employ and for the same people again and again, until they come out of that company, they will be continuously billed. Here, you have to supply the product and on the product there will be an AMC, there will be customization, then product is licensed. As long as they use additional licenses, they give additional business and additional money to us, like that. First we may give 50 user license, then 100 user license, when somebody comes. Generally we don't give. Unless it is a very large company where we want that brand, we don't give an enterprise-wide license.
We give only limited user license and limited number of server license, so that there is an additional scope for earning from the same company. It is not proportionate to how many people we are employing or not like that.
Got it. Sir, we've got three products. emSigner would be your largest product?
Yes.
Got it. Like, how big you think you can scale this emSigner, because we're trying to understand it's a new business, right? There is no other company like yours which is listed. Just trying to understand, how big can this emSigner business get and how big is that global market for that emSigner? Because I know you're very popular for the emSigner part, like globally.
The global business, if you see DocuSign, they are also a paperless workflow product. They had two years back in their prospectus, they had written the global market size is $28 billion. They even achieved $2 billion revenue. That way, globally immense potential will be there. How far we are pumping the money and we are able to capture the global market and all that. Another thing is even as per the market research report, we are also ranked on par with the big players. That way, over time good potential is there. Now we are not into that league. We are only at a very small, smaller level compared to all of them. I feel there is a very good potential over time.
Okay, sir. Thank you. Thank you so much, sir. Thank you.
Thanks. Thank you.
Thank you. The next question is from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.
Yes. Thank you. So firstly on the Enterprise Solutions business and the revenues and the pipeline that is coming from outside India, can you give some color in terms of, you know, which geographies have been doing relatively better, both on revenue as well as on pipeline? Also, I think earlier you had mentioned that, incrementally, we are going into a software -as -a -service model. For international geographies, is this something that's playing out at all and how much of the portion would be coming from that?
Yeah. Firstly, this geography is doing well only in the U.S. U.S. itself is picking up well. Now we have got one more order in the first quarter. Again, another good order we are negotiating. We are hopeful we will get it in the second quarter. If we get it should do well in the U.S. The Middle East continues to do well. We got another large bank order in the last quarter and one or two more banks we are negotiating, particularly in the Middle East and also in Africa. In Europe again, we are negotiating through one of the major system integrator in the U.K. market.
Definitely, the international business is doing very well, and I think it will go as per what we had internally projected and all that. This is one thing. The second question is about what?
If you remember, revenue model
Yeah, yeah.
Yeah.
Recurring revenue. In the recurring revenue side, we have to make everything more into. That also we are consciously starting the effort. One is using on the cloud. Today, our product usage is predominantly not on the cloud, predominantly in the on-premise model. On-premise model itself, how can we make it into a recurring model? That is another attempt we are making. That instead of collecting the license revenue upfront, we can make it into a three-year license, five-year license, two-year license like that. Then every two year renewable. That is also starting. In one or two places, on that basis, we have bid and in one place most likely, on that basis we will win also. That is it.
Now only it is started, so maybe over next one or two years it will get into some size. May not take into some big size immediately, but in the next two years it can grow.
Understood. In terms of proportion of revenues coming from emSigner versus emCA versus emAS, I mean, is any one particular product outgrowing the other two in terms of their revenue share within solutions?
It is in the same order. Main thing is the emSigner, next is emCA, and the third is the emAS. In the same order it is going. Even in international order, the emSigner is where even the Middle East bank mainly went for the emSigner. The African banks also going for emSigner. emCA product also one or two traction we had one in, one in Middle East itself and also in Europe. That way it's also growing. Proportion-wise emSigner is much better. Much more compared to emCA. We have one more thing on the emCA also we are seeing how to do into a SaaS model, so that as a managed service if we can offer the emCA.
Once our certificate discovery product is ready, which may take another maybe two to three months time, then we may be able to offer that on, as a cloud SaaS model emCA also. That can also grow really.
Okay. On the Trust Services, on the DSC, basically while you mention about pricing conversion on a year-on-year basis, but would you have some color in terms of volume market share, if that number has gone up, gone down, how it has moved over the last 12 months?
No, volume has not gone down. The volume we are monitoring every month on monthly basis. Volume has not gone down and we may be same even for this year we calculate. I think we may be still 37%-38% of market share, which we are sure, but we have not done such engagement which we may have to do. We may be in the share. Volume has not gone. Compared to the first quarter of last year, what happened is last quarter of 2021-2022, the price suddenly improves. Everybody come together and improve the price. Then the first quarter of 2022, the price go on dropping. Afterwards again sometimes it improve. Such a major improvement in the price happened in January to March 2021.
In March, April to May 2021 prices were also higher. The price reduced. For all our internal working we had assumed the reduced pricing only. Compared to that pricing it is not further reduced or anything like this, so we are able to maintain it and everybody is realizing and everybody is maintaining that also. That's where I feel in the coming three quarters because the season is coming and because the final quarter all the government tender and other things will come, and also excess will come. We definitely can achieve whatever we had initiated.
Understood. Sir, the other question is on employee costs. What is the wage hike cycle, in which quarter do we end up giving it? How much have we or do we plan to do? Also if you can give some color on hiring for the year.
We give the wage hike from April first of every year. This year we have already given. The total wage hike given is almost some. For the people whom hike is given, it is around 16%, but there are also new joinees for whom the hike may not given. On the total, if you take everything into account, it is around 12% hike which has been given. Then in the next quarter that hike will not come because we generally give the hike from April first.
Hiring, sir, what is the headcount and what are the plans for hiring for this year?
Hiring based on need, it is going on. Almost, at present we want to hire around 200 people. Last quarter I think some 50, 60 people have been hired. Now we want to hire 200 people because we want to position mainly for the inside sales and also some of the international roles so that we can deeply penetrate the market.
Great. And just one last question on margins. Now that we are operating at almost 40% EBITDA, just wanted to understand over the next 12 months, do we have planned investments which will ensure that margins normalize a bit lower compared to where you are in FY 2022 or we are actually, you know, the profitability of the business has improved, and this is something that can be maintained even with the planned investments we have for the next year.
Planned investment, if you see, the data center product development, these kind of investment, one is out of the public issue money. One is repayment of loan which we have repaid. The second thing is the data center investment which will get capitalized, where some depreciation will come, but it will not affect the EBITDA, but it may affect the PAT to some extent. The product development also will be capitalized. The main thing which can affect is the U.S. market expansion, where it may go into investment itself. To that extent, we will also do it gradually, so that when along with the improvement in the revenue.
If improvement in the revenue happen, that can add to more margin, so this cost can be offset. One or two percentage here and there can be there, but we will not do in a very indiscriminate manner so that the margin falls down anyway.
All right, sir. Thank you.
Yeah.
Thank you. Before we take the next question, a reminder to all the participants to press star and one. The next question is from the line of Amit Shah from Deep Research Capital. Please go ahead.
Hello.
Yes, you're audible. Please proceed.
I had a couple of questions on the growth front. If we see our enterprise revenue this quarter has grown, we have grown about 50% for this quarter, and our growth for the Trust Services, this is obviously, I think it's down 9%. Anyway, this is a one-off quarter in terms of pricing pressure in the app store. Can we see a INR 230-INR 244 revenue number, let's say by 2023, and from there onwards we could see maybe 25% growth, where enterprise business grows at 30% and the Trust Services business grows at 20%. Is that a fair assumption to make?
No, I explained. No, we do not want to give a guidance as a policy. If they create, we didn't want to give any guidance.
No, this is just to understand, because it's a number. This is just confusing. Number two, enterprise growth was fairly high.
You have to interpret. I do not want to have any different guidance.
Got it. In this pricing pressure which you spoke about, which happened this quarter, is that a phenomenon which keeps happening every year or is something which is one-off, which has happened this year?
No, every two, three years it happens. What happens is, because the competitors think that they're putting more revenue price, there can be a market share more. When they come down to a certain point, and again everybody jacks up. The last seven, eight years it has continuously happened like this. Again, last year the prices were reset because before that it was INR 185, INR 175. From there suddenly it was reset to INR 340, INR 350 during the COVID time. From there again it started coming down and now it has stabilized almost from even July, August of last year itself. It is more or less stabilized. It's not in that rate.
Next year, the prices, if I need to go back INR 100. What we have said today, that is, let's say INR 500.
This DSC standard, if you see the Information Technology Act, they have put a maximum price of INR 25,000 per DSC.
Right.
That's the original. From there it went up to even INR 80 at one point of time. Again it went up to INR 350, INR 400 . Again went down. Like this it went up and down. Over the last 10 years.
Got it. Finally, what would be a capital allocation policy? You'll be generating close to INR 50 crore-INR 55 crores of profits in effect when it is. That would be distributed as dividends to shareholders, or you'll have some other acquisitions to make. What kind of reinvestment you'll be doing?
We have a dividend distribution policy, you know, up to 35% of our Indian profits will be distributed as dividend. In line with that, the last year also we are distributing around INR 10 crore as dividend. Again, if you see the cash balance also, we have raised the money and then we are cash positive and EBITDA positive, net profit is our net profit plus depreciation, cash flow will be there. With the result, we as per policy, we will be distributing to that.
Got you. We won't be having any interest costs in the next few quarters.
No, because we have fully repaid the loan now.
Right. Just coming back to the license AMC revenue, which you spoke earlier. 20% will be recurring revenues, 40%-80% will be one-time. After four or five years, you will get an upgrade of the software. That's where they'll pay you back. Is that a right assumption to make?
No. Out of that one time also, one time is limited to 50 users, 100 users. As and when they cross the number of users, they have to pay the additional license revenue. That way it is not that for next five years you will, you have no revenue. Next five years also incremental revenue will be there, but it may not be as much as the original when you entered. Some cases it can be original what you have got. Some cases it may be lower. Original you have entered with a 200 people license, then additionally 10 people they want or 20 people they want. They will pay extra every year, but it may not be equal to the 200 people license.
Got it. Let's say what kind of new product innovations we are doing, be it in other platforms or other applications. What kind of revenue, let's say, the new products that are generating the last three years? Any idea on that?
The new products are all aligned to our existing lines.
Okay.
If you see the remote signing product, it is again just allied to Trust Service. If you see the certificate discovery product, again, allied to Trust Services. If you see the other IoT product, it is again related to our on-site emCA as well as the Trust Services. Within this group of product, we are enriching the operational aspect and enriching the product which will give our competitive capability and also enhance our pricing power. We are not going totally into a completely new product which will give a new set of revenue for now.
Got it. Your focus, let's say, for the next three or four years will be completely on enterprise business, right? The paperless transformation market, which you all have been speaking about. Or it will be on the PID side, where opportunity is bit limited, but your margins significantly high.
The enterprise side will grow more, but simultaneously, the trust service side also will grow. Trust service side also, we are trying to go more and more international. Both sides will grow, but the percentage growth we feel at this juncture could be more in the enterprise side than in the trust service.
In the Trust Services which you are taking it outside of India, what kind of competition you'll be facing there? What will be a hazard for you to clear market where you will have so much more advantage?
Initially, we are taking it to countries where the number of providers are low. That's why in Africa we are taking, then in Middle East we are taking, where the number of providers are lower. Where the number of providers are very high, there we have not yet taken, and there we are trying to align with other trust service provider and sell our solutions through them or to their customers.
Is it right, wasn't it, the outside of India revenue will be around 50% in next two years? Right now, for this quarter, it will be around 35% or so. Do we try to reach the 50% after two years?
International will be 50%.
International revenue. Yeah, over time, because international is a very huge opportunity.
Okay.
It will grow in a big way.
The payment term will be similar, right, as in India?
What is it?
The receivables will be similar as that of India?
Receivables, international.
International receivables could be better than India.
Okay.
Because generally, internationally, the credit terms are fully honored, and then the procedural hassles are lower. So that way the credit will be better. It will be better when you go to the U.S. and Europe and all that, but Middle East, Africa, it will be similar to India.
It's like Europe and U.S. would have established competition already, right? Countries in Africa and Middle East where that is where you would have lesser competition to penetrate into.
No, Europe and U.S, also, because if you see today, the kind of range what we have developed, not many companies have developed it even in US and Europe. Even within Europe itself, we are trying to. Our emCA product is taken by one of the system integrator to substitute a local European product with our emCA product. That way it is not that there is a low number of people there. Our product superiority is there, and then it's the name is there, and it is featured in major reports like Gartner report and IDC report and all that. That's where we are able to penetrate.
Right. Thank you so much. Thank you. Hello.
Thank you.
Thank you. The next question is on the line of Vivek Khetan from SBI Mutual Fund. Please go ahead. Khetan, I have unmuted your line. Please proceed with your question. As there was no response from the participant, that was the last question for today. I now hand the conference over to Mr. Rishi Jhunjhunwala from IIFL Institutional Equities for closing comments.
Yes. Thank you. On behalf of IIFL Institutional Equities, we'd like to thank the management of eMudhra Limited to give us the opportunity of hosting this call. I will hand it over now to Mr. Srinivasan for any closing remarks. Thank you, sir.
Yeah. Thank you. I once again thank all of you for joining our Q1 FY 2023 earnings call. Thank you for continuing to follow our journey as we embark on our mission to accelerate society's transition to a secure, integrated digital world. For further questions, you can feel free to connect with our investor relations team for any questions. 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.