3i Infotech Ltd (3IINFOTECH) Q3 FY23 Earnings Concall Transcript

3i Infotech Ltd (NSE:3IINFOTECH) Q3 FY23 Earnings Concall dated Feb. 3, 2023.

Corporate Participants:

Asha Gupta — Investor Relations

Thompson P Gnanam — Managing Director and Global CEO

Sanjay Rawa — Chief Financial Officer

TS Mohan — Chief Human Resource Officer

Harish Shenoy — Chief Performance and Risk Officer

Analysts:

Siddharth Gupta — Voyager Capital — Analyst

Divya Daga — Vijit Global Securities Private Limited — Analyst

Purushotam Savlani — Retail Investor — Analyst

Prabhu Anand — Individual Investor — Analyst

Harpreet — Individual Investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to 3i Infotech Limited Q3 FY’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Ms. Asha Gupta. E&Y LLP Investor Relations. Thank you, and over to you ma’am.

Asha Gupta — Investor Relations

Thank you, Lisa [Phonetic]. Good afternoon to all of you. Welcome to the Q3 FY23 Earnings Call of 3i Infotech. The results and investor presentation have been already mailed to you and you can also view it on our website at www.3iinfotech.com.

To take us through the results today and to answer your questions, we have the top management of 3i Infotech represented by Mr. Thompson Gnanam; Managing Director and Global CEO; Mr. Harish Shenoy, Chief Performance and Risk Officer; Mr. Sanjay Rawa, Chief Financial Officer; Mr. TS Mohan, Chief Human Resource Officer; Ms. Varika Rastogi, Company Secretary and Head, Legal.

Thompson will start the call with a business update, which will be then followed by Sanjay, who will provide an update on the financial performance. TS Mohan will give an update on the people strategy, and Harish will update on the global risk and compliance, and then we will start the — we will open the floor for Q&A session.

I would like to remind you that anything that is said on this call that reflects any outlook for the future or which can be construed as forward-looking statement, must be viewed in conjunction with the risks and uncertainties that we face. These risks and uncertainties are included, but not limited to what we have mentioned in the prospectus filed with SEBI and subsequent annual report that you can find it on our website.

With this, I will now hand over the floor to Thomson. Over to you, Thompson.

Thompson P Gnanam — Managing Director and Global CEO

Thank you, Asha. Good day to everybody. Welcome and thank you for participating in our Q3 and FY’23 earnings call for quarter. At the outset, I would like to wish you all a very happy and a prosperous New Year 2023.

Let me start with a brief performance of the quarter. We are pleased to inform you that our third quarter performance was steady with a 2.9% quarter-on-quarter growth to INR182.3 crores, with a gross margin of 12.7%. Going forward, the revenue mix will shift from classic enterprise business to the next-generation business. And just to remind you, our grow and build strategies will start bearing results.

For the first nine months of the current fiscal year, revenues grew by 7.40% to INR538.7 crores year-to-date with a gross margin up 11.2%. The classic enterprise segment for Q3 FY23 has reported INR142.9 crores with a gross margin of 9%. Our focus area is the new digital in the next-generation business segment and we have been branding it as NuRe, which has reported INR39.3 crores with a high gross margin of 26.6%. We’ve also on-boarded 39 new logos in this quarter and our big potential for developing a good order book of almost INR100 crores for the next financial year and helping us change the revenue mix.

I’ve spoken about the five-year to change and differentiate the New 3i. In the first year, our focus has been on identifying new areas of growth, calling our segments that are a drag on the business, having a razor sharp focus on cost optimization. If you look at our performance over the last few quarters, we have been observing the small wins that we have been having in terms of increasing topline, while at the same time reducing EBITDA losses. I’m confident that the efforts will lead us to reach breakeven levels in the next few quarters very quickly. The story is playing out as we envisaged. While the journey has been tough, team 3i has risen up to the challenge, now we’ve driven up from rashes. This year would be an execution year of new services products, enhancing margin and accelerating the challenging.

Just to remind all of you, we’ve set ourselves a goal to be a billion dollar company by 2030. I would like to reiterate our grand global strategies will help us reach our billion dollar revenue goals by 2030. As we are optimizing our own businesses, our traditional businesses where the focus would be getting more business from existing customers with this existing offering, adding new offerings and location for the same.

In Q3, we have also done restructuring at a global organization, eliminating non-profitable engagements and rationalizing cost in terms of every asset in terms of infrastructure, people, and all other assets which we have to kind of rationalize. In the group business, we will be investing in new lines of businesses that offer 5G technology offerings which are edge ready with [Indecipherable] a leader in edge computing edge computing, be it like dig cloud, edge analytics, edge application, or like security, and that’s our focus area for build businesses also as we build new new products using our [Indecipherable]

I’ll also like to give you a brief update on some of our build products and platforms which also happening in parallel because these will be the future guidance of course in building a edge ready organization. NuRe Edge facet product is now successfully launched and it is starting to generate revenues for us and it is one of our big success of one of the first products which are now into the market and its commercial and we are now working with end-customers generating revenue.

And also the NuRe Edge product lines, especially the facet product, we’re also working with our telco partners in Asia as what we shall sell-through and sell with opportunities for their enterprise customers to drive B2B and B2B2C strategies which we have discussed as one of the important levers to accelerate revenues between beyond the traditional B2B services and help achieve our billion dollar goal.

NuRe 3i+ Cloud Power Services is launched in Malaysia and is starting to generate revenue. This is also one of our key initiatives where we are now able to start monetizing some of the investments, and this is also an important differentiator where we have launched our Oracle powered Sovereign Cloud in Malaysia.

NuRe velocity which not launched in November is also starting to generate revenue, specifically our focused on the mid market to the SMB segments and as we speak, we are progressing in the US mortgage industry also where we have our pilots and prototypes being done and the nearly close with a commercial engagement in our cognitive document management solutions.

I’ll quickly update on our resident entrepreneurial program where we have made investments in building center of excellence and center of innovation. Just to remind you, we have invested in IIT Tech Park and Oracle COEs and multiple other investments which are made, and wanted to also kind of update you on that. Some of divisions which are now graduated, we are now set-up independent subsidiaries to unlock value.

NuRe FutureTech, a Private Limited, will focus on cutting-edge platforms in cognitive computing. The first platform which is being rolled-out will be FCX cockpit, which will provide additional support systems, prescriptive analytics [Indecipherable] for for credit units in America, healthcare providers in UK. Similarly, NuRe Campus will be a multi-tenanted ERP SaaS based model for mid tier universities to manage end-to-end student lifecycle. NuRe EdgeTech will consolidate our investments in edge computing and will build other products in EdgeTech products apart from NuRe facet which has been launched. We are also building other products such as 5G lab for testing and also we want to specialize in the Agri Tech field as well.

Finally if I quickly summarize some of the performances for this quarter. The global business region which includes US, Middle East, UK, our revenues have been INR109 crores. We have grown around INR1.6 crores — sorry, 1.6% quarter-on-quarter. And India has been a fantastically strong region for us this year and the revenues has been INR67.3 crores in India’s growth was between 5.2 on an dyear-on year we have grown 35.2%.

APAC performance has been more or less flat. Quarter-on-quarter, we’ve grown only around on 1%. But if I look at it despite headwinds in US market, we managed to grow despite closure up any professional services contract. There is plenty of headwinds in terms of layoffs and reductions in US, but we have managed to grow, keep growing, replacing the other service lines. Q3 has always been a top quarter in US and attrition due to green cards, but we are standing up to the challenges and fighting back with alternate revenues and keep on with our growth.

As I’ve said, India business even witnessed solid growth of both an existing and new clients. We’ve been winning multiple large deals, not just in out traditional strongholds, but very happy to talk about some of the wins even our Oracle CoE is starting to pay-off. We just got our first contract with this INR6 crore contract for Oracle CoE as well.

Apart from the other large win to summarize in the quarter, we had this major win in terms of RailTel cooperation which is going to be one our path breaking projects which we can share some potential to go beyond — a potentially to grow up to INR500 to 1000 crores over a period of five years. Alternately, some minimum potential value of INR300 crores in this project, where we are working with RailTel to monetize their WiFi, and this is a great achievement for 3i’s ambition into edge computing because all our levers in terms of edge cloud, edge applications, edge analytics, edge security come into play, also talks about our ability to welcome B2B2C space of which the revenue acceleration to be extremely fast and the velocity of growth will be far, far higher than the classic B2B services space.

We have also won other contracts with brands such as Eureka Forbes, which is around INR10.25 crores and HPCL we have won a three year contract. So these are some of the key highlights I would probably want to talk to all as your company has been working hard to deliver some of these results. And I would like to thank all of you for all the support and encouragement you have been giving us. And I’d like to pause here and then I’ll probably hand over the baton to Sanjay to take us in detail about the financials. Sanjay?

Sanjay Rawa — Chief Financial Officer

Thank you, Thompson. Good afternoon, everyone. I I’d like to start by providing key highlights on the financials for the quarter ended 31st December ’22. Our revenue grew to INR182.3 crores in comparison to the sequential quarter revenue of INR177 crores. This reflects the 2.9% Fortune quarter growth and 10% year-on-year growth.

On the employee cost front, we have a reduction this time in the overall employee cost of INR8.9 crores compared to the last quarter. This was primarily due to three factors. One was we had a lower esops which have been exercised during this quarter. Second would be one-time variable pay that we had an impact in quarter two and a substantial amount of reduction in our overall cost in the US territory and other cost reduction that has been happening globally. On the cost of third-party products and services, we are more or less in par with the Q2 numbers. There has been a slight increase there. That is due to the exchange impact on our US operations. Other expenses for the quarter had been flat at INR22.6 crores.

I’d now like to give some highlights — so overall our EBITDA if we see on a consolidated business, we are right now near to, I will say a breakeven number, we were at minus INR17.9 crores for quarter two. We right now stand at INR3 crores and near to a breakeven number in this quarter. Coming to the other elements of P&L, we had INR19.7 crore of exchange gain during this quarter. This is in continuation to our earlier quarters translation gain that we had due to the rupee being depreciated to the dollar. That has continued further. The rupee has slid further during this quarter, which resulted in the exchange gain.

We had some exceptional items during the quarter as well. Due to the final closure of our deal, we have a gain on the property that we had to give it back to them as part of our overall deal consideration. But that did not materialize true. So we have now taken back the property in our books and due to this we have all gain on account of the value that we have reinstated back in our books. This has been offset to a certain extent due to withholding tax, a one-time withholding tax that we have come during this quarter, this impact has come during this quarter. This recurring tax charges has come on our Saudi Arabia territory. This was pertaining to some old matters prior to March 2022, which we were able to resolve and we have this one-time impact. So overall, we have a net exceptional gain of INR7.6 crores for the quarter.

Coming to tax, we have calculated our overall tax computation for the years considering what profitability we would have at the year end. Hence, we have a charge on account of the tax of about INR1.5 crores. This is primarily in the US subsidiary and for our B2 operations. Overall in the balance sheet I would like to just, though we are not providing any detail on the balance sheet, I would like to give some highlights on the balance sheet. On the cash-in hand, we have improved quarter-on-quarter. We had a cash balance as of 30th September of INR55 crores we had reported. We stand as of now at INR81 crores on the cash balance.

On the DSO front, we are on the billed DSO at 54 days and the unbilled DSO at 48 days. Overall, we are at 102 days. There has been a slight increase in the DSO due to some government customers signed off the pending, but we expect a significant improvement in our DSO in this quarter — in the coming quarter in Q4.

And on the last front, I just want to give an update on what additions we have made on our fixed assets. Our fixed assets grew by about INR70 crores in this quarter. This was on account of the property — the Vashi property which we had envisaged to sell, which did not materialize and hence we have capitalized it back. So these are some of the — on the financial numbers highlights for the quarter.

I would now like to hand over to Mohan to take it further on the HR front.

TS Mohan — Chief Human Resource Officer

Hi, everyone, good evening. This is Mohan. Just a very quick update on the human resources strength. As we conversed in the previous quarter, our continuous cultural change initiative to be performance-driven culture organization has been kicked-off. In that direction, we see a significant improvement in employee an employer related productivity measure.

Just to give in terms of headcount. From the beginning of the financial year, we grew by 11.2% and in this quarter grew by 5.6%, or net addition. And our attrition by end of this quarter three stands at 25%, which is 9 percentage points less compared to the Q3 of the previous financial year. While we continue to enhance the culture of performance, we continue to focus on critical employee engagement and retention drivers. When it comes to the average age of our employees continues to decline. So that indicates a newer absorption. And in terms of supporting the resident entrepreneurship program and the FutureTech organizations and build organizations, we continue to invest on skill building. Our university which we set-up, our internal academy which we set-up for Oracle competency has seen 86% consumption to billable roles in the last quarter. So this is a significant movement in our success in investment versus the amount of business rigidity in that program.

Likewise, we continue to stay invested on the feature competencies and in-line with our business strategies. Thank you so much.

Harish Shenoy — Chief Performance and Risk Officer

Thanks, Mohan Good evening, everybody, and thanks for joining on this call. As you all have heard from Thompson and Sanjay that there has been marginal growth in revenue and a reduction in the cost front book, direct and the SG&A with appropriate rationalization across the organization wherever required. So our efforts will continue in the same directions and numbers for the future quarters will only be improvised here on with more rigor in operational efficiency that we are running this organization from an performance perspective.

From a risk perspective, as an organization we had and dedicated GRC division over the last two years, which we were really focused on ensuring that we have appropriate governance as well as compliance to all the regulatory and internal processes. So as we been maturing in that process, we have an a Risk Management Committee that has been formed at the Board level, which has happened over the last two quarters. And as in process there, we have been assessing all the risks that might impact the organizations next growth plan. And one of the areas that we had identified as part of that process was, we have quite a few regulatory issues open for an substantial time, like that’s much before two years that we have been into operations.To address that, we have an Board level subcommittee that has also been formed under the guidance of CA, Uttam Prakash Agarwal Ji, who has been the ex President, Mr. AvtarMonga who has managed MNC banks and also some private sector banks.

With that, we are in the process of building practices in corporate governance as well as business operations, risks and control. As we scale-up our global operations and where we see substantial increase in the top-line as well as bottom line also. So this for just an update on the GRC functions of the organization. So back to you, Asha.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session. [Operator Instructions]The first question is from the line of Siddharth Gupta from Voyager Capital, please go-ahead.

Siddharth Gupta — Voyager Capital — Analyst

Hey, good afternoon, everyone. Congratulations to Thompson and the rest of the team for posting an encouraging set of numbers. I have very few quick questions to go. First of all, can we get a breakup of how much of the revenue is coming in through our newer products? And how many of it is coming to our legacy services.? Secondly, wherein the RailTel deal was announced, it said that about INR14 crores is something that we will be required to pay to RailTel, was that accounted for in this quarter or would that be something that we can see in the next quarter.

Thirdly, I could not follow the conversation about the property in Vashi. It’s back on our books, but what’s our management’s intend to keep that property on, sell it off, ease, lay some working capital debt against it? And just finally, do we have any equity or debt raising plans in the future? I understand the net-debt free as of now and our cash position appears to be good, but do we have any plans that might need us to raise equity or debt in the future?

Thompson P Gnanam — Managing Director and Global CEO

Thanks, Siddharth. Thanks for that encouragement So I’ll try and-answer your question, the four questions. One is your — your first question is your new product revenue, I did touch upon it broadly. If you look at it, we have generated — we have started tracking it and publishing it also. Our classic enterprises business gave us INR142.9 crores with 9% GM this quarter. And the new line-of-business, which is our NuRe line of businesses has given us INR39.3 crores with 26.6% margin. That’s the first question.

The second question you spoke about the RailTel deal as well. Just to refresh our memories. On the RailTel deal if you look at it, our revenue share deal and obviously the minimum guaranteed revenue for RailTel per annum is INR14 crores, or 40% of revenue, whichever is higher, just to refresh our memories. So there are two-parts to it. One is the bank guarantee or performance guarantee which you give, right, vis-a-vis which your actual payout, which would come.

To your question on for what this needs to be accounted for this financial year, our — it has been provided for basically because it was only for this financial year which starts from February 9th to March 31st. Okay, so that is for this financial year. And that pro rata or whatever it is, though our teams are working hard and we will provide that in our Q4, Siddharth, for that period. Because, you know, that we will take time, because we still have time in Feb-March to generate revenues. We’ll take a call at the end of March. We are very optimistic that we might generate revenues which may not need us to provide for any negative.

Siddharth Gupta — Voyager Capital — Analyst

Right. Thanks, okay.

Sanjay Rawa — Chief Financial Officer

Siddharth, coming back to other two questions on the Vashi property. So what has happened is our deal consideration — as part of the deal consideration, there was a — I would say negative income on account of this property value which was considered when the deal was concluded in March ’22. So we had INR50 crores as pay off for the working capital, which was to be set at right against the property sales to them. But the value of the property that was sold to them at that point in time based on the values that we had done was that net of depreciation was — so it was totally at INR81 crores. And what we have done is — certain limits of depreciation also not accounted. So if you see my depreciation charge in the P&L, it is up by about INR2.6 crores. That’s primarily due depreciations getting accounted as since the asset has been reinstated effective from 1st April ’21 in our books. So we have a charge on depreciation coming in, as well the net on account of that is, I have reinstated my asset value by INR73 crores and I don’t have a liability of INR50 crores. So that’s a math from that working out INR23 crore net I would say. Not, I would say a gain in technical terms, but its a et income that is realized now because we have not sold off the property to them. The other one that you are saying on the…

Thompson P Gnanam — Managing Director and Global CEO

Before you go there, I think you asked the question on what we intend to do with that. Yeah, that was the property.

Sanjay Rawa — Chief Financial Officer

So that, we are also working on getting documentation — required documentation with SIDCO for getting an NOC from them. And post that we — so that — post that we are anyway going to have it leased out or we are going to sell it off. No, I think we as an organization we have a growth plans aligned and in all probability we will be utilizing that for our own consumption and instead of going into rental places or any other places. So keeping our costs low for our operations.

Siddharth Gupta — Voyager Capital — Analyst

That will be a great idea actually.

Thompson P Gnanam — Managing Director and Global CEO

And the fourth one he asked about.

Sanjay Rawa — Chief Financial Officer

Yeah, yeah. On the fund raising funds, as I had indicated in my initial comments, we have all net addition to our cash, I mean this was part of our original plan to get most of our non-current assets liquidated — in the sense collected. So we have some good amount of income tax refunds that we got in quarter three, and the fund raising plans, we’ll anyway look into post the quarter end after Q4.

Siddharth Gupta — Voyager Capital — Analyst

Okay. Okay. Thank you. That’s it from my side. Thank you so much. This was a great set of numbers, and thank you for the clarification.

Thompson P Gnanam — Managing Director and Global CEO

Thanks a lot.

Operator

Thank you. [Operator Instructions] The next question is from the line of the Divya Daga from Vijit Global Securities Private Limited. Please go-ahead.

Divya Daga — Vijit Global Securities Private Limited — Analyst

Hello sir. My first question is from 0.6 standalone of notes. That please clarify me the subsidiary transaction that will have our account receivables and payables. How long will it be take for the settlement to go one?

Sanjay Rawa — Chief Financial Officer

Yeah, I heard about. So this is about, rate is a 0.6 that we mentioned about the intercompany receivable and payable balance, right?. So, so we are anyway working. We have given our application to Reserve Bank of India. So we are working with the bankers to have the set-off completed and we expect that to happen sometime in the next financial year.

Divya Daga — Vijit Global Securities Private Limited — Analyst

Okay. My second question is, from the 0.8 in the notes of standalone, can I know the nature of assets and why the slump sale took in financial year 2021 and it took so long to take the settlement here.

Sanjay Rawa — Chief Financial Officer

Okay, so what has happened is the part of this slump sale was transitioning three floors of our Vashi offices as insured. And to do that transitioning, transfer of that property and ensure we were required to have a no objection certificate from SIDCO. So Q2 historical non-payment of rent on certain properties, there was some delay in getting that NOC, which basically are working with the SIDCO Cisco guys, and that’s why like we were not able to transfer it within the given time. And that’s the reason like we could not conclude it earlier.

Divya Daga — Vijit Global Securities Private Limited — Analyst

So cany you explain what was the type of nature of asset, like they were intangible asset or anything else?

Sanjay Rawa — Chief Financial Officer

Tangible assets, three floors in the Vashi International Infotech Park. These are primary buildings in the Vashi.

Divya Daga — Vijit Global Securities Private Limited — Analyst

Okay, and my last question is. As I saw in your segmental revenue that there is not much growth in revenue, but there is lot more growth in gross profit, in AAA, as well as in other segments. Can you explain me the reason? Is there any particular reason regarding that or it’s just cyclical?

Thompson P Gnanam — Managing Director and Global CEO

So as I explained, I think even in the previous question was started. It’s a very concerted effort to change the mix of revenues if you look at it. Classic revenues get lesser margins because traditionally we don’t have much of offshore mix like other services company because originally before the sell-off our product division we were a product company. Now, the last 18 months we are building this new service lines and those are starting to generate higher margins. So really if you remember I explained the segmental revenue INR142 crores was with 9% and INR39.3 crores with 26.6%. So most of the digital businesses and all that your are talking about falls under that.

Divya Daga — Vijit Global Securities Private Limited — Analyst

So will this be margin consistent in coming quarters as well? Means, we will get this much margin?

Thompson P Gnanam — Managing Director and Global CEO

This will continue. And if you look at even our US also if you look at it, we are having headwinds are traditional professionals services and human capital businesses which are underfit, but we are able to hold our numbers basically because we have been replacing with other profitable business, if you look at it.

Divya Daga — Vijit Global Securities Private Limited — Analyst

Okay, thank you so much. That’s all I have.

Operator

Thank you. [Operator Instructions] The next question is from the line of Purushotam Savlani, a retail investor. Please go-ahead.

Purushotam Savlani — Retail Investor — Analyst

Yeah, good evening. Thanks for the opportunity. At the outset, congratulations for better looking numbers. My number one question is, if I look at the slide which talks about the 10-year plan, it says FY’23, which is the current year, we’ll end-up doing $95 million, that translates to INR770 crores. If I look at what we have done up till December is INR538 crores. So are we saying we are going to do INR230 odd crores in Q4? That’s number one.

Number two, see while we made investments in our global regions, global geos, but we have not had considerable wins coming. Generally, these geographies in US, UK would give you orders to the tune of say $10, $15 million TCV, etc. We have not heard much in last couple of quarters. So I don’t know what is happening there. Can we get some visibility with regards to the deal pipeline or some wins which are there at the vicinity?

Third is, we talked about that our costs being high because we have lot of onshore component, we are not able to move these people back to India because of whatever client commitments, etc. we have. Though one agrees that, but one fails to understand that if we have more onshore people, then our revenue realization should be at least par with — at par with our competitor. The irony is, while at one end our cost is higher because we have onshore component higher, but at the same time our revenue realization is nearly half of what our competition does. So this is a dichotomy. This is something which is ironical, goes against the principles of offshoring also. So these are a couple of things which I wanted to ask you.

Thompson P Gnanam — Managing Director and Global CEO

Thanks, Purushotam. Great question, I’ll try and answer to my best of my ability. Now the first question, as you said is, there are two parts. One is, we spoke about the kind of a mid term to-long-term strategic intent where I think you spoke about that $91 million. In fact, I remember saying in the third year this is when I took over — the new team to over, our mantra was INR1,000 crores, INR100 crores as the rallying point for us. And last year for this financial year, which is the second year into this new 3i, we set a goal for INR760 crores and INR15 crores PBT. So that was the target which we are running with.

So as of now if you look at it, we are at INR538 crores. And definitely, we are still focused on trying to see if we can hit our INR760 crore numbers. But our number one priority is, let alone PBT right now because we have these exceptional gains and all of that there, but as as a team we are very focused on building our operating margin to be profitable. That’s our first milestone. Second, consistency and ability to sustain that and predictability in that market. So that’s a very-very clear focus area, Purushotam, for us, that’s number one. So that’s the first one. Once we do that, the foundation is strong for us to act on it. So that’s what we want to do in the next one or two quarters, including Q4 and Q1. That’s the first point.

The second point, very valuable observation on the global business region. As I said, you know, see there are two-parts. I will try to set the context for your third question also which you spoke on our onshore business, maybe we’ll have to kind of little bit rewind and come back to our current scenario. See, both the product carveout, we had onshore businesses which were typically complementing businesses to the product of back book. It is not like a traditional services business where we are running, so we need to be very clear. Rhea Infotech 20 years has been a product platform-led company which also did services, services which complement that. So it is very-very different from a traditional peer, who does services. I worked for companies like and I absolutely agree with you. Those are different type of thinking and different type of strategy is very, very clearly.

From where we got that to where we are getting right now. Now as we are flying the plane we have the change the business. Of course, those onshore businesses are low margins because they were complement in certain product divisions or they were coexisting a same account which I bought my platform of products. We are a separate segment, we’re doing a onshore work, which is linked to it. As an example I’m saying. And very few — and the services business was also predominantly enough in professional services in some of these areas.

The headwinds, for example, the first step which is happening is — if you look at the US, the last two quarters have been a little blood bath there. If you look at clear blood blood bath, two things. One is for — even a smaller firm like ours where green cards been accelerated. One of the biggest impact for all of us because obviously green card — and the value of people assets that goes off the roof because obviously they have been with you loyal, but fundamentally when you get a green card and all, they are obviously worth much higher, it has two impact.

If I retain them, our margins have to be [Technical Issues] if you look at your spot-on. So we [Technical Issues] our margins to retail people assets, because obviously we had to compensate otherwise they’re going to leave. The second one, if I allow them to go, it has an impact on my topline. So these are two problems. If I retain them, it impacts my margin. If I allow hem to go, it impacts my topline. This is one scenario which is impacting us.

Luckily, somehow the seeds which you have sowed in terms of small deal, forget about large deals, I agree with you, we’re not one very big deals or whatever. Small deals, we have been working very slowly, getting some logos, because nothing great to be publishing about it. But slowly we are doing that and part is probably helping us even manage this impact on one-side. That’s why you will see there’s not much big difference of movement in our deal numbers if you look at. We have been able to hold where we are.

To your point, so I’ll give an update on what we’re trying to do differently. So one of the key areas you will see lot of press coming out and we are very active. The last 18 months we have been very active in the credit union space in America, where we are working with some customers of us very closely. We have walked the entire journey with them, right from transforming their data, warehouses, to building their cognitive computing analytics on top of it and trying to see if we can walk the entire members — they call the members, they’re not customers, member lifecycle, like management, experience management, the entire end-to-end we have progressed, and now we are saying along with them can we take it to other credit unions. So our focus area will be on credit union. These are you mid-sized cooperative banks who are equivalent in India is in America. That’s our focus area and that’s where we want to work.

In fact, we are participating in this massive events where we have co-branding with them and going to-market. So that will be a very key focus area to offer some of the services co-branded with our customer to other credit units. So that is number one strategy. We will see a lot of progress and traction on that. Second is also we are working in the mortgage space in America. Again, what we have done is applying some of these cognitive intelligent document management as a old technology, but now it’s more cognitive and we this next generation automation which is there, by which we are now going to work on the mortgage industry, and one of the teams is helping us, even the recession is helping us in the US, because this is driving the need for innovation and more low-cost services which we can offer with higher-end digitization. So that is also we are now looking with higher automation with onshore services where the margins would be at minimum 30% to 35%. Those are the two tracks, where we are working.

And right now if you are asking, Purushotam, the offshore story is over. We are very late in the game for that. We are very late in the game for that. We have to work only on onshore with higher digitization, higher automation with lower human, and try and see how to manage your gross margins, and huge headwinds are there for new deals for offshoring. It will be the nearshore or offshore in the western markets like US and UK. So that is my — I don’t know whether I answered your question, Purushotam.

Purushotam Savlani — Retail Investor — Analyst

So Thompson, I appreciate the answer. While I understand that cost will come down, our margins will improve, my worry is with regard to the realization, realization per person of 3i is approximately half. Now when we have more people sitting on site, their realization has to be better. I mean, we cannot say that our engineers sitting in the US will draw lesser realization than a competitor who’s our manpower is sitting in India or maybe other countries which are offshore, so the realization has to be better, which is where I think we are getting beaten on the revenue per person achievement. It’s not happening predominantly because our revenue per person is much lesser. In fact, it is half of the competition. This is the point which I’ve been trying to highlight for couple of quarters. I would request if you can ponder on that.

Thompson P Gnanam — Managing Director and Global CEO

No-no, absolutely. I think even the last-time you spoke about it, we are working on it. See, the whole thing is we are making these are like parallel track, right. As we fix that current ones, we have to also build the new lines of businesses, and this will converge. Maybe not two quarters you’ll start seeing the change which is happening in terms of revenue per employees and is a very clear change we are driving. And also mentioning the human loop as well, Purushotam, because that’s very important now. The next-generation is — what I do with 100 people can I do with 60 people with 40 humanized, that’s where the margin, and that’s what we are focusing right now. Obviously, you will see that change in the coming quarters.

Purushotam Savlani — Retail Investor — Analyst

Okay. I appreciate that. Thompson, last question. Going back to the numbers which you have given, FY 23 we’re talking $95 million which is INR230 crores. We have to do in Q4. I’m not sure whether we will do it or not. But going forward also if I look at it, next year we are talking about $122 million, which is growth of close to say 27% year-on-year. So are we sure that we are going to clock that kind of growth next year?

Thompson P Gnanam — Managing Director and Global CEO

There are two-parts, one is because of the opening statement of intent, but we want to calibrate. Definitely your first milestone is INR760 crores is something which we are running right now, we’re not giving up on that, we will do that. You know that’s the momentum which is very-very important for us to accelerate for the next year. Order book is picking up for sure. Next year definitely we want to rally with our old commitment and we want to rally the organization on that and try and see that in terms of INR100 crores, INR100 crores. But a important milestone for us would be when do we hit the INR80 crores run rate per month, Purushotam, that’s my key tipping point if you ask me. INR80 crores, INR10 crores per month is something which we want to hit from a operational perspective. If we can hit those numbers, I think the pace will set.

Purushotam Savlani — Retail Investor — Analyst

Yeah, because unless we achieve that our $1 billion goal of 10 years will get postponed further unless we start.

Thompson P Gnanam — Managing Director and Global CEO

I’ll tell you that. No, I’ll tell you the second thing, maybe it’s not showing right now. Maybe slowly I’ll start showing you that. The B2B2B to be in B2B2C starting to fire, Purushotam. If you look RailTel, for example, its our first B2B2C. Once they start firing, I’m telling you, those are going to be alternate streams f revenues which will complement our typical B2B services revenues, because with B2B services we’ll never be $1 billion in organic growth, no way on that we’ll reach there. So B2B2C of RailTel will add to that. And I told you about B2B2B where through telcos we are trying to sell it to their customers. So these are amplifiers of our activators of revenues. So if we look at it, three tracks, B2B2B, B2B2B which is through telcos and B2B2C, which is our RailTel project. When you add these three, then we’ll be able to hit those run rates.

Purushotam Savlani — Retail Investor — Analyst

Okay, okay. Thanks, Thompson for answering all the questions and I hope that next time when we talk, we would have concluded a quarter on operational profitability as well. Thanks and all the best.

Thompson P Gnanam — Managing Director and Global CEO

Thanks for the support Purushotam.

Operator

Thank you. [Operator Instructions] The next question is from the line of Prabhu Anand, Individual Investor. Please go-ahead.

Prabhu Anand — Individual Investor — Analyst

Hi, Thompson. Congratulations again on a decent set-up number. Actually my question is about RailTel order actually. In this RailTel order, I remember you have been talking about 5G, edges services, all those things. But did we actually plan for any development work? Has there been any previous work that had been going and development work that has been completed already, like a app, because the whole thing rests on mobile. So how much development work has been completed for this already while you are preparing for the bid and other things? And how much. It to be spent for development — the product rollout? And what is it like a timeline — internal timeline for rolling out the product to end user?

Thompson P Gnanam — Managing Director and Global CEO

Hey, thanks, Prabhu. Great question and it’s one of my favorite question, I love to answer that, so I’ll try and start with that. The RailTel deal If you look at it, I’ll try and answer it from a two-three perspective. From a starting perspective it is from a monetization or an asset utilization extraction partnership that we are looking. So RailTel got from assets stood. They have WiFi, they have certain infrastructure, they have certain presence, whatever it is, we are just partner into. First, can we help you monetize it better by running a better end-to-end operations from our perspective, that is step one, which we need to focus immediately because that is where the revenue gets generated for both parties and both of us will start to be able to reinvest that and we will be also be investing that back into our operation.

The second stages where what you spoke, Prabhu, is development of a super app. The super app becomes the whole nucleus of all this stuff. So today, day-one the app might not be a super. Now maybe in one month, whatever, I’m not sure of the exact timelines, we will be launching the normal app I’m saying. Today, it is just a portal. Then the normal after gets launched and any passenger can get to use the WiFi has to download the app to use the WiFi. And we will have the advertisements and other things coming by which start generating the revenue. Then the phases of the app will start evolving, then the app starts interacting with all other one-stop shop for passenger. Whether it is going to be IRTC, an example, whatever it is all that links will be built in our super app. The development and all that is starting now. We are starting it.

Second, it’s an ongoing thing. Then if we start getting into other lines of business, let’s say, for example, we could link into Uber, we can link into Zomato or a Swigggy or whatever it is, every line, infotainment, he wants to do gaming, he wants to do infotainment, all that our new revenue streams ultimately. So that roadmap will be least 3/4. So the first focus is we have to start generating revenue with what we have, spread these assets, make more money, in parallel keep investing in these app development, we’ll keep releasing quarter-on-quarter features of this. Ultimately, the app becomes a super app maybe in three to four quarters, Prabhu. I don’t know whether I answered you question.

Prabhu Anand — Individual Investor — Analyst

Yeah, kind of actually. I was just wondering like, you have actually in the press release it was like a given like 40% revenue share to the RailTeland 60% with three vendors, of which three 3i is part of the consortium. So it is like the remaining 60% will be shared by all three of you. Am I right to say that?

Thompson P Gnanam — Managing Director and Global CEO

Now look at it this way. 3i is the lead bidder, a lead bidder of the consortium. Obviously, we need to have people to complement some of our technologies. Let’s say, for example, we are not — we have no capability in media or in advertisement or whatever it is. So we have a partner who helps in that. We have a partner who will helps in certain securities services, some of these very unique. And each one has brought something to the table. To your point, we are led bidder and we will have the — if you look at it, almost 90% of the entire thing will be led by 3i, for your information.

Prabhu Anand — Individual Investor — Analyst

Okay, thanks for that information. And I believe you have answered the question about the fundraising earlier to the earlier question, but I just want to reconfirm, like the cash in hand, you have actually mentioned it is INR80 crores as the quarter-end. But is the increase in cash purely because of the gains that resulted from the property or it’s something else also has resulted in the gain. Like, how much is the cash increase due to various sources?

Sanjay Rawa — Chief Financial Officer

Yeah, so as I mentioned in the earlier gentlemen’s query. It has increased due to collection of our old income tax assets. So we had some from income tax assets in terms of tax deducted at source for various years. So that has been realized during this quarter.

Prabhu Anand — Individual Investor — Analyst

Okay, so more money has come from income tax than anything else.

Sanjay Rawa — Chief Financial Officer

No I mean, so just to answer to your point, we have our debt is in-line with our operations. So since we are yet to generate cash from operations, our working capital needs are kind of — we are not generating cash from working capital, from our operations. So our cash addition is from accrual from other sources that we have collected. I hope I’ve answer your point.

Prabhu Anand — Individual Investor — Analyst

Yyes, okay, okay. Thank you. Thank you. I think that’s it for me.

Operator

[Operator Instructions] The next question is from the line of Divya Daga from Vijit Global Securities Private Limited. Please go-ahead.

Divya Daga — Vijit Global Securities Private Limited — Analyst

Hello sir. I have one more question to ask. As I saw in financial year ’22 you had a net profit, but the cash flow from operations was negative INR50 crores. Same goes in six months, financial year ’23, we had net loss of in cash flow of INR24 crores. And in this quarter we do have a profit, but what is the cash flow, is it positive or negative?

Sanjay Rawa — Chief Financial Officer

Cash from operations will be an net addition.

Divya Daga — Vijit Global Securities Private Limited — Analyst

My point is in this quarter, whether the cash flow from operating activity is positive or negative, and what is the amount if you can provide?

Sanjay Rawa — Chief Financial Officer

So it is positive. It would be less than INR10 crores, to the tune of INR4 or INR5 crores.

Divya Daga — Vijit Global Securities Private Limited — Analyst

Okay sir, that’s all I have. Thank you.

Operator

Thank you. The next question is from the line of Harpreet, an Individual Investor. Please go-ahead.

Harpreet — Individual Investor — Analyst

Hi, Thompson. Well, first of all, many congratulations for giving this steady performance in the Q3 numbers. I have two questions. One is that you discussed about the product called SD-WAN few quarters back that it is going to be commercialized from the quarter three. And what is the status of that? And the second question is, any plan of rebranding 3i?

Thompson P Gnanam — Managing Director and Global CEO

Okay. Thanks, Harpreet. So I’ll try and answer that second question. If you look at it, the rebranding is certainly happening. If you look at it, what we are doing is, we are parallel tracks. 3i also in the banking space which is there, Harpreet, the BFSI space. The entire NuRe if you look at it is the new lines of products and platforms and services we are all building under the NuRe brand, Harpreet. So that’s the brand which we are rallying around that. So the NuRe your new digital business. We have an excellent business and everything is NuRe if you look at it. Our new subsidiaries, our new product lines, everything is NuRe. So that is what is happening.

And these two parallel lines will probably converge at some point of time. So we’ll have this. Your classic enterprise businesses is with 3i and NuRe is your digital business and all your new products and platforms and they will converge at some point of time. They will be at parallel track, that’s where it gives.

The first question is also based on the SD-WAN. Of course, we are working on it. So SD-WAN, again as I said, this is part of our 5G core. And the first product which we have to get out of the way is the 5G lab as a service, Harpreet. The other one we are working is on the SD-WAN. Maybe I think we should be able to give you some answers in the next quarter. Hopefully, we’ll progress this quarter and we’ll be able to give you, at least we want to get into a kind of a product state at that point. We are little more slightly early stages. We are trying to learn from some customers as well. But the levels 5G labs as a service is more mature right now, and we want to release commercially very quickly.

Harpreet — Individual Investor — Analyst

And one more question, Thompson. As we see the news in North America, like many companies are laying off the employees. Are we trying to monetize the situation by hiring some of the talent there?

Thompson P Gnanam — Managing Director and Global CEO

Great question. In fact, we were debating about it also. The answer is, definitely we are looking at alternative strategies, because as a much smaller company, faster, swifter and we are looking at how to leverage that opportunity. At least for short-term, we see a huge flex force available, but I doubt their loyalty, to be very honest, Harpreet. So, but at least we can leverage them in the short-term for two-three quarters or four quarters, where we want to look at kind of elastic workforce and see if we can monetize. We are building plans around it, and we’re getting lot of inquiries those aspects, to be very honest.

Harpreet — Individual Investor — Analyst

Sure, Thompson. All the best for Q4, and expecting a a good jump in topline and positive bottom line, Thompson.

Thompson P Gnanam — Managing Director and Global CEO

Sure, sure, Harpreet. Thanks a lot.

Operator

The next question is from the line of Prabhu Anand K, an Individual Investor. Please go-ahead.

Prabhu Anand — Individual Investor — Analyst

Thompson, this is actually about the Malaysia sovereign cloud. I actually forgot to ask earlier. In the previous readout you mentioned about some customer wins in the Malaysian sovereign cloud. Can you just throw more light on the Malaysia sovereign cloud and how is it going, and do you have any partners for selling the services or how is it like going on there? That is first question.

Thompson P Gnanam — Managing Director and Global CEO

Okay, yeah. Please go ahead, Prabhu. You have one more question?

Prabhu Anand — Individual Investor — Analyst

Yes, the other question is actually about Oracle CoE. Like you also mentioned that you are anticipating more service, like leads coming from Oracle for their existing base. Like how is it going and light on that, because in the press release in the last-time you used to share it as kind of a breakup of all the services. This time there is no presentation that has reached us.

Thompson P Gnanam — Managing Director and Global CEO

I’m sorry. In fact, we will try and add that, for that. We’ll do that as a input and we’ll give you a more breakup of some of these.

Prabhu Anand — Individual Investor — Analyst

Before the presentation if starts me it will be easier to refer it so that questions can be avoided sometimes and can be clarified on the call.

Thompson P Gnanam — Managing Director and Global CEO

I absolutely agree. Point taken. And we will take our work on the input and try see if we can do it earlier and better, for sure. So I’ll try and your question. One is on the — I think I’ll take a step back. Most of these Oracle CoE, whether it is our NuRe 3i plu cloud or any of these, what we have done is, strategically we are investing in building a very-very solid channel or alliance management organization, because it’s a different kettle of fish compared to our typical direct B2B business, Prabhu. Okay, that’s the first thing we’re doing.

We have brought in a senior leader to help us build that also globally. You will see some announcements going out shortly. To manage Oracle relationship in the geographies, work with our salespeople, work on some of those named accounts. That is one. Second also, setup entire channel network to drive this business because this is also channel driven, value-added resellers, FY partners, we should do it. So we have set up that unit. This also helps us to rationalize our cost as well. So keeping an eye on our cost to see how we can bring down our sales cost, balance out sales cost and between direct new logo coverage versus existing account management, vis-a-vis to channel in alliance we are doing that, but from a slightly strategic level. And also it helps us to optimize our cost and maximize our ability to go to market faster and accelerate our revenues in some of these new limes of businesses.

Coming specifically to Malaysian sovereign cloud. If you look at it, we have already on-boarded two-three customers where we work with. Its again a great question because our immediate customers are being through partners and through other product companies where they have their customers, so we to helped manage those product companies migrate their customers into our cloud, because we are able to give better service at a lower-cost, so we have done that. The second thing we have done also. We are also positioning this as a disaster recovery of the service for even enterprise companies, in fact pilots are moving on, hopefully in Q4 we will do that. So this is we are saying as a BCP option they might have their primary cloud services wherever it is. Now, we are saying, please have your sovereign cloud in Malaysia as a disaster recovery even for from large coalition corporates. So that is happening as a strategy.

The second, if you look at it, we also spoke about leveraging the Oracle CoE which we have moved very faster. If you look at it, we set up that Oracle an CoE in a tier 3 city in south in Tirunelveli. We had our first batch of almost like 75 engineers. The good news is almost 80% of them are graduated much earlier and also deployed also, so that is a good news. And we were surprised because we were able to accelerate back two months in advance. Some of the scores these youngsters engineers have got has been phenomenal compared even Oracle standards. So that’s a very positive for us and reaffirms our entire strategy and belief as well. And now we are accelerating that to the next level. And we also won some our our first true blue Oracle CoE end-to-end deals, announcement will come. SBI General, we have signed the MSAs and contracts for total end-to-end Oracle application management services. This is all one on the backbone of these investments we have made and now we will be able to accelete it faster.

Prabhu Anand — Individual Investor — Analyst

Sure, congratulations. Because. I was just wondering if any news like on those things will be coming and, like still waiting. So thanks for the update. Thank you.

Thompson P Gnanam — Managing Director and Global CEO

[Indecipherable] announcement today. It will keep coming.

Prabhu Anand — Individual Investor — Analyst

Okay. All the best for achieving all the milestones that have been planned along the many years.

Thompson P Gnanam — Managing Director and Global CEO

Thanks, Prabhu. Thanks for you support.

Operator

Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Thompson for his closing comments.

Thompson P Gnanam — Managing Director and Global CEO

Yeah, thank you, Asha. Thank you, one and all, and thanks from all the questions from Siddharth, Purushotam, Prabhu, and Harpreet. Thanks for all the support. And Divya as well. And these are great questions and fundamentally this also helps us stay motivated, gives us the outside in perspective, helps us to be grounded and calibrated as well. And thanks for the support and talk to you all soon in the next quarter. Thank you.

Operator

[Operator Closing Remarks]