3i Infotech Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from 3i Infotech Ltd (3IINFOLTD) Q4 FY23 Earnings Concall

Management Update:

• [00:10:51] 3IINFOLTD said its priorities for the year are to execute plans effectively, rebrand under the NuRe brand, protect its US professional services, expand enterprise businesses, execute plans for its BFS CoE, monetize cognitive computing services, launch a mid-market EME vertical, and commercialize their RailTel business.

• [00:15:28] 3IINFOLTD is investing in multiple engines of growth, including NuRe cloud, NuRe FutureTech, and the WiFi monetization project in partnership with RailTel. These investments are expected to drive the company’s digital business and NextGen services portfolio in the coming year.

• [00:25:58] 3IINFOLTD in FY22-23, grew its net headcount by 733, primarily in India. The company also saw a 5% decrease in its voluntary attrition rate from 34% to 29%.

Q&A Highlights:

• [00:29:12] Diwakar Pingle of Ernst and Young enquired why the revenue target of INR760 crores was missed and how the next year’s revenue targets will be met. Thompson Gnanam MD said the company set a target of INR760 crores but exited at INR676 crores due to unforeseen challenges in the US market and loss of resources to green card. Corrective actions have been taken, including organizational structure design changes and strengthening its North America presence with senior leadership.

• [00:31:52] Diwakar Pingle of Ernst and Young asked how India’s performance can be seen in the coming year given the general conditions in the IT exports market. Thompson Gnanam MD replied that the company’s revenue mix is predominantly domestic, making it recession-proof and bullish about domestic growth. 3IINFOLTD aim to exit at INR300 crores for the India business and work on improving its GM by removing non-profitable businesses.

• [00:34:28] Diwakar Pingle at Ernst and Young queried how 3IINFOLTD see the EBITDA margins going forward for the next full year. Thompson Gnanam MD answered that the company has been systematically improving its operating EBITDA and is close to a breakeven point. The company’s 4Q GM increased by 16%, which is a positive indicator for the organization.

• [00:37:10] Siddharth Gupta with Voyager Capital asked about the guidance for FY24 in terms of revenue and EBITDA and the revenue mix from older services and new NuRe products. Thompson Gnanam MD replied that the company fell short of its goal but is building a strong foundation. 3IINFOLTD is giving an indirect guidance of a range of 825 to 900 and want to focus on higher revenues from new lines of business. They are also investing in RailTel and considering turning around other companies.

• [00:47:30] Ranu Parwal at Acura Solution enquired which platforms is the company focusing on and what are the revenue lines for those platforms. Thompson Gnanam MD said that the company is expanding its mature platform, NuRe facet, into a full-fledged nodal market through direct and channel and alliances with telcos. The platform can also evolve into a one-stop shop for multiple platforms and applications and can help consolidate customer cyber tech off spends. 3IINFOLTD is also using the platform to get into cyber tech optimization.

• [00:47:51] Ranu Parwal at Acura Solution asked how much of the staffing business has been converted to project-based revenues and does this conversion increase or decrease the margin. Thompson Gnanam MD replied that the company is focusing on sustainable and forecastable revenue by moving from managed staffing to managed services. This is a clear trend among customers and the company wants to consolidate its position and fortify its contracts.

• [01:06:36] Sanjay K enquired about cost of third-party products and services increasing three times while revenue increasing by only 10%. Sanjay Rawa CFO answered that the cost of third-party products and services increased threefold due to the opening up of the visa scheme in the US and the need to hire from the market to fill the gap. The company is systematically trying to replace it with its own people to improve its margins.

• [01:09:23] Sanjay K asked if the company is doing any work in the field of generative AI or AI specifically and if it’s impacting 3IINFOLTD. Thompson Gnanam MD said the company is assessing the impact of generative AI on its revenue streams and sees a great opportunity to change its business models and maintain competitive GM. 3IINFOLTD is also putting together a small CoE to build on generative AI and the company will update on the progress in the next quarter.

• [01:12:53] Dharmesh queried if any of the pilots for telcos in Africa been converted into orders and has the INR14 crores payment for the RailTel deal been done for this year. Thompson Gnanam MD said some of the pilots for telcos in Africa have become commercial grades and the company has contracts with some of them for its NuRe Edge facet. 3IINFOLTD is bullish about expanding alliances with mid-tier 1 telcos to accelerate revenues. 3IINFOLTD is obligated to make a minimum payment of INR3.5 crores per quarter under the RailTel contract. The company is launching the commercial service next week and expects to start generating revenue in 2Q. 3IINFOLTD expects to breakeven from 3Q onwards.