Nucleus Software Exports Limited (NSE:NUCLEUS) Q2 FY23 Earnings Concall dated Aug. 16, 2022
Corporate Participants:
Swati Ahuja — Head, Investor Relations
Vishnu Rampratap Dusad — Co-Founder, Managing Director & Executive Director
Parag Bhise — Chief Executive Officer & Executive Director
Anurag Mantri — Chief Financial Officer & Executive Director
Tapan Jayaswal — Finance Manager
Analysts:
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Amit Saxena — AS1 Capital — Analyst
Samarth Singh — TPF Capital — Analyst
Presentation:
Operator
Good day ladies and gentlemen. I’m Gyanesh, your host for today’s webinar. Thank you for standing by and welcome to the Nucleus Software Quarterly Earnings Conference Call for the quarter ended on 30th June 2022. For the duration of presentation, all the participants’ lines will be in listen-only mode. We will have a question answer session after the presentation.
So now without any further delay, I’d like to hand over the proceedings to Ms. Swati Ahuja. Over to you, Swati. Thank you.
Swati Ahuja — Head, Investor Relations
Thanks, Gyanesh. Good afternoon, everyone.
This is Swati from Investor Relations team at Nucleus Software. A very warm welcome to all of you for this Nucleus Software earnings conference call for the quarter ended June 30, 2022. For discussion, we have here from the management team, Mr. Vishnu R. Dusad, our Managing Director; Mr. Parag Bhise, CEO and Executive Director; Mr. Anurag Mantri, CFO and Executive Director; Ms. Ritika Dusad, Executive Director and Chief Innovative Officer; Mr. Brajesh Khandelwal, Vice President, Neo Business; Mr. Ashwani Arora, Senior Vice President, Global Customer Success Team; Mr. Sanjeev Kulshrestha, Senior Vice President, Product Build; Mr. Ashish Khanna, Business Head, Financial Inclusion; and Mr. Tapan Jayaswal, Financial Controller.
As we all are aware, Nucleus Software does not provide any specific revenue earning guidance. Anything which is said during this call, which may reflect our outlook for the future or which may be construed as a forward-looking statement must be reviewed in conjunction with the risk that the company faces. An audio and transcript of this call would be shortly available on the Investor section of our website, www.investornucleussoftware.com.
With this, we are now ready to begin with the opening comments on the performance of the company for the quarters ended June 30, 2022. And post that, we would be available for the question-answer session.
With this, I now pass it over to Vishnu, sir. Over to you, sir.
Vishnu Rampratap Dusad — Co-Founder, Managing Director & Executive Director
Thank you, Swati, and a very warm welcome to all of you for this call — first quarter call, giving you an update about our performance during the quarter.
We had a, I would say, another robust quarter where we’ve built strength all around. So most of them are internal strength building and some of them are external strength also, which we would talk about. We continue to build a strong organization.
And with those words, I would now like to invite my colleague, Parag, to give you the update.
Parag Bhise — Chief Executive Officer & Executive Director
Good afternoon, everyone, and welcome you all to this investor call.
As Vishnu just mentioned, we had another robust quarter. We are — in fact, some of our implementations got completed in this quarter, a few of them on cloud, one of them outside India. And we also completed 1 very complex multi-country implementation on our collections in this quarter. So that’s on the implementation side. We had talked about price revisions. So I’m kind of preempting that question because our price revision, discussions with some of our key customers have started. We had not expected to close them in this quarter. Hence, they are not yet reflected in the revenues.
We have consciously delayed some of our AMCs, which would have started earlier in this quarter because we wanted to take them on revised pricing. So that impact is expected to come in quarter 2 and quarter 3. And on the attrition front, while it still continues to be a challenge, but we are kind of seeing some trends in — some improvements in the trends. It is too early to talk about them because it’s just a month of July and August that we have seen some improvements. But we will be watching them closely. So those are some of the few things which we wanted to update.
Thank you so much. Yes, Anurag, would you like to comment now?
Anurag Mantri — Chief Financial Officer & Executive Director
Hello, Parag, you summarized it. After this, Tapan will be placing the financial update.
Swati Ahuja — Head, Investor Relations
Now it is Tapan, sir, please put some light on the financial numbers.
Tapan Jayaswal — Finance Manager
Afternoon, everyone.
Key highlights from financials are: Our consolidated revenue for the quarter is at INR128.8 crore against INR153 crores quarter-on-quarter and INR108.4 crores year-on-year. Overall, revenue in foreign currency, including Indian rupee revenue is USD17 million for the quarter against USD20.6 million quarter-on-quarter and USD14.8 million year-on-year. Product revenue for the quarter is at INR108 crore against INR129.6 crore quarter-on-quarter and INR89.9 crore year-on-year. Revenue from projects and services for the quarter is at INR20.8 crore against INR23.4 crore quarter-on-quarter and INR18.6 crore year-on-year. As for expenses, cost of delivery, including cost of product development for the quarter is 75.6% of revenue against 71.2% of revenue quarter-on-quarter and 81.2% of revenue year-on-year. In absolute terms, this is INR97.4 crore against INR108.9 crore quarter-on-quarter and INR88.1 crore year-on-year.
Marketing and sales expenses for the quarter is 3.3% of revenue against 3.5% of revenue quarter-on-quarter and 5.7% year-on-year. In absolute terms, this is INR4.2 crore against INR5.4 crore quarter-on-quarter and INR6.2 crore year-on-year. G&A expenses for the quarter is 9.9% of revenue against 9.2% of revenue quarter-on-quarter and 11.8% year-on-year. In absolute terms, this is INR12.7 crore against INR14 crore quarter-on-quarter and INR12.8 crore year-on-year. EBITDA for the quarter is at INR14.5 crore against INR24.7 crore quarter-on-quarter and INR1.4 crore year-on-year.
Other income from investments and deposit is at INR3.9 crore against INR5.7 crore quarter-on-quarter and INR8.8 crore year-on-year. Total taxes are at INR4.7 crore against INR7.7 crore quarter-on-quarter and INR3.1 crore year-on-year. Net profit is at INR10.8 crore for the quarter, 8.4% of revenue against INR18.3 crore for the quarter, which is 12% of revenue quarter-on-quarter and INR6 crore, which is 5.5% of total revenue year-on-year. Other comprehensive income is at INR0.2 crore for the quarter against negative INR5.7 crore quarter-on-quarter and negative INR3.2 crore year-on-year. Total comprehensive income, which includes net profit and other comprehensive income is at INR11 crore for the quarter against INR12.6 crore quarter-on-quarter and INR2.8 crore year-on-year. EPS for the quarter is at INR4.02 as against INR6.67 in the previous quarter and INR2.07 in June 30, 2021 quarter.
In terms of foreign currency hedges on June 30, 2022, we had USD3 million of forward contracts at an average rate of 77.8%. There is a mark-to-market loss of INR52.9 lakhs, which is taken to the hedging reserve and balance sheet. Revenue contribution from the top 5 clients for the quarter is 26% against 29% in the previous quarter. The order book position is INR562.5 crore, including INR527.7 crore of product businesses and INR34.8 crore of project and services businesses. In March 31, 2022, the order book position was INR562.1 crore, including INR515.3 crore of product business and INR46.8 crore project and services business. Total cash and cash spent as on June 30, 2022 are INR551.1 crore against INR542.9 crore as on March 31, 2022. This includes balances in current accounts of INR39.5 crore, various schemes of mutual fund INR398.5 crore, fixed deposits of INR30.4 crore, investments in tax re-bonds of INR77.5 crore, INR5.1 crore in present shares.
With regards to receivables, we are at INR68.2 crore against INR83.2 crore previous quarter. During the quarter, there is a gross addition of fixed assets of INR0.53 crore, consisting primarily of INR0.18 crore on computers, 0.25 crores on vehicle, INR0.9 crore on software and INR0.01 crore on plant and equipment.
Now I’ll hand it over to Swati.
Swati Ahuja — Head, Investor Relations
With this, we are now ready to open the question-answer session. I will now hand it over to Gyanesh. Over to you, Gyanesh.
Questions and Answers:
Operator
[Operator Instructions] So we have the first question from Mr. Vaibhav Barjatya from Honesty and Integrity Investment.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
So just wanted to know what is the number of employees for the June ending here. Is there a substantial change compared to last quarter?
Anurag Mantri — Chief Financial Officer & Executive Director
Vaibhav, thanks for asking this question, Anurag this side. The associates count as of 30th of June stands at 1-7-5-6, 1,756.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
1-7-5-6?
Anurag Mantri — Chief Financial Officer & Executive Director
1,756, 1-7-5-6.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Okay. Got it. I understand. So if I compare your employee cost, what was there in June 2020 last — the same quarter last year, in this quarter? So on a per employee basis, if I take the kind of average employees and then — so it has not — on a per employee basis, the cost has gone up just by 7%, while we always keep highlighting about the bold steps that we are taking. So just wanted to understand what — price cost doesn’t seem to have risen — increased a lot on a per employee basis. So if you can explain that, that would be helpful.
Anurag Mantri — Chief Financial Officer & Executive Director
Sure. So as we have updated in a few last calls, we have taken significant and very significant measures with respect to taking good care of our human assets. And those increments have been quite high. The percentage overall you are referring to that is coming out because in this year, we have also onboarded a very, very high number of young talents, young minds, the freshers. So on one side, we are taking those calls to take care of our talents. On other side, we are also inducting a good number of freshers with both the objectives to actually increase our delivery capacity and also to keep the balancing act with respect to our personnel costs. So that’s — I hope this answers.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Yes. I mean that was expected, but 20%, 25% salary increase going down to 7%, is quite a huge change. So I was just wondering if something else can explain that. But —
Anurag Mantri — Chief Financial Officer & Executive Director
So, the induction of — yes, sorry, please go ahead.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Yes. Please go ahead, yes.
Anurag Mantri — Chief Financial Officer & Executive Director
So induction of the freshers and actually — and back to in a good number in totality, we have onboarded close to 400 associates, and that’s a big percentage. So that has helped us to keep the overall percentage increase under check, while we could still offer or increase the personnel costs for our experienced professionals. So that’s been balanced.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Got it. Understand. And so I missed out on the introductory comment on AMC that you mentioned because my network makes me to wait. If you can just explain that in detail. I think you said that you dealt some of the AMC contracts, which will have reflected going ahead. So just wanted to understand what was that.
Parag Bhise — Chief Executive Officer & Executive Director
This is Parag here, Vaibhav. What I had mentioned is that we’ve been talking about it, I think, at least the last 2 quarters that we would be working on AMC revisions with many of our customers. So what I was saying is that those discussions are going on since these are like significant revisions, they are taking time. We did not expect them to materialize in Q1, many of them. And had we — we’ve taken these AMCs on the existing run rate. Maybe we could have seen some more revenue in this quarter. But since we have consciously not accepted those AMCs on the current rate, we expect them to materialize in Q2 and Q3. That’s what I’ve said.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Okay. Got it. So this rate thing is only related to AMC or on the kind of sale that we do on the product sales, license sale and an implementation revenue. Are we changing rates there as well?
Parag Bhise — Chief Executive Officer & Executive Director
Yes, everything actually. But the impact — because since we have a large customer base already, the impact we are expecting — the positive impact we are expecting is primarily because of AMCs because rest is all — your question is right. So we are revising everywhere. But the impact primarily we expect from AMC this year.
Operator
Next you have Mr. Amit Saxena from AS1 Capital.
Amit Saxena — AS1 Capital — Analyst
Sir, is it possible to segregate or quantify the AMC revenues as a percentage of total sales or a figure?
Parag Bhise — Chief Executive Officer & Executive Director
Hello. Am I audible?
Amit Saxena — AS1 Capital — Analyst
Yes.
Operator
Yes, sir.
Parag Bhise — Chief Executive Officer & Executive Director
Yes, Amit, no that kind of segregation we don’t provide, sorry for that level of segregation.
Amit Saxena — AS1 Capital — Analyst
Okay. Another question that I had was related to the — on the IT product business per se, and Nucleus Software has this product, which is quite a mature product and has been selling this product for a long time. Generally, how it works is, as I’ve seen that for most of the IT product companies, as product matures, the margins do expand considerably maybe to 30%, 40% of the revenues. But that kind of expansion has never been seen for our company. So is it fair to say that it depends probably on the plans. I mean, we majorly served within Asia and maybe I think 40% of the revenues come from India. So is it something because of the geographical presence? Or is it something that you haven’t gained scale as yet? Can you put some color on that?
Vishnu Rampratap Dusad — Co-Founder, Managing Director & Executive Director
Yes. This is Vishnu. Thank you for raising this very meaningful question. There seems to be — in Asia, there is seem to be, I have to say this, unfortunately, bias against Asian products. So what happens is if it is a product from developed part of world, it can end up getting 10 times — at least 10 times more attention. So there is a challenge, which we are attempting to address. And hopefully, with the quality of the product, with the quality of the value delivery that our products do, our customers would be able to get over this centuries old bias also. And we will — one of our core objectives of the company is to create these products from this very soil. And hopefully, we’ll be able to fulfill this objective of us or in the near future.
Operator
Next, we have Mr. Vaibhav Barjatya from Honesty and Integrity Investments.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
So just on the AMC front again. So we have not renewed the contract. So what does it mean? So how the customers are currently being serviced? Because if we have not renewed the contract, then the old contract is no longer imposed. So then as the customer has been using in-house team or they have contacted Nucleus?
Parag Bhise — Chief Executive Officer & Executive Director
Thanks for asking that question. So there is no — absolutely no impact on the service level. We continue to support them. So we’ve given them those renewal proposals with an extended debt because the rates revisions are significant. So we — it’s like an extension given with — so on one side, there’s no impact on our support. It is just that we have given them the extended date, and — but there is a date so we will revise them by date. I hope that answers your question.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Sir but just to understand it better. So we continue to provide support services, which is already in our cost, right? On the revenue front, are we recognizing revenue at the old rate or we are not recognizing at all?
Parag Bhise — Chief Executive Officer & Executive Director
No, we are not. That’s why you’ll kind of — that’s reflecting in that in our Q1 revenues. Our Q1 revenues could have been better — would have been better had we recognized them at the old rates. That was the part of my —
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Okay. So we are not recognizing it at all, okay. Okay. Got it. So the costs — but the costs are already there.
Parag Bhise — Chief Executive Officer & Executive Director
Yes, that’s also we have taken that call — we’ve taken that temporary call. Yes.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Okay. Got it. Understand. And sorry to just keep repeating this point on a very con call. But this cash accumulation is something that Board has to think seriously about. And I think there has to be some mechanism as cash moves out from the company. Otherwise, all the cash generated just because of the 4%, 6% yield per shareholders as well. So company also and for shareholders as well. So practically, everything is getting reinvested at 4%, 6%. Eventually, our company will become a 4%, 6% yield company, which is not a good outcome. So there has to be some way to kind of — so that the cash has to regularly go out from the company. And given the fact that promoters are already close to 75%, there’s no other way per dividend. So I would request again to think about the dividend payout policy as a percentage of profit and just pay out regularly. That’s again a request, and that’s it from my side.
Vishnu Rampratap Dusad — Co-Founder, Managing Director & Executive Director
Thank you very much. I think we have answered this question unless you have anything additional to say. We have answered this question earlier as you have mentioned already. So unless you have anything additional to ask, we’ll just register what you have said. That’s all.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Yes. That’s — I just wanted to bring that point again that there is no question here involved. So you can move on to the next question.
Vishnu Rampratap Dusad — Co-Founder, Managing Director & Executive Director
So maybe I can just add additionally because we’ve talked about it during this call. Apart from the financial returns that an investor does look for, there is a concept of, what is it that — where is that you are investing. So — and that is how there is a concept of green investment, right? So we will also request you to look at this investment from the financial — from — apart from the financial returns. This investment has investment in intellectual property — in creation of intellectual property from this soil. So if that appeals your investment philosophy, then it is good. Otherwise, the buybacks have been happening.
Vaibhav Barjatya — Honesty and Integrity Investment — Analyst
Got it. Yes. I understand Vishnu, this point. And in fact, I would like to see investment into intellectual property. And it should come into P&L. It should come into balance sheet. But as of now, it’s all cash. So if you invest in sales, if you invest in form of expenses on intellectual property, it will come in the P&L, and I would really appreciate it. There’s no doubt about it. And I’m a very strong believer in your company in the honesty and transparency of your whole team at all and that’s why I’m continuously on the con call.
What — I don’t have any issues if you invest there, either in sales or in intellectual property, the issue is that it is sitting on the balance sheet. And it is sitting in form of cash only and it keeps increasing. It has been more than 10 years now. 10 years earlier, we had INR200 crores to INR250 crores of cash, now and after doing all these buybacks and everything, it has now increased to INR550 crores. So it just keeps accumulating and that’s where the — my problem is. And if you invest in intellectual property, I will be the first one to praise you or if you invest in sales. That was the small point. I think that’s it from my side, I will not raise this again from the next quarter.
Vishnu Rampratap Dusad — Co-Founder, Managing Director & Executive Director
Thank you very much for those very kind words, which we really appreciate, you’re recognizing. And only additional point I would like to say is certain things, they really take time like this intellectual property, it takes really a long, long time. So thanks for bearing the pressure, bearing with us. Thanks for your patience. As I mentioned, we are fighting some slightly different kind of battles fear in terms of, as we mentioned, branding of intellectual property coming from 1 geography versus branding of intellectual property coming from another geography and so on. So yes, you — hopefully, you’ll get to see the results soon enough.
Operator
[Operator Instructions] We have Mr. Samarth Singh from TPF Capital.
Samarth Singh — TPF Capital — Analyst
First question is regarding the pricing. Glad that we’re finally having these pricing discussions with our clients. Historically, our aim do they have an inbuilt price escalation, like year-on-year price escalation in them or they not?
Parag Bhise — Chief Executive Officer & Executive Director
Yes. The agencies are — have that in the launch, but that’s primarily to cover the inflationary costs. We are now essentially talking about repositioning because of the value that we deliver and also because of the significant increases in the expenses that have happened. So it’s essentially repositioning, that’s why it is significant. Yes.
Samarth Singh — TPF Capital — Analyst
And these are — the AMC, the price escalation is this only for our new products? Is this FinnOne Neo or is this for the old legacy FinnOne product as well?
Parag Bhise — Chief Executive Officer & Executive Director
No, old as well, old as well.
Samarth Singh — TPF Capital — Analyst
And will you be able to give a breakup of what percentage of our revenues today come from FinnOne Neo versus the legacy product?
Parag Bhise — Chief Executive Officer & Executive Director
Tapan, do we provide that backup or we don’t? I don’t think we provide.
Tapan Jayaswal — Finance Manager
No, we don’t provide those type of breakups.
Samarth Singh — TPF Capital — Analyst
Okay. Let me — I guess, I’ll ask a question in a different way. The opportunity of converting clients from legacy to FinnOne Neo, is that opportunity still there? Or have most of our old clients already converted?
Parag Bhise — Chief Executive Officer & Executive Director
No. Most of — we have a large client base. So not — most of our clients have not got converted yet. It’s part — it’s a core part of our strategy this year and the next year to migrate clients from old product to new product.
Samarth Singh — TPF Capital — Analyst
Okay. And that would automatically see a increase in pricing, if I’m not taking, is that right?
Parag Bhise — Chief Executive Officer & Executive Director
That would also see an increase in pricing, for sure.
Samarth Singh — TPF Capital — Analyst
Okay. Okay. So if you could just explain to me. I mean, we launched FinnOne Neo quite a while back. And sitting on the outside, I can’t tell, but I’m assuming it was a much superior product. So why is it that there has been a sort of a lethargy in terms of our clients moving from the legacy product to FinnOne Neo, especially during the last 2 years, where a lot of investments have been made in to digitalization, et cetera.
Parag Bhise — Chief Executive Officer & Executive Director
Okay. I’ll have to go back a little, and we would have talked about it in our calls maybe a few quarters back. Our earlier model of product was that we would encourage and end up doing a lot of customizations. So the — while the product — new product is superior, there’s no doubt about it, but especially the old customers who have that mindset that they will get things done exactly the way they want is where we sometimes face challenges. And there are customers who have got a huge number of — huge amount of customized done in the last many years. And for them to expect everything to come in on the new product, exactly the way they got it done in the old one is something which we don’t encourage and agree to. So that is one place where we face some challenges. But otherwise, conceptually, I would say most of our customers would want to move to the new product.
Samarth Singh — TPF Capital — Analyst
Okay. That’s very helpful. And one last question for Vishnu, sir. You talked about the issue of being able to sell a product coming from basically our geography. But one of your ex colleagues, his business has been able to break that barrier. So what do you think they have done that has been successful, that perhaps Nucleus can learn from and apply in our case.
Vishnu Rampratap Dusad — Co-Founder, Managing Director & Executive Director
I’m not very sure. Thanks for raising this point, but I’m not very sure whom are you referring to. And in any case, we keep a close eye on the market and that is how we are learning. So yes, thank you. Thank you for highlighting these developments.
Samarth Singh — TPF Capital — Analyst
Okay, that’s it. Thank you.
Operator
[Operator Closing Remarks]