Kellton Tech Solutions Ltd

NSE:KELLTONTEC

Earnings Call Transcript

[Operator]

Ladies and gentlemen, good day, and welcome to the Kellton Tech Solutions Limited's Q3 and 9 Months FY '25 Earnings Conference Call. [Operator Instructions] I would like to thank all of the participating in the company's earnings call for the third quarter of the financial year 2025.

Before we begin, I would like to mention a short cautionary statement. Some of the statements made in today's con call may be forward-looking in nature, and such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made from the information currently available to the management.

Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings conference call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review.

Now I would like to introduce you to the management participating with us in today's earnings call. We have with us Mr. Niranjan Chintam, Chairman and Whole-Time Director; Mr. Karanjit Singh, Chief Executive Officer, India; and Mr. Srinivas Potluri, Chief Executive Officer, U.S.

Thank you, and over to you, Mr. Niranjan Chintam, sir.

[Niranjan Chintam, executive]

Thank you. Good evening, good morning, wherever you are. Thank you for joining our Q3 earnings call. Apologize in advance, I have a slight throat issue, so I might be clearing my throat or coughing. So please bear with me.

We'll start off with the financial numbers, and then we'll take the operational highlights. The revenue numbers were around INR 279 crores for this quarter, which is close to about 13.7% year-on-year increase and 3% quarter-on-quarter. I wanted to again reiterate that this third quarter typically is not a great quarter because of the U.S. holidays and the number of billable hours that are available there. Hence, it's always been a slightly lower growth that we normally have and which is in line with what this quarter also showed.

The EBITDA was around INR 34.4 million -- sorry, INR 34.4 crores and the net profit is close to INR 21 crores. The EBITDA margin is around 12.3% with a PAT margin of 7.5%. The EPS that we have announced is INR 2.2 for this quarter. Now comparing that with the 9 months, the 9-month number is around INR 812 crores with INR 99.5 crores as EBITDA and a net profit of INR 60.5 crores. Again, EBITDA margin is around 12.2% with a PAT margin of 7.4% for the 9 months and the EPS of INR 6.3 for the 9 months up to date.

Now I want to hand it off to Karanjit to talk about operational highlights and customer wins that we had this quarter. Karanjit?

[Karanjit Singh, executive]

Yes. Thank you, Niranjan, and hello, everyone. So let me -- we've had -- let me speak about the client wins first, and then I will talk about the operational highlights. So this quarter, we have had 3 significant client wins. Just to give a little bit of a color on those 3. So there is one where we are basically working -- we're trying -- we're working with the client to revolutionize and build advanced intelligence platform that enables them to seamlessly track funding, geospatial insights and marry that with their operational workflows. So this really is a cutting-edge digital transformation project, which will -- which is targeted to deliver efficiency and precision in the sustainable landscape management space that they are in.

We're also working with another large customer to redefine their digital ecosystem, and we are helping them to build a cutting-edge FinOps-driven approach that will help them elevate automation, scalability and operational intelligence. And the third one that we're working is a large power group, where we are basically engineering an advanced AI-powered solution that helps them revolutionize their whole end-to-end coal tracking from the mines all the way to the actual power station.

Today, it's a very manual system. So this will help them eliminate all those manual inefficiencies and will really lead to real business efficiencies for them and also give them real-time precise data. And of course, this solution will integrate -- it's automated and will integrate with their enterprise systems and the logistics systems and help them enhance their quality control and build on their operational efficiencies. So those are the clients that we acquired.

Turning to the operational highlights. So the first one in this quarter that was significant was a successful implementation of SAP S/4HANA system. which is helping them drive seamless business integration and operational efficiency across 21 countries. So this is done for a global leader that provides high-performance computing and AI infrastructure. So this is a rollout across the 21 countries.

The other one that is significant on the digital side, we have helped a customer launch their OTT content management system for their global. This is a global platform that serves about 33 million users worldwide. And so they just went live with it. And in fact, this has been recognized by MongoDB as a standout use case for revolutionizing efficiency and scalability. So that's another one.

The third one is about -- we were actually -- Forbes actually spotlighted Kellton for the work that it is doing with the United Nations body, and they have recognized our role in streamlining financial aid being delivered through advanced digital solutions. So yes, those are some of the things that were significant that I thought I should mention. Niranjan?

[Niranjan Chintam, executive]

Okay. Thank you, Karanjit. Let's open up the queue for questions.

[Operator]

[Operator Instructions] The first question is from the line of Elesh Gopani from Gopani Securities Investment.

[Elesh Gopani, analyst]

Can you please give the outlook for the next 2, 3 years? And what are the growth prospects for the company? And what can be the normal EBITDA margin in this of the revenues that we see? And what is the net debt position at present?

[Niranjan Chintam, executive]

Sure. So let me just answer the question on the margins part of it first. See, our goal is to get to the 17% within the next 2 years. That's the target that we are setting ourselves internally to achieve a 17% EBITDA margin that we want to achieve. I think today, we are around 12.5%. That's an aggressive goal that we put ourselves. We are able to do a lot of efficiencies within the system that we are able to leverage. And also AI is giving us a little bit of -- not a little bit, it's giving us a productivity increase that we're able to leverage using the AI tools.

To answer your question on the top line, see, our target has been -- and we've been doing near term, short term and long term, right? I'll just talk about the near term, short term only at this point. Our target is $200 million that we want to achieve in the next 2 years is the target that we have set out. And I think the path that we are taking, we should be able to achieve that.

Talking about the debt, I'll get back -- get that number. Our team will put it up and get the number back to you. But again, there will be some slight fluctuations where the working capital will go up, whereas the long-term debt is going to be lower. So based on where we are within the cycle of our usage of funds, it varies from month-to-month based on the working capital. But I'll get back to you with that answer once I get that feedback from my finance team.

[Elesh Gopani, analyst]

One more question. Where we are -- we are going to raise the QIP or some raising of funds. What is the position in this regard?

[Niranjan Chintam, executive]

So we are -- the 2 fundraise activities going on now. One is the promoters and management is taking an equity round via preferential route. That is one that is going on. The second one is the FCCB route. So we're doing a $10 million that, let's say, the promoters and the management is taking. At the same time, $10 million FCCB round is going on.

Today, we are in the fag end of the process. It's a long drawn-out process, not just limiting to what approvals we need from the SEBI, the NSE, BSE, it is also right, the banking requirements because there's a foreign currency involved. So all that route because it's coming from outside the country, there are agencies and agents that we need to appoint. So all that process, we are pretty much very close to the fag end of it. I'm thinking like 1 week, maybe max 2 weeks is when we would be able to close that FCCB round and similar time lines for the preferential warrants too because there are a lot of questions back and forth from the NSE, BSE, we are answering those by.

So we -- the idea is before March end, right, all the monies would come in that we have to set our target to, and I'm talking about the whole process. We are hoping that it's going to be sooner within this February itself, but I'm giving an outside chance in case of procedural delays. The investors are ready to invest the money. It's just a matter of getting this procedural part taken care of so that the money is sitting in our bank.

[Operator]

[Operator Instructions] The next question is from the line of [indiscernible] from Motilal Oswal Financial Services.

[Unknown Analyst]

I have a couple of questions. About financial performance growth, sir, what are the key drivers behind the company's revenue growth in Q3 financial '25?

[Niranjan Chintam, executive]

Okay. So, [indiscernible] can you mute yourself because a lot of background noise coming in.

So the answer to your question is the growth areas, right, we are targeting growth in the AI and AI-enabled services. That is one area of target that we are going after, and we're seeing a lot of traction in that. And also the second thing that we have been doing is we're doing a lot of account mining. So I have given a target to our senior management team that we need to start getting more revenue from existing customers. It's not the number of customers. It is the amount of revenue we're able to get or increase the revenue that we're getting from the existing customers. So those are the 2 key growth areas that we have when it comes to the customers.

And also, we have some partnerships that we are building and working with that is in the -- some of it is in very -- we are deeply involved already. Some of it, we are making forays into it. There are, again, a lot of procedural stuff that happens in these kinds of large partnerships that we tie up with. Hence, they might take a little bit longer to see some revenues. But we are in there actively engaged with the partnership teams of these large entities, and we should be able to start seeing traction going forward.

[Unknown Analyst]

Sir, can you -- margin expansion about that. Can you please elaborate on the factors contributing to the company margins expansion in Q3 and financial year '25? And what initiatives are being taken to sustain this growth? And also another question, sir, growth strategy. So what are the Kellton Tech strategy priorities for the next quarter and how do you plan to achieve them?

[Niranjan Chintam, executive]

Okay. [indiscernible], there's too much of -- the voice is cracking. So can you mute yourself again, please? I'll answer your question, just that it's a little bit not clear, but I'll answer that, okay? So the margin improvement is primarily driven by efficiencies that we're able to squeeze out of the system itself, right? We found some inefficiencies and we squeezed that out now. The second thing that I told you earlier also is that we are able to get more performance improvement using some of these AI tools that we are actively using in our day-to-day operations. Those are the 2 reasons why we are getting a lot of traction and also improvement in margins.

[Operator]

The next question is from the line of [ Gaurav Shah from Harshad Gandhi Securities ].

[Unknown Analyst]

Sir, my question is on the U.S. market. Can you please provide some color on the traction you are seeing in the U.S. after the Trump government coming in? And are you seeing -- are you getting any more inquiries from the U.S. clients? That's all.

[Niranjan Chintam, executive]

Okay. I'll give a little bit of color on that, and I'll let our CEO from U.S. answer the question. So there is a lot of noise around this Trump tariffs and what is the impact to us. We don't believe there is going to be any impact from our case when it comes to the IT sector. So that from our strategy, we don't have to change anything. Talking about what is it that Trump is doing that is going to add or reduce, I'll let Srini answer the question. Srini, can you take this?

[Srinivas Potluri, executive]

Sure. Thank you, Niranjan. Yes. So basically, like Niranjan said, whatever Trump is doing in the first 3 weeks or so in the office has mostly been tariffs and so on, which have an impact on actual manufacturing, et cetera, and pricing. But from a services side, there is no impact. So far, there is no focus on services, except the outlook is that there will be deregulation, specifically on the AI side and the cloud side and so on and so forth, which will improve IT services business in the U.S.

Have any of our customers made any changes? As of now, there are no changes. They're continuing as they are. It's too early to say. There is speculation with respect to what might happen. But from a perspective of our customers changing course or doing anything different, we don't see that happening. On the government side, obviously, in the U.S., there is going to be deregulation and open competition is going to be projected. So we might see a lot more potential or possibilities on working with the government sector in the open competition space. Anything else?

[Unknown Analyst]

Sir, my second question was with respect to our contract with the LIC. So what's the traction on that? Are we getting regular payment from the government?

[Niranjan Chintam, executive]

See, the government is always going to be delayed payments, right? It's milestone payments, okay? We did get some payment once we have met the milestone. I think the next milestone is probably within the next 3 months, we should get a large chunk of the money coming in. So it's an ongoing process, right? So we -- also, this is a little bit slightly skewed, right? Initially, the amount of money we get is low. And as we get on multiple years contract, it's a 7-year contract. As we get -- the yearly payments will increase. Our outflow initially when it comes to our investment is higher from a cash flow perspective, but we recoup that probably within 3 years.

[Unknown Analyst]

Okay. So what's the current outstanding as of now?

[Niranjan Chintam, executive]

Outstanding for what, LIC? There's no outstanding. So we have not met the milestone, right? There's nothing outstanding.

[Unknown Analyst]

Okay. Okay. So whatever we have built till now, we have got the payment, right?

[Niranjan Chintam, executive]

Yes. Whatever milestone we met, yes, we have got the payments.

[Unknown Analyst]

Okay. And the next milestone is going to be in the next 3 or 4 months, right?

[Niranjan Chintam, executive]

That's correct, yes.

[Operator]

The next question is from the line of [indiscernible] .

[Unknown Analyst]

Congratulations, first of all, to the whole team for achieving a milestone of INR 1,000-plus revenue in Paytm.

[Niranjan Chintam, executive]

Thank you.

[Unknown Analyst]

And sir, my question was like how does the company differentiate itself from larger IT service firms?

[Niranjan Chintam, executive]

So I'll let Karanjit answer that. He's got a few lines that he loves to use. I'll answer -- let the 2 operational people answer that, right? See, from a larger company perspective, the nimbleness is not there. I mean we are much more aggressive. We are a little bit more accommodative when it comes to some of these small granular differences in contracts and we're able to do that. Sometimes it also happens that the larger IT companies are unable to provide the services and the customers have called us specifically and said, "Hey, I'm not going to name names. These large companies are unable to provide or failed in the delivery, can you now recover from it." And we have done that successfully. It's not just I'm talking about the enterprises, it's also the government sector also we get calls like this.

Karanjit, can you add more color to this, please?

[Karanjit Singh, executive]

Yes. Sure. Yes. So kind of as Niranjan said, at a high level, that is what it is. See, even as a company, even the roots of the company, we started off from a very different roots. We call -- like to call ourselves a born digital IT services company because the traditional IT was already taken. That's where we started. And we have a very strong heritage in product engineering. And we have worked with leading start-ups or which are today global companies as well as large enterprises. So that's kind of what sort of differentiates us.

As Niranjan said, yes, we are not saying larger companies do not deliver projects, they do. But there are some things which have to be done at a certain speed, done in a more agile way, in a nimble way, and that is where our differentiation lies. So we have so many case studies that we get going and talking to customers. It kind of shows.

In fact, one of the things that I mentioned today, which is the large OTT, the 33 million users OTT that went live. In fact, we have built a completely cloud-native platform and moved them away from a platform built by one of the big 4. And they actually considered one of the big IT companies is already there. But for this work, they have come back to us.

So that's kind of what our differentiation is. And by the way, that's what would be expected of a smaller company, which will kind of do it faster, we'll do it agile. Of course, we are not that large. So we do -- we are very flexible and we accommodate a lot of requests that we get from customers, which they may not, let's say, have that flexibility with also larger companies.

[Unknown Analyst]

That was very helpful. Sir, another question was connected to the employees. Like what are the total number of employee count that we have? And how does the company plan to retain and attract tech talent as far as AI and all these things are concerned?

[Niranjan Chintam, executive]

There are 2 schools of thoughts there, right, to increase the employee base or not increase the employee base using these AI tools, right, because a lot of efficiencies have come in. We still wait and watch more on exactly what happens. There are too many, what we call the rumor intelligence going on, there are actual case studies out there that talk about the reduced need of these IT employees while you use some of these tools to do some of the work.

To answer your question, we are around 1,600 employees globally, and that is where we have been constant around that time. And are we looking to hire people? Absolutely, we're looking to hire people. And your question related to how do we are able to attract and retain. Our one way is giving them challenging work. You would be surprised that some of the people that we bring on board from this large IT companies, they are used to 1 or 2 projects, whereas when they come to our system, they're doing multiple projects, which are much more cutting edge. Those employees who were doing a part of the project, whereas here, they get to do the whole end-to-end kind of a solution and also the aggressiveness that we provide that they are not seeing.

So all those differentiators there. And lastly, we also give stock options to both our long-term employees that have been with the company as well as to attract new talent that we believe is needed for the growth of the company.

[Unknown Analyst]

May I ask one more question, sir?

[Niranjan Chintam, executive]

Please go ahead.

[Unknown Analyst]

Sir, are there any plans to like enter into new geographies?

[Niranjan Chintam, executive]

No. At this point, no. I was corrected by the number of employees. It's actually 1,750, a little over 1,750. No, we don't want to enter new geographies. We already have enough geographies that we have. There are some challenges with some of the geographies that we are facing, and we have been addressing that. But at this point, no. To answer your question is no. But while -- we will do projects from other geographies as an inbound or as an outbound, but not open up offices in those countries.

[Operator]

That was the last question for today. I now hand the conference over to Mr. Niranjan Chintam for closing comments.

[Niranjan Chintam, executive]

Thank you. Thank you, everyone, for joining our Q3 earnings call. I appreciate you showing the continued faith in us as a team and as a company. Looking forward to more interactions with you as we move on, as you are going to take part in our growth part -- growth trajectory. Thank you, everyone. Have a nice day.

[Operator]

Thank you. On behalf of Kellton Tech Solutions Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.