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Ladies and gentlemen, good day, and welcome to Saksoft Limited's Q4 FY '23 Earnings Conference Call. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, sir.
Thank you. Good afternoon, everyone, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Saksoft Limited. On behalf of the company, I would like to thank you all for participating in the company's earnings call for the fourth quarter and financial year ending 2023. Before we begin, let me mention a short cautionary statement.
Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause the actual results to differ from those anticipated. Such statements are based on management's beliefs as well as assumptions made by and information currently available to management.
Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The focus of today's earnings call is really to educate and bring awareness about the company's fundamental business and financial quarter under review. To take us through the results today and to answer your questions, we have with us the top management of the company represented by Mr. Aditya Krishna, Chairman and Managing Director; and Mr. Niraj Ganeriwala, Chief Operating Officer and Group CFO. Mr. Aditya will start the call with a brief overview of the quarter and financial year ending 2023, which will be followed by the financials given by Mr. Niraj. I now hand over the call to Mr. Krishna. Thank you, and over to you, sir.
Thank you, Anuj. Hello and good afternoon, everyone. Welcome, and thank you for joining our Q4 FY '23 earnings call today. I know most of you are regular listeners to our earnings call, but I would like to take this opportunity to introduce Saksoft to some of our new investors and analysts, who may have locked on to this call for the first time. Saksoft is a digital transformation partner that assists its customers to automate, modernize and manage IT systems through a combination of domain-specific technology solutions and solution accelerators from consulting to support. We have been in business for almost 2 decades now with offices across 16 locations, covering U.S., Asia Pacific, U.K. and Europe.
We have an associate strength of 2,000-plus associates. The key verticals that we operate in are Fintech, Telecom and Utilities, Transportation and Logistics, Public Sector, Retail and Health Tech. The interconnected nature of the verticals mentioned has the huge market, which also facilitates us to cross-sell and upsell service offerings to our clients.
These verticals are supported by horizontal service offerings, spanning analytics, cloud solutions, legacy modernization, intelligent automation, application development and testing. As a company, we offer a bouquet of digital transformation services. During the year, we have successfully acquired a Chennai-based MC called Terafast with expertise in cloud engineering, networking solutions and DevOps automation. The services branded by Terafast strengthens Saksoft focus on digital transformation.
In terms of performance, I'm delighted to share with you that we have dropped in annual revenue of INR 666 crores representing a growth of 39% on a year-on-year basis. During the quarter, our revenues grew by 31% on a year-on-year basis and operating EBITDA grew by 46% year-on-year. The growth in FY '23 is investment to our inch-wide mile deep strategy.
The growth in revenue from offshore business has helped in improving our margins. The contribution from top 20 accounts and $0.5 million plus accounts is growing well. During the full year, the company was able to migrate 3 customers into the 1 million-plus revenue category and also added 4 new customers in the 0.5 million plus revenue category.
We did a significant increase in headcount of about 350-plus resources with no decrease in the utilization levels signifying greater demand for our services and hence increased season revenue by 39%. We will continue to reward our stakeholders with a healthy dividend, our dividend track record over the last 5 years is a testament to our policy of rewarding the shareholders.
The Board of Directors declared a final dividend of INR 0.35 per equity share, which is 35% of shares value of INR 1 each for FY 2023. While we are optimistically cautious about the global macroeconomic environment, we will continue to focus on creating market niches for ourselves in an increasingly competitive industry. Our commitment to our customers' business will drive our future and keep us aligned and respected in our chosen industry verticals.
We are looking forward to the journey ahead towards a goal of $500 million in revenues by 2030. I will now request Niraj to take you through the financial highlights of the quarter and the full year ending 31st March 2023.
Thank you, Aditya, and thank you, everyone, for taking the time and joining our Q4 FY 2023 earnings call today. I will now go over the financial performance for the quarter 4 FY '23 and the full financial year FY '23. For the fourth quarter of FY '23, revenues were at INR 182 crores as compared to INR 139 crores in Q4 FY '22 and INR 172 crores in the previous quarter of FY '23, which registered a growth of 31% year-on-year and 6% quarter-on-quarter.
Now looking at the operating EBITDA, the quarter 4 FY '23 operating EBITDA was at INR 33 crores as compared to INR 22 crores in quarter 4 FY '22, registering a growth of 46% year-on-year and a 19% quarter-on-quarter growth. The operating EBITDA margin for the quarter stood at 18% as compared to 16% in quarter 4 FY '22. For the annual financial year ending 31st March 2023, revenues were at INR 666 crores as compared to INR 480 crores in the full year of '21/'22, which represents a growth of 39% year-on-year.
The operating EBITDA was at INR 108 crores as compared to INR 79 crores in the full year of '21/'22, registering a growth of 37% year-on-year. The operating EBITDA margin stood at 16% for the year. The impact of currency movement on revenue is only 2% for the current year. Based on the same, the pure volume-driven growth and revenues is about 37% as compared to the previous year.
Now coming to the revenue split by geography. For the current financial year FY '23, -- the Americas contributed to 47% of our revenues. The U.K. and Europe contributed to 25%, while the remaining 28% came from Asia Pacific and other regions. The onsite and offshore mix revenues was on site at 45% and offshore at 55%. As mentioned in our previous calls also, we do expect the mix to be inclined towards the offshore on an ongoing basis.
The revenue split across verticals for the current financial year FY '23 is as follows: Fintech and Telecom and Utilities contributed to about 35% and 22% of our total revenues, respectively, while Transportation and Logistics, Retail and Health Tech and Public Sector contributed 11%, 5% and 4%, respectively. Coming to some of our customer metrics, Saksoft has 14 customers of $1 million plus revenue and 8 customers whose revenue is about $0.5 million plus.
We have moved 3 customers in the current year from $0.5 million category to $1 billion category and 4 customers have been added in the $0.5 million category. The total employee count stands at 1,967 at the end of financial year 2023, out of which 1,788 are technical and the remaining 179 are the support staff.
The utilization level of the employees, excluding trainees, stands at 85% for FY '23. Revenue from top 20 customers increased by 41% in comparison to the revenue from the same set of 20 customers of the previous year. Moving to the balance sheet as of 31st March 2023, we are a net debt-free company with 0 debt on the books. For the full year FY '23, the return-on-equity stood at 26.6% and the return-on-capital employed stood at 20.3%.
I would also like to add that we have a healthy cash and cash equivalents of INR 166 crores at the end of the financial year. That now concludes the update on the financials, and we will now open the open the discussions for any Q&A.
[Operator Instructions] The first question is from the line of Jyoti Singh from Arihant Capital Markets.
Congratulations on the good set of numbers. Sir, my query on the revenue growth side and margins, like what are expectations going forward and how we are seeing overall as an IT-industry, your view?
It's difficult to fight the market or forecast the future given that there is some headwinds in the biggest market, which is the U.S. Now one of our focuses or strategies has always been to create niches for ourselves and try and widen the moats around these missions. So that as the industry gets more and more competitive, we are protected to some extent. And that's why our focus has always been inch-wide, mile deep. We do a few things, but we do them really well. And we focus only on those areas and those missions. Now given that approach, we are confident and hopeful that the slowdown, which is coming and has already come into the U.S. will impact us to a lesser extent than other companies in this industry. I think that's the best I can do to answer your question.
Okay. And sir, going for this segment, we are expecting will perform better?
We've had a good year, '23 -- '22-'23 has been a good year. If we can repeat this performance, it will be super. But it's difficult to repeat this performance because the numbers get bigger. So the percentages get more harder to achieve at the same level. Our focus is definitely growth. The market rewards growth. Our last 20 quarters, we have been growing quarter-on-quarter. So our focus will continue to be that, grow as in a manner that we can sustain. We don't want to take shortcuts because that is not the right way to build a long-term business. And we've been in business 20 years, so we know what works, what doesn't work.
The next question is from the line of [ Simar ] from Negen Capital Services.
Sir, congratulations for exceeding the guidance for 25% year-on-year growth. There are a couple of questions I wanted to ask you. One would be -- are you thinking of implementing price hike? And how do you anticipate this -- its impact on your clients?
If I understand your question, you're saying, are you thinking of implementing a price hike?
Yes.
It's a constant -- in this industry, statement of works or contracts are normally annual. And when the contracts come up for renewal or discussion, there is always talk around price increase. So wherever possible, we look at price increase, but it's more relationship-driven. It's unlike FMCG business where you can announce a price increase, you really can't do that in the IT industry. So it's a little bit interactive, wherever possible, we get price increases. And some customers struggle to get price increases, especially if they're having a tough time.
So if you notice, we have built our business around focusing on our customers' business. So sometimes, we accept these price increases. Sometimes there's pushback, we will also accept older prices. So I can't really answer your question and say that across the board, we are implementing price increases. I would say, wherever relationships allow us to navigate to a higher price, we do that.
All right. Sir, in your previous con call, you had mentioned you had -- as of loss of 6 customers that would be around 5% on the active customers. So could you provide any update on the company's retention efforts and any subsequent customer losses that you guys have updated that has occurred since then?
This quarter because of the slowdown -- and it's not so much the slowdown, and what's also happening in the U.S. market, a great deal of consolidation is happening. So when customers get acquired or they merge with other entities, sometimes, we are -- the extent of our business comes down or we lose a customer. That has happened for one customer in the first quarter of this year, okay? But that's about it. So far, that's the only adverse impact we've seen on the number of customers.
All right. If I can squeeze in one more question.
Sure, please.
So what was about the segmental margins. Could you shed some light on the segmental margins on the top 3 on the top 3 clients, in respect to Fintech, Telecom, Transport and Logistics?
Can you repeat that question, please?
Could you share some segmental margin profile on your client base, wherein you can talk about your Fintech, what is the client -- what is the margins on your Fintech and your Telecom and Transportation?
When you say margin, what are you referring to gross margin, EBITDA margins, what margin?
EBITDA margin, sir.
Okay. Unfortunately, I don't have that, but we'll try and get that for you and send it to.
[Operator Instructions] The next question is from the line of [ Uday Srivatsav ] an individual investor.
Congratulations on a good set of numbers. I had 2 questions. One was that your on-site offshore mix, you said was 55%, 45% and you expect offshore to increase. Can you give a little bit of detail about the strategy of how your offshore percentage of revenue will increase? And what is the plan for that? And the second question I had was that you said you're not so affected by the IT slowdown in the U.S. Could you elaborate on that as to why your company is not as affected as compared to other IT measures by the slowdown in the U.S.
Okay. Your first question on -- the onshore -- on-site is 45% and the off shore is 55%. I think you might have mentioned the reward...
Right, right. But you also mentioned that you're trying to increase the offshore.
Yes. So the constant endeavor is offshore, because that is more sticky in terms of revenue and also it gives us -- gives you better margins. So as engagements get bigger with our customers, naturally, the offshore percentage will -- I think you need to put your call on mute. So as engagements get bigger, the offshore percentage will get bigger or get larger. So that will happen automatically. I don't think we have to make a conscious attempt. Wherever possible, we try and push offshore rather than on-site because we have more control over the resources, we have more control over what we are delivering. And the true value proposition in IT services is offshore-driven business. So there's really no strategy around it. It's just -- that's the value proposition, which we push.
Now coming to your second question as to why we will not be impacted. Of course, we will be impacted. If I said that we will not be impacted, then I will stand corrected. What we're trying to do is to minimize the impact vis-a-vis the larger players. Now whenever there is a slowdown, the big guys feel the slowdown much more than the small guys, because they are working with larger organizations, which obviously, have a tougher time in a slowdown than smaller organization. Now our target market and our customers are indeed the small-to-medium enterprises, the SME space. They don't feel the slowdown as much as the Fortune 100s. So the nature of our customers will mitigate the impact of the slowdown, number one. Number two, our focus has always been on creating niches and working in niches and creating moats around these niches. Now that also prevents us or insulates us or mitigates the slowdown impact because we do mission-critical work for them, for them to keep their business running, they need us. So we are hopeful that both these will mitigate the slowdown to a greater extent and to the larger company. So once again, we're not going to be 100% insulated but mitigated.
We have the next question from the line of Drashti Shah an Individual Investor.
Yes. Congratulations on a great set of numbers. I have a couple of questions. To begin with, I'd like to know what the management outlook is for the growth going forward. And like you said, it's a little difficult to sustain the growth that we've had this year. So how -- I mean, what are we looking at when we talk about growth in FY '24?
We had set a target of $100 million of revenue by '25, '24-'25. We are, at this point, confident that we will deliver that 1 year ahead that means by '23-'24 Also, we have set ourselves a target of $500 million of revenue by 2030, which is 7 years from now. So that will give you an idea of what we're aiming for. How confident are we to get that, keep attending these earnings costs, and we'll get a good idea of how we are doing.
Understood, sir. And what sectors or industries are driving our growth?
The ones that we are in, predominantly Fintech, Transportation, Logistics, Health Tech and Utilities. Those are our focus areas. That's where our growth is coming. That's where our push is, that's where our capabilities are, that's where our missions are. So we're all aligned in those 4 verticals. We're not a generalist, who does everything. We can't afford to. So we are focused on company trying to create niches for ourselves in a crowded marketplace. And that's what we're doing. And our success so far has been driven by that approach.
The next question is from the line of Manav Kaps an Individual Investor.
Congratulations on a good set of numbers. My First question is that considering that we have a large exposure to the U.S.
Sorry to interrupt, but the line for you is not very clear. It's sounding a little muffled along with the little disturbance.
So I was asking that considering that we have a large exposure to the U.S. and Europe and also to the Fintech sector, do you expect any kind of slowdown or impact to our revenues next year?
Our exposure is to Fintech and to the U.S. So for sure, almost 50% of our revenues come from the U.S. market and 24%, 25% from Fintech. Now it's Fintech, it's not banks. So it's not BFSI, it's Fintech, it's lending companies, it's credit management companies, it's payment companies, it's compliance companies. So we are fairly spread out.
Now I know this is a general theme across investors because everybody is concerned about the slowdown in the U.S. And rightly so, there will be an impact, how much impact, we are trying our best to mitigate it like I've answered in the previous 2 questions, trying to mitigate that impact by our strategy, by our approach and also by the target market that we're focused on. Will we be fully insulated, no definitely not. We will be impacted. We hope that the impact will not be as severe as some of the other companies because of our strategy. So next year, I've already mentioned our guidance or what we're attempting to deliver is $100 million of revenue by the end of this financial year, which is 1 year ahead of our initial target.
Okay. That was quite helpful. And a couple of more questions. What is the average -- what would be our average ticket size in terms of our contracts?
Very difficult question to answer because it's really not -- the averages here really don't matter because we're not a Tier 1 company, where you're looking at very large contracts. The better way to look at our revenue mix is to look at customers, who are $1 million plus and $0.5 million to $1 million. And we have given you enough guidance on that as well as numbers on that. I think that's a better way to look at us than average contract values, because average contract value has really no meaning because contracts or work that we do for our customers, this is the statement of work driven, it could be a small statement of works, big statement of works, 3-year contracts, 2-year contracts, very difficult to put an average and it will be meaningless.
Sure. No worries. And one final question. You did mention that you are looking at growing your service offerings in India. So what kind of growth prospects you are looking in India? And what -- where do you see your revenues from India clients coming in from the next year?
The main reason for our focus in the Indian market is to really follow our customers. A lot of our customers in the U.S. are opening or in the process of opening global capability centers. And they expect us to support them like we've done their business in the U.S., they expect us to support them in their GCCs in India. So our growth will be driven by that. How much will it grow? Not exactly sure, but it will grow significantly.
The next question is from the line of Amit Jain from Monarch Networth Capital.
Congratulations on a very good set of numbers. Aditya, I think there's one concern actually. And although you have answered that partially about the U.S. slowdown. But my question is, since we are having client consultation risk. So -- and maybe I'm referring to the Fintech space. And as part of these -- okay, these are in Fintech not in BFSI, maybe as SME, when you have a such kind of turbulence. So there could be a possibility of collateral damage.
So even those Fintech companies may get affected if any of the banks collapses, if they are taking funds from those banks. So somehow that this linkage is there. So they are not completely insulated from what is happening. So just part of your portfolio to review the client portfolio. So do you see any risk or maybe you're saying, yes, this can be some areas of concern for you?
Amit, the only thing to mitigate that is to bring in new customers, and that's where our focus is. It's difficult to predict, which company will slow down, which company will go fast, which company will get acquired. And honestly, you can't manage what you can't control. And if we start thinking of that, I don't think any of us can sleep at night. So the only way to mitigate that is like I answered in the previous questions, trade niches, create moats around those niches, that mitigates you to some extent, focus on our SME segment, which is mitigated to where the risk is a little less. And thirdly, keep bringing in new customers. So if you lose a customer or a customer goes bankrupt, you can offset that by the revenue from new customers. I think that's the only answer.
Right. And Aditya, just more about the industry, the emerging technology. So maybe it's a premature on my personal aspect, but it's still being an expert I think your view that we are talking about the generated AI impacting the IT industry. Maybe there have been a few for us brokerage is also coming out with the port, how they may impact. So what's your sense? How will it do you see that yes, it is impacting Saksoft in coming years?
You're talking about ChatGPT?
Yes -- I was referring to the [ get way ] it just the punch word and could be, there's a lot of noise. Maybe there is no credence to it. But I'm just -- maybe if you can share your views about this?
ChatGPT and AI and similar tools are definitely going to impact this industry. And what's going to happen, and this is just my view, okay? What's going to happen is the lower-end development work, the coding work will get more and more driven by tools. The need for lots of programmers doing coding will reduce.
But the same people will have to upskill into architecture into things like cloud, things like AI. They'll have to upskill their capabilities to stay relevant. So I think it's more of a concern for the young people, who are joining this industry or entering the work stream. I think they have to be really careful. As far as business is concerned, whether a developer does it or ChatGPT does it, we are responsible for architecture, we're responsible for [ code risk ] we're responsible for quality, we're responsible for testing and finally, for implementing it at our customers' business.
So that will not go away. So the value proposition will not go away. It's just how we deliver that value proposition might change or get impacted.
Just last, quickly, Aditya. Any -- so are we going to maintain the same margin guidance? Or is there any change you are foreseeing in the coming year?
We want to maintain the same margin. But in our quest for growth and our drive towards this $500 million by 2030, if we have to compromise on margins, we'll do it. So I don't want to be driven totally by margin. I want to be driven by, okay, the best thing is growth in revenue and margin, but trailing which I think top-line is very important.
Okay. So I can understand that Aditya, when your targeting growth. But if you can just give some sense, maybe that can be minus 100 bps like that can be the compromise that can be. So maybe that will help us and forecasting if we are targeting that kind of growth. So if you are just taking let's say where we are standing. So this kind of band can you expect business sounds reasonable from where we are standing right now.
See, right now, we're at 16%, 16.2% EBITDA -- yes. I think 16% to 18% is what we want to remain at.
The next question is from the line of from [ Simar ] from Negen Capital Services.
So I wanted to ask you, when you answered you want to acquire new customers. Would that be -- are you looking for organic or inorganic acquisitions?
So I was referring to organic. So acquiring new customers organically. We are always looking for inorganic growth, and there will be opportunities that will come. And we have always -- that has always been part of our strategy to build capability. And when we do something inorganic, naturally, some customers come along. But I was referring to organic.
All right. So with your employee count around funding around 2,000, how much do you plan on increasing by the next quarter or the next entire year? And what would be your attrition rate?
Attrition rate right now is in the range of 22% on an annualized basis. And how much would be increased by -- so if you're going to increase our revenue by 20%, employee count will also go up by 20%.
[Operator Instructions] The next question is from the line of Udya Shrivastav, an individual investor.
I just wanted to ask, you just mentioned that you have INR 195 crores of cash, if I'm getting that figure correct. Besides operations and paying out dividends, which your company has been doing regularly, inorganic acquisitions, if you can outlay the plan and what kind of is it what kind of Fintech start-ups or businesses you're looking at, what is the strategy for your organic acquisitions? Is this something which we are doing actively or it's something which we are still waiting and watching? Just some more detail on the inorganic acquisition part and what you plan to do with our cash of about INR 195 crore?
In the last 2 years, I think we have done what 3 acquisitions...
Two.
We've done 2 acquisitions. So acquisitions for capability is definitely our focus and our strategy. It will continue -- and we are hopeful that we will close in -- on an acquisition of two in the coming months, coming couple of years, okay? Now difficult to forecast the timing, et cetera. But the reason we have this cash and why we are protecting this cash is to using it for inorganic opportunities.
I assume that would add to the growth rate, which you're predicting around 16% to 18% of revenue will be aided by inorganic acquisitions?
We always look at something which is EPS accretive as well as capability triples.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management from Saksoft Limited for closing comments. Over to you, sir.
We thank each one of you for taking out time to participate in this call and for your continued interest in Saksoft. We believe that with every passing day, we are an inch closer to our goal. I hope you've been able to answer your queries. In case of any other queries, please reach out to us or Valorem Advisors, our Investor Relations advisers. Thank you very much.
Thank you. On behalf of Saksoft Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.