ONWARDTECNSEQ1 FY2322 July 2022

Onward Technologies Limited

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113turns

12analyst exchanges

1executives

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Management on call

Jigar Mehta to start with his opening remarks. Thank you and over to you sir. Jigar Mehta

Thank you Anuj and good afternoon everybody. It's a pleasure to welcome

Key numbers — 40 extracted

Rs 93.7 crore

ate my entire team for delivering robust Q1 performance, driving the highest quarterly revenue of Rs 93.7 crores with our highest ever year on year growth at 35%. We are seeing strong demand for our services i

35%

ng the highest quarterly revenue of Rs 93.7 crores with our highest ever year on year growth at 35%. We are seeing strong demand for our services in line with our medium term objectives of achievin

100 million

e are seeing strong demand for our services in line with our medium term objectives of achieving $100 million of annual revenue. In parallel, Onward Tech continues to exit legacy business, which is the low

73%

investments and budget on the top 25 global customers. These customers now, generate, close to 73% of our consolidated revenue, and has increased by 12% from the same period in the previous financ

12%

. These customers now, generate, close to 73% of our consolidated revenue, and has increased by 12% from the same period in the previous financial year. I'm also proud to announce today that are ov

1 million

o announce today that are over half of these customers come from our top 25 contribute more than $1 million revenue per year with visibility towards even higher share of wallet in the coming quarters. What

10 million

erms of $100 million objective is we will have few customers which will be as high as generating $10 million revenue per year going towards that journey to $100 million. We are undertaking building invest

50%

TAP, We are investing to build advanced digital capabilities in line with the goal of achieving 50% of our revenues in 2025. Under the TAP initiative, Now we have 250 engineers, getting trained a

rs,

e goal of achieving 50% of our revenues in 2025. Under the TAP initiative, Now we have 250 engineers, getting trained across multiple design centers we have in India which is Mumbai, Pune, Chennai,

Rs 25 crore

25 clients. These business building investments of the 2 initiatives is approximately budgeted at Rs 25 crores per annum, which will propel future growth and an improved business mix while impacting report

93.7 crore

ncial 23 performance of our company on the consolidated basis. The operating income of Q1 FY23 is 93.7 crore which is as Jigar has mentioned that we grew year on year basis by 35%, which is

2.9 Crore

eavy machinery the domain as well as in transportation mobility vertical. The EBITDA reported was 2.9 Crore and the net profit after tax reported is 1.2 Crore. In the landmark decision, one of the landma

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Guidance — 20 items

Jigar Mehta

opening

“We are seeing strong demand for our services in line with our medium term objectives of achieving $100 million of annual revenue.”

Jigar Mehta

opening

“What that means is in terms of $100 million objective is we will have few customers which will be as high as generating $10 million revenue per year going towards that journey to $100 million.”

Jigar Mehta

opening

“And this training will be approximately 4 6 to 9 months post that where they will start working on the various projects in these top 25 clients.”

Devanand Ramandasani

opening

“We are also setting up the infrastructure for the new digital Center of Excellence in Navi Mumbai, which will be operation in Q2 of FY23.”

Jigar Mehta

“This will be the new normal in terms of the fully loaded cost.”

VP Rajesh

“What I see is that by December this whole batch will be deployed and they will start generating revenue from the December quarter on a fully ramped up basis so the next batch which is coming in the cost will be there.”

VP Rajesh

“But then there will be at least one revenue from the previous batch that will be coming in.”

VP Rajesh

“OK and then anything on the M&A side because I know to get to your $100 million target by section 25.”

Pratap Maliwal

“Just trying to get an understanding of how the cost structure could maybe change going forward.”

Krish Kothari

“Or is it the sort of moving target and you're just trying to do it as fast as you can.”

Risks & concerns — 8 flagged

So now with some of the challenging macros coming and do we see a slowdown yet?

— Pratap Maliwal

OK, so we're not seeing any signs of a slowdown, or maybe clients delaying certain projects or revenues.

— Pratap Maliwal

Maybe getting pushed out into further quarter with coming slowdown in the talk of recession and everything.

— Pratap Maliwal

The challenge for us has been the capacity where if we had a capacity of 500 more people, engineers readily trained on various cloud, data science, data analytics skills.

— Jigar Mehta

We don't have a similar challenge like some of the larger companies that you are mentioning about.

— Jigar Mehta

So attrition is again not a very big concern area for me, At Onward Tech our attrition for last 12 months was 33%.

— Jigar Mehta

So therefore the impact of that the balance amount is there.

— Devanand Ramandasani

So that's a question I have do you see a challenge there?

— Sriram Rajan

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Q&A — 12 exchanges

My first primary question, is on the employee cost so as you also said, that your employee expense has actually shooted in the quarter, and I believe you receive some benefits from the US. Actually, at the time of Covid if I'm not mistaken, so will this be the new normal for when as far as the employee cost is concerned. Especially, when we start comparing other percentage of the topline. That is my first question. The second is, can you just give a brief break up on the revenue coming from different geographies and across the client segments, so that would be really helpful to me Sir.

Jigar Mehta

To answer your first question regarding employee expense, yes, that's correct. This will be the new normal in terms of the fully loaded cost. For our entire team today, which is the sales team, delivery team and of course the new TAP initiatives where we are on boarding a large number of freshers. They are also all on full salary in the company. Of your second question. So we are present in three industry verticals. So the 1st is industrial equipment and heavy machinery, second is transportation and mobility and 3rd is Healthcare. So the revenues from industrial equipment is 45% of the consoli

Just on the EBITDA margin, do you think this is sort of the bottom in terms of EBITDA margin, or do you foresee it going down further during this year?

Jigar Mehta

We look at the Business today different, this financial year compared to last year. So what we are seeing last year was where we set the foundation, where we are coming back to work and rebuilding relationships with all of our clients. Post work from home and Covid times. Now what we are seeing is a much bigger opportunity from our clients as we have built much more level of trust and credibility with them. Now in these clients in engineering, as you already know, the order book position is not something which is a multiyear like IT services contract but on the digital side we are seeing much

As I was saying that we have a goal to reach about 20 customers with a 1,000,000 plus run rate and about I think a few quarters with a Q2 of FY22. We had 11, and now we've gained back to 13. So now with some of the challenging macros coming and do we see a slowdown yet? Can we actually send this to 20 and what could be the possible timeline of this scale up to 20 customers?

Jigar Mehta

So 11 for us has become 13. And we have a visibility to get to 18-20 by end of this financial year. And we continue to see that. OK, so we're not seeing any signs of a slowdown, or maybe clients delaying certain projects or revenues. Maybe getting pushed out into further quarter with coming slowdown in the talk of recession and everything. We have not seen that so far. Please correct me if I'm wrong, but I believe in our investor presentation we don't have the exact breakup of the client concentration and the geographic concentration. While we do have a basic idea, but if our exposure and our

So a lot of your growth seems to be coming from your transportation vertical. I was just wondering if you could talk about what exactly is working for you in that vertical. What maybe some specific investments that you've made that are paying off and any sort of lessons that you've learned from this Covid.

Jigar Mehta

So if you look at the numbers for the last quarter and the visibility that we have, it is across the board, across all the three verticals. On the transportation vertical is where we signed several OEMs during Covid times over last 2 years, we are seeing a huge ramp up across our clients right now. And all of these contracts are predominantly on the digital services side of the business and some are on the embedded side. The challenge for us has been the capacity where if we had a capacity of 500 more people, engineers readily trained on various cloud, data science, data analytics skills. We w

Yeah, all of my questions were answered so I'm nothing up with.

Management

One question is regarding the customers where we are getting 1 million plus of revenues come so in how many of such clients have we become strategic partner where we have exposure to all the RFP's coming out of them?

Jigar Mehta

That number is approximately 25 a bit higher than 25. So you're saying among top 25 you are strategic partner in all of them. It's just that in half of them the revenue has ended to a million plus. Yes, so I don't use the word strategic partner I'm just saying we are a registered supplier to some of the largest companies in the world. Where now we have access to all the RFP's in the areas where Onward Technologies has in-house capabilities, so some could be for digital some could be for cloud, some could be for embedded electronics and some could be for product engineering.. And then once you'

I have a basic questions like what are the levels in place to increase our EBITDA margin going forward. And also your focus on the workforce and attrition control going forward.

Devanand Ramandasani

This EBITDA movement is because of the keep investing in the manpower because we are the service industries we have to invest in the people for the future ready demand on that. So as you know that in our initial beginning of the call we have initiated that there is a program of the 250 engineers we which are the non-billable and we are training them up killing them for the ready for future demand so that cost is direct cost is associated in this quarter 1 under this 2.4 here. Therefore the EBITDA has been down, but once the people will get trained and billable, then the EBITDA will be upside.

I just have two questions. One is on the delusions during the quarter. If you can just elaborate it on the same.

Jigar Mehta

Sorry. Can you elaborate the question? I was asking on the deal events during the quarter. If you can, just elaborate on the few key deal events during the quarter. Some of the most exciting deals that we have signed is one of the largest transportation mobility companies in the world is setting up a few 1000 center digital center in South of India and as part of their due diligence, they've selected Onward Technologies to help them ramp up the entire capacity and capability across cloud analytics, data science, etc. We have recently started building a very focused team around this win. At its

I think most of the questions have been answered just a few of them from my side, so maybe this is the CFO. See the EBITDA is about 3 crores for this quarter, and if you layer it with the 2.4 of the expenses that come in through the TAP program so it comes to about 5.4 of EBITDA which is still less than the 6.3 of last quarter when you look at sequentially, is there something further to the cost. Despite of a top line increase of seven crores.

Devanand Ramandasani

This is one of the significant costs which we highlighted. Apart from that there are certain costs which has been increasing for example. A non- direct costs indirect costs related to the train people. Plus last quarter we open up the two large center in the Chennai which we acquired 26,000 square feet office and in Bangalore office which we expanded from small office to the bigger office. The cost of operation in this quarter is the full cost has been loaded where it said in previous immediate previous quarter was the only one month cost. So therefore the impact of that the balance amount is

Two quick questions. You mentioned a couple of times that you have an internal operating margin figure and the rest is getting redeployed. So could you share that what that Margin is?

Jigar Mehta

Sorry, elaborate the question. You were breaking in between. OK, what I was asking is that a couple of times he said there is an internal operating margin member that you are tracking. And then anything exists in excess of that you are reinvesting in the business. So what I was the question is and what is that internal operating margin number is it more double digits or if you can just share that number with us. Devanand Ramandasani: We are tracking the different level of margin decreases. For example, the gross margin level, it depends upon the ideal client size and the territory engagement m

I just want a clarification. What is the interest amount did we get on the income tax refund?

Jigar Mehta

Are you talking about the interest income in other income which is clubbed together? Yeah, I'll just be. On the tax refund I'm talking about. Yes, if you're referring to the other income, the interest income part of the other income has been belongs to the interest on IT refund and so small amount on the bank deposit. But can you quantify it? Yeah, fine 1.7 Crore is belongs to IT interest and well.

Thank you all for participating in this earnings call. Q1 was an exciting quarter for us and we are quite positive about rest of the year, I hope we have been able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, please reach out to our Investor Relations manager at Valorem Advisors. Thank you. Stay safe and look forward to being in touch. Thank you.

Management

Speaking time

Jigar Mehta

VP Rajesh

Moderator

Nishit Shah

Sriram Rajan

Devanand Ramandasani

Pratap Maliwal

Krish Kothari

Parthiv

Chirag Pachadia

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Opening remarks

Anuj Sonpal

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 Onward Technologies Limited. On behalf of company I would like to thank you all for participating in the company's earnings call for the first quarter of financial year 2023. Before we begin, a quick cautionary statement. Some of the statements made in today's earnings conference call may be forward looking in nature. 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 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 purpose of today's conference call is purely to educate and bring awareness about the company's fundamental business and fina

Jigar Mehta

Thank you Anuj and good afternoon everybody. It's a pleasure to welcome you all on the earnings call for the first quarter of financial year 2023. I hope you're all keeping well and safe. I want to take this opportunity to congratulate my entire team for delivering robust Q1 performance, driving the highest quarterly revenue of Rs 93.7 crores with our highest ever year on year growth at 35%. We are seeing strong demand for our services in line with our medium term objectives of achieving $100 million of annual revenue. In parallel, Onward Tech continues to exit legacy business, which is the low margin high volume business in India. While focusing our entire investments and budget on the top 25 global customers. These customers now, generate, close to 73% of our consolidated revenue, and has increased by 12% from the same period in the previous financial year. I'm also proud to announce today that are over half of these customers come from our top 25 contribute more than $1 million reve

Devanand Ramandasani

Thank you Jigar and good afternoon everyone. Let me take you through the first quarter financial 23 performance of our company on the consolidated basis. The operating income of Q1 FY23 is 93.7 crore which is as Jigar has mentioned that we grew year on year basis by 35%, which is one of the highest growth ever. Growth in revenue, is mainly driven by increasing wallet share from the existing strategic client in the industrial and equipment heavy machinery the domain as well as in transportation mobility vertical. The EBITDA reported was 2.9 Crore and the net profit after tax reported is 1.2 Crore. In the landmark decision, one of the landmark decision income tax authorities awarded a refund of INR 51.7 million to the company which is recorded during the quarter, which is case belongs to the financial year 2007-08 and our company has received the amount along with the interest. Our reported EBITDA and PAT in Q1 was lower due to the heavy investment in the manpower and the capabilities as

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