3IINFOLTDNSEQ1 FY'23August 5, 2022

3i Infotech Limited

7,883words

68turns

9analyst exchanges

4executives

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Management on call

Thompson P. Gnanam

MD & GLOBAL CEO

Sanjay Rawa

CHIEF FINANCIAL OFFICER

Harish Shenoy

CHIEF PERFORMANCE OFFICER

Thompson Gnanam

M.D. and Global CEO of 3i Infotech. Thank you.

Key numbers — 40 extracted

12%

with a good set of results in Q1. I'm happy to report that we have shown a year-on-year growth of 12%. As discussed earlier in my call with you all, we already articulated our Vision Statement for 20

179.1 crore

lose to achieving a billion-dollar trade. Quickly on the revenues, for q1 our top line has been 179.1 crores, US$0.6 million with a gross margin of 11.4% and an operating PBT of 0.3 crores which is very po

0.6 million

ng a billion-dollar trade. Quickly on the revenues, for q1 our top line has been 179.1 crores, US$0.6 million with a gross margin of 11.4% and an operating PBT of 0.3 crores which is very positive for us, I

11.4%

on the revenues, for q1 our top line has been 179.1 crores, US$0.6 million with a gross margin of 11.4% and an operating PBT of 0.3 crores which is very positive for us, I think, to start the year with

0.3 crore

p line has been 179.1 crores, US$0.6 million with a gross margin of 11.4% and an operating PBT of 0.3 crores which is very positive for us, I think, to start the year with a positive PBT and it is very ess

50%

cial year. Quickly, I will touch upon the macro economic impact. So, of course, because more than 50% of our revenues come from the US market. And the US market has the highest inflation now in alm

rs,

of wallet as the clients spikes to optimize the cost, and consolidate partners and service providers, a challenger like us should go well to increase the business and move the revenue share from our T

Rs.760 crore

arching towards our goals. Just so refresh our memories, we have given a guidance and a target of Rs.760 crores and a 15% EBITDA margins for financial year 2022-23, and we are on course for that, and we will

15%

als. Just so refresh our memories, we have given a guidance and a target of Rs.760 crores and a 15% EBITDA margins for financial year 2022-23, and we are on course for that, and we will try our bes

7 million

e a healthy pipeline of some of the new lines of service in the build businesses of almost $5 to $7 million US opportunities which have evolved in Q1, which are in cybersecurity operations, in cognitive co

Rs.100 crore

ese headwinds and global environment is an opportunity for New 3i, build a strong order book of Rs.100 crores of high value business and deliver the guidelines which we have committed. Thank you. I would li

Rs.179.2 crore

the key highlights of our financial performance at a consolidated level. We achieved a revenue of Rs.179.2 crores for the quarter vis-a-vis the last quarter of Rs.175.6 crores which represents a 2% quarter-on-

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Guidance — 20 items

Thompson P Gnanam

opening

“Sales cost efficiency will be a very important focus this year in terms of redeployment of our sales investments within the volume and the value business.”

Thompson P Gnanam

opening

“NuRe 3i plus cloud-powered services will be an arrowhead and various other NuRE velocities which very quickly will beat us will run on our NuRe clouds.”

Thompson P Gnanam

opening

“Just so refresh our memories, we have given a guidance and a target of Rs.760 crores and a 15% EBITDA margins for financial year 2022-23, and we are on course for that, and we will try our best to achieve this outlook in spite of these headwinds, which we see in the industry.”

Thompson P Gnanam

opening

“To have a better focus on the value sets, which is build business, it's the new lines of services of building, and we have carved out a new independent P&L unit, which will be run by our senior leader, Sai Krishna who will run this as an independent P&L.”

Sanjay Rawa

opening

“So, this is primarily related to the revenue growth, and we see that dropping down and the employee numbers coming up going forward.”

Sanjay Rawa

opening

“This was primarily due to certain government customers sign offs being pending and the delay in collection, but we expect that to get recovered in Q2 onwards.”

Harish Shenoy

opening

“So, around 50 resources to 100 resources is what we are planning every quarter and getting them into billable resources in the next quarter onwards.”

Harish Shenoy

opening

“So, in the next quarter or so, we should be having more headcounts in US being exported from India, who will boost up our revenue at a lower cost.”

Harish Shenoy

opening

“And in Malaysia, as we talk, we will be having our indigenous sovereign cloud being set up and it should be launched along with Oracle, and the Malaysian government supporting us on those initiatives.”

Harish Shenoy

opening

“We also are ensuring that we are getting in very key resources will be very effective in bolstering this organization.”

Risks & concerns — 2 flagged

So, I believe you must be also working on the same just a best possible way to minimize attrition, which is a big concern nowadays?

— Kapil Joshi

My concern here is that we being a long-term investors in this company been waiting for two years now and we thought things will be rosy.

— Shaju Perincherry

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Q&A — 9 exchanges

I must begin by saying that I am not as a personal investor as well as an entity we are not very impressed with the results that have been put forward. Particularly, my question is directed towards the fact that as a consolidated entity, we posted a loss wherein while detail during the conference call, it was detailed that we carried out CAPEX and increment. Can the management elaborate as to the reasons why we could not come in the black for the consolidated entity? We are in profit for a standalone entity. Secondly, I wish to know if there have been any major new orders that have been won by

Thompson P Gnanam

Thanks, Siddharth So, see, if you ask me from an EBITDA level on a consolidated basis, there is a gap, because there were a few overflow, with costs and expenses . But the good news is that we've got the kind of operating rhythm in place, and we will be able to kind of deliver the profitability, even without the foreign exchange gain which we made. And that we can assure you that, quarter-on-quarter, we'll be able to do that, because as Harish explained also, we are also working on multiple areas to eliminate cost in parallel, and these actions have been taken in Q1, and the results of that yo

I think you mentioned in your introductory remark regarding this foreign exchange profit that is there on the P&L. So, if you can provide more details on what are the changes that has been done which has led to this profit?

Thompson P Gnanam

Sanjay, you can come in but I'll quickly set a context from a strategy perspective and then Sanjay you can explain it. The old 3i was a product-led company, which was the India-centric kind of operating model. And now, as the New 3i we are now evolving into a more geo-specific, geo kind of led organization in line with the other industry peers and services and organizations. And that's the key chain. So, effective April 1, what we have done is, we have now set these targets very clearly from a geo P&L perspective or independent geos are full- fledged subsidiaries and which work independently e

Just a couple of questions. So, just basically wanted to understand our vision for the edge computing business, and what strategies are we implementing to drive this particular business? Second one was on basically NuRe business now. So, if you could throw some light on this particular segment and our plans here, what is the commercial model and how do we plan to expand this?

Thompson P Gnanam

So, there are two part. One is that the NuRe is our cloud first business, which is kind of the foundation for all our other businesses, whether it is digital first or automation, or even cognitive just on our NuRe line of services. NuRE 3i plus is our Oracle OCI, cloud first which is led by oracle cloud, where we are now building our own sovereign clouds, we are building our own cloud in a box services and we have been successful in getting some new deals using these frameworks and methodologies as well. We've also been having these startups and resident entrepreneurs, bringing the secret sauc

So, I have just one question. Given the high level of attrition that we are seeing in IT sector, how are you controlling the employee cost inflation?

Thompson P Gnanam

So, Rahul, this is industry problem. If you look at our Q1 numbers also, employees attrition gone up because obviously, it is costing us more to do business even in India. So, very clearly, what we are looking at is also de-risking ourselves by investing in Tier-3 cities and this NuRe park of Oracle COE, Tirunelveli is one such initiatives we have taken where we are now building this pool of engineers who will be trained and aligned to industry specializations especially the Oracle COE, is aligned, it's an effort in that direction. Second, we are also now increasingly focusing on investing the

Sir, can you please elaborate when can we expect to be profitable, because EPS even after restructuring is showing a negative figure, even though this loss is reducing, however, we are far away from the net profitability, so, when can we see a good amount of healthy profit and EPS growing in multiple -- so, should it happen in the next quarter, can we expect that that will be a net positive by say end of Q2.?

Thompson P Gnanam

As I said, for most of you all have been invested with us for a long time, it might look like a continuum, but for us, the last year was a very important inflection point once we sold out the product division, and we are now building this new organization. To your point, we are already committed that this year as an outlook we said we will deliver profitable results in the start of the year. We are targeting Rs.760 crores and Rs.15 crores profits. And we are hopeful that we'll be able to do it, because we've got all the levers in place, we have kind of produced all the variations and surprises

Mr. Thompson, in last six to nine months, you had multiple meetings with institutional investors and even you posted those meeting details as well. Are you seeing any interest from these institutional investors or anchor investors investing in 3i after so many meetings?

Thompson P Gnanam

Of course, because we have been constantly kind of communicating our strategy and the New 3i to all potential investors. There is a renewed interest and we'll be watching very closely. And I'm sure as we are able to bring this more predictable business and we are able to kind of generate predictable revenues and profits in the coming quarters, these interests would convert into more long-term partnerships or investment relationships. About the large deals or big deals, we had this announcement of Bamboo Rose about six months back. And since there is not much of this, we have seen much activity

I just want to understand one thing, the profit reported this quarter without foreign exchange gain, there was a loss of Rs.11.2 crores,Compared to last quarter, this is a big variance. And secondly, can you please give us an estimate of your revenue for the next quarter? I'm not asking about the profit, but what do you think would be whatever it was in Q2 from the trajectory?

Sanjay Rawa

The variance primarily, we had some exceptional cost on employees leaving the US wherein we had to patch in with subcon arrangement locally. That is one of the primary reason that we had a low margin. But, going forward, we think that with our resources getting in, in the US back and that's what we are working and we already have lined up people getting back, our margin should go back into a level, or I'd say improvement in the margins in the coming quarters. That was the primary reason to answer your question. I just need some more clarification on this. It is a loss of Rs.11.2 or Rs.11.3 cro

My question is about employee stock options. This is something which is going to dilute the equity. So, it has been going on earlier as well. So, are we going to plan employee stock options as well, there is no end of the stock dilution, can't we avoid this?

Sanjay Rawa

Is it about your shares getting allocated that you're referring to? See, for example, company has a set of 700 crores of shares. Now, a few of the shares are given to employees. So, now you're given one crore shares extra, so whatever is EPS that goes further down when new stocks are added? I think what is being shown as allocated are stock options which have been granted to employees over the last four or five years. So, they are only exercising and vesting their options. So, I don't think other than that, there are huge numbers which have been given to the employee stock exchange, and these

So, thanks a lot and these are all very valuable questions and insights. And I like to thank all our shareholders and investors and thank you for your patience with the new 3i and the new management team. Need your continuous support and we will keep building on this momentum. And also we will also try to have some questions on trying to see how we can communicate more transparently and effectively. I think there was a question from Shaju. We will take those inputs, because our endeavor is to build a world-class organization, because this is run by professional entrepreneurs and we will bring

Management

Speaking time

Thompson P Gnanam

Sanjay Rawa

Moderator

Shaju Perincherry

Vaibhav Badjatya

Kapil Joshi

Sanjay K

Siddharth Gupta

Harish Shenoy

Harsh Sheth

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Opening remarks

Thompson P Gnanam

Thank you. Good morning, good afternoon, good evening, ladies and gentlemen and welcome to 3i Infotech Limited Q1 FY23 Earnings Call. Hope all of you and your loved ones are staying healthy and safe in the era of pandemic and endemics. We continue to build our momentum of business acceleration on our last year strong foundation we have laid post carve out for the New 3i. The quarter was a good progress from our year-end results and in line with an annual growth targets. This year would be a year of building scale, enhancing margin and accelerating as a challenger. I'm happy to inform you that 3i Infotech has begun the fiscal year with a good set of results in Q1. I'm happy to report that we have shown a year-on-year growth of 12%. As discussed earlier in my call with you all, we already articulated our Vision Statement for 2030 and we are close to achieving a billion-dollar trade. Quickly on the revenues, for q1 our top line has been 179.1 crores, US$0.6 million with a gross margin of

Sanjay Rawa

Thanks, Thompson and good evening, everyone. I'd like to start with giving the key highlights of our financial performance at a consolidated level. We achieved a revenue of Rs.179.2 crores for the quarter vis-a-vis the last quarter of Rs.175.6 crores which represents a 2% quarter-on- quarter growth. In comparison to the year-on-year number, we had revenue of Rs.159.9 crores, with a growth of 12% year-on-year. Moving on to our cost line, I just want to give a highlight of employee benefit expense which has marginally moved up by about Rs.2 crores, primarily due to the increments that we had effective from mid of this quarter. Our cost of other third-party products and services have gone up primarily due to two reasons: One is, we had seen a significant increase in our US subcon costs due to certain attritions that we had in the US, which had to backfill through the subcon mode and in Saudi Arabia as well. So, this is primarily related to the revenue growth, and we see that dropping down

Harish Shenoy

Good evening everybody. So, to give you a quick overview of the operations that we had in Q1, and our way forward on that. So, I think as we have got into this new year with the new vigor and the strong base that was set by our organization for the last year's numbers, we've been working effectively on reducing our costs and improving utilization of the organization. So, as Thompson mentioned, we had to restructure the organization to make it more effective and we split our units into India business region and the global business region, built or the product development being called out separately, so that it becomes more efficient and effective for us more in terms of an IP creation as well as revenue generation from that per se. When we're coming to operations thing, we are trying to bridge the gap, that's getting created due to the attrition era that we have gone through in the last year. So, as corrective actions or plans that we had in the last quarter, we've already set up the Ti

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