ONWARDTECNSEFinancial Year 202221 January 2022

Onward Technologies Limited

6,869words

108turns

11analyst exchanges

0executives

Key numbers — 29 extracted

70%

, which is healthcare and hi-tech. In these existing verticals, which contributes today more than 70% of our revenues, we provide services in four lines of business, so one is digital engineering, se

rs,

supported by experienced Management and a very strong Board of Directors. Over the last few years, we have been consciously transforming our service offerings from low margin traditional IT service

34%

quarter under review Q3 of the last 90 days, I am pleased to inform you that we delivered around 34% year-on-year annual revenue growth, which is better than we had guided earlier. The Q3 financial

10 million

the quarter. Strategic customer, we define as customer which has potential to outsource minimum $10 million of revenue to one single supplier. Out of the three new strategic customers that we have added, o

77.3 crore

any on consolidated basis. For the third quarter of this financial year, the operating income was 77.3 crores, which was increase of approximate 34% year-on-year basis. EBITDA of this quarter is 9.7 crores

9.7 crore

77.3 crores, which was increase of approximate 34% year-on-year basis. EBITDA of this quarter is 9.7 crores and net profit after the tax is approximate 5 crores which was significantly up on year-on-year

5 crore

r-on-year basis. EBITDA of this quarter is 9.7 crores and net profit after the tax is approximate 5 crores which was significantly up on year-on-year basis as well. The operating income for the nine mont

220 crore

basis as well. The operating income for the nine months ended Financial Year 2020 was approximate 220 crores, which was increased approximately 26% on year-on-year basis. The EBITDA reported was Rs. 59.1 c

26%

ne months ended Financial Year 2020 was approximate 220 crores, which was increased approximately 26% on year-on-year basis. The EBITDA reported was Rs. 59.1 crores and the net profit after tax repor

Rs. 59.1 crore

220 crores, which was increased approximately 26% on year-on-year basis. The EBITDA reported was Rs. 59.1 crores and the net profit after tax reported is 20.5 crores. This was an exceptional year and excepti

20.5 crore

r-on-year basis. The EBITDA reported was Rs. 59.1 crores and the net profit after tax reported is 20.5 crores. This was an exceptional year and exceptional item in Q3, which is called one of the grant in th

4.8 crore

m in Q3, which is called one of the grant in the form of ERC received from the US entity which is 4.8 crores which is netted off in the employee expenses in this current quarter. With this, we open the f

Guidance — 20 items

Ujwal Kumar

“I can see most of your revenues as time and material, so just wanted to understand, I think as per my calculation the billing rate is somewhere close to about $10 per hour, but if you can talk about the billing rate and how we are looking because the more complex the service, the more is the billing rate, so just trying to understand how we are looking at the growth in billing rates going forward?”

Ujwal Kumar

“Second question is that the proportion of time and material itself, which has been about 74% to 76% over the last I think since FY ’19 or so, so how do you see that improving going forward or is that going to remain the same in the near term as well?”

Jigar Mehta

“Last quarter, we had about 74%-76% of our revenue from T&M and going forward, we believe that will go up on annual basis.”

Ujwal Kumar

“Understood, could you just quantify it from what it is today and what we can expect in let us say two-three years’ time, and also if you can compare it with peers like KPIT and Tata Elxsi?”

Jigar Mehta

“I do not know what these other companies do, so we are at about 76% as of today for the first nine months and we believe we will move more towards 80%-85% going forward, it is more and more of our projects that we are winning from new clients is on the T&M side.”

Jigar Mehta

“I believe margin will be outcome of the work that we do for our customers.”

Jigar Mehta

“We are on track to deliver 20% plus if not higher growth this financial year, which is, FY ’21-22 and we believe we have a very good shot based on the sales funnel and the opportunity we have that we will outperform those numbers next financial year.”

Jigar Mehta

“For example, if we have to grow, we will add about net 300 to 400 people next year from a pure lateral hiring perspective, but what we are trying to do now is to build the additional capacity and capability for the new age technologies especially on the mobility side, on the cloud side and that can actually help us accelerate where our current 2500 people can become 5000 people in the next few years.”

Jigar Mehta

“Now, we have the expertise, customer confidence and financial strength to do that which will deliver double digit growth.”

V.P. Rajesh

“Since you have about 800 employees in that segment and that seems to be constant for the last few quarters and that is what I am trying to understand, if there is some long term project there because the underlying assumption is that a low-margin business, so given the number of employees and sort of remaining constant over the last two-three quarters, I was trying to understand when we will we see sort of that low margin business going away?”

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Risks & concerns — 1 flagged

The biggest opportunity and challenge for us is we are continuously doing lateral hiring from the market to meet the requirement from new customers.

— Jigar Mehta

Q&A — 11 exchanges

Jigar, great performance, I have two questions, one question is on the billing rate. I can see most of your revenues as time and material, so just wanted to understand, I think as per my calculation the billing rate is somewhere close to about $10 per hour, but if you can talk about the billing rate and how we are looking because the more complex the service, the more is the billing rate, so just trying to understand how we are looking at the growth in billing rates going forward? Second question is that the proportion of time and material itself, which has been about 74% to 76% over the last

Jigar Mehta

Hello. Onward Tech has two revenue models, which is time and material (T&M) and Fixed Price. Last quarter, we had about 74%-76% of our revenue from T&M and going forward, we believe that will go up on annual basis. Majority of our OEM & Tier 1 customers prefer T&M model and we are seeing more RFQs in this model currently. Understood, could you just quantify it from what it is today and what we can expect in let us say two-three years’ time, and also if you can compare it with peers like KPIT and Tata Elxsi? I do not know what these other companies do, so we are at about 76% as of today for the

I would like to understand what is the lock-in period?

Jigar Mehta

Sorry, can you clarify that. I see that there are some shares held in the lock-in period, can you take them to extend them, I am a bit new to this? You are talking about the investment that is made by the Convergent Finance? Yes. There are lock-in period as per the SEBI is defined is the one year from the post investment, but there are the strategic investors. They are seeing the long-term value in the organization, so they will stick basis on the internal parameters, but so far we understand they will associate with the long term. Jigar I have a question for you, is our model mostly on the ou

Congratulations on a good set of numbers Jigar and thanks for taking my question. Can you give a roadmap on these headcounts and let me elaborate why I need this, because you see as you rightly said 18 months back, you guys were focusing more on the mechanical engineering side, now you are doing more on mobility, digital, embedded etc., but when you look at the competitive landscape, you have Tata Elxsi at 8500 plus people, you have KPIT again around 10,000 plus 15,000-16,000 people in L&T Technologies significantly higher number, I think there is a lot of catch up to do so 500 people on 2480

Jigar Mehta

Hello. We are on track to deliver 20% plus if not higher growth this financial year, which is, FY ’21-22 and we believe we have a very good shot based on the sales funnel and the opportunity we have that we will outperform those numbers next financial year. My team is focusing on delivering that today, and for that we will need to add lot of talent. For example, if we have to grow, we will add about net 300 to 400 people next year from a pure lateral hiring perspective, but what we are trying to do now is to build the additional capacity and capability for the new age technologies especially o

I wanted to ask about your healthcare vertical, could you explain what exactly you guys do in that vertical and what sort of expertise you bring to clients?

Jigar Mehta

We are currently providing mechanical, digital engineering & data science services to our clients. We are seeing lot of requirements from customers in these areas including Cloud, DevOps & visualization. Our new Centers of Excellence (CoE)’s are focused on these technologies and domains, which will help us accelerate our growth in the industry. I actually have another question related to the sort of ideology that you have in terms of concentrating more on existing client versus trying to hunt for new clients, I have seen your presentation that you want to go to about 70% in place of 10 custome

Thanks for the opportunity and congratulations Jigar for a good set of numbers. Just on the revenue mix from the IT services I think this quarter we were still around 20%-21%, so where do you see that percentage going down to in the next two-three years?

Jigar Mehta

Correct Rajesh, the overall % of our IT business as compared to overall business will go down in terms of percentage as our focus shifts to Digital. Cloud and other new age technologies. Since you have about 800 employees in that segment and that seems to be constant for the last few quarters and that is what I am trying to understand, if there is some long term project there because the underlying assumption is that a low-margin business, so given the number of employees and sort of remaining constant over the last two-three quarters, I was trying to understand when we will we see sort of tha

Just couple of questions, firstly we have seen a substantial uptick in the revenues in Q3 and in Q2 you mentioned that the substantial uptick will be because of billing of new deals and new clients, so has it been successfully captured in revenue?

Jigar Mehta

I did not understand the question, sorry. I am saying in Q2 you would mention that there will be a substantial uptick in the billing from new deals and clients, has that been fully captured in Q3? Yes, majority from existing clients and some contribution from new clients we signed earlier this year. Second is that we have grown 6% on QOQ basis, even big companies like HCL and Infosys have done that, so just wanted to know your thoughts on this? We have done it for the first time, so we are very proud of delivering the numbers and making it a habit. We have just turned around this entire busine

Congratulations on a good set of numbers, I just have one question on the sales funnel, I have been asking this since the previous quarter as well. You said that you will share this by next quarter, so can you share it now?

Devanand Ramandasani

Anmol as I mentioned you that we are in the verge of closing of the financial year as well as we are setting up the next year restructuring and everything, so hopefully in coming quarter we will be able to finalize the order book and how it will make, we will share this. Okay, can you share anything as to how the deal pipeline has been over the previous quarter just to give some color on it? I do not want to be able to share you the number, but pipeline wise if you see the numbers are representation of the deal pipeline which we have which is stronger than the quarter-on- quarter basis and tra

Jigar and Dev and Onward team a wonderful performance and many congratulations. Just a few questions for my own clarity, what services do you categorize as digital and ER&D, so you called out cloud migration, DevOps, full stack developers etc. goes into digital. Are there any other services other than this that you call as digital and this is the traditional mechanical services you call ER&D in the way you classify revenue?

Jigar Mehta

Good Evening, on the digital side everything that you mentioned plus data science, data analytics and the ER&D side, now includes both mechanical & embedded electronics engineering. When you say embedded auto electronics, so there is a lot of work clearly happening in the electric vehicle side, so you are going to play a part in the power electronics part or it is just these on the chips or the middle where the controls chips which area we will be operating in? As of now we are seeing opportunities in all the areas, but again as I clarified earlier, we are playing at such a small scale which i

Just a couple of more questions, the first is on so I just want to get a better sense of how you and the team allocate your time. I understand that there is always the sort of temptation move into the new fields and new sort of related areas, but I just want to understand that what makes you confidence that as you expand your service offering either you are offering or to a new vertical, what makes you confident that you do not lose focus on what you already have and what you already do?

Jigar Mehta

Great question. how to not lose focus ? From the customer perspective, the kind of OEM customers that we serve, I do not think we have any room for us to look left to right. We have worked very hard to now finally get our feet on the table and become a supplier to some of the biggest and most respected brands in the world. The current workload, the opportunity, the post pandemic demand from these customers is so high like we are not even scratching the surface right now. We love where we are here and are only focused on getting better. Where we are spending lot of time and resources is buildin

One follow-up question is on the attrition, if you can comment what you have seen especially for the lateral hire that you have done over the last few quarters, some sense of how many are still around etc. because we are talking about the culture, I would think that (Inaudible) assimilated into the Onward culture and probably some had less so if you can just give some commentary on that?

Jigar Mehta

Attrition is always a concern for us. Losing trained personnel and good engineers with deep customer process or product knowledge is always painful. Though for a young company like us, not much has changed in 2021 compared to 3-4 years ago, where you become the training ground for larger companies. With a strong performance in 2021, what we see happening is lot of our old employees are coming back, we rolled out our bet increments and are ESOP scheme is getting more popular every day now. These are big attractions for the best talent who want to join young companies like us with potential to m

Thank you all again for participating and joining us today in our earnings call. I hope we were able to answer your questions satisfactorily. If you have any further questions or would like to know more about the company, please feel free to reach out to our investor relations managers at Valorem Advisors and thank you again, stay safe and healthy and I look forward to seeing you all soon. Thank you.

Devanand Ramandasani

Thank you all participants for joining this call.

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Speaking time

Jigar Mehta

Devanand Ramandasani

Moderator

Kaushal Kedia

V.P. Rajesh

Krish Kothari

Shriram

Hassan

Ujwal Kumar

Anmol Grover

Opening remarks

Anuj Sonpal

Thank you. Good Afternoon everyone and a very warm Welcome to you all. Firstly to start, let me start by wishing everybody a very Happy New Year and I hope that everybody is safe and well. As you know, my name is Anuj Sonpal from Valorem Advisors. We are presently the investor relations of Onward Technologies Limited. On behalf of the company, I would like to thank you all for participating in the company’s earnings conference call for the third quarter of Financial Year 2022. Before we begin, let me mention a short cautionary statement as mandatory. Some of the statements made in today’s earnings conference call maybe 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- loo

Jigar Mehta

Thanks Anuj, Good Afternoon everybody. It is a pleasure to Welcome you all to the earnings conference call for the third quarter of FY ’22. Firstly, I hope you are all keeping safe and well and I would like to wish you all a very Happy New Year. Before we begin the earnings highlights, let me start by giving some background about Onward Technologies for the benefit of the new participants joining us today. Onward Technologies is basically focused on two industry verticals, which is transportation and mobility which includes automotive and rail transportation and second is industrial equipment and heavy machinery. There are two new verticals that we are focusing on investing, which is healthcare and hi-tech. In these existing verticals, which contributes today more than 70% of our revenues, we provide services in four lines of business, so one is digital engineering, second is embedded electronics, third is mechanical engineering and fourth is enterprise IT. The company has now grown to

Devanand Ramandasani

Thank you, Jigar. Good Afternoon everyone and wish you Happy New Year 2022 and hope everyone is safe and healthy. Let me take you through the financial quarter and the YTD financial performance of the company on consolidated basis. For the third quarter of this financial year, the operating income was 77.3 crores, which was increase of approximate 34% year-on-year basis. EBITDA of this quarter is 9.7 crores and net profit after the tax is approximate 5 crores which was significantly up on year-on-year basis as well. The operating income for the nine months ended Financial Year 2020 was approximate 220 crores, which was increased approximately 26% on year-on-year basis. The EBITDA reported was Rs. 59.1 crores and the net profit after tax reported is 20.5 crores. This was an exceptional year and exceptional item in Q3, which is called one of the grant in the form of ERC received from the US entity which is 4.8 crores which is netted off in the employee expenses in this current quarter. W

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Onward Technologies Limited

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