Kelton Tech Q4FY17 Concall Summary

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Financial Highlights

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  • Revenue at of Rs. 165 Crores which is 25% y-o-y growth and the q-o-q is about 4.7% growth in Q4FY17
  • EBITDA was at Rs. 24 Crores which is 8.6% q-o-q growth and 36% y-o-y growth and EBITDA margin stood at 14.5% for this quarter
  • Net profit is Rs.14 Crores which is up by 27% y-o-y and 2.5% q-o-q So for the achievement of the quarter
  • For full year FY17, achieved Rs. 615 Crores which is 33% y-o-y growth
  • EBITDA was at Rs 86 Crores which is a 36% growth y-o-y and EBITDA margins stood at 14.1%
  • Net profit was at Rs 53 Crores, about 36% y-o-y growth
  • One reason for hit in margins is due to higher employee cost. The company has hired a lot of new people to get them ready 6 months down the road
  • The Lenmar give at $11 Million in revenue with about 10% EBITDA
  • Revenue guidance till FY 2021, the targets are of Rs 2000 Crores and change in that have more traction, are maintaining that outlook
  • The PAT margin The PAT margins stood at 8.6% while that for the whole year stood at 8.7% and EPS for full year is Rs 11.4
  • The debt equity ratio was at 0.68, about the same as the last year
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Awards  and accolades

  • The company has achieved a credit rating of A- by ICRA
  • "Best E-Governance Initiative of the Year" Award from Business World.
  • Featured as the 'Best Places to Work by The CEO Magazine
  • Achieved Skoch Award for the Best Health initiative in India
  • Recognized by WHO as the largest Mobile Health Solution in the World
  • Won the digitization India award which was the Cisco and CNBC collaboration .

Lenmar Acquisition

  • The company has acquired Lenmar Group a few days before March end. Acquisition was mainly for customer base of Lenmar in the BFSI sector like Deutsche, Bank, BNP Paribas and other financial institutions
  • The Lenmar is bringing in $11 million in revenue with about 10% EBITDA.
  • The company refused to divulge the cost of acquisition due to confidentiality clause

Update on New Clients

  • The company has acquired 9 net new clients and expects the next quarter to be the same
  • The company is developing cognitive virtual agent solution using chatbots and artificial intelligence (Al) for a leading insurance provider which will essentially help them on the help desk resulting in an improvement in customer service and  satisfaction
  • One of the larger airport in US has engaged Kellton Tech to implement a digital transformation solution utilizing block chain. this is basically end-to-end digital transformation solution, which includes cloud services with enhanced  security
  • A leading credit reporting agency has engaged Kellton Tech to develop a digital roadmap and advanced analytics platform to check the credit ratings of consumers that apply for either public sector or private sector loans and providing them with some analytics based on actuarial findings
  • For The third major client in US which is a leading US mobile communication solution provider Kelton tech is scaling up the enterprise system and obviously there is a consolidation happening within the mobile communication platforms in the US. And we are working with them to support their increase demand and enabling them to achieve their  performances.

Order Book

  • Order book is looking good with visibility for six months of give or take few  days
  • The average  deal size for us has gone up by 100,000
  • The company is continuing to strive towards the reducing the number of customers but because of Lenmar acquisitions now they have  additional customers to deal with
  • The company has reduced the number of customer only by handful but is hopeful to reduce to within teens while increasing the  revenue

Headcount

  • The company has added 160 employees including those from  Lenmar
  • Lenmar added 100 people and rest 30 was added because of continuous growth in the space that were in Neha, One of the reason hit in margins for the  standalone
  • From the total numbers of employees that has been increased in the last quarter how many of them are on H1B Visa
  • The company is constantly investing in people and expects to increase headcount. Headcount has increased from about 1275 to close to 1400  now
  • No of employees on H1B visa increased by 130. Lenmar added 100 employees and the rest 30 were added due to continuous growth in the  space

M - Sehat

  • The company's mobility product, M-Sehat, was initially launched it was for five or six districts in U.P
  • The company is in talks with various stakeholders in Madhya Pradesh, Andhra Pradesh to get it implemented ther
  •  There has been a change of government in UP. The new govt seems excited about the project and the company is optimistic about future prospects. There are actually a few tweets coming out of Chief Ministers office as well as the Minister, about the project that Kelton tech did and how good is doing. They are also talking about taking the platform that and use it for other services that they want to offer around it
  • This platform is scalable can be leveraged. The company has not explored the international options yet. WHO has declared this as one of the best projects done using a mobile-based solution.


Strategy & outlook:

  • The company is constantly investing in R&D of new and emerging technologies. The new and emerging technologies are Al, bots, deep learning which involved in Al and block chains
  • The company is building up a team of people as technology excellence group that is on lookout for the new and emerging technologies
  • The company is constantly investing in emerging technologies hoping that 3 or 4 one of them will pan out.
  • The company claims to be an end to end digital transformation solution provider and this acts a differentiator compared to big IT companies and the smaller niche  companies
  • IT industry, might slow down the growth but the company is making acquisitions, growing using internal accruals as well as rising from debt. NO fundraising plans in the near future from the market due to negative sentiments about IT  sector
  • The company has loans in US dollars which acts as a natural hedge against currency movements. The company  has no hedging policy
  • The promoters are pledging the shares to raise debt as there is no other tangible asset   to pledge and banks are insisting on promoters share as pledge. No need for pledging of shares in foreseeable future

Guidance

  • The company has ambitions to get  to Rs 2000 Crores revenue by FY 2021 which is going to be a combination of organic and inorganic  growth
  • The company has given guidance of 16% EBITDA and 9% to 10% PAT  margin
  • Growing organically, at around (+20%) and is going to be some inorganic growth that is going to get the number
  • Organically achieving 15% to 20% for the next year growth, so that is the projection that wanted to give without the inorganic side of numbers

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