Quick Heal Technologies Q2FY18 Concall Summary

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 Financial highlights

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  • In Q2 the retail sales team focused on efficient selling and managed the credit lines and as a result the cash position of the company has improved by 17.5%.
  •  The EBITDA has improved by about 10.5% and that is a result of multiple measures - the in-sourcing of the software basically instead of third party software using in-house software developed by the R&D.
  •  It can be seen that the EBITDA margin has improved by 6% this point over 600 BPS and EBIT and PBT also have gone up in the same sequence.
  • In the consolidated balance sheet , Cash-in-hand is of the Rs.250 Crores is in the balance sheet which is on account of cash submitted by the company
  • Rs.156 crore is on account of IPO money which has a very specific end use.
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  • Rs.24 Crores is the salary which is to be paid on the first day of the next month.
  • Volume growth and the license growth were around 3%.
  • In September 30, 02017 versus 2016 the working capital has come down and basically on account of debt, the debtors and receivable days went down from 71 to 51.
  • The Company has moved retail platform from primarily credit model to now cash carry model. The margins for the distributors have increased in the process.
  • The Company has in-sources some of the outsource activities using own skills and own software hence drop down cost substantially, which is visible in the direct cost and growth margins have gone up and operating cost have been kept under control.
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Effect of GST

  • After GST implementation, Company started collecting 18% from the customers, but then that has really impacted the pickup by the customers, so 10% to 11% have to be passed to discount to the partners, so that the sale does not get affected.
  • The lower end product is getting more sales, maybe this is because of GST impact.
  • Because of GST, there has been decline in sales, and company was not able to achieve any goal because of that in first quarter.
  • GST hit is more or less being compensated by the ITC, which is expected that will not affect the margin.

New products/offers

  • Company has launched the encryption offering in this quarter, so that gives the opportunity to cross sell this product and offering to all existing and the new customers.
  • Company recently launched Seqrite encryption which is available, which provides tool encryptions this encryption and this will give more opportunity to up sale to existing customers as well as open up those experienced customer.
  • Company is also focusing on HNS products, which was supposed to get released in last quarter, but due to some technical challenges that product is getting delayed by almost six months.
  • In February, Company will be launching a product to scale up to 5000 endpoints and also cloud version, which will help to get into the larger installations.
  • Products in the IoT and the cloud space are basically the product is in alpha stage right now, company is hiring some field trials. There are some hardware glitches that are being sorted out, but is planned to launch in Q4.
  • It is a home networking solution that is primarily for at homes where we have router, this network will definitely help to protect the devices that are connected to the router.
  • Company launched a feature called Safe Pane, which basically indicates if a mobile compromised and that is whole intent of showing to the consumer that while they are doing financial transaction they should be cautious and careful about what is going on the mobile, and company has seen good adoption in this.

Growth

  • Gross margin has improved because company has in-sourced a lot of work , company has cut out vendors or have re-negotiated and brought the cost down and much of it is using company’s own tech force and creating solutions, which would replace higher cost external vendors.
  • Company has grown the enterprise and the government sector sale by almost 27% compared to retail.
  • In retail, there is a decline, but when it comes to enterprise there is growth.
  • There has been 20% increase in the number of license sold into the enterprise and the government. Total number of licences sold are 267000.
  • Quick Heal monetizes via adds and the through paid subscription, which is Total Security
  • Mobile business is not growing too much and the management is really thinking on the entire mobile strategy,
  • Company has on boarded a large distributor in Q2 and will give expanded reach into the market and that push will continue to get more Sales and partners in the fold in Q3 and Q4.

Retail vs Enterprise

  • The goal for the government and enterprise business it is about 20% of the overall sales.
  • By two to three years’ time, company is expecting 50% to 50% of retail versus government and enterprise business.
  • In retail, company is focusing on home users as well as home offices and small offices.
  • Retail is going to have slower growth for sure because of the reduction in the laptop and desktops adoption.
  • Management wants to focus on the enterprise because the market, total addressable market is much bigger.
  • Just at a structure level there is a 3% to 4% growth on the retail business and round about 25% on enterprise and government, which has just turned about 10% of the total business.

Mobile business

  • The mobile business is 1%-2% of the total retail sales.
  • Company have stopped over 200 million Malware infections across Quick Heal users and the highest infection month being the month of July.
  • By having the good focus on acquisition, retention, and monetization, the company hopes to get more traction in mobile security.
  • Quick Heal Security Labs detected nine new Ransomware infections in this quarter with around thousands of more variant and on the mobile front the detection of Androidware in Q2 rose 40% in comparison with that of Q1, so potentially unwanted applications grew by more than 200%.
  • Monetization on the mobile happens to through advertisement in products where subscription is offered for free
  • Threat vector on mobile is not as strong, so the tool for customers from mobile security perspective is still not strong.

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