Saksoft Ltd

Event Date / Time: 28/05/2024, 14:00 Hrs. Event DuraƟon : 60 mins 40 secs

Ladies and gentlemen, good day, and welcome to the SaksoŌ Limited Q4 and FY24 Earnings Conference Call hosted by Ventura SecuriƟes Limited. As a reminder, all parƟcipant lines will be in the listen only mode and there will be an opportunity for you to ask quesƟons aŌer the presentaƟon concludes. Should you need assistance during the conference call, please signal an operator by pressing * and then 0 on your touchtone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Tushar from Ventura SecuriƟes Limited. Thank you, and over to you, Tushar. Tushar Pendharkar Thank you. Good day, ladies and gentlemen. On behalf of Ventura SecuriƟes Limited, I welcome you all to SaksoŌ Limited Q4 and FY24 earnings conference Call. The company is today represented by Mr. Aditya Krishna, Chairman and MD; and Mr. Niraj Kumar Ganeriwal, COO and CFO.

I would now like to hand over the call to the Managing Director of the company, Mr. Aditya Krishna, for his opening remarks. Thank you, and over to you, sir.

Hello, and good aŌernoon, everyone. Welcome, and thank you for joining our Q4 and FY24 earnings call today. Let me first give you a brief introducƟon of SaksoŌ for the sake of some of the parƟcipants who may be new to the company. SaksoŌ is a digital transformaƟon partner that assists its customers to automate, modernize and manage IT systems through a combinaƟon of domain specific technology soluƟons and soluƟon accelerators from consulƟng to support. We have been in business for almost 2 decades now with offices across 16 locaƟons covering USA, Asia Pacific, UK and Europe. We have an associate strength of 2,000 plus.

In the recent reorganizaƟon of our business, we have restructured our business into 4 business units, namely: Fintech, Hi-tech Media & UƟliƟes, TransportaƟon & LogisƟcs and Retail E- commerce. This will help us become more market facing and more responsive to the demand of our exisƟng customers and new logos.

The interconnected nature of the verƟcals menƟoned address a huge market, which also facilitates us to cross sell and up sell service offerings to our clients. These verƟcals are supported by horizontal service offerings spanning analyƟcs, cloud soluƟons, legacy modernizaƟon, intelligent automaƟon, applicaƟon engineering and quality assurance. As a company, we offer comprehensive suite of digital transformaƟon services.

Now moving on to the quarter under review. Despite facing headwinds in the U.S. market, I'm pleased to report that we managed to grow our revenues on a YoY basis. Our EBITDA margins

remained stable for the quarter as we chose to invest more in strengthening our sales edges.

For the full financial year ending 2024 we are a healthy revenue growth of 14% YoY with the strong EBITDA and boƩom-line growth. As part of the go to market strategy, the company is further invesƟng in frameworks across verƟcals. Now I would request our group CFO and COO, Niraj, to give you the financial highlights for the quarter under review.

Thank you, Aditya, and good aŌernoon, everyone. Let me start off by giving you the financial highlights followed by the operaƟonal highlights. For the fourth quarter of the financial year 2024, the revenues were reported at around INR 195 crores, represenƟng a growth of 7% YoY.

The EBITDA stood at INR 33 crores, which grew about 3% YoY with the reported EBITDA margins of around 17.14%. The net profit for the quarter was around INR 23 crores, which declined 7% YoY with PAT margin at 11.9%.

The decline in PAT is only on account of the increased tax ouƞlow in certain of our geographies.

For the financial year 2024, revenues were reported at around INR 762 crores, represenƟng a growth of about 14% YoY. The EBITDA was almost INR 137 crores, which grew by around 26% YoY, with the EBITDA margins being at 17.95%. The net profit stood at INR 96 crores, which grew by 17% YoY with the PAT margins reported at 12.63 %.

During the year 2024, the Americas contributed 42% of our revenues, Europe contributed 24%, while the remaining 34% came from Asia Pacific and other regions. Few of our top customers having a global MSA have started Global Capacity Centres in India, and this has triggered the movement in revenue between Americas to Asia Pacific and other regions.

The on-site revenue mix was 45%, and offshore is at 55%. The revenue split across business verƟcals for the financial year 2024 is as follows: Fintech contributed, 34%; Hi-Tech Media and UƟliƟes, 30%; TransportaƟon and LogisƟcs contributed to 13%, with Healthcare and Digital Commerce contribuƟng 10% and the balance 14% from the others. The reporƟng of the revenue contribuƟon by the reorganized verƟcals will be commenced from the next earnings call update.

Now coming to some customer metrics. We have 15 customers of over $1 million revenue, and 9 customers of $500 million to $1 million. Our total employee count at the end of the quarter stood at 2,053, out of which, 1,838 were technical with the uƟlizaƟon level of the employees, excluding trainees, being at 83% for the financial year 2024. The bank balance as of 31st March, 2024, stood at INR 207 crores. This concludes the updates for the quarter at for the financial year, and we can now open the floor for the Q&A session.

QuesƟons & Answers

Thank you, sir. Ladies and gentleman we will now begin the quesƟon-and-answer session. If you have any quesƟons please press * and 1 on your telephone keypad and please wait for your turn to ask the quesƟon. If you would like to withdraw your request you may do so by pressing * and 1 again.

Our first quesƟon comes from the line of Vikas Shrivatsav from RBC Financial. Please go ahead.

My first quesƟon is, we haven't, unless I missed something, you sƟll haven't got the investor’s presentaƟon, which I was hoping to get along with the results. So, what is the pracƟce? Are we geƫng it? Are we not geƫng it? And, but it's not on the company's website Ɵll about 10 minutes back.

Niraj Kumar GaneriwalVikas, it just got set out probably 30 minutes back and the update would have been a liƩle late, which is why you've not received it. We'll ensure that next Ɵme onwards is given much earlier. But it's already been released and should be in your mailbox and on the company's website by now.

Oh, very well. Thank you. That was first quesƟon. The second quesƟon was, are we -- because I haven't many of us on this call today may not have the privilege of going through this thing.

So let us for a minute assume that we haven't seen it and many others may not have seen it.

What are our, how is the coming year looking, we had a $500 million goal for 2030. Just a back off envelope calculaƟon means that we need to do grow at a CAGR of about 30% per annum going forward. Like many other companies do, do we get some kind of guidance on EBITDA and the current year going forward and some light on the order book, client acquisiƟons, pipeline, I'm assuming some of it may be there, may not be there in the Investor's presentaƟon, but any informaƟon on these areas on this call will be very helpful.

Sure Vikas, this is Aditya. We have finished at INR 761 crores. This is March of last year. This year, we are aiming for INR 1,000 crores. Now, we normally don't give guidance, but since you asked, this is what we are, this is our plan to move the business to INR 1,000 crores at the end of '24, '25. It's a difficult task because there are a lot of headwinds in the U.S. Secondly, we are invesƟng a lot in people and infrastructure so that we can scale to the $500 million or INR

4,000 crore target by 2030. You're a very seasoned person, so you know that everything takes Ɵme. And unless we put the building blocks in place, growth will always be a challenge. So, we are making those investments, number 1.

Number 2, the expense always comes before the revenue. So, we have to be careful because we have to live quarter by quarter. So, keeping everything in mind, we are very bullish that we will get to our goal of $500 million. I've always maintained that it won't be a straight-line growth, it won't be linear growth. There will be bumps along the way And there will be air pockets. But very clearly, the ambiƟon is there. We are puƫng the building blocks in place.

We have reorganized the business into 4 business verƟcals.

So now instead of having a geography structure, we are going to be reorganized business verƟcal wise. So, each business verƟcal of Fintech, TransportaƟon LogisƟcs, Hi-Tech, Media & UƟliƟes and Retail E-commerce will have its own sort of CEO or business leader who will make sure that not only exisƟng customers business grows, but also new logos are prospected in these spaces.

Now, you menƟoned about pipeline. The Investor presentaƟon doesn't have pipeline, but what I can share with you is that approximately 90% of our INR 1,000 crores is targeted to come from exisƟng customers, exisƟng projects and exisƟng customers new projects and 10% from new customers new projects. So, the targets are in place, the targets are account wise, each account has an account manager and a delivery manager depending on the size of the account. And we are moving the company forward. So, rest assured, we are on the job number 1, and moƟvated and driven towards our goal.

Thank you, Aditya. Just throw 3 comments here and a few more follow-up quesƟons. 1, of course, was why do we live QoQ? That's not the message at least but as a shareholder, that's not what I want. So, I think, you know, when shareholders invested, he's invested for the long term. My issue is was not on the EBITDA margin you said was about 17 point something here.

So, there will be economies of scale as you move from INR 761 to INR 1,000 crores, which is ambiƟous target. It is almost 30% growth in year and all, which is very encouraging and ambiƟous.

But what I'm saying is that you will make more investments, but there has to be a Ɵme where we or you should be expecƟng a Ɵme where we at least won even if you're 17, I'm not saying it will jump to 20, but is there a range, is there a guidance on where are we looking at the EBITDA going forward, are we looking at? And surely, with that kind of growth on the top line, even if we invest, we are not looking at the dip in EBITDA is what I would presume, but just common mental calculaƟon tells me that one should be looking at a dip. So, is there a range and why doesn't the company consider going forward for the benefit of its shareholders to

give a range of what you feel is growth, a range of EBITDA, and it could be conservaƟve, it could be cauƟous, But, is it something which you would like to consider going that was quesƟon number 1.

B, would you throw some light on your client? What I can see is that we are growing massively from exisƟng clients and 10%. What is your outlook on client concentraƟon risk? So, two quesƟons there.

Yeah. So, on EBITDA margin, Vikas, the current EBITDA margin is around 18%, 17.9% to be precise. And for this year, we are aiming to keep it around the same level. There will be a dip of - maybe dip or increase by maybe 25 basis points up in there, but I mean down or up, but I can't see us beaƟng this 18% significantly. Got it.

Now coming to your second quesƟon on client concentraƟon, we have roughly 80% of our revenue coming from our top 25 accounts. So, there is client concentraƟon to that extent. I'm not concerned about it because no one client is more than 25% or 20%, so there's no huge customer which will impact us, if we lose that customer. But yes, there is the 80-20 rule for sure. The only way to beat that is to get out of this, to become a significantly larger player, which is the goal. Thank you, I will come back in queue.

Yes. And you menƟoned about QoQ. See, Vikas, everybody is not as an evolved investor as you are. Most of the market doesn't understand that you have to invest to grow. So, it's a Ɵghtrope, which we have to always live with and believe it, it really keeps me up, how do we invest in what we have to do to grow the business and sƟll have decent results, which is why you've seen in the last 3, 4 quarters, we've been very tepid growth because we are trying to write that balance.

Alright, but, Aditya, we would agree to disagree there. At the end of the day, living quarter by quarter puts a new pressure on the management. And you also compromise on long term growth someƟmes and you miss opportuniƟes. So, I guess, that's a call management needs to take, that's your call and the management needs to take that. Is it pressure which is due to the detriment of the long-term investor? If that is not the case, it is okay. But if you're compromising long term goals for short term higher 1% margin, then I at least principally would not agree with that. But, anyway, that's a call you need to take. I understand, you know, you have a larger, audience to look aŌer thank you so much. I'll come back in the queue. Thank you, Vikas Thank you, sir. Our next quesƟon comes from the line of Hiloni Gandhi from Pi Square Investments. Please go ahead. Hello Yes, Hiloni Hi, so I saw that we are -- our interest costs have gone up significantly in the last 2 quarters.

So just wanted to know what's the specific reason behind it?

Hiloni, there is a interest component, which is in relaƟon to some of the leases which get counted under the Ind-AS. We had a couple of new lease renewals which had happened. And

it's more of an accounƟng -- yes it's more of an accounƟng and lack of an actual interest ouƞlow, because our loans are limited, -- we don't have any borrowing or interest...

We don't have any loan, we have a lot of cash also on hand. So yes, got it. Got it. Okay. Thank you. telephone keypad. I repeat ladies and gentleman If you have any quesƟons please press * and 1 on your telephone keypad. We will wait for a moment while the quesƟon queue assembles.

Our next quesƟon comes from Sunil Gupta, an Individual Investor. Please go ahead. Sunil, sir, please go ahead, sir.

There is no response from Sunil's line. We have a follow-up quesƟon from Vikas Shrivatsav from RBC Financial. Please go ahead.

Aditya, how has been our experience on the new hiring on the sales front? Have we lost some people who we hired in the last 2 years? Is there been any aƩriƟon there? How has been our experience on the new sales team, which you have hired in the last 2, 3 years? That was 1.

B, I was wanƟng a liƩle bit of a flavour on to what level are you giving stock opƟons to employees in India and abroad? And what is the value, I'm assuming, for the last 1.5-2 years, the stock's been in this range? Is the value of stock opƟon then, therefore, as a consideraƟon compensaƟon, is it losing its charm? Are you facing any resistance or frustraƟon there?

Sure, Vikas. As far as the sales team is concerned, we haven't lost anybody. Whoever we have hired has stayed-- is so far with us. We have one new salesperson joining in California on the 6th June, and we have another one joining in the New York area on the 17th June. So, we conƟnue to build the sales team. We have one salesperson relocaƟng from our Singapore office to New York. We have a new sales guy joining our London office on the 3rd of June.

So, lots of acƟon on the sales team. And so far nobody has leŌ us. And honestly, Vikas, my biggest job is to make these guys successful. Because if I can get the sales guys to be successful, 1, the company will grow and second, they won't leave us. So, I spend a lot of my Ɵme on that.

And it's challenging because new people have high expectaƟons. They want everything to be there and paƟence with younger people is also missing. So, it's a nice challenge to have. So, it's really keeping me busy.

On the second quesƟon on the stock opƟon, what has become preƩy much standard is the sales people to aƩract them, especially senior sales talent. We have to offer them opƟons as part of their joining. So, they will get opƟons anywhere from 50,000 to 100,000 opƟons when they join. There is sƟll a lot of merit and value in that because they will get it at market price.

And obviously, if they do their job and the company grows, those opƟons would be worth a lot of money. And that's how we sell it, and that aligns with the goals of growing the business, and they have to also align with that.

So, I don't think the opƟon thing, the charm has gone away. In fact, I would say it's probably more favourable now. We have never shared this on earnings calls, but since you asked, our opƟon plan is 25% of the opƟon that is alloƩed to an individual vest every year. And we have a 10 year window to exercise it. So, it's an aƩracƟve opƟon. From an accounƟng perspecƟve, we use Black Scholes to account for it. And currently, the last allotment, the price that hit our P&L was INR 160 per opƟon. So boƩom line, I think there's sƟll a lot of value in these opƟons. That’s it from me, thank you.

Thank you, sir. Our next quesƟon comes from the line of Simar an Individual Investor. Please go ahead. Simar Sir, I'm very happy to hear that on the sales front, you haven't lost anyone. But just to give me a number on the aƩriƟon on the overall company level?

AƩriƟon is down considerably we are currently running at 14%. Simar 14%, that is considerably down from the 22%, I believe, in one of your previous calls, which I was aƩending. So yeah. Yes, correct. Simar All right. And sir going forward with the INR 1,000 crores that you menƟoned for the next for the current financial, which where you menƟoned 900 would be from the exisƟng clients,

which is very, very, very opƟmisƟc. So, I'm preƩy sure that your retenƟons are very high. So which front do you see on the different segments that the revenue is going to be contributed from?

Lot of growth will come from Hi-Tech Media & UƟliƟes and Fintech. Those are the big 2 segments. TransportaƟon LogisƟcs is struggling a bit because there's a lot of consolidaƟon post-COVID in the U.S. geography. So, because of that, there's uncertainty, customers are deferring spending. But it's temporary because by and large, TransportaƟon & LogisƟcs had under invested in technology over the past years and has to catch up. So, there's a temporary blip in terms of slowdown.

Our 4th segment of Retail E-commerce, that's a hot segment. Unfortunately, deals there take longer because they're larger deals and the buying cycle is probably the longest compared to Hi-Tech Media & UƟliƟes and Fintech. But to answer your quesƟon, majority of the growth will come from the first 2, Fintech and Hi-Tech Media & UƟliƟes. Simar Got it. And one more quesƟon. Since you recently hired a couple of new sales people abroad, preƩy much assuming that your revenue contribuƟon from overseas would be a larger chunk, even more than 60%, would it be fair to assume that?

Yes. So, around 45% is from the U.S, around 35% is from Europe and the rest is from Asia Pacific, which is predominantly Singapore and India. Simar Got it. Thanks a lot sir. All the best going forward.

Thank you, sir. Our next quesƟon comes from the line of Amit Jain from Monarch. Please go ahead. Hi Amit. How are you?

Good. Okay. So, Aditya, first quesƟon. 1 on the outlook for the current year FY '25. So other companies have given a very accurate growth outlook and very muted and even the campus

hiring, the data that we are seeing, placement data on the campuses, that also suggests that things are not so good. So, in that backdrop, the growth outlook, the growth guidance of 30%.

I assume that's the expediƟon, but given that, that's a very audacious one. So, what makes you so convinced to give this kind of outlook?

Secondly, on the capabiliƟes front, you menƟoned about the invesƟng in the building blocks.

So, I can understand one on the sales personnel. Besides that, what other things we are doing in terms of building, invesƟng in those capabiliƟes. So, I just want to get some sense about that. And there are couple 1 or 2 quesƟons, but maybe we can -- I can come again, but if you can just throw some light on this?

Good quesƟons, Amit. INR 1,000 crores is an ambiƟous target, but if we don't aim high, we are not going to get to where we need to go. There is, being a 20-year old company, there is an element of lethargy in the organizaƟon, which has to go away. We all have to sell and today one of my big challenges is to change the culture to a growth-oriented culture, where not only 1 downs to me, but 2 downs and 3 downs to me,need to sell. Everybody should be part of the selling community.

So, what we have done is we have broken up targets by delivery managers, by account managers, by sales people within each account. And this mindset has to change. And the mindset will not change if numbers are not ambiƟous and aggressive. Now that doesn't mean that we are ruthless in terms of firing people and all that. We can sƟll be a good work culture, a respecƞul work culture, but also expect a lot from our people. And that's the goal.

So, it's not even the end of the first quarter. It's going to be a tough year here, but we're going to aim high. That's our plan. And that's why the INR 1,000 crores. I was not wanƟng to share it actually, but since Vikas asked, and Vikas has always been a long-term investor and a well- wisher, I felt I should I owe it to him to share it and also with you, Amit.

So, coming to the next quesƟon, which is a very good quesƟon from a capability perspecƟve, because technology is changing so rapidly that unless we invest in capability. So, it's not only sales. These sales guys can only do so much. Finally, you have to have something to sell. Okay?

Something to idenƟfy. They can idenƟfy a business need at a customer or a prospect. But then you need the team and the people to be able to translate that business need to a technology soluƟon. And that is where capability comes in.

So, we are invesƟng in subject maƩer experts in these 4 verƟcals of Fintech, Hi-Tech Media UƟliƟes, Retail E-commerce and TransportaƟon LogisƟcs. So subject maƩer experts is a big investment. That's number 1.

Number 2, we're invesƟng a lot in cybersecurity and infrastructure, in CloudOps, in FinOps. As you would have seen, cloud consumpƟon is increasing. The business model of Azure and AWS is to make sure customers it's like a drug. Once you get hooked on it, you have to consume it.

So they want customers to consume more and more of cloud. Now we have to come in and say how can you raƟonalize that consumpƟon. So that's where FinOps and CloudOps comes in.

So, lot of new things we are doing in the infrastructure space, lot of new things we're doing in the cybersecurity space, which we feel are necessary today to address the business needs of our exisƟng customers as well as new prospects.

Understood. Aditya, if I listen correctly, you menƟoned that about the revenues break up. So, 90% business comes from the exisƟng customers, 10% from the new customers. Am I right on that, is that? That's correct. Yes.

So, is that the, I mean-- this sharing or this proporƟon, are you saƟsfied or you want this new customer-- share of new customer to grow? What is the ideal scenario for you?

This 90, 10 is preƩy much standard across the industry. So, if you ask the TCS or the Infosys, 90 might be 85, 15 or 90, 10, it'll be approximately the same. The reason why that is, Amit, is that when you acquire a new customer, he will not spend a lot of money in the 1st 12 months.

First of all, if you acquire a customer, let's say we acquire a customer in quarter one, by the Ɵme paperwork finishes, project starts, you're already talking, you've got 9 months leŌ. Now in 9 months, how much business will he give you?

He'll try and check you out first. Is your quality good? Are we meeƟng the expectaƟons? Do we understand his business? Do we understand his business challenges? So that relaƟonship building will take some Ɵme. So, it's normally, at least, I would say, 18 months to 24 months before a customer starts to scale up, a new customer. So, it's preƩy much standard to have a 90:10 raƟo.

Higher client concentraƟon. So, in that context, I was asking maybe to improve that part, maybe to reduce our dependence on top 20 to 25. In this context, I was asking that are we aiming for higher share form of new customers, but that's understood from what you've told.

Another thing on the just a confirmaƟon, as we grow, as we are targeƟng this $500 million by 2030, so are we going to -- are we also keep – will you be maintaining this ROE ROCE? Because I'm just slightly concerned maybe in that pursuit of achieving that maybe we may compromise on those metrics. So just want your affirmaƟon that we will be maintaining the same profile going forward as well.

Over Ɵme, medium to long term, Amit, EBITDA margins and margins should improve because of scale. We are not going to take business at a loss or do things which are going to be detrimental to the boƩom line. Yes, what I menƟoned earlier, we have to be careful about our EBITDA margins live QoQ. But we are very hopeful that we will not go below the 18% EBITDA margin, which is there today.

Thank you so much, Aditya and all the best. Thank you. telephone keypad. We have a follow-up quesƟon from Vikas Shrivatsav from RBC Financial. Please go ahead.

Hi Aditya, I’m back. Just give me your view on the challenges and opportuniƟes which the general AI friendly would show up for the company? And are there any opportuniƟes there?

How do you look at it? Or are you-- or it doesn't touch you in your business?

Vikas AI is everywhere. Every customer, every prospect wants to talk about AI. How many use cases actually are there? It's a handful. And the use cases, are they really AI or are they machine learning or a combinaƟon? It's a big quesƟon mark. So, to answer your quesƟon, you know, straight-off is whenever we are talking to a prospect today, he says, you know, can AI

help me in this journey? Can AI help me in solving this business problem? And, we always say that, yes, we can explore that opƟon. For example, can AI help in automaƟon of tesƟng, in wriƟng test scripts? It sure can, but it also means that some human being has to vet that test script, that test case.

So, the AI can do a lot of the grunt work, but then human beings are required to definitely vet it for accuracy. So, AI is definitely contribuƟng to interesƟng conversaƟons. For us, it has no -- I mean, except for a very maybe a couple of cases, it's not translated to revenue yet, Vikas. Any challenges you see? On the AI front or generally?

No. AI front. Anything we should worry about?

No, I don't think we need to worry about it, because there's too much unknown, okay. And AI is just a new name in my opinion right now for machine learning, because the intelligence has sƟll not come in. One day intelligence will come in. When it does, we'll have to figure out how it affects our industry. But at this point, I don't see AI as a huge revenue challenger. I find it as probably a demand generator. Companies that probably were not wanƟng to talk are now interested to talk or have a conversaƟon around AI. And that's a start because if you can start these conversaƟons with prospects and customers, eventually it translates into business.

And any producƟvity improvements or cost savings, internally, is there something you could feel or sense on that?

Yes. We can definitely use AI to write, certain basic code. We can use AI to help us in recruitment. We can use AI in our knowledge and training modules, in document management. So, there is lot of producƟvity improvements that we can derive from AI, for sure. And we are doing that.

And therefore, some of it in the coming years, it could have a material impact on our margins?

Yes. It should. Over Ɵme, we should see some improvement in margins. But like I said, it's not going to be like 1% or 2%. It will be basis points Vikas, and it probably get offset by something else, either rupee appreciaƟon or some other headwind, who knows. I don't see it being a radical mover of the EBITDA margin. telephone keypad. There are no further quesƟons. Now I hand over the floor to the management for closing comments.

We thank everyone for taking out Ɵme to parƟcipate in this call and for their interest in SaksoŌ. I hope we've been able to answer your queries. In case of any other queries, please reach out to us or our Investor RelaƟons Advisors, Valorem Advisors. Thank you, everyone, for joining us.

Thank you, members of the management. Ladies and gentlemen, on behalf of Ventura SecuriƟes, that concludes this conference. Thank you for joining us and you may all disconnect your lines now.

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