Infinite Computer Solutions (India) Ltd
Earnings Conference Call Q3 FY 17
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Infinite Computer Solutions (India) Limited
Q3 FY-17 Conference Call
February 15, 2017
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Infinite Management:
Mr Upinder Zutshi – Managing Director & CEO
Mr Sanjeev Gulati – Executive Vice President & CFO
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Moderator
Good day Ladies and gentlemen and welcome to Infinite Computer Solutions (India) Limited
Q3 FY17 Conference Call. As a reminder, all participant lines will be in the listen-only mode
and there will be an opportunity for you to ask questions after the presentation concludes.
Should you need assistance during this conference call, you may signal an operator by
pressing * then 0 on your touchtone phone. I would now like to hand the conference over
to Mr. Anuj Sonpal from Valorem Advisors. Thank you and over to you sir.
Anuj Sonpal
Thanks Malika. Good afternoon everyone and welcome to you all. My name is Anuj Sonpal
CEO of Valorem Advisors; we represent the Investor Relations of Infinite Computer Solutions
India Limited. On behalf of the company and Valorem Advisors I would like to thank you all
fo pa ti ipati g i the o pa y s Ea i gs Co fe e e Call fo Q3 FY17. Befo e we egi , I
would like to mention a short cautionary statement. Some of the statements made in
today s o
all
ay e fo wa d looki g i
atu e, such forward looking statements are
subject to risks and uncertainties which could cause actual results to differ from those
anticipated. Such state e ts a e ased o
a age e t s elief as well as assu ptio s
made by and information currently available to the management. Audiences are cautioned
not to place any undue reliance on these forward looking statements in making any
investment decisions. The pu pose of today s ea i gs o fe e e all is pu ely to edu ate
a d
i g awa e ess a out the o pa y s fu da e tal usi ess a d fi a ial ua te
under review. I would now like to introduce you to the management of Infinite Computers
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Solutions (India) Limited, participating in the con call today. We have with us Mr. Upinder
Zutshi- Managing Director & CEO and Mr. Sanjeev Gulati- Chief Financial Officer. Without
much delay I request Mr. Upinder Zutshi to give his opening remarks. Thank you and over to
you sir.
Upinder Zutshi
Thank you Anuj and good afternoon to all of you, and thank you very much for taking time
out to come on and join this call. As Anuj mentioned, Sanjeev and I would be giving you a
brief overview of the business and the financial numbers, post that we will be very happy to
answer any questions that you may have or any additional information probably you are
looking for. I will start off with a quick business overview and then I will hand it over to
Sanjeev who is going to read out the financial numbers.
The Q3 FY 17, normally I would have said that it is in line with our expectation and what we
had projected for the quarter, but given the environment and the market situation, it has
been a very good quarter for us, where we have seen all around growth across our
businesses both in revenue as well as margin. It has been a fairly satisfying quarter and most
significant aspect of this quarter has been from a cash perspective, we have significantly
increased the cash reserves in this quarter as we have received cash against some of the
out-standings. The increase in cash, in the last quarter has been about Rs. 138 crores over
Q2, and this is quite a significant increase. We have also seen a fair reduction in the DSO
days in Q3 over the last quarter.
The quarter has been good, as far as the revenue and the margins are concerned in INR
terms. We clocked revenue of around Rs. 628 crores which is up 7.5% year-on-year and
about 12.5% quarter-on-quarter. As far as EBITDA margin is concerned we closed the
quarter with Rs. 56.97 crores which is down 7.2% year-on-year which is largely because, the
Q3 of last year was a very unusual quarter where we had a significant upside in margin
because of a one-time license sale, which is not been there in this quarter, hence its down
on a year-on-year basis but as far as quarter-on-quarter is concerned it is up by 14.4%. Same
is true for PAT, as we closed the quarter at Rs. 38 crores which is slightly down year-on-year,
by 1% but it is up 22.2% on quarter-on-quarter.
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The ratios in USD terms are similar with revenue of $ 93.1 USD million, up 5% year-on-year
and up 11.7% quarter-on-quarter. EBITDA is $ 8.45 USD million which is down 9.3% year-onyear but up 13.7% quarter-on-quarter. Profit after Tax is $ 5.64 USD million which is down
3.3% year-on-year and up 21.4% quarter-on-quarter.
We continue to add new clients, which can be seen over the first 3 quarters, we have had a
significant, addition of new clients and same has been the case in this quarter as well. We
added 12 new clients during this quarter, of which 4 clients were added in the Mobility
business unit, 2 clients were added in Product Engineering business unit, 1 client in
Healthcare and 5 new clients were added in the Technology Services business unit. Out of
these 12 clients one of the clients we signed is a very large cellular company in the US for
our Mobility Solutions, which is a significant win and we hope that in the next couple of
years this client could turn out to be a fairly large client for us. We also signed two large
textile mills in India for providing enterprise solutions which is an ERP Solution that we offer
for the Textile mills. As far as cash is concerned, cash and cash equivalent as mentioned
earlier it increased to Rs. 463.36 crores from Rs. 325 crores at the end of second quarter as
we generated a free cash flow of over Rs. 100 crores in this quarter, resulting in a cash per
share of about Rs. 119.71 and EPS for Q3 is Rs. 9.78.
A quick update on the buyback; as all of you may be aware and tracking the buyback, the
buyback opened on the 10th of February and it will close on the 23rd of February. The
settlement date is fixed on 6th of March and as mentioned earlier this is a buyback through
tender route at a maximum price of Rs. 265 per equity share, the total buyback size is about
Rs. 150 crores which is basically to buyback up to 56.6 lakh equity shares which represents
14.35% of the total paid up equity share capital of the company and 24.77% of the paid up
equity share capital and free reserves as per the last audited statement.
A quick thoughts on the outlook; as we are in the mid of a very challenging market
environment with lot of uncertainties both in terms of politically what is going on in our
major markets as well as the general shift in the market and the expectations of the market.
It is a tough market situation, however having said that, given where we are and what we
see and the kind of a business that we are currently executing, we are fairly confident of
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exceeding the lower end of the revenue guidance that we had given at the start of the year
and as far as the net margin is concerned in INR terms we expect that we should come close
or even meet the lower end of the margin guidance, which is essentially 10% growth.
Overall I think both revenue and margins will grow at around 10-11% over last year.
So that is very briefly an overview of the quarter in terms of the business and now I hand it
over to Sanjeev to give you a read out of the financial numbers. Thank you very much.
Sanjeev Gulati
Thank you very much Upinder. I will now take you through some of the matrices for the
revenue analysis.
The revenue by offering, Technology Solutions in this quarter was 78.2% compared to 79.3%
in the previous quarter, there was a slight increase in absolute terms compared to the last
quarter. The Product Engineering Revenue was 9% compared to 10.4% of the previous
quarter, in absolute terms it was about flat. The messaging products revenue in this quarter
was 12.8% compared to 10.3% of the previous quarter and there was an increase in
absolute terms. The revenue by industry, Telecom & Media gave us about 35.68%,
compared to 32.3% in the previous quarter; there was a reasonable increase in the absolute
numbers. Healthcare gave us revenue of 23% compared to 23.9% in the previous quarter,
slight increase in absolute terms compared to the previous quarter. Technology was 38.4%
compared to 40.8% in the previous quarter, there was a drop in this amount in absolute
terms. BFSI gave us revenue of about 1.1% compared to 0.4% in the previous quarter and
others was 1.7% compared to 2.6% in the previous quarter.
Revenue by region; US again is a predominant market for us which contributed about
90.2%, APAC contributed about 5.2%, Europe contributed about 0.8% in this quarter and
India contributed 3.8% compared to 5.3% in the previous quarter. The revenue by model,
time and material model contributed about 64.6% of our total revenue as compared to
69.2% in the previous quarter, in absolute terms there was a slight increase. Fixed bid model
contributed about 21.4% compared to 19.6% and in absolute terms there was an increase.
Revenue share model grew from 11.2% to 14% in this quarter.
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Our top client contributed 52.4% in this quarter compared to 54.4% in the previous quarter.
Top 5 clients contributed 78% compared to 81% in the previous quarter and Top 10 clients
contributed 91% compared to 92% in the previous quarter. As far as client details are
concerned, the clients who gave us a revenue of more than $ One million USD in the last
four quarters increased from 17 to 18, clients who gave us a revenue of more than $ 5
million USD were 7, same as what it was in the previous quarter and clients who gave us a
revenue of more than $ 10 million USD in the last 4 quarters were 7, clients who gave us a
revenue of more than $ 20 million USD was 3 and more than $ 50 million USD was 1.
Now coming to the on-site and offshore mix; the on-site revenue this quarter was 83%
compared to 84% in the previous quarter, offshore revenue was 17% compared to 15.9% in
the previous quarter. The average billing rates for on-site was $ 82 USD compared to $ 81
USD in the previous quarter and offshore was $ 22 USD compared to $ 21 USD in the
previous quarter. Our total headcount for this quarter was 4,798; employees in India were
2,391 and employees outside India was 2407 with about 63 net additions in this quarter.
The global attrition was about 19% in this quarter and the utilization was about 83%.
The DSO as Upinder mentioned, compared to the previous quarter has dropped, this is
mainly on account of realizations which came in from amounts which were outstanding
from customers for some time and also for some customers who paid us a little ahead of the
credit period which they enjoyed. So DSO as per financials was 117 days and DSO without
the unbilled and pass through revenue was 79 days. Earnings per share was about Rs. 9.78
compared to Rs. 7.91 in the previous quarter. Cash Per share increased from Rs. 84 per
share to Rs. 119 and net worth for the company increased from Rs. 975 crores to Rs. 1021
cores. The gross margin ratio percentage to revenue this quarter was 27.8%, SGA to revenue
was 18.7%, EBITDA was about 9.1%, PAT was 6.1% and the effective tax rate for this quarter
was about 27%.
That is all from my side and now we will be very happy to take any questions which you may
have. Thank you.
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Moderator
Thank you very much sir. Ladies and gentlemen we will now begin the question and answer
session. We have the first question from the line of Rajeev Agarwal from Doordarshi
Advisors. Please go ahead.
Rajeev Agarwal
Yes, Upinder and Sanjeev, great quarter, so if I look at the trailing 12 months both on
revenue and profitability seems like we are pretty close to the 10% guidance that we have
given, does that mean you are expecting Q4 to be a subdued quarter for us?
Upinder Zutshi
If you look at the revenue, it is not subdued as such, but yes we will not see a significant
growth in the fourth quarter compared to the earlier quarters. Normally, if you have tracked
us our fourth quarter generally is a little subdued because of various reasons and most
importantly the way we recognize the revenue share which is the lowest in the first quarter
and the highest in the fourth quarter, I mean calendar quarter. So, it will be slightly down
compared to Q3 but not significantly.
Rajeev Agarwal
And actually on the revenue recognition when I was looking in the Q3 numbers, I noticed
that our mobility and messaging revenue year on year in which we get the product revenue
is down a little bit, is this because of the negotiation where we had lower revenues going
forward, is that sort of continuing to cascade forward or do we have the same sort of rate as
of now?
Upinder Zutshi
It is at the same rate, if you notice in the last financial year the mobility revenue from one of
the major clients had come down, but after that this is on upward trajectory, so what we
achieve this year would be a little higher than what we did last year from the same client.
Rajeev Agarwal
So, maybe it is just shifting quarters because if I were just to do year on year Rs. 103 crores
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for mobility last year versus Rs. 80 crores this year. So, this is not sort of a trend, it is more
of just maybe a little bit of revenue shifting from one quarter to the other.
Sanjeev Gulati
You are comparing the third quarter of 2016 with the third quarter of 2017, am I correct?
Rajeev Agarwal
Yes.
Sanjeev Gulati
2016 quarter 3 was an exceptional quarter. If you compare with two or three quarters
before and two or three quarters ahead, Q3 16 really stands out differently. The reason is
that there was large amount of license revenue which came in because it was the year end
for the customer, and customer decided to purchase the licenses in advance as they did not
wanted to carry over the budget to the next calendar year, and hence that quarter was very
high. So, year on year compared to the third quarter of last year and third quarter of this
year is not the correct comparison so far as mobility is concerned.
Upinder Zutshi
I would suggest you to look at the annual number because mobility revenue shifts little bit
from quarter to quarter. So, for mobility business, the best way is to look at the annual
revenue.
Rajeev Agarwal
Also on mobility we did not talk too much about the number of clients win in EMS and
NetSfere for this quarter?
Upinder Zutshi
There has not been many significant wins as far as the NetSfere and EMS is concerned. We
have only added four new clients in the mobility space and all four clients are for NetSfere
and EMS.
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Rajeev Agarwal:
And I know we have been very bullish on EMS and NetSfere, how is
that going we continue to be as bullish with what we are seeing in the marketplace?
Upinder Zutshi
We continue to be bullish, and we continue to get new clients but, there are two clients
where the revenues stream has gone up and is now of reasonable size, with one client it is
more than a million and with other client it is almost close to a million. Though there are
now close to about 35 clients or so we have not yet seen a significant revenue contribution
from those clients.
Rajeev Agarwal
And then a little bit on cash, so obviously generated a very significant amount of cash that is
great, I also noticed that we have like Rs. 111 crores of borrowings, so is it just that it is in
different subsidiaries that we have borrowings and therefore we cannot utilize the cash to
offset the borrowing?
Upinder Zutshi
No, it is largely a timing issue as we have a line of credit in the US and a lot of cash that we
have is in India. The line of credit is with the two US companies and they draw on that as per
need for monthly and annual payments, hence you see the cash as well as borrowing in our
balance sheet.
Rajeev Agarwal:
The other thing is; the other income given the amount of cash seems to be that the other
income is a little subdued for us, is it because the cash primarily sits abroad or there is some
other reason to it?
Sanjeev Gulati
Some of the cash definitely does sit abroad and then what also happens is that lot of cash
remains in circulation because of the number of subsidiaries. Only if we park the additional
surplus cash in India, one gets a good return. We have cash which is in Singapore and US
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and in the two US subsidiaries at the quarter end, where the returns are much lower, but so
far as the FD s are concerned, which are in India, the return is about 7% to 7.5% or so.
Rajeev Agarwal
I think overall if I look that yield is much lower but maybe as you are saying it is just because
it is continuously showing around, it is just difficult for you to earn significant money. And
then I remember sometime back, we had invested in some investment property, right in
NCR. What was the thought behind that and what is our way forward there?
Upinder Zutshi
There are two types of investments that we have made in land and property. We have
bought land in Bangalore, in Hyderabad and in Lucknow which is largely at some point in
time to build campuses. And we have bought apartments in the NCR areas both in Gurgaon
as well as in Noida and that are largely a form of a safe investment. As we have cash, either
we make cash sit in the bank and as we do not have a major utilization of cash, that is an
instrument we thought would be a good safe instrument to invest.
Rajeev Agarwal
And how much will that total be, approximately across land and the flats?
Upinder Zutshi
We have to get back to you on the number.
Rajeev Agarwal
And can we talk a little bit about some of the clients which I thought were pretty big ones
and The Canadian Healthcare client, how is that sort of, have we started seeing some
traction there and how is it looking?
Upinder Zutshi
That has still not scaled out to be as expected, as the revenue is still in a couple of $100,000
revenue. There is an increase in other healthcare clients, one client in $ One Million USD
category; is a new Healthcare client from the US, and that is scaling up quite nicely. There
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are other two to three Healthcare clients that are scaling up and I think in the next quarter
or two they would probably move into the $ One Million USD category.
Rajeev Agarwal
So Healthcare, I mean again seems to me something that we are quite bullish on and seems
like we are seeing a lot of good traction there with our platform and sort of the number of
clients we are working with.
Upinder Zutshi
Absolutely, no question about that and we are most bullish as we are seeing tremendous
amount of traction. I think as we move forward, you will start seeing the contribution of
Healthcare keep going up.
Rajeev Agarwal
And then lastly on this UP State Electricity Board where we were using Zyter, how is that
coming along?
Upinder Zutshi
There are two contracts that we have got from The UP State Electricity Board; one of the
contracts is operational, as the system is live, which is urban part of the process. The bills
are getting generated from the system and the communication structure is in place. The
second one, we are in the process of implementing it which also includes Zyter and we
believe that in the next two or three months that system would also be live. Essentially both
the contracts are on track. Just to add to that; we got the user acceptance of The
Uttaranchal State Electricity Board, for the APDRP project, we received the user acceptance
and would like to mention that this is the only State in India that has reached this stage and
has signed the user acceptance.
Rajeev Agarwal
So we got our money, that Rs. 30 crores that was still stuck here?
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Upinder Zutshi
Not all Rs. 30 crores but part of it.
Sanjeev Gulati
A substantial portion has come in this quarter that is one of the reasons why the DSO is
down and the cash is up and still about Rs. 20 crores more to come.
Moderator
Thank you. Next question is from the line of V. P. Rajesh from Banyan Capital Advisors.
Please go ahead.
V. P. Rajesh
Hi Congrats on a very good quarter, just few questions; if I look at the cash number, does
that include the investment in real Estate that you were talking about?
Upinder Zutshi
Obviously not.
Sanjeev Gulati
This is all cash sitting in the bank, either in FD s or in current account.
V. P. Rajesh
No, I just wanted to make sure that is not into the investment part.
Sanjeev Gulati
No, property is not included there.
V. P. Rajesh: So basically of we take out the debt, 40% of market cap is sitting in cash
essentially.
Upinder Zutshi
Yes, you are right.
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V. P. Rajesh
And you will use Rs. 150 crores to do the buyback, so after that we will still be left with sort
of Rs. 200+ crores, so is there any plan to give out dividend this year on top of this buyback?
Upinder Zutshi
We are just in the process doing the buyback, so we would look at this once we complete
the buyback. As I mentioned in the last call, we would, unless we have need for the cash
either for acquisition or other business needs, we would as we have been doing every year
see what is the most efficient instrument to return the cash to the shareholders.
V. P. Rajesh
And then what is the total revenue this quarter from product and platform?
Sanjeev Gulati
Product and Messaging Products total is about 21%.
V. P. Rajesh
21% of the total revenue Rs. 628 crores, right, so roughly around Rs. 120 crores or so.
Sanjeev Gulati
22% actually.
V. P. Rajesh
And most of this is based on either the transactions or based on some sort of milestones as
opposed to just T&M, right majority of this revenue?
Upinder Zutshi
Nothing is T&M, either it is revenue share or it is a fixed support fee.
V. P. Rajesh
And then in terms of the twelve clients, wins and the US cellular company, so those are
fantastic wins. Can you share some outlook on what does it mean for the business in terms
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of next year and the year after that, do we foresee a next trajectory of growth in the
business because these are fantastic businesses?
Upinder Zutshi
The cellular company win, will sure show contribution to the revenue, but some of the other
clients, in the mobility space are NetSfere and EMS clients. As mentioned earlier with the
nature of business, they are not very significant in terms of revenue contribution, but as the
client grows they would probably be couple of million dollars of revenue but they add a lot
of value; both in value as well as in margin contribution.
V. P. Rajesh
And the healthcare client; that is significant or that is also ?
Upinder Zutshi
Yes, significant, Healthcare clients that we have signed, if all goes well as mentioned earlier
at the very minimum they will come into the million plus bracket, but hopefully in the next
couple of quarters they may even go up to a five million dollar bracket.
V. P. Rajesh
Just on the product and platform revenue, what was the figure or percentage in the Q3 last
year?
Sanjeev Gulati
Q3 last year was about 29%, as mentioned earlier that we got a lot of license revenue in that
quarter.
V. P. Rajesh: That is right. I remember the Christmas; that the other client had so we have
got extra, right that is what you are referring to?
Upinder Zutshi
Yes.
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V. P. Rajesh
Any color on why the Product Engineering revenue was a bit down year over year?
Upinder Zutshi
Yes, Product Engineering business had a tough year. Out of all the businesses, I think the
Product Engineering division has had a tough time; that is largely because two of the clients
have scaled down because of the cost pressure. Hence it is down year-on-year, but they are
back on track and we will see some growth coming back in Q4 and hopefully we will see the
growth coming back in next financial year. They have also signed some new clients and the
revenue from those clients will start kicking in.
V. P. Rajesh
And one more big picture question is about this new H-1B policy, how does it impact our
business as you mean if it comes through?
Upinder Zutshi
First of all it has not come through and one does not know in what shape and form it will
come through and if it does come through in terms of increase in the minimum wage that
will obviously have a big impact on the industry. It will also have an impact on us, but not to
that extent, because as we keep mentioning that our business model has always been
different, as we are not H1 dependent Company. If you notice, there was a very subtle
message in the people metrics, our employees outside India are more than the employees
in India now. And that trend has been going on over the last three to four quarters where
the headcount in India is coming down and the headcount in The US is going up. It is not
just what is happening now, it has been happening in the last four to six quarters, so market
is changing and lot of the work is being getting done in the US itself. So in terms of impact to
us, it will have some, because as you all know we do some H1 visas but we do not send
hundreds of people from India. Most of the hires, of about 2400 employees in the US, I
mean more than 95% of those employees are, hired locally in the US. We hope that it does
not happen, but for a company like us it may end up being an opportunity.
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V. P. Rajesh
I see, interesting. And any impact on this potential border tax that is being talked about?
Upinder Zutshi
Yes, that will obviously have an impact, if that happens because a lot of the work we also do
in India.
V. P. Rajesh
But are not you doing on transfer pricing to your subsidiaries over there?
Upinder Zutshi
We do, the way we have structured is the client signs with our US Company but then US
company signs with India Company, it is too early and one does not know what is going to
come through in the policy. It s eally too early, but you know one has to cognizant of it and
wait and watch what is going to happen.
V. P. Rajesh
Just on the Q4 numbers, as you were earlier talking about; if I look at the PAT number, last
year it was Rs. 121 crores, so 10% growth is Rs. 134 crores and we have almost done Rs. 100
crores of PAT for the year so far in the first nine months, so essentially that looks very
achievable, so would you say that it could potentially end up at the higher end of the range
that you had articulated or it is going to be more at the 10% range?
Upinder Zutshi
I mean 10% more or less as mentioned we should be able to achieve. There are certain
variables, we have to see how that plays out, but I think at this stage that we will be at the
lower end of the guidance.
Moderator
Thank you. Next question is from the line of Sachit Khera from Smart Equity. Please go
ahead.
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Sachit Khera
Hi Sir, Congratulations on a stable quarter. The traditional Product business where I believe
you had a setback also some time ago. You said that you might re-negotiate with the client
for probably some increment, is that the process going on?
Sanjeev Gulati
That was long back and has passed. In that year that fixed bid came from a particular level
to a lower level and now this year we have got an increase, but it is a very slight increase,
and it is not the level what we had two years back. So the number that we have now with
that client is the new normal.
Sachit Khera
And Sir the operating leverage from the Product Business, considering that you guys are
being traction in terms of client count, can we really expect that as going into the next year
or are things still a bit uncertain on that affair?
Upinder Zutshi
You are talking about the Mobility Business, right?
Sachit Khera
Right.
Upinder Zutshi
If you look at the Mobility Business, in terms of the client additions, we have close to 80
clients and most of those clients are for EMS, NetSfere and RCS. What we are projecting
from most of those clients, except for revenues that are being projected big are anywhere
from $10,000 USD to $100,000 USD to $200,000 USD per year as of now, except for couple
of clients, one of the client out of the 80 which is the large financial client, we expect a
revenue of about $ 3 Million USD from that client because that is matured. From another
client we expect about $ 600,000 USD revenue because that will mature soon as, the client
is in the 3rd year of engagement. To elaborate on the client engagement cycle, this is how it
would happen. First year we sign them with hardly at any revenue, next year we generate
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revenue anywhere from $10,000 - $ 200,000 USD and then third year and onwards either
they just stay at that level or they scale up to a million to two million dollars. What is
positive is that there is now a significant client base, if even 25% or 35% of those clients
scale up to the next level, which we hope that they would, then we will start seeing a
significant contribution to revenue and margin, more than the revenue the margin
contribution would be significant from these clients.
Sachit Khera
The margin expansion depends mostly on this business, right, on the mobility business?
Upinder Zutshi
This as well as other businesses, including Healthcare business. Healthcare business can
contribute positively on the margin but obviously the greatest margin driver for us is the
mobility business, there is no question about it.
Sachit Khera
As I understand now even though it is an uncertain environment but you do not see any
reason for the expansion not to happen gradually right, or are there certain bottlenecks still
which can be counted as on certain case?
Upinder Zutshi
No, this business has nothing to do with the political situation because this is a products
business which is a US Product for US business. Only uncertainty here is that whether the
product is good enough for these clients to scale it up, so it has nothing to do with what is
going on right now.
Moderator: Thank you. The next question is from the line of Avnish Prabhu, who is an
individual investor, please go ahead.
Avnish Prabhu
Sir, it has been a very good and fantastic quarter for our company as compared to previous
quarters, the cash has increased substantially around 45-50% per share that is something
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which is really very good on our compa y s pa t. I was just looking at certain places where
we buyback and delisting questions have been asked around and things have been moving
around, so just wanted to know do you have any ideas of delisting, any thoughts on that
ground?
Upinder Zutshi
We have already announced the buyback, and we are doing the buyback.
Avnish Prabhu
Right, you are doing the buyback, that is right but do you have any plans of delisting the
companies from these exchanges going forward in the near future or maybe some time
ahead?
Upinder Zutshi
Nothing to my knowledge.
Avnish Prabhu
So, you normally have two clients whose payment backlogs, I have been through one of
your conference calls before, couple of calls in fact, normally you have customers in US who
are paying, due to their financial year ending their payment tends to roll out over the next
quarter, that is for the JFM for us so has that happened this time as well?
Upinder Zutshi:
Not all, but most of that has come in the third quarter itself, it has not
spilled over.
Avnish Prabhu
There is no spill over? So any 20-25% at least must be spilled over or nothing.
Upinder Zutshi
There is always some money that gets spilled over but not a significant amount, so that is
the reason there is such a large cash contribution in Q3.
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Avnish Prabhu
Going forward, see for the next quarter can you give me some numbers like what we are
expecting in terms of revenue for the next quarter?
Upinder Zutshi
As I mentioned at the start that we should be able to achieve or exceed the lower end of the
guidance as far as revenue is concerned, I think you could probably do the math and work it
backwards, so that is what we are projecting. Instead of getting to specific numbers, I think
we will exceed the lower end of the guidance.
Avnish Prabhu
Sir another thing, the current margins are in the expected margins, I just missed out on that
part in the beginning when it was first being shared, I just wanted to know how we are
placed in terms of margins and are we looking at expanding it as well or like what?
Upinder Zutshi
In terms of this year is concerned, what I had mentioned earlier is that we should be able to
meet the lower end of the margin guidance in terms of what we had given. As far as margin
expansion in terms of the percentage to the revenue, we will probably end up at 10% this
year and our goal and expectation is that next year we should see an improvement on the
margin percentage as well. How much and from which areas we can expect, I think that is
something that we may be able to probably discuss on the next call.
Avnish Prabhu
Sir in terms of the investments in the properties and the cash at bank, this gentlemen who
spoke about this question has come before but however when this question comes across
along with the rewarding the investors in terms of dividend as you have also highlighted this
before that let us complete the buyback and then come to dividend, I just want to
understand things a little better because you are investing into properties that is good, so
we have something a strong asset build up for our company, you do not have any intention
of delisting as well that is good for my investor I would stay invested, in fact I would like to
quadruple my investments going forward but in this scenario I would like to understand
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more about the cash bank and the dividend paying policy because that is something what an
investor, I think even you as an investor would expect?
Upinder Zutshi
Absolutely, and that is why if you see the history of our company, in some shape and form,
we have always been returning our excess cash to the shareholders, we have done three
buybacks, this is the third buyback and we have been giving dividend in the past. Now the
goal is, unless we do not have cash, God forbid or we have some need for cash, the goal and
the intent is to return that cash or part of that cash to the shareholder. The only question is,
which is a better methodology of returning that cash to the shareholder. Is buyback a better
methodology or a dividend? So depending on which is the most tax effective and tax
efficient instrument, we will continue to use that or a combination of both to return value
back to the shareholder.
Avnish Prabhu
You are right, in terms of taxation policies and all those, seems a little complicated to me as
a layman, but if I would say look at it like you know being a cash and rewarding the
investors, buyback would reduce the equity of the company which would help you get some
better numbers on the balance sheet as a whole but towards the end of the day when an
investor looks and what is in his hand, is just something which is most all on the papers.
Upinder Zutshi
I mean just again as a caution, I think I am now crossing the line here because you know I
have to be very careful here. But if you look at a buyback through a tender route,
shareholder can participate, two things happen in this buyback; one is that your numbers
become better, your EPS becomes better and the shareholder by participating
proportionately as per their entitlement and if they participate they get money and their
proportionate holding in the company stays the same.
Avnish Prabhu
But what happens when normally an investor looks at investing in a company and you know
and a very good company like us, he looks at the EPS and the fee and the cash, book value
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and the stocks, everything and the future outlook of the company and then he anticipates
that he should get at least 15 PE to 20 PE which I am not asking you to speak anything about
the pricing, I understand about this but that is what an investor would normally expect, 15
PE to 20 PE so that is also and the dividend part also that is what on the whole is the spread.
Upinder Zutshi
I absolutely agree, I mean if you look at our EPS today, we have an EPS of Rs. 9.78 per
quarter, which is Rs. 10about Rs. 35 or so will be for the year I guess.
Avnish Prabhu
Absolutely.
Upinder Zutshi
Right? So even if you so calculate 10 PE or 12 PE, this is what we are talking about Rs. 400 to
Rs. 500 share value.
Avnish Prabhu
I was just looking on those things as well. So one more thing, the H1, B1 visa is very good for
us since 95% of the employees of the company are directly from the US and 5% from here,
so I think that again would be affected, we will be hiring again more over there only from
there?
Upinder Zutshi
I mean not withstanding what the political situation is going to be; that is our business
model. We continue, to do that work. We have done that in the past and we will continue
to do that because that is how we operate. Now it is a much higher cost structured model
but that is how we have always operated and we have grown, now whatever happens and
comes from the administration and if it is adverse, as I had mentioned earlier, it will have
some impact on us but it is not going to have that big an impact because we are not an H1
dependent company at all.
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Avnish Prabhu
So the margins are going to be 10% approximately this quarter you know the same January,
February, March for this quarter, last quarter by then we look to improve it going forward.
So I just want to understand like business you have the last buyback the stake is a 15%
buyback that you have placed. Sir is this one of the last buyback share I just try to anticipate
things? Is this going to be one of the last buybacks that the company would do or you have
planned to do another buyback soon?
Upinder Zutshi
No, as I mentioned that every year if there is extra cash in the company and we do not have
an immediate need of using that cash, we will see which is the most effective way of
returning that cash to the shareholder.
Avnish Prabhu
Sir I would definitely thank you for all the information that you have shared and being to an
extent you have been transparent also, I thank you and I would like to take a leave and
expect that some dividend would be rolled out very soon.
Upinder Zutshi
Thank you Sir, thank you very much.
Moderator
Thank you. Ladies and gentlemen that was the last question. I would now like to hand the
conference over to Mr. Anuj Sonpal from Valorem Advisors for closing comments.
Anuj Sonpal
Thank you Malika, I would like to thank all the participants on behalf of the management as
well as Valorem Advisors. If there are any further questions, please feel free to reach out to
us and we would be happy to help you, thank you.
Upinder Zutshi
Thank you Anuj.
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Moderator
Thank you very much members of the management. Ladies and gentlemen on behalf of
Infinite Computer Solutions India Limited, that concludes this conference call. Thank you for
joining us and you may now disconnect your lines.
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